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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10/A
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
eVentures Group, Inc.
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(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 75-2233445
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
One Evertrust Plaza, 8th Floor,
Jersey City, New Jersey 07302
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(Address of Principal Executive Offices) (Zip Code)
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201-200-5515
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Registrant's telephone number, including area code
Securities to be registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which
to be so Registered Each Class is to be Registered
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Common Stock
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Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.00002 per share
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(Title of Class)
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ITEM 1. BUSINESS
COMPANY OVERVIEW
eVentures Group, Inc., is an Internet communications holding company that
provides a range of services including voice, Internet, data, fax, e-mail and
video transmission through its consolidated subsidiaries and affiliated
companies. Our strategy is to develop and operate our majority-owned
subsidiaries, and to make acquisitions of and take strategic positions in other
Internet and communications companies that provide services and/or products that
complement our core businesses. Our strategy envisions and promotes
opportunities for synergistic business relationships among the Internet and
communications companies that we own or invest in.
We have generated increasing revenues from our core businesses over the
last three years. On a historical basis, after giving effect to our
reorganization, we generated net revenues and losses from operations during the
periods indicated in the table below:
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FISCAL YEARS ENDED JUNE 30, 6 MOS.
ENDED DEC. 31,
1997 1998 1999 1999
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<S> <C> <C> <C> <C>
Revenues $ 921,599 $ 1,713,403 $ 27,248,273 $ 22,661,838
Loss from Operations (375,707) (4,736,468) (3,614,442) (9,452,752)
</TABLE>
We had assets of $4.3 million, $15.7 million and $58.0 million as of June
30, 1998, June 30, 1999 and December 31, 1999, respectively.
We operate in one business segment, the provision of communications
services over a Convergence Network.
In connection with our reorganization, we acquired the common stock of
e.Volve Technology Group, Inc. owned by IEO Holdings Limited and Infinity
Investors Limited and the stock of AxisTel Communications, Inc. owned by IEO
Holdings Limited. We also acquired a minority interest in i2v2.com, Inc. owned
by IEO Holdings Limited. In addition, we acquired all of the shares of e.Volve
common stock not owned by IEO Holdings Limited and Infinity Investors Limited
and all of the shares of AxisTel stock not owned by IEO Holdings Limited. As a
result of our reorganization, Infinity Investors Limited, IEO Investments,
Limited and Infinity Emerging Subsidiary Limited (collectively, the "Infinity
Entities") owned 28,500,000 shares of our common stock, representing 66.7% of
the then outstanding shares of our common stock, and became our controlling
stockholders. The Infinity Entities are investment funds whose assets are
managed by HW Capital, L.P. and HW Partners, L.P. Barrett Wissman, our President
and Chief Executive Officer, is sole manager of HW Partners, which has
investment discretion over Infinity Investors Limited, and is a Co-Manager of HW
Capital, which has investment discretion over Infinity Emerging Subsidiary
Limited. Clark Hunt, one of our directors, is a Co-Manager of HW Capital.
As a result of our reorganization in September and October 1999, we became
a holding company with two wholly owned operating subsidiaries, e.Volve and
Axistel, and a 16% minority interest in i2v2.com, Inc. Through the acquisition
of e.Volve, we obtained a 50% interest in Innovative Calling Technologies, LLC.
Following our reorganization, we have made minority investments in three
additional companies, Fonbox Inc., Televant, Inc. and LC39 Venture Group LLC,
and we have agreed to acquire Internet Global Services, Inc. Because we are a
holding company, we rely on the business performance of our operating
subsidiaries. i2v2.com, Inc. does business under the name "PhoneFree.com",
Televant, Inc. does business under the name "Callrewards" and LC39 Venture
Group, LLC does business under the name "Launch Center 39". We will refer to
those businesses by those names throughout this Form 10/A.
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We were originally incorporated in 1987 as "Adina, Inc." We allowed our
corporate existence to lapse in February 1996 and were subsequently reinstated
as "eVentures Group, Inc." in August 1999.
OUR SUBSIDIARIES AND AFFILIATES
The following table lists, as of March 7, 2000, our consolidated
subsidiaries and affiliates:
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DATE OF PERCENTAGE
NAME INVESTMENT OWNERSHIP
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e.Volve June, 1998 through October, 1999 100.0%
AxisTel October, 1998 through September, 1999 100.0%
Innovative Calling Technologies April, 1999 50.0%
Fonbox November, 1999 8.0%
February, 2000 23.0%
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31.0%
Callrewards February,2000 30.0%
PhoneFree.com July, 1999 16.0%
Launch Center 39 January, 2000 2.1%
</TABLE>
Our wholly owned subsidiaries, e.Volve and AxisTel, operate a private
Convergence Network which consists of digital switching, routing, and signal
management equipment, as well as digital fiber optic cable lines. e.Volve and
AxisTel provide voice, Internet, data, fax, e-mail and video transmission
services to customers over our Convergence Network.
e.Volve
e.Volve was incorporated on June 26, 1996 as Orix Leasing, Inc. Orix Leasing
changed its name to Orix Global Communications, Inc. on March 20, 1997, to
e.Volution, Inc. on May 17, 1999 and to e.Volve Technology Group, Inc. on May
18, 1999. e.Volve has one operating subsidiary, e.Volve Technology Group de
Mexico, S.A. de C.V. (f/k/a Latin Gate de Mexico, S.A. de C.V.). Prior to our
reorganization, each of IEO Holdings Limited and Infinity Investors Limited
acquired shares of e.Volve common stock representing one-third of the
outstanding shares of e.Volve common stock and warrants to purchase 170 shares
of e.Volve common stock. The warrants were cancelled as part of the
reorganization. In addition, IEO Holdings Limited and Infinity Investors Limited
owned debentures issued by e.Volve in the aggregate amount of approximately $8.0
million. We acquired these debentures on September 22, 1999 and they were
reclassified as intercompany loans when we acquired the remaining 33.3% of
e.Volve from its other stockholders. Prior to our reorganization, all of the
equity interests in IEO Holdings Limited were owned by IEO Investments Limited
and Infinity Emerging Subsidiary Limited.
AxisTel
AxisTel was incorporated on August 25, 1998. Prior to our reorganization,
IEO Holdings Limited acquired (i) one Class B Convertible Share of AxisTel (ii)
a promissory note of AxisTel in the aggregate principal amount of $3.5 million
and (iii) a warrant to purchase 1,499 Class A Common Shares of AxisTel for $3.5
million. Immediately prior to our reorganization, IEO Holdings Limited
surrendered the promissory note as consideration for the exercise of the
warrant, and converted the Class B Convertible Share into a Class A Common
Share. As a result, immediately prior to our reorganization, IEO Holdings
Limited owned 1,500 Class A Common Shares of AxisTel, representing 50% of the
outstanding equity interest in AxisTel.
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Our network meets operating standards established for the Internet called
Internet Protocol ("IP"). In addition, our network incorporates Asynchronous
Transfer Mode ("ATM") technologies. We believe that ATM technologies have many
important benefits which reduce the cost and improve the quality of digital
communications. For example, ATM technology allows us to utilize bandwidth more
efficiently than circuit-switched technology because we can transmit multiple
streams of information simultaneously over a single circuit. We can also use ATM
technology to provide voice, video and data services over a single network
rather than having to build and operate separate networks for each service. ATM
technology, in conjunction with a private network, also provides quality voice
communication on par with that of top tier telecommunications carriers.
Our networks connect with the networks of telecommunications carriers,
government telecommunications authorities and businesses at POPs. The networks
can easily be expanded to serve increased traffic volumes. As of March 7, 2000,
we had network facilities and POPs in the following locations:
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Country City
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United States Jersey City, New Jersey
New York, New York (3 POPs)
Philadelphia, Pennsylvania
Alpharetta and Atlanta, Georgia
Boston and Cambridge, Massachusetts
Miami, Florida
Dallas, Texas
Kansas City, Kansas
Los Angeles, California
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<TABLE>
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Jamaica Montego Bay
Mexico Mexico City
India New Delhi
Syria Damascus
Sri Lanka Colombo
United Kingdom London
</TABLE>
Our customers can interconnect with our network through dedicated circuits
from their facilities to one of our POPs. Alternatively, our customers may elect
to co-locate and install equipment directly at our facilities in Jersey City,
Kansas City, Mexico City or Miami to eliminate the cost of back-hauling traffic
from their facilities to one of our enhanced POPs. We transmit voice, data,
Internet and fax traffic from the United States to countries around the world
through either our own networks or through connections with other
telecommunications carriers or Internet Service Providers ("ISP's"). During the
three months ended December 31, 1999, we transmitted approximately 141.3 million
minutes over our network.
Our networks consist of the following elements:
Points of Presence. POPs are the entrance points for communications traffic
over our network. At many of our POPs, we use our equipment to translate voice
to data for transmission and retrieval over our network, and provide IP, ATM,
and leased line data services. Our POPs are also gateways that are connected to
the public switched telephone network, Internet or network access points as well
as interconnection facilities to large telecommunications carriers, in order to
move traffic between our network and those other transmission facilities.
The POPs on our network are scaleable and flexible platforms designed for
interconnection with our network as well as networks of third parties. The
scalability of our gateways permits us to quickly increase capacity in discrete
increments at relatively low cost, either for a region or a customer. In
addition, the flexible architecture of our POPs is designed to easily integrate
and support the new services we intend to offer.
The Internet. We use the Internet to transmit some of our voice and fax
traffic and to deliver other value-added services, because of its global
coverage, rapid growth and flexible connectivity. By using the Internet, we
avoid having to extend our Convergence Network to areas that would not be
profitable. Also, our affiliate companies may use the Internet in conjunction
with our Convergence Network. However, until technology allows us to provide
guaranteed levels of service the Internet will remain a secondary means of
transmission for our network businesses.
OUR NETWORK SERVICES
Voice Services
We provide IP telephony and ATM voice services to our carrier, ISP and
retail customers. We offer global call completion services, and other
value-added services, that provide our customers with a cost-effective
alternative for voice and fax transport. Through the utilization of our voice
transport service, carriers and ISPs can leverage our network elements to their
advantage.
Data Services
International and Domestic Private Line Services. We offer point to point
services with a wide range of capacities, providing connections between
customers' locations based on customers' bandwidth needs. These can be monitored
and maintained by our network operations control center.
Hub Service. Hub service provides our customers the ability to aggregate and
distribute bandwidth. For customers who need to distribute circuits to multiple
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locations in a city or multiple locations, we can provide the connectivity
between our hub site and a customer's locations creating a simple manageable
networking solution.
Internet Access Services
Direct Access. We offer dedicated Internet services that meet the needs of
the smallest commercial user to the most sophisticated high bandwidth customers.
We provide a complete end-to-end solution, allowing the service implementation
process to be smooth and transparent to the end user.
Server Co-location Services
Server Co-location. Our gateway facilities offer complete environmentally
controlled areas for customers to house web servers. Options for server hosting
space include open racks, secured cabinets and caged secured areas. We work with
customers to find the solution that is right for their business.
OUR MARKETS AND CUSTOMERS
Our subsidiaries generally compete in the market for voice, Internet, data,
fax, e-mail and video transmission services. We compete against many providers
of these services, who are usually referred to as "carriers". Carriers are
usually classified by size into first, second and third tier. First tier
carriers generally have annual revenues in excess of $2 billion and include
certain government-affiliated monopolies. Second tier carriers have revenues
generally in the $750 million to $2 billion range, and have fewer direct
operating agreements with other carriers and fewer international facilities than
first tier carriers. Third tier carriers are typically switch-based resellers
with revenues of less than $750 million.
We provide services to all three tiers of carriers, who transmit voice,
Internet, data, fax, e-mail and video traffic through our POPs for completion
worldwide. For fiscal year 1999, 65% of our revenues came from Qwest, 18% from
RSL, and 16% from Star. During the six months ended December 31, 1999, Qwest
represented approximately 75% of our revenues. With the acquisition of AxisTel
in our reorganization, we acquired a more diversified customer base and we began
providing retail services to PhoneFree.com's users. As a result, during the
three months ended December 31, 1999, Qwest's portion of our total revenue
declined to approximately 60%, primarily because of the inclusion of revenue
from AxisTel's customers. No other customer accounted for more than 5% of our
revenues during either the six month or the three month periods ended December
31, 1999.
e.Volve and Qwest have entered into a Switched Services Agreement and a
Carrier Service Agreement for International Terminating Traffic. Under these
agreements, e.Volve provides switched interstate telecommunications services and
international outbound telecommunications services to Qwest. Our Switched
Services Agreement does not obligate Qwest to use our services, but permits
Qwest to use our services upon Qwest's periodic acceptance of our rates. Qwest
may choose not to use our services for a variety of reasons. Our Carrier Service
Agreement for International Terminating Traffic, which was entered into on
September 17, 1998, is for a one year term with automatic successive renewals
for one-year periods until termination by either party.
OUR SALES AND MARKETING STRATEGIES
Our sales efforts target leading telecommunications carriers and Internet
Service Providers both in the United States and overseas. Our sales personnel
have long-standing relationships in the telecommunications industry and are
frequently supplemented by senior members of management. In the United States,
we sell directly to carriers and have successfully developed brand awareness and
beneficial relationships through numerous channels including the Web, trade
shows, speaking engagements and joint marketing programs. The ability to provide
quality of service acceptable to leading carriers is a strong selling point for
us. These carriers have traffic that frequently exceeds their capacity and
compels them to seek alternative channels that offer comparable quality,
particularly where those channels can offer better pricing. Our sales process
often involves a test by our potential customers of our services with traffic to
a particular country. Our experience has been that once a carrier has begun to
use our network for a single country and has found our quality to be acceptable,
the sales process for other countries becomes easier.
In overseas markets, we seek to establish relationships with local service
providers that have the local market expertise to provide the termination
services we need. We believe that the opportunity we offer these companies to
terminate a substantial number of minutes makes us an attractive partner. Prime
candidates for overseas partners are carriers, call back companies, cellular,
PCS and paging companies and Internet service providers.
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Internet Global Services, Inc.
On March 7, 2000 we entered into an agreement to acquire approximately
5,970,000 shares of Internet Global Services, representing approximately 92.6%
of the issued and outstanding equity interests of Internet Global Services,
Inc., in exchange for approximately 2,588,000 shares of our common stock. Under
this agreement, following our purchase of the Internet Global Services shares,
Internet Global Services will merge with and into our wholly-owned subsidiary
IGS Acquisition Corporation, with Internet Global Services being the surviving
corporation. The per share consideration under the merger will be substantially
the same as the consideration paid under the agreement. This transaction remains
subject to customary closing conditions and we expect to close this transaction
during our third quarter.
Internet Global Services owns and operates a Convergence Network for the
distribution of communications-based products and services to include voice,
DSL, unified messaging, and Internet call waiting. Internet Global Services has
established Internet-enabled market channels for the introduction, sales and
customer support of these new products and services. Each market channel seeks
to leverage the channel participant's established consumer base thereby lowering
the cost of customer acquisition. Each product or service is co-branded with
Internet Global Service's brand name Telares(tm) and is marketed under a
revenue-sharing agreement.
Innovative Calling Technologies, LLC
On April, 19, 1999, e.Volve and Dataten Technologies formed Innovative
Calling Technologies, a Nevada limited liability company, with each party owning
50% of Innovative Calling Technologies. e.Volve and Dataten Technologies entered
into an agreement pursuant to which e.Volve agreed to fund the capital
requirements of Innovative Calling Technologies until Innovative Calling
Technologies is able to generate sufficient cash flow to fund its operations and
Dataten Technologies agreed to provide certain technology and personnel to
Innovative Calling Technologies. e.Volve's agreement to fund Innovative Calling
Technologies' capital requirements does not envision any minimum fundings and is
subject to e.Volve's discretion.
Innovative Calling Technologies is a provider of automated operator services
with emphasis on software development, billing solutions and network
applications for the Internet and voice telephony environment. Innovative
Calling Technologies focuses on the processing and billing of credit card, third
party, collect, prepaid and long distance calls over private networks and the
Internet. Innovative Calling Technologies provides its services primarily to the
tele-marketing, pay phone, call center and hotel industries. e.Volve entered
into this agreement to diversify its business and leverage e.Volve's
relationships in Mexico where we believed Dataten's automated operator
technology could lead to significant business opportunities in the call center
and hotel markets. During the six months ended December 31, 1999, Innovative
Calling Technologies had revenues of $1.1 million and a loss from operations of
$53,239.
The Company does not exercise majority control of the joint venture and thus
accounts for its investment pursuant to the equity method. Under the equity
method, we record our funding at cost and adjust the carrying amount of the
investment to recognize our share of the income or losses of Innovative Calling
Technologies' after the date of acquisition. During fiscal year 1999, we
invested $125,130 in Innovative Calling Technologies and recorded equity in loss
of affiliate of $33,776.
PhoneFree.com
In June 1999, we acquired 21% of the common stock of PhoneFree.com.
Subsequently, our ownership interest was diluted to 17% due to a sale of common
stock by PhoneFree.com in July of 1999 and was diluted further to 16% due to a
sale of common stock by PhoneFree.com in December of 1999.
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On March 3, 2000, we loaned $3.0 million to PhoneFree.com under a promissory
note dated March 2, 2000. The promissory note is due on September 1, 2000 and
bears interest at 7%. PhoneFree.com may repay this promissory note at any time,
subject to our right to convert it into PhoneFree.com common stock. We can
convert the promissory note into PhoneFree.com common stock:
(i) if PhoneFree.com raises equity capital from other investors on or
before August 31, 2000, in which case our conversion price will be
equal to 95% of the per share subscription or conversion price in
such equity capital raise; or
(ii) if PhoneFree.com does not raise equity capital from other
investors on or before August 31, 2000, we can convert the
promissory note on or after September 1, 2000, at a per share
conversion price that values all the common and preferred stock of
PhoneFree.com at $50.0 million.
In connection with the loans made under the promissory note, we also
received a four-year warrant to purchase 240,000 shares of PhoneFree.com at a
price equal to 110% of the conversion price of the promissory note. The warrant
may not be called by PhoneFree. If we include this warrant, but not the
promissory note, we would beneficially own approximately 18% of the outstanding
shares of common stock of PhoneFree.com.
PhoneFree.com develops and markets an IP telephony product and
operates a Website called PhoneFree.com at the Internet address
www.PhoneFree.com. The Phonefree software, which can be downloaded from the
Website, allows users to conduct "real-time" duplex voice conversations from PC
to PC and PC to phone. This software functions with normal multimedia PC
hardware over the Internet. PC to PC calls are free to users with ISP
connections, regardless of their duration and destination while PC to phone
service in the U.S. is generally available for a flat monthly fee.
Five of our directors are members of the ten-member board of directors of
PhoneFree.com, although we have a contractual right to appoint only one director
to PhoneFree.com's board.
Fonbox
On November 23, 1999, we acquired 500,000 shares of Series A preferred stock
of Fonbox, representing approximately 8.0% of the outstanding equity interests
of Fonbox, for $500,000. Pursuant to an option granted in connection with our
initial investment in Fonbox, on January 31, 2000, we purchased an additional
1,000,000 newly issued shares of Series A preferred stock of Fonbox for $1.0
million. In addition, in connection with our exercise of this option, we
acquired 350,000 shares of common stock of Fonbox from each of Spydre Zeta
L.L.C. and NetProvide Ltd. in exchange for an aggregate of 27,860 shares of our
common stock. As of February 29, 2000, the we own approximately 31% of the
capital stock of Fonbox.
Fonbox is a development stage company which offers Internet based
communications solutions for the Portuguese-speaking and Spanish-speaking market
in Latin America and abroad. They intend to exploit cross messaging, natural
language access, and phone-based Internet access technologies through their
Lineabox (www.lineabox.com), unified messaging product. Fonbox currently offers
Internet fax services in Miami and Sao Paolo, Brazil. Our chief executive
officer is a member of the board of directors of Fonbox.
Callrewards
On February 11, 2000, we acquired 750,000 shares of Series A-1 convertible
preferred stock of Callrewards for $750,000 which represents 30% of the
outstanding capital stock of Callrewards. Under our agreement with Callrewards,
we are obligated to purchase shares of Series A-2 convertible preferred stock of
Callrewards, which on the date of purchase will be convertible into 20% of the
ownership interest in Callrewards on a fully-diluted basis, for $1.0 million
when Callrewards has at least 100,000 active users. We are obligated to purchase
shares of Series A-3 convertible preferred stock of Callrewards, which on the
date of purchase will be convertible into 20% of Callrewards on a fully-diluted
basis, for $2.5 million when Callrewards has at least 250,000 active users.
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Callrewards owns and operates the Callrewards.com(TM) Website. Callrewards
is a development stage company that intends to derive revenues from advertising
and e-commerce transactions. Callrewards is integrating loyalty-based marketing
programs with advertising, all over a private Conveyance Network. Callrewards
intends to offer its users free long distance telephone calls straight from
their PC to a telephone anywhere in the world in exchange for agreeing to view
advertising and receive targeted e-mail.
Launch Center 39
On January 27, 2000, we acquired 100,000 Series A Preferred Units of
Launch Center 39, representing approximately 2.1% of the equity and voting
interests of Launch Center 39, for $1.0 million.
Launch Center 39 is a full service incubator which provides a series of
services for launching Internet and new media companies. These services include
a unique combination of funding, strategic advice and business development,
shared legal, financial and other professional services, shared infrastructure,
and partnerships for strategic recruiting. These services can be leveraged
across all the companies being serviced by Launch Center 39 in order to provide
substantial benefits and economies of scale for all early stages of growth. This
incubator model enables Launch Center 39 to rapidly validate entrepreneurial
ideas, create "instant companies," closely supervise the initial growth of these
companies, and graduate the businesses through a first round of external venture
financing. In return, Launch Center 39 obtains a significant equity stake in
these companies at an attractive valuation and has greater control over
continued funding than a traditional venture capital or angel fund.
OUR STRATEGY
Our strategy involves the following components:
o Develop and operate our existing majority owned Internet and
communications companies;
o Acquire, or take strategic minority positions in, other Internet and
communications companies; and
o Promote opportunities for synergistic business relationships among the
Internet and communications companies that we own or invest in.
This strategy is generally referred to as creating an "Econet." Our goal is
to become a leading communications "Econet." Our Econet strategy is focused on
three main "vertical" segments and two "horizontal" segments. Our strategy can
be graphically displayed as follows:
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[GRAPHIC OMITTED]
Our subsidiaries and affiliates may operate in multiple "vertical" or
"horizontal" spaces.
Networks
In the communications industry, the term "network" refers to an integrated
electronic system composed of switching equipment and transmission links
designed to provide transportation, direction and management of information for
specific media. The Internet is comprised of many interconnected networks which
use common approaches called "protocols" which define information coding,
software, routing and switching requirements to achieve interconnected data
transmission. We believe that the Internet has become a medium of
mass-communications because of its ability to transmit data between tens of
millions of end points, especially personal computers and office desk-top
computers. In a further phase of its development, software has been developed
which makes possible voice communications over the Internet, and the Internet
has become a rapidly growing medium of voice as well as data communication.
The public switched telephone network (the "PSTN") is a second example of a
network. The PSTN is comprised of the combination of switching, routing and
transmission equipment which provide conventional voice telecommunications
services. The PSTN offers levels of reliability, convenience and quality that
consumers and businesses expect when they make ordinary phone calls.
Both the Internet and the PSTN utilize digital transmission technologies.
We believe that there is a trend in the communications industry to integrate
the data transmission capabilities of the Internet with the quality and a
convenience associated with the PSTN. This trend is called convergence, and
network which can offer converged service is called a Convergence Network. We
utilize a Convergence Network because such a network can carry high volumes of
voice, data, and Internet traffic as well as video and fax traffic at low cost.
We believe that a Convergence Network also makes possible more effective
exchange of data and voice traffic between the Internet and the PSTN. We
believe that these advantages arise because of the high volume of digital
information that can be transmitted over a Convergence Network compared to
conventional Internet networks or the PSTN. In addition Convergence Networks
offer the potential elimination of duplicate networks for the consumer. We have
deployed a network which also incorporates Asynchronous Transfer Mode ("ATM")
technology which is designed to handle streams of digital information from a
wide range of media. (See the Glossary for a definition of ATM). As
transmission capacity, the Internet, and the PSTN expand, we believe that
Convergence Networks, such as ours, will play an increasingly important role in
communications as the best means of multi-media transmission. We believe that
Convergence Networks are central to our Econet strategy because our network
companies provide facilities and services that can be utilized by all of our
subsidiaries and affiliates.
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We consider Axistel, e.Volve, Fonbox and Callrewards to be network
businesses because they each own and operate Convergence Networks and provide
their customers with access to those Convergence Networks as part of their
service and product offerings.
Enabling Technologies
Enabling technologies are hardware and software products and
applications that facilitate communications services over the Internet and over
private Convergence Networks. We view the licensing, ownership and development
of enabling technologies as vital to our strategy because enabling technologies:
o enhance our ability to customize services to meet customer demands
and requirements;
o allow us to improve the speed and efficiency or our networks;
o provide new applications and products to our customers; and
o are a means to support all of our subsidiaries and affiliates.
Both PhoneFree.com and Innovative Calling Technologies provide enabling
technologies.
Network User Interfaces
Network user interface businesses provide us with the opportunity to
reach customers and offer them our services and products. We believe that
owning, developing and investing in companies that provide network user
interfaces will allow our subsidiaries and affiliates to:
o develop relationships with end-users;
o enhance our ability to bundle and cross-sell products and services;
and
o create customer loyalty.
PhoneFree.com, Fonbox and Callrewards all provide network user
interfaces. We intend to create alliances with these affiliates to provide our
communication services to customers, but have not done so to date.
Support Services and Accelerators
As part of our strategy, we may own or invest in companies that provide
support services to Internet and communications businesses. Support services may
include web design and consulting, ad serving or online marketing. We believe
that companies offering support services:
o enhance the ability of our other companies to organically grow their
operations and customer bases; and
o facilitate the development of products and services that enhance
customer experiences and loyalties.
As of March 7, 2000, we have not developed, acquired or invested in any
companies that provide support services.
We may also invest in "accelerators" or "incubators", which are
companies that provide various degrees of strategy, guidance, funding and
services to start-up businesses. We believe that accelerators and incubators can
provide us with the opportunity to invest indirectly in promising start-up
companies that we might not otherwise obtain. As of March 7, 2000, our only
investment in an accelerator or incubator is our investment in Launch Center 39.
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COMPETITION
We have several public and private competitors who have or are establishing
Econets. These competitors include CMGI, Inc., Internet Capital Group, Rare
Medium Group, idealab, eCompanies and Divine Interventures. To date only
CMGI has announced plans to directly enter the communications field, through a
strategic alliance with Pacific Century Cyberworks and through a new investment
fund called @Ventures Technology Fund. We also face competition for new
acquisitions and investments from hundreds of venture capital and private equity
funds. While it is difficult to generalize competitive factors in this market,
we believe that we compete on the following factors:
o acquisition price or valuation;
o perceived value of having our company as an investor;
o ability to close transactions quickly; and
o reputation of our principals.
Many of our competitors have significantly greater capital resources and
human resources than we do which may allow them to analyze and effect more
transactions then we can. Our competitors generally have longer operating
histories and well known reputations, which could give them an advantage in
terms of developing more promising acquisition and investment opportunities and
persuading sellers of businesses or entrepreneurs to choose them over us in a
competitive situation. While we feel that we currently have a "first-mover"
advantage in assembling a publicly-traded communications Econet, we may not be
able to maintain that advantage for very long.
Our subsidiaries and affiliates generally compete in markets that are new,
intensely competitive, highly fragmented and rapidly changing, primarily on the
basis of the following factors:
o breadth of geographic presence;
o ease of integration;
o ability to offer turnkey solutions;
o price;
o performance;
o flexibility;
o customer service;
o scalability;
o reliability; and
o network quality and capacity.
There are low barriers to entry to new or existing businesses seeking to
offer IP telephony or other services over Convergence Networks. As a
result, our business environment is intensely competitive, highly fragmented and
rapidly changing. Competition can come from many sources and may be focused on
different segments of our business.
The market for voice, Internet, data, fax, e-mail and video services is
highly competitive. We face competition from a variety of sources, including
domestic and international carriers, large ISPs, and Internet companies such as
AOL, with more resources, longer operating histories and more established
positions in the Internet and communications marketplace. We also compete with
small companies who have focused primarily on IP telephony. A number of these
competitors may merge or form strategic partnerships. As a result, certain of
these competitors may be able to offer, or bring to market earlier, products or
services that are superior to our own in terms of features, quality, pricing or
other factors. Our failure to compete successfully in any of the markets in
which we compete could have a material adverse effect on our business,
prospects, results of operations or financial condition or on the price of our
common stock. We also expect that the ability to offer enhanced service
capabilities, including new services, will become an increasingly important
competitive factor in the near future.
Telecommunications Companies and Long Distance Providers
Large carriers around the world, such as British Telecom and Deutsche
Telecom, have started to deploy packet-switched networks for voice and fax
traffic. These carriers have substantial resources and have large budgets
available for research and development. In addition, several companies, many
with significant resources, such as MCI Worldcom, Level 3 and Qwest
Communications, are building fiber optic networks, primarily in the United
States, for IP telephony traffic. These networks can be expected to carry
voice and fax and these newer companies may expand into international markets.
Internet Telephony Service Providers
A number of companies have started IP telephony operations in last few
years. AT&T Clearinghouse, GRIC Communications and IXC Communications sell
international voice and fax over the Internet and compete directly with us.
Other IP telephony companies, including Net2Phone, deltathree.com, and
PhoneFree.com are currently focusing on the retail market and personal
computer-based IP telephony, but may compete with us in the future.
Although we own approximately 16% of the outstanding capital stock of
PhoneFree.com, we do not have any significant control over PhoneFree.com and
have not entered into a non-competition agreement with PhoneFree.com. While we
may compete with PhoneFree.com, PhoneFree.com does not own or operate its own
networks, nor does it provide services to carriers. We believe that our
ownership position in PhoneFree.com may provide us with opportunities to provide
services to PhoneFree.com, such as call completion, customer management and
network traffic management.
GOVERNMENT REGULATION
Regulation of Internet Telephony
UNITED STATES GOVERNMENT REGULATION OF THE INTERNET AND INTERNET TELEPHONY.
We believe that under United States law the Internet-related services that we
provide constitute information services, rather than telecommunications
services. As such, our services are not currently regulated by the Federal
Communications Commission or state agencies responsible for regulating
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telecommunications carriers (although aspects of our operations may be subject
to state or federal regulation such as regulations governing universal service
funding, confidentiality of communications, copyright, and excise taxes).
However, several efforts have been made to enact federal legislation that would
either regulate or exempt from regulation services provided over the Internet.
Therefore, we cannot be sure that Internet-related services such as ours will
not be regulated in the future. Increased regulation of the Internet may slow
its growth by negatively impacting the cost of doing business over the Internet.
This would materially adversely affect our business, financial condition and
results of operations.
We also cannot be sure that IP telephony will continue to be lightly
regulated by the FCC and state regulatory agencies. Although the FCC has
determined that, at present, information service providers, including IP
telephony providers, are not telecommunications carriers; however, we cannot be
certain that this position will continue. On April 10, 1998, the FCC issued its
report to Congress concerning the implementation of the universal service
provisions of the Telecommunications Act. In the report, the FCC indicated that
it would examine the question of whether certain forms of phone-to-phone IP
telephony are information services or telecommunications services. The FCC noted
that it did not have, as of the date of the report, an adequate record on which
to make a definitive pronouncement, but that the record suggested that certain
forms of phone-to-phone IP telephony appear to have the same functionality as
non-Internet telecommunications services and lack the characteristics that would
render them information services. If the FCC were to determine that certain
services are subject to FCC regulation as telecommunications services, the FCC
may require providers of IP telephony services to make universal service
contributions, pay access charges or be subject to traditional common carrier
regulation. It is also possible that PC-to-phone and phone-to-phone services may
be regulated by the FCC differently. In addition, the FCC sets the access
charges on traditional telephony traffic and if it reduces these access charges,
the cost of traditional long distance telephone calls will probably be lowered,
thereby decreasing our competitive pricing advantage.
Changes in the legal and regulatory environment relating to the Internet
connectivity market, including regulatory changes which affect
telecommunications costs or that may increase the likelihood of competition from
the regional Bell operating companies or other telecommunications companies,
could increase our costs of providing service. For example, the FCC recently has
determined that subscriber calls to Internet service providers should be
classified for jurisdictional purposes as interstate calls. This determination
could affect a telephone carrier's costs for provision of service to these
providers by eliminating the payment of reciprocal compensation to carriers
terminating calls to these providers. The FCC has pending a proceeding to
encourage the development of cost-based compensation mechanisms for the
termination of calls to Internet service providers. Meanwhile, state agencies
will determine whether carriers receive reciprocal compensation for these calls.
If new compensation mechanisms increase the costs to carriers of terminating
calls to Internet service providers or if states eliminate reciprocal
compensation payments, the affected carriers could increase the price of service
to Internet service providers to compensate, which could raise the cost of
Internet access to consumers.
In addition, although the FCC to date has determined that providers of
Internet services should not be required to pay interstate access charges, this
decision may be reconsidered in the future. This decision could occur if the FCC
determines that the services provided are basic interstate telecommunications
services and no longer subject to the exemption from access charges that are
currently enjoyed by providers of enhanced services. Access charges are assessed
by local telephone companies to long-distance companies for the use of the local
telephone network to originate and terminate long- distance calls, generally on
a per minute basis. The FCC has stated publicly that it would be inclined to
hold the provision of phone-to-phone Internet protocol telephony to be a basic
telecommunications service and therefore subject to access charges and universal
service contribution requirements. In a Notice of Inquiry released September 29,
1999, the FCC again asked for comments on the regulatory status of IP telephony.
Specifically, the FCC asked commentators to address whether IP telephony service
generally, and phone-to-phone service in particular, may be regulated as a basic
telecommunications service. If the FCC concludes that any or all IP telephony
should be regulated as basic communications service, it eventually could require
that IP telephony providers must contribute to universal service funds and pay
access charges to local telephone companies. The imposition of access charges or
universal service contributions would substantially increase our costs of
serving Internet access customers.
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INTERNATIONAL GOVERNMENT REGULATION OF THE INTERNET AND INTERNET TELEPHONY.
We provide our services in various countries in Europe, Asia, Latin America, and
the Middle East. The regulatory treatment of Internet and other communications
services in these countries varies widely and is subject to constant change.
Some countries currently impose little or no regulation on IP telephony,
as in the United States. Conversely, other countries that prohibit or limit
competition for traditional voice telephony services generally do not permit
IP telephony or strictly limit the terms under which it may be provided.
Still other countries regulate IP telephony like traditional voice
telephony services or determine on a case-by-case basis whether to regulate
IP telephony as a voice service or as another telecommunications service.
Finally, in many countries, IP telephony has not been addressed by
legislation or the regulatory authorities. The varying and constantly changing
regulation of IP telephony in the countries in which we currently provide
or may provide services may materially adversely affect our business, financial
condition and results of operations.
We provide our services in other countries in which the regulatory status of
IP telephony is unclear or in the process of development, and in countries in
which regulatory processes are not as transparent as in the United States.
Changes in the regulatory regimes of these countries that have the effect of
limiting or prohibiting IP telephony, or that impose new or additional
regulatory requirements on providers of such services, may result in our being
unable to provide service to one or more countries in which we currently
operate. That result could materially adversely affect our business, financial
condition and results of operations.
In addition, as we expand into additional foreign countries, such countries
may assert that we are required to qualify to do business in the particular
foreign country, that we are otherwise subject to regulation or that we are
prohibited from conducting our business in that country. Our failure to qualify
as a foreign corporation in a jurisdiction in which we are required to do so, or
to comply with foreign laws and regulations, would materially adversely affect
our business, financial condition and results of operations, including by
subjecting us to taxes and penalties and/or by precluding us from, or limiting
us in, enforcing contracts in such jurisdictions. Likewise, our customers may be
or become subject to requirements to qualify to do business in a particular
foreign country, to otherwise comply with regulations, or to cease from
conducting business in that country. We cannot be certain that our customers are
currently in compliance with regulatory or other legal requirements in their
respective countries, that they will be able to comply with existing or future
requirements, and/or that they will continue in compliance with any
requirements. The failure of our customers to comply with these requirements
could materially adversely affect our business, financial conditions and results
of operations.
Regulation of the Internet
Congress has recently adopted legislation that regulates certain aspects of
the Internet, including online content, user privacy, taxation, access charges,
liability for third-party activities and jurisdiction. In addition, a number of
initiatives pending in Congress and state legislatures would prohibit or
restrict advertising or sale of certain products and services on the Internet,
which may have the effect of raising the cost of doing business on the Internet
generally. The European Union has also enacted several directives relating to
the Internet, one of which addresses online commerce. In addition, federal,
state, local and foreign governmental organizations are considering other
legislative and regulatory proposals that would regulate the Internet. Increased
regulation of the Internet may decrease its growth, which may negatively impact
the cost of doing business via the Internet or otherwise materially adversely
affect our business, results of operations and financial condition.
The Federal Trade Commission (the "FTC") has adopted regulations regarding
the collection and use of personal identifying information obtained from minors
when accessing Websites, and may adopt additional online privacy regulations.
These regulations may include requirements that companies establish certain
procedures to disclose and notify users of privacy and security policies, obtain
consent from users for certain collection and use of information and to provide
users with the ability to access, correct and delete personal
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<PAGE> 15
information stored by the company. These regulations may also include
enforcement and redress provisions. There can be no assurance that we will adopt
policies that conform with any regulations adopted by the FTC. Moreover, even in
the absence of those regulations, the FTC has begun investigations into the
privacy practices of companies that collect information on the Internet. One
investigation resulted in a consent decree pursuant to which an Internet company
agreed to establish programs to implement the principles noted above. We may
become subject to a similar investigation, or the FTC's regulatory and
enforcement efforts may adversely affect the ability to collect demographic and
personal information from users, which could have an adverse effect on our
ability to provide highly targeted opportunities for advertisers and electronic
commerce marketers. Any of these developments would materially adversely affect
our business, results of operations and financial condition.
The European Union has adopted a directive that imposes restrictions on the
collection and use of personal data. Under the directive, citizens of the
European Union are guaranteed rights to access their data, rights to know where
the data originated, rights to have inaccurate data rectified, rights to
recourse in the event of unlawful processing and rights to withhold permission
to use their data for direct marketing. The directive could, among other things,
affect United States companies that collect information over the Internet from
individuals in European Union member countries, and may impose restrictions that
are more stringent than current Internet privacy standards in the United States.
In particular, companies with offices located in European Union countries will
not be allowed to send personal information to countries that do not maintain
adequate standards of privacy. The directive does not, however, define what
standards of privacy are adequate. As a result, the directive may adversely
affect the activities of entities such as us that engage in data collection from
users in European Union member countries.
INTELLECTUAL PROPERTY
We regard our copyrights, service marks, trademarks, trade dress, trade
secrets and similar intellectual property as critical to our success, and we
rely on trademark and copyright law, trade secret protection and confidentiality
and/or license agreements with our employees, customers, partners and others to
protect our proprietary rights. We pursue the registration of our trademarks and
service marks in the United States and have applied for the registration of
certain of our trademarks and service marks. AxisTel has applied for
registration of the names "AxisTel" and "Global Telephony Xchange Service", but
has not completed the registration process. However, we have never filed any
application to protect the name "eVentures" and do not currently have any
patents or other material intellectual property. Additionally, the name
"eVentures" is generic in nature and we may not be able to protect it. We do not
own the domain name eVentures.com, which is being used by a business that is
soliciting business plans, capital and advisors for start-up companies. We have
notified that company of the potential confusion and we intend to attempt to
fully enforce whatever rights we may have to protect our name.
EMPLOYEES
As of March 7, 2000, we had 35 full-time employees and one part-time
employee. We also employ a limited number of independent contractors and
temporary employees on a periodic basis. Our employees are not represented by a
labor union and we consider our labor relations to be good.
THE REORGANIZATION TRANSACTIONS
Prior to September 22, 1999:
Mick Y. Wettreich, our then controlling shareholder owned 10,145,830 shares
of our common stock, representing approximately 98.3% of our outstanding
common stock;
Each of IEO Holdings Limited and Infinity Investors Limited owned (i) 1,200
shares of common stock of e.Volve, representing one-third of the outstanding
common stock of e.Volve, (ii) a 50% interest in e.Volve debentures in an
aggregate principal amount of $8.0 million and (iii) a warrant to purchase
170 shares of e.Volve common stock;
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IEO Holdings Limited owned (i) one Class B Convertible Share of AxisTel,
(ii) a promissory note of AxisTel in the aggregate principal amount of $3.5
million and (iii) a warrant to purchase 1,499 Class A Common Shares of
AxisTel for $3.5 million. Immediately prior to our reorganization, IEO
Holdings Limited surrendered the promissory note as consideration for the
exercise of the warrant, and converted the Class B Convertible Share into a
Class A Common Share. As a result, immediately prior to our reorganization,
IEO Holdings Limited owned 1,500 Class A Common Shares of AxisTel,
representing 50% of the outstanding equity interest in AxisTel;
IEO Holdings Limited owned 1,832,880 shares of common stock of
PhoneFree.com, representing approximately 17% of the outstanding equity
interest in PhoneFree.com;
IEO Investments Limited and Infinity Emerging Subsidiary Limited owned all
of the equity interests of IEO Holdings Limited;
the remaining shares of e.Volve and AxisTel were held by persons and
entities unrelated to Mick Y. Wettreich or the Infinity Entities; and
none of the Infinity Entities owned any shares of our common stock.
See the chart below for a description of our ownership structure on
September 22, 1999, immediately prior to the reorganization.
[CHART]
In September and October 1999, we consummated our reorganization pursuant to
the terms of an Agreement and Plan of Reorganization dated September 22, 1999
and an Agreement and Plan of Exchange dated as of October 19, 1999. In
connection with our reorganization, the following transactions occurred:
Infinity Investors Limited, IEO Investments Limited and Infinity Emerging
Subsidiary Limited purchased 2,317,193 shares, 3,422,552 shares and 2,515,255
shares, respectively, of our common stock, from Mick Y. Wettreich for at a
purchase price of approximately $0.02353 per share or an aggregate of
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$194,235. In addition, the former President of e.Volve, Steve Loglisci, the
Chief Financial Officer of e.Volve, Trevor Huffard, and one of the executive
officers appointed as part of our reorganization, Stuart Chasanoff, purchased
150,000 shares, 50,000 shares and 45,000 shares, respectively, of our common
stock from Mick Y. Wettreich on the same terms and conditions.
IEO Holdings Limited merged with and into eVentures Holdings, L.L.C. We
issued as merger consideration to IEO Investments Limited and Infinity Emerging
Subsidiary Limited, the two shareholders of IEO Holdings Limited, 8,393,648 and
6,168,545 shares of our common stock, respectively.
We issued 5,682,807 shares of our common stock to Infinity Investors Limited
in exchange for its contribution to eVentures of its shares of e.Volve common
stock, its warrant to purchase shares of e.Volve common stock and its interest
in the e.Volve debentures to eVentures.
We issued an aggregate of 6,381,000 shares of our common stock to the
shareholders of AxisTel, other than IEO Holdings Limited, in exchange for their
contribution to eVentures of their stock in AxisTel.
We issued an aggregate of 5,831,253 shares of our common stock to the
shareholders of e.Volve, other than IEO Holdings Limited and Infinity Investors
Limited, in exchange for their contribution to eVentures of their e.Volve common
stock.
We determined the number of shares to be issued to each participant in the
reorganization after consideration of the relative values of each of the
entities involved and arm's-length negotiations with the shareholders of e.Volve
and AxisTel (other than the Infinity Entities).
Our decision to effect the reorganization was based on the following
factors:
o We believed that we could create the first publicly-traded company
with a strategy of creating a communications Econet;
o We believed that effecting the reorganization could enhance our
ability to raise capital and broaden the base of our potential
investors; and
o We believed that our investors would be best served by combining
with AxisTel and e.Volve and acquiring an interest in PhoneFree.com
through the reorganization.
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See the chart below for a description of our ownership structure following
the completion of our reorganization.
[CHART]
As a result of our reorganization, we own all of the issued and outstanding
equity interests in e.Volve and AxisTel, and, after giving effect to recent
dilution, own approximately 16% of the outstanding shares of PhoneFree.com. In
connection with our reorganization, all of the warrants to purchase shares of
e.Volve common stock owned by IEO Holdings Limited and Infinity Investors
Limited were canceled and the e.Volve debentures were recharacterized as
intercompany indebtedness.
Following our reorganization, the Infinity Entities owned an aggregate of
28,500,000 shares of our common stock, representing 64.1% of the then
outstanding shares of our common stock, and became our controlling stockholders,
and Mick Y. Wettreich owned 1,645,830 shares of our common stock, representing
approximately 3.6% of our then outstanding common stock. Infinity Investors
Limited also purchased 500,000 shares of our common stock in a private placement
of our common stock on September 28, 1999.
As of March 7, 2000, the Infinity Entities owned an aggregate of 29,000,000
shares of our outstanding common stock, representing approximately 61.4% of our
outstanding shares of common stock.
Upon the consummation of our reorganization, Daniel L. Wettreich, Mick Y.
Wettreich's brother, resigned as our sole director and the Infinity Entities
appointed Messrs. Fred A. Vierra, Clark K. Hunt, Olaf Guerrand-
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Hermes, Mark R. Graham and Barrett N. Wissman to serve on our board of
directors. Information about these individuals appears on pages 41 through 43
of this Form 10/A. Also, Daniel L. Wettreich resigned as our president, and the
following persons were appointed as our officers:
<TABLE>
<S> <C>
Fred Vierra -Chairman of the Board
Barrett N. Wissman -President and Chief Executive Officer
Stuart Chasanoff -Vice President of Business Development,
General Counsel and Secretary
John Stevens Robling, Jr. -Vice President and Chief Financial Officer
Samuel Litwin -Managing Director of Communications Holdings
Mitchell Arthur -Managing Director of Communications Holdings
</TABLE>
Information about these persons appears on pages 43 and 44 of this Form
10/A.
RISK FACTORS
Investors considering acquiring shares of our common stock should consider
carefully risks associated with our forward-looking statements, as well as the
following investment considerations.
Cautionary Statement Concerning Forward-Looking Statements
We have made forward-looking statements in this Form 10/A that are subject
to risks and uncertainties. These statements generally include the words
"believe," "expect," "anticipate," "intend," "estimate" or similar expressions.
These statements reflect our current views with respect to future events that
are subject to certain risks, uncertainties and assumptions, including without
limitation any statements regarding the following: market opportunities,
strategies, competition, expected activities, additional financing, strategic
alliances and projected expenditures. If one or more of these risks or
uncertainties materialize, or should our assumptions prove incorrect, actual
results may vary materially from those described in this Form 10/A. We cannot
assure our investors that the anticipated results will occur, that these
judgments or assumptions will prove correct or that unforeseen developments will
not occur.
RISK FACTORS RELATING TO OUR COMPANY
We Have Never Made A Profit And May Never Generate A Profit
We have incurred operating losses of $3.6 million and $9.5 million for the
fiscal year ended June 30, 1999 and the six months ended December 31, 1999,
respectively, and had an accumulated deficit of $19.3 million as of December 31,
1999. We may continue to incur operating losses in the future while we expand
and build our business. If these operating losses continue, we may not have
enough money to grow our business or execute our strategy.
We Have A Limited Operating History
Although we have been in existence since 1987, our business operations were
immaterial before our reorganization. We have had no material assets or
operations, except for the interests in AxisTel, e.Volve, Innovative Calling
Technologies and PhoneFree.com obtained in the reorganization, the November 1999
and January 2000 investments in Fonbox, the January 2000 investment in Launch
Center 39 and the February 2000 investment in Callrewards. All of these
companies were recently formed and have limited operating histories.
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Our Success Depends On Our Implementation Of An Unproven Business Model
Our Econet strategy is a relatively new and unproven strategy. We may not be
able to accurately predict the effects of synergies among our subsidiaries and
affiliates, and we may not be able to maximize the synergies that do exist.
Creating an Econet can be difficult because our degree of influence over the
businesses of wholly or majority owned subsidiaries is much stronger than our
influence over affiliates that are not majority owned, and we may not be able to
structure appropriate strategic relationships due to this potential conflict of
interest. Furthermore, our network business is based primarily on our ability to
provide services to other communications providers. If we cannot implement those
relationships, we will have to develop other distribution channels for our
services, which could prove difficult or impossible.
We Depend On Two Suppliers And One Principal Customer
We depend on a select group of suppliers and customers. If we cannot
maintain these relationships on favorable terms, or if these relationships
terminate, we would have to enter into new relationships. We may not be able to
replace any of our suppliers or customers on reasonable terms, if at all. Our
customers may discontinue their use of our services at any time, and without
notice. Therefore, in any given quarter, we would lose a significant amount of
revenue if we lost a major customer. For example, since a majority of our
business is dependent on Qwest, we would suffer adverse financial consequences
should we lose our business with Qwest. If we cannot replace these important
relationships, we could lose business, which may adversely affect our revenues.
Even if we replace any relationships or enters into new relationships, we may
incur increased costs in order to pay for these relationships.
These other parties may not regard their relationship with us as important
to their business. Therefore, they could elect to terminate their relationship
with us in the future or develop competitive services.
We Will Not Control Some Of The Companies In Which We Invest
We hold approximately 16% of the outstanding stock of PhoneFree.com, 31% of
the outstanding equity interests in Fonbox, 30% of Callrewards, 50% of
Innovative Calling Technologies and 2% of Launch Center 39. We do not control
the management or policies of these companies. Although we have representation
on the board of directors of PhoneFree.com, Fonbox, Innovative Calling
Technologies and Callrewards, no assurance can be given that our representatives
will be able to influence their future directions in a manner which results in
increased value to us through achieving operating synergies or from our minority
ownership interests.
We May Not Be Able To Obtain Financing For Our Capital Needs
Unless we are able to generate cash from operations or raise capital from
outside investors, we may exhaust our existing cash resources for capital
expenditures, investments and working capital within twelve months. Even if we
do generate cash from operations and/or raise additional capital, we may not
have enough money to continue operations, primarily because, due to our limited
operating history and the nature of the Internet industry, our future capital
needs are difficult to predict. In any event, we may require additional capital
to fund any of the following:
o continued operating losses;
o sales, marketing and advertising;
o maintenance and expansion;
o research and development;
o unanticipated opportunities;
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o strategic investments; and
o strategic alliances.
We cannot assure our investors that adequate levels of additional financing
will be available at all or on acceptable terms. Any additional financing could
involve the issuance of securities with rights superior to those of our common
stockholders. The issuance of additional securities could also result in
significant dilution to our existing stockholders. If we are unable to raise
additional capital, our growth and development could be impeded. If we do not
have sufficient capital, we may not be able to take advantage of growth
opportunities, respond to competitive pressures or pursue our business strategy.
We May Not Have Opportunities To Acquire Interests In Additional Companies
We may be unable to identify companies that complement our strategy, and
even if we identify a company that complements our strategy, we may be unable to
acquire an interest in the company for many reasons, including:
o a failure to agree on the terms of the acquisition, such as, the amount
or price of our acquired interest;
o incompatibility between us and management of the company;
o a lack of capital to acquire an interest in the company; and
o the unwillingness of the company to partner with us.
If we cannot acquire interests in attractive companies, our strategy to
build a collaborative network of partner companies may not succeed.
Our Success Depends On Our Management Of Growth And Our Integration Of The
Businesses We Acquire
We are in essence a new company formed by the combination of two separate
and distinct businesses with separate and distinct management teams: AxisTel and
e.Volve. We are faced with significant integration issues with respect to these
businesses and their management teams. We may not be successful in integrating
these management teams, and we may not be able to hire and retain the quality of
personnel we need to sustain our business. To the extent that we continue to
grow internally or through strategic alliances, we will be faced with many
risks, including risks associated with the establishment of new operations,
Websites and personnel; the diversion of resources from our existing businesses;
and our management's ability to manage increased traffic on our networks.
The reorganization has resulted in significant growth of our operations.
This growth has and will continue to place a significant strain on our
managerial, operational and financial resources. This strain will only increase
as we continue to implement our strategy of creating a communications Econet. To
manage this growth, we will be required to implement and improve our operating
and financial systems and controls, and to expand, train and manage our employee
base. We will be dependent upon our management to assume and perform the
management functions formerly performed by management of each of the parties to
the reorganization. To the extent that our management is unable to assume or
perform these combined duties, our business, results of operations and financial
condition could be adversely affected. There can be no assurance that the
management, systems and controls currently in place or any steps taken to
improve such management, systems and controls will be adequate in the future. In
addition, the integration of the acquired entities and their operations will
require our management to make and implement a number of strategic and
operational decisions. The timing and manner of the implementation of these
decisions will materially impact our business operations.
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RISK FACTORS RELATED TO OUR INDUSTRY
Our Business May Be Impeded By Proposed Governmental Regulations Regarding The
Internet
The legal and regulatory environment that pertains to the Internet is
uncertain and is changing rapidly as the use of the Internet increases. For
example, in the United States, the FCC is considering whether to impose
surcharges or additional regulations upon certain providers of IP telephony.
In addition, regulatory treatment of Internet telephony outside the United
States varies from country to country. There can be no assurance that there will
not be interruptions in Internet telephony in these and other foreign countries
or that we will be able to return to the level of service we had in each of
these countries prior to any interruptions. To the extent we are unable to
provide a global network, we may be unable to provide critical services to our
customers and to our subsidiaries and affiliates. Failure to provide these
services could negatively affect our revenue and our ability to execute our
business strategy.
New regulations could increase our costs of doing business and prevent us
from delivering our products and services over the Internet, which could
adversely effect our customer base and our revenue. The growth of the Internet
may also be significantly slowed. This could delay growth in demand for our
products and services and limit the growth of our revenue. In addition to new
regulations being adopted, existing laws may be applied to the Internet. See
"Business - Government Regulation." New and existing laws may cover issues that
include:
o sales and other taxes;
o access charges;
o user privacy;
o pricing controls;
o characteristics and quality of products and services;
o consumer protection;
o contributions to the universal service fund, an FCC-administered fund
for the support of local telephone service in rural and high cost areas;
o cross-border commerce;
o copyright, trademark and patent infringement; and
o other claims based on the nature and content of Internet materials.
We Must Recruit And Retain Key Management And Technical Personnel To Be
Competitive
Our success depends to a significant extent on the continued contributions,
experience and knowledge of our senior management team and key technical and
marketing personnel. Our success also depends upon our ability to identify,
attract, hire, train, retain and motivate highly skilled technical, managerial,
sales and marketing personnel both at the holding company and for our
subsidiaries. Competition for these types of personnel is intense. No assurance
can be given that we will be able to successfully attract, assimilate or retain
a sufficient number of qualified personnel. If we cannot attract and retain
these key personnel, we may not be able to effectively operate our business or
oversee our investments, which could impair our ability to create value for our
stockholders and other investors.
-22-
<PAGE> 23
We Must Successfully Adapt To Evolving Technology Trends And Industry Standards
Our success, in part, depends upon our ability to develop and provide new
services that meet customers' changing requirements. The Internet service
industry has been characterized by significant technological changes, frequent
new system and product enhancements, evolving industry standards and changes in
customer needs that have had and will continue to have a significant impact on
the industry and industry participants. While the communications industry has
moved at a relatively moderate pace, we believe that most carriers are adopting
new technologies and that the communications industry will take on
characteristics similar to the Internet service industry in the near future. New
technologies and standards could render existing systems obsolete and ultimately
result in lost revenues. Our future success will depend, in part, on our ability
to effectively use leading technologies, continue to develop our technological
expertise, enhance our current and planned services, develop and implement new
services that meet changing customer needs, anticipate changes and influence and
respond to emerging industry standards and other technological changes on a
timely and cost effective basis. No assurance can be made that we will keep pace
with ever changing technological trends and evolving industry standards.
We Must Successfully Adapt To The Evolution Of Our Market
The market for Internet-based products and services has only recently begun
to develop. This market is rapidly evolving and is speculative in nature. Our
market is typical for a new and rapidly evolving industry, and demand and market
acceptance for our services are subject to a high level of uncertainty and risk.
Our business prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in the new and rapidly evolving
market for Internet-based products and services. Some of the risks include our
ability to design, build, operate and expand our communication networks; create
awareness of our brand, products and services; obtain strategic relationships
and alliances; effectively compete with existing and unforeseen competitors; and
develop products and services to meet the evolving needs of our customers.
We Must Successfully Counter Strong Competition From Anticipated And Unforeseen
Competitors
We believe that the primary competitive factors in providing communication
products and services via the Internet include name recognition, variety of
value-added products and services, ease of use, pricing, quality of service,
availability of customer support, reliability, technical expertise and
experience. Our success will depend upon our ability to provide quality,
reliable communications services to our customers, along with cutting-edge
technology and value-added Internet products and services. Our failure to
compete successfully could have a material adverse effect on our business,
results of operations and financial condition. Many of our potential competitors
in the Internet and communication businesses have longer operating histories,
significantly greater financial, technical and marketing resources, greater name
recognition and larger existing customer bases than we do. These competitors may
be able to respond more quickly to new or emerging technologies and changes in
customer requirements and devote greater resources to the development, promotion
and sale of their products or services. We cannot assure our investors that we
will be able to successfully compete.
Additionally, since our Econet strategy envisions acquisitions and
investments as an ongoing component, competition for acquisition and investment
opportunities presents a substantial risk. We cannot be certain that enough
attractive companies exist, that if they exist they will come to our attention,
or that, if they come to our attention, one of our competitors will not seize
the opportunity and prevent us from completing a transaction. If we cannot
effectively compete in the market for acquisitions and venture capital
investments we may not be able to execute our Econet strategy.
Our International Operations Expose Us To Fluctuations In Foreign Currencies And
Political Instability
We intend to build on our current relationships in Syria, Mexico, India, Sri
Lanka and other countries and to expand our existing operations outside of the
United States. International operations are subject to inherent risks,
including:
-23-
<PAGE> 24
o potentially weaker protection of intellectual property rights;
o political instability
o unexpected changes in regulations and tariffs
o varying tax consequences; and
o fluctuations in exchange rates.
In particular, because our agreements with our Mexican suppliers are
denominated in Mexican pesos, we may be exposed to fluctuations in the Mexican
peso, as well as to downturns in the Mexican economy, all of which may adversely
affect our profitability.
We Are Subject To Downward Pricing Pressures And A Continuing Need To
Renegotiate Overseas Rates Which Could Delay Or Prevent Our Profitability
As a result of numerous factors, including increased competition and global
deregulation of telecommunications services, prices for international long
distance calls have been decreasing. This downward trend of prices to end-users
has caused us to lower the prices we charge communications service providers for
call completion on our network. If this downward pricing pressure continues, we
cannot assure you that we will be able to offer IP telephony services at
costs that are lower than the costs of traditional voice network services with
which we compete. Moreover, in order for us to lower our prices, we have to
renegotiate rates with our overseas local service providers who complete calls
for us. We may not be able to renegotiate these terms favorably enough, or fast
enough, to allow us to continue to offer services in a particular country would
have a material adverse effect on our ability to operate our network and
business profitably.
If The Internet Does Not Continue To Grow As A Medium For Communications, Our
Business Will Suffer
The technology that allows communications over the Internet is still in its
early stages of development. Historically, the sound quality of Internet calls
was poor. However, as the industry has grown, sound quality has improved, but
the technology requires additional refinement. Additionally, the Internet's
capacity constraints may impede the acceptance of IP telephony. Callers could
experience delays, errors in transmissions or other interruptions in service.
Placing telephone calls over the Internet must also be accepted as an
alternative to traditional telephone service. Since the IP telephony market is
new and evolving, predicting the size of this market and its growth rate is
difficult. If our market fails to develop, then we will be unable to grow our
customer base and our opportunity for profitability will be harmed.
Our Business Will Not Grow Without Increased Use Of The Internet
The use of the Internet as a commercial marketplace is at an early stage of
development, Demand and market acceptance for recently introduced products and
services over the Internet are still uncertain. We cannot predict whether
customers will be willing to shift their traditional activities online. The
Internet may not provide to be a viable commercial market place for a number of
reasons, including:
o concerns about security;
o inconsistent quality or speed of service;
o Internet congestion;
-24-
<PAGE> 25
o potentially inadequate development of the necessary infrastructure; and
o lack of cost-effective, high-speed access.
If the use of the Internet as a commercial marketplace does not continue to
grow, we may not be able to grow our customer base, which may prevent us from
achieving profitability.
Our Computer Systems And Operations May Be Vulnerable To Security Breaches
Our computer infrastructure is potentially vulnerable to physical or
electronic computer viruses, break-ins and similar disruptive problems and
security breaches which could cause interruptions, delays or loss of services to
our users. We believe that the secure transmission of confidential information
over the Internet, such as credit card numbers, is essential in maintaining user
confidence in our services. We rely on licensed encryption and authentication
technology to effect secure transmission of confidential information, including
credit card numbers. It is possible that advances in computer capabilities, new
technologies or other developments could result in a compromise or breach of the
technology we use to protect user transaction data. A party that is able to
circumvent our security systems could misappropriate proprietary information or
cause interruptions in our operations. Security breaches also could damage our
reputation and expose us to a risk of loss or litigation and possible liability.
As of this date, we have not experienced security breaches of which we are
aware. However, we cannot guarantee you that our security measures will prevent
security breaches in the future.
Our Network May Not Be Able To Accommodate Our Capacity Needs
We expect the volume of traffic we carry over our network to increase
significantly as we expand our operations and service offerings. Our network may
not be able to accommodate this additional volume. In order to ensure that we
are able to handle additional traffic, we may have to enter into long-term
agreements for leased capacity. To the extent that we overestimate our capacity
needs, we may be obligated to pay for more transmission capacity than we
actually use, resulting in costs without corresponding revenues. Conversely, if
we underestimate our capacity needs, we may be required to obtain additional
transmission capacity from more expensive sources. If we are unable to maintain
sufficient capacity to meet the needs of our users, our reputation could be
damaged and we could lose users.
We Face A Risk Of Failure Of Computer And Communications Systems Used In Our
Business
Our business depends on the efficient and uninterrupted operation of our
computer and communications systems as well as those that connect to our
network. We maintain communications systems in Jersey City, New Jersey, Kansas
City, Kansas, Miami, Florida and Mexico City, Mexico. Our systems and those that
connect to our network are subject to disruption from natural disasters or other
sources of power loss, communications failure, hardware or software malfunction,
network failures and other events both within and beyond our control. Any system
interruptions that cause our services to be unavailable, including significant
or lengthy telephone network failures or difficulties for users in communicating
through our network or portal, could damage our reputation and result in a loss
of users.
RISK FACTORS RELATED TO OUR COMMON STOCK
Our Common Stock Has A Limited Trading History And An Illiquid Market
There has only been a limited public market for our common stock. We cannot
predict the extent to which an active trading market will develop or how liquid
that market might become. The price of our common stock issued in the
reorganization may not be indicative of prices that will prevail in the trading
market.
The Infinity Entities Own A Majority Of Our Common Stock And Have Plans For The
Company That May Be Different From Those Of Other Holders Of Our Stock
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<PAGE> 26
The Infinity Entities own a majority of our shares of capital stock. The
Infinity Entities, therefore, may exercise significant control over our
business, policies and affairs and, in general, determine the outcome of any
corporate transaction or other matters submitted to the stockholders for
approval, all in a manner that could conflict with the interests of other
shareholders.
We Do Not Plan To Pay Dividends On Our Capital Stock
We have never paid a dividend on our capital stock and do not expect to pay
dividends in the future. We anticipate that we will retain any earnings used in
the development of new services or the expansion of business operations. There
can be no assurance that we will ever recognize a gain from our business
operations or pay a dividend on our capital stock.
Shares Of Our Common Stock Eligible For Future Sale May Decrease The Price Of
Our Common Stock
We have a significant number of shares available for future sale. As of
March 7, 2000, we had 45,799,832 shares of common stock outstanding, 507,246
shares of common stock issuable upon conversion of our Series B convertible
preferred stock, 869,832 shares of common stock issuable upon conversion of our
Series C convertible preferred stock and 2,976,000 shares of common stock
issuable upon the exercise of stock options. Only 1,645,830 of these shares are
freely transferable without restrictions under the Securities Act. Of the
remaining 48,507,080 shares of common stock and shares issuable upon conversion
of our preferred stock or exercise of our stock options, 44,154,002 shares are
subject to a lock-up agreement under our registration rights agreement dated
September 22, 1999 that expires on September 23, 2001. The resale restrictions
governing the remainder of those shares expire at various times between
November, 2000 and February, 2001. If our shareholders sell substantial amounts
of their common stock in the public market, including shares issued upon the
exercise of outstanding options, then the market price of our common stock could
fall. Restrictions under the securities laws and certain lock-up provisions
under our registration rights agreements currently in effect limit the number of
shares of common stock available for sale in the public market.
The holders of shares received in the reorganization and the September 1999
private placement of our common and preferred stock have agreed not to sell in
the public market any of our shares for two years after the reorganization
without the prior written consent of our principal stockholders. These principal
stockholders may, in their discretion, release all or any portion of the
securities subject to the lock-up agreements. However, these holders have demand
or piggy-back registration rights. The purchasers of our Series B convertible
preferred stock and Series C convertible preferred stock also have piggy-back
registration rights. Our registration rights can be summarized as follows:
<TABLE>
<S> <C>
Demand Registration Exercisable
------------------- -----------
Infinity Entities: 29,000,000 shares of stock Any time after March 23, 2000.
Piggy-Back Registration Rights
------------------------------
Holders of 15,154,002 shares of common In connection with a demand registration or
stock, in addition to the shares owned by the a registered offering of common stock by the
Infinity Entities Company.
</TABLE>
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<PAGE> 27
<TABLE>
<S> <C>
Holders of 7,000 shares of Series B Convertible In connection with a demand registration or a
Preferred Stock, convertible into 507,246 registered offering of common stock by the Company.
shares of common stock.
Holder of 15,570 shares of Series C Convertible In connection with a demand registration or a
Preferred Stock, convertible into 869,832 shares registered offering of common stock by the Company.
of common stock.
</TABLE>
We also may shortly file a registration statement to register all shares of
common stock under our stock option plans which, if declared effective, would
permit the shares of common stock issued upon exercise of vested stock options
under our option plan to be resold in the public market without restriction.
Our Right To Issue Preferred Stock And Anti-Takeover Provisions Under Delaware
Law Could Make A Third Party Acquisition Of Us Difficult
Our certificate of incorporation provides that our board of directors may
issue preferred stock without shareholder approval. The issuance of preferred
stock could make it more difficult for a third-party to acquire us without the
approval of its board. Additionally, Delaware corporate law imposes certain
restrictions on corporate control transactions that could make it more difficult
for a third-party to acquire us without the approval of our board.
Our Stock Price Is Highly Volatile
The market price for our common stock has been highly volatile and is likely
to continue to be highly volatile. The trading prices of many technology and
Internet-related company stocks, including ours, have experienced significant
price and volume fluctuations in recent months. These fluctuations often have
been unrelated or disproportionate to the operating performance of these
companies. From September 22, 1999 to March 7, 2000 the trading price of our
common stock has increased significantly, ranging from $6.00 per share, to
$33.00. Any negative change in the public's perception of the prospects of
Internet or communications companies could depress our stock price regardless of
our results.
The following factors will add to our common stock price's volatility:
o actual or anticipated variations in our quarterly results and those of
our subsidiaries or affiliates;
o new sales formats or new products or services offered by us, our
subsidiaries or affiliates and their competitors;
o changes in our financial estimates and those of our subsidiaries or
affiliates by securities analysts;
o changes in the size, form or rate of our acquisitions;
o conditions or trends in the IP telephony industry;
o announcements by our subsidiaries or affiliates and their competitors of
technological innovations;
o announcements by us or our subsidiaries or affiliates or our competitors
of significant acquisitions, strategic partnerships or joint ventures;
o changes in the market valuations of our subsidiaries or affiliates and
other IP telephony companies;
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<PAGE> 28
o our capital commitments;
o negative changes in the public's perception of the prospects of Internet
telephony companies;
o general economic conditions such as a recession, or interest rate or
currency rate fluctuations;
o additions or departures of our key personnel and key personnel of our
partner companies; and
o additional sales of our securities.
Many of these factors are beyond our control. These factors may decrease the
market price of our common stock, regardless of our operating performance. In
the past, companies in our industry have been the subject of class action
litigation by investors following periods of volatility in the price of their
publicly traded securities. We will incur substantial legal costs if the market
value of our common stock experiences adverse fluctuations and we become the
subject of similar litigation. Additionally, this type of litigation may strain
our resources and divert management attention, causing our business to suffer.
AVAILABLE INFORMATION
The Company is subject to the information reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and in
accordance therewith files reports and other information with the Securities and
Exchange Commission, as amended (the "Commission"). Such filings can be
inspected and copied at the Public Reference Section of the commission located
at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549 and
at regional public reference facilities maintained by the Commission located at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and at Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of
such material can be obtained from the Public Reference Section of the
Commission at prescribed rates. Such material may also be accessed
electronically by means of the commission's home page on the Internet
(http://www.sec.gov).
ITEM 2. FINANCIAL INFORMATION
SELECTED FINANCIAL DATA
eVentures Group, Inc. ("eVentures" or the "Company") was incorporated in the
state of Delaware on June 24, 1987 and had no material operations prior to the
transactions consummated on September 22, 1999, which are described below. The
Company was formerly known as Adina, Inc.
On September 22, 1999, the Company acquired all of the outstanding shares of
AxisTel, approximately 66.7% of the outstanding shares of e.Volve, approximately
17% of the outstanding shares of PhoneFree.com (collectively the "Acquired
Entities"), and $8.5 million of notes receivable from e.Volve including accrued
interest held by certain of the Infinity Entities. All the acquisitions and the
purchase of the notes were settled through issuance of our common stock. As a
result of this portion of the reorganization, approximately 77% of our common
stock outstanding after the September 22, 1999 transaction was owned by the
Infinity Entities. In October 1999, we acquired the remaining 33.3% of e.Volve.
As of June 30, 1999, the end of our last fiscal year, the Infinity Entities
had directly and indirectly held interests in the Acquired Entities, as follows:
66.7% of e.Volve, 21% of PhoneFree.com, and 0.7% of AxisTel plus options to
purchase a further 49.3% of AxisTel. In August of 1999, the interest in
PhoneFree.com held by the Infinity Entities was diluted to 17%. Immediately
after exercising the options in AxisTel, these interests, along with the
Infinity Entities' notes receivable from e.Volve, were directly and indirectly
transferred to eVentures in exchange for the our common stock. The remaining 50%
of AxisTel was then purchased from AxisTel's founding shareholders.
As part of the September 22, 1999 Transaction, eVentures acquired the
remaining 33.3% of e.Volve on October 19, 1999. This purchase was settled
through an issuance of 5,831,253 shares of eVentures' Common Stock.
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<PAGE> 29
The financial statements presented through June 30, 1999 represent the
Infinity Entities' interest in the Acquired Entities and is deemed to be the
"Accounting Acquirer". The financial statements as of and for the six months
ended December 31, 1999 reflect the consummation of the reorganization, and
therefore are consolidated financial statements of eVentures and subsidiaries as
of December 31, 1999 and for the period from September 22, 1999 through December
31, 1999.
Since eVentures had no material operations prior to the Transaction, the
acquisitions of the Infinity Entities' interests were accounted for as a
recapitalization of eVentures.
The acquisitions of the remaining 50% of AxisTel and 33.3% of e.Volve were
treated as purchases for accounting purposes.
On June 11, 1998, the Major Shareholders or predecessors in interest
acquired their 66.7% interest in e.Volve. This transaction was accounted for by
e.Volve as a purchase. The operations of e.Volve between June 11, 1998 and June
30, 1998 were immaterial, and, therefore the date used for the effective date of
the purchase was July 1, 1998. The financial statements through June 30, 1998
are described as "Old Company", and those subsequent to June 30, 1998 are
described as "The Company". The cost basis of The Company was assigned to the
assets acquired based on their estimated fair values at the acquisition date. As
a result, the financial statements for the period subsequent to the change of
control are presented on a different cost basis than those for prior periods
and, therefore, are not comparable.
"Pro Forma" results are unaudited and reflect the results of AxisTel for the
year ended June 30, 1999 and the six months ended December 31, 1999, as though
the reverse merger and acquisition of AxisTel had occurred on July 1, 1998 (the
transaction closed on September 22, 1999). The unaudited pro forma results are
not necessarily indicative of future results, or actual results of operations
that would have occurred had the acquisitions been made on July 1, 1998.
<TABLE>
<CAPTION>
OLD COMPANY THE COMPANY
-------------------------------- ----------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED 6 MONTHS 6 MONTHS
CONSOLIDATED STATEMENTS OF JUNE 30, 1997 JUNE 30, 1998 JUNE 30, 1999 ENDED ENDED
OPERATIONS DATA ------------- ------------- ------------- DEC 31, 1998 DEC 31, 1999
------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues $ 921,599 $ 1,713,403 $ 27,248,273 $ 13,013,700 $ 22,661,838
Direct costs 578,944 1,944,073 23,311,584 9,745,604 21,759,782
--------- ----------- ------------ ------------ ------------
Gross profit 342,655 (230,670) 3,936,689 3,268,096 902,056
Selling, general and
administrative expenses 718,362 4,505,798 7,551,131 3,442,347 10,354,808
--------- ----------- ------------ ------------ ------------
Loss from operations before
other (income) expense (375,707) (4,736,468) (3,614,442) (174,251) (9,452,752)
--------- ----------- ------------ ------------ ------------
Other (income) expenses
Interest expense, net -- 105,099 1,704,459 735,878 598,062
Write off of unamortized
debt discount -- -- -- -- 917,615
Equity in loss of affiliate -- -- 33,776 -- 31,819
Foreign currency (gain) loss -- -- 126,575 8,631 (2,032)
Other 12,604 (16,930) (17,851) 1,074
--------- ----------- ------------ ------------ ------------
-- 117,703 1,847,880 726,658 1,546,538
--------- ----------- ------------ ------------ ------------
--
Net loss $(375,707) $(4,854,171) (5,462,322) (900,909) (10,999,290)
========= ============ ============ ============ ============
Imputed preferred dividend -- -- (1,115,943)
------------ ------------ ------------
Net Income (loss) available
to common shareholders $ (5,462,322) $ (900,909) $(12,115,233)
============ ============ ============
Net loss per share - (basic
and diluted) $ (0.48) $ (0.08) $ (0.40)
Weighted average shares outstanding
- (basic and diluted) 11,365,614 11,365,614 30,428,396
</TABLE>
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<PAGE> 30
<TABLE>
<CAPTION>
PRO FORMA
--------------------------
YEAR 6 MONTHS
CONSOLIDATED STATEMENTS OF ENDED
OPERATIONS DATA JUNE 30, DEC. 31,
1999 1999
------------ ------------
<S> <C> <C>
Revenues $ 35,215,916 $ 28,403,640
Direct costs 29,692,819 27,660,066
------------ ------------
Gross profit 4,907,199 743,573
Selling, general and
administrative expenses 12,690,917 12,252,636
------------ ------------
Loss from operations before
other (income) expense and
provision for taxes (7,783,718) (11,265,844)
------------ ------------
Other (income) expense
Interest expense, net 473,675 281,978
Write off of unamortized debt discount 2,000,000 --
Equity in loss of affiliate 33,776 31,819
Foreign currency (gain) loss 126,575 (2,032)
Other 83,370 1,074
------------ ------------
2,717,396 312,839
Net loss $(10,501,114) $(11,821,902)
============ ============
Net loss per share - (basic
and diluted) $ (0.25) $ (0.27)
Weighted average shares
outstanding - (basic and 42,787,863 44,372,309
diluted)
</TABLE>
<TABLE>
<CAPTION>
OLD COMPANY THE COMPANY
------------ ----------------------------
AS OF AS OF AS OF
CONSOLIDATED BALANCE SHEET DATA JUNE 30, JUNE 30, DECEMBER 31,
------------ ------------- ------------
1998 1999 1999
------------ ------------- ------------
<S> <C> <C> <C>
Cash and cash equivalents $ 2,417,216 $ 39,379 $ 6,269,893
Working (deficit) capital (715,832) (6,590,569) 609,233
Total assets 4,305,175 15,661,317 58,035,718
Capital lease obligations, net of current
portion 487,665 2,031,513 5,250,370
Long term debt 5,410,000 6,828,948 --
Total stockholders' (deficit) equity (5,121,478) (2,859,313) 42,965,469
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS AND THE NOTES THERETO.
Overview
The financial information and other statistical data set out below represent
the financial condition and results of operations of (i) for all periods
prior to July 1, 1998 and (ii) the accounting acquirer pursuant to a series of
reorganization transactions completed on September 22, 1999 and October 19, 1999
(the "Reorganization") described herein for all periods from July 1, 1998
through September 30, 1999. As a result, throughout this Form 10/A, our
financial statements as of any date and for any period beginning July 1, 1998
and ending on or prior to September 30, 1999 reflect the financial condition and
results of operations of e.Volve as if we had acquired the interest of the
Infinity Entities in e.Volve on July 1, 1998, except that (a) our balance sheet
as of June 30, 1999 reflects the acquisition of our minority interest in
PhoneFree.com and (b) our balance sheet as of September 30, 1999 reflects the
acquisition of Axistel. Financial information and other data as of any date
after September 30, 1999 is financial information and other data of eVentures.
For accounting purposes prior to July 1, 1998, the accounting acquiror had
no interest in e.Volve.
Revenues. Revenues are generated through the sale of international and
domestic IP telephony minutes on a wholesale basis to other U.S.
long-distance providers and to distributors of prepaid calling cards. In
addition, we sell data bandwidth to other carriers and corporate customers. Our
agreements with our wholesale customers are short term in duration and the rates
are subject to change from time to time. Due to increasing competition,
management expects these rates to decline, which could result in lower revenues
and increased losses. Our three largest customers accounted for 79.3% of our net
revenues during the six months ended December 31, 1999.
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<PAGE> 31
Direct Costs. Direct costs include per minute termination charges and lease
payments and fees for fiber optic cable. Prior to September 1999, we provided
international telecommunication services only from the United States to Mexico.
The majority of our termination fees and certain fiber optic lease payments were
payable in Mexican pesos. As a result, we were exposed to exchange rate risk due
to the fluctuation of the Mexican peso compared to the U.S. dollar. Continued
fluctuation in the exchange rate may make it cheaper or more expensive for us to
purchase pesos to meet our peso denominated expenses. Two vendors in Mexico
provide substantially all of our terminating capabilities in Mexico. If either
of these vendor relationships were terminated, our ability to conduct operations
in Mexico would be limited.
Selling, General and Administrative Expenses. These expenses include
corporate expenses and management salaries, depreciation and amortization
expenses, sales and marketing expenses, travel and development expenses,
benefits, occupancy costs, and administrative expenses. We maintain a corporate
office and several switch facilities. Due to the international nature of our
business, travel and development costs have been significant and could continue
to increase as we seek to expand our network.
SUMMARY OF OPERATING RESULTS
The table below summarizes our operating results:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
-------------------------------------------------------------------------------------------------
OLD COMPANY THE COMPANY
--------------------------------------------------------------- -----------------------------
1997 % 1998 % 1999 %
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 921,599 100.0% $ 1,713,403 100.0% $ 27,248,273 100.0%
Direct costs 578,944 62.8% 1,944,073 113.5% 23,311,584 85.6%
------------ ------------ ------------ ------------ ------------ ------------
Gross profit (loss) 342,655 37.2% (230,670) (13.5)% 3,936,689 14.4%
Selling, general and
administrative expenses 718,362 77.9% 4,505,798 263.0% 7,551,131 27.7%
------------ ------------ ------------ ------------ ------------ ------------
Loss from operations (375,707) (40.7)% (4,736,468) (276.5)% (3,614,442) (13.3)%
------------ ------------ ------------ ------------ ------------ ------------
Other (income) expenses
Interest expense, net -- 0.0% 105,099 6.1% 1,704,459 6.3%
Write off of
unamortized debt discount -- 0.0% -- 0.0% -- 0.0%
Equity in loss of
affiliate -- 0.0% -- 0.0% 33,776 0.1%
Foreign currency loss -- 0.0% -- 0.0% 126,575 0.5%
Other -- 0.0% 12,604 0.7% (16,930) (0.1)%
------------ ------------ ------------ ------------ ------------ ------------
-- 0.0% 117,703 6.8% 1,847,880 6.8%
------------ ------------ ------------ ------------ ------------ ------------
Net loss $ (375,707) (40.7)% $ (4,854,171) (283.3)% $ (5,462,322) (20.0)%
============ ============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER 31,
---------------------------------------------------------------
THE COMPANY
---------------------------------------------------------------
1998 % 1999 %
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 13,013,700 100.0% $ 22,661,838 100.0%
Direct costs 9,745,604 74.9% 21,759,782 96.0%
------------ ------------ ------------ ------------
Gross profit 3,268,096 25.1% 902,056 4.0%
Selling, general and
administrative expenses 3,442,347 26.5% 10,354,808 45.7%
------------ ------------ ------------ ------------
Loss from operations (174,251) (1.3)% (9,452,752) (41.7)%
------------ ------------ ------------ ------------
Other (income) expenses
Interest expense, net 735,878 5.7% 598,062 2.6%
Write off of
unamortized debt discount -- 0.0% 917,615 4.0%
Equity in loss of
affiliate -- 0.0% 31,819 0.1%
Foreign currency (gain)
loss 8,631 0.1% (2,032) (0.0)%
Other (17,851) (0.1)% 1,074 0.0%
------------ ------------ ------------ ------------
726,658 5.6% 1,546,538 6.8%
------------ ------------ ------------ ------------
Net income (loss) $ (900,909) (6.9)% $(10,999,290) (48.5)%
============ ============ ============ ============
</TABLE>
Six Months Ended December 31, 1999 Compared To Six Months Ended
December 31, 1998
Revenues. Revenues increased to $22.7 million during the six months ended
December 31, 1999 from $13.0 million during the six months ended December 31,
1998, an increase of 74.6% respectively. The
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increase during the six months ended December 31, 1999 primarily resulted from
the acquisition of AxisTel in September 1999 which increased revenues by $5.6
million. In addition, an increase in traffic contributed the remainder of the
increase in revenues, offset by a decrease in the average price per minute that
we charged. During the six months ended December 31, 1999 we transmitted 171.0
million minutes, excluding the 47.3 million minutes transmitted by AxisTel
during our second quarter, compared with 64.4 million minutes during the six
months ended December 31, 1998, an increase of 165.5%. We transmitted 218.5
million minutes during the 12 months ended December 31, 1999, including minutes
transmitted to AxisTel. The average price per minute we charged for these
minutes decreased to $0.10 during the six months ended December 31, 1999 from
$0.20 during the comparable period in 1998.
Direct Costs. Direct costs increased to $21.8 million during the six months
ended December 31, 1999 from $9.7 million during the six months ended December
31, 1998, an increase of 123.3%. The increase in direct costs during the six
months ended December 31, 1999 resulted from a $5.2 million increase in direct
costs attributable to the operations of AxisTel during our second quarter of
1999. In addition, direct costs increased during the six months ended December
31, 1999 by $6.8 million, as a result of the increased traffic volumes discussed
above, offset by lower per minute termination costs. The average cost per minute
to terminate calls decreased to $0.09 during the six months ended December 31,
1999, from $0.12 during the comparable periods in 1998. Direct costs also
increased during the six months ended December 31, 1999 by approximately
$300,000 as a result of fixed circuit cost increases to add capacity. As a
percentage of revenues, direct costs during the six months ended December 31,
1999 increased to 96.0% from 74.9% during the six months ended December 31,
1998. The increase in direct costs as a percentage of revenues results primarily
because the average price per minute decreased faster than our cost per minute
for termination, offset by higher volumes of traffic over fixed cost circuits.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $10.4 million during the six months ended
December 31, 1999 from $3.4 million during the six months ended December 31,
1998, an increase of 200.8%. These increases in selling, general and
administrative expenses during the six months ended December 31, 1999 resulted
primarily from expenses related to our termination of a marketing agreement
($1.7 million), the incurrence of severance costs ($325,000), an increase in
goodwill expense related to the purchase of AxisTel and 33.3% of e.Volve
($700,000), an increase in professional and printing fees related to the
auditing of our Company for three years and legal work related to the
Reorganization and purchase of 33.3% of e.Volve ($780,000), an increase in
depreciation expense of ($450,000), an increase in payroll or $200,000, the
recording of a compensation charge of $1.2 million related to the issuance of
options below the market value of our stock and $625,000 or charges related to
consulting and professional fees in Mexico. In addition, the acquisition of
AxisTel increased expenses by $1.4 million in our second quarter and corporate
overhead added an additional $230,000. These increases in expenses were offset
by a decrease of $365,000 in travel and other consulting expenses during the six
months ended December 31, 1999.
Interest Expense, Net. Interest expense, net decreased to $598,062 during
the six months ended December 31, 1999 from $735,878 during the six months ended
December 31, 1998. This decrease was a result of the elimination of $8.0 million
of debentures as a result of our acquisition of e.Volve's outstanding debentures
on September 22, 1999 and the resulting consolidation of accounts, and due to
interest income on higher cash balances maintained out of proceeds of private
placements completed during our second quarter, offset by higher charges related
to capital leases for equipment leased after December 31, 1998.
Write Off Of Unamortized Debt Discount. The $917,615 write off of
unamortized debt discount during the six months ended December 31, 1999 resulted
from our purchase of e.Volve's outstanding debentures and the subsequent
elimination of these debentures in our consolidated balance sheet.
Equity In Loss Of Affiliate. Equity in loss of affiliate was $31,819 during
the six months ended December 31, 1999. These losses occurred at Innovative
Calling Technologies, a joint venture formed e.Volve in April 1999.
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<PAGE> 33
Foreign Currency Gain,. Foreign currency gain during the six months ended
December 31, 1999 was a gain of $2,032 compared with a loss of $8,631 during the
three and six months ended December 31, 1998.
Other. Other expenses of $1,074 during the six months ended December 31,
1999 compares with other income of $17,851 during the six months ended December
31, 1998.
Fiscal Year Ended June 30, 1999 Compared To Fiscal Year Ended June 30, 1998
Revenues. Revenues increased to $27.2 million during the year ended June 30,
1999 from $1.7 million during the year ended June 30, 1998, an increase of
1,490.3%. This primarily resulted from a successful launch in July 1998 of our
enhanced communications services and an increase in the traffic transmitted,
primarily to Mexico. During the year ended June 30, 1999, we transmitted over
165.0 million minutes, compared with approximately 8.5 million minutes during
the year ended June 30, 1998.
Direct Costs. Direct costs increased to $23.3 million during the year ended
June 30, 1999 from $1.9 million during the year ended June 30, 1998, an increase
of 1,099.1%. This increase in direct costs resulted from an increase in
termination fees associated with the increase in traffic transmitted ($18.2
million) and an increase in the fees for the fiber optic connections between our
points of presence ($3.1 million). As a percentage of revenues, direct costs
during the year-ended June 30, 1999 decreased to 85.6% from 113.5% during the
year-ended June 30, 1998.
Selling, General And Administrative. Selling, general and administrative
expenses increased to $7.6 million during the year ended June 30, 1999 from $4.5
million during the year ended June 30, 1998, an increase of 67.6%. This increase
resulted primarily from an increase in the operating staff ($800,000), general
operating activities ($1.1 million), travel expense ($400,000), professional and
consulting fees ($1.4 million) and an increase in depreciation costs ($1.1
million).
Interest Expense, Net. Interest expense, net increased to $1.7 million
during the year ended June 30, 1999 from $105,099 during the year ended June 30,
1998, a increase of 1,521.8%. This increase was a result of higher charges
related to new equipment capital leases and interest on the debentures.
Equity In Loss Of Subsidiaries. Equity in loss of subsidiaries was $33,776
during the year ended June 30, 1999. These losses occurred at Innovative Calling
Technologies.
Foreign Currency Loss. Foreign currency loss during the year ended June 30,
1999 was a loss of $126,575.
Other. Other income was $16,930 during the year ended June 30, 1999 compared
with an expense of $12,604 during the year ended June 30, 1998.
Fiscal Year Ended June 30, 1998 Compared To Fiscal Year Ended June 30, 1997
Revenues. Revenues increased to $1.7 million during the year ended June 30,
1998 from $921,599 during the year ended June 30, 1997, an increase of 85.9%.
This primarily resulted from an increase in the minutes transmitted.
Direct Costs. Direct costs increased to $1.9 million during the year ended
June 30, 1998 from $578,944 during the year ended June 30, 1997, an increase of
235.8%. This increase in direct costs resulted from an increase in the total
minutes transmitted. As a percentage of revenues, direct costs during the
year-ended June 30, 1998 increased to 113.5% from 62.8% during the year-ended
June 30, 1997.
Selling, General And Administrative Expenses. Selling, general and
administrative expenses increased to $4.5 million during the year ended June 30,
1998 from $718,362 during the year ended June 30, 1997, an increase of 527.2%.
This increase resulted primarily from an increase in the operating staff and
general operating activities, and an increase in depreciation costs.
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<PAGE> 34
Interest Expense, Net. Interest expense, net was $105,099 during the year
ended June 30, 1998. This expense was a result of charges related to capital
leases of new equipment.
Other. Other expense was $12,604 during the year ended June 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
General
Our business plans will continue to require a substantial amount of capital
to fund our expansion in existing and new markets, to continue our development
of our network and to fund our operating losses and capital lease payments.
Excluding our obligations under capital leases payments, we had capital
expenditure commitments of $350,000 on March 7, 2000.
We also continue to make strategic investments and to evaluate acquisitions
in light of our long term plans. As of March 7, 2000, we had committed $3.5
million to fund advances to Callrewards pursuant to our investment agreements
with Callrewards. We also intend to invest up to an additional $10 million to
further our Econet strategy by investing in companies that we have identified
but with whom we have not yet executed definitive agreements. Such strategic
investments and acquisitions, if realized, could require expenditure of a
material portion of our financial resources and would accelerate the need for
raising additional capital. Sources of funding for our financing requirements
may include vendor financing, bank loans and public offerings or private
placements of equity and/or debt securities. We cannot be certain that
additional financing will be available or, if available, that financing can be
obtained on a timely basis and on acceptable terms. The failure to obtain such
financing on acceptable terms could significantly reduce our ability to fund our
expenses, development, investments and operations.
Since July 1, 1999, we have funded our operations primarily through the
proceeds from private placements of common stock, preferred stock and warrants
to purchase common stock and from capital leases. During the six months ended
December 31, 1999, we raised a total $12.9 million through private placements of
common stock and preferred stock, $287,350 from the exercise of AxisTel share
options by employees of AxisTel prior to the closing of the reorganization and
$5.2 million through capital leases to finance operations and to fund capital
expenditures.
Our principal uses of cash are to fund working capital requirements, capital
expenditures and operating losses. As of December 31, 1999, we had current
assets of $10.4 million, including cash, cash equivalents and short-term
investments of $6.2 million, and a working capital surplus of $609,223. Current
assets included a tax refund receivable of $1.8 million. Our cash and short-term
investments are expected to provide sufficient liquidity to meet our capital
requirements for approximately the next twelve months.
Qwest IRU
On September 30, 1999 e.Volve and Qwest Communications Corporation entered
into an Indefeasible Right of Use ("IRU") agreement in which Qwest granted
e.Volve an indefeasible right of use to a fiber optic circuit operated by Qwest
between New York, New York and Los Angeles, California for a period of twenty
years. In consideration for this indefeasible right of use, e.Volve agreed to
pay Qwest a total of $15.0 million in four installments between October 1, 1999
and September 30, 2001. In addition, e.Volve has been required to pay Qwest a
monthly operation and maintenance charge of $25,000 per month since January 1,
2000.
Pursuant to the IRU agreement, e.Volve must separately arrange for a
collocation space in the Qwest terminal facilities or obtain from a local
telecommunications distributor the telecommunications transmission facilities
required in order to extend each route from a cross-connect panel at Qwest's
terminal facility to a location outside of the Qwest terminal facility. As of
March 7, 2000, we have not utilized our right to use the fiber optic circuit.
However, e.Volve has not entered into any collocation agreement with Qwest or
any other local telecommunications distributor as required under the IRU
agreement and has not obtained the
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<PAGE> 35
telecommunications transmission necessary to extend each route to a location
outside of the Qwest terminal facility.
On December 23, 1999, Qwest made a demand for payment of the first
installment of $3.75 million. Thereafter, Qwest has sent invoices to e.Volve
requesting payment of the full $15.0 million. e.Volve has not made this payment
and e.Volve, eVentures and Qwest have commenced negotiations for a restructuring
of the terms of the IRU agreement. As of March 7, 2000, e.Volve and Qwest have
not reached an agreement regarding this dispute. Our financial statements do not
include any adjustment or provision related to the above transaction.
India Joint Venture
On August 31, 1999, e.Volve entered into a an agreement with Uni-Tel, Inc.,
a Texas corporation that operates in the United States and India and provides
international telecommunications services. The purpose of the agreement is to
form a strategic alliance in which Uni-Tel would manage telecommunications
equipment and software owned by e.Volve in the United States and India and
deliver telecommunications traffic carried by e.Volve from the United States
terminating in India.
Under the terms of the agreement, e.Volve paid Uni-Tel $800,000 for the
purchase of five systems of telecommunications equipment and software and has
been invoiced for an additional $450,000, payable in shares of our common stock,
to complete the payment for these systems. In addition, we agreed to pay
$250,000 for the purchase of each of up to seven additional telecommunications
termination systems. The $250,000 to be paid by e.Volve for each new termination
system is to be paid in two installments. The first $100,000 of each installment
is due upon seven days notice of the proposed installation of a new termination
system, and the remaining $150,000 is payable in shares of our common stock and
is due upon the completion of two weeks' testing and acceptance of the
termination system by e.Volve.
In addition to the purchase of the termination systems, within a month of
commencing operations, e.Volve is to supply a minimum of 300,000 minutes of
usage per location per month and within ninety days of commencing operations
increase such usage to a monthly minimum of 450,000 minutes per location. In
exchange for Uni-Tel's termination of the traffic supplied to India, e.Volve
pays Uni-Tel a termination fee of $0.14 per minute to cover operating costs
in India. In addition, Uni-Tel, at its sole expense, is responsible for the
overall daily management of the system sites in Dallas and in India, whereas
e.Volve pays Uni-Tel for managing systems located in sites other than
Dallas and India. All adjusted gross profits of the business arrangements
contemplated in the agreement are shared equally between e.Volve and Uni-Tel.
e.Volve believes that Uni-Tel has breached its agreements by failing to
adequately manage its network and pay its expenses related to operations in
India, and has stopped making certain payments to Uni-Tel. e.Volve and Uni-Tel
are negotiating a settlement agreement in order to resolve this dispute.
Cash Flows From Operating Activities
Our operating activities generated cash of $26,000 during the period between
inception and June 30, 1997 and used cash of $1.8 million during the year ended
June 30, 1998, $1.4 million during the year ended June 30, 1999, and $2.5
million during the six months ended December 31, 1999. During the period between
inception and June 30, 1997 cash flows from operating activities primarily
resulted from a combination of increases in accounts payable, non-cash expenses,
and increases in other accrued expenses, offset by net losses and increases in
accounts receivable and other receivables. During the year ended June 30, 1998
cash used in operating activities primarily resulted from a net loss, offset by
non-cash expenses, increases in accounts payable and customer deposits. During
the year ended June 30, 1999 cash used in operating activities primarily
resulted from a net loss, an increase in tax refund receivable and the securing
of two letters of credit with restricted cash, offset by increases in accounts
payable and customer deposits, and depreciation and amortization. During the six
months ended December 31, 1999 cash flow used by operating activities primarily
resulted from net losses, the reduction of customer deposits, and an increase in
accounts receivable, offset by depreciation and amortization charges, a decrease
in restricted cash, and a decrease in accounts
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<PAGE> 36
payable (funded through the issuance of our common stock to vendors of $5.4
million) and an increase in other accrued liabilities.
Cash Flows From Investing Activities
Our cash flow used by investing activities was $13,363 during the period
between inception and June 30, 1997, $1.8 million during the year ended June 30,
1998, $1.3 million during the year ended June 30, 1999, and cash flow used by
from investing activities totalled $2.8 million during the six months ended
December 31, 1999. During the period between inception and June 30, 1997 cash
used by investing activities primarily resulted from deposits. During the year
ended June 30, 1998 cash used by investing activities primarily resulted from
investments in affiliates, purchases of fixed assets and the purchase of
securities. During the year ended June 30, 1999 cash used by investing
activities primarily resulted from purchases of fixed assets and deposits,
offset by proceeds from the sale of securities. During the six months ended
December 31, 1999 cash used by investing activities primarily consisted of cash
used to purchase equipment ($1.7 million), fund affiliates, and make other long
term investments, off-set by net cash acquired in our reorganization.
Cash Flows From Financing Activities
Our cash flow from financing activities was $100 between the period between
inception and June 30, 1997, $6.0 million during the year ended June 30, 1998,
$322,408 during the year ended June 30, 1999, and $11.6 million during the six
months ended December 31, 1999. During the period between inception and June 30,
1997 cash provided by financing activities was immaterial. During the year ended
June 30, 1998 cash provided by financing activities was generated primarily
through the issuance of $6.0 million of debentures. During the year ended June
30, 1999 cash provided by financing activities was generated through the
issuance of $2.0 million of debentures, offset by capital lease payments. During
the six months ended December 31, 1999 cash provided by financing activities was
attributable to the issuance of common stock and preferred stock ($13.2
million), offset by the repayment of a bridge loan and capital lease payments.
Private Placements.
On September 28, 1999, we completed a private placement of 2,470,000 shares
of common stock and 1,000 shares of Series A Convertible Preferred Stock with
aggregate proceeds of approximately $5.9 million. Proceeds from these issuances
were used for general corporate purposes and for use as capital for new
investments and projects. All of the outstanding shares of Series A Convertible
Preferred Stock were converted into an aggregate of 200,000 shares of our common
stock on December 21, 1999.
On November 19 and 26, 1999, we completed two private placements of 2,500
shares and 3,725 shares of our Series B Convertible Preferred Stock,
respectively, with aggregate proceeds of approximately $6.2 million. Proceeds
from these issuances are for general corporate purposes and for use as capital
for new investments and projects. Shares of our Series B Convertible Preferred
Stock is convertible into shares of our common stock under certain conditions.
For a description of the terms of the Series B Convertible Preferred Stock,
please see the discussion in Item 11 below under the caption "Authorized Capital
Stock - Preferred Stock - Series B Convertible Preferred Stock."
On December 15, 1999, we completed a private placement of 775 shares of our
Series B Convertible Preferred Stock with aggregate proceeds of approximately
$775,000. Proceeds from this issuance are for general corporate purposes and for
use as capital for new investments and projects. The Shares of our Series B
Convertible Preferred Stock are convertible into shares of our common stock
under certain conditions. For a description of the terms of the Series B
Convertible Preferred Stock, please see the discussion in Item 11 below under
the caption "Authorized Capital Stock - Preferred Stock - Series B Convertible
Preferred Stock."
The Series B Convertible Preferred Stock was issued at a discount to the
market value of our common stock on the date that investors committed to
purchase shares of Series B Convertible Preferred Stocks. The market value of
our common stock at the time of the commitment was $16.00 per share. We have
recognized this discount by accounting for it as an imputed preferred stock
dividend of $1.1 million in our second quarter.
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<PAGE> 37
Since December 31, 1999, we have raised additional funds through subsequent
private placements of preferred stock. In a series of transactions between
January 6 and February 10, 2000, we completed a private placement of 15,570
shares of our Series C Convertible Preferred Stock to eight accredited
investors, with aggregate proceeds of approximately $15.6 million. Proceeds from
this issuance are for general corporate purposes and for use as capital for new
investments and projects. The shares of Series C Convertible Preferred Stock are
convertible into shares of our common stock at a price of $17.90 per share,
subject to certain anti-dilution adjustments. The conversion price was
determined using the average of the closing bid prices per share of our common
stock for the 20 trading days ended December 10, 1999. Proceeds of the offering
were used to fund operating losses and working capital, make investments and for
general corporate purposes. The effect of the favorable conversion rate will be
recorded as an imputed preferred stock dividend in our third fiscal quarter. For
a description of the terms of the Series C Convertible Preferred Stock, please
see the discussion in Item 11 below under the caption "Authorized Capital Stock
- - Preferred Stock - Series C Convertible Preferred Stock."
We have used, or plan to use the proceeds of $28.6 million from these
offerings as follows:
o approximately $14.5 million for investments;
o approximately $5 million to fund operating losses and working
capital; and
o the balance of proceeds for general corporate purposes and capital
expenditures.
Equipment Leasing and Financing.
We have leased equipment manufactured by various equipment manufacturers
including Siemens A.G., Network Equipment Technologies, Inc. and Harris
Corporation. As of December 31, 1999, we have entered into an aggregate of
approximately $10.3 million of capital leases with (i) Telecommunications
Finance Group, a subsidiary of Siemens A.G., (ii) BA Capital Corp., (iii) Ascend
Credit Corporation, a subsidiary of Lucent Corporation and (iv) Arrendadora
BankAmerica, S.A.
RECENT EVENTS:
On January 28, 2000, we acquired 100,000 Series A Preferred Units of Launch
Center 39, representing approximately 2.1% of the equity and voting interests of
Launch Center 39, for $1.0 million.
On January 31, 2000, pursuant to an option granted in connection with our
initial investment in Fonbox, we purchased 1,000,000 newly issued shares of
Series A preferred stock of Fonbox for $1.0 million cash. In addition, in
connection with our exercise of this option, we acquired 350,000 shares of
common stock of Fonbox from each of Spydre Zeta L.L.C. and NetProvide Ltd. in
exchange for an aggregate of 27,860 shares of our common stock. As of February
29, 2000, the Company owns approximately 31% of the capital stock of Fonbox.
On February 11, 2000, we acquired 750,000 shares of Series A-1 convertible
preferred stock of Callrewards, for $750,000 which represents 30% of the
outstanding capital stock of Callrewards on a fully-diluted basis. Under our
agreement with Callrewards, we are obligated to purchase shares of Series A-2
convertible preferred stock of Callrewards, which on the date of purchase will
be convertible into 20% of the ownership interest in Callrewards on a
fully-diluted basis, for $1.0 million when Callrewards has at least 100,000
active users. We are obligated to purchase shares of Series A-3 convertible
preferred stock of Callrewards, which on the date of purchase will be
convertible into 20% of Callrewards on a fully-diluted basis, for $2.5 million
when Callrewards has at least 250,000 active users.
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<PAGE> 38
On March 3, 2000, we loaned $3.0 million to PhoneFree.com under a promissory
note dated March 2, 2000. The promissory note is due on September 1, 2000 and
bears interest at 7%. PhoneFree.com may repay this promissory note at any time,
subject to our right to convert it into PhoneFree.com common stock. We can
convert the promissory note into PhoneFree.com common stock:
(i) if PhoneFree.com raises equity capital from other investors on or
before August 31, 2000, in which case our conversion price will be
equal to 95% of the per share subscription or conversion price in
such equity capital raise; or
(ii) if PhoneFree.com does not raise equity capital from other
investors on or before August 31, 2000, we can convert the
promissory note on or after September 1, 2000, at a per share
conversion price that values all the common and preferred stock of
PhoneFree.com at $50.0 million.
In connection with the loans made under the promissory note, we also
received a four-year warrant to purchase 240,000 shares of PhoneFree.com at a
price equal to 110% of the conversion price of the promissory note. The warrant
may not be called by PhoneFree. If we include this warrant, but not the
promissory note, we would beneficially own approximately 18% of the outstanding
shares of common stock of PhoneFree.com.
On March 7, 2000, we entered into an agreement to acquire approximately
5,970,000 shares of Internet Global Services representing approximately 92.6% of
the issued and outstanding equity interests of Internet Global Services in
exchange for approximately 2,588,000 shares of our common stock. Under this
agreement, following our purchase of the Internet Global Services shares,
Internet Global Services will merge with and into our wholly-owned subsidiary
IGS Acquisition Corporation with Internet Global Services being the surviving
corporation. The per share consideration under the merger will be substantially
the same as the consideration paid under the agreement. This transaction remains
subject to customary closing conditions and we expect to close this transaction
during our third quarter.
RECENTLY ADOPTED ACCOUNTING STANDARDS
See Note 3 to the Consolidated Financial Statements.
IMPACT OF THE YEAR 2000
The "year 2000 issue" generally describes the various problems that may
result from the improper processing of dates and date-sensitive calculations by
computers and other equipment as a result of computer hardware and software
using two digits to identify the year in a date. If a computer program or other
piece of equipment fails to properly process dates including and after the year
2000, date-sensitive calculations may be inaccurate as a result of those
computers and software failing to distinguish dates in the 2000's from dates in
the 1900's. The failure to process dates could result in system failures or
miscalculations causing disruptions in operations including, among other things,
a temporary inability to process transactions, send invoices or engage in
similar normal business activities.
State Of Readiness. We reviewed two areas: (i) internal issues, including
our information technology ("IT") assets and non-IT systems; and (ii) external
issues (including third-party manufactured products sold by us, and issues with
customers, vendors and suppliers). We contacted manufacturers and suppliers of
IT and non-IT assets used internally by us for services such as customer
billing, customer service and financial reporting, including manufacturers and
suppliers of computer equipment, software programs, telephone systems, data
systems, systems comprising our enterprise networks and equipment used to
provide services to customers. These contacts helped us to determine the extent
to which these systems could cause a material adverse effect on our operations
in the event that the systems failed to properly process date-sensitive
calculations following the year 2000. We also tried to identify potential
external issues that could have had an impact on our operations. These included
issues with (i) significant customer systems, including customer-owned and
operated systems and systems that are connected to our networks; (ii) vendors
and suppliers such as credit facility providers, third-party service providers
such as local and long distance wholesale providers and interconnection
providers, and employee benefit plan providers such as 401(k) plan
administrators.
As of March 7, 2000, we have not had any material year 2000 issues. We
may in the future identify a significant internal or external year 2000 issue
which, if not remediated in a timely manner, could have a material adverse
effect on our business, financial condition and results of operations.
Costs. Other than time spent by our personnel which could be spent on other
matters, we have not incurred any significant costs in identifying year 2000
issues. We do not anticipate any significant further costs. Because no material
year 2000 issues have occurred or been identified, we cannot reasonably estimate
further costs relating to remediation of any year 2000 issues at this time, or
costs of contingency plans. There can be no assurance that as additional year
2000 issues are addressed, our costs to correct such issues will be consistent
with historical costs.
Risks Of Year 2000 Issues. Because no material year 2000 issues have
occurred or been identified, we cannot reasonably ascertain the extent of the
risks involved in the event that any one system fails to process date-sensitive
calculations accurately. Potential risks include the inability to process
customer billing accurately or in a timely manner, the inability to provide
accurate financial reporting to management, auditors,
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<PAGE> 39
investors and others, litigation costs associated with potential suits from
customers and investors, delays in implementing other IT projects as a result of
work by internal personnel on year 2000 issues, and delays in receiving payment
or equipment from customers or suppliers as a result of their systems' failure.
Any one of these risks, if they materialize, could individually have a material
adverse effect on our business, financial condition or results of operations.
As almost all of our IT and non-IT systems and products relating to our
internal and external issues are manufactured or supplied by third parties which
are outside of our control, there can be no assurance that all of those third
parties' systems will continue to operate free of year 2000 problems. If some or
all of our internal and external systems fail, or if any critical IT or non-IT
systems are overlooked or are not year 2000 ready, there could be a material
adverse effect on our business, financial condition or results of operations.
Contingency Plans. Because no material year 2000 issues have occurred or
been identified, we have not made any contingency plans.
EFFECTS OF INFLATION
Management does not believe that its business is impacted by inflation to a
significantly different extent than is the general economy. However, there can
be no assurances that inflation will not have a material effect on the Company's
operations in the future.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to the impact of political instability, foreign currency, and
other risks.
Political Instability Risks. We have relationships with foreign suppliers in
Syria, Mexico, India, Sri Lanka and other countries. We have not experienced any
negative economic consequences as a result of relationships with foreign
suppliers in these countries, but may be negatively affected should political
instability in any of these countries develop.
Foreign Currency Risks. Since the agreements we have entered into with
foreign suppliers in Syria, India, Sri Lanka and other countries are denominated
in U.S. dollars, we are not exposed to risks associated with fluctuations in
these foreign currencies. However, because our agreements with Mexican suppliers
are denominated in Mexican pesos, we may be exposed to fluctuations in Mexican
pesos, as well as to downturns in the Mexican economy, all of which may affect
profitability. During the six months ended December 31, 1999, $13.7 million of
our direct costs were denominated in Mexican pesos.
Other Market Risks. We are also exposed to potential risks in dealing with
foreign suppliers in foreign countries associated with potentially weaker
protection of intellectual property rights, unexpected changes in regulations
and tariffs, and varying tax consequences.
ITEM 3. PROPERTIES
Our headquarters are located at One Evertrust Plaza in Jersey City, NJ. We
also utilize office space occupied by HW Partners for certain of our executive
officers and maintain facilities as described in the following chart. We believe
that our existing facilities are adequate for our current needs and that
suitable additional or alternative space will be available in the future on
commercially reasonable terms.
<TABLE>
<CAPTION>
LOCATION SQUARE MONTHLY DESCRIPTION OF USE LEASE EXPIRATION
FEET RENT
- ---------------- ---------- ------- ----------------------------- ----------------
<S> <C> <C> <C>
Jersey City, 10,800 $23,400 Switch and network operations March 2009
New Jersey center
Executive and administrative
offices
Mexico City, 2,324 4,949 Switch and network operations November 2002
Mexico center
Kansas City, Kansas 3,573 4,761 Switch and network operations January 2005
center
Miami, Florida 4,959 8,885 Switch and network operations January 2013
center
</TABLE>
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<PAGE> 40
Item 4. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information with respect to the beneficial
ownership of our outstanding common stock as of March 7, 2000 by:
o each person who is the beneficial owner of more than 5% of our capital
stock;
o each of our directors;
o each of our named executive officers; and
o all of our named executive officers and directors as a group.
All of the shares indicated in the table are shares of common stock.
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF SHARES BENEFICIALLY
HOLDERS BENEFICIALLY OWNED OWNED(1)
------------------------------------------- ------------------ ------------
<S> <C> <C>
IEO Investments, Limited (2) 11,816,200 24.8%
Infinity Emerging Subsidiary Limited (3) 8,683,800 18.2
Infinity Investors Limited (4) 8,500,000 17.9
Clark K. Hunt (5) 8,872,713 18.6
Barrett N. Wissman (6) 19,062,713 40.1
Fred A. Vierra (7) 125,000 *
Mark Graham (8) 225,000 *
Stuart Subotnik (9) 300,000 *
David Leuschen(10) 250,000 *
Jan Robert Horsfall(11) 50,000 *
Stuart Chasanoff(12) 57,500 *
John Stevens Robling, Jr.(13) 120,000 *
Samuel Litwin(14) 2,000,000 4.2
Mitchell Arthur(15) 2,000,000 4.2
Officers and Directors as a Group
(11 Persons) 34,591,413 72.7
</TABLE>
* Represents less than one percent.
(1) Percentage of beneficial ownership is based on 45,799,832 shares of common
stock outstanding at March 7, 2000, 507,246 shares of common stock issuable
upon conversion of 7,000 outstanding shares of our Series B Convertible
Preferred Stock and 869,832 shares of common stock issuable upon conversion
of 15,570 outstanding shares of our Series C Convertible Preferred Stock and
400,000 shares of common stock issuable upon stock options that have vested.
If all of such shares had been issued, we would have had 47,576,910 shares
of common stock outstanding. All percentage calculations include shares of
common stock issuable upon the exercise of vested stock options and assume
that all shares of our Series B Convertible Preferred Stock and Series C
Convertible Preferred Stock have been converted into shares of our common
stock.
(2) The address of IEO Investments Limited is Hunkins Waterfront Plaza, Main
Street P.O. Box 556, Charlestown, Nevis, West Indies.
(3) The address of Infinity Emerging Subsidiary Limited is Hunkins Waterfront
Plaza, Main Street P.O. Box 556, Charlestown, Nevis, West Indies.
(4) The address of Infinity Investors Limited is Hunkins Waterfront Plaza, Main
Street P.O. Box 556, Charlestown, Nevis, West Indies.
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<PAGE> 41
(5) Represents 8,683,800 shares of common stock owned by Infinity Emerging
Subsidiary Limited, 103,913 shares of common stock owned by HW Capital and
35,000 shares of common stock owned by Mr. Hunt and options to purchase
50,000 shares of common stock that vested on September 22, 1999. Mr. Hunt
disclaims beneficial ownership of the shares of common stock held by IEO
Investments, Limited and Infinity Emerging Subsidiary Limited. Mr. Hunt's
address is 4000 Thanksgiving Tower, 1601 Elm Street, Dallas, Texas 75201.
(6) Represents 8,683,800 shares of common stock owned by Infinity Emerging
Subsidiary Limited, 8,500,000 shares of common stock owned by Infinity
Investors Limited, 103,913 shares of common stock owned by HW Capital,
200,000 shares of common stock owned by the Sienna Trust, 1,500,000 shares
of common stock issuable upon exercise of an option granted to Sienna Trust
by IEO Investments Limited on September 22, 1999, 25,000 shares of common
stock owned by Mr. Wissman and options to purchase 50,000 shares of common
stock that vested on September 22, 1999. Mr. Wissman disclaims beneficial
ownership of the shares of common stock held by Infinity Emerging
Subsidiary Limited and Infinity Investors Limited. Mr. Wissman's address is
4000 Thanksgiving Tower, 1601 Elm Street, Dallas, Texas 75201.
(7) Represents 25,000 shares of common stock owned by Mr. Vierra and his wife
as joint tenants and options to purchase 100,000 shares of common stock
that vested on September 22, 1999. Mr. Vierra's address is 6400 W.
Fiddler's Green Circle, Suite 710, Englewood, Colorado 80111.
(8) Represents 125,000 shares of common stock owned by Pinnacle Investments,
Ltd., 50,000 shares of common stock owned by Mr. Graham and options to
purchase 50,000 shares of common stock that vested on September 22, 1999.
Mr. Graham's address is 700 S. Henderson Rd., Suite 300, King of Prussia,
Pennsylvania 19406.
(9) Includes options to purchase 50,000 shares of common stock that vested on
October 14, 1999. Mr. Subotnik's address is 215 East 67th Street, 7th
Floor, New York, New York 10021.
(10) Includes options to purchase 50,000 shares of common stock that vested on
February 4, 2000. Mr. Leuschen's address is 237 Park Avenue, Suite 2124,
New York, NY 10017.
(11) Includes options to purchase 50,000 shares of common stock that vested on
October 14, 1999. Mr. Horsfall's address is 200 Church Street, Suite 401,
New York, NY 10013.
(12) Mr. Chasanoff's address is 4000 Thanksgiving Tower, 1601 Elm Street,
Dallas, Texas 75201.
(13) Mr. Robling's address is 1 Evertrust Plaza, 8th Floor, Jersey City, NJ
07302.
(14) Mr. Litwin's address is 1 Evertrust Plaza, 8th Floor, Jersey City, NJ
07302.
(15) Mr. Arthur's address is 1 Evertrust Plaza, 8th Floor, Jersey City, NJ
07302.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
The following persons are our directors and executive officers:
<TABLE>
<CAPTION>
NAME AGE POSITION
----------------------- ----- -----------------------------------------------
<S> <C> <C>
Fred A. Vierra 68 Chairman of the Board
Barrett N. Wissman 37 President and Chief Executive Officer, Director
Clark K. Hunt 35 Director
Mark R. Graham 41 Director
Olaf Guerrand-Hermes 36 Director
Stuart Subotnick 58 Director
Jan Robert Horsfall 39 Chief Internet Strategist, Director
David Leuschen 48 Director
Stuart Chasanoff 34 Vice President of Business Development,
General Counsel and Secretary
John Stevens Robling, Jr. 49 Vice President, Chief Financial Officer,
Treasurer and
Assistant Secretary
Samuel Litwin 44 Managing Director of Communications Holdings
Mitchell Arthur 32 Managing Director of Communications Holdings
</TABLE>
DIRECTORS
Fred A. Vierra, 68, has been our Chairman of the Board and one of our
directors since September 22, 1999. He was Chief Executive Officer of
Tele-Communications International, Inc., the international arm of
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<PAGE> 42
Tele-Communications, Inc., from 1994 to 1997. He was also Vice Chairman of the
Board of Directors until November 1998. Prior to joining Tele-Communications,
Mr. Vierra was President and Chief Operating Officer of United Artists
Entertainment Company, where he was in charge of all day-to-day operations and
ongoing strategies for the corporation. In this position, Mr. Vierra also
directed the activities of both United Artists' cable television and theater
division presidents. He also served as President of United Cable Television
Corporation, which was merged into United Artists in 1989. Mr. Vierra began his
career in the cable industry as Executive Vice President, Investment Banking,
for Daniels & Associates, the leading financial services company for the cable
industry. Mr. Vierra has served on the Boards of Turner Broadcasting, Discovery
Channel, Princes Holdings Ltd., Australas Media Ltd., Torneos y Competencias
S.A., Tele-Communications International, Inc., and Telewest plc. Currently, Mr.
Vierra is Chairman of the Board of VeloCom Inc., and a Board member of Flextech
plc, Formus Communications, Inc., and Jones International Networks, Ltd.
Barrett N. Wissman, 37, has been our President and Chief Executive Officer
and one of our directors since September 22, 1999. He has been the sole manager
of HW Partners, a Co-Manager of HW Capital and a manager of related investment
advisory companies which he co-founded in 1993. From October, 1987 to September,
1993, Mr. Wissman served as Chief Executive Officer of Athena Products
Corporation, a manufacturer and marketer of chemicals, fertilizers and household
consumer products and its subsidiaries and affiliates. He oversaw all aspects of
Athena's operations, including administration, finance, marketing and
production. Mr. Wissman ultimately orchestrated the sale of Athena's assets,
including the licensing of several of Athena's manufacturing processes and
trademarks. From 1985 to 1987, Mr. Wissman was an analyst at Lazard Freres &
Co., L.L.C. in the areas of international mergers and acquisitions and
international project finance. Mr. Wissman holds Bachelor of Arts degrees, cum
laude, in economics and political science from Yale University and a Master of
Arts degree in music from Southern Methodist University.
Clark K. Hunt, 35, has been one of our directors since September 22, 1999.
He is President of Hunt Financial Group, L.L.C., a Dallas, Texas based financial
service firm, and is a Co-Manager of HW Capital and related investment advisory
companies which he co-founded in 1991. From June of 1987 to August of 1989
Mr. Hunt was an analyst at Goldman, Sachs & Co. in New York and Los Angeles. At
Goldman Sachs, he participated in mergers, acquisitions, initial public
offerings, cross-currency swaps and leveraged buy-outs. Mr. Hunt is also
involved with several family controlled enterprises including venture capital
investor Hunt Capital Group, real estate and mining conglomerate, Hunt Midwest
Enterprises, and Hunt Sports Group. Hunt Sports Group is the management company
responsible for overseeing the Hunt family's investments in the Kansas City
Chiefs of the National Football League, the Chicago Bulls of the National
Basketball Association and two franchises in the newly launched Major League
Soccer. Mr. Hunt serves as a director of United Petroleum Corporation and
Granite Golf Corporation. Mr. Hunt attended Southern Methodist University, where
he graduated first in his class with a Bachelor of Business Administration and
was a two-time recipient of the University's highest academic award, the Provost
Award for Outstanding Scholar.
Mark R. Graham, 41, has been one of our directors since September 22,
1999. Mr. Graham has been a principal of Catalyst Asset Management, since
December of 1999. He was a private investor based in Philadelphia, Pennsylvania
from 1997 until forming Catalyst. Mr. Graham co-founded Drake Goodwin & Graham,
a private equity investment firm, in 1992 and served as a director until 1997.
Prior to co-founding Drake Goodwin & Graham, Mr. Graham was employed with Morgan
Stanley in its Mergers & Acquisitions department, serving as an associate and
thereafter as a Vice President from 1987 to 1992. Mr. Graham served as an
associate with E.F. Hutton LBO Inc., the leveraged buyout group of E.F. Hutton &
Co. from 1984 to 1987. From 1983 to 1984, Mr. Graham was an associate attorney
with Bracewell & Patterson, Houston, Texas. Mr. Graham received a Bachelor of
Arts in History, cum laude, from the University of Michigan and a Juris Doctor
degree from Georgetown University Law Center.
Olaf Guerrand-Hermes, 36, has been one of our directors since September 22,
1999. He has been investing privately in Europe and in the United States since
the early 1990s. He is a Managing Partner at Blue Growth Capital, LLC, an
investment partnership. Prior to organizing Blue Growth Capital, Mr.
Guerrand-Hermes was Managing Director of International Equities at The Athena
Group, a private international investment management company. At The Athena
Group, Mr. Guerrand-Hermes was primarily responsible for
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<PAGE> 43
international projects as well as raising equity capital for proposed
investments. Prior to joining The Athena Group, Mr. Guerrand-Hermes was Vice
President at Nomura Securities International, Inc., specializing in structured
finance products such as commercial mortgage backed securities. In addition to
his experience in the field of finance, Mr. Guerrand-Hermes was an associate
with Sullivan & Cromwell, a New York law firm, where he was involved in a
variety of international transactions, including public offerings and private
placements in the United States by European and other foreign companies and
governments. Mr. Guerrand-Hermes is a member of the New York bar, a graduate of
New York University School of Law and holds two masters from the University of
Pantheon-Assas (Paris II) in Paris, France. Mr. Guerrand-Hermes is a member of
the board of directors of Hermes-Sellier.
Stuart Subotnik, 58, has been one of our directors since January 1, 2000.
Mr. Subotnik has been retained as a consultant to eVentures for the period prior
to his joining our board as of the special meeting held by the Board of
Directors dated October 14, 1999. He is a general partner and an owner of
Metromedia Company. He is also Chief Executive Officer of Metromedia
International Group, Chairman of Big City Radio, Inc. and a director of Carnival
Cruise Lines, Inc. and Metromedia Fiber Network, Inc., a provider of high
bandwidth, fiber optic transmission capacity. Since 1981, Mr. Subotnick has
operated investments in businesses such as long distance providers, motion
picture companies, restaurant chains, hotels, a diesel pump manufacturer,
medical equipment research groups, software developers, Internet providers,
laser disc distributors and Major League Soccer.
Jan Robert Horsfall, 39, has been one of our directors since January 1,
2000. Mr. Horsfall is also our Chief Internet Strategist as of the special
meeting held by the Board of Directors dated October 14, 1999. Mr. Horsfall is
Chief Executive Officer and President of PhoneFree.com. Prior to his position
with PhoneFree.com and eVentures and between 1996 and 1999, Mr. Horsfall was
Vice President of Marketing for Lycos Inc., where he was responsible for all
marketing, public relations, database marketing, product management, advertising
and promotion. Prior to joining Lycos, Mr. Horsfall was Vice President of
Consumer Brands at The Valvoline Company, a division of Ashland, Inc. Mr.
Horsfall has a Bachelor of Science degree from Colorado State University.
David Leuschen, 48, has been one of our directors since February 4, 2000.
From 1977 to the present, Mr. Leuschen has been employed by Goldman, Sachs & Co.
in various capacities. From 1986 to 1999, he was a partner of Goldman, Sachs in
charge of the firm's Energy and Power Department within Investment Banking,
which is responsible for the firm's activities (both agency- and
principal-based) related to oil and gas, pipeline and electric utility, and
other power companies worldwide. He is also a member of the Energy Investment
Committee, which oversees direct investment activity in the energy and power
arenas. David joined the Goldman Sachs in 1977 and became head of the
predecessor Oil and Gas Group in 1985. He has been a Director of Cambridge
Energy Research Associates; a leading energy consulting firm headquartered in
Cambridge, Massachusetts and the Cross Timbers Oil Company of Ft. Worth, Texas.
He is also owner and President of Switchback Ranch Company of Cody, Wyoming and
Roscoe, Montana. He is currently a Director of J. Aron Resources Company of
Calgary, Alberta; a Director of Beartooth Energy Partners of Ft. Worth, Texas;
and a Director of Keystone Energy Group, a national energy policy-making
organization based in Washington, D.C. He received his M.B.A. and A.B. degrees
from Dartmouth College in 1977 and 1974, respectively.
EXECUTIVE OFFICERS THAT ARE NOT DIRECTORS
Stuart Chasanoff, 34, has been our Vice President of Business Development,
General Counsel and Secretary as of September 22, 1999. Prior to joining
eVentures, Mr. Chasanoff was Senior Vice President and General Counsel to HW
Partners, a Texas limited partnership that manages pooled investment vehicles
for high net worth and institutional investors. At HW Partners, Mr. Chasanoff
assisted the principals of HW Partners in developing investments in a portfolio
of publicly held microcap companies and privately held start up companies in a
variety of fields, including telecommunications, high technology manufacturing,
entertainment and retailing. Mr. Chasanoff also oversaw the development of
various investment vehicles and was involved in HW Partners' day to day
operations. Between 1990 and 1994, and again in 1996, Mr. Chasanoff was an
associate corporate attorney with the New York office of White & Case, LLP
specializing in
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<PAGE> 44
mergers and acquisitions, capital markets, corporate reorganizations and
financial services. Additionally, he served as in-house counsel at PepsiCo.,
Inc. from 1994 to 1995, practicing in the areas mergers and acquisitions,
capital markets, international joint ventures and derivative transactions. Mr.
Chasanoff has been a director of United Petroleum Corporation, a Florida based
chain of convenience stores, since November 1999, a director of Granite Golf
Group, Inc., a Scottsdale, Arizona based golf course management company, since
November 1998 and a director of Tamboril Cigar Company, a Miami based
manufacturer of cigars, since December 1998. Mr. Chasanoff is a member of the
New York bar, a 1990 cum laude graduate of the Fordham University School of Law
and a 1987 graduate of the University of Virginia with a Bachelor of Arts degree
in Political and Social Thought.
John Stevens Robling, Jr., 49 has been our Vice President, Chief Financial
Officer and Assistant Secretary since September 22, 1999 and our Treasurer since
September 22, 1999. Mr. Robling is also currently serving as Chief Financial
Officer of PhoneFree.com. Prior to his appointment in these positions, Mr.
Robling was Chief Financial Officer of Axistel, and he continues to hold this
position. Before joining Axistel in 1998, Mr. Robling was an independent
financial advisor and specialized in offering private equity investment services
to various clients. From 1992 to 1997, Mr. Robling was a principal, board
member, and member of the investment committee of Hamilton Lane Advisors, Inc.
Hamilton Lane is a private equity consulting firm headquartered in Philadelphia,
Pennsylvania. Prior to joining Hamilton Lane, Mr. Robling was a Vice President
at Lazard Freres & Co. in its International and Mergers and Acquisitions
departments. In these capacities, he assisted clients in 18 financial advisory
or capital markets assignments which had an overall transaction value in excess
of $3 billion dollars. He was also a member of the Country Advisory Group, an
informal partnership among Lazard Freres & Co., S.G. Warburg and Lehman Brothers
which advised the sovereign governments of developing countries. In connection
with these engagements, Mr. Robling provided financial advisory services to
national telecommunications authorities and multi-national telecommunications
companies. Mr. Robling received an MBA from the University of Chicago and
graduated with distinction from Georgetown University, where he majored in
economics.
Samuel Litwin, 44, has been our Managing Director of Communications
Holdings since September 22, 1999. He is also Chief Executive Officer of
AxisTel. Prior to his appointment, Mr. Litwin was a Senior Account Manager for
multi-national accounts at LDDS Worldcom. He held various management positions
from 1986 to 1993 at Bell Atlantic, including Senior Account Manager. Mr. Litwin
received a BS in Business Administration from Brooklyn College.
Mitchell Arthur, 32, has been our Managing Director of Communications
Holdings since September 22, 1999. He is also President and Chief Operating
Officer of AxisTel. From 1994 to 1998, Mr. Arthur was Global Account Manager for
U.S. and international accounts at MFS Communications, where he was involved in
the development of MFS's New York/New Jersey fiber-optic network. From 1991 to
1994, Mr. Arthur was a Major Account Manager at Worldcom, where he was
responsible for large commercial accounts. Mr. Arthur received an BS in Business
Administration and Marketing from Dominican College.
COMMITTEES OF THE BOARD OF DIRECTORS
Our Board of Directors has established an audit committee consisting of
Messrs. Vierra, Guerrand-Hermes and Subotnick, a compensation committee
consisting of Messrs. Hunt, Wissman, Guerrand-Hermes, Leuschen and Graham, and
an option subcommittee of the compensation committee consisting of Messrs.
Leuschen and Graham.
ITEM 6. EXECUTIVE COMPENSATION
COMPENSATION FOR FISCAL YEAR 1999 AND FISCAL YEAR 2000 UNTIL SEPTEMBER 22, 1999
In connection with our reorganization, the end of our fiscal year was
changed from April 30 to June 30 in order to align our fiscal year with the
fiscal year of e.Volve, one of the wholly owned subsidiaries that was acquired
in our reorganization. Consequently, the information presented below with
respect to fiscal year 1999 is with respect to the fiscal year of eVentures
ended April 30, 1999 and the information with respect to fiscal year 2000 is
with respect to the fiscal year of eVentures ending June 30, 2000.
During fiscal year 1999, the transition period between April 30, 1999, and
prior to September 22, 1999 in fiscal year 2000, Daniel L. Wettriech served as
our President, and we did not have any other employees or
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<PAGE> 45
officers. During each of these periods, Daniel L. Wettriech did not receive any
salary, bonuses, stock awards, options or other compensation from us. Daniel L.
Wettriech resigned as our President on September 22, 1999.
Summary Compensation Table for Fiscal Year 2000
The following table identifies the officers who we believe will be our
most highly compensated executive officers during fiscal year 2000. All of the
named executive officers listed below have served as executive officers of
eVentures since September 22, 1999. In addition, all of the named executive
officers listed below are being compensated by eVentures during fiscal 2000,
except for Barrett N. Wissman who receives a salary of $120,000 from HW
Partners. We are obligated to reimburse HW Partners for Mr. Wissman's salary
pursuant to the Management Services Agreement, dated as of September 22, 1999,
between eVentures and HW Partners. For a description of the other services
provided to us by HW Partners under the management services agreement, see
Item 7. "Certain Relationships and Related Transactions."
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<PAGE> 46
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
----------------------
Securities
ANNUAL COMPENSATION Underlying LTIP All Other
Fiscal ------------------- Restricted Stock Options/SARs Payouts Compensation
Name and Principal Position Year Salary($) Bonus($) Award(s)($) (#) ($) ($)
----------------------------- ------- -------------------- ------------------ ------------ ------- -------------
<S> <C> <C> <C> <C> <C> <C>
Barrett N. Wissman 2000 $120,000 None None 100,000 None None
President and Chief
Executive Officer
Stuart Chasanoff 2000 $160,000 discretionary None 500,000 None None
Vice President of Business
Development, General Counsel
and Secretary
John Stevens Robling Jr. 2000 $180,000 discretionary None 425,000 None None
Vice President, Chief
Financial Officer, Treasurer
and Assistant Secretary
Samuel Litwin 2000 $180,000 discretionary None 425,000 None None
Managing Director of
Communications Holdings
Mitchell Arthur 2000 $180,000 discretionary None 425,000 None None
Managing Director of
Communications Holdings
</TABLE>
Option Grants During Fiscal Year 2000
Prior to September 22, 1999, we did not grant any stock options. We have
never granted any stock appreciation rights ("SARs"). The following table
describes the options to acquire shares of our common stock granted to the
individuals named above during fiscal year 2000 to date. All of the named
executive officers listed below have served as our executive officers since
September 22, 1999:
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL POTENTIAL REALIZABLE
SECURITIES OPTIONS/SARS VALUE AT ASSUMED
UNDERLYING GRANTED TO ANNUAL RATES OF
eVENTURES EMPLOYEES EXERCISE OF STOCK PRICE
OPTIONS/SARS IN FISCAL YEAR BASE PRICE EXPIRATION APPRECIATION FOR
NAME GRANTED (#) (%)(2) ($/SH) DATE OPTION TERM (1)
------------------- ------------ -------------- ----------- ----------- -----------------------
5% ($) 10% ($)
<S> <C> <C> <C> <C> <C> <C>
Barrett N. Wissman 100,000 3.36% $ 10 9/22/2009 $ 0 $ 136,000
President and Chief
Executive Officer
Stuart Chasanoff 500,000 16.80% $ 2.50 9/22/2009 $ 1,067,000 $ 3,180,000
Vice President of $ 5.00
Business Development $ 7.50
General Counsel and
Secretary
John Stevens Robling Jr. 425,000 14.28% $ 10 9/22/2009 $ 0 $ 578,000
Vice President, Chief
Financial Officer,
Treasurer and Assistant
Secretary
Samuel Litwin 425,000 14.28% $ 10 9/22/2009 $ 0 $ 578,000
Managing Director of
Communications Holdings
Mitchell Arthur 425,000 14.28% $ 10 9/22/2009 $ 0 $ 578,000
Managing Director of
Communications Holdings
</TABLE>
(1) Assumes that the fair market value of our common stock on the date of
each grant was $4.38 per share, which was the average of the closing bid and
asked price of the common stock on that date.
(2) Percentage of total options granted to employees in fiscal year 2000
is based on 2,976,000 options:
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<PAGE> 47
o 800,000 granted to our directors;
o 150,000 options received by Jan Robert Horsfall as part of the
consideration for his employment as our Chief Internet Strategist
and 100,000 options as consideration for his agreement to serve
as one of our directors;
o 1,350,000 granted to certain of our employees in accordance with
employment agreements entered into in connection with our
reorganization;
o 425,000 granted to our Chief Financial Officer in connection with
our reorganization;
o 75,000 granted to certain employees of AxisTel in connection with
our reorganization in replacement of outstanding options of
AxisTel; and
o 76,000 granted to certain of our non-executive employees.
Aggregated Option Exercises and Year-End Option Values in Fiscal Year 2000
During fiscal year 2000, we granted options to each of the executive
officers named in the Summary Compensation Table above. The following table
describes the value of our options exercised by our executive officers during
fiscal year 2000 and the value of unexercised options held by our officers at
March 7, 2000. The table covers the period between September 22, 1999 and
March 7, 2000, which is the period during which these persons were officers.
None of the individuals named in the Summary Compensation Table for fiscal year
2000 were granted options to purchase our shares prior to September 22, 1999.
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SECURITIES VALUE OF UNEXERCISED
ACQUIRED ON VALUE UNDERLYING UNEXERCISED OPTION IN-THE-MONEY OPTIONS AT
NAME EXERCISE (#) REALIZED ($) AT MARCH 7, 2000 (#) MARCH 7, 2000
- ----------------------- ---------------- ------------ ----------------------------- --------------------------
EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
----------------------------- --------------------------
<S> <C> <C> <C> <C>
Barrett N. Wissman _ _ _ _ 50,000/50,000 $1,125,000/$1,125,000
President and Chief
Executive Officer
Stuart Chasanoff _ _ _ _ 0/500,000 0/$13,750,000
Vice President of Business
Development General Counsel
and Secretary
John Stevens Robling Jr. _ _ _ _ 0/425,000 0/$9,562,500
Vice President, Chief
Financial Officer, Treasurer
and Assistant Secretary
Samuel Litwin _ _ _ _ 0/425,000 0/$9,562,500
Managing Director of
Communications Holdings
Mitchell Arthur _ _ _ _ 0/425,000 0/$9,562,500
Managing Director of
Communications Holdings
</TABLE>
COMPENSATION OF DIRECTORS
On September 22, 1999, pursuant to our 1999 Omnibus Securities Plan
described below, we granted a total of 600,000 options to purchase shares of our
common stock to our newly appointed directors. On October 14, 1999, we granted
100,000 options to purchase shares of our common stock to each of Jan Robert
Horsfall and Stuart Subotnik, respectively, in connection with their agreements
to serve as our directors. On February 4, 2000, we granted 100,000 options to
purchase shares of our common stock to David Leuschen in connection with his
agreement to serve as our director. Other than as provided by our 1999 Omnibus
Securities Plan described below and the reimbursement of reasonable expenses
incurred with attending board and committee meetings, we have not yet adopted
specific policies on directors' compensation and benefits as of the date of this
filing.
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<PAGE> 48
EMPLOYMENT AGREEMENTS
Barrett N. Wissman provides services and receives compensation as our
President and Chief Executive Officer from HW Partners pursuant to a Management
Services Agreement between eVentures and HW Partners. We are obligated to
reimburse HW Partners for Mr. Wissman's salary of $120,000. For a description of
the other services provided to us by HW Partners under the management services
agreement, see Item 7 - "Item 7. Certain Relationships and Related
Transactions."
Stuart Chasanoff, our Vice President of Business Development, General
Counsel and Secretary, is employed pursuant to an employment agreement that was
entered into on September 22, 1999. The agreement commenced on September 22,
1999 and will expire on September 21, 2002, and will automatically be extended
for additional terms of successive one year periods unless either we or Mr.
Chasanoff notifies the other in writing at least sixty days prior to the
expiration of the then current term that the extension will not take effect. Mr.
Chasanoff will receive the following annual base salary:
o $160,000 for the period October 1, 1999 through September 21, 2000;
o $172,800 for the period September 22, 2000 through September 21,
2001; and
o $186,624 for the period September 22, 2001 through September 21,
2002.
Mr. Chasanoff's employment agreement provides him with the eligibility to
receive discretionary bonuses payable by us on such terms and conditions as
determined by the board of directors or the compensation committee of such
board. In addition, Mr. Chasanoff's employment agreement also grants him an
option to purchase 500,000 shares of our common stock, pursuant to our 1999
Omnibus Securities Plan described below. These options have an exercise price
and shall vest as follows:
o $2.50 per share for 166,666 shares which shall vest on September 21,
2000;
o $5.00 per share for $166,667 shares which shall vest on September 21,
2001; and
o $7.50 per share for 166,667 shares which shall vest on September 21,
2002.
In addition, these options will vest immediately if we terminate Mr.
Chasanoff's employment without cause, if Mr. Chasanoff terminates his employment
for good reason or the options are accelerated upon a change of control of our
company. Mr. Chasanoff's employment may be terminated for cause, without cause,
by voluntary resignation, death or disability. If at least thirty days prior to
the expiration of the employment term we have failed to offer to extend the term
for a period of at least one year on substantially identical terms as set forth
in the agreement, then Mr. Chasanoff shall be entitled to receive payments of an
amount equal to his then monthly rate of base salary for a period of six months
following the date of termination.
Mitchell Arthur, one of our Managing Directors of Communications
Holdings and President and Chief Operating Officer of AxisTel, is employed by
AxisTel pursuant to an employment agreement that was entered into on October 28,
1998 and amended and restated on September 22, 1999. The amended and restated
employment agreement commenced on September 22, 1999 and shall continue for
twenty-four months, expiring on September 21, 2001. Upon the end of this initial
term, AxisTel has agreed to offer to extend the term of employment for one
additional year ending September 21, 2002 on substantially identical terms and
base salary applicable at the time of expiration of the initial term of
employment, but without the requirement for the issuance of any additional stock
options. In addition, the employment agreement may be renewed by mutual
agreement of the parties at the end of each term for additional one year
periods. Under the amended and restated employment agreement, Mr. Arthur will
receive an annual base salary of $180,000 during each fiscal year of the term of
employment. This compensation shall be reviewed at least annually by our board
of directors, and any appropriate increases to this base salary may be made at
the sole discretion of our board. Mr. Arthur's employment agreement provides him
with the eligibility to receive discretionary bonuses payable by us on such
terms and conditions as determined by our board of directors or the compensation
committee of such board. In addition, Mr. Arthur's employment agreement also
grants him an option to purchase 425,000
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<PAGE> 49
shares of our common stock, pursuant to our 1999 Omnibus Securities Plan
described below. These options have an exercise price of $10 per share and shall
vest as follows:
o 141,166 shares (1/3) shall vest on September 21, 2000;
o 141,167 shares (1/3) shall vest on September 21, 2001; and
o 141,167 shares (1/3) which shall vest on September 21, 2002.
These options will vest immediately if we terminate Mr. Arthur's
employment without cause, if we fail to extend, as agreed, Mr. Arthur's term of
employment for an additional year after the expiration of the initial term or if
the options are accelerated upon a change of control of our company. Mr.
Arthur's employment may be terminated for cause, without cause, by voluntary
resignation, death or disability. If AxisTel terminates Mr. Arthur's employment
during the term of the agreement without cause, then Mr. Arthur shall be
entitled to receive his base salary then in effect for the remainder of the term
and the contractual restriction on Mr. Arthur's ability to sell any shares of
our common stock set forth in the registration rights agreement executed on
September 22, 1999 shall terminate and cease to apply to Mr. Arthur .
Mr. Samuel Litwin, one of our Managing Directors of Communications
Holdings and Chief Executive Officer of AxisTel, is employed by AxisTel pursuant
to an employment agreement that was entered into on October 28, 1998 and amended
and restated on September 22, 1999. The amended and restated employment
agreement commenced on September 22, 1999 and shall continue for twenty-four
months, expiring on September 21, 2001. Upon the end of this initial term,
AxisTel has agreed to offer to extend the term of employment for one additional
year ending September 21, 2002 on substantially identical terms and base salary
applicable at the time of expiration of the initial term of employment, but
without the requirement for the issuance of any additional stock options. In
addition, the employment agreement may be renewed by mutual agreement of the
parties at the end of each term for additional one year periods. Under the
amended and restated employment agreement, Mr. Litwin will receive an annual
base salary of $180,000 during each fiscal year of the term of employment. This
compensation shall be reviewed at least annually by our board of directors, and
any appropriate increases to this base salary may be made at the sole discretion
of our board. Mr. Litwin's employment agreement provides him with the
eligibility to receive discretionary bonuses payable by us on such terms and
conditions as determined by our board of directors or the compensation committee
of such board. In addition, Mr. Litwin's employment agreement also grants him a
stock option to purchase 425,000 shares of our common stock, pursuant to our
1999 Omnibus Securities Plan described below. These options have an exercise
price of $10 per share and shall vest as follows:
o 141,166 shares (1/3) shall vest on September 21, 2000;
o 141,167 shares (1/3) shall vest on September 21, 2001; and
o 141,167 shares (1/3) which shall vest on September 21, 2002.
These options will vest immediately if we terminate Mr. Litwin's employment
without cause, if we fail to extend, as agreed, Mr. Litwin's term of employment
for an additional year after the expiration of the initial term or if the
options are accelerated upon a change of control of our company. Mr. Litwin's
employment may be terminated for cause, without cause, by voluntary resignation,
death or disability. If AxisTel terminates Mr. Litwin's employment during the
term of the agreement without cause, then Mr. Litwin shall be entitled to
receive his base salary then in effect for the remainder of the term and the
contractual restriction on Mr. Litwin's ability to sell any shares of our common
stock set forth in the registration rights agreement executed on September 22,
1999 shall terminate and cease to apply to Mr. Litwin.
At present, none of the other named executive officers or key employees is
party to an employment agreement with us.
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<PAGE> 50
1999 OMNIBUS SECURITIES PLAN
The Board of Directors and our stockholders adopted and approved our 1999
Omnibus Securities Plan (the "Omnibus Plan") as of September 22, 1999. Under the
Omnibus Plan, our officers, directors, key employees and consultants, together
with those of our subsidiaries, are eligible to receive stock options,
restricted and unrestricted stock awards, dividend equivalent rights, interest
equivalents, stock appreciation rights, and performance stock awards. No person
can be granted in any calendar year awards under the Omnibus Plan covering more
than 500,000 shares of our common stock.
We have authorized and reserved 15 percent of our issued and outstanding
shares of common stock, at any time, for delivery upon the exercise of stock
options, or under other awards, granted pursuant to the Omnibus Plan, as that
number of shares is determined in calculating our fully diluted earnings per
share for our fiscal year immediately preceding such time; however, we may not
deliver more than a total of 4,000,000 shares of our common stock upon the
exercise of "incentive stock options." The shares of our common stock that may
be issued under the Omnibus Plan may be either authorized and unissued shares or
previously issued shares held as treasury shares.
Options to purchase 2,450,000 shares of our common stock were granted on
September 22, 1999 in connection with our reorganization, and options to
purchase 425,000, 1,000 and 100,000 shares were granted to eligible individuals
on October 14, 1999, January 24, 2000 and February 4, 2000, respectively. All
options granted in connection with our reorganization, except for the options
granted to Annette Dickson and William Carroll, were granted to eligible
individuals who were appointed as either executive officers or directors of our
Company. Annette Dickson and William Carroll are AxisTel employees who held
AxisTel options prior to our reorganization and who, in connection with our
reorganization, received eVentures options in exchange for the AxisTel options
they held. See Item 1 - "The Reorganization Transaction."
As of March 7, 2000, no options granted under the Omnibus Plan have been
exercised, and no types of awards other than options have been granted under the
Omnibus Plan. These options granted under the Omnibus Plan have a weighted
average exercise price of $9.56 per share. The following table summarizes, for
each option granted and outstanding under the Omnibus Plan as of March 7, 2000,
the date of grant, recipient, vesting schedule, exercise price and total number
of shares covered by such option.
<TABLE>
<CAPTION>
VESTING SCHEDULE
----------------------------------------------------------
GRANT DATE NAME TOTAL NUMBER OF NUMBER OF SHARES
SHARES GRANTED VESTING VESTING DATE EXERCISE PRICE
--------------- -------------- ------------------ --------------
<S> <C> <C> <C> <C> <C>
September 22, 1999 Stuart Chasanoff 500,000 166,666 September 22, 2000 $ 2.50
166,667 September 22, 2001 $ 5.00
166,667 September 22, 2002 $ 7.50
------- -------------- ------------------ --------------
September 22, 1999 Samuel L. Litwin 425,000 141,166 September 22, 2000 $ 10.00
141,167 September 22, 2001 $ 10.00
141,167 September 22, 2002 $ 10.00
------- -------------- ------------------ --------------
September 22, 1999 Mitchell Arthur 425,000 141,166 September 22, 2000 $ 10.00
141,167 September 22, 2001 $ 10.00
141,167 September 22, 2002 $ 10.00
------- -------------- ------------------ --------------
September 22, 1999 John Stevens 425,000 141,166 September 22, 2000 $ 10.00
Robling, Jr. 141,167 September 22, 2001 $ 10.00
141,167 September 22, 2002 $ 10.00
------- -------------- ------------------ --------------
September 22, 1999 Annette Dickson 15,000 5,000 September 22, 2000 $ 2.50
5,000 September 22, 2001 $ 2.50
5,000 September 22, 2002 $ 2.50
------- -------------- ------------------ --------------
September 22, 1999 William Carroll 60,000 20,000 September 22, 2000 $ 2.50
20,000 September 22, 2001 $ 2.50
20,000 September 22, 2002 $ 2.50
------- -------------- ------------------ --------------
September 22, 1999 Fred Vierra 200,000 100,000 September 22, 1999 $ 10.00
100,000 September 22, 2000 $ 10.00
------- -------------- ------------------ --------------
September 22, 1999 Clark Hunt 100,000 50,000 September 22, 1999 $ 10.00
50,000 September 22, 2000 $ 10.00
------- -------------- ------------------ --------------
September 22, 1999 Barrett N. 100,000 50,000 September 22, 1999 $ 10.00
Wissman 50,000 September 22, 2000 $ 10.00
------- -------------- ------------------ --------------
</TABLE>
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<PAGE> 51
<TABLE>
<S> <C> <C> <C> <C> <C>
September 22, 1999 Mark Graham 100,000 50,000 September 22, 1999 $ 10.00
50,000 September 22, 2000 $ 10.00
------- -------------- ------------------ --------------
September 22, 1999 Olaf Guerrand- 100,000 50,000 September 22, 1999 $ 10.00
Hermes 50,000 September 22, 2000 $ 10.00
------- -------------- ------------------ --------------
October 14, 1999 Jan Robert 100,000 50,000 October 14, 1999 $ 10.00
Horsfall 50,000 October 14, 2000 $ 10.00
------- -------------- ------------------ --------------
150,000 50,000 October 14, 2000 $ 10.00
50,000 October 14, 2001 $ 10.00
50,000 October 14, 2002 $ 10.00
-------------- ------------------ --------------
October 14, 1999 Stuart Subotnik 100,000 50,000 October 14, 1999 $ 10.00
50,000 October 14, 2000 $ 10.00
-------------- ------------------ --------------
October 14, 1999 John Logan 60,000 20,000 October 14, 2000 $ 15.00
20,000 October 14, 2001 $ 15.00
20,000 October 14, 2002 $ 15.00
-------------- ------------------ --------------
October 14, 1999 John Reyes 10,000 3,333 October 14, 2000 $ 15.00
3,333 October 14, 2001 $ 15.00
3,334 October 14, 2002 $ 15.00
-------------- ------------------ --------------
October 14, 1999 Jorge Sesma 5,000 1,666 October 14, 2000 $ 15.00
1,667 October 14, 2001 $ 15.00
1,667 October 14, 2002 $ 15.00
-------------- ------------------ --------------
January 24, 2000 Leanne Redding 1,000 333 January 24, 2001 $ 25.00
333 January 24, 2002 $ 25.00
334 January 24, 2003 $ 25.00
-------------- ------------------ --------------
February 4, 2000 David Leuschen 100,000 50,000 February 4, 2000 $ 23.50
50,000 February 4, 2001 $ 23.50
-------------- ------------------ --------------
</TABLE>
The Omnibus Plan is administered by the Board of Directors. Subject to the
provisions of the Omnibus Plan, the Board of Directors has the authority to
determine the type of award, when and to whom awards will be granted, the number
of shares covered by each award and the terms and conditions of each such award.
The Board of Directors interprets the Omnibus Plan and may at any time adopt the
rules and regulations for the Omnibus Plan as it deems advisable. The Board of
Directors may accelerate the vesting or right to exercise a previously granted
award, in accordance with the terms of the Omnibus Plan. The Omnibus Plan grants
the Board of Directors the authority to appoint a stock plan committee,
comprised of at least two members of the Board of Directors, and delegate to
such committee the administration of the Omnibus Plan, subject to the right of
the Board of Directors to exercise duties and responsibilities delegated to the
stock plan committee under the Omnibus Plan. At the discretion of the Board of
Directors, this stock plan committee may be the same as the compensation
committee of the Board of Directors.
Stock Options. Stock options may be granted and will become exercisable
under the terms and conditions determined by the Board of Directors in
accordance with the Omnibus Plan. Options granted under the Omnibus Plan may be
"incentive stock options," within the meaning of Section 422 of the Internal
Revenue Code, or "non-qualified stock options," which are not intended to
receive the special income tax treatment accorded incentive stock options under
the Internal Revenue Code. The Board of Directors may impose such restrictions
on the ownership and transferability of the shares purchasable upon the exercise
of an option as it deems appropriate. Options granted under the Omnibus Plan
have an exercise price per share at least equal to the fair market value of a
share of our common stock on the date of grant. However, the Board of Directors
may, subject to certain limitations in the Omnibus Plan, amend the exercise
price of an outstanding option to be not less than the fair market value of our
common stock on the date of such amendment. Once vested, options granted under
the Omnibus Plan may be exercised for a period of up to ten years from the date
of grant. Options (and other awards requiring payment by the holder) under the
Omnibus Plan may be paid by the recipient in cash or any other consideration
permitted by law and authorized by the Board of Directors (including, without
limitation, using shares of our capital stock previously purchased by the
recipient or a broker-assisted or similar exercise procedure). Furthermore, the
Board of Directors may authorize loans to individuals to finance their exercise
of vested options.
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<PAGE> 52
Restricted Stock Awards. The Board of Directors has the authority to grant
restricted stock awards entitling the recipient to acquire shares of our common
stock at par value or such other purchase price, and subject to such
restrictions and conditions, as the Board of Directors may determine at the time
of grant. Upon delivery of the shares of restricted stock, a recipient shall
have all the rights of a stockholder with respect to such shares, subject to the
restrictions established by the Board of Directors at the time of grant, as
described below. All shares of restricted stock shall be subject to such
restrictions as the Board of Directors shall provide and may include
restrictions concerning voting rights and transferability and restrictions based
on duration of employment or engagement with us or our affiliates. The Board of
Directors may also impose such restrictions and conditions on shares of
restricted stock granted under the Omnibus Plan as it deems appropriate, which
may be based on continuing employment or other business relationships with us or
one of our affiliates or the achievement of pre-established, objective
performance goals that are determined over a measurement period established by
the Board of Directors and relate to one or more performance criteria described
in the Omnibus Plan. Restricted stock awarded under the Omnibus Plan may not be
sold, transferred, assigned or encumbered and may not be disposed of, except by
will or the laws of descent and distribution, for a period of time determined by
the Board of Directors until all restrictions lapse. If the recipient of a
restricted stock award under the Omnibus Plan fails to satisfy applicable
conditions established by the Board of Directors in the award, the restricted
stock may be forfeited and revert back to us or we may repurchase such shares of
restricted stock at a cash price per share equal to the price paid by the
recipient for such shares. Restricted stock shall vest and become free of
restrictions on the date, and/or by satisfaction of conditions, specified by the
Board of Directors on the date of grant.
Unrestricted Stock Awards. The Board of Directors also has the authority
to grant or sell an unrestricted stock award to any eligible person, pursuant to
which such person may receive shares of our common stock free of any vesting
restrictions under the Omnibus Plan. Unrestricted stock awards may be granted or
sold as a bonus in respect to past services or other valid consideration or in
lieu of any cash compensation to such an eligible person.
Performance Stock Awards. The Board of Directors may grant performance
stock awards to eligible individuals under the Omnibus Plan. Performance stock
awards entitle the recipient to acquire shares of our common stock upon the
attainment of objective performance goals, established in advance by the Board
of Directors, based on performance criteria set forth in the Omnibus Plan.
Dividend Equivalent Rights and Interest Equivalents. The Board of
Directors may grant to eligible individuals dividend equivalent rights with
other awards under the Omnibus Plan or independent of any other awards. Dividend
equivalent rights entitle the recipient to receive cash or additional shares of
our common stock based on cash dividends that would be paid on a specified
number of shares of our common stock. Settlement of certain awards may, if
permitted by the Board of Directors, be deferred under the Omnibus Plan, and,
during the period of such deferral, such awards may be credited with interest
equivalents as specified in the award agreement.
Stock Appreciation Rights. The Omnibus Plan also permits the Board of
Directors to grant stock appreciation rights with respect to all or any portion
of the shares of common stock covered by options granted under the Omnibus Plan,
or, independent of options, with respect to a specified number of shares of
common stock. A stock appreciation right may be exercised only when the related
option is exercisable (or, in the case of an independent stock appreciation
right, as specified in the applicable award agreement). Upon exercise of a stock
appreciation right, the recipient will receive for each share for which such
stock appreciation right is exercised, an amount, in cash or common stock, as
determined by the Board of Directors, equal to the excess of the fair market
value of a share of common stock on the date the stock appreciation right is
exercised over the exercise price per share of the option to which the stock
appreciation right relates (or, in the case of an independent stock appreciation
right, the exercise price stated in the applicable award agreement).
Other Provisions of the Plan. Except in the event of his or her death, the
recipient of an award under the Omnibus Plan may not transfer such award until
shares of our common stock have been issued to such recipient and all
restrictions applicable to such shares have lapsed, unless such transfer is
approved by the
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<PAGE> 53
Board of Directors in accordance with the terms of the Omnibus Plan. Incentive
stock options granted under the Omnibus Plan may not be transferred if such
transfer would disqualify the option from "incentive stock option" treatment
under the Internal Revenue Code.
The Board of Directors will make appropriate adjustments in the maximum
number and kind of shares available for issuance under the Omnibus Plan, the
maximum number of shares that can be covered by awards granted to an individual
in any one year under the Omnibus Plan, and the number and kind of shares, and
price per share, subject to awards outstanding under the Omnibus Plan in the
event of certain changes in our capital, such as a stock dividend, merger,
recapitalization, spin-off, or extraordinary dividend.
The Omnibus Plan and awards granted, whether or not vested, will
automatically terminate in the event that there is a reorganization or a
transaction involving a "change in control" of our company (as defined in the
Omnibus Plan), unless a provision is made in writing for the continuance of the
Omnibus Plan and for the assumption or substitution of such awards in connection
with such transaction, or the Board of Directors provides for the acceleration
of vesting or exercisability of outstanding awards and/or conversion of such
awards into a right to receive cash or other consideration that could be
received in such change in control with respect to the shares of common stock
underlying such award (net of any exercise price). If the Omnibus Plan and any
outstanding awards granted thereunder shall terminate by reason of such a change
in control without provision for assumption or substitution, or acceleration, or
conversion of outstanding awards, then any holder of an outstanding award shall
have the immediate right, as the Board of Directors may designate, to exercise,
claim or convert his or her award to the full extent not theretofore exercised,
claimed or converted. In the event we consummate any merger, consolidation or
other reorganization not involving such a "change in control," outstanding
awards under the Omnibus Plan may thereafter be exercised or claimed only for
the kind and amount of securities, cash and/or other consideration that could
have been received in such transaction by a holder of the number of shares of
common stock covered by such award.
The Board of Directors may amend or terminate the Omnibus Plan and may
amend any award previously granted under the Omnibus Plan. However, if required
by any law, regulation or stock exchange rule, no such change in the Omnibus
Plan shall be effective without the approval of our stockholders. In addition,
no such change may materially impair an award previously granted, except with
the written consent of the recipient of such award.
No awards may be granted under the Omnibus Plan after September 22, 2009;
however, awards granted prior to such date will remain in effect thereafter,
until they are exercised or terminate or expire in accordance with their terms.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
We did not have a compensation committee during the fiscal year ended
June 30, 1999.
On December 15, 1999, our Board of Directors created a compensation
committee composed of Messrs. Hunt, Wissman and Graham. On February 4, 2000, Mr.
Guerrand-Hermes and Mr. Leuschen were appointed members of the compensation
committee. The compensation committee reviews, recommends and approves
compensation arrangements for executive officers, key employees and other
senior personnel, and administers certain and compensation plans and
arrangements. As of March 7, 2000, our compensation committee has not adopted
formal guidelines to consider when making these determinations.
Prior to December 15, 1999, compensation decisions relating to our
executive officers, key employees and other senior personnel were primarily
made by our Board of Directors.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH e.VOLVE.
Investment by Infinity Entities
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<PAGE> 54
On June 11, 1998, e.Volve entered into a securities purchase agreement with
Infinity Investors Limited pursuant to which:
o e.Volve agreed to issue debentures to Infinity Investors Limited in an
amount up to $6.0 million. Approximately $2.7 million aggregate
principal amount of the e.Volve debentures were issued in exchange for
debentures that Infinity Investors had purchased from Touch Tone
America, Inc. Touch Tone had agreed to merge with e.Volve in August of
1997, but the merger agreement had been terminated in May of 1998.
Infinity Investors Limited agreed to allow e.Volve to assume the Touch
Tone debentures because Touch Tone had previously advanced funds to
e.Volve and Infinity decided to provide funding to e.Volve to construct
its network and operations. The balance of the debentures were
purchased by Infinity Investors Limited for cash.
o e.Volve pledged all of its assets to Infinity Investors Limited to
secure the e.Volve debentures.
o e.Volve issued and sold 2,400 shares of its common stock, representing
two-thirds of the outstanding capital stock of e.Volve, to Infinity
Investors Limited for $0.01 per share.
o Infinity Investors Limited sold a 12.1% interest in the debentures and
shares of e.Volve common stock to IEO Holdings Limited for
approximately $750,000.
As a result of these transactions, Infinity Investors Limited acquired
control of e.Volve. Prior to those transactions, Kerry Rogers was the Chief
Executive Officer of e.Volve. Following this transaction, Steven Loglisci was
appointed President of e.Volve, and Kerry Rogers was appointed Chief Technology
Officer, which was not an executive officer position at e.Volve.
Interest on the e.Volve debentures was payable monthly and e.Volve was
required to make monthly installments of principal, beginning on January 31,
1999 in an amount equal to $50,000 plus any available cash flow of e.Volve. Any
amounts of principal not paid were to be due on June 11, 2000. No payments of
principal were paid on the e.Volve debentures. The proceeds of this financing
were used to purchase equipment and for making capital and general corporate
expenses. e.Volve decided to issue debt and equity as
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<PAGE> 55
a result of arms-length negotiations with representatives of Infinity Investors.
On August 19, 1998, pursuant to the terms of a letter agreement between
e.Volve and Infinity Investors Limited, e.Volve issued debentures in the
principal amount of $850,000 to Infinity Investors Limited and amended the June
11 securities purchase agreement and the related security documents to provide
the benefits of those agreements to Infinity Investors Limited with respect to
the August 19 debentures.
Interest on the August 19 debentures was 8% per annum, payable monthly,
and e.Volve was required to make monthly installments of principal, beginning on
August 31, 1998 in an amount equal to $50,000 plus any available cash flow of
e.Volve. Any amounts of principal not paid were to be due on June 11, 2000. No
payments of principal were paid on the August 19 debenture. The proceeds of the
August 19 debentures were used to fund a cash deposit securing a letter of
credit supporting contractual arrangements between e.Volve and Avantel, S.A.
Under the letter agreement, the August 19 debentures became convertible into 340
shares of e.Volve common stock because the principal of the August 19 debentures
was not repaid in full on or prior to November 19, 1998. e.Volve decided to
issue debt and equity as a result of arms-length negotiations with
representatives of Infinity Investors and because other financing alternatives
would have created an undue strain on its cash flow.
On December 9, 1998, IEO Holdings Limited purchased 909 shares of e.Volve
common stock from Infinity Investors Limited. After the sale, Infinity Investors
Limited and IEO Holdings Limited each owned 33.3% of the outstanding common
stock of e.Volve.
On February 9, 1999, pursuant to the terms of a letter agreement between
e.Volve and Infinity Investors Limited, e.Volve issued debentures in the
principal amount of $390,000 to Infinity Investors Limited and amended the June
11 securities purchase agreement and the related security documents to provide
the benefits of those agreements to Infinity Investors Limited with respect to
the February 9 debentures.
Interest at 8% per annum and principal on the February 9 debentures was
due on February 17, 1999. No payment of principal has been paid on the February
9 debenture. The proceeds of the February 9 debentures were used to fund working
capital needs of e.Volve. e.Volve decided to issue debt and equity as a result
of arms-length negotiations with representatives of Infinity Investors and
because other financing alternatives would have created an undue strain on its
cash flow.
On April 15, 1999, pursuant to the terms of a letter agreement between
e.Volve, Infinity Investors Limited and IEO Holdings Limited:
o e.Volve issued amended and restated debentures in the principal amount
of $7,050,000 to Infinity Investors Limited in exchange for the June 11
debentures, the August 19 debentures and the April 15 debentures;
o e.Volve and Infinity Investors Limited amended the February 9
debentures:
o to extend its maturity date to the earlier to occur of an event
of default and June 30, 1999,
o to provide that interest on the February 9 debentures would be
payable at the same time as interest on the amended and restated
debentures, and
o to provide that the February 9 debentures would be convertible
into shares of e.Volve common stock, at a conversion price of
$2,778 per share, if the principal of the amended and restated
debentures was not repaid in full on or prior to maturity date of
the February 9 debenture;
o e.Volve agreed to pay all outstanding interest on the amended and
restated debentures and the February 9 debentures on April 30, 1999;
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o e.Volve issued warrants expiring on April 15, 2004 to purchase 170
shares of e.Volve common stock at a purchase price of $2,778 per share
to each of Infinity Investors Limited and IEO Holdings Limited; and
o amended the June 11 securities purchase agreement and the related
security documents to provide the benefits of those agreements to
Infinity Investors Limited with respect to the amended and restated
debentures.
Interest on the amended and restated debentures was 8% per annum, payable
monthly, and e.Volve was required to make monthly installments of principal,
beginning on April 30, 1999 in escalating amounts beginning at $50,000 on April
30, 1999 and increasing to $250,000 on December 31, 1999 and thereafter until
repaid in full, plus any available cash flow of e.Volve. No payments of
principal have been paid on the amended and restated debentures. Any amounts of
principal not paid were to be due on June 30, 2000. The debenture was not
converted. e.Volve decided to issue debt and equity as a result of arms-length
negotiations with representatives of Infinity Investors and because other
financing alternatives would have created an undue strain on its cash flow.
On April 29, 1999, pursuant to the terms of a letter agreement between
e.Volve, Infinity Investors Limited and IEO Holdings Limited, e.Volve issued
debentures in the aggregate principal amount of $500,000 to Infinity Investors
Limited and amended the June 11 securities purchase agreement and the related
security documents to provide the benefits of those agreements to Infinity
Investors Limited with respect to the April 29 debentures. IEO Holdings Limited
participated in the April 29 debentures pursuant to the terms of the
participation agreement.
Interest on the April 29 debentures was payable monthly beginning on May 31,
1999 and e.Volve was required to make monthly installments of principal,
beginning on May 31, 1999, in an amount equal to any available cash flow of
e.Volve plus any amounts received by e.Volve or its subsidiaries with respect to
any tax refunds, including an anticipated refund on previously paid Mexican
value added taxes. No payments of principal have been paid on the April 29
debentures. Any amounts of principal not paid were to be due on August 27, 1999.
The proceeds of this loan were used to fund working capital. e.Volve decided to
issue debt and equity as a result of arms-length negotiations with
representatives of Infinity Investors and because other financing alternatives
would have created an undue strain on its cash flow.
On April 30, 1999, pursuant to the terms of a letter agreement between
e.Volve, Infinity Investors Limited and IEO Holdings Limited, e.Volve issued
debentures in the aggregate principal amount of $100,000 to Infinity Investors
Limited and amended the June 11 securities purchase agreement and the related
security documents to provide the benefits of those agreements to Infinity
Investors Limited with respect to the April 30 debentures. IEO Holdings Limited
participated in the April 30 debentures pursuant to the terms of the
participation agreement.
Interest on the April 30, debentures was payable monthly beginning on May
31, 1999 and e.Volve was required to make monthly installments of principal,
beginning on May 31, 1999, in an amount equal to any available cash flow of
e.Volve plus any amounts received by e.Volve or its subsidiaries with respect to
any tax refunds, including an anticipated refund on previously paid Mexican
value added taxes. No payments of principal have been paid on the April 30
debentures Any amounts of principal not paid were to be due on August 28, 1999.
The proceeds of this loan were used to fund working capital. e.Volve decided to
issue debt and equity as a result of arms-length negotiations with
representatives of Infinity Investors and because other financing alternatives
would have created an undue strain on its cash flow.
On May 1, 1999, Infinity Investors Limited and IEO Holdings Limited
executed an assignment agreement. Pursuant to the assignment agreement, IEO
Holdings Limited acquired a 50% interest in the amended and restated debentures
and the warrants. The warrants were subsequently canceled in connection with our
reorganization.
Because the principal amount of the February 9 debenture was not paid on or
prior to June 30, 1999, the
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February 9 debenture became convertible into shares of e.Volve common stock at
the option of the holders, at a conversion price of $2,778 per share, which was
the deemed fair value of shares at the issue date.
Infinity Investors Limited and IEO Holdings Limited have never taken action
to enforce their rights under these debentures. On September 22, 1999, in
connection with our reorganization, eVentures acquired the e.Volve common stock
and e.Volve debentures held by Infinity Investors Limited in exchange for
5,682,807 shares of eVentures common stock and acquired IEO Holdings Limited,
the holder of, among other assets, the 1,200 shares of e.Volve common stock and
the remaining debentures, for 14,562,193 shares of eVentures common stock.
Following our reorganization the debentures were restructured into a single
debenture with a maturity date of December 31, 1999. On December 31, 1999, the
debentures were restructured as an intercompany loan.
Transactions with Mr. Rogers
Prior to and during fiscal year 1999, e.Volve made advances to Mr. Rogers,
the former majority shareholder of e.Volve. The advances were non-interest
bearing and were due on demand. As of June 30, 1998 and 1999, advances due from
Mr. Rogers totaled $60,920 and $0, respectively.
During fiscal years 1998 and 1999, e.Volve shared office space, payroll and
certain other administrative expenses with Orix Systems, which during those
periods was controlled by Mr. Rogers, the former majority shareholder of
e.Volve. During such periods, e.Volve paid Orix Systems $676,227 and $156,597,
respectively, with respect to such expenses.
On April 15, 1999, e.Volve entered into a consulting agreement with Mr.
Rogers that replaced all previous employment agreements made between them. The
term of the consulting agreement commenced on April 15, 1999 and was to
terminate on June 11, 2000. Under the terms of the consulting agreement, e.Volve
engaged Mr. Rogers to perform such general consulting and related duties and
services associated with e.Volve's ongoing and future business operations as
would be determined by the president or chief executive officer of e.Volve. In
consideration for these duties and services, e.Volve was obligated to pay Mr.
Rogers an honorarium of $140,000 for his services in each fiscal year of the
term and an additional fee of $10,000 for each fiscal year of the term for
performing his obligations under the covenant not to compete, the
non-solicitation clause, and the confidentiality provision found in the
consulting agreement. In addition to the honorarium and additional fee, Mr.
Rogers was also entitled to earn a bonus payment which depended on the gross
revenue generated by e.Volve and its subsidiaries on a consolidated basis. In
addition to the compensation and benefits received by Kerry Rogers under the
consulting agreement, Kerry Rogers was entitled to severance payments in the
case that the consulting agreement was terminated without "cause."
On February 24, 2000, e.Volve terminated the consulting agreement pursuant
to a letter agreement with Mr. Rogers. Under this letter agreement, e.Volve paid
Kerry Rogers a lump sum of $105,000, and agreed to pay $31,000 to Nextlink, Inc.
in settlement of a disputed amount among e.Volve, Mr. Rogers and Nextlink. Kerry
Rogers is no longer a consultant of e.Volve and has no link to us other than as
a shareholder of eVentures.
TRANSACTIONS WITH AXISTEL
Infinity Entities Investments
On October 28, 1998, AxisTel issued notes to IEO Holdings Limited in an
aggregate principal amount of $2.0 million pursuant to a note agreement. The
note bears interest at 8% per annum, payable monthly. The notes were due on
October 28, 2000. The notes were secured by all assets and equity interests of
AxisTel.
In connection with the note agreement, AxisTel issued one share of Class B
common stock of AxisTel to IEO Holdings Limited at a purchase price of $1.00.
Such share of Class B common stock carries voting rights
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entitling IEO Holdings Limited to vote 50% of all issued and outstanding shares
of the common stock of AxisTel.
In connection with the note agreement, AxisTel issued warrants to purchase
1,499 shares of Class B common stock, par value $.01 per share, of AxisTel at
an exercise price of $2,333.33 per share to IEO Holdings Limited. The warrants
were valued at approximately $274,000 using the Black-Scholes model and AxisTel
recorded the amount as a debt discount, with a related credit to additional
paid-in capital. The debt discount is being amortized over the life of the loan.
We calculated the value of the warrants utilizing publicly available
software capable of performing the Black-Scholes model. The Black-Scholes
valuation model was developed for use in estimating the fair value of traded
options and warrants, which have no vesting restrictions and are fully
transferable. In addition, the Black-Scholes valuation model requires the input
of highly subjective assumptions including the expected stock price volatility.
Because the AxisTel warrants have characteristics significantly different from
those of traded options and warrants, and because changes in the subjective
input assumptions can materially affect the fair value estimate, the
Black-Scholes model does not necessarily provide a reliable single measure of
the fair value of these warrants.
Pursuant to the note agreement, AxisTel issued additional notes to IEO
Holdings Limited in the amounts of $500,000 and $1.0 million on March 10, 1999
and April 19, 1999, respectively. As of December 31, 1998, AxisTel had not met,
but was subsequently granted waivers with respect to, certain reporting
requirements under such notes.
On September 22, 1999, IEO Holdings Limited exercised its warrants to
purchase 1,499 Class B shares of AxisTel. The notes were surrendered as payment
of the purchase price for such shares. Such shares, in addition the share of
Class B common stock owned by IEO Holdings Limited, represent 50% of the
outstanding shares of AxisTel. IEO Holdings Limited exchanged its shares in
AxisTel for 6,000,000 shares of eVentures.
On August 20,1999, Infinity Energing Holdings Subsidiary Limited issued a
note in the aggregate principal amount of $750,000 to AxisTel. The note bears
interest at the rate of 10% per annum, payable monthly. The note matured on
December 30, 1999. AxisTel repaid this note with part of the proceeds of our
private placement of preferred and common stock on September 28, 1999.
Transactions with Other Stockholders
AxisTel had notes payable to one of its stockholders aggregating $10,000 at
December 31, 1997 and two of its stockholders aggregating $25,000 at December
31, 1998. Interest is calculated at 5% per annum. The outstanding principal
balance and any unpaid interest was due and payable on October 28, 1999, and the
notes were therefore classified as short term.
Revenues for AxisTel included revenues for the year ended December 31, 1998
from Debit Card Technologies, Inc. totaling approximately $264,000. Debit Card
Technologies is wholly owned by an employee's spouse. All revenues for the
period August 28, 1997 (inception) to December 31, 1997 were received from Debit
Card.
TRANSACTIONS WITH eVENTURES
Transactions with Affiliates of Infinity Entities
On September 27, 1999, we entered into a Management Services Agreement with
HW Partners. Barrett Wissman, our President and Chief Executive Officer, is sole
manager of HW Partners, which has investment discretion over Infinity Investors
Limited, one of the Infinity Entities.
Under the management services agreement, HW Partners has agreed to perform
various management, operational and administrative services for eVentures.
Whenever eVentures wishes to engage HW Partners to perform services with respect
to a particular project, eVentures and HW Partners negotiate the terms and
conditions of a work order with respect to that particular project, specifying,
among other things, the management services to be rendered and the fee
arrangements for that specific project. Each work order must be approved by a
majority of the directors of eVentures who are not employees, directors or
affiliates of HW Partners. As of March 7, 2000, the board of directors of
eVentures had approved work orders in the
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aggregate monthly amount of approximately $19,500 for services to be performed
by employees of HW Partners under the management services agreement.
On September 22, 1999, we entered into a space sharing agreement with Unity
Hunt, Inc., an affiliate of Clark Hunt. Under this agreement, Unity Hunt has
agreed to allow us to use office space located at 1600 Elm Street, Suite 4000,
Dallas, Texas. In addition to the use of these premises, we may request Unity
Hunt to provide various services that are incidental to the use of the office
space, such as accounting and/or administrative services. However, Unity Hunt
does not provide services related to employees or employee costs. The fees paid
to Unity Hunt pursuant to this agreement must be approved by a majority of the
directors of eVentures who are not employees, directors or affiliates of Unity
Hunt, and the fees do not, and will not, exceed $60,000 per year.
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Transactions with Employees
During the six month period ended December 31, 1999 we granted options to
Stuart Chasanoff, Jan Robert Horsfall and Stuart Subotnick that caused us to
record deferred compensation of $3.3 million. The amount of the deferred
compensation was based upon the intrinsic value of options granted to those
directors and employees and which had an exercise price lower than the market
price of the underlying stock on the date of the grant. The deferred
compensation will be amortized over the vesting period of the related options
and recorded as compensation expense in the statement of operations.
Transactions with Portfolio Companies
On March 3, 2000, we loaned $3.0 million to PhoneFree.com under a promissory
note dated March 2, 2000. The promissory note is due on September 1, 2000 and
bears interest at 7%. PhoneFree.com may repay this promissory note at any time,
subject to our right to convert it into PhoneFree.com common stock. We can
convert the promissory note into PhoneFree.com common stock:
(i) if PhoneFree.com raises equity capital from other investors on or
before August 31, 2000, in which case our conversion price will be
equal to 95% of the per share subscription or conversion price in
such equity capital raise; or
(ii) if PhoneFree.com does not raise equity capital from other
investors on or before August 31, 2000, we can convert the
promissory note on or after September 1, 2000, at a per share
conversion price that values all the common and preferred stock of
PhoneFree.com at $50.0 million.
In connection with the loans made under the promissory note, we also
received a four-year warrant to purchase 240,000 shares of PhoneFree.com at a
price equal to 110% of the conversion price of the promissory note. The warrant
may not be called by PhoneFree. If we include this warrant, but not the
promissory note, we would beneficially own approximately 18% of the outstanding
shares of common stock of PhoneFree.com.
ITEM 8. LEGAL PROCEEDINGS
In March 1998, e.Volve filed a lawsuit against Eltrax, Inc. ("Eltrax") in
Clark County District Court for the State of Nevada for breach of contract and
other related claims, alleging that Eltrax failed to deliver equipment and
services pursuant to an agreement between the parties. Eltrax counterclaimed for
breach of
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contract and damages of $381,802. The matter is currently before the United
States District Court for the District of Nevada for pre-trial motions.
In November 1999, IXC Communications, Inc. ("IXC") threatened to filed a
lawsuit against e.Volve alleging a breach of contract and damages in the amount
of $330,153.50 if payment or payment arrangements for said amount are not made
within thirty (30) days. No lawsuit has yet been filed.
In November 1998, representatives of Mexico's Federal Telecommunications
Commission ("COFETEL") entered the premises of the Company's wholly owned
subsidiary, e.Volve Technology Group de Mexico, and attempted to confiscate
e.Volve Technology Group de Mexico's equipment pursuant to a visitation order
under a verification administrative proceeding (procedimiento administrativo de
verificacion). e.Volve Technology Group de Mexico filed a Federal constitutional
court action known as juicio de amparo against COFETEL in a Mexican Federal
district court (juzgado de distrito), principally alleging that the visitation
order failed to comply with Mexican constitutional requirements and that the
search and seizure were illegal under Mexican law. A juicio de amparo has two
stages: the suspension of the acts of authority complained of and a
constitutional review. The former stage has two phases: temporary restraining
order (suspension provisional) and a final restraining order (suspension
definitiva). The purpose of the constitutional review is to determine whether
the acts of authority complained of are constitutional. Should the court
determine that the acts of authority complained of are unconstitutional, a final
judgment (sentencia final) is rendered, the principal effect of which is the
granting of the protection of the Federal courts against such acts. On November
24, 1998, e.Volve Technology Group de Mexico obtained a temporary restraining
order which preserved the status quo of the e.Volve Technology Group de Mexico
equipment and suspended the administrative proceeding, therefore prohibiting
COFETEL from re-entering e.Volve Technology Group de Mexico's premises. On
December 21, 1998, e.Volve Technology Group de Mexico obtained a final
restraining order (suspension definitiva). On May 24, 1999, a final judgment was
rendered by the district court in favor of e.Volve Technology Group de Mexico,
which judgment declared COFETEL's acts unconstitutional and, as a consequence,
granted e.Volve Technology Group de Mexico the protection of the Federal courts.
On July 7, 1999, COFETEL appealed, through a recurso de revision, to a higher
court (tribunal colegiado de circuito) seeking the review of the district court
judgment. It is anticipated that a ruling with respect to such appeal would be
rendered sometime in late January 2000. As of February 29, 2000, no ruling had
been issued. It may not be possible to ascertain the definitive outcome of this
matter but e.Volve Technology Group de Mexico continues to defend itself in
Mexican courts. The loss of e.Volve Technology Group de Mexico's equipment might
have an adverse effect on the Company's financial condition. The cost of
litigation, regardless of the outcome, may have an adverse effect on the
Company's financial condition.
In September 1999, Yurie Systems Inc. filed a lawsuit in the United States
District Court of Maryland against e.Volve, claiming e.Volve owed Yurie Systems
approximately $283,497 arising from a previous sale of telecommunications
equipment from Yurie Systems to e.Volve in June and July of 1997. e.Volve denies
the claim because it never agreed to accept the equipment. The equipment has
failed field testing and did not meet either e.Volve's or Yurie Systems'
standards. e.Volve filed a counterclaim for lost business opportunities and lost
profits in an amount to be determined at trial. On February 3, 2000, we reached
an agreement with Yurie Systems to settle this litigation in exchange for a
payment by us of $140,000.
On February 7, 2000, Star Telecommunications, Inc. filed a lawsuit against
AxisTel International, Inc., a subsidiary of AxisTel. Star's complaint alleges
that AxisTel International failed to pay for amounts allegedly owed by AxisTel
International to Star as a result of Star's acquisition of PT-1 Communications,
and under an August 9, 1999 carrier services agreement between Star and AxisTel
International. Star is alleging damages in the amount of $416,590.36, plus late
fees and interests. AxisTel International has not responded to this complaint,
but believes that it has valid defenses to a portion of Star's claims. AxisTel
has established a reserve of approximately $330,000 against the claim.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Our common stock is traded on the NASDAQ OTC Bulletin Board under the symbol
EVNT. Prior to August 25, 1999, our common stock traded on the OTC Bulletin
Board under the symbol ADII and our former name, Adina, Inc. Until recently, the
market for the stock has been relatively inactive. The range of high and low bid
quotations for the quarters since April, 1997 are taken from the "pink sheets"
of the National
- --------------
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Quotation Bureau. They reflect inter-dealer prices, without retail mark-up,
mark-down or commission, and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
BID PRICE
--------------------------
QUARTER ENDING LOW HIGH
-------------- -------- --------
<S> <C> <C>
December 31, 1999 12.00 32.75
September 30, 1999 1.38 12.50
June 30, 1999(1) 1.50 1.50
April 30, 1999 0.02734 0.625
January 31, 1999 0.02734 0.02734
October 31, 1998 0.02734 0.02734
July 31, 1998 0.02734 0.02734
April 30, 1998 0.015625 0.25
January 31, 1998 0.015625 0.25
October 31, 1997 0.015625 0.25
July 31, 1997 0.015625 0.25
</TABLE>
(1) Represents the transition period between April 30, 1999 and June 30, 1999.
The last sale price reported for the common stock on the OTCBB on March
7, 2000 was $32.50. As of March 7, 2000, there were approximately 890
shareholders of record of our common stock.
DIVIDEND POLICY
The holders of our common stock are entitled to receive dividends at such
time and in such amounts as may be determined by our Board of Directors.
However, we have not paid any dividends in the past and do not intend to pay
cash dividends on our capital stock for the foreseeable future. Instead, we
intend to retain all earnings for use in the operation and expansion of our
business.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
In the past three years, eVentures has issued and sold unregistered
securities in the transactions described below.
On May 15, 1997, we issued 42,450,000 shares of common stock to Daniel L.
Wettreich, then the President of eVentures, in exchange for a majority of the
outstanding common shares of Alexander Mark Investments (USA), Inc. in a
transaction exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) of the Securities Act. Pursuant to a series of
subsequent transactions, we no longer own the common shares of Alexander Mark
Investments.
On September 22, 1999, in connection with our reorganization, we issued and
sold:
(i) an aggregate of 14,562,193 shares of common stock to IEO Investments,
Limited and Infinity Emerging Subsidiary Limited as merger
consideration for all of the equity interests in IEO Holdings Limited;
(ii) an aggregate of 6,381,000 shares of common stock to certain
shareholders of AxisTel in exchange for the outstanding shares of
capital stock of AxisTel not owned by IEO Holdings Limited; and
(iii) 5,682,807 shares of common stock to Infinity Investors Limited in
exchange for shares of capital stock of e.Volve representing
approximately one-third of the outstanding capital stock of e.Volve.
The issuance of such shares was exempt from the registration requirements of
the Securities Act pursuant to Rule 506 of Regulation D promulgated pursuant to
the Securities Act. No general solicitations were made in connection with this
transaction, and three accredited, eight non-accredited and three foreign
investors participated in this
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transaction. All non-accredited investors were represented in connection with
this transaction by purchaser representatives.
On September 28, 1999, we issued and sold 1,000 shares of Series A
Convertible Preferred stock to an accredited investor for $1.0 million in a
transaction exempt from the registration requirements of the Securities Act
pursuant to Rule 506 of Regulation D promulgated pursuant to the Securities Act.
No general solicitations were made in connection with this transaction.
On September 28, 1999, we issued and sold an aggregate of 2,470,000 shares
of common stock to 25 investors for $4.9 million in a transaction exempt from
the registration requirements of the Securities Act pursuant to Rule 506 of
Regulation D promulgated pursuant to the Securities Act. No general
solicitations were made in connection with this transaction, and only accredited
investors participated in this transaction.
On October 14, 1999, we issued 239,229 shares of our common stock to Avantel
S.A. to settle accounts payable due to Avantel in the amount of $3.2 million in
a transaction exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) of the Securities Act. These shares were issued for
consideration of $13.125 per share, which was 75% of the closing price of our
common stock on the date of issuance, and which represented the fair market
value of our common stock. The price per share was determined following
negotiations with Avantel.
On October 19, 1999, in connection with our reorganization, we issued and
sold an aggregate of 5,831,253 shares to 27 shareholders of e.Volve in exchange
for the outstanding shares of capital stock of e.Volve not owned by eVentures in
a transaction exempt from the registration requirements of the Securities Act
pursuant to Rule 506 of Regulation D under the Securities Act. No general
solicitations were made in connection with this transaction, and 22 accredited
and 5 non-accredited investors participated in this transaction. All
non-accredited investors were represented in connection with this transaction by
purchaser representatives.
On November 19, 1999, we issued and sold 2,500 shares of our Series B
preferred stock to an accredited investor for $2.5 million in a transaction
exempt from the registration requirements of the Securities Act pursuant to Rule
506 of Regulation D under the Securities Act. No general solicitations were made
in connection with this transaction.
On November 26, 1999, we issued and sold 3,725 shares of our Series B
preferred stock to an accredited investor for $3.7 million in a transaction
exempt from the registration requirements of the Securities Act pursuant to Rule
506 of Regulation D under the Securities Act. No general solicitations were made
in connection with this transaction.
On November 30, 1999, we issued 137,500 shares of our common stock to
Corpovision, S.A. to settle a note payable due to Corpovision in the amount of
$1.1 million in a transaction exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) of the Securities Act. These shares were
issued for consideration of $8.00 per share, which was below the market price of
our common stock on the date of issuance. We took a charge of $1.1 million
during our second fiscal quarter in connection with this transaction. The price
per share was determined following negotiations with Corpovision.
On December 15, 1999, we issued and sold 775 shares of our Series B
preferred stock to an aggregate of 14 accredited investors for $775,000 in a
transaction exempt from the registration requirements of the Securities Act
pursuant to Rule 506 of Regulation D promulgated pursuant to the Securities Act.
No general solicitations were made in connection with this transaction.
On December 21, 1999, we issued 200,000 shares of our common stock upon
conversion of 1,000 shares of our Series A preferred stock in a transaction
exempt from the registration requirements of the Securities Act pursuant to
Section 3(a)(9) of the Securities Act.
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In a series of transactions closed between January 6 and February 10, 2000,
we issued 15,570 shares of our Series C Convertible Preferred Stock, par value
$0.00002 per share, to eight accredited investors, at a price of $1,000 per
share in a transaction exempt from the registration requirements of the
Securities Act pursuant to Rule 506 of Regulation D under the Securities Act. No
general solicitations were made in connection with this transaction.
On January 31, 2000, we issued and sold an aggregate of 27,860 shares to two
shareholders of Fonbox in exchange for 700,000 shares of Fonbox common stock in
a transaction exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) of the Securities Act.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
AUTHORIZED CAPITAL STOCK
The Certificate of Incorporation authorizes 80,000,000 shares of capital
stock consisting of:
75,000,000 shares of common stock, $0.00002 par value; and
5,000,000 shares of preferred stock, $0.00002 par value, of which:
o 1,200 shares have been designated as Series A Convertible Preferred
Stock;
o 25,000 shares have been designated as Series B Convertible Preferred
Stock; and
o 30,000 shares have been designated Series C Convertible Preferred
Stock.
Common Stock
General. As of March 7, 2000, there were 45,799,863 shares of common
stock outstanding. An additional 507,246 and 869,832 shares of common stock are
issuable upon conversion of our outstanding Series B Convertible Preferred Stock
and Series C Convertible Preferred Stock, respectively.
Voting Rights. The holders of common stock are entitled to one vote per
share. Stockholders are not entitled to vote cumulatively for the election of
directors, and no other class of outstanding capital stock is entitled to vote
in any election of directors. The Infinity Entities hold 61.4% of our common
stock and have effective control of us through the voting power of their shares
of our outstanding capital stock. Therefore, the Infinity Entities have the
ability to elect all of our directors and to effect or prevent certain corporate
transactions which require majority approval of the common stock, including
mergers and other business combinations.
Dividends and Liquidation. Holders of common stock have an equal right to
receive dividends when and if declared by the board of directors out of legally
available funds after payment of all preferential dividends on our preferred
stock. In the event of a liquidation, dissolution or winding up, holders of the
shares of common stock are entitled to share equally, share-for-share, in the
assets available for distribution after payment of all creditors and the
liquidation preferences of our preferred stock.
Other Provisions. Holders of common stock have no preemptive rights to
subscribe to any additional securities of any class which we may issue and there
are no redemption provisions or sinking fund provisions applicable to the common
stock, nor is the common stock subject to calls or assessments by us. The
rights, preferences, and privileges of the holders of common stock are subject
to and may be adversely affected by, the rights of the holders of any series of
preferred stock.
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Preferred Stock
General. The Certificate of Incorporation provides that eVentures may issue
up to 5,000,000 shares of preferred stock in one or more series as may be
determined by the board of directors of eVentures who may establish the number
of shares to be included in each such series, fix the designation, powers,
preferences and relative rights of the shares of each such series and any
qualifications, limitations, or restrictions thereof, and increase or decrease
the number of shares of any such series without any further vote or action by
the stockholders. The board of directors may authorize, without stockholder
approval, the issuance of preferred stock with voting and conversion rights that
could adversely affect the voting power and other rights of holders of common
stock. Preferred stock could be issued quickly with terms designated to delay or
prevent a change in control of eVentures or to make the removal of management
more difficult. This could have the effect of decreasing the market price of the
common stock.
Series A Convertible Preferred Stock. The holders of our Series A
Convertible Preferred Stock are not entitled to vote, except as provided by law.
Holders of our Series A Convertible Preferred Stock are not entitled to receive
any dividends. In the event that we liquidate, dissolve or wind up, holders of
the shares of our Series A Convertible Preferred Stock are entitled to receive
$1,000 per share out of the assets available for distribution to our
stockholders.
The shares of our Series A Convertible Preferred Stock are redeemable at any
time at a redemption price equal to $1,000 per share. Each share of our Series A
Convertible Preferred Stock is convertible into 200 shares of our common stock
by us at any time that the price of our common stock has exceeded $10 per share
for five consecutive trading days. In addition, each outstanding share of our
Series A Convertible Preferred Stock will mandatorily convert into 200 shares of
our common stock on June 30, 2001 and is convertible into 200 shares of our
common stock by its holder at any time prior to the date on which such share is
redeemed or converted into common stock by us or according to its terms. None of
the shares of Series A Convertible Preferred Stock that are redeemed or
converted may be reissued.
Holders of our Series A Convertible Preferred Stock have no preemptive
rights to subscribe to any additional securities of any class which we may issue
and there are no redemption provisions or sinking fund provisions applicable to
our Series A Convertible Preferred Stock, nor is our Series A Convertible
Preferred Stock subject to calls or assessments by us. The rights, preferences,
and privileges of the holders of our Series A Convertible Preferred Stock are
subject to and may be adversely affected by, the rights of the holders of other
series of preferred stock that we issue, including, our Series B Convertible
Preferred Stock and our Series C Convertible Preferred Stock. We issued 1,000
shares of our Series A Convertible Preferred Stock on September 28, 1999 all of
which were converted into shares of our common stock on December 21, 1999.
Series B Convertible Preferred Stock. The holders of our Series B
Convertible Preferred Stock are not entitled to vote, except as provided by law.
Holders of our Series B Convertible Preferred Stock are not entitled to receive
any dividends. In the event that we liquidate, dissolve or wind up, holders of
the shares of our Series B Convertible Preferred Stock are entitled to receive
$1,000 per share out of the assets available for distribution to our
stockholders pari passu with the holders of any outstanding shares of Series A
Convertible Preferred Stock.
The shares of our Series B Convertible Preferred Stock are redeemable at any
time at a redemption price equal to $1,000 per share. Each share of our Series B
Convertible Preferred Stock is convertible into 72.46377 shares of our common
stock by us at any time that the trading volume of our common stock has equaled
or exceeded 700,000 shares per month for three consecutive calendar months and
the price of our common stock has equaled or exceeded $34.50 for five
consecutive trading days. In addition, each outstanding share of our Series B
Convertible Preferred Stock will mandatorily convert into 72.46377 shares of our
common stock upon completion by us of an underwritten offering with proceeds of
no less than $50 million at a price per share of no less than $27.60 and the
trading volume of our common stock has equaled or exceeded 700,000 shares per
month for three consecutive calendar months. Each outstanding share of our
Series B Convertible Preferred Stock is also convertible into 72.46377 shares of
our common stock by its holder at any time prior to the date
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on which such share is redeemed or converted into common stock by us or
according to its terms. None of the shares of Series B Convertible Preferred
Stock that are redeemed or converted may be reissued.
Holders of our Series B Convertible Preferred Stock have no preemptive
rights to subscribe to any additional securities of any class which we may issue
and there are no redemption provisions or sinking fund provisions applicable to
our Series B Convertible Preferred Stock, nor is our Series B Convertible
Preferred Stock subject to calls or assessments by us. The rights, preferences,
and privileges of the holders of our Series B Convertible Preferred Stock are
subject to and may be adversely affected by, the rights of the holders of other
series of preferred stock that we issue, including, our Series C Convertible
Preferred Stock. We issued a total of 7,000 shares of our Series B Convertible
Preferred Stock in a series of private placements on November 19, 1999, November
26, 1999 and December 15, 1999, all of which remain outstanding as of February
29, 1999.
Series C Convertible Preferred Stock. The holders of our Series C
Convertible Preferred Stock are not entitled to vote, except as provided by law.
Holders of our Series C Convertible Preferred Stock are not entitled to receive
any dividends. In the event of that we liquidate, dissolve or wind up, holders
of the shares of our Series C Convertible Preferred Stock are entitled to
receive $1,000 per share out of the assets available for distribution to our
stockholders pari passu with the holders of any outstanding shares of Series B
Convertible Preferred Stock.
The shares of our Series C Convertible Preferred Stock are redeemable at any
time at a redemption price equal to $1,000 per share. Each share of our Series C
Convertible Preferred Stock is convertible into 55.865922 shares of our common
stock by us at any time that the trading volume of our common stock has equaled
or exceeded 700,000 shares per month for three consecutive calendar months and
the price of our common stock has equaled or exceeded $44.75 for 10 consecutive
trading days. In addition, each outstanding share of our Series C Convertible
Preferred Stock will mandatorily convert into 55.865922 shares of our common
stock upon completion by us of an underwritten offering with proceeds of no less
than $50 million at a price per share of no less than $35.80 and the trading
volume of our common stock has equaled or exceeded 700,000 shares per month for
three consecutive calendar months. Each outstanding share of our Series B
Convertible Preferred Stock is also convertible into 55.865922 shares of our
common stock by its holder at any time prior to the date on which such share is
redeemed or converted into common stock by us or according to its terms. None of
the shares of Series C Convertible Preferred Stock that are redeemed or
converted may be reissued.
Holders of our Series C Convertible Preferred Stock have no preemptive
rights to subscribe to any additional securities of any class which we may issue
and there are no redemption provisions or sinking fund provisions applicable to
our Series C Convertible Preferred Stock, nor is our Series C Convertible
Preferred Stock subject to calls or assessments by us. The rights, preferences,
and privileges of the holders of our Series C Convertible Preferred Stock are
subject to and may be adversely affected by, the rights of the holders of other
series of preferred stock that we issue. We issued 15,750 shares of our Series C
Convertible Preferred Stock in a series of private placements between January 6
and February 10, 2000, all of which remain outstanding as of March 7, 2000.
FUTURE ISSUANCES OF PREFERRED STOCK
We believe that the ability of the board to issue one or more series of
preferred stock will provide us with flexibility in structuring possible future
financings and acquisitions, and in meeting other corporate needs that might
arise. The authorized shares of preferred stock, as well as shares of common
stock, will be available for issuance without further action by our
stockholders, unless such action is required by applicable law or the rules of
any stock exchange or automated quotation system on which our securities may be
listed or traded.
Although the board has no intention at the present time of doing so, it
could issue a series of preferred stock that could, depending on the terms of
such series, impede the completion of a merger, tender offer or other takeover
attempt. The board will make any determination to issue such shares based on its
judgment as to our best interests and the best interests of our stockholders.
The board could issue preferred stock having
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terms that could discourage an acquisition attempt through which an acquirer may
be able to change the composition of the board, including a tender offer or
other transaction that some, or a majority, of our stockholders might believe to
be in their best interests or in which stockholders might receive a premium for
their stock over the then current market price.
REGISTRATION RIGHTS
General
As of March 7, 2000, the holders of approximately 44.1 million shares of
common stock will have the right, subject to certain conditions, to require us
to register their shares with the Securities and Exchange Commission so that
those shares may be publicly resold or to include their shares in certain
registration statements we file. In addition, the holders of the 7,000 shares
of Series B Preferred Convertible Stock and the 15,750 shares of Series C
Preferred Convertible Stock will have the right, subject to certain conditions,
to require us to include their shares in certain registration statements we
file. We granted such rights under the terms of the agreements outlined below
to the investors that participated in the transactions set forth below:
o Registration Rights Agreement, dated as of September 22, 1999, to the
stockholders of AxisTel and e.Volve who participated in and acquired
shares of common stock of eVentures Group under the Agreement and Plan
of Reorganization, dated September 22, 1999.
o Addendum, dated October 19, 1999, to the Registration Rights Agreement
dated September 22, 1999, to investors that participated in the first
private placement of our common stock and to the stockholders of
e.Volve who participated in and acquired shares of our common stock
under the Plan of Exchange, dated October 19, 1999.
o Registration Rights Agreement, dated November 24, 1999, to investors
that participated in the private placement of our Series B Convertible
Preferred Stock.
o Letter Agreement, dated December 15, 1999, to investors that acquired
shares of our common stock from various of our stockholders.
o Registration Rights Agreement, dated December 31, 1999, to investors
that participated in our private placement of Series C Convertible
Preferred Stock.
Common Stock
Under the Registration Rights Agreement, dated September 22, 1999, the
Addendum, dated October 19, 1999, to the Registration Rights Agreement dated
September 22, 1999, and the Letter Agreement, dated December 15, 1999, the
signatories to each of these agreements received the following rights with
respect to the shares of our common stock held by them.
Right to Demand Registration. At any time three months after the date of
the Registration Rights Agreement, these stockholders, subject to the thresholds
described below, can request that we file a registration statement under the
Securities Act of 1933, as amended, so they can publicly sell their shares.
However, we have the right to limit the number of shares to be included in that
registration statement if the managing underwriter of any such public offering
believes the number of securities to be included in such registration exceeds
the number which can be sold in an orderly manner within a price range
acceptable to the majority of the holders requesting registration.
Who May Make a Demand. Holders owning at least thirty-five percent of the
aggregate number of registrable shares may request a registration of their
shares in an offering having an anticipated net aggregate price of at least $5
million. In addition, holders owning at least fifty percent of the aggregate
number of registrable shares may request a registration of their shares in an
offering having an anticipated net aggregate price that is less than $5 million.
However, if the reasonably anticipated net aggregate price of the offering is at
least $1.5 million, holders of at least 35% of the aggregate number of
registrable shares can require that we file a registration statement on a Form
S-3.
Number of Times Holders Can Make Demands. We can be required to effect up
to three registration statements. In addition, we can be required to effect up
to two registration statements on Form S-3.
Postponement. We are not obligated to effect any registration within ninety
days after the effective date of a previous registration statement in which the
holders of the registrable shares participated or were given an opportunity to
participate and declined to do so. In addition, we can postpone the filing or
the effectiveness of a registration statement for up to 90 days on any two
occasions in a twelve-month period if our board of directors determines that the
filing might have an adverse effect on any of our proposals or plans, such as a
plan or proposal to engage in any acquisition, merger, consolidation, tender
offer, or similar transaction, or if any other material, nonpublic development
or transaction is pending and the filing of such registration would require
disclosure of such development or transaction at a time when we would not
otherwise have a duty to disclose.
Piggyback Registration Rights. If we register any securities for public
sale (other than pursuant to a demand registration, a registration solely in
connection with an employee benefit or stock ownership plan on a Form S-8, a
registration solely in connection with an acquisition consummated in a manner
which would permit registration of such securities to the public on Form S-4, or
a "shelf" or similar registration for use solely in connection with future
acquisitions), any holder of shares of our common stock with the registration
rights described above will have the right to include all or any portion of
their shares in the registration statement. However, we have the right to limit
the number of shares to be included in that registration statement if the
managing underwriter of any such public offering believes the number of
securities to be included in such registration exceeds the number which can be
sold in an orderly manner within a price range acceptable, in the case of a
primary registration, to us, or in the case of a secondary registration, to the
majority of the holders requesting registration.
Expenses of Registration. We will pay for the expenses relating to any
demand registration, any and all registrations on Form S-3, and any and all
piggyback registrations.
Expiration of Registration Rights. The registration rights described above
will expire on September 22, 2003, the fourth anniversary of the date of the
Registration Rights Agreement.
Preferred Stock
Under the Registration Rights Agreements, dated November 24, 1999 and
December 31, 1999, the signatories to each of these agreements received the
following rights with respect to the shares of our Series B or our Series C
Convertible Preferred Stock held by them.
Piggyback Registration Rights. If we register any securities for public
sale (other than pursuant to a demand registration, a registration solely in
connection with an employee benefit or stock ownership plan on a Form S-8, a
registration solely in connection with an acquisition consummated in a manner
which would permit registration of such securities to the public on Form S-4, or
a "shelf" or similar registration for use solely in connection with future
acquisitions), any holder of shares of our Series B or our Series C Convertible
Preferred Stock who are signatories to the registration rights agreements
described directly above will have the right to include all or any portion of
their shares in the registration statement. However, we have the right to limit
the number of shares to be included in that registration statement if the
managing underwriter of any such public offering believes the number of
securities to be included in such registration exceeds the number which can be
sold in an orderly manner within a price range acceptable, in the case of a
primary registration, to us, or in the case of a secondary registration, to the
majority of the holders requesting registration.
Expenses of Registration. We will pay for the expenses relating to any and
all piggyback registrations.
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CERTAIN ANTI-TAKEOVER EFFECTS
Certain provisions of the certificate of incorporation and bylaws,
summarized in the following paragraphs, may be considered to have an
anti-takeover effect and may delay, deter or prevent a tender offer, proxy
contest or other takeover attempt that a stockholder might consider to be in
such stockholder's best interest, including such an attempt that might result in
payment of a premium over the market price for shares held by stockholders.
The Amended and Restated Bylaws provide that a special meeting of
stockholders may be called by the Chief Executive Officer or the Board of
Directors. In addition, a special meeting of stockholders must be called by the
Chief Executive Officer or Secretary at the written request of the stockholders
owning ten percent (10%) of our capital stock issued and outstanding and
entitled to vote.
Section 203 of the Delaware General Corporation Law provides that, subject
to certain exceptions specified therein, an "interested stockholder" of a
Delaware corporation shall not engage in any business combinations, including
mergers or consolidations or acquisitions of additional shares of the
corporation, with the corporation for a three-year period following the date
that such stockholder becomes an interested stockholder unless:
prior to such date, the board of directors of the corporation approved
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;
upon consummation of the transaction that resulted in the stockholder
becoming an "interested stockholder," the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding certain shares); or
on or subsequent to such date, the business combination is approved by the
board of directors of the corporation and authorized at an annual or special
meeting of stockholders by the affirmative vote of at least 66.67% of the
outstanding voting stock that is not owned by the interested stockholder.
Except as otherwise specified in Section 203 of the Delaware General
Corporation Law, an interested stockholder is defined to include (x) any person
that owns (or, within the prior three years, did own) 15% or more of the
outstanding voting stock of the corporation, or is an affiliate or associate of
the corporation and was the owner of 15% or more of the outstanding voting stock
of the corporation at any time within three years immediately prior to the date
of determination and (y) the affiliates and associates of any such person.
Under certain circumstances, Section 203 of the Delaware General Corporation
Law makes it more difficult for a person who would be an interested stockholder
to effect various business combinations with a corporation for a three-year
period. We have not elected to be exempt from the restrictions imposed under
Section 203 of the Delaware General Corporation Law. The provisions of Section
203 of the Delaware General Corporation Law may encourage persons interested in
acquiring us to negotiate in advance with the board, since the stockholder
approval requirement would be avoided if a majority of the directors then in
office approves either the business combination or the transaction which results
in any such person becoming an interested stockholder. Such provisions also may
have the effect of preventing changes in our management. It
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is possible that such provisions could make it more difficult to accomplish
transactions that our stockholders may otherwise deem to be in their best
interests.
TRANSFER AGENT AND REGISTRAR
The Stock Transfer Company of America, Inc., an affiliate of Daniel L.
Wettreich, is the transfer agent and registrar for our common stock. The address
of The Stock Transfer Company of America, Inc. is 6959 Arapaho Road, Suite 122,
Dallas, Texas 75248.
On February 15, 2000, we notified our stock transfer agent and registrar
that its services were being terminated as of the close of business on March 31,
2000. Following that date, our stock transfer agent and registrar will be
American Stock Transfer & Trust Company. The address of American Stock Transfer
& Trust Company is 40 Wall Street, New York, New York 10005.
ITEM 12. LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Certificate of Incorporation contains a provision that is designed to
limit directors' liability to the extent permitted by the Delaware General
Corporation Law. Specifically, directors will not be held liable to eVentures or
its stockholders for monetary damages for any breach of fiduciary duty as a
director, except for liability as a result of:
any breach of the duty of loyalty to eVentures or eVentures stockholders;
actions or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
payment of an improper dividend or improper repurchase of eVentures stock
under Section 174 of the Delaware General Corporation Law; or
actions or omissions pursuant to which the director received an improper
personal benefit.
Section 102 of the Delaware General Corporation Law, as amended, allows a
corporation to eliminate the personal liability of directors of a corporation to
the corporation or its stockholders for monetary damages for a breach of
fiduciary duty as a director, except where the director breached his duty of
loyalty, failed to act in good faith, engaged in intentional misconduct or
knowingly violated a law, authorized the payment of a dividend or approved a
stock repurchase in violation of Delaware corporate law or obtained an improper
personal benefit.
The principal effect of the limitation of liability provision is that a
stockholder is unable to prosecute an action for monetary damages against a
director of eVentures unless the stockholder can demonstrate one of the
specified bases for liability. The provision, however, does not eliminate or
limit director liability arising in connection with causes of action brought
under the federal securities laws. The Certificate of Incorporation does not
eliminate a director's duty of care. The inclusion of this provision in the
Certificate of Incorporation may discourage or deter stockholders or management
from bringing a lawsuit against directors for a breach of their fiduciary
duties, even though such an action, if successful, might otherwise have
benefited eVentures and its stockholders. This provision should not affect the
availability of equitable remedies such as injunction or rescission based upon a
director's breach of the duty of care.
Also, Section 174 of the Delaware General Corporation Law provides, among
other things, that a director, who willfully or negligently approves of an
unlawful payment of dividends or an unlawful stock purchase or redemption, may
be held liable for such actions. A director who was either absent when the
unlawful actions were approved or dissented at the time, may avoid liability by
causing his or her dissent to such actions be entered in the books containing
the minutes of the meetings of the board of directors at the time such action
occurred or immediately after such absent director receives notice of the
unlawful acts.
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In addition, the Certificate of Incorporation and the Amended and Restated
By-Laws also provide that eVentures will indemnify its directors and officers,
and may indemnify any of its employees and agents, to the fullest extent
permitted by Delaware law. eVentures is generally required to indemnify its
directors and officers for all judgments, fines, penalties, settlements, legal
fees and other expenses incurred in connection with pending, threatened or
completed legal proceedings because of the director's or officer's position with
eVentures or another entity that the director or officer serves at eVentures's
request, subject to certain conditions, and to advance funds to its directors
and officers to enable them to defend against such proceedings.
Section 145 of the Delaware General Corporation Law after payment of all
preferential dividends on our preferred stock provides, among other things, that
the Company may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding (other than an action by or in the right of the Company) by reason of
the fact that the person is or was a director, officer, agent or employee of the
Company or is or was serving at the Company's request as a director, officer,
agent or employee of another corporation, partnership, joint venture, trust or
other enterprise, against expenses, including attorneys' fees, judgment, fines
and amounts paid in settlement actually and reasonably incurred by the person in
connection with such action, suit or proceeding. The power to indemnify applies
(a) if such person is successful on the merits or otherwise in defense of any
action, suit or proceeding, or (b) if such person acted in good faith and in a
manner he reasonably believed to be in the best interest, or not opposed to the
best interest, of the Company, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
power to indemnify applies to actions brought by or in the right of the Company
as well but only to the extent of defense expenses (including attorneys' fees
but excluding amounts paid in settlement) actually and reasonably incurred and
not to any satisfaction of judgment or settlement of the claim itself, and with
the further limitation that in such actions no indemnification shall be made in
the event of any adjudication of negligence or misconduct in the performance of
his duties of the Company, unless the court believes that in light of all the
circumstances indemnification should apply.
At present, there is no pending or threatened litigation or proceeding
involving any director or officer, employee or agent of eVentures where such
indemnification will be required or permitted.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See pages F-1 to F-44 and P-1 to P-3 of this Form 10.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements.
The following financial statements are Exhibits to Amendment No. 1 to the
Form 10:
(i) Consolidated Financial Statements of eVentures Group, Inc. as of
June 30, 1998 and 1999 and as of December 31, 1999 and for the years
ended June 30, 1997, 1998 and 1999 and for the six months ended
December 31, 1998 and 1999;
(ii) Audited Financial Statements of AxisTel Communications, Inc. as of
December 31, 1997 and 1998 and for the period from August 28, 1997
(inception) to December 31, 1997 and the year ended December 31, 1998,
and unaudited Financial Statements as of June 30, 1999 and for the six
months ended June 30, 1998 and 1999; and
(iii) Unaudited Pro Forma Consolidated Statement of Operations of eVentures
Group, Inc. for the year ended June 30, 1999 and for the six months
ended December 31, 1999.
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(b) Exhibits
2.1 Agreement and Plan of Reorganization, dated as of September 22, 1999,
among the Registrant, eVentures Holdings, L.L.C., IEO Holdings
Limited, Infinity Investors Limited, Mick Y. Wettreich, the
purchasers listed on Schedule 1-A thereto and the Contributing
Persons listed on Schedule 1-B thereto (incorporated by reference to
Exhibit 2.1 to the report filed on Form 8-K on October 7, 1999).
2.2 Agreement and Plan of Exchange, dated as of October 19, 1999, among
eVentures Group, Inc., and the persons set forth on Schedule 1
thereto (incorporated by reference to Exhibit 2.1 to the report filed
on Form 8-K on November 3, 1999).
2.3 Share Exchange Agreement, dated as of February 22, 2000, among
eVentures Group, Inc., IGS Acquisition Corporation and the
stockholders of Internet Global Services, Inc. parties thereto.
3.1 Certificate of Incorporation of eVentures, dated November 19, 1987.*
3.2 Certificate of Amendment, dated April 27, 1994, to the Certificate
of Incorporation.*
3.3 Certificate of Amendment, dated as of October 20, 1997, to the
Certificate of Incorporation.*
3.4 Certificate of Renewal dated August 19, 1999 for eVentures
Group, Inc.*
3.5 Certificate of Amendment, dated September 17, 1999, to the
Certificate of Incorporation (incorporated by reference to Exhibit
3.2 to the report filed on Form 8-K on October 7, 1999).
3.6 Amended and Restated Certificate of Designation of Rights,
Preferences and Privileges of Series A Convertible Preferred Stock,
dated October 14, 1999.*
3.7 Certificate of Designation of Rights, Preferences and Privileges of
Series B Convertible Preferred Stock, dated as of November 10, 1999.*
3.8 Certificate of Amendment, dated as of December 15, 1999, to the
Certificate of Designation of Rights, Preferences and Privileges of
Series B Convertible Preferred Stock.*
3.9 Certificate of Designation, Preferences and Rights of Series C
Convertible Preferred Stock, dated as of February 22, 2000.
3.10 Amended and Restated By-Laws of eVentures Group, Inc.
(incorporated by reference to Exhibit 3.1 to the report filed on
Form 8-K on October 7, 1999).
4.1 Registration Rights Agreement, dated as of September 22, 1999, among
the Registrant and the persons and entities set forth on Schedule 1
thereto (the "First Registration Rights Agreement") (incorporated by
reference to Exhibit 4.1 to the report filed on Form 8-K on October
7, 1999).
4.2 Addendum to the First Registration Rights Agreement, dated as of
October 19, 1999, among eVentures Group, Inc., the persons set forth
on Schedule 1 thereto and the other parties to the First Registration
Rights Agreement.
4.3 Registration Rights Agreement, dated as of November 24, 1999,
between eVentures Group, Inc. and the person and entities signatories
thereto, as holders of shares of Series B Convertible Preferred
Stock.
4.4 Letter Agreement, dated December 15, 1999, to the parties to the
Registration Rights Agreement dated as of September 27, 1999.
4.5 Registration Rights Agreement, dated as of December 31, 1999, between
eVentures Group, Inc. and the persons and entities signatories
thereto, as holders of shares of Series C Convertible Preferred
Stock.
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10.1 Securities Purchase Agreement, dated as of June 11, 1998, among
Orix Global Communications, Inc., certain of its shareholders and
the purchasers named thereunder and Exhibits thereto.
10.2 Debenture, dated as of June 11, 1998.*
10.3 Letter Agreement, dated as of August 19, 1998 between Orix Global
Communications and Infinity Investors Limited.*
10.4 Debenture, dated as of August 19, 1998.*
10.5 Letter Agreement, dated as of February 9, 1999 between Orix Global
Communications and Infinity Investors Limited.*
10.6 Debenture, dated as of February 9, 1999.*
10.7 Letter Agreement, dated as of April 15, 1999 among Orix Global
Communications, Inc., Infinity Investors Limited and the Founders
(as defined therein).*
10.8 Amended and Restated Debenture, dated as of April 15, 1999.*
10.9 Letter Agreement, dated as of April 29, 1999 between Orix Global
Communications and Infinity Investors Limited.*
10.10 Debenture, dated as of April 29, 1999.*
10.11 Letter Agreement, dated as of April 30, 1999, between Orix Global
Communications, Inc. and Infinity Investors Limited.*
10.12 Debenture, dated as of April 30, 1999.*
10.13 Note, dated as of August 20, 1999.
10.14 Promissory Note, dated as of March 2, 2000.
10.15 Warrant Agreement, dated as of March 2, 2000, between i2v2.com Inc.
and eVentures Group, Inc.
10.16 Lease Agreement, dated December, 1998, between AxisTel
International, Inc. and Evergreen America Corporation.*
10.17 Lease Agreement, dated November 24, 1997, between Orix Global
Communications, Inc. and Trust F/3959 of Banco del Atlantico.*
10.18 Assignment Agreement, dated April 1, 1998, among Orix Global
Communications, Inc., Latin Gate de Mexico S.A. de C.V. and Trust
F/3959 of Banco del Atlantico.*
10.19 Office Lease, dated January 23, 1998, between Orix Global
Communications, Inc. and 2526 Investment Co.*
10.20 Sublease Agreement, dated January 31, 2000, between Totaltel Florida,
Inc. and AxisTel Global Network Services, Inc.
10.21 Guaranty Agreement by eVentures Group, Inc. as inducement to
Telecommunications Finance Group to provide a lease to AxisTel
Communications, Inc., dated as of October 13, 1999.*
10.22 Management Services Agreement, dated as of September 22, 1999,
between eVentures Group, Inc. and HW Partners, L.P.*
10.23 Amended and Restated 1999 Omnibus Securities Plan, dated as of
September 22, 1999.
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10.24 Employment Agreement, dated as of September 22, 1999, between
eVentures Group, Inc. and Stuart J. Chasanoff.*
10.25 Amended and Restated Employment and Noncompetition Agreement, dated
as of September 21, 1999, between AxisTel Communications, Inc. and
Samuel L. Litwin.*
10.26 Amended and Restated Employment and Noncompetition Agreement, dated
as of September 22, 1999, between AxisTel Communications, Inc. and
Mitchell Arthur.*
21.1 Subsidiaries of eVentures Group, Inc.
27.1 Financial Data Schedule.
---------------
* Filed previously.
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Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this amendment to its registration
statement on Form 10/A to be signed on its behalf by the undersigned, thereunto
duly authorized.
eVentures Group, Inc.
March 8, 2000
By /s/ JOHN STEVENS ROBLING, JR.
--------------------------------
Name: John Stevens Robling, Jr.
Title: Chief Financial Officer
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<TABLE>
<CAPTION>
DEFINITIONS
<S> <C>
ADSL................................ Asymmetrical Digital Subscriber Line. Bellcore's term for one-way line to the
home over the conventional, single twisted pair wiring already going to homes.
ADSL is designed to carry video to the home. ADSL is a one-way video
transmission medium with control signals returning from the home to the source
of the signal. ADSL uses adaptive digital filtering, which is a way of
adjusting itself to overcome noise and other problems on the line. Initial ADSL
field trials and business cases have focused on ADSL's potential for Video on
Demand service, in competition with cable pay-per-view and neighborhood video
rental stores. But ADSL offers a wide range of other applications such as
work-at-home access to corporate LANs and interactive services. Multimedia
retrieval will also become possible, enabling the home user to browse through
libraries of text, audio, and image data or simply subscribe to CD-quality
music services. ADSL can also be used for Internet Access.
ANSI................................ American National Standards Institute. A standards setting, non-government
organization founded in 1918, which develops and publishes standards for
transmission codes, protocols and high-level languages for "voluntary" use in
the United States. In a press release, ANSI described itself as "a private
non-profit membership organization that coordinates the U.S. voluntary
standards system, bringing together interests from the private and the public
sectors to develop voluntary standards for a wide array of U.S. industries.
Asynchronous Transfer Mode or ATM... ATM is a high bandwidth, low delay connection oriented switching technique which offers
exceptional capabilities to compress a number of voice and data signals over a single
communication line in comparison to other digital technologies. All forms of digital
communications transmit data in binary form in groups of data called cells or packets. The
usable capacity of an ATM cell is segmented into fixed size cells consisting of a header
and information fields, allocated to services on demand. The term "asynchronous " applies,
as each cell is presented to the network on a "start-stop" or asynchronous basis. The key
difference between ATM and earlier technologies is the varying size of data packets that
characterized earlier technologies. Engineers realized that as transmission speed was
dramatically increased to be able to carry "real time" voice and video, the varied length
of packets would become unmanageable. During the 1980's, the ITU, now the ITU-T
(International Telecommunications Union-Telecommunications Services Sector), adopted ATM as
the transport technology of the future. The ITU-T determined that each ATM packet would
have standard length. ATM represents the first worldwide standard to be embraced by the
computer, communications and entertainment industries. ATM is positioned as the ultimate
service offering in support of data, voice data, video data, image data, and multimedia
data. The ATM concept which has been developed for digital networks and optical fiber
based systems is supported by both ITU and ANSI standards. Common standards definitions are
provided for both private and public networks so that ATM systems can be interfaced to
either or both.
ATM Backbone Switch................. A specialized ATM switch which sits in the carrier backbone network. The ATM
Backbone Switch is well suited for backbone networks supporting multiple
services in corporations, the PSTNs, cellular and Internet public service
providers. Network operators can aggregate all of their traffic over a single
backbone of ATM.
Backbone............................ An element of the network infrastructure that provides high-speed,
high-capacity connections among the network's physical points of presence,
i.e., connection points and Network Operations Centers. The backbone is used
to transport subscriber traffic across the metropolitan area and across the
United States.
Bandwidth........................... Refers to the maximum amount of data that can be transferred through a
computer's backbone or communication channel in a given time. It is usually
measured in Hertz, cycles per second, for analog communications and bits per
second for digital communications.
Co-location......................... A location where a competitive carrier network interconnects with the network
of an incumbent carrier inside an incumbent carrier's central office.
Convergence......................... Describes a trend, now that most media can be represented digitally, for the traditional
distinctions between communications industries to blur and for companies from consumer
electronics, computer and telecommunications industries to form alliances, partnerships and
other relationships. In the May 17, 1998 issue of The New York Times, Richard C.
Notebaert, chairman and chief executive of the
Ameritech Corporation, wrote, "Conventional wisdom holds that convergence - the
gradual blurring of telecommunications, computers and the Internet - is
primarily about technology and the inevitable clash of voice and data
networks. But that narrow viewpoint misses the bigger picture . . .
Convergence is about fundamental changes in the way we work - even behave."
Now the latest concept in convergence is that all communications - the Internet
and the PSTN (the public switched telephone network) - shall run over one
network.
Digital............................. Describes a method of storing, processing and transmitting information through
the use of distinct electronic or optical pulses that represent the binary
digits 0 and 1. Digital transmission and switching technologies employ a
sequence of these pulses to convey information, as opposed to the continuously
variable analog signal. The precise digital numbers preclude distortion, such
as graininess or "snow", in the case of video transmission, or static or other
background distortion in the case of audio transmission.
Interconnection Agreement........... A contract between a competitive carrier and an incumbent carrier pursuant to which the
networks of the two carriers are connected for transmission of signals. The term is often
used to describe a connection between a competitive carrier and an incumbent carrier which
has access to the public switched telephone network and its underlying copper transmission
wires. The agreement sets out the financial and operational aspects of such interconnection
and access.
Internet............................ An array of interconnected networks using a common set of protocols defining
the information coding and processing requirements that can communicate across
hardware platforms and over many links; now operated by a consortium of
telecommunications service providers and others.
Internet Protocol or IP............ Part of the TCP/IP family of protocols describing software that tracks the
Internet address of nodes, routes of outgoing messages, and recognizes incoming
messages.
Internet Service Provider or ISP..... A vendor who provides access for customers (companies and private individuals)
to the Internet and the World Wide Web. The ISP also typically provides a core
group of Internet utilities and services like e-mail. The user typically
reaches an ISP by either dialing-up on a personal computer, modem and phone
line, or over a dedicated line installed by a telephone company. An ISP may
also play the roles of a TSP, Telecommunications Service Provider, and a ITSP,
for Internet telephony Service Provider.
IP Telephony........ ............... IP telephony is an emerging set of technologies that enables voice, data, and
video transmission collaborating over existing IP-based LANs, WANs, and the
Internet. Specifically, IP telephony uses open ITU-T standards to move
multimedia traffic over any network that uses IP (the Internet Protocol). This
offers users both flexibility in physical media and flexibility of physical
location. As a result, the same ubiquitous networks that carry Web, e-mail and
data traffic can be used to connect to individuals, businesses, schools and
governments worldwide.
IP telephony allows organizations and individuals to lower the costs of
existing services, such as voice and broadcast video, while at the same time
broadening their means of communication to include modern video conferencing,
application sharing, and white boarding tools. In the past, organizations have
deployed separate networks to handle traditional voice, data, and video
traffic. Each with different transport requirements, these networks were
expensive to install, maintain, and reconfigure. Furthermore, since these
networks were physically distinct, integration was difficult if not impossible,
limiting their potential usefulness. IP telephony blends voice and data by
specifying a common transport, IP, for each, effectively collapsing three
networks into one. The result is increased manageability, lower support costs,
and new opportunities for collaborating tools, and increased productivity.
ITU-T.............................. One of the most important standards organizations developing international data
and telecommunications standards is the International Telecommunication Union -
Telecommunication Standardization Sector (ITU-TSS), that is usually simply
identified as ITU-T.
The ITU-T issues standards, called recommendations (called thus because the ITU-T
recommends that its constituent groups adopt the standard), in many areas of data and
telecommunications. The general topic of a recommendation is identified by the letter
preceding the recommendation number. Recommendation series of particular importance for
data communications are:
o E-series: Network addressing
o G-series: Digital telephony
o I-series: ISDN
o Q-series: Network signaling
o V-series: Data communication on analog networks (modems and DTE-DCE interfaces)
o X-series: Data communications networks
The U.S. State Department is the official U.S. representative to the ITU-T, although many
organizations in the U.S. participate in working group meetings.
LOCAL AREA NETWORK or LAN........... A short distance data communications network (typically within a building or
campus) used to link together computers and peripheral devices (such as
printers) under some form of standard control.
</TABLE>
-76-
<PAGE> 76
<TABLE>
<S> <C>
Long Distance Carrier................. A long distance carrier providing services between local access transport areas
on an intrastate or interstate basis, also referred to in the industry as an
"interexchange carrier". A long distance carrier may also be a long distance
resale company.
Network............................... An integrated system composed of switching equipment and transmission
facilities designed to provide for the direction, transport and accounting of
telecommunications traffic.
Packets............................... Information represented as bytes grouped together through a communication node
with a common destination address and other attribute information.
Packet Switching...................... Switches that send data in packets through a network to some remote location. The data
to be sent is assembled by the PAD (Packer Assembler/Disassembler) into individual
packets of data, involving a process of segmentation or subdivision of larger sets of
data as specified by the native protocol of the transmitting device. Each packet has a
unique identification and each packet carries its own destination address. Thereby,
each packet is an independent, with multiple packets in a stream of packets often
traversing network routes.
Packetized Video...................... First, read the definition of "Packet Switching." Then read the definition of
"Packetized Voice" just below. The concept of packetized video is basically the same as
that of packetized voice. A video camera feeds the signal into a codec, which converts
the native analog signal into a digital format, and segments the data into data
packets.
Packetized Voice...................... First read the definition of "Packet Switching" just above. The idea is to digitize
voice and then slice it up into packets and sent those packets from the sender by
various routes and assemble them as they get to the receiver.
Plain Old Telephone Service or POTS... The basic service supplying standard single line telephones, telephone lines and access
to the public switched network.
Point of Presence or POP'S............ A point of presence refers to a physical junction between one network and another.
Public Switched Telephone Network
or "PSTN"............................. The aggregate network comprised of private telecommunications carriers and national
telecommunications authorities which provide conventional telephone service or POTS.
Router................................ A device that accepts the Internet protocol from a local area network or
another wide area network device and switches/routes Internet Protocol packets
across a network backbone. Routers also provide protocol conversion services
to transfer Internet Protocol packets over frame relay, Asynchronous Transfer
Mode, and other network services.
Wide Area Network or WAN.............. Uses common carrier-provided lines that cover an extended geographical area. Contrast
with LAN. This network uses links provided by local telephone companies and usually
connects disperse sites.
</TABLE>
-77-
<PAGE> 77
eVENTURES GROUP, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets as of June 30, 1998 and 1999 and December 31, 1999
(Unaudited) F-3
Consolidated Statements of Operations for the years ended June 30, 1997,
1998 and 1999 and for the six months ended December 31, 1998 and 1999
(Unaudited) F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended
June 30, 1997, 1998 and 1999 and for the six months ended December 31,
1998 and 1999 (Unaudited) F-5
Consolidated Statements of Cash Flows for the years ended June 30, 1997, 1998 and
1999 and for the six months ended December 31, 1998 and 1999 (Unaudited) F-6
Notes to Consolidated Financial Statements F-10
Report of Independent Certified Public Accountants (AxisTel) F-32
AxisTel Balance Sheets as of December 31, 1997 and 1998 and June 30, 1999
(Unaudited) F-33
AxisTel Statements of Operations for the period from August 28, 1997 (inception)
to December 31, 1997 ("the 1997 Period"), the year ended December 31, 1998
and for the six months ended June 30, 1998 and 1999 (Unaudited) F-34
AxisTel Statements of Stockholders' equity (deficit) for the 1997 Period, the year
ended December 31, 1998 and the six months ended June 30, 1999 (Unaudited) F-35
AxisTel Statements of Cash Flows for the 1997 Period, the year ended December 31,
1998 and for the six months ended June 30, 1998 and 1999 (Unaudited) F-36
AxisTel Notes to Financial Statements F-37
Unaudited Pro Forma Consolidated Financial Information P-1
Unaudited Pro Forma Consolidated Statements of Operations for the Year Ended June
30, 1999 P-2
Unaudited Pro Forma Statements of Operations for the six months ended December
31, 1999 P-3
</TABLE>
F-1
<PAGE> 78
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders
eVentures Group, Inc.
Jersey City, NJ
We have audited the accompanying balance sheet of eVentures Group, Inc. (the
"Company") as of June 30, 1999 and the related statements of operations,
shareholders' equity (deficit) and cash flows for the year then ended ("Company
Period"). We have also audited the balance sheet as of June 30, 1998 and the
statements of operations, shareholders' equity (deficit) and cash flows of Old
Company (see Note 1) for each of the years in the two-year period ended June 30,
1998 ("Old Company Periods"). These financial statements are the responsibility
of the Company's and Old Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 1 to the financial statements, the Old Company business was
acquired in a transaction accounted for as a purchase. As a result of this
transaction, the financial information for the period after the sale is
presented on a different cost basis than that for the period before the sale
and, therefore, is not comparable.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company at June 30, 1999,
and the results of its operations and its cash flows for the Company Period in
conformity with generally accepted accounting principles. Further, in our
opinion, the Old Company financial statements referred to above present fairly,
in all material respects, the financial position at June 30, 1998 and the
results of its operations and its cash flows for the Old Company Periods in
conformity with generally accepted accounting principles.
BDO Seidman, LLP
New York, New York
November 30, 1999
F-2
<PAGE> 79
eVENTURES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
================================================================================
<TABLE>
<CAPTION>
OLD COMPANY THE COMPANY
-------------- --------------------------------
AS OF
DECEMBER 31,
AS OF JUNE 30, AS OF JUNE 30, 1999
1998 1999 (UNAUDITED)
-------------- -------------- -------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,417,216 $ 39,379 $ 6,269,893
Accounts receivable 104,422 6,129 1,574,165
Other receivables 5,821 11,164 63,124
Prepaid expenses and other -- 13,250 136,814
Deposits 35,141 242,310 603,752
VAT tax receivable -- 2,757,368 1,781,354
Available-for-sale securities 250,556 -- --
------------- ------------- -------------
2,813,156 3,069,600 10,429,102
------------- ------------- -------------
LONG-TERM ASSETS
Restricted cash -- 1,107,437 750,000
Property and equipment, net 1,447,244 6,219,874 12,880,498
VAT receivable 44,775 -- --
Investments -- 2,191,498 2,758,531
Goodwill, net -- 3,072,908 30,695,787
Other -- -- 521,800
------------- ------------- -------------
1,492,019 12,591,717 47,606,616
------------- ------------- -------------
$ 4,305,175 $ 15,661,317 $ 58,035,718
============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 1,831,863 $ 4,609,806 $ 4,228,708
Accrued other 525,297 1,477,757 1,423,101
Accrued interest payable 13,412 383,163 569,042
Advances from shareholder 60,920 -- --
Customer deposits and deferred revenues 200,000 1,272,682 634,532
Notes payable -- -- 26,875
Debentures, current portion 590,000 -- --
Capital leases, current portion 307,496 1,916,761 2,937,621
------------- ------------- -------------
3,528,988 9,660,169 9,819,879
------------- ------------- -------------
LONG-TERM LIABILITIES
Debentures, net of current portion 5,410,000 6,828,948 --
Capital leases, net of current portion 487,665 2,031,513 5,250,370
------------- ------------- -------------
5,897,665 8,860,461 5,250,370
------------- ------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock 25,100 36 917
Preferred stock -- -- --
Additional paid-in capital 83,300 4,310,144 64,339,007
Accumulated deficit (5,229,878) (7,169,493) (19,284,726)
Deferred compensation -- -- (2,089,729)
------------- ------------- -------------
(5,121,478) (2,859,313) 42,965,469
------------- ------------- -------------
$ 4,305,175 $ 15,661,317 $ 58,035,718
============= ============= =============
</TABLE>
See accompanying notes to the consolidated financial statements.
F-3
<PAGE> 80
eVENTURES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
================================================================================
<TABLE>
<CAPTION>
OLD COMPANY THE COMPANY
---------------------------- ---------------------------------------------
SIX SIX
MONTHS MONTHS
ENDED ENDED
DECEMBER DECEMBER
YEAR ENDED YEAR ENDED YEAR ENDED 31, 1998 31, 1999
JUNE 30, 1997 JUNE 30, 1998 JUNE 30, 1999 (UNAUDITED) (UNAUDITED)
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues $ 921,599 $ 1,713,403 $ 27,248,273 $ 13,013,700 $ 22,661,838
Direct costs 578,944 1,944,073 23,311,584 9,745,604 21,759,782
------------ ------------ ------------ ------------ ------------
Gross profit (loss) 342,655 (230,670) 3,936,689 3,268,096 902,056
Selling, general, and administrative expenses 718,362 4,505,798 7,551,131 3,442,347 10,354,808
------------ ------------ ------------ ------------ ------------
Loss from operations, before other (income) expense (375,707) (4,736,468) (3,614,442) (174,251) (9,452,752)
------------ ------------ ------------ ------------ ------------
Other (income) expense
Interest expense, net -- 105,099 1,704,459 735,878 598,062
Write off of unamortized debt discount -- -- -- -- 917,615
Equity in loss of affiliate -- -- 33,776 -- 31,819
Foreign currency (gain) loss -- -- 126,575 8,631 (2,032)
Other -- 12,604 (16,930) (17,851) 1,074
------------ ------------ ------------ ------------ ------------
-- 117,703 1,847,880 726,658 1,546,538
------------ ------------ ------------ ------------ ------------
Net loss $ (375,707) $ (4,854,171) (5,462,322) (900,909) (10,999,290)
============ ============
Imputed preferred dividend -- -- (1,115,943)
------------ ------------ ------------
Net loss available to common shareholders $ (5,462,322) $ (900,909) $(12,115,233)
============ ============ ============
Net loss per share (basic and diluted) $ (0.48) $ (0.08) $ (0.40)
============ ============ ============
Weighted average number of shares outstanding 11,365,614 11,365,614 30,428,396
============ ============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
F-4
<PAGE> 81
eVENTURES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
================================================================================
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
----------------------------- ----------------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
OLD COMPANY
Balance July 1, 1996 -- $ -- 1,000 $ 100 $ --
Issuance of shares for fixed assets,
at book value -- -- 200 25,000 --
Net loss -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balance, June 30, 1997 -- -- 1,200 25,100 --
Gift of stock to employees -- -- -- -- 83,300
Net loss -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balance, June 30, 1998 -- $ -- 1,200 $ 25,100 $ 83,300
============ ============ ============ ============ ============
THE COMPANY
Issuance of common stock, July 1, 1998 -- $ -- 3,600 $ 36 $ --
Fair value of shares issued in connection
with debentures -- -- -- -- 2,000,000
Fair value of warrants granted in connection
with debentures -- -- -- -- 210,000
Minority interest in losses -- -- -- -- --
Cost investment in i2v2 -- -- -- -- 2,100,144
Net loss -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balance, June 30, 1999 -- -- 3,600 36 4,310,144
Period ended December 31, 1999 is Unaudited:
Net effect of acquisitions
(Note 1) -- -- 39,623,010 756 31,588,059
Intrinsic value of stock options -- -- -- -- 3,265,500
Amortization of deferred compensation
-- -- -- -- --
Net effect of the purchase of remaining
1/3 of e.Volve -- -- 5,831,253 117 11,662,389
Issuance of preferred stock 7,000 -- -- -- 6,997,500
Imputed preferred dividend -- -- -- -- 1,115,943
Issuance of common stock as payment
for accounts payable -- -- 376,799 8 5,399,472
Net loss -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1999 (Unaudited) 7,000 $ -- 45,834,662 $ 917 $ 64,339,007
============ ============ ============ ============ ============
<CAPTION>
TOTAL
ACCUMULATED DEFERRED STOCKHOLDERS'
DEFICIT COMPENSATION EQUITY/(DEFICIT)
------------ ------------ ----------------
<S> <C> <C>
OLD COMPANY
Balance July 1, 1996 $ -- $ -- $ 100
Issuance of shares for fixed assets,
at book value -- -- 25,000
Net loss (375,707) -- (375,707)
------------ ------------ ------------
Balance, June 30, 1997 (375,707) -- (350,607)
Gift of stock to employees -- -- 83,300
Net loss (4,854,171) -- (4,854,171)
------------ ------------ ------------
Balance, June 30, 1998 $ (5,229,878) $ -- $ (5,121,478)
============ ============ ============
THE COMPANY
Issuance of common stock, July 1, 1998 $ -- $ -- $ 36
Fair value of shares issued in connection
with debentures -- -- 2,000,000
Fair value of warrants granted in connection
with debentures -- -- 210,000
Minority interest in losses (1,707,171) -- (1,707,171)
Cost investment in i2v2 -- -- 2,100,144
Net loss (5,462,322) -- (5,462,322)
------------ ------------ ------------
Balance, June 30, 1999 (7,169,493) -- (2,859,313)
Period ended December 31, 1999 is Unaudited:
Net effect of acquisitions
(Note 1) -- -- 31,588,815
Intrinsic value of stock options -- (3,265,500) --
Amortization of deferred compensation
-- 1,175,771 1,175,771
Net effect of the purchase of remaining
1/3 of e.Volve -- -- 11,662,506
Issuance of preferred stock -- -- 6,997,500
Imputed preferred dividend (1,115,943) -- --
Issuance of common stock as payment
for accounts payable -- -- 5,399,480
Net loss (10,999,290) -- (10,999,290)
------------ ------------ ------------
Balance, December 31, 1999 (Unaudited) $(19,284,726) $ (2,089,729) $ 42,965,469
============ ============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
F-5
<PAGE> 82
eVENTURES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
================================================================================
<TABLE>
<CAPTION>
OLD COMPANY THE COMPANY
------------------------------ -------------
YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, 1997 JUNE 30, 1998 JUNE 30, 1999
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $ (375,707) $(4,854,171) $(5,462,322)
Adjustments to reconcile net income to net cash
(used in) provided by net operating activities:
Depreciation and amortization -- 105,544 2,283,505
Other expenses 148,381 171,259 932,509
Write-off accounts receivable - Touchtone -- 615,232 --
Write-off certain intangible assets -- 420,000 --
Bad debt -- -- --
Foreign currency (gain) loss -- -- 126,575
Equity in loss of unconsolidated affiliate -- -- 33,776
Change in operating assets and liabilities:
Accounts receivable (73,587) (30,835) 98,293
Other receivables (47,200) 41,379 (5,343)
Prepaid expenses and other -- -- (13,250)
VAT receivable -- (44,775) (2,611,318)
Restricted cash -- -- (1,107,437)
Accounts payable 306,113 1,525,750 2,550,093
Accrued other 68,000 75,495 301,695
Accrued interest payable -- 13,412 369,751
<CAPTION>
THE COMPANY
-------------------------------
SIX SIX
MONTHS MONTHS
ENDED ENDED
DECEMBER DECEMBER
31, 1998 31, 1999
(UNAUDITED) (UNAUDITED)
------------- -------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $ (900,909) $(10,999,289)
Adjustments to reconcile net income to net cash
used in net operating activities:
Depreciation and amortization 882,882 3,187,038
Other expenses 370,689 852,204
Write-off accounts receivable - Touchtone -- --
Write-off certain intangible assets -- --
Bad debt -- 23,895
Foreign currency (gain) loss 11,162 (2,032)
Equity in loss of unconsolidated affiliate -- 31,819
Change in operating assets and liabilities:
Accounts receivable (488,189) (582,920)
Other receivables (89,318) (51,960)
Prepaid expenses and other (26,315) (30,257)
VAT receivable (1,347,608) 976,014
Restricted cash (1,080,806) 1,107,437
Accounts payable 1,124,102 3,760,810
Accrued other (450) 220,647
Accrued interest payable 33,063 185,879
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 83
eVENTURES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
================================================================================
<TABLE>
<CAPTION>
OLD COMPANY THE COMPANY
---------------------------- -------------
YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, 1997 JUNE 30, 1998 JUNE 30, 1999
------------- ------------- -------------
<S> <C> <C> <C>
Customer deposits -- 200,000 1,072,682
---------- ---------- ----------
Net cash (used in) provided by operating activities 26,000 (1,761,710) (1,430,791)
---------- ---------- ----------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Deposits (13,000) (22,141) (207,169)
Proceeds from sale of available-for-sale securities -- 26,000 246,580
Purchase of available-for-sale securities -- (277,057) --
Purchases of property and equipment (363) (518,944) (1,183,735)
Net cash acquired in acquisitions -- -- --
Long term investments -- -- --
Investment in affiliates -- (1,035,232) (125,130)
---------- ---------- ----------
Net cash used in investing activities (13,363) (1,827,374) (1,269,454)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances - shareholders -- 60,920 (60,920)
Issuance of common stock and preferred stock 100 -- --
Proceeds from issuance of debenture -- 6,000,000 2,040,000
Repayment of loan -- -- --
Payments on capital leases -- (67,357) (1,656,672)
---------- ---------- ----------
Net cash provided by financing activities 100 5,993,563 322,408
---------- ---------- ----------
<CAPTION>
THE COMPANY
-----------------------------
SIX SIX
MONTHS MONTHS
ENDED ENDED
DECEMBER DECEMBER
31, 1998 31, 1999
(UNAUDITED) (UNAUDITED)
------------- -------------
<S> <C> <C>
Customer deposits (200,000) (1,214,650)
---------- ----------
Net cash used in operating activities (1,711,697) (2,535,365)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Deposits 4,728 (361,442)
Proceeds from sale of available-for-sale securities 246,580 --
Purchase of available-for-sale securities -- --
Purchases of property and equipment (993,394) (1,667,894)
Net cash acquired in acquisitions -- 299,687
Long term investments -- (475,000)
Investment in affiliates (25,000) (598,852)
---------- ----------
Net cash (used in) provided by investing activities (767,086) (2,803,501)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances - shareholders (60,920) (246,560)
Issuance of common stock and preferred stock -- 13,224,850
Proceeds from issuance of debenture 850,000 --
Repayment of loan -- (823,278)
Payments on capital leases (240,993) (585,632)
---------- ----------
Net cash provided by financing activities 548,087 11,569,380
---------- ----------
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE> 84
eVENTURES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
================================================================================
<TABLE>
<CAPTION>
OLD COMPANY THE COMPANY
----------------------------- -----------------------------------------------
SIX SIX
MONTHS MONTHS
ENDED ENDED
DECEMBER DECEMBER
YEAR ENDED YEAR ENDED YEAR ENDED 31, 1998 31, 1999
JUNE 30, 1997 JUNE 30, 1998 JUNE 30, 1999 (UNAUDITED) (UNAUDITED)
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
NET CHANGE IN CASH 12,737 2,404,479 (2,377,837) (1,930,696) $ 6,230,514
CASH AND CASH EQUIVALENTS, beginning of year -- 12,737 2,417,216 2,417,216 39,379
----------- ----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 12,737 $ 2,417,216 $ 39,379 $ 486,520 $ 6,269,893
=========== =========== =========== =========== ===========
Supplemental disclosure of cash flows information:
Cash paid for:
Interest $ -- $ 98,000 $ 376,000 $ 192,000 $ 258,000
=========== =========== =========== =========== ===========
Taxes $ -- $ -- $ -- $ -- $ --
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-8
<PAGE> 85
eVENTURES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
================================================================================
<TABLE>
<CAPTION>
OLD COMPANY THE COMPANY
----------------------------------- ---------------
YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, 1997 JUNE 30, 1998 JUNE 30, 1999
------------- ------------- -------------
<S> <C> <C> <C>
Supplemental schedule of non-cash investing and
financing activities
Issuance of common stock for property and equipment $ 25,000 $ -- $ --
================= ================= =================
Non cash purchases of equipment $ 170,462 $ -- $ --
================= ================= =================
Purchases of equipment under capital leases $ -- $ 862,518 $ 4,809,785
================= ================= =================
Fair value of original issue discount on warrants
granted pursuant to certain of the debentures $ -- $ -- $ 210,000
================= ================= =================
Fair value of original issue discount on revaluation of
Company at July 1, 1998, arising from change in
ownership $ -- $ -- $ 2,000,000
================= ================= =================
Goodwill arising from change in ownership
and acquisitions settled through the issuance of stock $ -- $ -- $ 3,414,343
================= ================= =================
Net assets of subsidiaries acquired through an issue
of stock $ -- $ -- $ --
================= ================= =================
Stock issued for settlement of accounts payable $ -- $ -- $ --
================= ================= =================
<CAPTION>
THE COMPANY
--------------------------------------
SIX SIX
MONTHS MONTHS
ENDED ENDED
DECEMBER DECEMBER
31, 1998 31, 1999
(UNAUDITED) (UNAUDITED)
------------- -------------
<S> <C> <C>
Supplemental schedule of non-cash investing and
financing activities
Issuance of common stock for property and equipment $ -- $ --
================= =================
Purchases of equipment under litigation $ -- $ --
================= =================
Purchases of equipment under capital leases $ 1,808,683 $ 5,206,790
================= =================
Fair value of original issue discount on warrants
granted pursuant to certain of the debentures $ -- $ --
================= =================
Fair value of original issue discount on revaluation of
Company at July 1, 1998, arising from change in
ownership $ 2,000,000 $ --
================= =================
Goodwill arising from change in ownership
and acquisitions settled through the issuance of stock $ 3,414,343 $ 28,824,974
================= =================
Net assets of subsidiaries acquired through an issue
of stock $ -- $ 196,169
================= =================
Stock issued for settlement of accounts payable $ -- $ 5,399,480
================= =================
</TABLE>
See accompanying notes to financial statements.
F-9
<PAGE> 86
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED DECEMBER
31, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
1. ORGANIZATION, ORGANIZATION
BUSINESS AND
BASIS OF PRESENTATION eVentures Group, Inc., ("eVentures" or the
"Company") was incorporated in the state of
Delaware on June 24, 1987 and was a public
Company with no material operations prior to
the transactions consummated on September 22,
1999, which are described below. The Company
was formerly known as Adina, Inc.
On September 22, 1999, the Company acquired
all of the outstanding shares of AxisTel
Communications, Inc., ("AxisTel"),
approximately 66.67% of the outstanding
shares of e.Volve Technology Group, Inc.,
("e.Volve"), and approximately 17% of the
outstanding shares of i2v2.com, Inc.
("i2v2.com"), (collectively the "Acquired
Entities") and $8,540,159 Notes Receivable
including accrued interest ("Notes") from
e.Volve held by Major Shareholders as
defined below. All the acquisitions and the
purchase of the Notes were settled through
issuance of stock of eVentures. (the
"Transaction"). As a result of the
Transaction, approximately 77% of the Common
Stock of the Company was owned by three
shareholders that are affiliated with each
other (the "Major Shareholders").
Prior to the Transaction, the Major
Shareholders had directly and indirectly held
interests in the Acquired Entities, as
follows: 66.67% of e.Volve, 21% of i2v2.com,
and 0.7% of AxisTel plus options to purchase
a further 49.3% of AxisTel. In August of
1999, the interest in i2v2.com held by the
Major Shareholders was diluted to 17%.
Immediately after exercising the options in
AxisTel, these interests, along with the
Major Shareholders' Notes receivable from
e.Volve, were directly and indirectly
transferred to eVentures in exchange for the
Company's stock. The remaining 50% of the
common shares of AxisTel were then purchased
from AxisTel's founding shareholders.
On October 19, 1999, eVentures acquired the
remaining 33.3% of e.Volve, through an
extension of its original offer at the time
of the Transaction. This purchase was settled
through an issuance of 5,831,253 shares of
eVentures' Common Stock.
BASIS OF PRESENTATION
The financial statements presented through
June 30, 1999 represent the interests of the
Major Shareholders in each of the Acquired
Entities prior to the Transaction. The Major
Shareholders' interest in the Acquired
Entities is deemed to be the "Accounting
Acquirer". The financial statements as of and
for the six months ended December 31, 1999
reflect the consummation of the Transaction,
and therefore are consolidated financial
statements of eVentures and Subsidiaries as
of December 31, 1999 and for the period
F-10
<PAGE> 87
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED DECEMBER
31, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
1. ORGANIZATION, from September 22, 1999 through December 31,
BUSINESS AND 1999.
BASIS OF PRESENTATION
(CONTINUED) Since eVentures was a shell company with no
operations prior to the Transaction, the
acquisitions by eVentures of the Major
Shareholders' interests were accounted for as
a recapitalization of eVentures.
The acquisitions of the remaining 50% of
AxisTel and 33% of e.Volve were treated as
purchases for accounting purposes.
On June 11, 1998, the Major Shareholders or
predecessors in interest acquired their
66.67% interest in e.Volve. This transaction
was accounted for by e.Volve as a purchase.
The operations of e.Volve between June 11,
1998 and June 30, 1998 were immaterial, and,
therefore the date used for the effective
date of the purchase was July 1, 1998. The
financial statements through June 30, 1998
are described as "Old Company", and those
subsequent to June 30, 1998 are described as
"The Company". The cost basis of The Company
was assigned to the assets acquired based on
their estimated fair values at the
acquisition date. As a result, the financial
statements for the period subsequent to the
change of control are presented on a
different cost basis than those for prior
periods and, therefore, are not comparable.
BUSINESS
The Company operates a private convergence
network which consists of digital switching,
routing and signal management equipment, as
well as digital fiber optic cable lines. The
network incorporates software, programming
and switching technology which was originally
developed for or in relation to the Internet.
During the three years ended June 30, 1999,
the Company's operations were primarily those
of e.Volve and its wholly owned subsidiary,
e.Volve Technology Group de Mexico, S.A. de
C.V. (f/k/a Latin Gate de Mexico, S.A. de
C.V.). e.Volve was incorporated on June 26,
1996 as Orix Global Communications, Inc.
Through June 30, 1999, its services included
the provision of international voice and data
applications over its fiber optic network,
primarily to Mexico. The network is scalable,
built around digital packet switching
equipment and incorporates Asynchronous
Transfer Mode ("ATM") and Internet Protocol
("IP") technologies. As part of the
Transaction, the Company acquired AxisTel.
AxisTel is developing international and
domestic voice and data applications similar
to those of e.Volve. AxisTel has the
additional business of retail communications
services, including prepaid telephony.
During the year ended June 30, 1999, the
Company acquired a minority interest in
i2v2.com (doing business as PhoneFree.com).
The Company also entered into a joint
venture to form Innovative Calling
Technologies, LLC ("ICT") -- See Note 3. The
degree of involvement of the Company in
management varies for each strategic
investment. During the six months ended
December 31, 1999, the Company acquired a
minority interest in Fonbox, Inc ("Fonbox").
F-11
<PAGE> 88
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED DECEMBER
31, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
2. RISKS AND CONCENTRATIONS OF CREDIT RISKS
UNCERTAINTIES
The Company has concentrations of credit
risk related to cash, customers and vendors,
as follows:
CASH CONCENTRATIONS
The Company places its cash with high credit
quality institutions. Accounts at each
institution are insured by the Federal
Deposit Insurance Corporation ("FDIC") up to
$100,000. From time to time, the Company
maintains cash balances in excess of the
FDIC limit.
CUSTOMER CONCENTRATIONS
During the year ended June 30, 1997, e.Volve
received a significant portion of its
business from Star Communication, Inc.
("Star") and Total Communications, Inc.
("Total"). During the year ended June 30,
1997, sales to these customers totaled 87%
and 10% of e.Volve's revenues, respectively.
During Fiscal 1998, e.Volve received a
significant portion of its business from
Star and Total. During Fiscal 1998, sales to
these customers totaled 65% and 25% of
e.Volve's revenues, respectively. As of June
30, 1998, amounts due from Star and Total
totaled 96% and 0% of e.Volve's accounts
receivables, respectively.
During Fiscal 1999, e.Volve received a
significant portion of its business from
Qwest Communications, Inc. ("Qwest"), RSL
Communications, Inc. ("RSL") and Star.
During Fiscal 1999, sales to these customers
totaled 65%, 18% and 16% of e.Volve's
revenues, respectively. As of June 30, 1999,
there were no significant amounts due from
these customers. As of June 30, 1999,
deposits from Qwest totaled 100% of
e.Volve's customer deposits.
If the relationship between the Company and
these customers were altered, the future
results of operations and financial
condition could be adversely affected.
VENDOR CONCENTRATIONS
During the year ended June 30, 1997, e.Volve
purchased a significant portion of its
carrier and termination costs ("Direct
Costs") from four major vendors. During the
year ended June 30, 1997, purchases from
these four vendors totaled 45%, 22%, 12% and
10% of e.Volve's Direct Costs, respectively.
F-12
<PAGE> 89
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED DECEMBER
31, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
2. RISKS AND During Fiscal 1998 and 1999, e.Volve
UNCERTAINTIES purchased a significant portion of its
(CONTINUED) Direct Costs from one vendor. During Fiscal
1998 and 1999, purchases from this vendor
totaled 75% and 92% of Direct Costs,
respectively. As of June 30, 1998 and 1999,
amounts due to this vendor totaled 54% and
62% of e.Volve's accounts payable,
respectively.
If the relationship between the Company and
these vendors was altered, the future
results of operations and financial
condition could be adversely affected.
GEOGRAPHIC CONCENTRATION
The Company provides data transport and
conversion services from the United States to
Mexico over the e.Volve Network. Although the
Company plans to further expand data
transport and conversion services to other
destination countries, the Company's
operations may remain concentrated between
the United States and Mexico. The data
transport and conversion market for Mexico is
highly competitive and is occupied by
industry participants which are much larger
than the Company and have greater financial
resources and may have lower costs than the
Company. There can be no assurance that the
Company will be able to compete effectively
against such larger and better-capitalized
industry participants or that the Company
will be successful in pursuing other
destination countries with existing and
potential customers.
REGULATORY ENVIRONMENT
The Company provides "enhanced" or
"value-added" services to its international
customers and therefore is not subject to
regulation by the FCC or other international
telecommunication regulatory bodies within
its target markets. However, the use of the
Internet protocols to provide telephone
services is a recent market development.
Currently, the FCC is considering whether or
not to impose surcharges or additional
regulations upon certain providers of
IP telephony. On April 10, 1998, the
FCC issued its Report to Congress concerning
its implementation of the universal service
provisions of the Telecommunications Act.
In the Report, the FCC indicated that it
would examine the question of whether
certain forms of "phone-to-phone" Internet
telephony are information services or
telecommunications services. It noted that
the FCC did not have, as of the date of the
Report, an adequate record on which to make
any definitive pronouncements, but that the
record before it suggested that certain
forms of phone-to-phone IP telephony
appear to have the same functionality as
non-IP telecommunications services and lack
the characteristics that would render them
information services. If the FCC were to
determine that certain services are subject
to FCC regulations as telecommunications
services, the FCC noted that it may find it
reasonable
F-13
<PAGE> 90
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED DECEMBER
31, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
2. RISKS AND to require ISPs to make universal service
UNCERTAINTIES contributions, pay access charges or to be
(CONTINUED) subject to traditional common carrier
regulation.
To the Company's knowledge, there are
currently no domestic and few foreign laws
or regulations that prohibit voice
communications over the Internet. Several
efforts have been made to enact federal
legislation that would either regulate or
exempt from regulation services provided
over the Internet. State public utility
commissions may also retain jurisdiction to
regulate the provision of intrastate
IP telephony services, and could
initiate proceedings to do so. A number of
countries that currently prohibit
competition in the provision of voice
telephony have also prohibited Internet
telephony. Other countries permit but
regulate IP telephony. If Congress,
the FCC, state regulatory agencies or
foreign governments begin to regulate
IP telephony, there can be no
assurances that any such regulations will
not materially adversely affect the
Company's business, financial conditions or
results of operations.
TELECOMMUNICATIONS MARKET AND INDUSTRY
COMPETITION
Currently, the Company competes with (a) long
distance resellers and providers, including
large carriers such as AT&T, MCI/WorldCom,
Qwest, and Sprint; (b) foreign PTTs (Post
Telephone and Telegraph administrations); (c)
other providers of international long
distance services such as STAR
Telecommunications, Inc., Pacific Gateway
Exchange, Inc., RSL Communications Ltd. and
Telegroup, Inc.; (d) alliances that provide
wholesale carrier services, such as "Global
One" (Sprint, Deutsche Telekom AG, and France
Telecom S.A.) and Uniworld (AT&T,
Unisource-Telecom Netherlands, Telia AB,
Swiss Telecom PTT and Telefonica de Espana
S.A.); (e) new entrants to the domestic long
distance market such as RBOCs (Regional Bell
Operating Companies) in the U.S., who have
entered or have announced plans to enter the
U.S. interstate long distance market pursuant
to recent legislation authorizing such entry,
and utilities such as RWE Aktiengesellschaft
in Germany; and (f) small long distance
resellers.
Many of the Company's competitors are
significantly larger and have substantially
greater market presence, as well as greater
financial, technical, operational,
marketing, and other resources and
experience than the Company. The Company
competes for customers in the
telecommunications markets primarily based
on price and, to a lesser extent, the type
and quality of service offered. Increased
competition could force the Company to
reduce its prices and profit margins if its
competitors are able to procure rates or
enter into service agreements that are
comparable to or better than those the
Company obtains, or are able to offer
F-14
<PAGE> 91
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED DECEMBER
31, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
2. RISKS AND other incentives to existing and potential
UNCERTAINTIES customers. Similarly, the Company has no
(CONTINUED) control over the prices set by its
competitors in the long distance resale
carrier-to-carrier market.
The Company could also face significant
pricing pressure if it experiences a
decrease in the volume of minutes that it
carries on its network, as the Company's
ability to obtain favorable rates and
tariffs from its carrier suppliers depends,
to a significant extent, on the Company's
total volume of international long distance
call traffic. There is no guarantee that the
Company will be able to maintain the volume
of international and domestic long distance
traffic necessary to obtain favorable rates
and tariffs. Although the Company has no
reason to believe that its competitors will
adopt aggressive pricing policies that could
adversely affect the Company, there can be
no assurance that such price competition
will not occur or that the Company will be
able to compete successfully in the future.
In addition, the Company is aware that its
ability to market its long distance resale
services depends upon the existence of
spreads between the rates offered by the
Company and those offered by the IXC's with
which it competes, as well as those from
which it obtains service. A decrease in such
spreads could have a material adverse effect
on the Company's business, financial
condition or results of operations.
FOREIGN CURRENCY
The Company currently provides data
transport and conversion services to certain
foreign countries and regions, primarily to
Mexico and India. The direct costs, profit
margins and competitive position of the
Company are consequently affected by the
strength of the currencies in countries
where it provides services relative to the
strength of the currencies in the countries
where its services are performed. The
Company's results of operations and
financial condition may be adversely
affected by fluctuations in foreign
currencies and by translations of the
financial statement of the Latin Gate from
local currencies into U. S. dollars.
Further, the Company's international
operations are generally subject to various
risks that are not present in domestic
operations, including restrictions on
dividends and repatriation of funds.
ACCOUNTS RECEIVABLE
The Company sells its data transport and
conversion services to customers throughout
the United States and in some foreign
countries. The Company performs periodic
credit evaluations of its customers and does
not obtain collateral with which to secure
its accounts receivables. The Company
maintains reserves for potential credit
losses based upon the Company's
F-15
<PAGE> 92
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED DECEMBER
31, 1998 AND 1999 IS UNAUDITED)
- --------------------------------------------------------------------------------
2. RISKS AND historical experience related to credit
UNCERTAINTIES losses. Although the Company expects to
(CONTINUED) collect amounts due, actual collections may
differ. As of June 30, 1998 and 1999, the
Company has not recorded a reserve for
potential credit losses, since accounts
receivable for such periods were
insignificant.
3. SUMMARY OF PRINCIPLES OF CONSOLIDATION
SIGNIFICANT
ACCOUNTING The consolidated financial statements
POLICIES include the accounts of the Company and all
wholly owned and majority-owned
subsidiaries. Investments in companies in
which (i) ownership interests range from 20
to 50 percent and (ii) the Company exercises
significant influence over operating and
financial policies are accounted for using
the equity method. Other investments are
accounted for using the cost method. All
significant intercompany accounts and
transactions have been eliminated.
UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS
The consolidated financial statements as of
December 31, 1999 and for the six months
ended December 31, 1998 and 1999 are
unaudited, and have been prepared on the
same basis as the audited financial
statements included herein. In the opinion
of management, such unaudited financial
statements include all adjustments
consisting of normal recurring accruals
necessary to present fairly the information
set forth therein. Results for interim
periods are not necessarily indicative of
results to be expected for an entire year.
DEPOSITS
Deposits represent security deposits for
facility leases, advance payments to vendors
for the purchases of property and equipment
and Direct Costs.
AVAILABLE-FOR-SALE SECURITIES
The Company accounts for its
available-for-sale securities in accordance
with Statement of Financial Accounting
Standards No. 115 ("SFAS 115"), "Accounting
for Certain Investments in Debt and Equity
Securities." SFAS 115 addresses the
accounting and reporting for investments in
equity securities which have readily
determinable fair values and all investments
in debt securities.
The Company's marketable equity securities
are classified as available-for-sale under
SFAS 115 and are reported at fair value,
with changes in the unrealized holding gain
or loss included in shareholders' deficit.
As of June 30, 1998, available-for-sale
securities consisted of a 5% Treasury Bill,
F-16
<PAGE> 93
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED DECEMBER
31, 1998 AND 1999 IS UNAUDITED)
- --------------------------------------------------------------------------------
3. SUMMARY OF in the amount of $250,556. During Fiscal
SIGNIFICANT 1999, the Company sold the Treasury Bill and
ACCOUNTING recognized a loss of $3,420. There
POLICIES were no unrealized gains or loss on
(CONTINUED) available-for-sale securities during
any period presented.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost
and are depreciated using the straight-line
method over the estimated useful lives of
the related assets, ranging from five to
seven years. Maintenance and repairs are
charged to expense as incurred. Significant
renewals and betterments are capitalized. As
of the time of retirement or other
disposition of property and equipment, the
cost and accumulated depreciation are
removed from the accounts and any resulting
gain or loss is reflected in operations.
The Company assesses the recoverability of
property and equipment by determining
whether the depreciation and amortization of
property and equipment over its remaining
life can be recovered through projected
undiscounted future cash flows. The amount
of property and equipment impairment, if
any, is measured based on fair value and is
charged to operations in the period in which
property and equipment impairment is
determined by management. During the years
ended June 30, 1997 and 1998, the Company
recorded impairment losses on certain
property and equipment totaling $25,000 and
$278,324, respectively. The amount of the
impairment was the book value of assets which
were taken out of use during the related
periods. The impairment is recorded as a
component of selling, general and
administrative expenses.
GOODWILL
Goodwill arising from a change in ownership
on July 1, 1998 and certain elements of the
Transaction (see Note 1) is amortized on a
straight-line basis over a ten-year life.
F-17
<PAGE> 94
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED DECEMBER
31, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
3. SUMMARY OF The Company assesses the recoverability of
SIGNIFICANT goodwill by determining whether the
ACCOUNTING amortization over its remaining life can be
POLICIES recovered through projected undiscounted
(CONTINUED) future cash flows. The amount of impairment,
if any, is measured based on fair value and
is charged to operations in the period in
which impairment is determined by
management. As of June 30, 1999 and December
31, 1999, the Company's management has not
identified any material impairment of
goodwill.
REVENUE RECOGNITION AND CUSTOMER DEPOSITS
Revenues are recognized upon rendering of
services to customers.
Deposits received from customers are deferred
as customer deposits and are recorded as
current liabilities. The related revenue is
recognized when the related services are
rendered.
Prepaid phone card revenues are earned
when the cards are used. Revenues related
to unused cards are recorded as deferred
revenue.
FOREIGN CURRENCY GAIN OR LOSS
The financial statements of the Latin Gate
are remeasured into the U.S. dollar
functional currency for consolidation and
reporting purposes. Current rates of
exchange are used to remeasure monetary
assets and liabilities and historical rate
of exchange are used for nonmonetary assets
and related elements of expense. Revenue and
other expense elements are remeasured at
rates which approximate the rates in effect
on the transaction dates. Gains and losses
resulting from this remeasurement process
are recognized currently in the consolidated
statement of operations. During fiscal 1998
and 1999, there were no significant gains or
losses with respect to this remeasurement
process.
Mexican-based vendors invoice e.Volve in
Mexican pesos. Certain of these transactions
are remeasured at the time in which the
services are rendered to the Company and are
settled in US dollars at the time of payment
for such services, which results in foreign
currency gain or loss. During fiscal 1998
and 1999, foreign currency gains and losses
totaled $0 and $126,575, respectively.
INCOME TAXES
The Company accounts for income taxes in
accordance with Statement of Financial
Accounting Standards No.109 ("SFAS 109"),
"Accounting for Income Taxes." Under the
asset and liability method of SFAS 109,
deferred tax assets and liabilities are
recognized for the future tax consequences
attributable to differences between the
financial statements carrying amounts of
existing assets and liabilities and their
respective tax bases. Deferred tax assets
and liabilities are measured using enacted
tax rates expected to apply to taxable
income in the years in which those temporary
differences are
F-18
<PAGE> 95
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED DECEMBER
31, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
3. SUMMARY OF expected to be recovered or settled. Under
SIGNIFICANT SFAS 109, the effect on the deferred tax
ACCOUNTING assets and liabilities of a change in tax
POLICIES rates is recognized in income in the period
(CONTINUED) that includes the enactment date. A
valuation allowance is provided for
significant deferred tax assets when it is
more likely than not that such assets will
not be recovered.
STOCK BASED COMPENSATION
The Financial Accounting Standards Board
issued Statement of Financial Accounting
Standards No. 123 ("SFAS#123"), "Accounting
for Stock Based Compensation," which defines
a fair value based method of accounting for
stock-based compensation. However, SFAS#123
allows an entity to continue to measure
compensation cost related to stock and stock
options issued to employees using the
intrinsic method of accounting prescribed by
Accounting Principles Board Opinion No. 25
("APB#25"), "Accounting for Stock Issued to
Employees". Entities electing to remain with
the accounting method of APB#25 must make
pro forma disclosures of net income and
earnings per share, as if the fair value
method of accounting defined in SFAS#123 had
been applied. The Company has elected to
account for its stock-based compensation to
employees under APB#25.
EARNINGS PER SHARE
The Financial Accounting Standards Board
issued Statement of Financial Accounting
Standards ("SFAS#128"), Earnings Per Share
("EPS"). SFAS#128 requires dual presentation
of basic EPS and diluted EPS on the face of
all income statements issued after December
15, 1997 for all entities with complex
capital structures. Basic EPS is computed as
net income divided by the weighted average
number of common shares outstanding for the
period. Diluted EPS reflects the potential
dilution that could occur from common shares
issuable through stock options, warrants and
convertible debentures. Diluted EPS has not
been presented for the effects of stock
options, warrants and convertible debentures
as the effect would be antidilutive.
Accordingly, basic and diluted EPS did not
differ for any period presented. EPS is not
presented for the Old Company. For purposes
of computation of EPS, the shares issued for
the acquisition of e.Volve (11,365,614
shares) are deemed to have been in existence
for the entire period.
COMPREHENSIVE INCOME(LOSS)
The Financial Accounting Standards Board
issued Statement of Financial Accounting
Standards ("SFAS#130"), "Reporting
Comprehensive Income." This statement
establishes standards for reporting the
components of comprehensive income and
requires that all items that are required to
be recognized under accounting standards as
components of comprehensive income(loss) be
included in a financial statement that is
displayed with the same prominence as other
financial statements. Comprehensive income
F-19
<PAGE> 96
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED DECEMBER
31, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
3. SUMMARY OF includes net income(loss) as well as certain
SIGNIFICANT items that are reported directly within a
ACCOUNTING separate component of stockholders' deficit
POLICIES and bypass net loss. The Company adopted the
(CONTINUED) provisions of this statement in Fiscal 1998.
These disclosure requirements had no impact
on the Company's financial statements.
ACCOUNTING ESTIMATES
The preparation of financial statements in
conformity with generally accepted
accounting principles requires management to
make estimates and assumptions that affect
the reported amounts of assets and
liabilities and disclosure of contingent
assets and liabilities at the date of the
financial statements, and the reported
amounts of revenues and expenses during the
reported periods. Actual results could
materially differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of financial instruments
approximated fair value as of June 30, 1998
and 1999 due to either short maturity or
terms similar to those available to similar
companies in the open market.
SEGMENT INFORMATION
The Company adopted SFAS No. 131,
"Disclosures about Segments of an Enterprise
and Related Information" for fiscal 1999. The
statement requires disclosure of certain
financial information related to operating
segments. The Company has determined that it
operates in one reportable segment (see
Note 1).
EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS
The American Institute of Certified Public
Accountants has issued Statement of Position
98-5 ("SOP 98-5"), "Reporting on the Costs
of Start-Up Activities.". This SOP defines
start-up activities as those one-time
activities related to opening a new
facility, introducing a new product or
service, conducting business in a new
territory, conducting business with a new
class of customers, initiating a new process
in an existing facility, or commencing some
new operation. SOP 98-5 requires that these
start-up costs be expensed as incurred. This
SOP is effective for financial statements
for fiscal years beginning after December
15, 1998, and therefore was adopted on July
1, 1999 for the Company. The adoption of
SOP 98-5 has not materially impacted the
results of operations, financial position,
and financial statement disclosures, and is
not expected to have a significant impact on
future financial statements.
In June 1998, the Financial Accounting
Standards Board, issued Statement of
Financial Accounting Standards No. 133
("SFAS#133"); "Accounting for Derivative
Instruments and Hedging Activities,"
SFAS#133 requires companies to recognize all
derivatives as either assets or liabilities
in the statement of financial position and
measure those instruments at fair value.
SFAS#133 is effective for fiscal years
beginning after June 15, 2000. The Company
does not presently enter into any
transactions involving derivative financial
instruments and, accordingly, does not
anticipate the new standard will have any
effect on its financial statements for the
foreseeable future.
F-20
<PAGE> 97
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED DECEMBER
31, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
4. RESTRICTED CASH As of June 30, 1999, restricted cash consists
of two certificates of deposits (including
accrued interest) that serve as collateral on
a certain letter of credit totaling
$1,061,000. As of June 30, 1999, no amounts
were drawn down on such letter of credit. The
full amount of the letter of credit was drawn
down on October 5, 1999 and repaid by
December 31, 1999.
As of December 31, 1999, restricted cash
consists of one certificate of deposit that
serves as collateral on a certain letter of
credit totaling $750,000. As of December 31,
1999, no amounts were drawn down on such
letter of credit.
5. INVESTMENTS The Company has made investments in the
following companies:
<TABLE>
<CAPTION>
Investment
Investment Balance @
Accounting Balance @ December 31,
Company Name % Ownership Method June 30, 1999 1999
- ------------ ----------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Innovative Calling Technologies, LLC 50.0% equity basis $ 91,354 $ 158,387
i2v2.com (d/b/a PhoneFree.com) 16.0% cost basis 2,100,144 2,100,144
FonBox, Inc. 8.0% cost basis -- 500,000
</TABLE>
On April 19, 1999, the Company entered into a
joint venture with Dataten Technologies to
form Innovative Calling Technologies, LLC
("ICT") with each party owning 50% of ICT.
The Company does not exercise control of the
joint venture and thus accounts for its
investments pursuant to the equity method.
During Fiscal 1999, the Company recorded an
investment of $125,130, reduced by equity in
loss of unconsolidated subsidiary of $33,776.
6. PROPERTY AND EQUIPMENT Property and equipment consist of the
following as of:
<TABLE>
<CAPTION>
June 30, December 31,
---------------------------- --------------
1998 1999 1999
------------ ----------- --------------
<S> <C> <C> <C>
Leasehold Improvements $ 182,308 $ 257,217 $ 334,559
Network equipment under capital leases 862,518 5,985,121 11,146,106
Other equipment 497,375 751,512 3,047,440
Furniture and fixtures 10,086 10,552 27,862
------------ ----------- -------------
1,552,287 7,004,402 14,555,967
Accumulated depreciation and (105,043) (784,528) (1,675,469)
amortization
------------ ------------ -------------
$ 1,447,244 $ 6,219,874 $ 12,880,498
============ ============ =============
</TABLE>
During the years ended June 30, 1997, 1998
and 1999, depreciation and amortization
expense totaled $0, $105,043 and $957,966,
respectively. During the six months ended
December 31, 1998 and 1999, depreciation
and amortization expense totaled
$374,619 and $775,016, respectfully.
Property and equipment included assets under
capital leases at December 31, 1999,
June 30, 1999 and 1998 with a cost of
$11,146,106, $5,985,121 and $862,518,
respectively, and accumulated amortization
of $1,141,131, $664,905, and $35,642,
respectively.
7. VAT RECEIVABLE VAT is a tax similar in nature to a sale
and/or use tax. VAT is assessed by vendors
operating in foreign countries, specifically
Mexico. The tax is paid by e.Volve directly
to the assessing vendor who remits the tax
to the Mexican taxing authority ("MTA").
Based on an injunction received from the
MTA, e.Volve is exempt from incurring this
tax. As of June 30, 1998 and 1999, VAT
receivable consists of amounts due and
payable to e.Volve by either the assessing
vendor or MTA (as applicable). Subsequent to
year-end, all such amounts due at year-end
have been refunded to e.Volve.
8. DEBENTURES During Fiscal 1998 and 1999, the Company
issued debentures aggregating $8,040,000 to
the Major Stockholders. The debentures bear
interest at 8% per annum, and generally
mature within a two year period. The
debenture agreement was amended with each
additional issue, in some instances resulting
in extended maturity dates. The issues (as
amended) were as follows:
F-21
<PAGE> 98
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED DECEMBER
31, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
8. DEBENTURES
(CONTINUED)
<TABLE>
<CAPTION>
ISSUANCE DATE MATURITY DATE AMOUNT
---------------------- ---------------------- ------------------
<S> <C> <C>
June 11, 1998 June 30, 2000 $ 6,000,000
August 19, 1998 June 30, 2000 850,000
April 15, 1999 June 30, 2000 200,000
--------------
April 15, 1999 June 30, 2000 7,050,000
February 9, 1999 June 30, 1999 390,000
April 29, 1999 August 27, 1999 500,000
April 30, 1999 August 28, 1999 100,000
--------------
$ 8,040,000
==============
</TABLE>
In connection with the June 11, 1998
debenture, the Company issued a total of 2400
common shares to one of the Major
Stockholders or predecessors in interest,
which gave such Major Stockholder a 66.7%
interest in the common shares of the Company.
(See Note 1). The value of the shares issued
was recorded at estimated fair value, and a
debt discount of $2,000,000 was recorded,
with an offsetting credit to Additional Paid
In Capital. The debt discount is amortized
over the contractual period of the related
debentures as a component of interest
expense.
The June 11, 1998, August 19, 1998 and April
15, 1999 debentures are repayable monthly
with accrued interest at various amounts,
with all unpaid principal and interest due
upon maturity. At June 30, 1999 the Company
was in default of its payment obligations in
connection with these debentures. The Major
Stockholders or predecessors in interest that
owned such debenture waived its right to
demand immediate repayment of these
debentures and subsequently sold its Notes
Receivable (see below).
The February 9, 1999 debenture is payable in
full (including interest) on the maturity
date. In the event the amount is not paid in
full by that date, the balance is
convertible into common stock of e.Volve at
the option of the lender, at a conversion
price of $2,778 per share, which was the
deemed fair value of shares at the issue
date.
The April 29 and 30, 1999 debentures are
repayable on the maturity date.
On September 22, 1999, as part of the
Transaction (see Note 1), the Major
Stockholders or predecessors in interest that
owned such debentures sold their related
notes receivable from e.Volve to eVentures
and, as a result, debentures are reflected as
long term liabilities on the June 30, 1998
and 1999 balance sheets. At the time of the
Transaction, the unamortized debt discount of
$917,615 on June 11, 1998 debenture was
written off. In addition, as part of this
transaction, the debentures were restructured
into a single debenture with a maturity date
of December 31, 1999. At December 31, 1999,
F-22
<PAGE> 99
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED DECEMBER
31, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
8. DEBENTURES e.Volve's debentures and eVentures' notes
(CONTINUED) receivable eliminate on consolidation.
9. OBLIGATIONS UNDER The Company is a lessee under certain
CAPITAL LEASES noncancelable capital leases, which are
secured by certain property and equipment
(see Note 5). Terms of the leases call for
monthly payments ranging from $1,601 to
$32,711, including implicit rates ranging
from 10.0% to 13.6% per annum. Future
minimum lease payments under these capital
leases are as follows:
<TABLE>
<CAPTION>
For the year ended June 30, 1999
-----------------
<S> <C>
2000 $ 2,140,641
2001 1,313,304
2002 937,570
-----------------
4,391,515
Amount representing interest (443,241)
-----------------
Present value 3,948,274
Current portion (1,916,761)
-----------------
$ 2,031,513
=================
</TABLE>
Subsequent to June 30, 1999, the Company had
entered into two additional noncancelable
capital leases for a total of $4,825,349,
which are secured by certain property and
equipment. Terms of these leases call for 39
and 60 monthly payments of $45,365 and
$84,162, including implicit interest rates of
15.4% and 11.5%, respectively.
10. STOCKHOLDERS' EQUITY COMMON STOCK
(DEFICIT)
Common stock consisted of the following:
December 31, 1999
Common Stock ($.00002 par value,
75,000,000 shares authorized, 45,834,662
issued and outstanding)
June 30, 1999
Common Stock ($.01 par value, 3,600 shares
authorized, issued and outstanding)
June 30, 1998
Common Stock ($.1 par value, 3,600 shares
authorized, issued and outstanding)
PREFERRED STOCK
Preferred Stock consisted of the following:
December 31, 1999
Series A Convertible Preferred Stock ($.00002
par value, 5,000 shares authorized, 0 shares
issued and outstanding)
Series B Convertible Preferred Stock ($.00002
par value, 25,000 shares authorized, 7,000
shares issued and outstanding)
7,000 shares of Series B convertible
Preferred Stock with a par value of $.00002
per share were issued on November 19, 1999,
November 26, 1999 and December 15, 1999 at a
price of $1,000 per share. The shares are
convertible into common shares at a price of
$13.80 per share, subject to certain
anit-dilution adjustments. As a result of the
beneficial conversion rates applied to the
above securities, a preferred dividend of
$1,115,943 has been recorded during the six
months ended December 31, 1999.
F-23
<PAGE> 100
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED DECEMBER
31, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
10. STOCKHOLDERS EQUITY STOCK OPTIONS
(DEFICIT)
(CONTINUED) e.Volve had a non-formalized stock option
plan (the "Plan"), whereby incentive stock
options could be granted to certain
employees, directors, officers and others to
purchase shares of e.Volve's common stock.
Options granted pursuant to the Plan vested
at various percentages within two years of
the date of grant and expired within five
years from the date of grant or upon
termination of employment (as defined).
During Fiscal 1999, the Company granted 90
stock options to an officer of the Company
with an exercise price of $2,778, of which
45 options vested immediately and the
remaining 45 options will become fully
vested on December 31, 1999. During Fiscal
1999, pursuant to an employment agreement
(see Note 12), the Company granted 90 stock
options to an Officer of the Company with an
exercise price of $7,077 (the deemed fair
value of the stock), of which 45 options
vested on March 8, 1999 and the remaining 45
options became fully vested on March 23,
1999. During Fiscal 1999, the Company
granted 600 stock options to certain
officers and employees of the Company with
an exercise prices of $2,778, of which 301
options vested on April 30, 1999 and the
remaining 299 options becoming fully vested
on April 1, 2000. As of June 30, 1999, 436
of such options were exercisable.
In accordance with APB#25, no compensation
expense was recorded in relation to the above
options. However, pro forma information
regarding net income (loss) is required by
SFAS 123, and has been determined as if the
Company had accounted for its 780 stock
options granted during Fiscal 1999 under the
fair value method. The fair value for these
options was estimated at the date of grant
using a Black-Scholes option pricing model
with the following assumptions: stock price
of $2,778 per share; risk-free interest rates
ranging from 5.1% to 5.4%(depending on the
expected term of the option and the date of
grant); dividend yield of 0.0%; volatility
factor of the expected market price of the
Company's common stock of 0.0% (due to no
significant market for trading of the
Company's common stock, volatility has been
assessed at 0.0%; the result of excluding
volatility in estimating an option's value is
an amount commonly termed minimum value); and
expected terms of 5 years.
The Black-Scholes valuation model was
developed for use in estimating the fair
value of traded options which have no
vesting restrictions and are fully
transferable. In addition, option valuation
models require the input of highly
subjective assumptions including the
expected stock price volatility. Because
the Company's employee stock options have
F-24
<PAGE> 101
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED DECEMBER
31, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
10. STOCKHOLDERS EQUITY characteristics significantly different from
(DEFICIT) those of traded options, and because changes
(CONTINUED) in the subjective input assumptions can
materially affect the fair value estimate,
in management's opinion, the existing models
do not necessarily provide a reliable single
measure of the fair value of its employee
stock options.
For purposes of pro forma disclosure, the
estimated fair value of the options is
amortized to expense over the options'
vesting period. The Company's pro forma
information relative to e.Volve's option
plan is as follows:
F-25
<PAGE> 102
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED DECEMBER
31, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
9. STOCKHOLDERS EQUITY
(DEFICIT)
(CONTINUED)
<TABLE>
<CAPTION>
Fiscal
1999
--------------
<S> <C> <C>
PRO FORMA NET LOSS:
Net loss as reported $ (5,462,322)
Additional compensation
expense under SFAS#123
(453,000)
--------------
$ (5,915,322)
==============
</TABLE>
During the years ended June 30, 1997 and
1998, no options were granted and therefore
proforma information has only been presented
for fiscal 1999.
On September 22, 1999, the Company terminated
the share option plans of e.Volve and AxisTel
and adopted a new share option plan (the
"Plan") for its employees, officers,
directors and consultants (whether or not
employees) as part of the Agreement and Plan
of Reorganization entered into in connection
with the Transaction (see Note 1). The Plan
provides for the grant of incentive stock
options and non-qualified stock options.
The terms of the options are set by the
Company's board of directors, with the
ability to accelerate vesting at its
discretion at any time. The options expire no
later than ten years after the date the stock
option is granted.
On October 14, 1999, the Company granted an
additional 425,000 options to directors and
employees. These options vest over various
periods, as noted in chart below.
The number of shares authorized for grants
under the Share Option Plan is 15% of
outstanding, provided that no more than
4 million options can be "incentive" stock
options. As of December 31, 1999, no options
had been exercised.
The following options were granted during the
six months ended December 31, 1999:
<TABLE>
<CAPTION>
Vesting Period
Exercise from Date
Date of issue Options Price of Issue
------------------ --------- -------- ------------------
<S> <C> <C> <C>
September 22, 1999 300,000 $ 10.00 At Issuance
October 14, 1999 100,000 $ 10.00
September 22, 1999 191,666 $ 2.50 One Year
September 22, 1999 724,998 $ 10.00
October 14, 1999 150,000 $ 10.00
October 14, 1999 24,999 $ 15.00
September 22, 1999 25,000 $ 2.50 Two Years
September 22, 1999 166,667 $ 5.00
September 22, 1999 425,001 $ 10.00
October 14, 1999 50,000 $ 10.00
October 14, 1999 25,000 $ 15.00
September 22, 1999 25,000 $ 2.50 Three Years
September 22, 1999 166,667 $ 7.50
September 22, 1999 425,001 $ 10.00
October 14, 1999 50,000 $ 10.00
October 14, 1999 25,001 $ 15.00
---------
2,875,000
=========
</TABLE>
As a result of the above, the Company
recorded deferred compensation of $453,000 on
September 22, 1999 and $2,812,500 on October
14, 1999 with related credits to additional
paid in capital. The amount of the deferred
compensation was based upon the intrinsic
value of options granted to employees which
had an exercise price lower than the market
price of the underlying stock on the day of
the grant. The deferred compensation will be
amortized over the related vesting periods
and recorded as compensation expense
in the statement of operations.
WARRANTS
In connection with the issuance of the
Amended and Restated Debenture Agreement
dated April 15, 1999 (see Note 7), the
Company issued common stock purchase
warrants (the "Warrants") to the Debenture
Holder granting the right to acquire 340
shares of Common Stock. The Warrants have an
exercise price of $2,778 per share and
expire within five years of the date of
grant (as defined). As of June 30, 1999,
none of the Warrants have been exercised.
The Company has accounted for its 340 common
stock debenture warrants granted during
Fiscal 1999 at fair value. The Company has
estimated the fair value of the Warrants,
original issue discount ("OID"), at
$210,000. The OID has been reflected as an
increase in additional paid-in capital and
as a reduction of the February Debenture and
is being amortized to interest expense
utilizing the effective interest method over
the term of the Note. During Fiscal 1999,
amortization of OID on the February
Debentures totaled $40,281. The fair value
for these warrants was estimated at the date
of grant using a Black-Scholes option
pricing model with the following
assumptions: stock price of $2,778 per
share; risk-free interest rate of 5.0%
(based on the expected term of the option
and the date of grant); dividend yield of
0.0%; volatility factor of the expected
market price of the Company's common stock
of 0.0% (due to no significant market for
trading of the Company's common stock,
volatility has been assessed at 0.0%; the
result of excluding volatility in estimating
an option's value is an amount commonly
termed minimum value); and expected terms of
5 years.
F-26
<PAGE> 103
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED DECEMBER
31, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
11. INCOME TAXES There is no provision for income tax expense
since the Company incurred net losses for
all periods presented.
Deferred tax assets of approximately
$1,015,000 and $2,226,000 as at June 30,
1998 and 1999 result primarily from Net
Operating Losses ("NOL's") and have been
fully offset by valuation allowances due to
the lack of certainty as to the ultimate
realization of any benefits resulting from
such NOLs.
As at June 30, 1999, e.Volve had NOLs of
approximately $6,547,000. Due to
restrictions on use of NOLs following a
change in ownership, these NOLs may not be
used by the Company prior to their
expiration, which is in various years
through 2018.
12. RELATED PARTY ADMINISTRATIVE EXPENSES
TRANSACTIONS
During the years ended June 30, 1997, 1998
and 1999, the Company shared office space,
payroll and certain other administrative
expenses with a related party ("Orix
Systems"). The Company paid Orix Systems
$408,734, $676,227 and $156,597, for the
years ended June 30, 1997, 1998, and 1999
respectively, with respect to such expenses
ADVANCES FROM SHAREHOLDER
Advances due from shareholder relate to
advances made by the majority shareholder of
the Old Company. The advances are
non-interest bearing and are due on demand.
As of June 30, 1998 and 1999, advances due
from shareholder totaled $60,920 and $0,
respectively.
SALES TO AFFILIATES
Sales to PhoneFree.com and ICT totaled
$44,100 and $37,500, respectively, for the
six months ended December 31, 1999.
F-27
<PAGE> 104
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED DECEMBER
31, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
13. COMMITMENTS AND OPERATING LEASES
CONTINGENCIES
The Company is a lessee under certain
noncancelable operating leases. Terms of the
leases call for monthly payments ranging
from $400 to $168,000. Future minimum lease
payments under these noncancelable operating
leases are as follows:
<TABLE>
<CAPTION>
For the year ended June 30, 1999
----------------
<S> <C>
2000 $ 249,920
2001 165,358
2002 147,168
2003 114,137
2004 66,101
Thereafter 38,556
----------------
$ 781,240
================
</TABLE>
During the years ended June 30, 1997, 1998
and 1999, the Company incurred rent expense
of $73,211, $1,346,968 and $4,555,513
respectively. (see Note 11)
During the six months ended December 31,
1999, the Company entered into a three year
noncancelable operating lease for a fiber
optic cable calling for monthly payments of
$94,972.
LITIGATION
The Company is a defendant in two lawsuits
arising out of the ordinary course of
business. In each case the plaintiff is
seeking damages against the Company primarily
for breach of contract. As of June 30, 1998
and 1999, the Company has expensed and
accrued a total of $381,802 and $665,299,
respectively, pursuant to these claims, which
is expected to be the Company's total
exposure. The related costs are included as a
component of selling, general and
administrative expenses.
In November 1998, representatives of Mexico's
Federal Telecommunications Commission
("COFETEL") entered the premises of the
Company's wholly owned subsidiary, Latin
Gate, and attempted to confiscate Latin
Gate's equipment pursuant to a visitation
order under a verification administrative
proceeding (procedimiento administrativo de
verificacion). Latin Gate filed a Federal
constitutional court action known as juicio
de amparo against COFETEL in a Mexican
Federal district court (juzgado de distrito),
principally alleging that the visitation
order failed to comply with Mexican
constitutional requirements and that the
search and seizure were illegal under Mexican
law. A juicio de amparo has two stages: the
suspension of the acts of authority
complained of and a constitutional review.
The former stage has two phases: temporary
restraining order (suspension provisional)
and a final restraining order (suspension
definitiva). The purpose of the
constitutional review is to determine whether
the acts of authority complained of are
constitutional. Should the court determine
that the acts of authority complained of are
unconstitutional, a final judgment (sentencia
final) is rendered, the principal effect of
which is the granting of the protection of
the Federal courts against such acts. On
November 24, 1998, Latin Gate obtained a
temporary restraining order which preserved
the status quo of the Latin Gate equipment
and suspended the administrative proceeding,
therefore prohibiting COFETEL from
re-entering Latin Gate's premises. On
December 21, 1998, Latin Gate obtained a
final restraining order (suspension
definitiva). On May 24, 1999, a final
judgment was rendered by the district court
in favor of Latin Gate, which judgment
declared COFETEL's acts unconstitutional and,
as a consequence, granted Latin Gate the
protection of the Federal courts. On July 7,
1999, COFETEL appealed, through a recurso de
revision, to a higher court (tribunal
colegiado de circuito) seeking a review of
the district court judgment. As of March 7,
2000, the appeal is still pending. It may not
be possible to ascertain the definitive
outcome of this matter but Latin Gate
continues to defend itself in Mexican courts.
The loss of Latin Gate's equipment might have
an adverse effect on the Company's financial
condition. The cost of litigation, regardless
of the outcome, may have an adverse effect on
the Company's financial condition. As of June
30, 1999, no amounts have been accrued for
this matter.
The Company is involved in other litigation
arising out of the ordinary course of
business. Management believes, based in part
on the advice of outside counsel, that these
matters will not have a material adverse
effect on the accompanying consolidated
financial statements.
F-28
<PAGE> 105
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED DECEMBER
31, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
13. COMMITMENTS AND EMPLOYMENT AGREEMENTS
CONTINGENCIES
(CONTINUED) The Company has entered into multi-year
employment agreements or management contracts
with six of its senior executives. These
agreements mature at various times beginning
in June 2000 and ending in September 2002.
These agreements provide for annual salaries
ranging between $100,000 and $200,000. In
addition, certain of these employees were
granted options to purchase common stock
under the Company's Share Option Plan. These
options, if exercised, would represent the
right to purchase 1,850,000 shares of common
stock at various exercise prices ranging from
$2.50 to $10.00 per option (See
Note 9).
MARKETING AGREEMENTS
On January 1, 1999, the Company entered into
an agreement with Corpovision S.A. de C.V.
("Corpovision") to provide marketing
services to locate and develop clients for
telecommunications services. As long as e.
Volve conducts business with the clients
listed in the agreement, the Company must
pay a minimum compensation amount of
$100,000 per month in any month sales are
made, within thirty days after the end of
each period. The payment must be in the form
of cash or a subordinated, non-recourse
promissory note to be paid with any available
cash flow. The term of the agreement is for
thirty years. As of June 30, 1999, the
Company had paid compensation amounting to
$200,000 and had a note outstanding for the
remaining months of $300,000. During Fiscal
1999, the Company incurred compensation
expense related to such agreement totaling
$500,000. On November 30, this agreement was
terminated. The Company settled its liability
to Corpovision and terminated the agreement
through an issue of 137,500 shares of
eVentures. As a result, the Company recorded
a charge in the statement of operations of
approximately $1,600,000 during the six
months ended December 31, 1999 for the
difference between the value of the shares
issued and the book value of the note payable
to Corpovision.
AGREEMENTS WITH VENDORS
On October 9, 1996, the Company entered into
an agreement with a vendor to provide sundry
telecom services which expired on October 9,
1999.
F-29
<PAGE> 106
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED DECEMBER
31, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
13. COMMITMENTS AND On April 29, 1998, the Company entered
CONTINGENCIES into an agreement with Qwest for
(CONTINUED) telecommunication services. The agreement
can be terminated at any time by either
party upon a thirty-day notice and can be
automatically renewed for successive
one-year periods. Rates for services
disclosed in the agreement are subject to
change at any time.
On September 30, 1999, e.Volve and Qwest
Communications Corporation entered into
an Indefeasible Right of Use ("IRU")
agreement in which Qwest granted e.Volve
an indefeasible right of use to a fiber
optic circuit operated by Qwest between
New York, New York and Los Angeles,
California for a period of twenty years.
In consideration for this indefeasible
right of use, e.Volve agreed to pay Qwest
a total of $15.0 million in four
installments between October 1, 1999 and
September 30, 2001. In addition, e.Volve
has been required to pay Qwest a monthly
operation and maintenance charge of
$25,000 per month since January 1, 2000.
Pursuant to the IRU agreement, e.Volve
must separately arrange for a collocation
space in the Qwest terminal facilities or
obtain from a local telecommunications
distributor the telecommunications
transmission facilities required in order
to extend each route from a cross-connect
panel at Qwest's terminal facility to a
location outside of the Qwest terminal
facility. As of March 7, 2000, e.Volve
had not utilized its right to use the
fiber optic circuit. However, e.Volve has
not entered into any collocation
agreement with Qwest or any other local
telecommunications distributor as
required under the IRU agreement and has
not obtained the telecommunications
transmission necessary to extend each
route to a location outside of the Qwest
terminal facility. Consequently, the
route from New York to Los Angeles lies
inactive and has not received any traffic
from e.Volve.
On December 23, 1999, Qwest made a demand
for payment of the first installment of
$3.75 million. Thereafter, Quest has sent
invoices to e.Volve requesting payment of
the full $15.0 million. e.Volve has not
made this payment and e.Volve, eVentures
and Qwest have commenced negotiations for
a restructuring of the terms of the IRU
agreement. As of March 7, 2000, e.Volve
and Qwest have not reached an agreement
regarding this dispute. The accompanying
financial statements do not include any
adjustments which may be necessary
related to the above transaction.
On August 31, 1999, the Company entered
into a joint venture agreement with
Uni-Tel, Inc., a Texas corporation that
operates in the United States and India
and provides international
telecommunications services. The
agreement formed a strategic alliance in
which Uni-Tel would manage
telecommunications equipment and software
owned by the Company, which was located
in the United States and India and
deliver telecommunications traffic
carried by the Company from the United
States terminating in India.
Under the terms of the agreement, the
Company paid Uni-Tel $800,000 for the
purchase of five systems of
telecommunications equipment and software
and has been invoiced for an additional
$450,000, payable in shares of eVentures'
common stock, to complete the payment for
these systems. In addition, the Company
agreed to pay $250,000 for the purchase
of each of up to seven additional
telecommunications termination systems.
The $250,000 to be paid by the Company
for each new termination system is to be
paid in two installments. The first
$100,000 of each installment is due upon
seven days notice of the proposed
installation of a new termination system,
and the remaining $150,000 is payable in
shares of the Company's common stock and
is due upon the completion of two weeks'
testing and acceptance of the termination
system by the Company.
In addition to the purchase of the
termination systems, within a month of
commencing operations, the Company is to
supply a minimum of 300,000 minutes of
usage per location per month and within
ninety days of commencing operations
increase such usage to a monthly minimum
of 450,000 minutes per location. In
exchange for Uni-Tel's termination of the
traffic supplied to India, the Company
pays Uni-Tel a termination fee of $0.14
per minute to cover operating costs in
India. In addition, Uni-Tel, at its sole
expense, is responsible for the overall
daily management of the system sites in
Dallas and in India, whereas the Company
pays Uni-Tel for managing systems located
in sites other than Dallas and India. All
adjusted gross profits of the business
arrangements contemplated in the
agreement are shared equally between the
Company and Uni-Tel.
The Company believes that Uni-Tel has
breached its agreements by failing to
adequately manage its network, and pay
its expenses related to operations in
India and has stopped making certain
payments to Uni-Tel. The Company and
Uni-Tel are negotiating a settlement
agreement in order to resolve this
dispute.
F-30
<PAGE> 107
eVENTURES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED DECEMBER
31, 1998 AND 1999 IS UNAUDITED)
- -------------------------------------------------------------------------------
14. PRO FORMA FINANCIAL DATA On September 22, 1999, the Company acquired
(UNAUDITED) all of the outstanding shares of AxisTel,
approximately 66.67% of the outstanding
shares of e.Volve, and approximately 17% of
the outstanding shares of i2v2.com. All of
the acquisitions were settled through the
issuance of stock of eVentures.
Set forth below is the Company's unaudited
pro forma condensed statement of operations
for the year ended June 30, 1999 and the six
months ended December 31, 1999 as though the
Transaction had occurred on July 1, 1998,
after adjustments related to goodwill,
amortization of intangible assets and debt
discount and interest expense relating to the
e.Volve debentures. The unaudited pro forma
results are not necessarily indicative of
either actual results of operations that
would have occurred had the Transaction
occurred on July 1, 1998, respectively, or of
future results.
<TABLE>
<CAPTION>
Year ended Six months ended
June 30, 1999 December 31, 1999
<S> <C> <C>
Revenues $ 35,215,916 $ 28,403,640
Net loss $(10,501,114) $ (11,821,902)
Net loss per share $ (0.25) $ (0.27)
</TABLE>
15. GOODWILL Goodwill of $3,414,319 arose upon the change
of control on July 1, 1998 (see Note 1).
Goodwill of $17,162,468 arose upon the
acquisition of AxisTel on September 22, 1999
as part of the Transaction (see Note 1).
Goodwill of $11,662,506 arose upon the
acquisition of 33.3% of e.volve on October
19, 1999 (See Note 1). Accumulated
amortization as of June 30, 1999 and December
31, 1999 was $341,434 and $1,543,506,
respectively.
16. SUBSEQUENT EVENTS In a series of transactions closed between
January 6 and February 4, 2000, the Company
issued 15,570 shares of Series C Convertible
Preferred Stock, par value $0.00002 per
share, to eight accredited investors, at a
price of $1,000 per share. The shares are
convertible into shares of eVentures' common
stock at a price of $17.90 per share, subject
to certain anti-dilution adjustments. The
conversion price was determined using the
average of the closing bid prices per share
of eVentures' common stock for the 20 trading
days ended December 10, 1999. The effect of
the favorable conversion rate will be
recorded as an imputed preferred dividend in
the third quarter of fiscal 2000.
On January 31, 2000, pursuant to an option
granted in connection with the Company's
initial investment in Fonbox, the Company
purchased 1,000,000 newly issued shares of
Series A preferred stock of Fonbox for $1.0
million cash. In addition, in connection with
the exercise of this option, the Company
acquired 350,000 shares of common stock of
Fonbox from each of Spydre Zeta L.L.C. and
NetProvide Ltd. in exchange for an aggregate
of 27,860 shares of eVentures' common stock.
As of March 7, 2000, the Company owns
approximately 31% of the capital stock of
Fonbox. Accordingly, the investment in Fonbox
will be accounted for on the equity basis
after January 31, 2000.
On January 28, 2000, the Company acquired
100,000 Series A Preferred Units of LC39
Venture Group LLC ("LC39"), representing less
than 5% of the equity and voting interests of
LC39, for $1.0 million. LC39 is the legal
name of Launch Center 39.
On February 11, 2000, the Company acquired
750,000 shares of Series A-1 convertible
preferred stock of Televant, Inc.
("Televant"), a Texas Corporation (d/b/a
Callrewards), for $750,000 which represents
30% of the outstanding capital stock of
Televant on a fully-diluted basis. Under the
agreement with Televant, the Company is
obligated to purchase shares of Series A-2
convertible preferred stock of Televant,
which on the date of purchase will be
convertible into 20% of the ownership
interest in Televant on a fully-diluted
basis, for $1,000,000 when Televant has at
least 100,000 active users. In addition the
Company is obligated to purchase shares of
Series A-3 convertible preferred stock of
Televant, which on the date of purchase will
be convertible into 20% of Televant on a
fully-diluted basis, for $2,500,000 when
Televant has at least 250,000 active users.
On March 3, 2000, the Company loaned $3.0
million to PhoneFree.com under a promissory
note dated March 2, 2000. The promissory note
is due on September 1, 2000 and bears
interest at 7%. PhoneFree.com may repay this
promissory note at any time, subject to the
Company's right to convert it into common
stock of PhoneFree.com. The Company can
convert the promissory note into common stock
of PhoneFree.com:
(i) if PhoneFree.com raises equity capital
from other investors on or before August
31, 2000, in which case the Company's
conversion price will be equal to 95% of
the per share subscription or conversion
price in such equity capital raise; or
(ii) if PhoneFree.com does not raise equity
capital from other investors on or
before August 31, 2000, the Company can
convert the promissory note on or after
September 1, 2000, at a per share
conversion price that values all the
common and preferred stock of
PhoneFree.com at $50.0 million.
In connection with the loans made under the
promissory note, the Company also received a
four-year warrant to purchase 240,000 shares
of PhoneFree.com at a price equal to 110% of
the conversion price of the promissory note.
The warrant may not be called by PhoneFree.
If the Company included this warrant, but not
the promissory note, the Company would
beneficially own approximately 18% of the
outstanding shares of common stock of
PhoneFree.com.
On March 7, 2000, the Company entered into an
agreement to acquire approximately 5,970,000
shares of Internet Global Services,
Inc.("IGS"), representing approximately 92.6%
of the issued and outstanding equity
interests of IGS, in exchange for
approximately 2,588,000 shares of eVentures'
common stock. Under this agreement, following
the Company's purchase of the IGS shares, IGS
will merge with and into the Company's
wholly-owned subsidiary IGS Acquisition
Corporation, with IGS being the surviving
corporation. The per share consideration
under the merger will be substantially the
same as the consideration paid under the
agreement. This transaction remains subject
to customary closing conditions and the
Company expects to close this transaction
during the third quarter of fiscal 2000.
F-31
<PAGE> 108
INDEPENDENT AUDITORS' REPORT
To the Stockholders
AxisTel Communications, Inc.
Jersey City, New Jersey
We have audited the accompanying balance sheets of AxisTel Communications, Inc.
as of December 31, 1997 and 1998, and the related statements of operations,
stockholders' equity (deficit) and cash flows for the period from August 28,
1997 (inception) to December 31, 1997 and the year ended December 31, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AxisTel Communications, Inc. at
December 31, 1997 and 1998, and the results of its operations and its cash flows
for the period from August 28, 1997 (inception) to December 31, 1997 and the
year ended December 31, 1998, in conformity with generally accepted accounting
principles.
BDO SEIDMAN, LLP
New York, New York
October 29, 1999
F-32
<PAGE> 109
AXISTEL COMMUNICATIONS, INC.
BALANCE SHEETS
================================================================================
<TABLE>
<CAPTION>
December 31, December 31, June 30,
1997 1998 1999
------------- ------------- -------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT:
Cash $ 31,712 $ 1,418,070 $ 630,571
Accounts receivable - net of allowances for doubtful
accounts of $-0-, $25,000 and $75,000,
respectively 38,250 302,100 1,054,563
Prepaid expenses and other current assets 2,443 35,898 217,300
------------- ------------- -------------
TOTAL CURRENT ASSETS 72,405 1,756,068 1,902,434
RESTRICTED CASH -- -- 750,000
PROPERTY, EQUIPMENT, AND CERTAIN INTANGIBLES AT COST, NET
OF ACCUMULATED DEPRECIATION -- 1,693,055 394,583
LOAN ORIGINATION COSTS - NET OF ACCUMULATED AMORTIZATION
OF $5,000 AND $55,000, RESPECTIVELY -- 55,000 --
OTHER ASSETS -- 46,800 46,800
------------- ------------- -------------
$ 72,405 $ 3,550,923 $ 3,093,817
============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of notes payable - Eraatel Corp. $ -- $ 427,600 $ --
Notes payable - stockholders 10,000 25,000 25,625
Accounts payable and accrued expenses 47,204 369,604 1,203,760
Deferred revenue -- 110,000 176,230
------------- ------------- -------------
TOTAL CURRENT LIABILITIES 57,204 932,204 1,405,615
NOTES PAYABLE:
Eraatel Corp. -- 1,072,400 --
Stockholder -- 1,748,925 3,317,425
------------- ------------- -------------
TOTAL LIABILITIES 57,204 3,753,529 4,723,040
------------- ------------- -------------
COMMITMENTS AND CONTINGENCY
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock 15 15 15
Additional paid-in capital 985 312,395 312,395
Retained earnings (deficit) 14,201 (515,016) (1,941,633)
------------- ------------- -------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 15,201 (202,606) (1,629,223)
------------- ------------- -------------
$ 72,405 $ 3,550,923 $ 3,093,817
============= ============= =============
</TABLE>
See accompanying summary of accounting policies and
notes to financial statements.
F-33
<PAGE> 110
AXISTEL COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
================================================================================
<TABLE>
<CAPTION>
Period from
August 28, 1997
(inception) to Year ended
December 31, December 31, Six months ended June 30,
--------------------------------
1997 1998 1998 1999
------------- ------------- ------------- -------------
(Unaudited)
<S> <C> <C> <C> <C>
NET REVENUES $ 69,250 $ 2,304,887 $ 529,241 $ 6,191,997
CARRIER CHARGES 49,042 1,853,873 659,709 5,187,071
------------- ------------- ------------- -------------
20,208 451,014 (130,468) 1,004,926
------------- ------------- ------------- -------------
OTHER OPERATING EXPENSES:
Selling, general and administrative 5,707 648,943 56,431 1,615,783
Line charges -- 199,977 44,149 460,070
Cellular phones -- 47,463 -- --
Printing -- 38,780 -- --
------------- ------------- ------------- -------------
TOTAL OTHER OPERATING EXPENSES 5,707 935,163 100,580 2,075,853
------------- ------------- ------------- -------------
OPERATING INCOME (LOSS) 14,501 (484,149) (231,048) (1,070,927)
OTHER EXPENSES:
Interest expense, net -- 44,768 -- 255,690
Other expense -- -- -- 100,000
------------- ------------- ------------- -------------
INCOME (LOSS) BEFORE TAXES ON INCOME 14,501 (528,917) (231,048) (1,426,617)
TAXES ON INCOME 300 300 -- --
------------- ------------- ------------- -------------
NET INCOME (LOSS) $ 14,201 $ (529,217) $ (231,048) $ (1,426,617)
============= ============= ============= =============
</TABLE>
See accompanying summary of accounting policies and
notes to financial statements.
F-34
<PAGE> 111
AXISTEL COMMUNICATIONS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
================================================================================
Period from August 28, 1997 (inception) to December 31, 1997, year ended
December 31, 1998 and six months ended June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common stock, Class A Common stock, Class B
---------------- ----------------- ------------- -----------------
Shares Par value Shares Par value
---------- ----------- --------- -----------
<S> <C> <C> <C> <C>
BALANCE, AUGUST 28, 1997 -- $ -- -- $ --
Issuance of common stock 1,500 15 -- --
Net income -- -- -- --
---------- ----------- --------- -----------
BALANCE, DECEMBER 31, 1997 1,500 15 -- --
Issuance of common stock -- -- 1 --
Officer's salary-imputed -- -- -- --
Options granted -- -- -- --
Warrants granted -- -- -- --
Net loss -- -- -- --
---------- ----------- --------- -----------
BALANCE, DECEMBER 31, 1998 1,500 15 1 --
Net loss (Unaudited) -- -- -- --
---------- ----------- --------- -----------
BALANCE, JUNE 30, 1999 (UNAUDITED) 1,500 $ 15 1 $ --
========== =========== ========= ===========
<CAPTION>
Additional Retained Stockholders'
paid-in earnings equity
capital (deficit) (deficit)
----------- ----------- ----------------
<S> <C> <C> <C>
BALANCE, AUGUST 28, 1997 $ -- $ -- $ --
Issuance of common stock 985 -- 1,000
Net income -- 14,201 14,201
----------- ----------- ---------------
BALANCE, DECEMBER 31, 1997 985 14,201 15,201
Issuance of common stock -- -- --
Officer's salary-imputed 12,000 -- 12,000
Options granted 25,510 -- 25,510
Warrants granted 273,900 -- 273,900
Net loss -- (529,217) (529,217)
----------- ----------- ---------------
BALANCE, DECEMBER 31, 1998 312,395 (515,016) (202,606)
Net loss (Unaudited) -- (1,426,617) (1,426,617)
----------- ----------- ---------------
BALANCE, JUNE 30, 1999 (UNAUDITED) $ 312,395 $(1,941,633) $ (1,629,223)
=========== =========== ===============
</TABLE>
See accompanying summary of accounting policies and
notes to financial statements.
F-35
<PAGE> 112
AXISTEL COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
(NOTE 9)
================================================================================
<TABLE>
<CAPTION>
Period from
August 28,
1997
(inception)
to Year ended Six months ended June 30,
December 31, December 31, -------------------------------
1997 1998 1998 1999
------------- ------------- ------------- -------------
(unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 14,201 $ (529,217) $ (231,048) $ (1,426,617)
------------- ------------- ------------- -------------
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization -- 15,564 -- 20,627
Amortization of loan origination costs -- 27,825 -- 123,500
Other expense -- -- -- 100,000
Stock options issued in lieu of payment
for services -- 25,510 -- --
Officer's salary - imputed -- 12,000 -- --
Decrease (increase) in:
Accounts receivable (38,250) (278,100) 30,992 (752,463)
Prepaid expenses and other assets (2,443) (72,697) (4,492) (181,402)
Restricted cash -- -- -- (750,000)
Increase in:
Accounts payable and accrued expenses 47,204 329,092 174,419 834,156
Deferred revenue -- 110,000 25,000 66,230
------------- ------------- ------------- -------------
Total adjustments 6,511 169,194 225,919 (539,352)
------------- ------------- ------------- -------------
Net cash provided by (used in)
operating activities 20,712 (360,023) (5,129) (1,965,969)
------------- ------------- ------------- -------------
Cash flows from investing activities:
Capital expenditures -- (208,619) -- (322,155)
------------- ------------- ------------- -------------
Cash flows from financing activities:
Proceeds from:
Issuance of common stock 1,000 -- -- --
Notes payable, net of loan origination costs -- 1,940,000 -- 1,500,000
Loans from stockholders 10,000 15,000 25,000 625
------------- ------------- ------------- -------------
Net cash provided by financing
activities 11,000 1,955,000 25,000 1,500,625
------------- ------------- ------------- -------------
Net increase (decrease) in cash 31,712 1,386,358 19,871 (787,499)
Cash, beginning of period -- 31,712 31,712 1,418,070
------------- ------------- ------------- -------------
Cash, end of period $ 31,712 $ 1,418,070 $ 51,583 $ 630,571
============= ============= ============= =============
</TABLE>
See accompanying summary of accounting policies and
notes to financial statements.
F-36
<PAGE> 113
AXISTEL COMMUNICATIONS, INC.
SUMMARY OF ACCOUNTING POLICIES
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
================================================================================
DESCRIPTION OF BUSINESS AxisTel Communications, Inc. (the
"Company") was incorporated in the State
of Delaware on August 28, 1997. Its
services include the provision of
international and domestic voice and
data applications over Company leased
and third party fiber optic networks and
retail communication services, including
prepaid telephony.
UNAUDITED INTERIM FINANCIAL STATEMENTS The financial statements as of June 30,
1999 and for the six months ended June
30, 1998 and 1999 are unaudited, and
have been prepared on the same basis as
the audited financial statements
included herein. In the opinion of
management, such unaudited financial
statements include all adjustments
consisting of normal recurring accruals
necessary to present fairly the
information set forth therein. Results
for interim periods are not necessarily
indicative of results to be expected for
an entire year.
PROPERTY, EQUIPMENT AND CERTAIN Property and equipment is stated at
INTANGIBLES cost. Depreciation is computed using the
straight-line method over the estimated
useful lives.
LOAN ORIGINATION COSTS Loan origination costs are amortized
based on the interest method over the
contractual period of the loan (see Note
5).
INCOME TAXES Income taxes are calculated using the
liability method specified by Statement
of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income
Taxes." SFAS No. 109 requires a company
to recognize deferred tax liabilities
and assets for the expected future tax
consequences of events that have been
recognized in a company's financial
statements or tax returns. Under this
method, deferred tax liabilities and
assets are determined based on the
difference between the financial
statement carrying amounts and tax basis
of assets and liabilities using enacted
tax rates in effect in the years in
which the differences are expected to
reverse. Deferred tax assets are reduced
by a valuation allowance to the extent
realization is uncertain.
F-37
<PAGE> 114
AXISTEL COMMUNICATIONS, INC.
SUMMARY OF ACCOUNTING POLICIES
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
================================================================================
REVENUE RECOGNITION Prepaid phone card revenues are earned
when the prepaid phone cards are used.
Deferred revenues of $-0- and $110,000
at December 31, 1997 and 1998,
respectively, represent unused prepaid
phone cards.
USE OF ESTIMATES The preparation of financial statements
in conformity with generally accepted
accounting principles requires
management to make estimates and
assumptions that affect the reported
amounts of assets and liabilities and
disclosure of contingent assets and
liabilities at the date of the financial
statements and the reported amounts of
revenues and expenses during the
reporting period. Actual results could
differ from those estimates.
LONG-LIVED ASSETS Long-lived assets, such as property and
equipment, are evaluated for impairment
when events or changes in circumstances
indicate that the carrying amount of the
assets may not be recoverable through
the estimated undiscounted future cash
flows from the use and sale of these
assets. When any such impairment exists,
the related assets will be written down
to fair value. No impairment losses have
been recognized through June 30, 1999.
F-38
<PAGE> 115
AXISTEL COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
================================================================================
1. TRANSACTIONS WITH Included in revenues for the year ended
RELATED PARTIES December 31, 1998 were revenues from
Debit Card Technologies Inc. totaling
approximately $264,000. Debit Card
Technologies Inc. is wholly owned by an
employee's spouse. All revenues for the
period August 28, 1997 (inception) to
December 31,1997 were received from
Debit Card Technologies, Inc.
2. PROPERTY AND EQUIPMENT AND Major classes of property and equipment
CERTAIN INTANGIBLES and certain intangibles are as follows:
<TABLE>
<CAPTION>
Estimated
December 31, 1997 1998 useful lives
- ------------ ----------- ------------- ------------
<S> <C> <C> <C>
Indefeasible Right of Use
of phone line $ -- $ 1,600,000 25 years
Equipment -- 108,619 3-4 years
----------- ------------- ------------
-- 1,708,619
Less: Accumulated
depreciation -- (15,564)
----------- ------------- ------------
$ -- $ 1,693,055
=========== ============= ============
</TABLE>
3. NOTES PAYABLE - On December 3, 1998, the Company entered
ERAATEL CORP. into an Indefeasible Right of Use
("IRU") agreement with Eraatel
Corporation which provides for the use
of a phone line for 25 years. The
Company leased the phone line between
New York City, New York and Miami,
Florida for a one-time IRU fee of
$1,600,000. The Company paid $100,000
upon the execution of the agreement. The
balance due of $1,500,000 is payable in
equal monthly installments over a term
of 36 months with interest accruing at
15%. As of December 31, 1998, $427,600
was classified as current and $1,072,400
was classified as long-term debt.
In April 1999, the Company was notified
that Eraatel Corporation had misled the
Company and, in fact, only had rights to
the IRU for four months. As a result,
the above agreement was terminated and
the related asset and notes payable were
written off. The $100,000 payment has
been recorded as other expense.
F-39
<PAGE> 116
AXISTEL COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
================================================================================
4. MAJOR CUSTOMERS Two customers accounted for
approximately 40% of accounts receivable
at December 31, 1998. Revenues from
these customers accounted for
approximately 6% of revenues for the
year ended December 31, 1998.
5. NOTES PAYABLE - On October 28, 1998, the Company issued
STOCKHOLDERS notes to Infinity Emerging Opportunities
Limited ("IEOL") in an aggregate amount
of $2,000,000. As of December 31, 1998,
the aggregate principal balance due was
$2,000,000. The note agreement provides
for a further $1,500,000, of which
$500,000 was received on March 10, 1999
and $1,000,000 was received on April 19,
1999, and is subject to certain
conditions as set forth in the
agreement. Interest is calculated at 8%
per annum and is payable monthly. The
outstanding principal balance and any
unpaid interest shall be due and payable
on October 28, 2000. The notes are
secured by all assets and equity
interests of the Company.
As of December 31, 1998, the Company had
not met, but was subsequently granted
waivers with respect to, certain
reporting requirements under the above
notes.
In connection with the notes, the
Company issued warrants to purchase
1,499 shares of Class B common stock,
par value $.01 per share, of the Company
at an exercise price of $2,333.33 per
share. The warrants were valued at
approximately $274,000 using the
Black-Scholes model and the Company
recorded the amount as a debt discount,
with a related credit to additional
paid-in capital. The debt discount is
being amortized over the life of the
loan. As of December 31, 1998, the
balance of the debt discount, net of
amortization, was $251,075.
As additional consideration for the
notes payable, the Company issued one
share of Class B common stock of the
Company to IEOL at a purchase price of
$1 (approximate fair value), with voting
rights as set forth in the Certificate
of Incorporation of the Company
entitling the purchasers to vote 50% of
all issued and outstanding shares of the
common stock of the Company.
F-40
<PAGE> 117
AXISTEL COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
================================================================================
The Company had notes payable to one of
its stockholders aggregating $10,000 at
December 31, 1997. The Company had notes
payable to two of its stockholders
aggregating $25,000 at December 31,
1998. Interest is calculated at 5% per
annum. The outstanding principal balance
and any unpaid interest was due and
payable on October 28, 1999 and the
notes were therefore classified as short
term.
6. COMMON STOCK Common stock is comprised of the
following:
<TABLE>
<CAPTION>
December 31, 1997 1998
------------ ---- ----
<S> <C> <C>
Class A shares; par value $.01, 45,000
shares authorized, 1,500 shares issued
and outstanding $15 $15
Class B shares; par value $.01, 45,000
shares authorized, 1 share issued and
outstanding -- --
Class C shares; nonvoting par value $.01,
10,000 shares authorized, none issued and
outstanding -- --
---- ----
$15 $15
==== ====
</TABLE>
7. STOCK OPTIONS On November 18, 1998, IEOL retained a
consultant to perform services for the
Company. The consultant was granted
stock options to purchase 30 shares of
Class C, nonvoting common stock, par
value $.01, of the Company at an
exercise price of $2,333.33 per share.
The stock options vest on May 18, 1999.
The options were valued at $25,510 using
the Black-Scholes model and the Company
recorded the amount as compensation
expense with a related credit to
additional paid-in capital.
F-41
<PAGE> 118
8. COMMITMENTS Leases
Minimum annual commitments under all
noncancellable operating leases with
terms in excess of one year approximate:
<TABLE>
Year ended December 31,
----------------------- -------------
<S> <C>
1999 $ 210,600
2000 280,800
2001 280,800
2002 280,800
2003 280,800
Thereafter 1,582,200
-------------
Total minimum lease payments $ 2,916,000
-------------
</TABLE>
Rent expense for the period from August
28, 1997 (inception) to December 31,
1997 and the year ended December 31,
1998 was approximately $1,000 and
$12,000, respectively.
9. STATEMENTS OF CASH
FLOW
<TABLE>
<CAPTION>
Period from
August 28,
1997
(inception) to Year ended Six months ended June 30,
December 31, December 31, -------------------------
1997 1998 1998 1999
-------------- ---------------- -------- ------------
<S> <C> <C> <C> <C>
Supplemental disclosure
of cash flow
information:
Cash paid during the
period for:
Interest $ -- $ 13,333 $ -- $ 90,000
Taxes -- -- -- 1,100
Noncash investing and
financing activities:
Capital leases
entered into
during the period -- 1,500,000 -- --
Warrants and
options issued
during the period -- 299,410 -- --
----- -------------- ---- ----------
</TABLE>
F-42
<PAGE> 119
10. INCOME TAXES
The Company has a deferred tax asset
amounting to approximately $197,000 at
December 31, 1998, principally relating
to net operating loss carryforwards and
a basis difference in the carrying
amount of trade accounts receivable for
financial reporting purposes and the
amount used for income tax purposes. The
Company recorded a valuation allowance
amounting to the entire deferred tax
asset balance due to the Company's
financial condition and its lack of a
history of consistent earnings, giving
rise to uncertainty as to whether the
deferred tax asset is realizable. No
amount of deferred Federal or state
income tax is therefore presented.
Deferred income taxes are not material
for the period ended December 31, 1997.
As of December 31, 1998, the Company had
net operating loss income tax
carryforwards of approximately $529,000,
which expire in the years 1999 through
2018.
F-43
<PAGE> 120
11. SUBSEQUENT EVENTS On September 22, 1999, the following
significant transactions occurred: IEOL
exercised its warrants to purchase 1,499
Class A shares of the Company, which
gave it 50% of the total outstanding
shares of the Company. IEOL exchanged
its shares in the Company for shares of
eVentures Group, Inc. ("eVentures").
eVentures acquired the other 50% of the
Company's Class A shares from the
founding shareholders of the Company,
settled through an issue of shares of
eVentures. These transactions
consummated the acquisition of all of
the outstanding shares of the Company by
eVentures.
F-44
<PAGE> 121
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial information (the
"Unaudited Pro Forma Consolidated Financial Information") has been derived from
the application of pro forma adjustments to eVentures' consolidated historical
audited statement of operations for the year ended June 30, 1999 and the six
months ended December 31, 1999 included elsewhere herein.
The Unaudited Pro Forma Consolidated Financial Information gives effect to
the acquisition of AxisTel and the acquisition of the remaining 33.3% of e.Volve
as if each had occurred on July 1, 1998. There is no adjustment to minority
interest relative to the purchase of the remaining 33.3% of e.Volve since 100%
of the losses were already recorded in the historical financial statements. A
pro forma balance sheet has not been presented since these events are already
reflected in the historical balance sheet as of December 31, 1999 presented
elsewhere herein. The pro forma adjustments are described in the accompanying
notes.
The Unaudited Pro Forma Consolidated Financial Information is presented for
informational purposes only and does not purport to represent what eVentures'
results of operations would actually have been if the aforementioned events had
occurred on the date specified or to project eVentures' results of operations
for any future periods. The Unaudited Pro Forma Consolidated Financial
Information should be read in conjunction with eVentures' consolidated
historical financial statements, and the notes thereto, included elsewhere
herein.
P-1
<PAGE> 122
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
SEPTEMBER 22, 1999 EVENTS PURCHASE OF
---------------------------- THE REMAINING
(1) PRO FORMA 33.3% OF
HISTORICAL AXISTEL ADJUSTMENTS SUBTOTAL e.VOLVE PRO FORMA
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 27,248,273 $ 7,967,643 $ -- $ 35,215,916 $ -- $ 35,215,916
Direct costs 23,311,584 6,997,133 -- 30,308,717 -- 29,692,819
------------ ------------ ------------ ------------ ------------ ------------
Gross profit 3,936,689 970,510 -- 4,907,199 -- 4,907,199
Selling, general & administrative
expenses 7,551,131 2,309,538 1,213,997(2) 11,524,666 1,166,251(7) 12,690,917
450,000(3)
------------ ------------ ------------ ------------ ------------ ------------
Less from operations, before
other (income) expense (3,614,442) (1,339,028) (1,663,997) (6,617,467) (1,166,251) (7,783,718)
Other (income) expense
Interest expense, net 1,704,459 285,457 (557,574)(4) 473,675 -- 473,675
(958,667)(5)
Equity in loss of affiliate 33,776 -- -- 33,776 -- 33,776
Foreign currency (gain) loss 126,575 -- -- 126,575 -- 126,575
Debt discount -- -- 2,000,000 (6) 2,000,000 -- 2,000,000
Other (16,930) 100,000 -- 83,070 -- 83,070
------------ ------------ ------------ ------------ ------------ ------------
1,847,880 385,457 483,759 2,717,096 -- 2,717,096
------------ ------------ ------------ ------------ ------------ ------------
Net loss before provision for taxes (5,462,322) (1,724,485) (2,147,756) (9,334,563) (1,166,251) (10,500,814)
Provision for taxes -- 300 -- 300 -- 300
------------ ------------ ------------ ------------ ------------ ------------
Net loss $ (5,462,322) $ (1,724,785) $ (2,147,756) $ (9,334,863) $ (1,166,251) $(10,501,114)
============ ============ ============ ============ ============ ============
</TABLE>
- -------------------------
(1) Reflects the consolidation of the results of operations of AxisTel for the
period July 1, 1998 to June 30, 1999.
(2) Reflects the amortization of the goodwill arising from the purchase of 50%
of AxisTel from the founding shareholders on September 22, 1999, over a
period of 10 years.
(3) Reflects the amortization of the goodwill arising from the conversion of
the Major Shareholders' 1,499 options in AxisTel on September 22, 1999,
over a period of 10 years.
(4) Reflects the reversal of the interest expense relating to the e.Volve
debentures for which the related Notes Receivable were exchanged for stock
of eVentures by one of the Major Shareholders on September 22, 1999.
(5) Reflects the reversal of amortization relating to the Original Issue
Discount on the e.Volve debentures for which the related Notes Receivable
were exchanged for stock of eVentures by one of the Major Shareholders on
September 22, 1999.
(6) Reflects the write off of the Original Issue Discount on the e.Volve
debentures for which the related Notes Receivable were exchanged for stock
of eVentures by one of the Major Shareholders on September 22, 1999.
(7) Reflects the amortization of the goodwill arising from the purchase of the
remaining 1/3 of e.Volve on October 19, 1999 over a period of 10 years.
P-2
<PAGE> 123
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
SEPTEMBER 22, 1999 EVENTS
------------------------------------------ PURCHASE OF THE
(1) PRO FORMA REMAINING 33.3%
HISTORICAL AXISTEL ADJUSTMENTS SUBTOTAL OF e.VOLVE PRO FORMA
------------ ----------- ----------- --------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $22,661,838 $ 5,741,802 $ -- $ 28,403,640 $ -- $ 28,403,640
Direct costs 21,759,782 5,900,284 -- 27,660,066 -- 27,660,066
------------ ----------- ----------- --------------- --------------- ------------
Gross profit (loss) 902,056 (158,483) -- 743,573 -- 743,573
Selling, general &
administrative expenses 10,354,808 1,226,737 276,891(2) 11,961,073 291,563(7) 12,252,636
102,637(3)
------------ ----------- ----------- --------------- --------------- ------------
Loss from operations, before
other (income) expense (9,452,752) (1,385,220) (379,528) (11,217,500) (291,563) (11,509,063)
Other (income) expense
Interest expense, net 598,062 138,153 (160,800)(4) 281,978 -- 281,978
(293,437)(5)
Write off of unamortized
debt discount 917,615 -- (917,615)(6) -- -- --
Equity in loss of affiliate 31,819 -- -- 31,819 -- 31,819
Foreign currency (gain) loss (2,032) -- -- (2,032) -- (2,032)
Other 1,074 -- -- 1,074 -- 1,074
------------ ----------- ----------- --------------- --------------- ------------
1,546,538 138,153 (1,371,852) 312,839 -- 312,839
------------ ----------- ----------- --------------- --------------- ------------
Net loss before provision for
taxes (10,999,290) (1,523,373) 992,324 (11,530,339) (291,563) (11,821,902)
Provision for taxes -- -- -- -- -- --
------------ ----------- ----------- --------------- --------------- ------------
Net income (loss) $(10,999,290) $(1,523,373) $ 992,324 $ (11,530,339) $ (291,563) $(11,821,902)
============ =========== =========== =============== =============== ============
</TABLE>
(1) Reflects the consolidation of the results of operations of AxisTel for the
period July 1, 1999 to September 22, 1999.
(2) Reflects the amortization of the goodwill arising from the purchase of 50%
of AxistTel from the founding shareholders on September 22, 1999, over a
period of 10 years.
(3) Reflects the amortization of the goodwill arising from the conversion of
the Major Shareholders' 1,499 options in AxisTel on September 22, 1999,
over a period of 10 years.
(4) Reflects the reversal of the interest expense relating to the e.Volve
debentures for which the related Notes Receivable were exchanged for stock
of eVentures by one of the Major Shareholders on September 22, 1999.
(5) Reflects the reversal of amortization relating to the Original Issue
Discount on the e.Volve debentures for which the related Notes Receivable
were exchanged for stock of eVentures by one of the Major Shareholders on
September 22, 1999.
(6) Reflects the write off of the Original Issue Discount on the e.Volve
debentures for which the related Notes Receivable were exchanged for stock
of eVentures by one of the Major Shareholders on September 22, 1999.
(7) Reflects the amortization of the goodwill arising from the purchase of the
remaining 1/3 of e.Volve on October 19, 1999 over a period of 10 years.
P-3
<PAGE> 124
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
2.1 Agreement and Plan of Reorganization, dated as of September 22, 1999,
among the Registrant, eVentures Holdings, L.L.C., IEO Holdings
Limited, Infinity Investors Limited, Mick Y. Wettreich, the
purchasers listed on Schedule 1-A thereto and the Contributing
Persons listed on Schedule 1-B thereto (incorporated by reference to
Exhibit 2.1 to the report filed on Form 8-K on October 7, 1999).
2.2 Agreement and Plan of Exchange, dated as of October 19, 1999, among
eVentures Group, Inc., and the persons set forth on Schedule 1
thereto (incorporated by reference to Exhibit 2.1 to the report filed
on Form 8-K on November 3, 1999).
2.3 Share Exchange Agreement, dated as of February 22, 2000, among
eVentures Group, Inc., IGS Acquisition Corporation and the
stockholders of Internet Global Services, Inc. parties thereto.
3.1 Certificate of Incorporation of eVentures, dated November 19, 1987.*
3.2 Certificate of Amendment, dated April 27, 1994, to the Certificate
of Incorporation.*
3.3 Certificate of Amendment, dated as of October 20, 1997, to the
Certificate of Incorporation.*
3.4 Certificate of Renewal dated August 19, 1999 for eVentures
Group, Inc.*
3.5 Certificate of Amendment, dated September 17, 1999, to the
Certificate of Incorporation (incorporated by reference to Exhibit
3.2 to the report filed on Form 8-K on October 7, 1999).
3.6 Amended and Restated Certificate of Designation of Rights,
Preferences and Privileges of Series A Convertible Preferred Stock,
dated October 14, 1999.*
3.7 Certificate of Designation of Rights, Preferences and Privileges of
Series B Convertible Preferred Stock, dated as of November 10, 1999.*
3.8 Certificate of Amendment, dated as of December 15, 1999, to the
Certificate of Designation of Rights, Preferences and Privileges of
Series B Convertible Preferred Stock.*
3.9 Certificate of Designation, Preferences and Rights of Series C
Convertible Preferred Stock, dated as of February 22, 2000.
3.10 Amended and Restated By-Laws of eVentures Group, Inc.
(incorporated by reference to Exhibit 3.1 to the report filed on
Form 8-K on October 7, 1999).
4.1 Registration Rights Agreement, dated as of September 22, 1999, among
the Registrant and the persons and entities set forth on Schedule 1
thereto (the "First Registration Rights Agreement") (incorporated by
reference to Exhibit 4.1 to the report filed on Form 8-K on October
7, 1999).
4.2 Addendum to the First Registration Rights Agreement, dated as of
October 19, 1999, among eVentures Group, Inc., the persons set forth
on Schedule 1 thereto and the other parties to the First Registration
Rights Agreement.
4.3 Registration Rights Agreement, dated as of November 24, 1999,
between eVentures Group, Inc. and the person and entities signatories
thereto, as holders of shares of Series B Convertible Preferred
Stock.
4.4 Letter Agreement, dated December 15, 1999, to the parties to the
Registration Rights Agreement dated as of September 27, 1999.
4.5 Registration Rights Agreement, dated as of December 31, 1999, between
eVentures Group, Inc. and the persons and entities signatories
thereto, as holders of shares of Series C Convertible Preferred
Stock.
</TABLE>
<PAGE> 125
<TABLE>
<S> <C>
10.1 Securities Purchase Agreement, dated as of June 11, 1998, among
Orix Global Communications, Inc., certain of its shareholders and
the purchasers named thereunder and Exhibits thereto.
10.2 Debenture, dated as of June 11, 1998.*
10.3 Letter Agreement, dated as of August 19, 1998 between Orix Global
Communications and Infinity Investors Limited.*
10.4 Debenture, dated as of August 19, 1998.*
10.5 Letter Agreement, dated as of February 9, 1999 between Orix Global
Communications and Infinity Investors Limited.*
10.6 Debenture, dated as of February 9, 1999.*
10.7 Letter Agreement, dated as of April 15, 1999 among Orix Global
Communications, Inc., Infinity Investors Limited and the Founders
(as defined therein).*
10.8 Amended and Restated Debenture, dated as of April 15, 1999.*
10.9 Letter Agreement, dated as of April 29, 1999 between Orix Global
Communications and Infinity Investors Limited.*
10.10 Debenture, dated as of April 29, 1999.*
10.11 Letter Agreement, dated as of April 30, 1999, between Orix Global
Communications, Inc. and Infinity Investors Limited.*
10.12 Debenture, dated as of April 30, 1999.*
10.13 Note, dated as of August 20, 1999.
10.14 Promissory Note, dated as of March 2, 2000.
10.15 Warrant Agreement, dated as of March 2, 2000, between i2v2.com Inc.
and eVentures Group, Inc.
10.16 Lease Agreement, dated December, 1998, between AxisTel
International, Inc. and Evergreen America Corporation.*
10.17 Lease Agreement, dated November 24, 1997, between Orix Global
Communications, Inc. and Trust F/3959 of Banco del Atlantico.*
10.18 Assignment Agreement, dated April 1, 1998, among Orix Global
Communications, Inc., Latin Gate de Mexico S.A. de C.V. and Trust
F/3959 of Banco del Atlantico.*
10.19 Office Lease, dated January 23, 1998, between Orix Global
Communications, Inc. and 2526 Investment Co.*
10.20 Sublease Agreement, dated January 31, 2000, between Totaltel Florida,
Inc. and AxisTel Global Network Services, Inc.
10.21 Guaranty Agreement by eVentures Group, Inc. as inducement to
Telecommunications Finance Group to provide a lease to AxisTel
Communications, Inc., dated as of October 13, 1999.*
10.22 Management Services Agreement, dated as of September 22, 1999,
between eVentures Group, Inc. and HW Partners, L.P.*
10.23 Amended and Restated 1999 Omnibus Securities Plan, dated as of
September 22, 1999.
</TABLE>
<PAGE> 126
<TABLE>
<S> <C>
10.24 Employment Agreement, dated as of September 22, 1999, between
eVentures Group, Inc. and Stuart J. Chasanoff.*
10.25 Amended and Restated Employment and Noncompetition Agreement, dated
as of September 21, 1999, between AxisTel Communications, Inc. and
Samuel L. Litwin.*
10.26 Amended and Restated Employment and Noncompetition Agreement, dated
as of September 22, 1999, between AxisTel Communications, Inc. and
Mitchell Arthur.*
21.1 Subsidiaries of eVentures Group, Inc.
27.1 Financial Data Schedule.
---------------
* Filed previously.
</TABLE>
<PAGE> 1
EXHIBIT 2.3
EXECUTION COPY
================================================================================
----------------------------
SHARE EXCHANGE AGREEMENT
----------------------------
BY AND AMONG
eVENTURES GROUP, INC,
IGS ACQUISITION CORPORATION
AND
THE STOCKHOLDERS OF INTERNET GLOBAL SERVICES, INC.
PARTY HERETO
DATED AS OF FEBRUARY 22, 2000
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I
DEFINITIONS
Section 1.1 Definitions......................................................1
ARTICLE II
ACQUISITION
Section 2.1 Exchange of Shares...............................................5
Section 2.2 Exchange Ratio...................................................5
Section 2.3 Closing..........................................................6
Section 2.4 Closing Deliveries by the Stockholders...........................6
Section 2.5 Closing Deliveries by Acquisition Sub............................6
Section 2.6 Adjustment of Acquisition Price..................................6
Section 2.7 Escrow...........................................................8
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Section 3.1 Due Organization, Good Standing and Corporate Power..............8
Section 3.2 Authorization and Validity of Agreement..........................9
Section 3.3 Capitalization...................................................9
Section 3.4 Subsidiaries....................................................10
Section 3.5 Consents and Approvals; No Violations..........................10
Section 3.6 Company Financial Statements....................................10
Section 3.7 Absence of Certain Changes......................................11
Section 3.8 Title to Properties; Encumbrances...............................11
Section 3.9 Compliance with Laws............................................11
Section 3.10 Litigation......................................................11
Section 3.11 Employee Benefit Plans..........................................11
Section 3.12 Employment Relations and Agreements.............................14
Section 3.13 Taxes...........................................................15
Section 3.14 Liabilities.....................................................17
Section 3.15 Intellectual Property...........................................17
Section 3.16 Material Contracts..............................................18
Section 3.17 Owned Real Property.............................................19
Section 3.18 Leases..........................................................19
Section 3.19 Disclosure......................................................20
Section 3.20 Environmental Laws and Regulations..............................20
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 3.21 Insurance.......................................................21
Section 3.22 Books and Records...............................................21
Section 3.23 Agreements with Affiliates......................................22
Section 3.24 Year 2000 Compliance............................................22
Section 3.25 Fiscal 2000 Budget..............................................22
Section 3.26 Projections.....................................................22
Section 3.27 Broker's or Finder's Fee........................................22
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND ACQUISITION SUB
Section 4.1 Due Organization, Good Standing and Corporate Power.............23
Section 4.2 Authorization and Validity of Agreement.........................23
Section 4.3 Capitalization..................................................23
Section 4.4 Consents and Approvals; No Violations..........................23
Section 4.5 Parent Financial Statements.....................................24
Section 4.6 Absence of Certain Changes......................................24
Section 4.7 Title to Properties; Encumbrances...............................24
Section 4.8 Compliance with Laws............................................24
Section 4.9 Litigation......................................................25
Section 4.10 Liabilities.....................................................25
Section 4.11 SEC Filings.....................................................25
Section 4.12 Broker's or Finder's Fee........................................25
ARTICLE V
ADDITIONAL AGREEMENTS
Section 5.1 Conduct of Business Pending the Closing Date....................26
Section 5.2 Full Access and Disclosure......................................27
Section 5.3 Confidentiality.................................................28
Section 5.4 Reasonable Best Efforts.........................................29
Section 5.5 Notice of Board Approval........................................29
Section 5.6 Notice of Developments..........................................29
Section 5.7 No Solicitation of Other Offers.................................30
Section 5.8 Conversion of Company Options...................................30
Section 5.9 Stock Option Grants to Company Executives.......................31
Section 5.10 Stockholders' Representative....................................31
Section 5.11 Registration of Securities......................................32
Section 5.12 Registration of Company Options.................................32
Section 5.13 Subsequent Merger...............................................33
Section 5.14 Further Action..................................................33
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE VI
TAX MATTERS
Section 6.1 Tax-Free Reorganization.........................................33
ARTICLE VII
CONDITIONS TO CLOSING
Section 7.1 Conditions to Obligation of Acquisition Sub.....................34
Section 7.2 Conditions to Obligation of the Stockholders....................36
ARTICLE VIII
INDEMNIFICATION
Section 8.1 Survival of Representations.....................................37
Section 8.2 General Indemnification.........................................37
Section 8.3 Procedures......................................................38
ARTICLE IX
TERMINATION AND WAIVER
Section 9.1 Termination.....................................................39
Section 9.2 Effect of Termination...........................................40
Section 9.3 Amendment.......................................................40
Section 9.4 Waiver..........................................................40
ARTICLE X
MISCELLANEOUS PROVISIONS
Section 10.1 Expenses........................................................40
Section 10.2 Notices.........................................................41
Section 10.3 Descriptive Headings............................................42
Section 10.4 Entire Agreement; Assignment....................................42
Section 10.5 Governing Law...................................................42
Section 10.6 Counterparts....................................................42
Section 10.7 Validity........................................................42
Section 10.8 Investigation...................................................42
Section 10.9 Third Party Beneficiaries.......................................43
</TABLE>
(iii)
<PAGE> 5
ANNEXES
Annex 1 Stockholders
Annex 2 Reference Working Capital Statement
SCHEDULES
Schedule 3.1 Jurisdictions of Qualification
Schedule 3.3 Company Capitalization
Schedule 3.11 Employee Benefit Plans
Schedule 3.14 Company Liabilities
Schedule 3.15 Intellectual Property
Schedule 3.16 Material Contracts
Schedule 3.18 Leases
Schedule 3.21 Insurance
Schedule 3.23 Agreements with Affiliates
Schedule 4.3 Parent Capitalization
Schedule 4.6 Certain Changes
Schedule 4.8(c) Compliance with Laws
Schedule 4.10 Parent Liabilities
Schedule 4.11 SEC Filings
Schedule 5.9 Stock Option Grants
Schedule 7.1(g) Key Employees
EXHIBITS
Exhibit A Form of Escrow Agreement
Exhibit B Form of Registration Rights Agreement
Exhibit C Form of Merger Agreement
Exhibit D Form of Non-Competition Agreement
Exhibit E Form of Employment Agreements
Exhibit F Form of Opinion of Counsel to the Stockholders
Exhibit G Form of Investor Representation Letters
Exhibit H Form of Purchaser Representative Certificate
Exhibit I Form of Opinion of Counsel to Parent and Acquisition Sub
(iv)
<PAGE> 6
SHARE EXCHANGE AGREEMENT (this "Agreement"), dated as of February 22,
2000, by and among eVentures Group, Inc., a Delaware corporation ("Parent"), IGS
Acquisition Corporation, a Texas corporation and a wholly owned subsidiary of
Parent ("Acquisition Sub"), and each of the stockholders of Internet Global
Services, Inc., a Texas corporation (the "Company") listed on Annex 1 hereto
(each a "Stockholder" and, collectively, the "Stockholders").
W I T N E S S E T H:
WHEREAS, the Stockholders own 5,942,994 shares (the "Shares") of common
stock, $0.0005 par value per share (the "Company Common Stock"), of the Company,
representing 95.35% of the issued and outstanding shares of the Company Common
Stock;
WHEREAS, the Stockholders wish to exchange such Shares for shares of
common stock of Parent, par value $0.00002 per share (the "Parent Common
Stock"), and Parent wishes to issue and Acquisition Sub wishes to exchange
shares of Parent Common Stock to the Stockholders in exchange for the Shares,
upon the terms and subject to the conditions set forth herein; and
WHEREAS, it is intended that the exchanges to be consummated pursuant
to this Agreement shall constitute the first step of a two-step acquisitive
transaction of all of the assets of the Company by Acquisition Sub with the
second step being a merger of the Company with and into Acquisition Sub with
Acquisition Sub surviving, such merger to be consummated pursuant to a binding
agreement as promptly as practicable following the consummation of such
exchanges, and it is intended that such two-step transaction be treated for
federal income tax purposes as a "reorganization" within the meaning of Section
368 of the Internal Revenue Code of 1986, as amended (the "Code");
NOW, THEREFORE, in consideration of the premises and the mutual
agreements and covenants hereinafter set forth, Parent, Acquisition Sub and the
Stockholders hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. (a) As used in this Agreement, the following
terms have the following meanings:
"Affiliate" of any Person shall mean any Person directly or indirectly
controlling, controlled by, or under common control with, such Person; provided
that, for the purposes of this definition, "control" (including with correlative
meanings, the terms "controlled by" and "under common control with"), as used
with respect to any Person, shall mean the possession, directly or indirectly,
of the power to direct or cause the direction of the management and polices of
such Person, whether through the ownership of voting securities or partnership
interests, by contract or otherwise.
"Business Day" shall mean any day except Saturday, Sunday and any day
which shall be in the State of Texas or The City of New York a legal holiday or
a day on which banking institutions are authorized or required by law or other
government action to close.
<PAGE> 7
"Company Warrants" shall mean any and all warrants to purchase Company
Common Stock.
"CPA Arbitrator" shall mean Ernst & Young LLP, or if such firm is
unable or unwilling to act, such other nationally recognized independent public
accounting firm as shall be agreed upon by the parties hereto in writing or if
the parties cannot agree, one selected by the American Arbitration Association.
"Escrow Agent" shall mean Bank One, Texas, N.A.
"Escrowed Shares" shall mean a number of shares of Parent Common Stock
equal to 25% of the aggregate number of Acquired Shares included in the
Acquisition Price.
"Facility A Loan" shall mean certain term loans made by Parent to the
Company under the Bridge Loan Agreement prior to March 10, 2000 that constitute
Facility A Loans as contemplated therein.
"Fraudulent Act" shall mean any deliberate and knowing
misrepresentation in or deliberate and knowing omission from or deliberate and
knowing breach of a representation or warranty by the Stockholders or any of
them in this Agreement or in any written annex, exhibit, schedule, certificate,
instrument or agreement furnished to Parent or Acquisition Sub pursuant to this
Agreement.
"GAAP" shall mean U.S. generally accepted accounting principles
consistently applied, as in effect from time to time.
"Governmental Authority" shall mean any governmental public
self-regulatory agency, body or authority.
"Indemnity Arbitrator" shall mean JAMS/Endispute, LLC.
"Intellectual Property" shall mean all domestic and foreign patents,
patent applications, trademarks, service marks and other indicia of origin,
trademark and service mark registrations and applications for registrations
thereof, copyrights and applications for registration thereof, Internet domain
names and Uniform Resource Locators ("URLs"), inventions (whether or not
patentable), invention disclosures, moral and economic rights of authors and
inventors (however denominated), technical data, customer lists, corporate and
business names, trade names, trade dress, brand names, know how, formulae,
methods (whether or not patentable), designs, processes, procedures, technology,
source codes, object codes, computer software programs, databases, data
collectors, technology, and other proprietary information or material owned by
the Company and/or any of its Subsidiaries or used in connection with the
business of the Company and/or any of its Subsidiaries (and all improvements and
refinements of any of the foregoing) and all agreements relating to intellectual
property used by the Company and/or any of its Subsidiaries.
"Loss Amount" shall mean the liquidated amount ultimately determined to
be due to Acquisition Sub and/or Parent as a result of any indemnification claim
made under Article VIII.
"Market Price" shall mean the average of the closing bid and ask prices
for shares of Parent Common Stock on the OTC Bulletin Board(R) (or, if the
principal market for Parent
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<PAGE> 8
Common Stock is another market, then the average of the closing bid and ask
prices for shares of Parent Common Stock on such other market) for the 30-day
period ending five days prior to the Closing Date or such other date as shall
give rise to the need to determine the Market Price; provided, however, if such
average is less than $6.00, the Market Price shall be $6.00 and if such average
is greater than $40.00, the Market Price shall be $40.00.
"Parent's Option Plan" shall mean that certain 1999 Omnibus Securities
Plan adopted and approved by the Board of Directors and the Stockholders of
Parent as of September 22, 1999, as amended October 14, 1999.
"Parent's Material Subsidiaries" shall mean e.Volve Technology Group,
Inc., Axistel Communications, Inc. and Acquisition Sub.
"Person" shall mean and include an individual, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization, a group and a
government or other department or agency thereof.
"Reference Working Capital Statement" shall mean the statement of
Working Capital of the Company at November 30, 1999 attached hereto as Annex 2.
"SEC" means the Securities and Exchange Commission.
"Securities Act" shall mean the United States Securities Act of 1933,
as amended, and the rules and regulations promulgated thereunder, as in effect
from time to time.
"Stockholders' Representative" shall mean David Link, or any successor
Stockholders' Representative appointed in accordance with the terms of this
Agreement.
"Subsidiary" means any Person in which the Company owns, directly or
indirectly, a majority, in voting power, of the outstanding equity securities.
"Transaction Documents" shall mean the Escrow Agreement, the
Non-Competition Agreements, the Link Employment Agreement, the Mackey Employment
Agreement, the Registration Rights Agreement, the Investor Representation
Letters, the Purchaser Representative Certificates and the Merger Agreement.
"Transfer Agent" shall mean Stock Transfer Company of America.
"WARN" shall mean the Federal Workers Adjustment Retraining and
Notification Act.
"Working Capital" shall mean the excess of the Company's current assets
(including notes received as consideration with respect to the exercise of any
Company Options whether due within one year or otherwise) over its current
liabilities (including the Facility A Loan and any accounts payable incurred in
connection with the expenses relating to this Agreement to be paid by the
Company pursuant to Section 10.1 determined in accordance with GAAP.
(b) As used in this Agreement, the following terms have the meanings
set forth in the sections opposite such terms:
3
<PAGE> 9
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
"Acquired Shares" 2.2(a)
"Acquisition Price" 2.2(a)
"Acquisition Proposal" 5.7(a)
"Acquisition Sub" Preamble
"Adjustment Share Number" 2.6(c)
"Agreement" Preamble
"Arbitration Notice" 2.6(b)(iii)
"BDO" 2.6(a)(i)
"Bridge Loan Agreement" 5.1(b)(viii)
"Cisco Financing Agreement" 5.1(b)(ii)
"Claims" 3.20
"Closing" 2.3
"Closing Date" 2.3
"Closing Working Capital Statement" 2.6(a)(i)
"Code" Recitals
"Company" Preamble
"Company Common Stock" Recitals
"Company Financial Statements" 3.6
"Company Material Adverse Effect" 3.1
"Company Options" 5.8
"Company Property" 3.17
"Consents" 7.1(a)
"Employee Benefit Plan" 3.11(a)
"Environmental Claims" 3.20
"Environmental Law" 3.20
"ERISA" 3.11(a)
"Escrow Agreement" 2.7
"Existing Registration Rights Agreement" 4.4
"Hazardous Materials" 3.20
"Indemnitees" 8.2(a)
"Indemnity Arbitration Notice" 8.3(b)
"Indemnity Notice of Disagreement" 8.3(a)
"Investor Representation Letter" 7.1(i)
"ISV" 3.4
"ISV Common Stock" 3.4
"Link Employment Agreement" 7.1(g)
"Loss" 8.2(a)
"Mackey Employment Agreement" 7.1(g)
"Merger Agreement" 5.13
"Nominal Number" 2.2(b)
"Notice of Disagreement" 2.6(b)(ii)
"Parent" Preamble
"Parent Common Stock" Recitals
"Parent Financial Statements" 4.5
"Parent Options" 5.8
"Parent SEC Reports" 4.11
"Permits" 3.9(b)
"Purchaser Representative Certificate" 7.1(n)
</TABLE>
4
<PAGE> 10
<TABLE>
<S> <C>
"Registration Rights Agreement" 5.11(d)
"Returns" 3.13(a)
"Series B Preferred" 4.3
"Series C Preferred" 4.3
"Server" 3.15(h)
"Shares" Recitals
"Sites" 3.15(h)
"Stockholder" Preamble
"Stockholder Adjustment Shares" 2.6(c)
"Successor Business" 5.9
"Taxes" 3.13(a)
"Technology Systems" 3.24(a)
"VEBA" 3.11(a)
"Year 2000 Compliant" 3.24(a)
"24/7" 3.15(h)
</TABLE>
ARTICLE II
ACQUISITION
Section 2.1 Exchange of Shares. Upon the terms and subject to the
conditions of this Agreement, at the Closing, Parent shall issue the number of
shares of Parent Common Stock determined as set forth herein to the Stockholders
in exchange for the Shares delivered to Acquisition Sub.
Section 2.2 Exchange Ratio. (a) Subject to the adjustments set forth in
Section 2.6, in exchange for each Share delivered to Acquisition Sub, Parent
shall issue and deliver to the holder thereof 0.5 shares of Parent Common Stock
(the "Acquired Shares"), subject to adjustment as provided in paragraphs (b) and
(c) (the "Acquisition Price").
(b) In the event that the Market Price on the Closing Date is greater
than $22.50 or less than $9.50, the number of Acquired Shares (the "Nominal
Number") to be delivered in exchange for each Share shall be adjusted as
follows:
(i) If such Market Price is greater than $22.50, the Nominal
Number shall be multiplied by (A) 1.00 less (B) the decimal equivalent
of a fraction, (I) the numerator of which is such Market Price less
$22.50, and (II) the denominator of which is such Market Price; or
(ii) If such Market Price is less than $9.50, the Nominal
Number shall be multiplied by the sum of (A) 1.00 plus (B) the decimal
equivalent of a fraction, (I) the numerator of which is $9.50 less such
Market Price, and (II) the denominator of which is such Market Price.
(c) In the event that the number of shares of Company Common Stock
outstanding on the Closing Date (including Company Common Stock issued prior to
the Closing Date upon exercise of Company Options and Company Warrants) exceeds
6,000,000, the number of Acquired Shares to be delivered in exchange for each
Share shall be adjusted by multiplying (i) the number of Acquired Shares to be
delivered in exchange for each Share (after giving effect to the adjustment set
forth in Section 2.2(b) by (ii) the decimal equivalent of a fraction, the
numerator of
5
<PAGE> 11
which is 6,000,000 and the denominator of which is the number of shares of
Company Common Stock outstanding on the Closing Date (including Company Common
Stock issued prior to the Closing Date upon the exercise of Company Options and
Company Warrants).
Section 2.3 Closing. Upon the terms and subject to the conditions of
this Agreement, the share exchange contemplated by this Agreement shall take
place at a closing (the "Closing") to be held at the offices of White & Case,
LLP, 200 South Biscayne Boulevard, 49th floor, Miami, Florida, on the first
Business Day after the day on which all of the conditions set forth in Sections
7.1 and 7.2 hereof are satisfied or waived, or at such other date, time and
place as Acquisition Sub and Stockholders' Representative shall agree (the date
of the Closing being the "Closing Date").
Section 2.4 Closing Deliveries by the Stockholders. At the Closing,
each Stockholder shall deliver or cause to be delivered to Acquisition Sub:
(a) stock certificates evidencing the number of Shares set
forth opposite the name of such Stockholder on Annex 1, duly endorsed in blank,
or accompanied by stock powers duly executed in blank, in form satisfactory to
Acquisition Sub and with all required stock transfer tax stamps affixed;
(b) a receipt for the Acquired Shares, other than the
Escrowed Shares; and
(c) the opinions, certificates and other documents required
to be delivered pursuant to Section 7.1.
Section 2.5 Closing Deliveries by Acquisition Sub. At the Closing,
Acquisition Sub shall:
(a) deliver to the Transfer Agent irrevocable instructions to
deliver certificates for 75% of the number of Acquired Shares to be exchanged as
set forth in Section 2.2 for the number of Shares set forth opposite such
Stockholders' name on Annex 1; and
(b) deliver to the Stockholders' Representative:
(i) a receipt for Shares delivered to
Acquisition Sub; and
(ii) the opinions, certificates and other
documents required to be delivered pursuant to Section 7.2;
and
(c) deliver to the Escrow Agent, in accordance with the
Escrow Agreement, the Escrowed Shares.
Section 2.6 Adjustment of Acquisition Price. The Acquisition Price
shall be subject to adjustment after the Closing as specified in this Section
2.6:
(a) Closing Working Capital Statement. (i) Prior to the Closing Date,
BDO Seidman, LLP ("BDO") shall be retained to calculate the amount of the
Working Capital of the Company at the Closing Date in accordance with the terms
hereof. As promptly as practicable, but in any event within thirty calendar days
following the Closing Date, BDO shall prepare and deliver a statement of the
amount of the Working Capital of the Company at the Closing Date (the "Closing
Working Capital Statement") to the Acquisition Sub and the Stockholders'
6
<PAGE> 12
Representative, together with a report thereon stating that the Closing Working
Capital Statement fairly presents the amount of Working Capital of the Company
at the Closing Date in conformity with GAAP applied on a basis consistent with
the preparation of the Reference Working Capital Statement.
(ii) In connection with the preparation of the Closing Working
Capital Statement, Acquisition Sub will, and the Stockholders will
cause the Company and its employees to, cooperate with and assist BDO,
providing reasonable access to the personnel, properties and books and
records of the Company; provided that such access and assistance shall
be upon reasonable notice during normal business hours and shall not
interrupt or disrupt the business activities of the Company.
(b) Disputes. (i) Subject to clauses (ii) and (iii) of this Section
2.6(b), the Closing Working Capital Statement delivered by BDO to the
Stockholders Representative shall be deemed to be and shall be final, binding
and conclusive on the parties hereto. During the 30-day period following receipt
by Acquisition Sub and the Stockholders' Representative of the Closing Working
Capital Statement, BDO shall permit Acquisition Sub and the Stockholders'
Representative and their respective advisers and agents to review the working
papers of BDO with respect to the Closing Working Capital Statement.
(ii) Acquisition Sub or the Stockholders' Representative may
dispute any amounts reflected on the Closing Working Capital Statement,
but only on the basis that the amounts reflected on the Closing Working
Capital Statement were not arrived at in accordance with GAAP applied
on a basis consistent with the preparation of the Reference Working
Capital Statement; provided, however, that Acquisition Sub or the
Stockholders' Representative, as the case may be, shall have delivered
a notice to the other and BDO in writing (a "Notice of Disagreement")
within 30 calendar days following the delivery of the Closing Working
Capital Statement by BDO. Any Notice of Disagreement shall specify in
reasonable detail each disputed item, specifying the amount thereof in
dispute and setting forth the basis for such dispute. If a Notice of
Disagreement is received by the Stockholders' Representative or
Acquisition Sub, as the case may be, in a timely manner, Acquisition
Sub and the Stockholders' Representative shall attempt to reconcile the
differences, and any resolution by them as to any disputed amounts
shall be final, binding and conclusive on the parties hereto.
(iii) If any matter set forth in a Notice of Disagreement
delivered pursuant hereto is not resolved within 30 days after delivery
of the Notice of Disagreement, then either Acquisition Sub or the
Stockholders' Representative, as the case may be, may submit the matter
to the CPA Arbitrator for final resolution by arbitration conducted in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association by giving notice of such election to the
Stockholders' Representative or the Acquisition Sub, as the case may
be, and to the CPA Arbitrator (an "Arbitration Notice"), or if
applicable to the American Arbitration Association requesting that the
CPA Arbitrator be appointed. The CPA Arbitrator shall render a decision
resolving the matter submitted to it pursuant hereto within 30 days of
the Arbitration Notice, which decision shall be final, binding and
conclusive on the Acquisition Sub and the Stockholders. The cost of any
arbitration (including the fees, expenses and costs of the CPA
Arbitrator) shall be borne equally between Acquisition Sub, on the one
hand, and the Stockholders on the
7
<PAGE> 13
other. Each of the parties hereto shall bear its expenses (including
legal fees and costs) in connection with any such arbitration and in
preparation therefor.
(c) Acquisition Price Adjustment. The Closing Working Capital Statement
shall be deemed final for the purposes of this Section 2.6 upon the earliest of
(A) the failure of the Acquisition Sub or the Stockholders' Representative to
notify the other of a dispute within 30 calendar days of the delivery of the
Closing Working Capital Statement by BDO, (B) the resolution of all disputes,
pursuant to Section 2.6(b)(ii), by Acquisition Sub and the Stockholders'
Representative, and (C) the resolution of all disputes, pursuant to Section
2.6(b)(iii), by the CPA Arbitrator. In the event that the Working Capital
reflected on the Closing Working Capital Statement exceeds the Working Capital
reflected on the Reference Working Capital Statement, then within three Business
Days of the Closing Working Capital Statement being deemed final, the
Acquisition Price shall be adjusted upward by a number of shares of Parent
Common Stock equal to the lesser of (A) the number resulting when the dollar
amount of such excess is divided by $8.00, or (B) 250,000 (the "Adjustment Share
Number"), and Acquisition Sub shall, within three Business Days of such
determination, issue and deliver (i) 75 percent of the Stockholder Adjustment
Shares to the Stockholders pro rata in proportion to the number of Shares set
forth opposite each Stockholders' name on Annex 1, and (ii) issue and deliver 25
percent of the Stockholder Adjustment Shares to the Escrow Agent for deposit in
the Escrow Account pursuant to the Escrow Agreement. For purposes of this
Section 2.6(c), "Stockholder Adjustment Shares" shall mean a number of shares of
Company Common Stock equal to the Adjustment Share Number multiplied by a
fraction, the numerator of which is the number of Shares and the denominator of
which is the number of shares of Company Common Stock outstanding on the Closing
Date.
Section 2.7 Escrow. Prior to the Closing, Acquisition Sub and the
Stockholders' Representative shall enter into an Escrow Agreement with the
Escrow Agent substantially in the form of Exhibit A (the "Escrow Agreement"). In
accordance with the terms of the Escrow Agreement, Acquisition Sub shall issue
and deliver to the Escrow Agent the Escrowed Shares in an account to be managed
and paid out by the Escrow Agent in accordance with the terms of the Escrow
Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
As an inducement to Parent and Acquisition Sub to enter into this
Agreement, each Stockholder hereby represents and warrants, jointly and
severally with each other Stockholder, except with respect to the
representations and warranties contained in Sections 3.2, 3.3(c), 3.5 and 3.19,
with respect to which such Stockholder represents individually, to Parent and
Acquisition Sub as follows:
Section 3.1 Due Organization, Good Standing and Corporate Power. The
Company and each of the Subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and each such Person has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted. Set forth on Schedule 3.1 is a list of jurisdictions in
which the Company and each Subsidiary is qualified or licensed to do business.
The Company and each of the Subsidiaries is duly qualified or licensed to do
business and is in good standing in each jurisdiction in which the failure to be
so qualified, or licensed, individually or in the aggregate, would be reasonably
likely to have a material adverse effect on the business, properties, financial
8
<PAGE> 14
condition, results of operations or prospects of the Company and its
Subsidiaries, taken as a whole, or to have a material adverse effect on the
ability of the Company to consummate the transactions contemplated by this
Agreement or the Transaction Documents (a "Company Material Adverse Effect").
The Company has, prior to the date of this Agreement, made available to
Acquisition Sub complete and correct copies of the Articles or Certificate of
Incorporation and By-Laws for each of the Company and the Subsidiaries.
Section 3.2 Authorization and Validity of Agreement. Such Stockholder
has the requisite power and authority, corporate, trust or otherwise, to execute
and deliver this Agreement and the Transaction Documents to which it is a party,
to perform its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby and thereby. The execution, delivery and
performance of this Agreement and the Transaction Documents to which it is a
party by such Stockholder, and the consummation by it of the transactions
contemplated hereby and thereby, have been duly authorized and approved, to the
extent applicable, by its Board of Directors or other governing body and no
other action, corporate, trust or otherwise, on the part of such Stockholder is
necessary to authorize the execution, delivery and performance of this Agreement
and the Transaction Documents to which it is a party by such Stockholder and the
consummation of the transactions contemplated hereby and thereby. This Agreement
has been, and on the Closing Date the Transaction Documents to which it is a
party will have been, duly executed and delivered by such Stockholder and are
valid and binding obligations of such Stockholder enforceable against such
Stockholder in accordance with its terms, except as such enforcement may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally, and
general equitable principles.
Section 3.3 Capitalization. (a) The Company has an authorized
capitalization consisting of 20,000,000 shares of Company Common Stock, of which
6,432,413 shares of Company Common Stock are issued and outstanding as of the
date of this Agreement. All outstanding shares of capital stock of the Company
and the Subsidiaries are duly authorized and validly issued and fully paid and
non-assessable. Except as set forth on Schedule 3.3, there are no outstanding
subscriptions, options, warrants, rights, calls, commitments, conversion rights,
rights of exchange, plans or other agreements or commitments, contingent or
otherwise, of any character providing for the purchase, redemption, acquisition,
retirement, issuance or sale by the Company or any of the Subsidiaries of any
shares of capital stock of the Company or any of the Subsidiaries or other
securities exchangeable or convertible into capital stock of the Company or the
Subsidiaries and there are no stock appreciation rights or phantom stock plans
outstanding. Schedule 3.3 sets forth the number of shares of capital stock which
the Company or the Subsidiaries are obligated to issue in connection with each
specific item set forth on Schedule 3.3. There are no rights, agreements,
restrictions or encumbrances (such as preemptive rights, rights of first
refusal, rights of first offer, proxies, voting agreements, voting trusts,
registration rights agreements, shareholders agreements, etc., whether or not
the Company or any of the Subsidiaries is a party thereto), nor are there any
restrictions on the transferability or sale of such capital stock, pursuant to
any provision of law, contract or otherwise with respect to the purchase, sale
or voting of any shares of capital stock of the Company or any of the
Subsidiaries (whether outstanding or issuable upon conversion, exchange or
exercise of any other security of the Company or any of the Subsidiaries).
Except as set forth in Schedule 3.3, the Company and the Subsidiaries have no
outstanding bonds, debentures, notes or other obligations, the holders of which
have the right to vote (or which are convertible into or exercisable for
securities the holders of which have the right to vote). Set forth on Schedule
3.3 are the names of any Persons who own, directly or indirectly, five percent
(5%) or more of any class of the capital stock of the
9
<PAGE> 15
Company or the Subsidiaries, not including 10-K Wizard Technology, L.L.C., along
with the type of security owned and the amount held.
(b) The stock register of the Company accurately records: (i) the name
and address of each Person owning shares of capital stock of the Company and
(ii) the certificate number of each certificate evidencing shares of capital
stock issued by the Company, the number of shares evidenced by each such
certificate, the date of issuance thereof and, in the case of cancellation, the
date of cancellation.
(c) The number of Shares set forth opposite the name of such
Stockholder on Annex 1 are owned of record and beneficially solely by such
Stockholder free and clear of all liens. Upon consummation of the transactions
contemplated by this Agreement and registration of the Shares in the name of
Acquisition Sub in the stock records of the Company, Acquisition Sub, assuming
it shall have acquired the Shares for value in good faith and without notice of
any adverse claim, will own the Shares free and clear of all liens. Upon
consummation of the transactions contemplated by this Agreement, the Shares will
be fully paid and nonassessable.
Section 3.4 Subsidiaries. The only Subsidiary is Internet Streaming
Video, Inc., a Texas corporation ("ISV"). ISV has an authorized capitalization
consisting of 10,000,000 shares of common stock, par value $0.001 per share
("ISV Common Stock"), of which 1,342,857 shares of ISV Common Stock are issued
and outstanding. The Company owns 987,000 shares of ISV Common Stock,
representing 73.5% of the outstanding capital stock of ISV, free and clear of
all liens. There are no restrictions of any kind which prevent or restrict the
payment of dividends by any of the Subsidiaries.
Section 3.5 Consents and Approvals; No Violations. The execution and
delivery of this Agreement and the Transaction Documents to which it is a party
by each Stockholder and the consummation by such Stockholder of the transactions
contemplated hereby and thereby will not: (i) violate or conflict with any
provision of the Certificate of Incorporation or By-Laws of such Stockholder,
the Company or any of the Subsidiaries; (ii) violate or conflict with any
statute, ordinance, rule, regulation, order or decree of any court or of any
governmental or regulatory body, agency or authority applicable to such
Stockholder, the Company or any of the Subsidiaries or by which any of their
respective properties or assets may be bound; (iii) require any filing with, or
permit, consent or approval of, or the giving of any notice to, any governmental
or regulatory body, agency or authority; or (iv) result in a violation or breach
of, conflict with, constitute (with or without due notice or lapse of time or
both) a default (or give rise to any right of termination, cancellation, payment
or acceleration) under, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties or assets of such
Stockholder, the Company or any of the Subsidiaries under, or give rise to any
obligation, right of termination, cancellation, acceleration or increase of any
obligation or a loss of a material benefit under, any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, license, franchise,
permit, agreement, contract, lease, franchise agreement or other instrument or
obligation to which such Stockholder, the Company or any of the Subsidiaries is
a party, or by which any such Person or any of its properties or assets are
bound, except for any such violations, breaches, conflicts, defaults, liens,
increases or losses which, individually or in the aggregate, are not reasonably
likely to have a Company Material Adverse Effect.
Section 3.6 Company Financial Statements. The Company has, prior to the
date of this Agreement, made available to Acquisition Sub true and complete
copies of its unaudited year-end balance sheets for each of the fiscal years
ended December 31, 1998 and 1997 and unaudited
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balance sheet as of October 31, 1999, and the related statements of operations
of the Company for such fiscal years or interim period, as the case may be,
ended on such date (the "Company Financial Statements"). The Company Financial
Statements were prepared in accordance with GAAP (except that there are no notes
attached thereto and the interim statements do not have year-end adjustments)
and present fairly the financial position of the Company as of the dates thereof
and the results of its operations for the periods then ended.
Section 3.7 Absence of Certain Changes. Since October 31, 1999, (a)
there has been no material adverse change in the business, properties, assets,
liabilities, operations, results of operations or condition (financial or
otherwise) of the Company or any Subsidiary, (b) the business of the Company and
each Subsidiary have been conducted only in the ordinary course consistent with
past practice, and (c) none of the Company nor any Subsidiary has taken any of
the actions prohibited to be taken pursuant to Section 5.1.
Section 3.8 Title to Properties; Encumbrances. The Company and each of
the Subsidiaries has good, valid and marketable title to, or, in the case of
leased properties and assets, valid leasehold interests in, (a) all of its
tangible properties and assets (real and personal), including, without
limitation, all the properties and assets reflected in the most recent balance
sheet contained in the Company Financial Statements, except for properties and
assets which have been sold or otherwise disposed of in the ordinary course of
business after such date, and (b) none of the tangible properties and assets
purchased by the Company and any of the Subsidiaries since such date, except for
such properties and assets which have been sold or otherwise disposed of in the
ordinary course of business, are subject to any encumbrance, lien, charge or
other restriction of any kind or character.
Section 3.9 Compliance with Laws. (a) Except as disclosed in writing to
Acquisition Sub on or prior to the date hereof, the Company and the Subsidiaries
are in compliance with all applicable federal, state, local and foreign
statutes, laws, regulations, orders, judgments and decrees, except for failures
to comply or violations which, individually or in the aggregate, have not had,
and are not reasonably likely to have, a Company Material Adverse Effect.
(b) The Company and the Subsidiaries hold, to the extent required by
applicable law, all federal, state, local and foreign permits, approvals,
licenses, authorizations, certificates, rights, exemptions and orders from
Governmental Authorities (the "Permits") that are required for the operation of
the business of the Company and the Subsidiaries as now conducted, and there has
not occurred any default under any such Permit, in each case, except for any
which, individually or in the aggregate, have not had, and are not reasonably
likely to have, a Company Material Adverse Effect.
Section 3.10 Litigation. There is no action, suit, proceeding at law or
in equity, or any arbitration or any administrative or other proceeding by or
before (or any investigation by) any governmental or other instrumentality or
agency, pending or threatened against or affecting the Company or any of the
Subsidiaries, or any of their respective properties or rights. Neither the
Company nor any of the Subsidiaries is subject to any judgment, order or decree
entered in any lawsuit or proceeding.
Section 3.11 Employee Benefit Plans. (a) List of Plans. Set forth in
Schedule 3.11(a) attached hereto is an accurate and complete list of all
domestic and foreign (i) "employee benefit plans," within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended, and the
rules and regulations thereunder ("ERISA"); (ii) bonus, stock option,
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stock purchase, restricted stock, incentive, fringe benefit, "voluntary
employees' beneficiary associations" ("VEBAs"), under Section 501(c)(9) of the
Code and the rules and regulations thereunder, profit-sharing, pension or
retirement, deferred compensation, medical, life, disability, accident, salary
continuation, severance, accrued leave, vacation, sick pay, sick leave,
supplemental retirement and unemployment benefit plans, programs, arrangements,
commitments and/or practices (whether or not insured); and (iii) employment,
consulting, termination, and severance contracts or agreements; in each case for
active, retired or former employees or directors, whether or not any such plans,
programs, arrangements, commitments, contracts, agreements and/or practices
(referred to in (i), (ii) or (iii) above) are in writing or are otherwise exempt
from the provisions of ERISA; that have been established, maintained or
contributed to (or with respect to which an obligation to contribute has been
undertaken) or with respect to which any potential liability is borne by the
Company or any Subsidiary (including, for this purpose and for the purpose of
all of the representations in this Section 3.11, any predecessors to the Company
or to any Subsidiary and all employers (whether or not incorporated) that would
be treated together with the Company or any Subsidiary as a single employer (1)
within the meaning of Section 414 of the Code, or (2) as a result of the Company
or any Subsidiary being or having been a general partner of any such employer),
since September 2, 1974 ("Employee Benefit Plans").
(b) Status of Plans. Each Employee Benefit Plan (including any related
trust) complies in all material respects in form with the requirements of all
applicable laws, including, without limitation, ERISA and the Code, and has at
all times been maintained and operated in substantial compliance with its terms
and the requirements of all applicable laws, including, without limitation,
ERISA and the Code. No complete or partial termination of any Employee Benefit
Plan has occurred or is expected to occur. Neither the Company nor any of the
Subsidiaries has any commitment, intention or understanding to create, modify or
terminate any Employee Benefit Plan. Except as required to maintain the
tax-qualified status of any Employee Benefit Plan intended to qualify under
Section 401(a) of the Code, no condition or circumstance exists that would
prevent the amendment or termination of any Employee Benefit Plan. No event has
occurred and no condition or circumstance has existed that could result in a
material increase in the benefits under or the expense of maintaining any
Employee Benefit Plan from the level of benefits or expense incurred for the
most recent fiscal year ended thereof.
(c) No Pension Plans. No Employee Benefit Plan is an "employee pension
benefit plan" (within the meaning of Section 3(2) of ERISA) subject to Section
412 of the Code or Section 302 or Title IV of ERISA. Neither the Company nor any
Subsidiary has ever maintained or contributed to, or had any obligation to
contribute to (or borne any liability with respect to) any "multiple employer
plan" (within the meaning of the Code or ERISA) or any "multiemployer plan" (as
defined in Section 4001(a)(3) of ERISA).
(d) Liabilities. Neither the Company nor any Subsidiary maintains any
Employee Benefit Plan which is a "group health plan" (as such term is defined in
Section 607(1) of ERISA or Section 5000(b)(1) of the Code) that has not been
administered and operated in all material respects in compliance with the
applicable requirements of Part 6 of Subtitle B of Title I of ERISA and Section
4980B of the Code and neither the Company nor any of the Subsidiaries is subject
to any material liability, including, without limitation, additional
contributions, fines, taxes, penalties or loss of tax deduction as a result of
such administration and operation. No Employee Benefit Plan which is such a
group health plan is a "multiple employer welfare arrangement," within the
meaning of Section 3(40) of ERISA. Each Employee Benefit Plan that is intended
to meet the requirements of Section 125 of the Code meets such requirements, and
each program of
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benefits for which employee contributions are provided pursuant to elections
under any Employee Benefit Plan meets the requirements of the Code applicable
thereto. Neither the Company nor any of the Subsidiaries maintains any Employee
Benefit Plan which is an "employee welfare benefit plan" (as such term is
defined in Section 3(1) of ERISA) that has provided any "disqualified benefit"
(as such term is defined in Section 4976(b) of the Code) with respect to which
an excise tax could be imposed.
Neither the Company nor any Subsidiary maintains any Employee Benefit
Plan (whether qualified or non-qualified under Section 401(a) of the Code)
providing for post-employment or retiree health, life insurance and/or other
welfare benefits and having unfunded liabilities, and neither the Company nor
any Subsidiary has any obligation to provide any such benefits to any retired or
former employees or active employees following such employees' retirement or
termination of service. Neither the Company nor any Subsidiary has any unfunded
liabilities pursuant to any Employee Benefit Plan that is not intended to be
qualified under Section 401(a) of the Code. No Employee Benefit Plan holds as an
asset any interest in any annuity contract, guaranteed investment contract or
any other investment or insurance contract, policy or instrument issued by an
insurance company that, to the knowledge of the Company, is or may be the
subject of bankruptcy, conservatorship, insolvency, liquidation, rehabilitation
or similar proceedings.
Neither the Company nor any Subsidiary has incurred any liability for
any tax or excise tax arising under Chapter 43 of the Code, and no event has
occurred and no condition or circumstance has existed that could give rise to
any such liability.
There are no actions, suits, claims or disputes pending, or, to the
best knowledge and belief of the Company, threatened, anticipated or expected to
be asserted against or with respect to any Employee Benefit Plan or the assets
of any such plan (other than routine claims for benefits and appeals of denied
routine claims). No civil or criminal action brought pursuant to the provisions
of Title I, Subtitle B, Part 5 of ERISA is pending, threatened, anticipated, or
expected to be asserted against the Company or any Subsidiary or any fiduciary
of any Employee Benefit Plan, in any case with respect to any Employee Benefit
Plan. No Employee Benefit Plan or any fiduciary thereof has been the direct or
indirect subject of an audit, investigation or examination by any governmental
or quasi-governmental agency.
(e) Contributions. Full payment has been timely made of all amounts
which the Company or any Subsidiary is required, under applicable law or under
any Employee Benefit Plan or any agreement relating to any Employee Benefit Plan
to which the Company or any Subsidiary is a party, to have paid as contributions
or premiums thereto as of the last day of the most recent fiscal year of such
Employee Benefit Plan ended prior to the date hereof. All such contributions
and/or premiums have been fully deducted for income tax purposes and no such
deduction has been challenged or disallowed by any governmental entity, and to
the best knowledge and belief of the Company and the Subsidiaries no event has
occurred and no condition or circumstance has existed that could give rise to
any such challenge or disallowance. The Company has made adequate provision for
reserves to meet contributions and premiums and any other liabilities that have
not been paid or satisfied because they are not yet due under the terms of any
Employee Benefit Plan, applicable law or related agreements. Benefits under all
Employee Benefit Plans are as represented and have not been increased subsequent
to the date as of which documents have been provided.
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(f) Tax Qualification. Each Employee Benefit Plan intended to be
qualified under Section 401(a) of the Code has, as currently in effect, been
determined to be so qualified by the Internal Revenue Service. Each trust
established in connection with any Employee Benefit Plan which is intended to be
exempt from Federal income taxation under Section 501(a) of the Code has, as
currently in effect, been determined to be so exempt by the Internal Revenue
Service. Each VEBA has been determined by the Internal Revenue Service to be
exempt from Federal income tax under Section 501(c)(9) of the Code. Since the
date of each most recent determination referred to in this paragraph (f), no
event has occurred and no condition or circumstance has existed that resulted or
is likely to result in the revocation of any such determination or that could
adversely affect the qualified status of any such Employee Benefit Plan or the
exempt status of any such trust or VEBA.
(g) Transactions. Neither the Company nor any Subsidiary nor any of
their respective directors, officers, employees or, to the best knowledge and
belief of the Company, other Persons who participate in the operation of any
Employee Benefit Plan or related trust or funding vehicle, has engaged in any
transaction with respect to any Employee Benefit Plan or breached any applicable
fiduciary responsibilities or obligations under Title I of ERISA that would
subject any of them to a tax, penalty or liability for prohibited transactions
or breach of any obligations under ERISA or the Code or would result in any
claim being made under, by or on behalf of any such Employee Benefit Plan by any
party with standing to make such claim.
(h) Triggering Events. The execution of this Agreement and the
Transaction Documents and the consummation of the transactions contemplated
hereby, do not constitute a triggering event under any Employee Benefit Plan,
policy, arrangement, statement, commitment or agreement, whether or not legally
enforceable, which (either alone or upon the occurrence of any additional or
subsequent event) will or may result in any payment (whether of severance pay or
otherwise), "parachute payment" (as such term is defined in Section 280G of the
Code), acceleration, vesting or increase in benefits to any employee or former
employee or director of the Company or any Subsidiary. No Employee Benefit Plan
provides for the payment of severance, termination, change in control or
similar-type payments or benefits.
(i) Documents. The Company has delivered or caused to be delivered to
Acquisition Sub and its counsel true and complete copies of all material
documents in connection with each Employee Benefit Plan, including, without
limitation (where applicable): (i) all Employee Benefit Plans as in effect on
the date hereof, together with all amendments thereto, including, in the case of
any Employee Benefit Plan not set forth in writing, a written description
thereof; (ii) all current summary plan descriptions, summaries of material
modifications, and material communications; (iii) all current trust agreements,
declarations of trust and other documents establishing other funding
arrangements (and all amendments thereto and the latest financial statements
thereof); (iv) the most recent Internal Revenue Service determination letter
obtained with respect to each Employee Benefit Plan intended to be qualified
under Section 401(a) of the Code or exempt under Section 501(a) or 501(c)(9) of
the Code; (v) the annual report on Internal Revenue Service Form 5500-series or
990 for each of the last three years for each Employee Benefit Plan required to
file such form; (vi) the most recently prepared financial statements for each
Employee Benefit Plan for which such statements are required; and (vii) all
contracts and agreements relating to each Employee Benefit Plan, including,
without limitation, service provider agreements, insurance contracts, annuity
contracts, investment management agreements, subscription agreements,
participation agreements, and recordkeeping agreements and collective bargaining
agreements.
Section 3.12 Employment Relations and Agreements. (i) Each of the
Company and the
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Subsidiaries is in substantial compliance with all federal, foreign, state or
other applicable laws respecting employment and employment practices, terms and
conditions of employment and wages and hours, and has not and is not engaged in
any unfair labor practice; (ii) no unfair labor practice charge or complaint
against the Company or any of the Subsidiaries is pending before the National
Labor Relations Board or an equivalent tribunal under applicable foreign law;
(iii) there is no labor strike, slowdown, stoppage or dispute actually pending
or threatened against or involving the Company or any of the Subsidiaries; (iv)
no representation question exists respecting the employees of the Company or any
of the Subsidiaries; (v) no collective bargaining agreement is currently being
negotiated by the Company or any of the Subsidiaries; (vi) neither the Company
nor any of the Subsidiaries has experienced any labor difficulty during the last
three years and (vii) there has been no "mass layoff" or "plant closing" by the
Company as defined in WARN or state law equivalent, or any other mass layoff or
plant closing that would trigger notice pursuant to WARN or state law
equivalent, within ninety (90) days prior to the Closing Date.
Section 3.13 Taxes. (a) Tax Returns. The Company and each of the
Subsidiaries has timely filed or caused to be timely filed with the appropriate
taxing authorities all federal and other returns, statements, forms and reports
for Taxes ("Returns") that are required to be filed by, or with respect to, the
Company and the Subsidiaries on or prior to the Closing Date. The Returns
(including any schedule or attachment thereto or any amendment thereof) reflect
in all material respects all liability for Taxes of the Company and each of the
Subsidiaries for the periods covered thereby. None of the Company and its
Subsidiaries currently is the beneficiary of any extension of time within which
to file any Return. No claim has ever been made by an authority in a
jurisdiction where any of the Company and its Subsidiaries does not file Returns
that it is or may be subject to taxation by that jurisdiction. "Taxes" shall
mean all taxes, assessments, charges, duties, fees, levies or other governmental
charges including, without limitation, all federal, state, local, foreign and
other income, franchise, profits, capital gains, capital stock, transfer, sales,
use, occupation, property, excise, severance, windfall profits, stamp, license,
payroll, withholding and other taxes, assessments, charges, duties, fees, levies
or other governmental charges of any kind whatsoever (whether payable directly
or by withholding and whether or not requiring the filing of any return), all
estimated taxes, deficiency assessments, additions to tax, penalties and
interest and shall include any liability for such amounts as a result of being a
member of a combined, consolidated, unitary or affiliated group.
(b) Payment of Taxes. The Company and the Subsidiaries have timely paid
all Taxes that are currently due and payable except for those contested in good
faith and for which adequate reserves have been made on the financial statements
of the Company and the Subsidiaries in accordance with GAAP.
(c) Other Tax Matters.
(i) The Company and each of the Subsidiaries have not been the
subject of an audit or other examination of Taxes by the tax
authorities of any nation, state or locality with respect to any
taxable period for which the statute of limitations has not expired,
nor has the Company or any of the Subsidiaries received any written
notices with respect to such taxable periods from any tax authority
relating to any issue which could affect the Tax liability of the
Company or any of the Subsidiaries that has not been resolved or paid
in full.
(ii) Neither the Company nor any of the Subsidiaries has been
included as a member in any "consolidated," "unitary" or "combined"
Return (other than Returns which
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include only the Company and any Subsidiaries) provided for under the
laws of the United States, any foreign jurisdiction or any state or
locality with respect to Taxes for any taxable period for which the
statute of limitations has not expired.
(iii) All Taxes which the Company or any of the Subsidiaries
is (or was) required by law to withhold or collect have been duly
withheld or collected, and have been timely paid over to the proper
authorities to the extent due and payable.
(iv) There are no tax sharing, allocation, indemnification or
similar agreements or arrangements in effect as between the Company,
any Subsidiary, or any predecessor or Affiliate of any of them and any
other party under which Acquisition Sub or the Company (or any of the
Subsidiaries) could be liable for any Taxes or other claims of any
party other than the Company or any Subsidiary of the Company.
(v) Neither the Company nor any of the Subsidiaries has been
required to include in income any adjustment pursuant to Section 481 or
any similar provision of the Code or the corresponding tax laws of any
nation, state or locality by reason of a voluntary change in accounting
method initiated by the Company or any of the Subsidiaries, and the
Internal Revenue Service or other taxing authority has not initiated or
proposed any such adjustment or change in accounting method.
(vi) Neither the Company nor any of the Subsidiaries (A) has
entered into an agreement or waiver extending any statute of
limitations relating to the payment or collection of Taxes of the
Company or any of the Subsidiaries or agreed to any extension of time
with respect to a Tax assessment or deficiency, or (B) is presently
contesting the Tax liability of the Company or any of the Subsidiaries
before any court, tribunal or agency.
(vii) No election under 341(f) of the Code has been made or
shall be made prior to the Closing Date to treat the Company as a
consenting corporation, as defined in Section 341(f) of the Code.
(viii) None of the Company and its Subsidiaries has made any
payments, is obligated to make any payments, or is a party to any
agreement that under certain circumstances could obligate it to make
any payments that will not be deductible under Section 280G of the
Code.
(ix) None of the Company and its Subsidiaries has been a
United States real property holding corporation within the meaning of
Section 897(c)(2) of the Code during the applicable period specified in
Section 897(c)(1)(A)(ii) of the Code.
(x) The Company has not redeemed any Company Common Stock in a
manner that would cause the transactions contemplated hereby to fail to
qualify as a reorganization under Sections 368(a)(1)(A) and
368(a)(2)(D) of the Code. The Company has not redeemed any Company
Common Stock or made any distributions, and no Person related to the
Company within the meaning of Treasury Regulation Section
1.368-1(e)(3)(i)(B) has acquired any Company Common Stock, in a manner
that would cause the transactions contemplated hereby to violate the
continuity of interest requirement set forth in Treasury Regulation
Section 1.368-1(e).
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Section 3.14 Liabilities. Except as set forth in the Company Financial
Statements or in Schedule 3.14, neither the Company nor any of the Subsidiaries
has any outstanding claims, liabilities or indebtedness, contingent or
otherwise, other than liabilities to trade creditors incurred subsequent to
October 31, 1999 in the ordinary course of business not involving borrowings by
the Company or any Subsidiary. Neither the Company nor any of the Subsidiaries
is in default in respect of the terms or conditions of any indebtedness.
Section 3.15 Intellectual Property. (a) Schedule 3.15 is a complete
list of all Intellectual Property used or held for use in the business of the
Company and its Subsidiaries (except for unregistered copyrights, know how and
trade secrets). To the extent indicated on Schedule 3.15, the Intellectual
Property listed on Schedule 3.15 has been duly registered in, filed in or issued
by the United States Patent and Trademark Office, United States Copyright Office
or Network Solutions, Inc., the appropriate offices in the various states of the
United States and the appropriate offices of other jurisdictions (foreign and
domestic), and each such registration, filing and issuance remains in full force
and effect as of the Closing Date. Copies of all items of Intellectual Property
which have been reduced to writing or other tangible form have been delivered by
the Company to Acquisition Sub (including, without limitation true and complete
copies of all related licenses, and amendments and modifications thereto).
(b) Except as set forth on Schedule 3.15, neither the Company nor any
of its Subsidiaries is a party to any license or agreement, whether as licensor,
licensee, or otherwise with respect to any of the Intellectual Property. To the
extent any Intellectual Property is used under license in the business of the
Company and/or any of its Subsidiaries, no notice of a material default has been
sent or received by the Company or any of its Subsidiaries under any such
license which remains uncured and the execution, delivery or performance of the
Company's obligations hereunder will not result in such a default. Each such
license agreement is a legal, valid and binding obligation of the Company and/or
its Subsidiaries and each of the other parties thereto, enforceable in
accordance with the terms thereof.
(c) Except as set forth on Schedule 3.15, the Company and/or its
Subsidiaries owns or is licensed to use, all of the Intellectual Property, free
and clear of any liens, security interest, charges, encumbrances and other
adverse claims, without obligation to pay any royalty or any other fees with
respect thereto and the operation of the business of the Company and its
Subsidiaries requires no rights under intellectual property other than the
Intellectual Property. Neither the Company nor any of its Subsidiaries use of
the Intellectual Property infringes any intellectual property rights of any
third party. No Intellectual Property has been cancelled, abandoned or otherwise
terminated and all renewal fees in respect thereof have been duly paid. The
Company and its Subsidiaries have the exclusive right to file, prosecute and
maintain all applications and registrations with respect to the Intellectual
Property that is owned by the Company or any of its Subsidiaries.
(d) Except as set forth on Schedule 3.15, neither the Company nor any
of its Subsidiaries has received any written notice or claim from any third
party challenging the right of the Company or any of its Subsidiaries to use any
of the Intellectual Property. The Intellectual Property constitutes all the
intellectual property necessary to operate the business of the Company and its
Subsidiaries as of the Closing Date in the manner in which it is presently
operated.
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(e) Except as set forth on Schedule 3.15, neither the Company nor any
of its Subsidiaries has made any claim in writing of a violation, infringement,
misuse or misappropriation by any third party of its rights to, or in connection
with any Intellectual Property, which claim is still pending.
(f) Except as set forth on Schedule 3.15, to the best knowledge of the
Company, there is no pending or threatened claims by any third party of a
violation, infringement, misuse or misappropriation by the Company or any of its
Subsidiaries of any intellectual property owned by any third party, or of the
invalidity of any patented or registration of a copyright, trademark, service
mark, domain name, or trade name included in the Intellectual Property. To the
best knowledge of the Company, neither the Company or any of its Subsidiaries
know of any valid basis for any such claims.
(g) Except as set forth on Schedule 3.15, to the best knowledge of the
Company there are no interferences or other contested proceedings, either
pending or threatened, in the United States Copyright Office, the United States
Patent and Trademark Office, or any governmental authority (foreign or domestic)
relating to any pending application with respect to Intellectual Property.
(h) Except as set forth on Schedule 3.15, for the twelve month period
prior to the Closing Date, the Internet domain names and URL's of the
Intellectual Property (together with any content and other materials accessible
and/or displayed thereon, the "Sites") direct and resolve to the appropriate
Internet protocol addresses and are and have been maintained and accessible to
Internet users on those certain computers used by the Company to make the Sites
so accessible (the "Server") approximately twenty-four (24) hours per day, seven
(7) days per week ("24/7") and are and have been operational for downloading
content from the Server on a 24/7 basis. The Company has fully operational
back-up copies of the Sites (and all related software, databases and other
information), made from the current versions of the Sites as accessible to
Internet users on the Server (and copied directly therefrom) which copies will
have been made at least every two weeks from the date hereof until the Closing
Date. Such back-up copies are kept in a safe and secure environment, fit for the
back-up of media, and are not located at the same location of the Server. The
Company has no reason to believe that the Sites will not operate on the Server
or will not continue to be accessible to Internet users on a 24/7 basis prior
to, at the time of, and after the Closing Date.
Section 3.16 Material Contracts. Except as set forth on Schedule 3.16,
neither the Company nor any of the Subsidiaries has or is bound by:
(a) any agreement, contract or commitment that involves the performance
of services by it of an amount or value (as measured by the revenue derived
therefrom during 1999) in excess of $100,000 annually;
(b) any agreement, indenture or other instrument which contains
restrictions with respect to payment of dividends or any other distribution in
respect of its capital stock;
(c) any agreement, contract or commitment to be performed relating to
capital expenditures in excess of $50,000 in any calendar year, or that in the
aggregate requires expenditures in excess of $50,000 other than those capital
expenditures approved as part of the Company's fiscal 2000 budget, a true and
correct copy of which has heretofore been provided to Acquisition Sub;
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(d) any agreement, indenture or instrument relating to indebtedness for
borrowed money or the deferred purchase price of property (excluding trade
payables in the ordinary course of business);
(e) any loan or advance to or investment in (other than investments in
Subsidiaries), any Person, or any agreement, contract or commitment relating to
the making of any such loan, advance or investment or any agreement, contract or
commitment involving a sharing of profits;
(f) any guarantee or other contingent liability in respect of any
indebtedness or obligation of any Person;
(g) any management service, consulting or any other similar type of
contract, involving payments of more than $25,000 annually;
(h) any agreement, contract or commitment limiting the ability of the
Company or any of the Subsidiaries to engage in any line of business or to
compete with any Person;
(i) any warranty, guaranty or other similar undertaking with respect to
a contractual performance extended by the Company or any of the Subsidiaries
other than in the ordinary course of business;
(j) any agreement, contract or commitment which is not cancelable
without penalty upon less than 60 days notice; or
(k) any amendment, modification or supplement in respect of any of the
foregoing.
Except as set forth on Schedule 3.16, each contract or agreement set
forth this Section 3.16 is in full force and effect and (i) there exists no
default or event of default or event, occurrence, condition or act (including
the consummation of the transactions contemplated hereby) on the part of the
Company or any Subsidiary which, with the giving of notice, the lapse of time or
the happening of any other event or condition, would become a default or event
of default thereunder, and (ii) no approval or consent of, or notice to, any
Person is needed in order that each such contract or agreement shall continue in
full force and effect in accordance with its terms without penalty, acceleration
or rights of early termination by reason of the consummation of the transactions
contemplated by this Agreement.
Section 3.17 Owned Real Property. Neither the Company nor any
Subsidiary owns in whole or in part any of the real property leased or operated
by the Company or any of the Subsidiaries (the "Company Property")
Section 3.18 Leases. Schedule 3.18 attached hereto contains an accurate
and complete list and description of the terms of all leases to which the
Company or any Subsidiary is a party (as lessee or lessor). Each lease set forth
on Schedule 3.18 is in full force and effect; all rents and additional rents due
to date on each such lease have been paid; in each case, the lessee has been in
peaceable possession since the commencement of the original term of such lease
and is not in default thereunder and no waiver, indulgence or postponement of
the lessee's obligations thereunder has been granted by the lessor; and there
exists no event of default or event, occurrence, condition or act (including the
consummation of the transactions contemplated hereby) which, with the giving of
notice, the lapse of time or the happening of any further event or condition,
would become a default under such lease, except in either case for any which,
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individually or in the aggregate, has not had, or is reasonably likely not to
have, a Company Material Adverse Effect. Neither the Company nor any Subsidiary
has violated any of the terms or conditions under any such lease in any material
respect, and all of the covenants to be performed by any other party under any
such lease have been fully performed. The property leased by the Company or any
Subsidiary is in a state of good maintenance and repair and is adequate and
suitable for the purposes for which it is presently being used. The Company and
the Subsidiaries have good and marketable leasehold interests in all leased real
property described in each lease set forth on Schedule 3.18, free and clear of
any and all liens, except for those liens set forth on Schedule 3.18.
Section 3.19 Disclosure. No representation, warranty or statement made
by any Stockholder in this Agreement and the Transaction Documents to which such
Stockholder is a party, the Annexes, Exhibits and Schedules to this Agreement,
or in any other material furnished or to be furnished by any Stockholder to
Acquisition Sub or its representatives, financing sources, attorneys and
accountants, pursuant to this Agreement and the Transaction Documents or the
transactions contemplated hereby, contains or shall contain any untrue statement
of a material fact, or omits or shall omit to state a material fact required to
be stated herein or therein or necessary to make the statements contained herein
or therein, in light of the circumstances under which they were made, not
misleading.
Section 3.20 Environmental Laws and Regulations. Except as would not,
individually or in the aggregate, have a Company Material Adverse Effect:
(a) Hazardous Materials have not at any time been generated, used,
treated or stored on, or transported to or from, any Company Property or any
property adjoining, adjacent to or in the vicinity of any Company Property;
(b) Hazardous Materials have not at any time been released on any
Company Property or any property adjoining, adjacent to or in the vicinity of
any Company Property;
(c) The Company and the Subsidiaries are in compliance with all
Environmental Laws and the requirements of any permits issued under such
Environmental Laws with respect to any Company Property;
(d) There are no past, pending or threatened Environmental Claims
against the Company, any of the Subsidiaries or any Company Property;
(e) There are no facts, circumstances, conditions or occurrences
regarding any Company Property or any property adjoining or in the vicinity of
any Company Property, that could reasonably be anticipated (i) to form the basis
of an Environmental Claim against the Company, any of the Subsidiaries or any
Company Property or assets or (ii) to cause such Company Property or assets to
be subject to any restrictions on its ownership, occupancy, use or
transferability under any Environmental Law; and
(f) There are not now and never have been any underground storage tanks
located on any Company Property or on any property adjoining or adjacent to any
Company Property.
For purposes of this Agreement, the following terms shall have the
following meanings: (i) "Hazardous Materials" means (A) any petroleum or
petroleum products, radioactive materials, asbestos in any form that has become
friable, urea formaldehyde foam insulation, transformers or
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other equipment that contain dielectric fluid containing levels of
polychlorinated biphenyls, gas; (B) any chemicals, materials or substances
defined as or included in the definition of "hazardous substances," "hazardous
wastes," "hazardous materials," "extremely hazardous wastes," "extremely
hazardous substances," "restricted hazardous wastes," "toxic substances," "toxic
pollutants," or words of similar import, under any applicable Environmental Law;
and (ii) "Environmental Law" means any federal, state, foreign or local statute,
law, rule, regulation, ordinance, guideline, policy, code in effect and in each
case as amended as of the date hereof and Closing Date, and any judicial
interpretation thereof or administrative order applicable to a Person or its
operations or property as of the date hereof and Closing Date, including any
judicial or administrative order, consent decree or judgment, relating to the
environment, health, safety or Hazardous Materials, including without limitation
the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, 42 U.S.C. Section 9601 et seq.; the Resource Conservation and
Recovery Act, as amended, 42 U.S.C. Section 6901 et seq.; the Federal Water
Pollution Control Act, as amended, 33 U.S.C. Section 1251 et seq.; the Toxic
Substances Control Act, 15 U.S.C. Section 2601 et seq.; the Clean Air Act, 42
U.S.C. Section 7401 et seq.; Occupational Safety and Health Act, 29 U.S.C. 651
et seq.; Oil Pollution Act of 1990, 33 U.S.C. Section 2701 et seq.; the Safe
Drinking Water Act, 42 U.S.C. Section 300f et seq., and their state and local
counterparts and equivalents; and (iii) "Environmental Claims" means any and all
administrative, regulatory or judicial actions, suits, demands, demand letters,
claims, liens, notices of noncompliance or violation, investigations or
proceedings under any Environmental Law or any permit issued under any such
Environmental Law (for purposes of this subclause (iii), "Claims"), including
without limitation (A) any and all Claims by governmental or regulatory
authorities for enforcement, cleanup, removal, response, remedial or other
actions or damages pursuant to any applicable Environmental Law and (B) any and
all Claims by any third party seeking damages, contribution, indemnification,
cost recovery, compensation or injunctive relief resulting from Hazardous
Materials or arising from alleged injury or threat of injury to health, safety
or the environment.
Section 3.21 Insurance. Set forth on Schedule 3.21 attached hereto is a
complete list of insurance policies which the Company and the Subsidiaries
maintain with respect to their businesses, properties or employees. Such
policies are in full force and effect and are free from any right of termination
on the part of the insurance carriers. Such policies, with respect to their
amounts and types of coverage, are comparable to those typically carried by
similarly situated companies in the same or similar businesses. Since January 1,
1999, there has not been any adverse change in the Company's or any Subsidiary's
relationship with its insurers or in the premiums payable pursuant to such
policies.
Section 3.22 Books and Records. The respective minute books of the
Company and the Subsidiaries, as previously made available to Acquisition Sub
and its representatives, contain accurate records of all meetings of, and
corporate action taken by (including action taken by written consent) the
respective shareholders and Boards of Directors of the Company and each
Subsidiary. Neither the Company nor any Subsidiary has any of its records,
systems, controls, data or information recorded, stored, maintained, operated or
otherwise wholly or partly dependent upon or held by any means (including any
electronic, mechanical or photographic process, whether computerized or not)
which (including all means of access thereto and therefrom) are not under the
exclusive ownership and direct control of the Company or a Subsidiary.
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Section 3.23 Agreements with Affiliates. Set forth on Schedule 3.23 is
a list of all agreements, arrangements or understandings, whether written or
oral, between the Company and any Affiliate of the Company.
Section 3.24 Year 2000 Compliance. (a) All of the computer hardware,
computer software, electronic data processing equipment, controllers, microchips
embedded in computer or non-computer equipment and any other computerized or
electronic equipment or components (collectively, the "Technology Systems") of
the Company and its Subsidiaries are Year 2000 Compliant. For purposes of this
Agreement, the term "Year 2000 Compliant" shall mean that the Technology
Systems, without human intervention, accurately and completely recognize,
calculate, process, sequence, store and transmit, without error or interruption,
date-related data for dates prior to, during and after the year 2000 (including,
without limitation, leap year calculations) and do not, as a consequence of the
change of centuries or of the fact that data from more than one century is being
processed, cause an abnormal termination of execution, an endless loop,
incorrect values, or invalid results, or otherwise fail to perform accurately
and completely in accordance with their respective specifications and
functionalities.
(b) None of the Technology Systems of the Company or its Subsidiaries,
nor any of the products or services sold or licensed by the Company or its
Subsidiaries to third parties have been adversely affected by the change of
centuries, nor does the Company or its Subsidiaries have any reason to believe
that any such Technology Systems, products or services will be so adversely
affected.
(c) To the best of knowledge of the Company and its Subsidiaries, all
of the Company's and its Subsidiaries' suppliers, vendors, contractors and
service providers are Year 2000 Compliant.
(d) The Company and its Subsidiaries have established and put in place,
commercially reasonable contingency plans to address, correct and otherwise
attend to any problem that may occur with its Technology Systems and/or supply
and distribution systems as a result of (i) a failure of such systems to be Year
2000 Compliant or (ii) such systems' otherwise being adversely affected by the
change of centuries.
(e) Neither the Company nor any of its Subsidiaries have received any
written claims or demands asserting that the Technology Systems or supply and
distribution systems of the Company or any of its Subsidiaries are not Year 2000
Compliant.
Section 3.25 Fiscal 2000 Budget. The Company's budget for the 2000
fiscal year previously delivered to Acquisition Sub is a true, correct and
complete copy of such budget and it has not been amended, supplemented or
revised in any manner.
Section 3.26 Projections. The projections (included in the Company's
Confidential Information Memorandum, dated November, 1999), previously delivered
by the Company to Acquisition Sub are based on certain assumptions, estimates
and qualifications which are believed by the Company's management to be
reasonable.
Section 3.27 Broker's or Finder's Fee. None of the Stockholders, the
Company or any of its Subsidiaries has paid or become obligated to pay any fee
or commission to any broker, finder or intermediary in connection with the
transactions contemplated hereby.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND ACQUISITION SUB
As an inducement to the Stockholders to enter into this
Agreement, Parent and Acquisition Sub hereby represents and warrants to the
Stockholders as follows:
Section 4.1 Due Organization, Good Standing and Corporate Power. Each
of Parent, Acquisition Sub and the Parent's Material Subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and each of Parent, Acquisition Sub and
the Parent's Material Subsidiaries has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted.
Section 4.2 Authorization and Validity of Agreement. Each of Parent and
Acquisition Sub has the requisite corporate power and authority to execute and
deliver this Agreement and the Transaction Documents to which it is a party, to
perform its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby and thereby. No other corporate action on the
part of Parent or Acquisition Sub is necessary to authorize the execution,
delivery and performance of this Agreement or the Transaction Documents to which
it is a party by Parent or Acquisition Sub and the consummation of the
transactions contemplated hereby. This Agreement has been, and on the Closing
Date the Transaction Documents to which it is a party will have been, duly
executed and delivered by Parent and Acquisition Sub and, will be valid and
binding obligations of Parent and Acquisition Sub enforceable against Parent and
Acquisition Sub in accordance with their terms, except as such enforcement may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally, and
general equitable principles.
Section 4.3 Capitalization. As of the date of this Agreement, the
authorized capital stock of Parent consists of 75,000,000 shares of Parent
Common Stock, par value $0.00002 per share, and 5,000,000 shares of Parent's
preferred stock, par value $0.00002 per share, of which (i) 45,799,832 shares of
Parent Common Stock are outstanding, (ii) 1,200 shares of preferred stock have
been designated Series A Convertible Preferred Stock of which none are
outstanding, (iii) 25,000 shares have been designated Series B Preferred Stock
("Series B Preferred") of which 7,000 shares are outstanding, and (iii) 30,000
shares have been designated Series C Preferred Stock ("Series C Preferred") of
which 15,570 shares are outstanding. All issued and outstanding shares of Parent
Common Stock, Series B Preferred and Series C Preferred are, and all of the
shares of Parent Common Stock issuable pursuant to this Agreement, when issued
as provided herein, will be, duly authorized, validly issued, fully paid and
nonassessable. Except as set forth on Schedule 4.3, there is no outstanding
subscription, option, warrant, call, right, agreement, commitment, understanding
or arrangement relating to the issuance, sale, delivery, transfer, voting,
registration or redemption of any shares of Parent Common Stock.
Section 4.4 Consents and Approvals; No Violations. Other than the
consent of the majority stockholders under the registration rights agreement,
dated as of September 22, 1999, among Parent and the stockholders of Parent
party thereto (the "Existing Registration Rights Agreement"), the execution and
delivery of this Agreement and the Transaction Documents by Parent and
Acquisition Sub and the consummation by them of the transactions contemplated
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thereby will not: (A) violate or conflict with any provision of Parent's or
Acquisition Sub's Certificate of Incorporation or By-Laws; (B) violate or
conflict with any statute, ordinance, rule, regulation, order or decree of any
court or of any governmental or regulatory body, agency or authority applicable
to Parent or Acquisition Sub or any of Parent's Material Subsidiaries or by
which any of their respective properties or assets may be bound, (C) require any
filing with, or permit, consent or approval of, or the giving of any notice to,
any governmental or regulatory body, agency or authority, or (D) result in a
violation or breach of, conflict with, constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
cancellation, payment or acceleration) under, or result in the creation of any
lien, security interest, charge or encumbrance upon any of the properties or
assets of Parent or Acquisition Sub or any of Parent's Material Subsidiaries
under, or give rise to any obligation, right of termination, cancellation,
acceleration or increase of any obligation or a loss of a material benefit
under, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, license, franchise, permit, agreement, contract, lease, franchise
agreement or other instrument or obligation to which Parent or Acquisition Sub
or any of Parent's Material Subsidiaries is a party, or by which any such Person
or any of its properties or assets are bound.
Section 4.5 Parent Financial Statements. Acquisition Sub has, prior to
the date of this Agreement, made available to the Company true and complete
copies of Parent's audited consolidated balance sheets as of June 30, 1998 and
1999, Parent's audited consolidated statements of operations for the years ended
June 30, 1997, 1998 and 1999, and Parent's unaudited consolidated balance sheet
as of December 31, 1999 and Parent's unaudited consolidated statements of
operations for the three months ended December 31, 1998 and 1999 (the "Parent
Financial Statements"). The Parent Financial Statements were prepared in
accordance with GAAP (except as may be indicated therein or in the notes or
schedules thereto) and represent fairly the financial condition and results of
operations of Parent and its consolidated subsidiaries as of the dates thereof
and for the periods then ended.
Section 4.6 Absence of Certain Changes. Except as set forth in Schedule
4.6, since December 31, 1999, (a) there has been no material adverse change in
the business, properties, assets, liabilities, operations, results of operations
or condition (financial or otherwise) of Parent and (b) the business of Parent
has been conducted only in the ordinary course consistent with past practice.
Section 4.7 Title to Properties; Encumbrances. Parent has good, valid
and marketable title to, or, in the case of leased properties and assets, valid
leasehold interests in, (a) all of its tangible properties and assets (real and
personal), including, without limitation, all the properties and assets
reflected in the most recent consolidated balance sheet contained in the Parent
Financial Statements, except as indicated in the notes thereto and except for
properties and assets which have been sold or otherwise disposed of in the
ordinary course of business after such date, and (b) all the tangible properties
and assets purchased by the Parent and any of the Parent's Material Subsidiaries
since such date, except for such properties and assets which have been sold or
otherwise disposed of in the ordinary course of business, are in each case
subject to no encumbrance, lien, charge or other restriction of any kind or
character.
Section 4.8 Compliance with Laws. (a)Except as disclosed on Schedule
4.8, Parent and the Parent's Material Subsidiaries are in compliance with all
applicable United States federal, state and local statutes, laws, regulations,
orders, judgments and decrees.
(b) Except as disclosed on Schedule 4.8, Parent and the Parent's
Material Subsidiaries
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hold, to the extent required by applicable United States federal, state and
local law, and applicable laws in jurisdictions other than the United States,
all Permits that are required for the operation of the business of the Parent or
the Parent's Material Subsidiaries as now conducted, and there has not occurred
any default under any such Permit.
(c) Except as disclosed in the Parent SEC Reports, Parent and Parent's
Material Subsidiaries believe that they are in compliance with all applicable
laws in jurisdictions other than the United States in the operation of their
businesses. However, neither Parent nor Parent's Material Subsidiaries are
experts in the laws of such foreign jurisdictions and have not secured legal
opinions or other definitive evidence that their operations are compliant under
such foreign laws. Accordingly, no assurances can be given that Parent or
Parent's Material Subsidiaries are in full compliance with all material aspects
of the laws of jurisdictions other than the United States.
Section 4.9 Litigation. Except as disclosed on Schedule 4.9 or in the
Parent SEC Reports, there is no action, suit or proceeding, at law or in equity,
or any arbitration or any administrative or other proceeding by or before (or
any investigation by) any governmental or other instrumentality or agency,
pending or threatened against or affecting the Parent or any of the Parent's
Material Subsidiaries, or any of their respective properties or rights. Neither
the Parent nor any of Parent's Material Subsidiaries is subject to any judgment,
order or decree entered in any lawsuit or proceeding.
Section 4.10 Liabilities. Except as disclosed on Schedule 4.10, neither
Parent nor any of Parent's Material Subsidiaries has any outstanding claims,
liabilities or indebtedness, contingent or otherwise, except as set forth in the
Parent Financial Statements or referred to in the footnotes thereto, other than
liabilities to trade creditors incurred subsequent to December 31, 1999 in the
ordinary course of business not involving borrowings by the Parent or any of
Parent's Material Subsidiary. Neither Parent nor any of Parent's Material
Subsidiaries is in default in respect of the terms or conditions of any material
indebtedness.
Section 4.11 SEC Filings. Acquisition Sub has filed and made available
to the Company all forms, reports and other documents filed by Parent with the
SEC since December 1, 1998. All such forms, reports and other documents
(including those that the Acquisition Sub may file after the date hereof until
the Closing) are referred to herein as the "Parent SEC Reports." Except as
otherwise indicated on Schedule 4.11, the Parent SEC Reports, as they may be
amended on or prior to the Closing Date (i) were or will be filed on a timely
basis, (ii) were or will be prepared in compliance in all material respects with
the applicable requirements of the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the SEC thereunder applicable to such Parent
SEC Reports, and (iii) did not or will not at the time they were or are filed
contain any untrue statement of a material fact or omit to state a material fact
required to be stated in such Parent SEC Reports or necessary in order to make
the statements in such Parent SEC Reports, in the light of the circumstances
under which they were made, not misleading. Prior to the Closing Date,
Acquisition Sub will make copies of any amendments made after the date hereof to
the Parent SEC Reports available to the Stockholders.
Section 4.12 Broker's or Finder's Fee. Neither Parent nor Acquisition
Sub has paid or become obligated to pay any fee or commission to any broker,
finder or intermediary in connection with the transactions contemplated hereby.
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ARTICLE V
ADDITIONAL AGREEMENTS
Section 5.1 Conduct of Business Pending the Closing Date. The
Stockholders agree that, except as permitted, required or specifically
contemplated by, or otherwise described in, this Agreement, or otherwise
consented to or approved in writing by the Acquisition Sub, during the period
commencing on the date hereof until the earlier of the termination of this
Agreement in accordance with its terms or the Closing, the stockholders will
take all action, or refrain from taking any action, necessary to ensure that:
(a) Each of the Company and the Subsidiaries conduct their respective
operations only according to their ordinary and usual course of business
consistent with past practice; and
(b) Neither the Company nor any of the Subsidiaries:
(i) amend its Articles or Certificate of Incorporation or its
By-Laws (or comparable governing documents); provided, however, the
Company may amend its Articles of Incorporation to reflect a new par
value of the Company Common Stock;
(ii) issue or sell, or authorize to issue or sell, any shares
of its capital stock or any other securities (other than the issuance
of a warrant to purchase Company Common Stock pursuant to a proposed
financing agreement with Cisco Systems Capital Corp. (the "Cisco
Financing Agreement") and issuances of Company Common Stock upon
exercise of existing Company Options or Company Warrants), or issue or
sell, or authorize the issuance or sale of, any securities convertible
into, or options, warrants or rights to purchase or subscribe to, or
enter into any arrangement or contract with respect to the issuance or
sale of, any shares of its capital stock or any other securities, or
make any other changes in its capital structure;
(iii) sell or pledge or agree to sell or pledge any stock or
other equity interest owned by it in any other Person;
(iv) declare, pay or set aside any dividend or other
distribution or payment with respect to, or split, combine, redeem or
reclassify, or purchase or otherwise acquire, any shares of its capital
stock or its other securities, or make any other payments to its
Affiliates;
(v) enter into any contract or commitment with respect to
capital expenditures in excess of $25,000;
(vi) acquire, by merging or consolidating with, by purchasing
an equity interest in or a portion of the assets of, or by any other
manner, any business or any Person, or otherwise acquire any assets of
any Person;
(vii) except with the prior written consent of the Acquisition
Sub or to the extent required under applicable law, rule or regulation,
increase the compensation or fringe benefits of, or pay any bonuses to,
any of its directors, officers or employees (other than year-end
bonuses not exceeding $20,000 in the aggregate and compensation
increases for employees in the ordinary course of business and
consistent with past
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practices) or grant any severance or termination pay other than
pursuant to the letter agreement dated February 4, 2000 between the
Company and Michael S. Gorton regarding the termination of Mr.
Gorton's employment or enter into any employment, consulting or
severance agreement or arrangement with any present or former
director, officer or other employee, or establish, adopt, enter into
or amend or terminate any collective bargaining, bonus, profit
sharing, thrift, compensation, stock option, restricted stock,
pension, retirement, deferred compensation, employment, termination,
severance or other plan, agreement, trust, fund, policy or arrangement
for the benefit of any directors, officers or employees;
(viii) mortgage, pledge or encumber any assets (other than as
security under that certain Bridge Loan Facility Agreement by and
between Parent and the Company dated as of December 22, 1999 (the
"Bridge Loan Agreement") or the Cisco Financing Agreement) or incur or
modify any indebtedness or other liability (other than the incurrence
of trade payables in the ordinary course of business, the Bridge Loan
Agreement, and the Cisco Financing Agreement) or issue any debt
securities or assume, guarantee or endorse or otherwise as an
accommodation become responsible for the obligations of any Person or,
make any loan or other extension of credit;
(ix) make any investments or purchase or sell any material
assets (other than purchases of network equipment in the ordinary
course of business in a manner consistent with the Company's business
plan previously disclosed to Acquisition Sub)
(x) enter into any capital lease or lease any of its assets;
(xi) make or rescind any tax election or settle or compromise
any tax liability;
(xii) make any change in its method of accounting;
(xiii) except in the ordinary course of business consistent
with past practice, pay, discharge or satisfy any claims, liabilities
or obligations (absolute, accrued, asserted or unasserted, contingent
or otherwise), other than the payment, discharge or satisfaction of (A)
amounts outstanding under the Bridge Loan Agreement, and (B) claims,
liabilities or obligations reflected or reserved against in, or
contemplated by, the consolidated financial statements contained in the
Company Financial Statements; or
(xiv) agree, in writing or otherwise, to take any of the
foregoing actions.
(c) Each Stockholder shall notify the Stockholders' Representative in
writing within five Business Days, and the Stockholders' Representative shall
promptly notify Acquisition Sub and the Company in writing upon receipt of any
such notice from any Stockholder, of any material adverse change in the
business, assets, liabilities, results of operations, condition (financial or
otherwise) or prospects of the Company and the Subsidiaries of which he has
knowledge.
Section 5.2 Full Access and Disclosure. During the period commencing on
the date hereof until the Closing, the Stockholders will cause the Company to,
and shall cause the Company to cause each of the Subsidiaries to, upon
reasonable notice, afford Acquisition Sub and its employees, accountants,
financing sources, agents and representatives reasonable access during normal
business hours to the personnel, properties and books and records of the Company
and
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those of the Subsidiaries in order that they may have the opportunity to
make such investigations as they shall desire of the affairs of the Company and
the Subsidiaries; provided, however, that such investigation shall not affect
the representations and warranties made in this Agreement. The Stockholders
shall cause the Company to cause its officers and employees to furnish such
additional financial and operating data and other information and respond to
such reasonable inquiries as Acquisition Sub shall from time to time request.
Section 5.3 Confidentiality. (a) From the date hereof until the earlier
of the first anniversary of the Closing or termination of this Agreement, each
Stockholder agrees to, and shall cause its employees, officers, directors,
agents, representatives, Affiliates and the Company to: (i) treat and hold as
confidential (and not disclose or provide access to any Person other than those
of such Persons with a need to know such information) all information relating
to trade secrets, processes, patent and trademark applications, product
development, price, customer and supplier lists, pricing and marketing plans,
policies and strategies, details of client and consultant contracts, operations
methods, product development techniques, business acquisition plans, new
personnel acquisition plans and all other confidential information with respect
to Acquisition Sub; provided that such Stockholder may disclose any such
information to the extent required by law, (ii) in the event that such
Stockholder, the Company (prior to the Closing) or any such employee, officer or
director, agent, representative or Affiliate becomes legally compelled to
disclose any such information, provide Acquisition Sub with prompt written
notice of such requirement so that Acquisition Sub may seek a protective order
or other remedy or waive compliance with this Section 5.3(a), (iii) in the event
that such protective order or other remedy is not sought or obtained, or
Acquisition Sub waives compliance with this Section 5.3(a), furnish only that
portion of such confidential information which is legally required to be
provided and exercise its best efforts to obtain assurances that confidential
treatment will be accorded such information, (iv) promptly furnish (prior to,
at, or as soon as practicable following, the Closing) to Acquisition Sub copies
(in whatever form or medium) of all such confidential information then in the
possession of such Stockholder or any of its agents, representatives,
Affiliates, employees, officers and directors; provided, however, that this
sentence shall not apply to any information that, at the time of disclosure, is
available publicly or was otherwise known to the recipient and was not disclosed
in breach of this Agreement by such Stockholder, the Company (prior to the
Closing), such Stockholder's employees, officers, directors, agents,
representatives or Affiliates. Notwithstanding anything to the contrary in this
Agreement, such Stockholder agrees and acknowledges that remedies at law for any
breach of its obligations under this Section 5.3(a) are inadequate and that in
addition thereto Acquisition Sub shall be entitled to seek equitable relief,
including injunction and specific performance, in the event of any such breach.
(b) From the date hereof until the earlier of the Closing Date and the
first anniversary of the termination of this Agreement, Acquisition Sub agrees
to, and shall cause its agents, representatives, Affiliates, employees, officers
and directors to: (i) treat and hold as confidential (and not disclose or
provide access to any Person other than those of such Persons with a need to
know such information) all information relating to trade secrets, processes,
patent and trademark applications, product development, price, customer and
supplier lists, pricing and marketing plans, policies and strategies, details of
client and consultant contracts, operations methods, product development
techniques, business acquisition plans, new personnel acquisition plans and all
other confidential information with respect to the Company; provided that
Acquisition Sub may disclose any such information to the extent required by law,
(ii) in the event that Acquisition Sub or any such agent, representative,
Affiliate, employee, officer or director becomes legally compelled to disclose
any such information, provide the Company and the Stockholders' Representative
with
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prompt written notice of such requirement so that the Company or the
Stockholders' Representative may seek a protective order or other remedy or
waive compliance with this Section 5.3(b), (iii) in the event that such
protective order or other remedy is not sought or obtained, or the Stockholders'
Representative waives compliance with this Section 5.3(b), furnish only that
portion of such confidential information which is legally required to be
provided and exercise its best efforts to obtain assurances that confidential
treatment will be accorded such information, (iv) following the termination of
this Agreement, promptly furnish to the Stockholders' Representative at its
request any and all copies (in whatever form or medium) of all such confidential
information then in the possession of Acquisition Sub or any of its agents,
representatives, Affiliates, employees, officers and directors and destroy any
and all additional copies then in the possession of Acquisition Sub or any of
its agents, representatives, Affiliates, employees, officers and directors of
such information and of any analyses, compilations, studies or other documents
prepared, in whole or in part, on the basis thereof; provided, however, that
this sentence shall not apply to any information that, at the time of
disclosure, is available publicly or was otherwise known to the recipient and
was not disclosed in breach of this Agreement by Acquisition Sub, its agents,
representatives, Affiliates, employees, officers or directors; provided further
that, with respect to Intellectual Property, specific information shall not be
deemed to be within the foregoing exception merely because it is embraced in
general disclosures in the public domain. In addition, with respect to
Intellectual Property, any combination of features shall not be deemed to be
within the foregoing exception merely because the individual features are in the
public domain unless the combination itself and its principle of operation are
in the public domain. Notwithstanding anything to the contrary in this
Agreement, Acquisition Sub agrees and acknowledges that remedies at law for any
breach of its obligations under this Section 5.3(b) are inadequate and that in
addition thereto the Company and the Stockholders' Representative shall be
entitled to seek equitable relief, including injunction and specific
performance, in the event of any such breach.
Section 5.4 Reasonable Best Efforts. Subject to the terms and
conditions provided herein, Acquisition Sub and each Stockholder shall, and the
Stockholders shall cause the Company to and cause the Company to cause each of
the Subsidiaries to, cooperate and use their reasonable best efforts to take, or
cause to be taken, all appropriate action, and to make, or cause to be made, all
filings necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement
and the Transaction Documents including, without limitation, their reasonable
best efforts to obtain, prior to the Closing Date, all licenses, permits,
consents, approvals, authorizations, qualifications and orders of governmental
authorities and parties to contracts as are necessary for consummation of the
transactions contemplated by this Agreement and the transaction Documents;
provided, however, that no loan agreement or contract for borrowed money (other
than the loan from Ascend Communications, Inc.) shall be repaid except as
currently required by its terms, in whole or in part, and no contract shall be
amended to increase the amount payable thereunder or otherwise to be more
burdensome to the Company in order to obtain any such consent, approval or
authorization without the prior written consent of Acquisition Sub (which shall
not be unreasonably withheld).
Section 5.5 Notice of Board Approval. Upon the approval by Acquisition
Sub's Board of Directors of the transactions contemplated by this Agreement,
Acquisition Sub shall promptly provide the Stockholders' Representative written
notice of such approval.
Section 5.6 Notice of Developments. Prior to the Closing, each
Stockholder shall
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promptly notify the Stockholders' Representative in writing, which shall
promptly notify Acquisition Sub and the Company in writing of (i) all events,
circumstances, facts and occurrences arising subsequent to the date of this
Agreement which could reasonably be expected to result in any breach of a
representation or warranty or covenant of any Stockholder in this Agreement or
any of the Transaction Documents, or which could reasonably be expected to have
the effect of making any representation or warranty of any Stockholder in this
Agreement or any of the Transaction Documents untrue or incorrect in any
respect, and (ii) all other material developments affecting the assets,
liabilities, business, financial condition, operations, results of operations,
customer or supplier relations, employee relations, projections or prospects of
the Company or any Subsidiary.
Section 5.7 No Solicitation of Other Offers. (a) The Stockholders
shall, and shall cause the Company, its Affiliates, officers, directors,
employees, representatives, consultants, investment bankers, attorneys,
accountants and other agents to, immediately cease any discussions or
negotiations with any other parties that may be ongoing with respect to any
Acquisition Proposal. The Stockholders shall not, and shall not permit the
Company or its Affiliates, officers, directors, employees, representatives,
consultants, investment bankers, attorneys, accountants or other agents, to,
directly or indirectly, take any action to (i) solicit, initiate or encourage
the making of any Acquisition Proposal, (ii) participate in any way in
discussions or negotiations with, or furnish or disclose any information to, any
Person (other than Acquisition Sub or the agents or representatives of
Acquisition Sub) in connection with, or take any other action to encourage any
inquiries or the making of any proposal that is reasonably expected to lead to,
any Acquisition Proposal, (iii) enter into any agreement, arrangement or
understanding with respect to any Acquisition Proposal, or (iv) approve or
recommend, or propose to approve or recommend, any Acquisition Proposal.
"Acquisition Proposal" shall mean a proposal or offer for a merger or
consolidation with the Company or any of the Subsidiaries, sale or purchase of
assets (other than in the ordinary course of business) or stock of the Company
or any of the Subsidiaries, tender or exchange offer for capital stock of the
Company or any of the Subsidiaries, or other business combination or change in
control or similar transaction involving the Company or any of the Subsidiaries,
other than the transactions contemplated by this Agreement.
(b) In addition to the obligations of the Stockholders set forth in
Section 5.7(a) hereof, promptly after receipt thereof, each Stockholder shall
advise the Stockholders' Representative, who shall promptly notify Acquisition
Sub and the Company in writing of any request for information or of any
Acquisition Proposal received by any Stockholder or the Company after the date
of this Agreement, or any inquiry, proposal, discussions or negotiation with
respect to any such Acquisition Proposal, the terms and conditions of such
request, Acquisition Proposal, inquiry, proposal, discussion or negotiation and
the Stockholders' Representative shall promptly provide to Acquisition Sub
copies of any written materials received by any Stockholder or the Company in
connection with any of the foregoing, and the identity of the Person making any
such Acquisition Proposal or such request, inquiry or proposal or with whom any
discussion or negotiation are taking place.
Section 5.8 Conversion of Company Options. The Stockholders shall use
their best efforts to obtain the consent of each holder of outstanding options
to purchase shares of Company Common Stock (the "Company Options") that does not
exercise such Company Options prior to the Closing Date to convert all of such
Company Options, whether vested or unvested, into options under the Parent's
Option Plan ("Parent Options"), to acquire the same number of shares
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of Parent Common Stock as the holder of such Company Options would have been
entitled to receive pursuant to this Agreement had such holder exercised such
Company Options in full immediately prior to the Closing Date (rounded down to
the nearest whole number), at an exercise price of $12.00 per share. One third
of such Parent Options shall vest on each of September 30, 2000, the first
anniversary of the Closing Date, and the second anniversary of the Closing Date.
Section 5.9 Stock Option Grants to Company Executives. At the Closing,
Parent will grant to certain executives of the Company an aggregate of 810,000
options to purchase shares of Parent Common Stock on terms generally provided to
other Senior Executives of Parent pursuant to Parent's Option Plan.
Additionally, in the event that Acquisition Sub decides to conduct an initial
public offering of shares of capital stock of any business of Acquisition Sub
that is based upon the Company's operations or business plan at the Closing (a
"Successor Business"), Acquisition Sub will use its best efforts to implement a
management incentive program that will provide equity participation to senior
management and employees of the Company or the Successor Business, as the case
may be, at a valuation reasonably acceptable to both such senior management and
the Acquisition Sub. Such equity participation will be dependent upon the
ultimate configuration of the Company or the Successor Business and the decision
of Acquisition Sub to conduct an initial public offering of the Company or the
Successor Business (which decision shall be in Acquisition Sub's sole
discretion); provided, however, in no event will any such equity participation
be less than 5 percent nor greater than 20 percent.
Section 5.10 Stockholders' Representative. (a) The Stockholders hereby
appoint the Stockholders' Representative to act as the sole agent of the
Stockholders in connection with this Agreement and the Escrow Agreement with the
powers and duties described herein and under the Escrow Agreement.
(b) The Stockholders hereby grant the Stockholders' Representative the
authority to: (i) dispute or to refrain from disputing any objection by
Acquisition Sub to the Closing Working Capital Statement pursuant to Section
2.6(b) of this Agreement or any claim made by Acquisition Sub under the Escrow
Agreement or Article VIII of this Agreement; (ii) negotiate and compromise any
objection or dispute which may arise under, and to exercise or refrain from
exercising remedies available under, Section 2.6(b) or Article VIII of this
Agreement or the Escrow Agreement and to sign any releases or other documents
with respect to such objection, dispute or remedy, (iii) waive any condition
contained in Section 2.6(b), Section 7.2 or Article VIII of this Agreement or in
the Escrow Agreement, (iv) give any and all consents under Section 2.6(b) or
Article VIII of this Agreement or under the Escrow Agreement, and (v) do such
things and refrain from doing such things as shall be necessary or appropriate
to carry out the provisions of this Agreement or of the Escrow Agreement. The
Stockholders' Representative shall be authorized to act, notwithstanding any
dispute or disagreement among the Stockholders, and Acquisition Sub shall be
entitled to rely on any and all action taken by the Stockholders' Representative
under this Agreement or under the Escrow Agreement without any liability to, or
obligation to inquire of, any of the Stockholders. The Stockholders'
Representative may resign at any time, effective upon the designation, by the
Stockholders representing a majority in interest of the Stockholders based on
their proportionate interest in the Acquisition Sub's Stock received at Closing,
of a substitute Stockholders' Representative and the delivery of a notice to
such effect to Acquisition Sub. The Stockholders' Representative may decline to
exercise the authority granted to him or her hereunder in the absence of express
instructions from all or any portion determined by him or her to be appropriate
of the Stockholders or until he or she is satisfied that any expenses to be
incurred by him or her in connection with any such action will be paid or
reimbursed by the
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Stockholders. The Stockholders representing a majority in interest of the
Stockholders based on their proportionate interest in the Parent Common Stock
received at Closing, may at any time remove the Stockholders' Representative and
designate a replacement Stockholders' Representative, in which case, notice of
such removal and replacement shall be given to Acquisition Sub and to the Escrow
Agent. The Stockholders' Representative while acting strictly in his/her
capacity as Stockholders' Representative, shall have no liability whatsoever to
any Stockholder other than for gross negligence or willful misconduct. The
authority of the Stockholders' Representative provided in this Agreement shall
be effective until the rights and obligations of the Stockholders under this
Agreement terminate by virtue of the termination of any and all rights and
obligations of the Stockholders to Acquisition Sub under this Agreement.
Section 5.11 Registration of Securities. (a) The Acquired Shares will
be issued by Acquisition Sub pursuant to one or more exemptions from
registration and will be "restricted securities" within the meaning of Rule 144
under the Securities Act and such Acquired Shares may not be sold or transferred
unless registered under the Securities Act or transferred pursuant to an
exemption from registration under the Securities Act and under applicable state
securities laws. Furthermore, except as otherwise provided in this Section 5.11,
the Acquired Shares may not be sold, exchanged or transferred for a period of
one year following the Closing Date.
(b) Each Stockholders agrees that it will not sell, transfer, assign or
otherwise dispose of any such Acquired Shares at any time unless subsequently
registered or unless counsel for Acquisition Sub or other independent counsel
satisfactory to Acquisition Sub shall have rendered an opinion satisfactory in
form and in substance to Acquisition Sub to the effect that such registration is
not required for sale, transfer, assignment or disposition.
(c) Each Stockholder acknowledges and agrees that all certificates
representing Acquired Shares shall bear on the face thereof substantially the
following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND MAY NOT BE OFFERED, SOLD, PLEDGED, OR OTHERWISE TRANSFERRED, EXCEPT
(1) ACCORDING TO AN OPINION OF COUNSEL SATISFACTORY TO EVENTURES GROUP,
INC., IN A TRANSACTION THAT IS EXEMPT FROM, OR NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, OR (2) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE
IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES.
(d) The Stockholders shall receive registration rights under a
registration rights agreement (the "Registration Rights Agreement")
substantially in the form attached hereto as Exhibit B.
Section 5.12 Registration of Company Options. Acquisition Sub shall
take all corporate action necessary to reserve for issuance a sufficient number
of shares of Parent Common Stock for delivery under the Parent Options issued in
accordance with Section 5.8 and Section 5.9. As soon as practicable after the
Closing Date, Acquisition Sub shall file a registration statement on Form S-8
(or any successor form) or another appropriate form with respect to the shares
of
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Parent Common Stock subject to such Parent Options and shall use its best
efforts to maintain the effectiveness of such registration statement or
registration statements (and maintain the current status of the prospectus or
prospectuses contained therein) for so long as such Parent Options remain
outstanding.
Section 5.13 Subsequent Merger. Subject to all applicable federal and
state laws (including, without limitation, federal and state securities laws),
as promptly as reasonably possible following the Closing, Parent and Acquisition
Sub shall cause the Company to be merged with and into Acquisition Sub pursuant
to an Agreement and Plan of Merger substantially in the form attached hereto as
Exhibit C (the "Merger Agreement"), with Acquisition Sub surviving and each
stockholder, warrant holder, and option holder of the Company at the time of
such merger (other than the Acquisition Sub) receiving the Merger Consideration
(as defined in the Merger Agreement) set forth in the Merger Agreement. In the
event the merger does not occur, Parent and Acquisition Sub agree the
outstanding stock of the Company will be acquired (directly or indirectly) by
them (if at all) in a manner that does not cause the acquisition of the Shares
under this Agreement to be a taxable transaction.
Section 5.14 Further Action. Each of the parties hereto shall use all
reasonable efforts to take, or cause to be taken, all appropriate action, do or
cause to be done all things necessary, proper or advisable under applicable law,
and execute and deliver such documents and other papers, as may be required to
carry out the provisions of this Agreement and the Transaction Documents and
consummate and make effective the transactions contemplated by this Agreement
and the Transaction Documents.
ARTICLE VI
TAX MATTERS
Section 6.1 Tax-Free Reorganization. (a) Subject to all applicable
federal and state laws (including, without limitation, federal and state
securities laws), Parent and Acquisition Sub shall cause the merger of the
Company with and into Acquisition Sub to be effectuated as soon as reasonably
possible after the Closing and to cause such transaction along with the
acquisition of Shares under this Agreement to satisfy Section 368(a) of the
Code. The parties hereto intend that the transactions consummated pursuant to
this Agreement be treated as the first step of a two-step merger which qualifies
as a "reorganization" within the meaning of Section 368 of the Code for federal
income tax purposes and shall report such transactions in a manner consistent
therewith on all tax returns, reports, declarations, claims for refund, or
statements (including any schedule or amendment thereto). The parties hereto
adopt this Agreement as a "plan of reorganization" within the meaning of Section
354(a)(1) of the Code.
(b) The Company and the Stockholders will cause the Company to hold at
the Closing not less than 90 percent of the fair market value of the Company's
net assets and not less than 70 percent of the fair market value of the
Company's gross assets, held by the Company immediately prior to the Closing and
will not prior to Closing enter into or have entered into any binding commitment
or have taken any other act which would obligate, cause or require the Surviving
Corporation to dispose of or transfer assets, incur liabilities or pay expenses
which would result in the Surviving Corporation holding less than the
aforementioned gross and net asset amounts after the Closing. For purposes of
the preceding sentence, amounts paid by the Company to Stockholders who receive
cash or other property, to pay reorganization expenses, and in
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connection with redemptions and distributions (except for regular, normal
distributions), will be treated as assets of the Company immediately prior to
the Closing.
(c) Subject to compliance by the Company and the Stockholders with
Section 6.1(b), (i) after the Closing Date, the Acquisition Sub will cause the
Company to hold, and (ii) after the Closing Date and after the merger of the
Company under the Merger Agreement, Acquisition Sub will hold, not less than 90
percent of the fair market value of the Company's net assets and not less than
70 percent of the fair market value of the Company's gross assets held
immediately prior to the Closing. For purposes of the preceding sentence,
amounts paid by the Company to Stockholders who receive cash or other property,
to pay reorganization expenses, and in connection with redemptions and
distributions (except for regular, normal distributions), will be treated as
assets of the Company immediately prior to the Closing Date.
ARTICLE VII
CONDITIONS TO CLOSING
Section 7.1 Conditions to Obligation of Acquisition Sub. The
obligations of Acquisition Sub to effect the transactions contemplated herein
shall be subject to the following conditions:
(a) No action or proceedings shall have been instituted or threatened
before a court or other government body or by any public authority to restrain,
prohibit or make more costly any of the transactions contemplated by this
Agreement or any of the Transaction Documents or which could have a material
adverse effect on the business, assets, liabilities, results of operations,
condition (financial or otherwise) or prospects of the Company and the
Subsidiaries. No statute, rule, regulation, executive order, stay, decree, or
judgment shall have been enacted, entered, issued, promulgated or enforced by
any court or governmental authority which prohibits, restricts, or makes more
costly the consummation of the transactions contemplated by this Agreement and
the Transaction Documents. All authorizations, consents, orders or approvals of,
or declarations or filings with, and all expirations of waiting periods imposed
by, any Governmental Authority or any other Person (all of the foregoing,
"Consents") which are necessary for the consummation of the transactions
contemplated by this Agreement and the Transaction Documents, shall have been
filed, occurred or been obtained and all such Consents shall be in full force
and effect. All third party consents necessary to consummate the transactions
shall have been obtained.
(b) The representations and warranties of the Stockholders included
herein and in each of the Transaction Documents shall be true and correct in all
respects when made on the date hereof and on the Closing Date (unless they
specifically relate to an earlier date, in which case they shall be true and
correct as of such earlier date). The Stockholders shall have performed and
complied with all agreements, covenants and conditions required by this
Agreement and each of the Transaction Documents to be performed and complied
with by them prior to the Closing Date. The Stockholders' Representative shall
have delivered to Acquisition Sub a certificate dated as of the Closing Date,
certifying the foregoing.
(c) All corporate and other proceedings in connection with the
transactions contemplated hereby and by the Transaction Documents and all
documents and instruments incident to such transactions shall be reasonably
satisfactory in form and substance to Acquisition Sub and Acquisition Sub's
counsel, and the Stockholders shall have made available to Acquisition
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Sub for examination the originals or true, complete and correct copies of all
records and documents relating to the business and affairs of the Company that
Acquisition Sub may reasonably request in connection with said transaction.
(d) The Company shall have executed the Cisco Financing Agreement, and
not amended or modified the same, on terms and conditions acceptable to
Acquisition Sub in its reasonable discretion and shall have an availability of
funds thereunder of at least $4.2 million and shall have received any waiver
thereunder required for the Company to use the cash proceeds received with
respect to any exercises of Company Options between the date hereof and the
Closing Date to repay amounts outstanding under the Bridge Loan Agreement.
(e) Acquisition Sub shall be satisfied, in its sole discretion, with
the results of the investigations by its employees, accountants, financing
sources, agents and representatives of the books, records, documents, properties
and other information of the Company and the Subsidiaries; provided, further, it
is understood that in connection with its due diligence, Acquisition Sub shall
have the right to review information (including, without limitation, all
disclosure schedules) provided to Acquisition Sub or any of its Affiliates on or
prior to the date hereof and Acquisition Sub shall still be entitled to
determine that it is not satisfied with its due diligence notwithstanding that
Acquisition Sub may have already been aware of the facts or circumstances giving
rise to its dissatisfaction.
(f) The Company shall have restructured or repaid its obligations to
Ascend Communications, Inc., Michael Gorton and Peter Dauterman on terms and
conditions acceptable to Acquisition Sub in its reasonable discretion.
(g) Each of the key employees of the Company identified on Schedule
7.1(g) shall have entered into a Non-Competition Agreement in the form attached
as Exhibit D, and David Link and Patrick Mackey shall each have entered into an
employment agreement with Acquisition Sub (the "Link Employment Agreement" and
the "Mackey Employment Agreement", respectively) in the form attached as Exhibit
E.
(h) Acquisition Sub shall have received an opinion from counsel to the
Stockholders satisfactory in from and substance with respect to the matters set
forth in Exhibit F.
(i) Acquisition Sub shall have received from each of the holders of
Company Common Stock, Company Options and/or Company Warrants an investor
representation letter (each, an "Investor Representation Letter"), in the form
attached as Exhibit G.
(j) Acquisition Sub shall have received a letter from the Stockholders'
Representative confirming his acceptance of appointment as Stockholders'
Representative.
(k) Acquisition Sub shall have received a counterpart of the
Registration Rights Agreement, duly executed by the other parties thereto.
(l) Acquisition Sub shall have received a copy of the Escrow Agreement
duly executed by each other party thereto.
(m) Acquisition Sub shall have received a duly executed Purchaser
Representative Certificate (each a "Purchaser Representative Certificate"), in
the form attached hereto as Exhibit H from each of the holders of Company Common
Stock, Company Options and/or Company
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Warrants that is not an "accredited investor" as defined in Regulation D under
the Securities Act.
(n) Any notes issued by the Company to finance the exercise of any
Company Options shall be in form and on terms and conditions reasonably
satisfactory to Parent and Acquisition Sub.
(o) Parent and Acquisition Sub shall have received evidence reasonably
satisfactory to them that all obligations of the Company to issue shares of
convertible preferred stock of the Company and options to purchase shares of
Company Common Stock to the subscribers under that certain Convertible Note
Subscription Agreement, dated April 13, 1998, between the Company and Albertson
Properties, Ltd., Emily E. Woodall and David Kaseman shall have been satisfied
through the issuance of not more than 108,900 shares of Company Common Stock to
the subscribers.
Section 7.2 Conditions to Obligation of the Stockholders. The
obligation of the Stockholders to effect the transactions contemplated herein
shall be subject to the satisfaction on or prior to the Closing Date of the
following conditions:
(a) No preliminary or permanent injunction or other order by any
federal, state or foreign court of competent jurisdiction which prohibits the
consummation of the transactions contemplated hereby or in the Transaction
Documents shall have been issued and remain in effect. No statute, rule,
regulation, executive order, stay, decree, or judgment shall have been enacted,
entered, issued, promulgated or enforced by any court or governmental authority
which prohibits or restricts the consummation of the transactions contemplated
hereby or in the Transaction Documents. All Consents which are necessary for the
consummation of the transactions contemplated hereby or in the Transaction
Documents (including, without limitation, the consent of the majority
shareholders in the Existing Registration Rights Agreement), shall have been
filed, occurred or been obtained and all Consents shall be in full force and
effect.
(b) The representations and warranties of Parent and Acquisition Sub
included herein and in each of the Transaction Documents shall be true and
correct in all respects when made on the date hereof and as of the Closing Date
(unless they specifically relate to an earlier date, in which case they shall be
true and correct as of such earlier date). Parent and Acquisition Sub shall have
performed and complied with all agreements, covenants and conditions required by
this Agreement to be performed and complied with by them prior to the Closing
Date. The President of Parent and Acquisition Sub shall have delivered to the
Company a certificate, dated as of the Closing Date, certifying to the
foregoing.
(c) The Stockholders' Representative shall have received an opinion
from counsel to Parent and Acquisition Sub with respect to the matters set forth
in Exhibit I, in form and substance reasonably satisfactory to the Stockholders'
Representative.
(d) The Stockholders' Representative shall have received an opinion
from counsel to the Company with respect to tax matters, in form and substance
reasonably satisfactory to the Stockholders' Representative.
(e) The Stockholders' Representative shall have received certified
copies of the resolutions of the respective Boards of Directors of Parent and
Acquisition Sub approving the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby or in the Transaction
Documents.
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ARTICLE VIII
INDEMNIFICATION
Section 8.1 Survival of Representations. The representations and
warranties contained in this Agreement, the Transaction Documents and in any
certificate delivered pursuant hereto or thereto shall survive the Closing Date
for a period of 360 days, other than the representations and warranties in
Sections 3.11, 3.13 and 3.20, which shall survive for the applicable statute of
limitations, and the representations and warranties in Sections 3.1, 3.2 and
3.3(c), which shall survive indefinitely.
Section 8.2 General Indemnification. (a) Each Stockholder, agrees
jointly and severally, with each other Stockholder, except with respect to
representations, warranties and covenants that are made by or agreed to by such
Stockholder individually, with respect to which such Stockholder agrees with
respect to himself only, to indemnify, defend and hold Parent and Acquisition
Sub and their respective officers, directors, employees, Affiliates and agents
(collectively, the "Indemnitees") harmless from an amount equal to (x) a
fraction, the numerator of which is the number of Shares and the denominator of
which is the number of shares of Company Common Stock outstanding on the Closing
Date multiplied by (y) the amount of all damages, losses, liabilities,
obligations, claims of any kind, interest or expenses (including, without
limitation, reasonable attorneys' fees and expenses) ("Loss"), except with
respect to failures of representations and warranties and breaches of covenants
or agreements that are made by or agreed to by such Stockholder individually,
with respect to which such Stockholder agrees to indemnify the Indemnitees from
all Losses, suffered or paid, directly or indirectly, as a result of, in
connection with, or arising out of (i) the failure of any representation or
warranty made by any Stockholder in this Agreement, in any of the Transaction
Documents or in any certificate or other instrument or document provided to
Parent or Acquisition Sub pursuant to this Agreement to be true and correct in
all respects as of the date of this Agreement and as of the Closing Date (unless
made as of another date), or (ii) any breach or alleged breach by any
Stockholders of any of their covenants or agreements contained herein or
therein, in each case, without giving effect to any "materiality", "knowledge"
or similar qualifications; provided, however, that (1) the Stockholders shall
not have any obligation to indemnify Parent or Acquisition Sub from and against
any Loss resulting from, arising out of, relating to, in the nature of, or
caused by the breach of any such surviving representation or warranty or
covenant of the Stockholders contained in this Agreement, any of the Transaction
Documents, or any certificate delivered pursuant to this Agreement until Parent
or Acquisition Sub have suffered Losses in excess of $200,000 in the aggregate
(after which the Stockholders shall be obligated to indemnify Parent and
Acquisition Sub from and against Losses only to the extent they exceed
$200,000); (2) the aggregate amount to be payable to the Indemnitees by the
Stockholders for claims of indemnification under this Section 8.2(a) shall not
exceed an amount equal to 25 percent of the Acquisition Price; and (3) all
amounts payable to the Indemnitees by the Stockholders for claims for
indemnification under this Section 8.2(a) shall be paid by delivery of shares of
Parent Common Stock by the Escrow Agent pursuant to the terms of the Escrow
Agreement and shall be borne pro rata by the Stockholders,
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to the extent that the amounts payable do not exceed the value of such shares;
provided, however, that (I) the limits in the foregoing clauses (1), (2) and (3)
shall not apply to Losses resulting from breaches of the representations and
warranties in Sections 3.1, 3.2, 3.3(c), 3.11, 3.13 or 3.20; (II) in the event
that any Loss results from breaches of the representations and warranties in
Sections 3.11, 3.13 or 3.20, the Indemnitees shall not pursue indemnification
against the Stockholders except to the extent that the amounts available for
distribution to the Indemnitees under the Escrow Agreement are insufficient to
reimburse such Loss; and (III) in no event shall any Stockholders' liability to
indemnify Losses exceed the proceeds that such Stockholder receives under this
Agreement.
(b) The obligations to indemnify and hold harmless the Indemnitees
pursuant to this Section 8.2 shall survive the consummation of the transactions
contemplated hereby for the period set forth in Section 8.1, except for claims
for indemnification asserted prior to the end of such period, which claims shall
survive until final resolution thereof.
(c) The amount of any indemnification payment by the indemnifying party
under this Article VIII shall be reduced by any tax benefit or tax credit
realized, or realizable, by the indemnified party or any of its Affiliates
arising, directly or indirectly, from a Loss that resulted in an indemnification
payment by such indemnifying party. The amount of any such tax benefit shall be
determined by assuming that the indemnified party realizes all tax benefits at
the maximum marginal rate in effect at the time such tax benefit was realized or
realizable, as the case may be.
(d) Except for a Fraudulent Act, the indemnification provided in this
Article VIII shall be the exclusive remedy for any loss covered hereby.
Section 8.3 Procedures. (a) When an Indemnitee suffers a Loss,
Acquisition Sub shall give the Stockholders' Representative and the Escrow Agent
written notice of such Loss, in reasonable detail and specifying the proposed
Loss Amount, and the sections of this Agreement upon which the claim for
indemnification for such Loss is based. If the Stockholders' Representative
desires to dispute such claim, he or she shall, within 15 days after notice of
the claim of Loss is given pursuant to this Section 8.3, give to Acquisition Sub
and the Escrow Agent written notice (the "Indemnity Notice of Disagreement")
setting forth in reasonable detail the basis for disputing such claim. If no
Indemnity Notice of Disagreement is given within such 15 day period, or if the
Stockholders' Representative acknowledges liability for indemnification of the
Loss, Acquisition Sub shall promptly direct the Escrow Agent to satisfy the Loss
Amount, in the manner described below. If such Indemnity Notice of Disagreement
is received by Acquisition Sub and the Escrow Agent in a timely manner, the
existence of a Loss and the Loss Amount shall become final and binding upon each
of the Stockholders and payable to Acquisition Sub on the earlier of (i) the
date the Acquisition Sub and the Stockholders' Representative resolve in writing
any differences they may have with respect to any matter specified in the
Indemnity Notice of Disagreement, or (ii) the date any disputed matters are
finally resolved in writing by arbitration in accordance with subsection (b)
below. To satisfy the payment of a Loss Amount, the Acquisition Sub and the
Stockholders' Representative shall promptly direct the Escrow Agent, in
accordance with the terms of the Escrow Agreement, to deliver to the Acquisition
Sub (i) a number of shares of Parent Common Stock equal to the quotient obtained
by dividing the Loss Amount by the
38
<PAGE> 44
Market Price and by further rounding the amount so determined up to the next
higher whole number if such calculation does not provide a whole number.
(b) If any matter set forth in an Indemnity Notice of Disagreement
delivered pursuant hereto is not resolved within the 30-day period following
receipt by Acquisition Sub and the Escrow Agent of the Indemnity Notice of
Disagreement, then either Acquisition Sub or the Stockholders' Representative,
as the case may be, may submit the matter to the Indemnity Arbitrator for final
resolution by arbitration conducted in accordance with the Commercial
Arbitration Rules of the American Arbitration Association by giving notice of
such election to the Stockholders' Representative or the Acquisition Sub, as the
case may be, and to the Indemnity Arbitrator (an "Indemnity Arbitration
Notice"), or if applicable to the American Arbitration Association requesting
that the Indemnity Arbitrator be appointed. The Indemnity Arbitrator shall
render a decision resolving the matter submitted to it pursuant hereto within 30
days of the Indemnity Arbitration Notice. The cost of any arbitration (including
the fees, expenses and costs of the Indemnity Arbitrator) shall be borne equally
between Acquisition Sub, on the one hand, and the Stockholders on the other.
Each of the parties hereto shall bear their expenses (including legal fees and
costs) in connection with any such arbitration and in preparation therefor.
ARTICLE IX
TERMINATION AND WAIVER
Section 9.1 Termination. This Agreement may be terminated and the
transaction contemplated hereby abandoned at any time prior to the Closing:
(a) By mutual written consent of the Stockholders' Representative and
Acquisition Sub.
(b) By Parent or Acquisition Sub, if the conditions precedent set forth
in Section 7.1 have not been satisfied by March 10, 2000.
(c) By the Stockholders' Representative, if the conditions precedent
set forth in Section 7.2 have not been satisfied by March 10, 2000.
(d) By Acquisition Sub, if there shall have been any material breach of
an obligation of the Stockholders hereunder and, if such breach is curable, such
breach shall not have been remedied within ten (10) days after receipt by the
Stockholders' Representative of notice in writing from Acquisition Sub
specifying such breach and requesting that it be remedied.
(e) By the Stockholders' Representative, if there shall have been any
material breach of an obligation of Parent or Acquisition Sub hereunder and, if
such breach is curable, such breach shall not have been remedied within ten (10)
days after receipt by Acquisition Sub of notice in writing from the
Stockholder's Representative specifying such breach and requesting that it be
remedied.
39
<PAGE> 45
(f) By the Stockholders' Representative, if the respective Board of
Directors of Parent and Acquisition Sub do not approve the transactions provided
herein on or prior to the 30th day following the date of this Agreement.
(g) By either the Stockholders' Representative or Acquisition Sub, if
any court of competent jurisdiction in the United States or other United States
governmental body shall have issued an order, decree or ruling or taken any
other action restraining, enjoining or otherwise prohibiting the transactions
contemplated hereby or by the transaction Documents and such order, decree,
ruling or any other action shall have become final and non-appealable.
Section 9.2 Effect of Termination. In the event of termination of this
Agreement as provided above, this Agreement shall forthwith become of no further
effect and, except for a termination resulting from a breach by a party of any
of its obligations under this Agreement, there shall be no liability or
obligation on the part of the Stockholders, Parent or Acquisition Sub or their
respective officers or directors (except as set forth in Section 5.3 hereof
which shall survive the termination). Nothing contained in this Section 9.2
shall relieve any party from liability for breach of this Agreement that results
in termination of this Agreement. Upon request therefor, each party shall
redeliver all documents, work papers and other material of any other party
relating to the transactions contemplated hereby, whether obtained before or
after the execution hereof, to the party furnishing same.
Section 9.3 Amendment. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
Section 9.4 Waiver. At any time prior to the Closing, the parties
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto, and (c) except as may be required by law, waive compliance with
any of the agreements or conditions contained herein. Any agreement on the part
of a party hereto to any such extension or waiver shall be valid only if set
forth in an instrument in writing signed on behalf of such party. Such waiver
shall not operate as a waiver of, or estoppel with respect to, any subsequent or
other failure.
ARTICLE X
MISCELLANEOUS PROVISIONS
Section 10.1 Expenses. All costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby shall be paid by
the party incurring such costs and expenses, if any. Notwithstanding the
foregoing, however, the Company shall pay from its own assets those costs and
expenses that are solely and directly related to the exchange of Shares under
this Agreement that are within the guidelines established in Revenue Ruling
73-54, 1973-1 C.B. 187, and no funds have been or will be supplied to the
Company for that purpose, directly or indirectly, by Parent or Acquisition Sub.
The Shareholders of the Company who are
40
<PAGE> 46
parties to this Agreement shall specifically be liable for, and shall pay, costs
and expenses, if any, that they incur which are not solely and directly related
to the exchange of Shares under this Agreement as set forth in Revenue Ruling
73-54.
Section 10.2 Notices. All notices, objections and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
personally delivered (return receipt requested) or mailed by certified mail
(return receipt requested) or by Federal Express or another nationally
recognized courier service or by facsimile transmission upon electronic
confirmation of receipt thereof during normal business hours at the following
addresses (or at such other address for a party as shall be specified by like
notice):
If to the Stockholders or the Stockholders' Representative,
to:
Internet Global Services, Inc.
12200 Stemmons, Suite 315
Dallas, Texas 75234
Attention: David N. Link
Telephone: (972) 247-3883
Facsimile Number: (972) 247-3870
with a copy to:
Gardere & Wynne, L.L.P.
1601 Elm Street, Suite 3000
Dallas, Texas 75201
Attention: C. Robert Butterfield
Telephone: (214) 999-4534
Facsimile Number: (214) 999-3534
If to Parent or Acquisition Sub, to:
eVentures Group, Inc.
One Evertrust Plaza, 8th Floor
Jersey City, New Jersey 07302
Attention: Vice President and Chief Financial Officer
Telephone: (201) 200-5515
Facsimile Number: (201) 200-5532
41
<PAGE> 47
with a copy to:
eVentures Group, Inc.
c/o HW Partners, L.P.
1601 Elm Street, 40th Floor
Dallas, Texas 75201
Attention: General Counsel
Telephone: (214) 720-1608
Facsimile Number: (214) 720-1667
and to:
White & Case LLP
200 S. Biscayne Blvd. Suite 4900
Miami, FL 33131
Attention: Thomas E Lauria
Telephone: (305) 371-2700
Facsimile Number: (305) 358-5744
Section 10.3 Descriptive Headings. The headings contained in this
Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
Section 10.4 Entire Agreement; Assignment. This Agreement (including
the Annexes, Schedules and Exhibits hereto) (a) constitutes the entire agreement
and supersedes all other prior agreements and understandings, both written and
oral, among the parties or any of them, with respect to the subject matter
hereof, (b) are not intended to confer upon any other Person any rights or
remedies hereunder, and (c) shall not be assigned by operation of law or
otherwise.
Section 10.5 Governing Law. Except to the extent that the laws of the
State of Texas or any other jurisdiction are mandatorily applicable, this
Agreement shall be governed by and construed in accordance with the laws of the
State of New York without giving effect to the provisions thereof relating to
conflicts of law.
Section 10.6 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original but all of
which shall constitute one and the same agreement.
Section 10.7 Validity. The invalidity or unenforceability of any
provision of this Agreement shall not effect the validity or enforceability of
any other provisions of this Agreement, which shall remain in full force and
effect.
Section 10.8 Investigation. The representations and warranties
contained herein or in the certificates or other documents delivered at or prior
to the Closing shall not be deemed waived or otherwise affected by any
investigation made by any party hereto.
42
<PAGE> 48
Section 10.9 Third Party Beneficiaries. Nothing in this Agreement,
express or implied, is intended or shall be construed to create any third party
beneficiaries.
[SIGNATURES ON NEXT PAGE]
43
<PAGE> 49
IN WITNESS WHEREOF, Acquisition Sub and the Stockholders have
executed this Agreement, or caused this Agreement to be executed by their
respective officers thereunto duly authorized, as of the date first written
above.
EVENTURES GROUP, INC.
By /s/ STUART J. CHASANOFF
----------------------------------
Name: Stuart J. Chasanoff
Title: Vice President of Business
Development, Secretary and
General Counsel
IGS ACQUISITION CORPORATION
By /s/ STUART J. CHASANOFF
----------------------------------
Name: Stuart J. Chasanoff
Title: Vice President and Secretary
44
<PAGE> 50
(PLEASE PRINT, EXCEPT FOR REQUIRED SIGNATURES):
STOCKHOLDER:
(for Entities)
By:
------------------------------------
Name:
----------------------------------
Title:
----------------------------------
(for Individuals)
- --------------------------------------- ----------------------------------
Printed Name Signature of Stockholder
If a married individual, the spouse of
the Stockholder must sign:
- --------------------------------------- ----------------------------------
(Printed name of spouse) Signature of spouse
ADDRESS: PHONE (include area code):
(1) ( )
---------------------------- --- -----------------------------
----------------------------
(2) ( )
---------------------------- --- -----------------------------
----------------------------
TAXPAYER I.D. NUMBER OR SOCIAL SECURITY NUMBER OF EACH STOCKHOLDER:
Entity:
--------------------------------
Taxpayer Identification Number
Individual:
Social Security Number (1)
-------------------------------
Social Security Number (2)
-------------------------------
45
<PAGE> 51
ANNEX 1
TO SHARE EXCHANGE AGREEMENT
STOCKHOLDERS
<TABLE>
<CAPTION>
Name Number of Shares
- ---- ----------------
<S> <C>
Aberdeen Investment Management, Inc. 34,377
Everett Airington 232,000
Airington, Custodian for Amy Caitlin 20,000
Albertson Properties 127,968
Ambrosio - JWTROS Jeffrey M. and Frances M. 25,000
Argus Capital Corporation 2,000
Bruce Begia 21,830
Jon Box 14,285
Bill R. Brandon 4,615
Jack J. Brooks 10,000
Glen Brovont 20,000
Carrington Shaw Investment Co. 85,715
Andrea Dee Shaw GS Trust 28,572
Jeffrey Glenn Shaw GS Trust 28,571
Victoria Carrington Shaw GS Trust 28,572
Dr. Jerry Cochran 10,000
John H. Cole 5,700
Joseph B. Cole 5,700
Sidney M. Cole 45,744
Mark Collins 40,000
Peter C. Cook Trust 40,000
Dauterman Family Educational Trust 192,666
Dauterman Family Trust 590,703
Dauterman Irrevocable Family Trust 34,000
Jim Dauterman 6,668
Peter B. Dauterman 1,000
Pamela Davison 100,000
William Davison 550,000
Robert Gordon 50,000
Michael Gorton 603,013
Traci Gorton 516,112
Robert S. Grant 2,000
Susan L. Grant Living Trust 4,000
William B. Grant 2,000
William F. Grant Living Trust 10,000
Sean Halleck 30,000
Don Henley 681,230
</TABLE>
<PAGE> 52
ANNEX 1
PAGE 2
<TABLE>
<S> <C>
JSM Investments, Inc. 2,000
Fredrick Johnson 7,000
David Kaseman 56,300
Link Family Ltd. Partnership 305,000
Patrick Mackey 47,500
David Manley 130,668
A.J. Melillo 154,286
Nicholas Morgan 32,000
Ohana Venture Fund, L.P. 139,818
Elaine B. Osowski 7,145
William F. Peterson 20,000
Daisy Reese 6,460
Susan B. Reese 105,425
Scott/Angela Schlemmer 20,000
Donald C. Schutt 10,000
Carolyn Smith 20,000
Cole Smith 470,168
Craig B. Smith 20,000
Mike Stieglitz 89,900
Tatum CFO Partners, LLP 22,500
Jeb Terry 9,547
Emily Woodall 56,300
Kevin Young 32,000
- ----------- ---------
TOTAL 5,968,058
</TABLE>
<PAGE> 53
ANNEX 2
TO SHARE EXCHANGE AGREEMENT
REFERENCE WORKING CAPITAL STATEMENT
Working Capital at November 30, 1999
<TABLE>
<S> <C> <C>
Current Assets
Cash $ 122,774
Accounts receivable-net 82,213
Prepaid expenses 57,612 $ 262,599
-----------
Current Liabilities
Working capital loan $ 699,868
Loans from officers 316,704
Deferred revenue 12,500
Accounts payable 952,098
Accrued liabilities 338,552
Other 58,338 2,378,061
----------- -----------
Working Capital $(2,115,462)
</TABLE>
<PAGE> 54
SCHEDULE 3.1
TO SHARE EXCHANGE AGREEMENT
JURISDICTIONS OF QUALIFICATION
<TABLE>
<CAPTION>
PERSON JURISDICTION
- ------ ------------
<S> <C>
Internet Global Services, Inc Texas
Internet Streaming Video, Inc. Texas
</TABLE>
<PAGE> 55
SCHEDULE 3.3
TO SHARE EXCHANGE AGREEMENT
COMPANY CAPITALIZATION
INTERNET GLOBAL SERVICES, INC.
OUTSTANDING OPTIONS, WARRANTS, COMMITMENTS, ETC.
Options 1,386,490
Warrants(a) 390,947
(a) Includes 107,143 of warrants issued to Ascend that will be subject to
negotiation as part of termination of agreement.
Person(s) with five (5) percent or more ownership
<TABLE>
<S> <C>
Michael S. Gorton 9.67%
Traci K. Gorton 8.28%
Peter B. Dauterman Family Trust 6.30%
Peter B. Dauterman Children's Education Trust 3.09%
Don Henley 10.93%
Cole Smith 7.54%
Dr. William Davidson 8.82%
Pamela B. Davidson 1.60%
</TABLE>
<PAGE> 56
SCHEDULE 3.3
PAGE 2
INTERNET STREAMING VIDEO, INC.
Person(s) with five (5) percent or more ownership
Internet Global Services, Inc. 73.5%
Vadim Yasinovsky 22.0%
Rights, agreements, restrictions or encumbrances on issue of common stock -
None.
<PAGE> 57
SCHEDULE 3.11
TO SHARE EXCHANGE AGREEMENT
EMPLOYEE BENEFIT PLANS
Schedule 3.11(a)
(i) a. 401(k) Profit Sharing Plan & Trust
(ii) a. 1998 Equity Incentive Plan
b. Medical and Life Health Insurance
c. Vacation and Sick policy
(iii) a. Employment agreement with Patrick G. Mackey
<PAGE> 58
SCHEDULE 3.14
TO SHARE EXCHANGE AGREEMENT
COMPANY LIABILITIES
1. The following represents a possible contingent liability that is not
recorded in the financial statements as of October 31, 1999:
Approximately $700,000 of equipment under the Varilease operating lease
was stolen in 1998 of which approximately $280,000 (being held in trust
at McGuire, Craddock, Strother & Hale, P.C.) has been recovered from
the insurance company. IGS has additional claims against the insurance
company and the E&O policy of the insurance agent.
<PAGE> 59
SCHEDULE 3.15
TO SHARE EXCHANGE AGREEMENT
INTELLECTUAL PROPERTY
PATENTS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
TITLE OWNER INVENTOR APPLICATION
NUMBER/FILING DATE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ISVmail Internet Global Services Vadim Yasinovsky 60/152,636
Status: Provisional September 7, 1999
Patent registered, need
to have Non-Provisional
Patent prosecuted
(planned First Quarter
2000).
- ---------------------------------------------------------------------------------------------------------
</TABLE>
TRADEMARKS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
MARK OWNER REGISTRATION DATE SERIAL NUMBER
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Leading the Convergence of Data and Internet August 2, 1999 75/766059
Telecommunications Global
- -----------------------------------------------------------------------------------------------------------
2. Everything Internet Internet August 2, 1999 75/764904
Global
- -----------------------------------------------------------------------------------------------------------
3. Creating Market Windows to Financial Internet August 18, 1999 75/779503
Success Global
- -----------------------------------------------------------------------------------------------------------
4. Internet Global Internet August 23, 1999 75/781530
Global
- -----------------------------------------------------------------------------------------------------------
5. Telares Internet August 28, 1999 75/782394
Global
- -----------------------------------------------------------------------------------------------------------
6. iGlobal Internet Pending
Global
- -----------------------------------------------------------------------------------------------------------
7. IGSI Internet Pending
Global
- -----------------------------------------------------------------------------------------------------------
8. All You Can Eat Internet Pending
Global
- -----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 60
SCHEDULE 3.15
PAGE 2
DOMAINS
iglobal.net
telares.net
telares.com
telares.org
ismail.com
isvmail.net
igsi.net
lottotexas.com
V2L.com
V2L.net
lottotexas.com
usalite.com
usalite.net
<PAGE> 61
SCHEDULE 3.16
TO SHARE EXCHANGE AGREEMENT
MATERIAL CONTRACTS
Schedule 3.16(b)
Bridge Loan Facility Agreement, dated as of December 22, 1999, between
Internet Global Services, Inc. and eVentures Group, Inc. and all related
documents, including, without limitation, the Transaction Documents as defined
therein.
Schedule 3.16(c)
Letter of Commitment, dated October 14, 1999, between Internet Global
Services, Inc. and Cisco Systems Capital Corporation.
Schedule 3.16(g)
Letter of Agreement, dated November 1, 1999, between Internet Global
Services, Inc. and The Richards Group, Inc.
Customer Agreement for Wholesale and Virtual ISP Integrated Solutions
Dial-Up Internet Access Services, dated November 16, 1999, between Internet
Global Services, Inc. and Cable & Wireless USA, Inc.
Contract, dated February 1, 2000, between Internet Global Services,
Inc. and Covad Communications Company.
Agreements in Default
Master Lease Agreement, dated November 20, 1998, between Internet
Global Services, Inc. and Ascend Credit Corporation.
Amendment, dated November 20, 1998, to the Master Lease Agreement,
dated November 20, 1998, between Internet Global Services, Inc. and Ascend
Credit Corporation.
Lease Schedule No. 1, dated November 20, 1998, to the Master Lease
Agreement, dated November 20, 1998, between Internet Global Services, Inc. and
Ascend Credit Corporation.
Lease Schedule No. 2 to the Master Lease Agreement, dated November 20,
1998, between Internet Global Services, Inc. and Ascend Credit Corporation.
<PAGE> 62
SCHEDULE 3.18
TO SHARE EXCHANGE AGREEMENT
LEASES
Corporate Office - Dallas, Texas
Office/Showroom/Warehouse Lease Agreement, dated March 10, 1999,
between Internet Global Services, Inc. and El Chico Restaurants, Inc.
Term: Five years
Square Feet: 12,459
Rent: Month 0 to 7 $ 0
Month 8 to 32 $8,566
Month 33 to 45 $9,085
Month 46 to 63 $9,603
Liens: None
Network Operating Center - Dallas, Texas
Lease Agreement, dated March 17, 1999, between Internet Global
Services, Inc. and Beverly Hills Center LLC.
Term: Five years
Square Feet: 894
Rent: $1,639
Liens: None
Field Office - Midland, Texas
Office Lease Agreement, dated as of July 1, 1997, between Internet
Global Services, Inc. and John Hancock Mutual Life Insurance Company d/b/a North
Park Executive Center.
First Lease Renewal, dated as of July 1, 1999, among Internet Global
Services, Inc. and Black Family Partnership, Ltd. and Crump Family Partnership,
Ltd. d/b/a North Park Executive Center.
Term: Two years
Square Feet: 697
Rent: $436
Liens: None
Field Office - Lubbock, Texas
Lease, dated July 23, 1999, between Internet Global Services, Inc. and
N.T.S. Management Co., LLC.
Term: Two years
Square Feet: 392
Rent: $260
Liens: None
<PAGE> 63
SCHEDULE 3.18
PAGE 2
Field Office - Denton, Texas
Lease Agreement, dated April 18, 1996, between Internet Global
Services, Inc. and Hickory Street Office Building.
Lease Extension Letter, dated May 6, 1998, between Internet Global
Services, Inc. and Hickory Street Office Building.
Term: Two years
Square Feet: 300
Rent: $300
Liens: None
<PAGE> 64
SCHEDULE 3.21
TO SHARE EXCHANGE AGREEMENT
INSURANCE
See attached schedules.
<PAGE> 65
SCHEDULE 3.21
PAGE 2
SCHEDULE OF INSURANCE
INTERNET GLOBAL SERVICES, INC. PREPARED BY: BOB SPRINGER
12200 STEMMONS FREEWAY, SUITE 315 SUNBELT INSURANCE PARTNERS, LLP
DALLAS, TX 75234 4620 SUNBELT DR., STE. 203
ADDISON, TX 75001-5623
DATE PREPARED: DECEMBER 27, 1999
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
COVERAGE/LIMITS/DEDUCTIBLES TERM COMPANY POLICY # PREMIUM
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMERCIAL PACKAGE POLICY: 5-19-99/00 FEDERAL INS. $12,143
3534-60-43
PROPERTY:
2200 STEMMONS FREEWAY, DALLAS, TX
$ 25,000. BUSINESS PERSONAL PROPERTY
731 W. WADLEY STE. L120, MIDLAND, TX
$ 5,000. BUSINESS PERSONAL PROPERTY
207 W. HICKORY, STE. 105, DENTON, TX
$ 5,000. BUSINESS PERSONAL PROPERTY
1220 BROADWAY, STE. 1305C, LUBBOCK, TX
$ 5,000. BUSINESS PERSONAL PROPERTY
2323 BRYAN ST., DALLAS, TX
$ 5,000. BUSINESS PERSONAL PROPERTY
80% COINSURANCE
$3,500,000. BLANKET ELECTRONIC DATA PROCESSING EQUIPMENT
$1,000,000. BUSINESS INCOME INCLUDING EXTRA EXPENSE-
BLANKET COVERAGE FOR ALL LOCATIONS.
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
THIS SCHEDULE OF INSURANCE IS INTENDED TO PROVIDE ONLY A GENERAL DESCRIPTION OF
COVERAGE AFFORDED UNDER YOUR INSURANCE POLICY AND IS NOT A STATEMENT OF
CONTRACT. IN THE EVENT OF A POSSIBLE VARIANCE BETWEEN CONTENTS OF THIS SCHEDULE
AND THE TERMS AND CONDITIONS OF THE POLICY, THE LANGUAGE OF THE POLICY WILL
PREVAIL.
<PAGE> 66
SCHEDULE 3.21
PAGE 3
SCHEDULE OF INSURANCE
INTERNET GLOBAL SERVICES, INC. PREPARED BY: BOB SPRINGER
12200 STEMMONS FREEWAY, SUITE 315 SUNBELT INSURANCE PARTNERS, LLP
DALLAS, TX 75234 4620 SUNBELT DR., STE. 203
ADDISON, TX 75001-5623
DATE PREPARED: DECEMBER 27, 1999
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
COVERAGE/LIMITS/DEDUCTIBLES TERM COMPANY POLICY # PREMIUM
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMERCIAL PACKAGE POLICY CONTINUED:
$ 1,000. DEDUCTIBLE PERSONAL PROPERTY
$ 5,000. DEDUCTIBLE LAPTOPS
24. HOURS DEDUCTIBLE-BUSINESS INCOME &
EXTRA EXPENSE
COVERAGE EXTENSIONS:
$250,000. TOTAL BLANKET LIMIT FOR FOLLOWING:
ACCOUNTS RECEIVABLE
FINE ARTS
EXTRA EXPENSE
LEASEHOLD INTEREST (I & B)
OUTDOOR, TREES, SHRUBS, PLANTS OR LAWNS
EDP PROPERTY
CONSEQUENTIAL LOSS
FIRE DEPT. SERVICE CHARGES
PERSONAL PROPERTY OF EMPLOYEES
VALUABLE PAPERS
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
THIS SCHEDULE OF INSURANCE IS INTENDED TO PROVIDE ONLY A GENERAL DESCRIPTION OF
COVERAGE AFFORDED UNDER YOUR INSURANCE POLICY AND IS NOT A STATEMENT OF
CONTRACT. IN THE EVENT OF A POSSIBLE VARIANCE BETWEEN CONTENTS OF THIS SCHEDULE
AND THE TERMS AND CONDITIONS OF THE POLICY, THE LANGUAGE OF THE POLICY WILL
PREVAIL.
<PAGE> 67
SCHEDULE 3.21
PAGE 4
SCHEDULE OF INSURANCE
INTERNET GLOBAL SERVICES, INC. PREPARED BY: BOB SPRINGER
12200 STEMMONS FREEWAY, SUITE 315 SUNBELT INSURANCE PARTNERS, LLP
DALLAS, TX 75234 4620 SUNBELT DR., STE. 203
ADDISON, TX 75001-5623
DATE PREPARED: DECEMBER 27, 1999
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
COVERAGE/LIMITS/DEDUCTIBLES TERM COMPANY POLICY # PREMIUM
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMERCIAL PACKAGE POLICY CONTINUED:
ADDITIONAL COVERAGE:
$ 10,000. ACCOUNTS RECEIVABLE IN TRANSIT
$250,000. DEBRIS REMOVAL
$ 50,000. DEFERRED PAYMENTS
$ 50,000. EDP PROPERTY IN TRANSIT
$ 10,000. FINE ARTS IN TRANSIT
$ 50,000. INSTALLATION-ANY JOB SITE
$ 10,000. INVENTORY OR APPRAISALS
$ 20,000. MONEY & SECURITIES (ON PREMISES)
$ 10,000. OFF PREMISES
$ 10,000. PERSONAL PROPERTY AT ANY OTHER LOCATIONS
$ 25,000. POLLUTANT CLEAN-UP & REMOVAL
$ 10,000. VALUABLE PAPERS IN TRANSIT
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
THIS SCHEDULE OF INSURANCE IS INTENDED TO PROVIDE ONLY A GENERAL DESCRIPTION OF
COVERAGE AFFORDED UNDER YOUR INSURANCE POLICY AND IS NOT A STATEMENT OF
CONTRACT. IN THE EVENT OF A POSSIBLE VARIANCE BETWEEN CONTENTS OF THIS SCHEDULE
AND THE TERMS AND CONDITIONS OF THE POLICY, THE LANGUAGE OF THE POLICY WILL
PREVAIL.
<PAGE> 68
SCHEDULE 3.21
PAGE 5
SCHEDULE OF INSURANCE
INTERNET GLOBAL SERVICES, INC. PREPARED BY: BOB SPRINGER
12200 STEMMONS FREEWAY, SUITE 315 SUNBELT INSURANCE PARTNERS, LLP
DALLAS, TX 75234 4620 SUNBELT DR., STE. 203
ADDISON, TX 75001-5623
DATE PREPARED: DECEMBER 27, 1999
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
COVERAGE/LIMITS/DEDUCTIBLES TERM COMPANY POLICY # PREMIUM
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMERCIAL PACKAGE POLICY CONTINUED:
GENERAL LIABILITY:
$2,000,000. GENERAL AGGREGATE LIMIT
$1,000,000. EACH OCCURRENCE LIMIT
$1,000,000. ADVERTISING INJURY AND
PERSONAL INJURY
$2,000,000. PRODUCTS AND COMPLETED OPERATIONS AGG
$ 50,000. FIRE DAMAGE (ANY ONE FIRE)
$ 10,000. MEDICAL EXPENSE(ANY ONE PERSON)
$1,000,000. PAYROLL-PREMIUM BASIS
EXCLUDED: PROFESSIONAL LIABILITY
EMPLOYEE BENEFITS LIABILITY: (CLAIMS MADE COVERAGE)
$1,000,000. SUPPLEMENTAL AGGREGATE LIMIT
$1,000,000. AGGREGATE LIMIT
$1,000,000. EACH CLAIM LIMIT
$ 1,000. DEDUCTIBLE-EACH CLAIM
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
THIS SCHEDULE OF INSURANCE IS INTENDED TO PROVIDE ONLY A GENERAL DESCRIPTION OF
COVERAGE AFFORDED UNDER YOUR INSURANCE POLICY AND IS NOT A STATEMENT OF
CONTRACT. IN THE EVEN OF A POSSIBLE VARIANCE BETWEEN CONTENTS OF THIS SCHEDULE
AND THE TERMS AND CONDITIONS OF THE POLICY, THE LANGUAGES OF THE POLICY WILL
PREVAIL.
<PAGE> 69
SCHEDULE 3.21
PAGE 6
SCHEDULE OF INSURANCE
INTERNET GLOBAL SERVICES, INC. PREPARED BY: BOB SPRINGER
12200 STEMMONS FREEWAY, SUITE 315 SUNBELT INSURANCE PARTNERS, LLP
DALLAS, TX 75234 4620 SUNBELT DR., STE. 203
ADDISON, TX 75001-5623
DATE PREPARED: DECEMBER 27, 1999
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
COVERAGE/LIMITS/DEDUCTIBLES TERM COMPANY POLICY # PREMIUM
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMERCIAL AUTO POLICY CONTINUED: 5-19-99/00 FEDERAL INS. $1,434
$1,000,000. LIABILITY COMBINED SINGLE LIMIT BAP7326-36-27
$ 2,500. PERSONAL INJURY PROTECTION
$1,000,000. UNINSURED/UNDERINSURED MOTORIST CSL
$1,000,000. HIRED CAR/NON-OWNED AUTO COMBINED SINGLE LIMIT
PHYSICAL DAMAGE COVERAGE:
$ 500. DEDUCTIBLE COMPREHENSIVE
$ 500. DEDUCTIBLE COLLISION
UMBRELLA POLICY: 5-19-99/00 FEDERAL INS. $2,500
$1,000,000. EACH OCCURRENCE 7977-67-59
$1,000,000. PRODUCTS & COMPLETED OPERATIONS AGG
$1,000,000. OTHER AGGREGATE (WHERE APPLICABLE)
$ 10,000. RETAINED LIMIT
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
THIS SCHEDULE OF INSURANCE IS INTENDED TO PROVIDE ONLY A GENERAL DESCRIPTION OF
COVERAGE AFFORDED UNDER YOUR INSURANCE POLICY AND IS NOT A STATEMENT OF
CONTRACT. IN THE EVENT OF A POSSIBLE VARIANCE BETWEEN CONTENTS OF THIS SCHEDULE
AND THE TERMS AND CONDITIONS OF THE POLICY, THE LANGUAGE OF THE POLICY WILL
PREVAIL.
<PAGE> 70
SCHEDULE 3.21
PAGE 7
SCHEDULE OF INSURANCE
INTERNET GLOBAL SERVICES, INC. PREPARED BY: BOB SPRINGER
12200 STEMMONS FREEWAY, SUITE 315 SUNBELT INSURANCE PARTNERS, LLP
DALLAS, TX 75234 4620 SUNBELT DR., STE. 203
ADDISON, TX 75001-5623
DATE PREPARED: DECEMBER 27, 1999
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
COVERAGE/LIMITS/DEDUCTIBLES TERM COMPANY POLICY # PREMIUM
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DIRECTORS & OFFICERS LIABILITY: 7-30-99/00 EXECUTIVE RISK $17,000
INDEMNITY
$ 1,000,000. AGGREGATE (INCLUSIVE OF DEFENSE COSTS)
0. RETENTION EACH INSURED PERSON, EACH
CLAIM UNDER INSURING AGREEMENT (a)
$ 50,000. EA. CLAIM UNDER INSURING AGREEMENT B1
$ 50,000. EA. CLAIM UNDER INSURING AGREEMENT B2
DISCOVERY PERIOD
365. DAYS FOR 75% OF THE TOTAL ANNUAL PREM
730. DAYS FOR 150% OF THE TOTAL ANNUAL PREM
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
THIS SCHEDULE OF INSURANCE IS INTENDED TO PROVIDE ONLY A GENERAL DESCRIPTION OF
COVERAGE AFFORDED UNDER YOUR INSURANCE POLICY AND IS NOT A STATEMENT OF
CONTRACT. IN THE EVENT OF A POSSIBLE VARIANCE BETWEEN CONTENTS OF THIS SCHEDULE
AND THE TERMS AND CONDITIONS OF THE POLICY, THE LANGUAGE OF THE POLICY WILL
PREVAIL.
<PAGE> 71
SCHEDULE 3.23
TO SHARE EXCHANGE AGREEMENT
AGREEMENTS WITH AFFILIATES
1. Promissory Note, dated November 15, 1999, between Internet Global Services,
Inc. and Michael S. Gorton.
2. Promissory Note, dated October 1, 1998, between Internet Global Services,
Inc. and Peter B. Dauterman.
3. David N. Link Employment Letter.
4. Employment Agreement, dated as of May 1, 1999, between Internet Global
Services, Inc. and Patrick G. Mackey.
5. Stock option agreements with directors, officers, and employees under the
Internet Global Services, Inc. 1998 Equity Incentive Plan, dated as of June 30,
1998.
6. Employee benefits plans described in Schedule 3.11.
<PAGE> 72
SCHEDULE 4.3
TO SHARE EXCHANGE AGREEMENT
PARENT CAPITALIZATION
OPTIONS AND WARRANTS
There are options to purchase 2,976,000 shares of eVentures Group, Inc.
common stock outstanding.
OTHER COMMITMENTS WITH RESPECT TO ISSUANCE OF COMMON STOCK
e.Volve Technology Group, Inc., a wholly owned subsidiary of eVentures
Group, Inc. ("e.Volve"), and Uni-tel, a telecommunications service provider, are
at an advanced state of negotiations to amend a joint venture agreement between
them dated August 31, 1999 to provide that Uni-tel shall receive shares of
eVentures Group, Inc. common stock valued at $150,000 for each of up to ten (10)
new systems for transmission of telephonic traffic from the U.S. to India that
Uni-tel provides to e.Volve pursuant to said joint venture agreement.
Other than the information stated in this Schedule 4.3, there are no
other outstanding subscriptions, calls, rights, agreements, commitments,
understandings or arrangements with respect to the issuance, sale, delivery,
transfer, voting, registration or redemption of any shares of eVentures Group,
Inc. common stock.
<PAGE> 73
SCHEDULE 4.6
TO SHARE EXCHANGE AGREEMENT
CERTAIN CHANGES
Pursuant to an IRU Agreement, dated as of September 30, 1999, between
e.Volve Technology Group, Inc, a wholly owned subsidiary of eVentures Group,
Inc. ("e.Volve"), and Qwest Communications, Inc. ("Qwest"), Qwest has made a
demand for payment of the first installment of $3,750,000. e.Volve has defaulted
its payment obligations, and e.Volve, eVentures Group Inc. and Qwest have
commenced a restructuring of the terms of the IRU Agreement. Failure to reach a
settlement of this matter and a restructuring of the IRU agreement could cause a
material adverse change in eVentures Group, Inc.
<PAGE> 74
SCHEDULE 4.8(c)
TO SHARE EXCHANGE AGREEMENT
COMPLIANCE WITH LAWS
Neither AxisTel Communications, Inc. nor e.Volve Technology Group, Inc.
have given notice of the change in control consummated on September 22, 1999 as
required by their Federal Communications Commission 244 licenses.
<PAGE> 75
SCHEDULE 4.9
TO SHARE EXCHANGE AGREEMENT
LITIGATION
In June, 1999, e.Volve Technology Group, Inc., a wholly owned
subsidiary of eVentures Group, Inc. ("e.Volve"), entered into an agreement and
plan of merger with Equalnet Communications Corporation ("Equalnet") and
Equalnet Acquisition Corporation. This agreement was terminated. As of February
15, 2000, e.Volve has knowledge that certain executive officers of Equalnet are
considering the possibility of commencing an action against e.Volve with respect
to the termination of this agreement and plan of merger.
<PAGE> 76
SCHEDULE 4.10
TO SHARE EXCHANGE AGREEMENT
PARENT LIABILITIES
Pursuant to an IRU Agreement, dated as of September 30, 1999, between
e.Volve Technology Group, Inc, a wholly owned subsidiary of eVentures Group,
Inc. ("e.Volve"), and Qwest Communications, Inc. ("Qwest"), Qwest has made a
demand for payment of the first installment of $3,750,000. e.Volve has defaulted
its payment obligations, and e.Volve, eVentures Group Inc. and Qwest have
commenced a restructuring of the terms of the IRU Agreement. Failure to reach a
settlement of this matter and a restructuring of the IRU agreement could cause a
material adverse change in eVentures Group, Inc.
<PAGE> 77
SCHEDULE 5.9
TO SHARE EXCHANGE AGREEMENT
SEC FILINGS
eVentures Group, Inc. SEC Reports Not Filed on a Timely Basis
1. Report filed on Form 8/K-A on December 9, 1999.
2. Report filed on Form 10-Q on January 5, 2000.
3. Report on Form 10-Q due on February 14, 2000.
<PAGE> 78
SCHEDULE 7.1(g)
TO SHARE EXCHANGE AGREEMENT
KEY EMPLOYEES
<TABLE>
<S> <C>
Michael S. Gorton Chairman
Peter B. Dauterman Executive Vice President-Business Development
Sean C. Halleck Vice President and Chief Technical Officer
Nicholas Morgan Vice President-Marketing
</TABLE>
<PAGE> 79
EXHIBIT A
TO SHARE EXCHANGE AGREEMENT
FORM OF ESCROW AGREEMENT
ESCROW AGREEMENT, dated as of February [__], 2000, by and among
eVentures Group, Inc., a Delaware corporation ("Parent"), IGS Acquisition
Corporation, a Texas corporation and a wholly-owned subsidiary of Parent
("Acquisition Sub"), Bank One, Texas, N.A. (the "Escrow Agent"), and David Link,
as the Stockholders' Representative under the Share Exchange Agreement (the
"Share Exchange Agreement"), dated as of February 22, 2000, among Parent,
Acquisition Sub and certain stockholders (the "Stockholders) of Internet Global
Services, Inc., a Texas corporation (the "Company"). Capitalized terms used
herein without definition shall have the meanings set forth in the Share
Exchange Agreement.
RECITALS
WHEREAS, Parent, Acquisition Sub and the Stockholders have entered into
the Share Exchange Agreement; and
WHEREAS, the Share Exchange Agreement requires that certain shares of
Parent Common Stock be held in escrow and the parties desire that Bank One,
Texas N.A. serve as the Escrow Agent to hold such shares upon the terms and
conditions set forth herein;
NOW, THEREFORE, in consideration of the consummation of the
transactions contemplated by the Share Exchange Agreement and the mutual
covenants and agreements contained herein, the parties hereto agree as follows:
Section 1. Establishment of Escrow Account. At the Closing, the Parent
shall deposit with the Escrow Agent [_________] shares of Parent Common Stock
and, in the event that any shares of Parent Common Stock are required to be
delivered to the Escrow Agent pursuant to Section 2.6(c) of the Share Exchange
Agreement, the Parent shall deposit such shares of Parent Common Stock with the
Escrow Agent (all such shares, the "Escrow Shares"), which shall be held by the
Escrow Agent pursuant hereto on behalf of the Stockholders. The Escrow Agent
will establish and continuously maintain one or more escrow accounts
(individually and collectively, the "Escrow Account") for the Escrow Shares in
the name of the Stockholders.
Section 2. Purpose of the Escrow Shares. The Escrow Shares deposited
with the Escrow Agent hereunder are or will be deposited to serve as security
for and satisfy any Losses to Parent or Acquisition Sub pursuant to Article VIII
of the Share Exchange Agreement.
Section 3. Disbursements. Whenever the Acquisition Sub or Parent shall
be entitled to receive payment of a Loss Amount in accordance with the terms of
Article VIII of the Share Exchange Agreement, Acquisition Sub and the
Stockholders' Representative shall deliver
<PAGE> 80
Disbursement Instructions (as hereinafter defined) to the Escrow Agent within
five (5) Business Days of Acquisition Sub's and the Stockholders'
Representative's agreement as to the amount of such disbursement. The
"Disbursement Instructions" shall (i) be in writing and signed by Acquisition
Sub and the Stockholders' Representative, (ii) state the number of Escrow Shares
owed to Acquisition Sub and/or Parent as determined in accordance with the Share
Exchange Agreement, and (iii) shall provide transfer instructions to the Escrow
Agent as to where and to whom such Escrow Shares are to be delivered. Upon
receipt of the Disbursement Instructions, the Escrow Agent shall within five (5)
Business Days transfer such Escrow Shares as directed in the Disbursement
Instructions.
Section 4. Escrow Fund. From the date hereof until the Escrow Account
is terminated in accordance with Section 18 hereof, Parent shall deliver
directly to the Escrow Agent all cash, securities or other property delivered in
exchange for the Escrow Shares held by the Escrow Agent by reason of any
non-taxable stock dividend, subdivision, reclassification, recapitalization,
split, combination, merger, consolidation, liquidation, exchange of shares or
other similar non-taxable event, all of which shall be added to, and become a
part of, the Escrow Account. Any taxable dividends, distributions or other
taxable payments paid with respect to the Escrow Shares shall be paid by Parent
to the Stockholders in accordance with their respective interests in the Escrow
Shares and shall not be subject to the terms of this Escrow Agreement.
Section 5. Receipt. Delivery by the Escrow Agent of a signed and dated
signature page hereto shall serve as acknowledgment by the Escrow Agent of
receipt of the Escrow Shares (and any related instruments of transfer) on the
date hereof and acceptance of the Escrow Shares in escrow. The Escrow Agent
agrees to hold and keep the Escrow Shares in accordance with the terms and
conditions of this Escrow Agreement for the uses and purposes stated in this
Escrow Agreement.
Section 6. Rights in the Escrow Fund. While any Escrow Shares or other
securities and property are held in escrow in the Escrow Account, and pending
the release thereof in accordance with Sections 3 and 18 hereof, the
Stockholders shall retain all right, title and interest in and to their
respective Escrow Shares (including, without limitation, the right to vote the
Escrow Shares), and the other securities and property included in the Escrow
Account, except (i) the right of possession thereof, and (ii) the right to sell,
assign, pledge, hypothecate or otherwise dispose of the securities (including
the Escrow Shares) or property included in the Escrow Account or any interest
therein. No person or entity other than Stockholders' Representative and
Acquisition Sub shall have any rights with respect to the Escrow Account until
such time as the Escrow Account is terminated in accordance with Section 18.
Section 7. Investment. All cash held in the Escrow Account shall be
invested by the Escrow Agent in (i) an interest-bearing bank account at such
bank as the Stockholders' Representative and Parent shall agree to in writing,
or (ii) a money market mutual fund or other account or accounts as the
Stockholders' Representative and Parent shall agree to in writing (the
"Permitted Investments"). Interest on such funds shall be added to, and become a
part of, the Escrow Account, and shall be disbursed in the same manner as, and
together with, the Escrow Account. In the absence of written instructions, cash
held in the Escrow Account will be invested in the One Group U.S. Treasury Money
Market Fund.
A-2
<PAGE> 81
Section 8. Availability of Funds/Delivery of Property. All parties
acknowledge and agree that delivery of the property of the escrow is subject to
the sale and final settlement of Permitted Investments. Delivery of the property
of the escrow when funds are invested in the One Group U.S. Treasury Money
Market Fund must be made to the Escrow Agent by 11:00 a.m., Central Time, if the
property is to be delivered by the close of that Business Day. Otherwise, the
property of the escrow will be delivered on the next Business Day. With respect
to the sale of any other Permitted Investment, if the final settlement of that
sale has not occurred by 1:00 p.m., Central Time on the day the Disbursement
Instructions are delivered to the Escrow Agent, all parties acknowledge and
agree that the property will be delivered on the next Business Day.
Section 9. Location of Materials Held in Escrow. The Escrow Agent will
keep the Escrow Shares and other items delivered to the Escrow Agent, and all
other documents related to the record keeping of the Escrow Account, at an
office of the Escrow Agent, in a suitable place for safekeeping.
Section 10. Appointment of Escrow Agent. Parent and the Stockholders'
Representative hereby appoint Bank One, Texas, N.A. as the Escrow Agent under
this Escrow Agreement. The Escrow Agent is hereby authorized to take any and all
actions indicated in this Escrow Agreement to be taken by the Escrow Agent and
all such further actions consistent herewith as it shall deem necessary or
desirable to implement the provisions hereof. The Escrow Agent represents and
warrants to Parent, Acquisition Sub and the Stockholders' Representative that it
has all legal power and authority to act in the manner contemplated by this
Escrow Agreement. Parent, Acquisition Sub and the Stockholders' Representative
agree that the authorization and designation of the Escrow Agent under this
Section 10 shall be irrevocable and shall be binding upon their successors and
assigns.
Section 11. Responsibilities of Escrow Agent. The acceptance by the
Escrow Agent of its duties under this Escrow Agreement is subject to the
following terms and conditions, which the parties to this Escrow Agreement
hereby agree shall govern and control with respect to the rights, duties,
liabilities and immunities of the Escrow Agent:
(a) The responsibilities of the Escrow Agent hereunder shall
be to act as agent and bailee for Acquisition Sub and the Stockholders, to hold
the Escrow Shares in safekeeping, and to make disposition of the Escrow Shares
as provided herein;
(b) The Escrow Agent acts herein only as agent and bailee for
the Acquisition Sub and the Stockholders, and does not undertake to construe the
meaning of any contract, agreement or other instrument, or to determine any of
the matters covered by the same. It is expressly understood and agreed that the
Escrow Agent does not assume any of the obligations or duties which Parent,
Acquisition Sub, the Stockholders or the Stockholders' Representative may have
under the Share Exchange Agreement, this Escrow Agreement or any other
agreement, except to hold and dispose of the Escrow Shares as provided for
herein;
(c) The Escrow Agent shall be protected in acting upon any
written notice, request, waiver, consent, receipt or other paper or document
furnished to it, not only as to its due
A-3
<PAGE> 82
execution and the validity and effectiveness of its provisions, but also as to
the truth and accuracy of any information contained therein, which it in good
faith believes to be genuine and which is signed or presented to it by a proper
person, or upon evidence deemed by it in good faith to be sufficient; and
(d) So long as Acquisition Sub or the Stockholders have any
interest in the Escrow Shares, (i) the Escrow Agent agrees that it will not
assert any right which it may have to setoff, recoupment, reduction or other
right with respect to the Escrow Shares now or hereafter acquired, arising from
any relationship, debt, obligations, liability, credit accommodation or
otherwise that may be owed the Escrow Agent by any of the parties hereto or any
party having an interest in the Escrow Shares, (ii) the Escrow Agent shall
provide the parties hereto with such receipts, account statements, affidavits as
they may from time to time request, and (iii) the Escrow Agent shall not move
the Escrow Shares from the Escrow Account without the written consent of all the
parties hereto in accordance with the terms of this Escrow Agreement.
(e) Within five days of the termination of this Escrow
Agreement on the Expiration Date or otherwise as provided in Section 18, the
Escrow Agent agrees that it will disburse to the Stockholders' Representative
all Escrow Shares contained in the Escrow Account as of such date.
Section 12. Indemnification of Escrow Agent. Unless the Escrow Agent
discharges any of its duties under this Escrow Agreement in violation of
specific terms of this Escrow Agreement in a negligent manner or is guilty of
willful misconduct with regard to its duties under this Escrow Agreement, the
Escrow Agent shall not be liable to any person for any action taken or loss
suffered by such person, nor for any mistake of fact, error of judgment, or for
any actions or omissions of any kind. Except with respect to the foregoing
liability exceptions, Parent, Acquisition Sub and the Stockholders'
Representative, jointly and severally, shall indemnify the Escrow Agent and hold
it harmless from any and all claims, liabilities, losses, actions, suits or
proceedings, or other expenses, fees, or charges of any character or nature,
public or private, which it may incur or with which it may be threatened by
reason of its acting as Escrow Agent under this Escrow Agreement, and shall
indemnify the Escrow Agent against any and all expenses, including reasonable
attorneys' fees and the cost of defending any action, suit or proceeding or
resisting any claim in such capacity, both at the trial and appellate levels.
The provisions of this paragraph shall survive the termination of this Escrow
Agreement. Notwithstanding anything in this Escrow Agreement to the contrary,
the Stockholders' Representative shall not have any personal liability to the
Escrow Agent pursuant to this Section 12, pursuant to Section 13 hereof or
otherwise pursuant to this Escrow Agreement, and the Escrow Agent's only
recourse with respect to any liability asserted against the Stockholders'
Representative hereunder shall be to the Stockholders' Representative's and the
Stockholders' interests in the Escrow Shares and any other assets in the Escrow
Account pursuant to Section 16 hereof.
Section 13. Discretion of Escrow Agent to File an Interpleader Action.
In the event of a dispute as to the proper disposition of the Escrow Shares, the
Escrow Agent may hold such Escrow Shares until receipt of evidence satisfactory
to it that the dispute has been resolved, and until receipt of notice directing
the proper disposition of the Escrow Shares in accordance with the terms of this
Escrow Agreement. If the parties, including the Escrow Agent, are in
A-4
<PAGE> 83
disagreement about the interpretation of this Escrow Agreement, or about the
rights and obligations or the propriety of any action contemplated by the Escrow
Agent under this Escrow Agreement, the Escrow Agent may, but shall not be
required to, file an action in interpleader to resolve any disagreement in a
court of competent jurisdiction in Dallas County, Texas, or the United States
District Court of the Northern District of Texas. The Escrow Agent shall be
indemnified by Parent, Acquisition Sub and the Stockholders' Representative,
jointly and severally, for all costs and reasonable attorneys' fees (both trial
and appellate) incurred in its capacity as Escrow Agent in connection with any
such interpleader action and shall be fully protected in suspending all or part
of its activities under this Escrow Agreement until a judgment in the
interpleader action is entered and becomes final.
Section 14. Consultation with Counsel. The Escrow Agent may consult
with counsel of its own choice and shall have full and complete authorization
and protection to act in accordance with the opinion of such counsel as to any
matters in connection with this Escrow Agreement to the extent that any act or
failure to act undertaken on the advice of counsel is undertaken in good faith
and is not contrary to the specific provisions of this Escrow Agreement. The
Escrow Agent shall be indemnified by the parties hereto for all costs and
reasonable attorneys' fees incurred in connection with such consultation. The
Escrow Agent shall not be liable for any action taken in reliance upon the
advice of counsel and in good faith.
Section 15. Resignation. The Escrow Agent may resign as escrow agent by
giving Parent and the Stockholders' Representative sixty (60) days prior written
notice of the effective date of such resignation. In the case of the Escrow
Agent's resignation, its only duty shall be to hold and dispose of the remaining
portion of the Escrow Shares in accordance with the provisions of this Escrow
Agreement until a successor escrow agent shall be appointed by Parent and the
Stockholders' Representative and a written notice of the name and address of
such successor escrow agent shall be given to the Escrow Agent by Parent and the
Stockholders' Representative, whereupon the Escrow Agent's only duty shall be to
turn over, in accordance with the written instructions of Parent and the
Stockholders' Representative, to the successor escrow agent the remaining
portion of the Escrow Shares. In the event that a successor escrow agent shall
not have been appointed and the Escrow Agent shall not have turned over to the
successor escrow agent the remaining portion of the Escrow Shares within a
reasonable time after the Escrow Agent's delivery of written notice of
resignation pursuant to this Section 15, the Escrow Agent may deposit the
remaining portion of the Escrow Shares with the Clerk of the United States
District Court for the Northern District of Texas or with the clerk or registry
of any other court of competent jurisdiction, at which time the Escrow Agent's
duties hereunder shall terminate.
Section 16. Escrow Agent Fees. The Escrow Agent shall be entitled to
the fees set forth in Schedule A hereto. All fees paid to the Escrow Agent shall
be paid by the Parent. The Escrow Agent is hereby granted (i) a first lien on
the Parent's and the Acquisition Sub's interest in the Escrow Shares and any
other assets in the Escrow Account for all indebtedness that may become owing to
the Escrow Agent by the Parent or the Acquisition Sub pursuant to this Escrow
Agreement and (ii) a first lien on the Stockholders' Representative's and the
Stockholders' interests in the Escrow Shares and any other assets in the Escrow
Account for all indebtedness that may become owing to the Escrow Agent by the
Stockholders' Representative pursuant to this Escrow Agreement.
A-5
<PAGE> 84
Section 17. Amendment. This Escrow Agreement may be amended at any time
only by and upon written agreement of the Escrow Agent, the Stockholders'
Representative and Parent.
Section 18. Termination and Disbursement of Escrow Shares. This Escrow
Agreement may be terminated at any time by and upon receipt by the Escrow Agent
of written notice of termination signed by both Acquisition Sub and the
Stockholders' Representative. Unless so terminated, this Escrow Agreement shall
terminate at 5:00 p.m. on the 360th day following the Closing (the "Expiration
Date"); provided, that the Expiration Date shall be extended if on such date
there is pending any claim by Acquisition Sub for payment out of the Escrow
Shares, in which case the Escrow Agent shall hold the Escrow Shares until
resolution of all outstanding claims and Acquisition Sub and the Stockholders'
Representative have advised the Escrow Agent in writing of the same. If on the
Expiration Date there is no claim pending and Escrow Agent has not received a
written notice to the contrary signed by both Acquisition Sub and the
Stockholders' Representative, within five (5) Business Days of the Expiration
Date, the Escrow Agent shall disburse the Escrow Shares to the Stockholders pro
rata in relation to the number of Shares set forth opposite each Stockholder's
name in Schedule B hereto.
Section 19. Miscellaneous.
(a) Notices. All notices, objections and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
personally delivered (return receipt requested) or mailed by certified mail
(return receipt requested) or by Federal Express or another nationally
recognized courier service or by facsimile transmission upon electronic
confirmation of receipt thereof during normal business hours at the following
addresses (or at such other address for a party as shall be specified by like
notice):
If to the Escrow Agent:
Bank One, Texas, N.A.
8111 Preston Rd. 2nd Floor
Dallas, TX 75225
Attn: Corporate Trust
Facsimile Number: (214) 360-3980
If to the Stockholders' Representative:
David Link
Internet Global Services, Inc.
12200 Stemmons, Suite 315
Dallas, Texas 75234
Telephone: (972) 247-3883
Facsimile Number: (972) 247-3870
A-6
<PAGE> 85
with a copy to:
Gardere & Wynne, L.L.P.
1601 Elm Street, Suite 3000
Dallas, Texas 75201
Attention: C. Robert Butterfield
Telephone: (214) 999-4534
Facsimile Number: (214) 999-3534
If to Parent or Acquisition Sub, to:
eVentures Group, Inc.
One Evertrust Plaza, 8th Floor
Jersey City, New Jersey 07302
Attention: Chief Financial Officer
Telephone: (201) 200-5515
Facsimile Number: (201) 200-5532
with a copy to:
eVentures Group, Inc.
c/o HW Partners, L.P.
4000 Thanksgiving Tower
1601 Elm Street
Dallas, Texas 75201
Attention: General Counsel
Telephone: (214) 720-1608
Facsimile Number: (214) 720-1667
and to:
White & Case LLP
200 S. Biscayne Blvd., Suite 4900
Miami, FL 33131
Attn: Thomas E Lauria
Facsimile Number: (305) 358-5744
or at such other place as any party hereto shall furnish to each other party
hereto in writing.
(b) Binding Effect Assignment; Third Party Beneficiaries. No
party hereto may assign, its or his or her rights and obligations hereunder
without the consent of the other parties. Subject to the foregoing, this Escrow
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective heirs, executors, administrators, successors and assigns.
This Escrow Agreement is not intended, and shall not create, any third party
beneficiaries or rights in any third parties.
A-7
<PAGE> 86
(c) Governing Law. This Escrow Agreement shall be construed in
accordance with and governed by the laws of the State of Texas without
application to the principles of conflicts of laws and shall be binding upon the
parties hereto and their respective successors and assigns.
(d) Effect on Share Exchange Agreement. The provisions of this
Escrow Agreement are not intended to alter, modify, negate or replace any
provisions of the Share Exchange Agreement that may be in conflict with the
provisions hereof. In the event of any conflict or inconsistency between the
terms hereof and the Share Exchange Agreement, the Share Exchange Agreement
shall control.
(e) Counterparts. This Escrow 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. It shall not be
necessary for every party to sign each counterpart but only that each party
shall sign at least one such counterpart.
Section 20. Taxes. All parties represent and warrant to the Escrow
Agent that there are no federal, state or local tax liabilities or filing
requirements whatsoever concerning the Escrow Agent's actions contemplated
hereunder and represent and warrant to the Escrow Agent that the Escrow Agent
has no duty to withhold or file any report or any tax liability under any
federal or state income tax, local or state property tax, local or state sales
or use taxes, or any other tax by any taxing authority. All parties hereto agree
jointly and severally to indemnify the Escrow Agent fully from any tax
liability, penalties or interest incurred by the Escrow Agent arising hereunder
and agree to pay in full any such tax liability together with penalty and
interest, if any, that is ultimately assessed against the Escrow Agent for any
reason as a result of its action hereunder (except for the Escrow Agent's
individual income tax liability).
Section 21. Incumbency. The following persons are authorized to direct
the Escrow Agent regarding any transactions contemplated by this Escrow
Agreement including, but not limited to, investment and/or disbursement of the
escrow.
Parent
Name: Barrett N. Wissman Signature
--------------------------------
Name: Stuart J. Chasanoff Signature
--------------------------------
Name: John Stevens Robling, Jr. Signature
--------------------------------
Acquisition Sub
Name: Barrett N. Wissman Signature
--------------------------------
Name: Stuart J. Chasanoff Signature
--------------------------------
Name: John Stevens Robling, Jr. Signature
--------------------------------
Name: David N. Link Signature
--------------------------------
Name: Patrick G. Mackey Signature
--------------------------------
Stockholders' Representative
Name: David N. Link Signature
--------------------------------
[SIGNATURES ON NEXT PAGE]
A-8
<PAGE> 87
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
on the day first above written.
eVENTURES GROUP, INC.
By
-------------------------------------------------
Name: Stuart J. Chasanoff
Title: Vice President of Business Development,
Secretary and General Counsel
IGS ACQUISITION CORPORATION
By
-------------------------------------------------
Name:
Title:
BANK ONE, TEXAS, N. A.
By
-------------------------------------------------
Name:
Title:
DAVID N. LINK, as STOCKHOLDERS' REPRESENTATIVE
---------------------------------------------------
A-9
<PAGE> 88
SCHEDULE A
to Escrow Agreement
ESCROW AGENCY FEE SCHEDULE
<TABLE>
<S> <C>
Initial Acceptance Fee.................................................................. $5,000.00
For review of the documents and set up of the Escrow Account, payable
upon execution of the Agreement.
Annual Administration Fee............................................................... $2,000.00
For administration of the Escrow Account, payable in advance upon
execution of the Agreement and on each anniversary date thereafter as
long as the Agreement remains in effect.
</TABLE>
<PAGE> 89
SCHEDULE B
to Escrow Agreement
STOCKHOLDERS
<TABLE>
<CAPTION>
Name Number of Shares
- ---- ----------------
<S> <C>
Aberdeen Investment Management, Inc. 34,377
Everett Airington 232,000
Airington, Custodian for Amy Caitlin 20,000
Albertson Properties 127,968
Ambrosio - JWTROS Jeffrey M. and Frances M. 25,000
Argus Capital Corporation 2,000
Bruce Begia 21,830
Jon Box 14,285
Bill R. Brandon 4,615
Jack J. Brooks 10,000
Glen Brovont 20,000
Carrington Shaw Investment Co. 85,715
Andrea Dee Shaw GS Trust 28,572
Jeffrey Glenn Shaw GS Trust 28,571
Victoria Carrington Shaw GS Trust 28,572
Dr. Jerry Cochran 10,000
John H. Cole 5,700
Joseph B. Cole 5,700
Sidney M. Cole 45,744
Mark Collins 40,000
Peter C. Cook Trust 40,000
Dauterman Family Educational Trust 192,666
Dauterman Family Trust 590,703
Dauterman Irrevocable Family Trust 34,000
Jim Dauterman 6,668
Peter B. Dauterman 1,000
Pamela Davison 100,000
William Davison 550,000
Michele G. Elliot 2,000
Robert Gordon 50,000
Michael Gorton 603,013
Traci Gorton 516,112
Robert S. Grant 2,000
Susan L. Grant Living Trust 4,000
William B. Grant 2,000
William F. Grant Living Trust 10,000
</TABLE>
<PAGE> 90
<TABLE>
<S> <C>
Sean Halleck 30,000
Don Henley 681,230
Fredrick Johnson 7,000
JSM Investments, Inc. 2,000
David Kaseman 56,300
Link Family Ltd. Partnership 305,000
Patrick Mackey 47,500
David Manley 130,668
A.J. Melillo 154,286
Nicholas Morgan 32,000
Ohana Venture Fund, L.P. 139,818
Elaine B. Osowski 7,145
William F. Peterson 20,000
Daisy Reese 6,460
Susan B. Reese 105,425
Scott/Angela Schlemmer 20,000
Donald C. Schutt 10,000
Carolyn Smith 20,000
Cole Smith 470,168
Craig B. Smith 20,000
Mike Stieglitz 89,900
Tatum CFO Partners, LLP 22,500
Jeb Terry 9,547
Emily Woodall 56,300
Kevin Young 32,000
- ----------- ---------
TOTAL 5,968,058
</TABLE>
<PAGE> 91
EXHIBIT B
TO SHARE EXCHANGE AGREEMENT
FORM OF REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and
entered into on the [___] day of February, 2000, by and among eVentures Group,
Inc., a Delaware corporation (the "Company"), and the persons and entities
listed on Schedule 1 attached hereto (collectively, the "Stockholders") and the
persons and entities acquiring shares of Common Stock as consideration in the
Merger (as defined below), as holders of shares of common stock, par value
$0.00002 per share, of the Company ("Common Stock").
W I T N E S S E T H:
WHEREAS, the Company, IGS Acquisition Corporation, a Texas corporation
("Acquisition Sub"), and certain of the stockholders of Internet Global
Services, Inc., a Texas corporation ("IGS"), have entered into that certain
Share Exchange Agreement dated as of February 22, 2000 (the "Share Exchange
Agreement"), pursuant to which certain of the Stockholders acquired shares of
the Company's Common Stock;
WHEREAS, pursuant to the Agreement and Plan of Merger, dated as of even
date herewith, between Acquisition Sub and IGS (the "Merger Agreement"), IGS
merged with and into Acquisition Sub (the "Merger") and each issued and
outstanding share of common stock of IGS was converted into the right to receive
shares of Common Stock;
WHEREAS, in connection with the Share Exchange Agreement and the
Merger, the parties have agreed to enter into this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained in this Agreement and in the Share Exchange Agreement, the sufficiency
of which is hereby acknowledged, the parties hereby agree as follows:
Section 1. Registrable Shares. For purposes of this Agreement
"Registrable Shares" shall mean, at any time, and with respect to any
Stockholder, any person receiving shares of Common Stock in connection with the
Merger that has executed and delivered to the Company a joinder agreement in the
form attached hereto as Exhibit A, or any Qualified Transferee (as defined in
Section 9(g) below) (each such person being a "Securityholder"), the shares of
Common Stock held by such Securityholder which constitute Restricted Securities
(as defined below), and "Holder" shall mean any Securityholder holding
Registrable Shares. As to any particular Registrable Shares, once issued, such
Registrable Shares shall cease to be Registrable Shares on the earliest of (1)
the date on which such Registrable Shares have been registered under the
Securities Act of 1933, as amended or any successor Federal statute (the "Act"),
the Registration Statement in connection therewith has been declared effective,
and such Registrable Shares have been disposed of pursuant to and in the manner
described in such effective Registration Statement, (2) the date on which such
Registrable Shares are sold or distributed
<PAGE> 92
pursuant to Rule 144, (3) the date on which such Registrable Shares have ceased
to be outstanding, or (4) the date on which such Registrable Shares have been
transferred to a person or entity other than a Qualified Transferee. For
purposes of this Agreement, the term "Restricted Securities" shall mean, at any
time and with respect to any Securityholder, the shares of Common Stock and any
other securities which by their terms are directly or indirectly exercisable or
exchangeable for or convertible into Common Stock (other than stock options
granted to employees or directors of the Company in their capacity as such, or
Common Stock issuable upon the exercise thereof), and any securities received on
or with respect to any of the foregoing securities, which are held by such
Securityholder and which theretofore have not been sold to the public pursuant
to a Registration Statement or pursuant to Rule 144 under the Act. For purposes
of this Agreement, the term "Registration Statement" shall mean any registration
statement of the Company which covers any of the Registrable Shares, and all
amendments and supplements to any such Registration Statement, including
post-effective amendments, in each case including the Prospectus (as defined
herein) contained therein, all exhibits thereto and all material incorporated by
reference therein. For purposes of this Agreement, the term "Prospectus" shall
mean the prospectus included in a Registration Statement, including any
prospectus subject to completion, and any such Prospectus as amended or
supplemented by any prospectus supplement with respect to the terms of the
offering of any portion of the Registrable Shares and, in each case, by all
other amendments and supplements to such prospectus, including post-effective
amendments, and in each case including all material incorporated by reference
therein. For purposes of this Agreement, the term "Rule 144" shall mean Rule 144
promulgated under the Act or any successor or similar rule thereto, as may be
enacted by the Securities and Exchange Commission (the "Commission") from time
to time.
Section 2. Registrations on Form S-3. (a) The Company shall use its
reasonable best efforts to qualify for registration on Form S-3 or any
comparable or successor form or forms. At any time and from time to time after
the Company has qualified for the use of Form S-3 and prior to September 22,
2003, the Holders of a majority of the aggregate number of Registrable Shares
issued pursuant to the Share Exchange Agreement and the Merger Agreement shall
have the right to request one resale registration filing on Form S-3 in respect
of up to 25 percent of the aggregate number of shares of Common Stock issued
pursuant to the Share Exchange Agreement and the merger Agreement; provided that
the Company shall not be required to effect a registration on Form S-3 pursuant
to this Section 2(a) unless the reasonably anticipated aggregate offering price
(net of underwriting discounts and commissions) for the Registrable Shares
proposed to be registered shall equal at least $1.5 million. Such requests shall
be in writing and shall state the number of Registrable Shares proposed to be
disposed of and the intended method of distribution of such shares by such
Holder or Holders. The Company shall be required to effect one (1) registration
pursuant to this Section 2(a); provided, however, that a registration shall not
count as such registration unless (i) the Holders of Registrable Shares are able
to register and, if the registration is a firm commitment public offering, sell
the Registrable Shares requested to be included in such registration, or (ii)
the Registration Statement relating to a registration is withdrawn or abandoned
at the request of the Holders of a majority of the Registrable Shares covered by
such Registration Statement (other than as a result of a material adverse change
to the Company or following a postponement by the Company pursuant to Section
2(b) herein).
B-2
<PAGE> 93
(b) Right to Defer Registration. The Company shall not be
obligated to effect any registration within ninety (90) days after the effective
date of a previous registration statement in which the Holders of Registrable
Shares participated or were given an opportunity to participate and declined to
do so. If, after a registration statement becomes effective, the Company advises
the Holders of Registered Shares that the Company considers it necessary in
accordance with the Company's obligations under applicable securities laws for
the registration statement to be amended, the Holders of such shares shall
suspend any further sales of their Registered Shares until the Company advises
them that the registration statement has been amended. The 90 day time period
referred to in Section 4 during which the registration statement must be kept
current after its effective date shall be extended for an additional number of
business days equal to the number of business days during which the rights to
sell shares were suspended pursuant to the preceding sentence.
Section 3. Piggyback Registrations. (a) Right to Piggyback. If the
Company (i) proposes to register any of its securities under the Act (other than
pursuant to (A) a registration solely in connection with an employee benefit or
stock ownership plan on Form S-8 or any comparable or successor form, (B) a
registration of securities solely in connection with an acquisition consummated
in a manner which would permit registration of such securities on Form S-4 or
any comparable or successor form, or (C) a "shelf" or similar registration for
use solely in connection with future acquisitions), or (ii) proposes to register
any of its securities under the Act pursuant to a demand registration made under
Section 2(a) of the Registration Rights Agreement of the Company entered into on
the 22nd day of September 1999 (a "Demand Registration"), and, in either case,
the registration form to be used may be used for the registration of Registrable
Shares (a "Piggyback Registration"), the Company will give prompt written notice
to all Holders of Registrable Shares of its intention to effect such a
registration (each a "Piggyback Notice"). Subject to Section 3(b), the Company
will include in such registration all shares of Registrable Shares which Holders
of Registrable Shares request the Company to include in such registration by
written notice given to the Company within twenty (20) days after the date of
sending of the Piggyback Notice.
(b) Priority on Primary Registrations. If a Piggyback
Registration relates to an underwritten public offering of equity securities by
the Company and the managing underwriters for such offering advise the Company
in writing that in their opinion the number of securities requested to be
included in such registration exceeds the number which can be sold in an orderly
manner in such offering within a price range acceptable to the Company, the
Company will include in such registration (i) first, the securities proposed to
be sold by the Company, (ii) second, the Registrable Shares and the other
securities of the Company with piggyback registration rights that are pari passu
with the rights of the Holders requested to be included in such registration,
pro rata among the Holders of such Registrable Shares and the holders of such
other securities on the basis of the number of shares owned by each such Holder
or holder, and (iii) third, other securities requested to be included in such
registration.
(c) Priority on Secondary Registrations. If a Piggyback
Registration relates to an underwritten public offering of equity securities
held solely by Holders of the Company's securities and the managing underwriters
advise the Company in writing that in their opinion the number of securities
requested to be included in such registration exceeds the number which can
B-3
<PAGE> 94
be sold in an orderly manner in such offering within a price range acceptable to
the Holders initially requesting such registration, the Company will include in
such registration (i) first, the securities requested to be included therein by
the Holders requesting such registration, (ii) second, the Registrable Shares
and the other securities of the Company with piggyback registration rights that
are pari passu with the rights of the Holders requested to be included in such
registration, pro rata among the Holders of such Registrable Shares and the
holders of such other securities on the basis of the number of shares owned by
each such Holder or holder, and (iii) third, other securities requested to be
included in such registration.
Section 4. Registration Procedures. Whenever the Holders of Registrable
Shares have requested that any Registrable Shares be registered pursuant to this
Agreement, the Company will use its best efforts to effect the registration and
the sale of such Registrable Shares in accordance with the intended method of
distribution thereof and will as expeditiously as possible:
(i) prepare and file with the Commission a
Registration Statement with respect to such Registrable Shares on any
appropriate form under the Act, which form shall be selected by the
Company and shall be available for the sale of Registrable Shares in
accordance with the intended method or methods of distribution thereof
and use its best efforts to cause such Registration Statement to become
effective; provided that before filing a Registration Statement or
prospectus or any amendments or supplements thereto, the Company will
furnish to the counsel selected by the Holders of a majority of the
Registrable Shares included in such Registration Statement copies of
all such documents proposed to be filed, which documents will be
subject to the review of such counsel;
(ii) prepare and file with the Commission such
amendments and post-effective amendments to such Registration Statement
and supplements to the Prospectus used in connection therewith (and to
file the Prospectus, as so supplemented, under Rule 424 under the Act,
if required) as may be necessary to keep such Registration Statement
effective for a period of up to 90 days, and comply with the provisions
of the Act with respect to the disposition of all securities included
in such Registration Statement during such period in accordance with
the intended methods of distribution by the selling Holders thereof set
forth in such Registration Statement or supplement to such Prospectus;
(iii) furnish to each selling Holder of Registrable
Shares such number of copies of such Registration Statement, each
amendment and supplement thereto (in each case including all exhibits),
the Prospectus included in such Registration Statement (including each
preliminary Prospectus) and such other documents as such selling Holder
may reasonably request in order to facilitate the disposition of the
Registrable Shares owned by such selling Holder;
(iv) notify the selling Holders of Registrable Shares
and the managing underwriters, if any, promptly and (if requested by
any such Securityholder) confirm such advice in writing, (A) when a
Prospectus, including any Prospectus supplement or post-effective
amendment has been filed, and, with respect to a Registration Statement
or any post-effective amendment, when the same has become effective,
(B) of any request by the Commission for amendments or supplements to a
Registration Statement or related
B-4
<PAGE> 95
prospectus or for additional information, (C) of the issuance by the
Commission of any stop order suspending the effectiveness of a
Registration Statement or the initiation of any proceedings for that
purpose, (D) of the receipt by the Company of any notification with
respect to the suspension of the qualification of any of the
Registrable Shares for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose, and (E) of the
existence of any fact which results in a Registration Statement, a
Prospectus or any document incorporated therein by reference containing
an untrue statement of a material fact or omitting to state a material
fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(v) use its best efforts to register or qualify such
Registrable Shares under such other securities or blue sky laws of such
jurisdictions as any selling Holder reasonably requests and do any and
all other acts and things which may be reasonably necessary or
advisable to enable such selling Holder to consummate the disposition
in such jurisdictions of the Registrable Shares owned by such selling
Holder; provided that the Company will not be required (A) to qualify
generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this subparagraph, (B) to
subject itself to taxation in any such jurisdiction, or (C) to consent
to general service of process in any such jurisdiction;
(vi) notify each selling Holder of such Registrable
Shares, at any time when a Prospectus relating thereto is required to
be delivered under the Act, of the happening of any event referred to
in clause (iv)(E) of this Section 4, and, at the request of any such
seller, prepare a supplement to such Prospectus or a post-effective
amendment to such Registration Statement so that, as thereafter
delivered to the purchasers of such Registrable Shares, such Prospectus
will not contain an untrue statement of a material fact or omit to
state any fact necessary to make the statements therein not misleading;
(vii) cause all such Registrable Shares to be listed
on each securities exchange on which similar securities issued by the
Company are then listed and to be qualified for trading on each system
on which similar securities issued by the Company are from time to time
qualified;
(viii) provide a transfer agent and registrar for all
such Registrable Shares not later than the effective date of such
Registration Statement and thereafter maintain such transfer agent and
registrar;
(ix) enter into such customary agreements (including
underwriting agreements in customary form) and take all such other
actions as the Holders of a majority of the Registrable Shares being
sold or the underwriters, if any, reasonably request in order to
expedite or facilitate the disposition of such Registrable Shares;
(x) in connection with an underwritten offering, use
its best efforts to (A) obtain opinions of counsel to the Company and
updates thereof, which counsel and opinions (in form, scope and
substance) shall be reasonably satisfactory to the managing
underwriters, addressed to the underwriters, covering the matters
customarily covered in
B-5
<PAGE> 96
opinions requested in underwritten offerings and such other matters as
may be reasonably requested by such underwriters; and (B) obtain "cold
comfort" letters and updates thereof from the Company's independent
certified public accountants, addressed to the underwriters, such
letters to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters to underwriters in
connection with underwritten offerings; and make available for
inspection during normal business hours by any underwriter
participating in any disposition pursuant to a registration statement,
and any attorney or accountant retained by such underwriter, all
financial and other records, pertinent corporate documents and
properties of the Company, and cause the Company's officers, directors
and employees to supply all information reasonably requested by such
underwriter, attorney or accountant in connection with such
registration statement; provided that such underwriters execute prior
thereto an agreement with the Company that all such records,
information or documents shall be kept confidential by such persons
unless (1) disclosure of such records, information or documents is
required by law or by a court or administrative order or (2) such
records, information or documents are or become (but only when they
become) generally available to the public other than as a result of
disclosure in violation of this paragraph; and make available for
inspection by any underwriter participating in any disposition pursuant
to such registration statement and any attorney, accountant or other
agent retained by any such underwriter, all financial and other
records, pertinent corporate documents and properties of the Company,
and cause the Company's officers, directors, employees and independent
accountants to supply all information reasonably requested by any such
underwriter, attorney, accountant or agent in connection with such
registration statement;
(xi) otherwise use its best efforts to comply with
all applicable rules and regulations of the Commission;
(xii) permit any Holder of Registrable Shares which
might be deemed, in the sole and exclusive judgment of such Holder, to
be an underwriter or a controlling person of the Company, to
participate in the preparation of such registration or comparable
statement and to require the insertion therein of material, furnished
to the Company in writing, which in the reasonable judgment of such
Holder and its counsel should be included;
(xiii) in the event of the issuance of any stop order
suspending the effectiveness of a registration statement, or of any
order suspending or preventing the use of any related prospectus or
suspending the qualification of any Registrable Shares included in such
registration statement for sale in any jurisdiction, the Company will
use its reasonable efforts promptly to obtain the withdrawal of such
order; and
(xiv) provide a CUSIP number for all Registrable
Shares, not later than the effective date of the applicable
registration statement.
If any such registration or comparable statement refers to any Holder
by name or otherwise as the Holder of any securities of the Company and if, in
the sole and exclusive judgment of such Holder, such Holder is or might be
deemed to be a controlling person of the
B-6
<PAGE> 97
Company, such Holder shall have the right to require (a) the inclusion in such
registration statement of language, in form and substance reasonably
satisfactory to such Holder, to the effect that the holding of such securities
by such Holder is not to be construed as a recommendation by such Holder of the
investment quality of the Company's securities covered thereby and that such
holding does not imply that such Holder will assist in meeting any future
financial requirements of the Company, or (b) in the event that such reference
to such Holder by name or otherwise is not required by the Act or any similar
federal statute then in force, the deletion of the reference to such Holder;
provided that with respect to this clause (b) such Holder shall furnish to the
Company an opinion of counsel to such effect, which opinion and counsel shall be
reasonably satisfactory to the Company.
Section 5. Registration Expenses. (a) Definition. The term
"Registration Expenses" means any expenses incident to the Company's performance
of or compliance with this Agreement, including, without limitation, all
registration and filing fees, listing fees, fees and expenses of compliance with
securities or blue sky laws, printing expenses, messenger and delivery expenses,
internal expenses, the fees and expenses of counsel for the Company (but not the
fees and expenses of counsel to the Holders of the Registrable Shares included
in such registration) and all independent certified public accountants,
underwriting fees and expenses (excluding discounts and commissions attributable
to the Registrable Shares, which shall be paid by the selling Holders out of the
proceeds of the offering) and the fees and expenses of any other Persons
(defined below) retained by the Company. For purposes of this Agreement, the
term "Person" shall be construed as broadly as possible and shall include an
individual or natural person, a partnership (including a limited liability
partnership), a company, an association, a joint stock company, a limited
liability company, a trust, a joint venture, an unincorporated entity and a
governmental authority.
(b) Payment. The Company shall pay the Registration Expenses
in connection with any registrations on Form S-3 pursuant to Section 2(a), and
any and all Piggyback Registrations.
Section 6. Indemnification. (a) Indemnification by the Company. The
Company agrees to indemnify, to the extent permitted by law, each Holder of
Registrable Shares, such holder's general and limited partners, officers and
directors and each Person who controls such Holder (within the meaning of the
Act) against all losses, claims, damages, liabilities and expenses caused by any
untrue or alleged untrue statement of material fact contained in any
registration statement, prospectus or preliminary prospectus or any amendment
thereof or supplement thereto or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading, except insofar as the same are caused by or contained in any
information furnished in writing to the Company by such Holder expressly for use
therein. In connection with an underwritten offering, the Company will indemnify
such underwriters, their officers and directors and each Person who controls
such underwriters (within the meaning of the Act) to the same extent as provided
above with respect to the indemnification of the Holders of Registrable Shares.
(b) Indemnification by Holders. In connection with any
registration statement in which a Holder of Registrable Shares is participating,
each such Holder will furnish to the
B-7
<PAGE> 98
Company in writing such information and affidavits as the Company reasonably
requests for use in connection with any such registration statement or
prospectus and, to the extent permitted by law, will indemnify the Company, its
directors and officers and each Person who controls the Company (within the
meaning of the Act) against any losses, claims, damages, liabilities and
expenses resulting from any untrue or alleged untrue statement of material fact
contained in the registration statement, prospectus or preliminary prospectus or
any amendment thereof or supplement thereto or any omission or alleged omission
of a material fact required to be stated therein or necessary to make the
statements therein not misleading, but only to the extent that such untrue
statement or omission is contained in any written information or affidavit so
furnished in writing by such Holder; provided that the obligation to indemnify
will be individual to each Holder and will be limited to the net amount of
proceeds received by such Holder from the sale of Registrable Shares pursuant to
such registration statement.
(c) Notice; Defense Of Claims. Any Person entitled to
indemnification hereunder will (i) give prompt written notice to the
indemnifying party of any claim with respect to which it seeks indemnification
and (ii) unless in such indemnified party's reasonable judgment a conflict of
interest between such indemnified and indemnifying parties may exist with
respect to such claim, permit such indemnifying party to assume the defense of
such claim with counsel reasonably satisfactory to the indemnified party. If
such defense is assumed, the indemnifying party will not be subject to any
liability for any settlement made by the indemnified party without its consent
(but such consent will not be unreasonably withheld or delayed). An indemnifying
party who is not entitled to, or elects not to, assume the defense of a claim
will not be obligated to pay the fees and expenses of more than one special and
one local counsel for all parties indemnified by such indemnifying party with
respect to such claim.
(d) Contribution. If the indemnification provided for in this
Section 6 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage or expense
referred to herein, then the indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such loss, liability, claim, damage, or
expense in such proportion as is appropriate to reflect (i) the relative
benefits received by the indemnifying party or parties on the one hand and the
indemnified party on the other from the offering of the Registrable Shares or
(ii) if the allocation provided for by the foregoing clause (i) is not permitted
by applicable law, not only such relative benefits but also the relative fault
of the indemnifying party or parties on the one hand and the indemnified party
on the other hand in connection with the statements or omissions or alleged
statements or omissions that resulted in such losses, claims, damages or
liabilities (or actions in respect thereof). The relative fault of the
indemnifying party and of the indemnified party shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified party and the parties'
relative intent, knowledge, access to information, and opportunity to correct or
prevent such statement or omission. The obligation to contribute will be
individual to each Holder of Registrable Shares and will be limited to the
amount by which the net amount of proceeds received by such Holder from the sale
of Registrable Shares exceeds the amount of losses, liabilities, damages, and
expenses which such Holder has otherwise been required to pay by reason of such
statements or omissions.
B-8
<PAGE> 99
(e) Survival. The indemnification provided for under this
Agreement will remain in full force and effect regardless of any investigation
made by or on behalf of the indemnified party or any officer, director or
controlling Person of such indemnified party and will survive the transfer of
securities.
(f) Underwriting Agreement. To the extent that the provisions
on indemnification and contribution contained in the underwriting agreement
entered into in connection with an underwritten public offering are in conflict
with the provisions of this Section 6, the provisions contained in the
underwriting agreement shall control.
Section 7. Participation in Underwritten Registrations. No Person may
participate in any registration hereunder which is underwritten unless such
Person (i) agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Person or Persons entitled hereunder
to approve such arrangements, (ii) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwriting arrangements; provided that no
Holder of Registrable Shares included in any underwritten registration shall be
required to make any representations or warranties to the Company or the
underwriters other than representations and warranties regarding such Holder and
such Holder's intended method of distribution, and (iii) if requested by the
managing underwriter or underwriters or any Person requesting a Demand
Registration (the "Demanding Persons"), agrees not to sell Registrable Shares or
other securities held by such Person in any transaction other than pursuant to
such underwriting for such period following the effective date of the
registration statement relating to such underwriting as determined by either the
Board of Directors or the Demanding Persons; provided that no Holder of
Registrable Shares shall be required to enter into such an agreement unless each
other Holder of Registrable Shares, each director and executive officer of the
Company and each other Holder of at least one percent of the Common Stock then
outstanding enters into a substantially identical agreement relating to such
underwriting.
Section 8. Securityholder Lock-Up; Agreement Not To Sell. During the
one-year period following the date hereof, no Holder of Registrable Shares may
make any public sale of Registrable Shares (pursuant to a Registration
Statement, Rule 144 or otherwise) other than in compliance with the Holders'
rights to request one resale registration filing pursuant to Section 2(a) herein
and the Holders' rights to request a Piggyback Registration pursuant to Section
3(a) herein.
Section 9. Miscellaneous. (a) Information and Reporting. (i) The
Company shall, at all times during which it is neither subject to the reporting
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), nor exempt from reporting pursuant to Rule
12g3-2(b) under the Exchange Act, upon the written request of any
Securityholder, provide in writing to such Securityholder and to any prospective
transferee of the Registrable Shares of such Securityholder the information
concerning the Company described in Rule 144A(d)(4) or any successor rule under
the Act ("Rule 144 Information"). Upon the written request of any
Securityholder, the Company shall cooperate with and assist such Securityholder
or any member of the National Association of Securities Dealers, Inc. PORTAL
system in applying to designate and thereafter maintain the eligibility of the
Registrable Shares for trading
B-9
<PAGE> 100
through PORTAL. The Company's obligations under this Section 9(a)(i) shall at
all times be contingent upon receipt from the prospective transferee of
Registrable Shares of a written agreement to take all reasonable precautions to
safeguard the Rule 144A Information from disclosure to anyone other than Persons
who will assist such transferee in evaluating the purchase of any Registrable
Shares.
(ii) When it is first legally required to do so, the
Company shall register its Common Stock under Section 12 of the
Exchange Act and shall keep effective such registration and shall
timely file such information, documents and reports as the Commission
may require or prescribe under Section 13 of the Exchange Act. The
Company shall (whether or not it shall then be required to do so)
timely file such information, documents and reports which a
corporation, partnership or other entity subject to Section 13 or 15(d)
(whichever is applicable) of the Exchange Act is required to file. The
Company shall promptly upon request furnish any Holder of Registrable
Shares (A) a written statement by the Company that it has complied with
the reporting requirements of Section 13 or 15(d) of the Exchange Act,
(B) a copy of the most recent annual or quarterly report of the
Company, and (C) such other reports and documents filed by the Company
with the Commission as such Holder may reasonably request in availing
itself of an exemption for the sale of Registrable Shares without
registration under the Act. The Company acknowledges and agrees that
the purposes of the requirements contained in this Section 9(a)(ii) are
to enable any such Holder to comply with the current public information
requirement contained in paragraph (c) of Rule 144, should such Holder
ever wish to dispose of any of the securities of the Company acquired
by it without registration under the Act in reliance upon Rule 144 (or
any other similar exemptive provision), and to qualify the Company for
the use of registration statements on Form S-3. In addition, the
Company shall take such other measures and file such other information,
documents and reports, as shall hereafter be required by the Commission
as a condition to the availability of Rule 144 (or any similar
exemptive provision hereafter in effect) and the use of Form S-3.
(b) No Inconsistent Agreements. The Company will not hereafter
enter into any agreement with respect to its securities which is inconsistent
with or violates the rights granted to the Holders of Registrable Shares in this
Agreement.
(c) Adjustments Affecting Registrable Shares. The Company will
not take any action, or permit any change to occur, with respect to its
securities for the purpose of materially and adversely affecting the ability of
the Holders of Registrable Shares to include such Registrable Shares in a
registration undertaken pursuant to this Agreement or materially and adversely
affecting the marketability of such Registrable Shares in any such registration
(including, without limitation, effecting a stock split or a combination of
shares); provided that this Section 9(c) shall not apply to actions or changes
with respect to the Company's business, balance sheet, earnings or revenue where
the effect of such actions or changes on the Registrable Shares is merely
incidental.
(d) Notices. All notices, objections and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
personally delivered (return receipt
B-10
<PAGE> 101
requested) or mailed by certified mail (return receipt requested) or by Federal
Express or another nationally recognized courier service or by facsimile
transmission upon electronic confirmation of receipt thereof during normal
business hours at the following addresses (or at such other address for a party
as shall be specified by like notice):
If to the Company, to:
eVentures Group, Inc.
One Evertrust Plaza, 8th Floor
Jersey City, New Jersey 07302
Attention: Vice President and Chief Financial Officer
Telephone: (201) 200-5515
Facsimile Number: (201) 200-5532
with a copy to:
eVentures Group, Inc.
c/o HW Partners, L.P.
1601 Elm Street, 40th Floor
Dallas, Texas 75201
Attention: General Counsel
Telephone: (214) 720-1608
Facsimile Number: (214) 720-1667
and to:
White & Case LLP
200 S. Biscayne Blvd. Suite 4900
Miami, FL 33131
Attention: Thomas E Lauria
Telephone: (305) 371-2700
Facsimile Number: (305) 358-5744
If to a Stockholders, to it at its address as set forth in the
Share Exchange Agreement, and if to any other Securityholder,
at its address in the records of IGS, with a copy to:
Gardere & Wynne, L.L.P.
1601 Elm Street, Suite 3000
Dallas, Texas 75201
Attention: C. Robert Butterfield
Telephone: (214) 999-4534
Facsimile Number: (214) 999-3534
(e) Remedies. Any Person having rights under any provision of
this Agreement will be entitled to enforce such rights specifically to recover
damages caused by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law. The
B-11
<PAGE> 102
parties hereto agree and acknowledge that money damages may not be an adequate
remedy for any breach of the provisions of this Agreement and that any party may
in its sole discretion apply to any court of law or equity of competent
jurisdiction (without posting any bond or other security) for specific
performance and for other injunctive relief in order to enforce or prevent
violation of the provisions of this Agreement.
(f) Amendments and Waivers. Except as otherwise provided
herein, no amendment, modification, termination or cancellation of this
Agreement shall be effective unless made in writing signed by the Company and
the Holders of a majority of the shares of Registrable Shares; provided that no
amendment may be made to Sections 8 or 9(f) of this Agreement unless agreed upon
by the Company and the Holders of all the Registrable Shares.
(g) Assignment of Registration Rights. The rights to cause the
Company to register Registrable Shares pursuant to this Agreement may be
assigned (but only with all related obligations) by a Holder to any transferee
(a "Qualified Transferee") that acquires from a Holder either (i) 100,000 or
more Registrable Shares or (ii) if less than 100,000 Registrable Shares are
owned by a Holder at the time of a transfer, all of the Registrable Shares owned
by such Holder, in either case in connection with the permitted transfer of
Registrable Shares; provided that prior to such assignment, such Holder delivers
a joinder agreement in the form attached hereto as Exhibit B executed by such
Qualified Transferee to the Company. Such assignment shall not affect the rights
of Holders hereunder which shall remain in full force in accordance with the
terms hereof.
(h) Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
(i) Entire Agreement. This Agreement embodies the entire
agreement of the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements relating to such subject matter.
(j) Headings. The headings of this Agreement are for
convenience only and do not constitute a part of this Agreement.
(k) No Third Party Beneficiaries. Nothing in this Agreement,
express or implied, is intended or shall be construed to create any third party
beneficiaries, other than the provisions for the benefit of the underwriters
contained in Sections 3(b) and (c), 4(iv), (ix) and (x), 6(a) and 7.
(l) Governing Law. The construction, validity and
interpretation of this Agreement will be governed by the internal laws of the
State of Delaware without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of Delaware or any other jurisdiction)
that would cause the application of the laws of any jurisdiction other than the
State of Delaware.
(m) Further Assurances. Each party to this Agreement hereby
covenants and agrees, without the necessity of any further consideration, to
execute and deliver any and all such
B-12
<PAGE> 103
further documents and take any and all such other actions as may be necessary or
appropriate to carry out the intent and purposes of this Agreement and to
consummate the transactions contemplated hereby.
(n) Counterparts. This Agreement may be executed by facsimile
and in one or more counterparts, each of which shall be deemed to be an
original, but all of which shall be one and the same document.
(Signature Page Follows)
B-13
<PAGE> 104
IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto as of the date first written above.
eVENTURES GROUP, INC.
By
---------------------------------------------
Name: Stuart J. Chasanoff
Title: Vice President of Business
Development, Secretary and
General Counsel
[SIGNATURE PAGE FOR EACH SECURITYHOLDER FOLLOWS]
B-14
<PAGE> 105
(PLEASE PRINT, EXCEPT FOR REQUIRED SIGNATURES):
STOCKHOLDER:
(for Entities)
- -------------------------------------
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
(for Individuals)
- ------------------------------------- -----------------------------------
Printed Name Signature of Stockholder
If a married individual, the spouse of the
Stockholder must sign:
- ------------------------------------- -----------------------------------
(Printed name of spouse) Signature of spouse
ADDRESS: PHONE (include area code):
(1) ( )
----------------------------- --- -----------------------------
-----------------------------
(2) ( )
----------------------------- --- -----------------------------
-----------------------------
TAXPAYER I.D. NUMBER OR SOCIAL SECURITY NUMBER OF EACH STOCKHOLDER:
Entity:
------------------------------
Taxpayer Identification Number
Individual:
Social Security Number (1)
-----------------------------------
Social Security Number (2)
-----------------------------------
B-15
<PAGE> 106
Schedule 1
to Registration Rights Agreement
STOCKHOLDERS
<TABLE>
<CAPTION>
Name Number of Shares
- ---- ----------------
<S> <C>
Aberdeen Investment Management, Inc. 34,377
Everett Airington 232,000
Airington, Custodian for Amy Caitlin 20,000
Albertson Properties 127,968
Ambrosio - JWTROS Jeffrey M. and Frances M. 25,000
Argus Capital Corporation 2,000
Bruce Begia 21,830
Jon Box 14,285
Bill R. Brandon 4,615
Jack J. Brooks 10,000
Glen Brovont 20,000
Carrington Shaw Investment Co. 85,715
Andrea Dee Shaw GS Trust 28,572
Jeffrey Glenn Shaw GS Trust 28,571
Victoria Carrington Shaw GS Trust 28,572
Dr. Jerry Cochran 10,000
John H. Cole 5,700
Joseph B. Cole 5,700
Sidney M. Cole 45,744
Mark Collins 40,000
Peter C. Cook Trust 40,000
Dauterman Family Educational Trust 192,666
Dauterman Family Trust 590,703
Dauterman Irrevocable Family Trust 34,000
Jim Dauterman 6,668
Peter B. Dauterman 1,000
Pamela Davison 100,000
William Davison 550,000
Robert Gordon 50,000
Michael Gorton 603,013
Traci Gorton 516,112
Robert S. Grant 2,000
Susan L. Grant Living Trust 4,000
William B. Grant 2,000
William F. Grant Living Trust 10,000
Sean Halleck 30,000
Don Henley 681,230
</TABLE>
<PAGE> 107
Schedule 1
to Registration Rights Agreement
<TABLE>
<CAPTION>
Name Number of Shares
- ---- ----------------
<S> <C>
Fredrick Johnson 7,000
JSM Investments, Inc. 2,000
David Kaseman 56,300
Link Family Ltd. Partnership 305,000
Patrick Mackey 47,500
David Manley 130,668
A.J. Melillo 154,286
Nicholas Morgan 32,000
Ohana Venture Fund, L.P. 139,818
Elaine B. Osowski 7,145
William F. Peterson 20,000
Daisy Reese 6,460
Susan B. Reese 105,425
Scott/Angela Schlemmer 20,000
Donald C. Schutt 10,000
Carolyn Smith 20,000
Cole Smith 470,168
Craig B. Smith 20,000
Mike Stieglitz 89,900
Tatum CFO Partners, LLP 22,500
Jeb Terry 9,547
Emily Woodall 56,300
Kevin Young 32,000
- ----------- ---------
TOTAL 5,968,058
</TABLE>
<PAGE> 108
Exhibit A
to Registration Rights Agreement
FORM OF JOINDER AGREEMENT
[ ], 200[ ]
To the parties to the
Registration Rights Agreement
dated as of February 22, 2000
Ladies and Gentlemen:
Reference is made to the Registration Rights Agreement dated as of
February 22, 2000 (the "Registration Rights Agreement") among eVentures Group,
Inc. and the persons and entities signatories thereto and each other person who
has or shall become a party to the Registration Rights Agreement as provided
therein. Capitalized terms used herein and not defined have the meanings
ascribed to them in the Registration Rights Agreement.
The undersigned has acquired [ ] shares of Common Stock as
consideration with respect to [ ] shares of common stock of Internet Global
Services, Inc. The undersigned understands that upon execution of this joinder
agreement, the undersigned will be deemed a Securityholder with all of the
rights, privileges, duties and obligations of a Securityholder under the
Registration Rights Agreement. In consideration of the covenants and agreements
contained in the Registration Rights Agreement, the undersigned hereby confirms
and agrees that it shall be bound as a Securityholder under the Registration
Rights Agreement.
This letter shall be construed and enforced in accordance with the laws
of the State of Delaware.
Very truly yours,
[Merger Participant]
By
-------------------------------
Name:
Title:
Acknowledged and Agreed
this ___ day of _________, 2000
eVENTURES GROUP, INC.
By
-------------------------
Name Stuart J. Chasanoff
Title: Vice President of Business Development, Secretary and General Counsel
<PAGE> 109
Exhibit B
to Registration Rights Agreement
FORM OF JOINDER AGREEMENT
[ ], 200[ ]
To the parties to the
Registration Rights Agreement
dated as of February 22, 2000
Ladies and Gentlemen:
Reference is made to the Registration Rights Agreement dated as of
February 22, 2000 (the "Registration Rights Agreement") among eVentures Group,
Inc. and the persons and entities signatories thereto and each other person who
has or shall become a party to the Registration Rights Agreement as provided
therein. Capitalized terms used herein and not defined have the meanings
ascribed to them in the Registration Rights Agreement.
The undersigned intends to acquire [ _] shares of Common Stock
from [ ], a Holder of Registrable Securities. The undersigned
understands that it is a condition to the effectiveness of such transfer that
the undersigned agrees that it shall be bound, to the same extent and in the
same manner as such Holder, by all of the provisions of the Registration Rights
Agreement. In consideration of the covenants and agreements contained in the
Registration Rights Agreement, the undersigned hereby confirms and agrees that
it shall be bound, to the same extent and in the same manner as such Holder, by
all of the provisions of the Registration Rights Agreement.
This letter shall be construed and enforced in accordance with the laws
of the State of Delaware.
Very truly yours,
[Qualified Transferee]
By
----------------------------------
Name:
Title:
Acknowledged and Agreed
this ___ day of ________ , 200[ ]
eVENTURES GROUP, INC.
By
-------------------------------
Name:
Title:
<PAGE> 110
EXHIBIT C
TO SHARE EXCHANGE AGREEMENT
- -------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
by and between
INTERNET GLOBAL SERVICES, INC.,
AND
IGS ACQUISITION CORPORATION
Dated as of February [ ], 2000
- -------------------------------------------------------------------------------
<PAGE> 111
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of February
[ ], 2000, by and between eVentures Group, Inc. ("eVentures"), IGS Acquisition
Corporation, a Texas corporation and a wholly owned subsidiary of eVentures
("Parent"), and Internet Global Services, Inc., a Texas corporation (the
"Company").
WHEREAS, eVentures owns all of the issued and outstanding capital stock
of Parent; and
WHEREAS, on the date hereof, Parent has consummated the purchase of
5,942,994 shares of common stock, par value $0.0005 per share (the "Company
Common Stock") of the Company, representing approximately 95.35% of the issued
and outstanding Company Common Stock, pursuant to that certain Share Exchange
Agreement, dated as of February 22, 2000, among eVentures, Parent and certain
stockholders of the Company (the "Share Exchange Agreement"); and
WHEREAS, the respective Boards of Directors of Parent and the Company
deem it advisable and in the best interests of their respective stockholders
that each of Parent and the Company combine their businesses by the merger of
the Company with and into Parent pursuant to Section 5.16 of the Texas Business
Corporation Act (the "Act") upon the terms and subject to the conditions set
forth herein (the "Merger"); and
WHEREAS, pursuant to Section 5.13 of the Share Exchange Agreement, as
promptly as reasonably possible following the closing under the Share Exchange
Agreement, eVentures and Parent are required to effect the Merger;
WHEREAS, for federal income tax purposes, it is intended that the
two-step transaction, the first step of which shall be the exchange of shares
pursuant to the Share Exchange Agreement and the second step of which shall be
the Merger shall qualify as a "reorganization" within the meaning of Section
368(a)(1)(A) and Section 368(a)(2)(D) of the Internal Revenue Code of 1986, as
amended;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time the Company shall be merged with and into
Parent, with Parent being the surviving corporation in the Merger (the
"Surviving Corporation") and the separate existence of the Company shall
thereupon cease. The Merger shall have the effects set forth in Article 5.06 of
the Act.
<PAGE> 112
Section 1.2 Effective Time of the Merger. The Articles of Merger with
respect to the Merger shall be filed with the Texas Secretary of State on the
Closing Date (as defined in the Share Exchange Agreement) and the Merger shall
become effective upon the issuance by the Texas Secretary of State of the
certificate of merger (the "Effective Time").
ARTICLE II
PARENT AND THE SURVIVING CORPORATION
Section 2.1 Articles of Incorporation of the Surviving Corporation. The
Articles of Incorporation of Parent shall be the Articles of Incorporation of
the Surviving Corporation until thereafter amended in accordance with such
Articles and applicable law.
Section 2.2 Bylaws of the Surviving Corporation. The Bylaws of Parent
as in effect at the Effective Time shall be the By-Laws of the Surviving
Corporation until thereafter amended in accordance with applicable law.
Section 2.3 Directors and Officers of the Surviving Corporation. At the
Effective Time, the directors of Parent immediately prior to the Effective Time
shall be directors of the Surviving Corporation, each of such directors to hold
office, subject to the applicable provisions of the Articles of Incorporation
and By-Laws of the Surviving Corporation, until the next annual stockholders'
meeting of the Surviving Corporation and until their respective successors shall
be duly elected or appointed and qualified. At the Effective Time, the officers
of Parent immediately prior to the Effective Time shall, subject to the
applicable provisions of the Articles of Incorporation and By-Laws of the
Surviving Corporation, be the officers of the Surviving Corporation until their
respective successors shall be duly elected or appointed and qualified.
ARTICLE III
CONVERSION OF SHARES
Section 3.1 Conversion of Shares. (a) At the Effective Time, by virtue
of the Merger and without any action on the part of the holder thereof:
(a) Each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time (other than shares of Company Common
Stock owned by Parent) shall be converted at the Effective Time into the right
to receive (i) immediately following the Merger, the number of shares of common
stock, par value $0.00002 per share ("eVentures Common Stock"), of eVentures
equal to the number of shares of eVentures Common Stock that the holder of such
share of Company Common Stock would have received pursuant to Section 2.5(a) of
the Share Exchange Agreement, plus (ii) at the time of the issuance of the
Stockholder Adjustment Shares pursuant to Section 2.6 of the Share Exchange
Agreement, the number of shares of eVentures Common Stock equal to the number of
shares of eVentures Common Stock that the holder of such share of Company Common
Stock would have received pursuant to Section 2.6(c) of the Share Exchange
Agreement, plus (iii) at the time of the termination of the Escrow Agreement,
dated as of February [ ], 2000, among eVentures, Parent and
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<PAGE> 113
David Link, as Stockholder Representative (the "Escrow Agreement"), the
number of shares of eVentures Common Stock that the holder of such share of
Company Common Stock would have received with respect to such share of Company
Common Stock pursuant to Section 18 of the Escrow Agreement, in each case
calculated as if such holder had been a Stockholder exchanging such share of
Company Common Stock pursuant to the Share Exchange Agreement, except that the
number of "Shares" used in determining the "Stockholder Adjustment Shares" shall
be the number of shares of Company Common Stock held by Persons other than
Parent (the "Merger Consideration");
(b) Each share of Company Common Stock held by Parent or held in the
treasury of the Company shall be canceled and retired and cease to exist, and no
shares of eVentures Common Stock shall be issued in exchange therefor; and
(c) Each share of common stock, par value $0.001 per share, of Parent
shall be converted into one share of common stock, par value $0.0005 per share,
of the Surviving Corporation.
(d) Following the Effective Time, each certificate previously
representing shares of Company Common Stock shall represent the shares of
eVentures Common Stock into which such shares of Company Common Stock have been
converted. Certificates previously representing shares of Company Common Stock
shall be exchanged for certificates representing whole shares of eVentures
Common Stock (plus cash in lieu of the fractional shares, if any, pursuant to
Section 3.5) issued in consideration therefor upon the surrender of such
certificate in accordance with the provisions hereof.
(e) Pursuant to the consents received by Parent and the Company in
connection with the closing under the Share Exchange Agreement, following the
Effective Time, each outstanding option to purchase shares of Company Common
Stock (the "Company Options"), shall be converted into an option (the "eVentures
Options") issued under eVentures' 1999 Omnibus Securities Plan to purchase the
number of shares of eVentures Common Stock equal to the number of shares the
holder of such option would have received pursuant to Section 2.2 of the Share
Exchange Agreement if such holder had been a Stockholder exchanging the shares
of Company Common Stock underlying such option pursuant to the Share Exchange
Agreement (rounded down to the nearest whole number). The eVentures Options
shall have an exercise price of $12.00 per share of eVentures Common Stock and
shall vest in accordance with the following schedule: 1/3 of such options will
vest on September 30, 2000; 1/3 of such options will vest on the first
anniversary of the Closing Date; and 1/3 of such options will vest on the second
anniversary of the Closing Date.
(f) Each warrant to purchase shares of Company Common Stock outstanding
at the Effective Time (the "Company Warrants"), shall be converted into warrants
to purchase eVentures Common Stock in accordance with the terms of such
warrants.
Section 3.2 Exchange of Certificates. (a) No later than the Effective
Time, the Company shall make available,and each holder of shares of Company
Common Stock (the "Company Stockholders") will be entitled to receive, upon
surrender to the Company or its
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<PAGE> 114
transfer agent of one or more certificates representing shares of Company Common
Stock for cancellation, certificates representing the number of shares of
eVentures Common Stock into which such shares of Company Common Stock are
converted in the Merger. The shares of eVentures Common Stock into which such
shares of Company Common Stock shall be converted in the Merger shall be deemed
to have been issued at the Effective Time.
(b) As soon as reasonably practicable after the Effective Time, the
Company shall mail to each holder of record, other than Parent, of a certificate
or certificates which immediately prior to the Effective Time represented
outstanding shares of Company Common Stock (the "Certificates"), (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Company), and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for certificates representing shares
of eVentures Common Stock. Upon surrender of a Certificate for cancellation to
the Company together with such letter of transmittal, duly executed, each
Company Stockholder shall be entitled to receive in exchange therefor a
certificate or certificates representing that number of whole shares of
eVentures Common Stock that such Company Stockholder has the right to receive in
respect of the shares of Company Common Stock represented by the Certificates
surrendered pursuant to the provisions of this Section 3.2(b) (plus cash in lieu
of the fractional shares, if any, pursuant to Section 3.4).
(c) In the event that any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact and execution and
delivery of a customary indemnity by the person claiming such Certificate to be
lost, stolen or destroyed, the Company will issue or cause to be issued in
exchange for such lost, stolen or destroyed certificate a certificate
representing the number of shares of eVentures Common Stock which such person
has the right to receive in respect of the shares of Company Common Stock
represented by such lost, stolen or destroyed certificate (plus cash in lieu of
fractional shares, if any, pursuant to Section 3.4).
(d) At and after the Effective Time, the holders of Certificates shall
cease to have any rights as stockholders of the Company, except for the right to
surrender such Certificates in exchange for shares of eVentures Common Stock as
provided hereunder.
Section 3.3 Transfer Taxes. If any certificates for any shares of
eVentures Common Stock are to be issued in a name other than that in which the
Certificate surrendered in exchange therefor is registered, it shall be a
condition of such exchange that the person requesting such exchange shall pay to
the Company any transfer or other taxes required by reason of the issuance of
certificates for such shares of eVentures Common Stock in a name other than that
of the registered holder of the Certificate surrendered, or shall establish to
the satisfaction of the Company that such tax has been paid or is not
applicable. Notwithstanding the foregoing, no party hereto shall be liable to
Company Stockholder for any shares of eVentures Common Stock or dividends
thereon or, in accordance with Section 3.4 hereof, the cash payment for
fractional interests, delivered to a public official pursuant to applicable
escheat laws.
Section 3.4 No Fractional Securities. No certificates or scrip
representing fractional shares of eVentures Common Stock shall be issued upon
the surrender for exchange of Certificates pursuant to this Article III and no
dividend, stock split or other change in the capital
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<PAGE> 115
structure of eVentures shall relate to any fractional security, and such
fractional interests shall not entitle the owner thereof to vote or to any
rights of a security holder. In lieu of any such fractional securities, each
Company Stockholder who would otherwise have been entitled to a fraction of a
share of eVentures Common Stock upon surrender of Certificates for exchange
pursuant to this Article III shall be paid cash upon such surrender in an amount
equal to the product of such fraction multiplied by the Market Price. For
purposes of this Agreement, "Market Price" shall mean the average of the closing
bid and ask prices for shares of Parent Common Stock on the OTC Bulletin
Board--Registered Trademark-- (or, if the principal market for eVentures Common
Stock is another market, then the average of the closing bid and ask prices for
shares of eVentures Common Stock on such other market) for the 30-day period
ending five days prior to the Closing Date; provided, however, if such average
is less than $6.00, the Market Price shall be $6.00 and if such average is
greater than $40.00, the Market Price shall be $40.00.
Section 3.5 Dissenting Stockholders. The Parent covenants and agrees
that it will cause the Surviving Corporation to comply with the provisions of
Section 5.16 E. of the Act with respect to dissenting stockholders.
Section 3.6 Closing of Transfer Books. At the Effective Time, the stock
transfer books of the Company shall be closed and no transfer of shares of
Company Common Stock or options shall thereafter be made. If, after the
Effective Time, Certificates are presented to the Company, they shall be
canceled and exchanged for the Merger Consideration in accordance with Section
3.1, subject to applicable law in the case of shares held by Dissenting
Stockholders. From and after the Effective Time, no shares of Company Common
Stock shall be deemed to be outstanding, and holders of Certificates shall cease
to have any rights with respect thereto except as provided herein or by law.
ARTICLE IV
GENERAL PROVISIONS
Section 4.1 Notices. All notices, objections and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
personally delivered (return receipt requested) or mailed by certified mail
(return receipt requested) or by Federal Express or another nationally
recognized courier service or by facsimile transmission upon electronic
confirmation of receipt thereof during normal business hours at the following
addresses (or at such other address for a party as shall be specified by like
notice):
If to the Company, to:
Internet Global Services, Inc.
12200 Stemmons, Suite 315
Dallas, Texas 75234
Attention: David N. Link
Telephone: (972) 247-3883
Facsimile Number: (972) 247-3870
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with a copy to:
Gardere & Wynne, L.L.P.
1601 Elm Street, Suite 3000
Dallas, Texas 75201
Attention: C. Robert Butterfield
Telephone: (214) 999-4534
Facsimile Number: (214) 999-3534
If to Parent or eVentures, to:
eVentures Group, Inc.
One Evertrust Plaza, 8th Floor
Jersey City, New Jersey 07302
Attention: Vice President and Chief Executive Officer
Telephone: (201) 200-5515
Facsimile Number: (201) 200-5532
with a copy to:
eVentures Group, Inc.
c/o HW Partners, L.P.
4000 Thanksgiving Tower
1601 Elm Street
Dallas, Texas 75201
Attention: Stuart Chasanoff,
Vice President and General Counsel
Telephone: (214) 720-1608
Facsimile Number: (214) 720-1667
and to:
White & Case LLP
200 S. Biscayne Blvd. Suite 4900
Miami, FL 33131
Attention: Thomas E Lauria
Telephone: (305) 371-2700
Facsimile Number: (305) 358-5744
Section 4.2 Descriptive Headings. The headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
Section 4.3 Entire Agreement; Assignment. This Agreement (a)
constitutes the entire agreement and supersedes all other prior agreements and
understandings, both written and oral, among the parties or any of them, with
respect to the subject matter hereof, (b) are not intended
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to confer upon any other person any rights or remedies hereunder, and (c) shall
not be assigned by operation of law or otherwise.
Section 4.4 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas.
Section 4.5 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
shall constitute one and the same agreement.
Section 4.6 Validity. The invalidity or unenforceability of any
provision of this Agreement shall not effect the validity or enforceability of
any other provisions of this Agreement, which shall remain in full force and
effect.
Section 4.7 Third Party Beneficiaries. Nothing in this Agreement,
express or implied, is intended or shall be construed to create any third party
beneficiaries.
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IN WITNESS WHEREOF, each of the undersigned has caused this Agreement
to be executed on its behalf by its officers thereunto duly authorized as of the
date first above written.
INTERNET GLOBAL SERVICES, INC.
By.
------------------------------------
Name:
Title:
IGS ACQUISITION CORPORATION
By.
------------------------------------
Name:
Title:
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EXHIBIT D
TO SHARE EXCHANGE AGREEMENT
FORM OF NON-COMPETITION AGREEMENT
This Agreement is made as of the [ ] day of February, 2000 by and
between Internet Global Services, Inc., a Texas corporation with its principal
office at 12200 Stemmons, Suite 315, Dallas, Texas 75234 (the "Company"), and
[ ], an individual residing at the address shown
on the signature page hereof ("Employee").
WHEREAS, Employee is an employee of the Company who, during the course
of such employment, will be working on and have access to certain confidential
information, processes, technical data, trade secrets and other know-how of a
confidential nature belonging to the Company;
WHEREAS, the Company and Employee wish to enter into certain covenants
to preserve and foster their respective business interests; and
WHEREAS, the Company desires to acquire all rights to inventions,
improvements and discoveries made or conceived by Employee during his employment
with the Company (the "Employment Period").
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants herein contained, and in consideration of the Company's employment of
Employee and of the wages or salary paid or agreed to be paid to Employee, and
other good and valuable consideration, the adequacy of which is hereby
acknowledged, the parties hereto agree as follows:
Section 1. Inventions and Trade Secrets. (a) Employee shall disclose
promptly to the Company any and all significant conceptions and ideas for
inventions, ideas, concepts improvements, discoveries, formulae, techniques,
processes and methods, whether patentable or not registerable under patent,
copyright or similar statutes, know-how, show-how, computer software, programs,
databases, data algorithms, applications and code (the "Developed Information")
which are conceived, developed, learned or made by Employee, solely or jointly
with another person or persons, during the Employment Period or within one (1)
year thereafter, and which are related to the business or activities of the
Company or its subsidiaries, or which the Employee conceived as a result of his
employment by the Company or any of its subsidiaries. The Employee hereby
assigns and agrees to take all steps requested by the Company necessary to
assign all of his right, title and interest therein to the Company or its
nominee free and clear of all liens and encumbrances. To the extent that any of
the Developed Information is entitled to copyright protection under the
Copyright Act of 1976, as amended (the "Copyright Act") such information shall
be deemed to be "works made for hire." To the extent such information is not
deemed to be "works made for hire" as defined in the Copyright Act, Employee
hereby assigns all right, title and interest therein to the Company. Whenever
requested to do so by the Company, the Employee shall execute any and all
applications, assignments or other instruments and take such other actions that
the Company shall deem necessary to apply for and obtain Letters of
<PAGE> 120
Patent of the United States or any foreign country or to otherwise protect
and/or register the Company's rights, title and interest therein, with the
applicable authorities.
(b) Employee agrees that he will not, during or after the
Employment Period, disclose the specific terms of this Agreement or of the
Company's relationships or agreements with its significant vendors or customers
or any other trade secrets of the Company, whether in existence or proposed, to
any person, firm, partnership, corporation or business for any reason or purpose
whatsoever, except as is disclosed in the ordinary course of the Company's
business, unless compelled by a court order upon written advice of counsel
and/or register with the applicable authorities.
(c) Employee acknowledges that the Company and its affiliates
will be the sole owner of all trademarks, service marks, patents, copyrights,
trade secrets, business names and all other intellectual property of the Company
(including, without limitation, the Developed Information) and will not contest
the Company's or its affiliates ownership of all right title and interest
therein or challenge the validity thereof.
Section 2. Employee shall promptly communicate and disclose to the
Company all other information, observations and data relating to the business of
the Company obtained by him during the Employment Period. All written materials,
records and documents made by Employee or coming into his possession during the
Employment Period concerning any inventions, products, processes or equipment,
manufactured, used, developed, investigated or considered by the Company or any
of its subsidiaries or affiliates, or otherwise concerning the business,
operations or affairs of the Company or any of its subsidiaries or affiliates,
shall be the property of the Company. Upon the request of the Company, Employee
shall promptly deliver the same to the Company. Employee agrees to render such
reports to the Company of the activities of the business undertaken by him or
conducted under his direction as the Company may reasonably request.
Section 3. Employee shall hold in strict confidence and shall not at
any time during the Employment Period or thereafter, communicate or disclose to
any person or entity, or use for his own account, without the prior written
consent of the Company, any of the inventions, any information, observations,
data, written materials, records and documents covered by Section 2, or any
other processes, equipment or products of the Company, or other information
concerning its business, operations or affairs or, concerning the business,
operations or affairs of its subsidiaries or affiliates, suppliers, or customers
(including without limitation customer lists) except any of the same which was,
is now, or becomes generally available to the public (but not as a result of a
breach of any duty of confidentiality by which Employee is bound).
Section 4. Employee agrees that for the period commencing on the date
hereof and ending on the second anniversary of the date on which the Employment
Period is terminated (the "Non-Competition Period"), the Employee shall not
serve as or be a consultant to or employee, officer, agent, director or owner of
more than three percent (3%) of another corporation, partnership or other entity
that competes with the Business of the Company within the United States. The
"Business" of the Company shall mean the actual or intended business of the
Company during and throughout the Employment Period. As of the date hereof, the
Business of
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the Company includes, without limitation, the provision of internet service,
long-distance telephone service, web page design consulting services, the sale
of prepaid calling cards for long-distance telephone access, and various other
related products and services. It is expressly agreed that the Business of the
Company shall also include any and all future products and services in which the
Company, or any subsidiary or affiliate, heretofore engages. Employee further
agrees that during the Non-Competition Period, he shall not (i) recruit, solicit
or induce, any employee or employees of the Company or its affiliates to
terminate their employment with, or otherwise cease their relationship with, the
Company or its affiliates or hire or assist another person or entity to hire any
employee of the Company or its affiliates or any person who within twelve (12)
months before had been an employee of the Company or its affiliates and were
recruited or solicited for such employment or other retention while an employee
of the Company, provided, however, that solicitation shall not include any of
the foregoing activities engaged in with the prior written approval of the Board
of Directors of the Company and (ii) solicit, induce or influence any supplier,
customer, agent, consultant or other person or entity that has a business
relationship with the Company or its affiliates to discontinue, reduce or modify
such relationship with the Company or such affiliate.
Section 5. Employee agrees and acknowledges that the Company and its
affiliates would be irreparably injured by a breach of this Agreement and that
the Company or its affiliates shall be entitled to an injunction restraining the
Employee from any actual or threatened breach of this Agreement. It is
understood and agreed that money damages would not be sufficient remedy for any
breach of this Agreement by Employee and that the Company or its affiliates
shall be entitled to specific performance and injunctive relief as remedies for
any such breach or to any other appropriate equitable remedy without bond or
other security being required. Such remedies shall not be deemed to be the
exclusive remedies for the breach of this Agreement by the Employee, but shall
be in addition to all other remedies available at law or in equity to the
Company or its affiliates. It is hereby acknowledged that the provisions of this
Section 5 are for the benefit of the Company and all of the affiliates of the
Company and each such entity may enforce the provisions of this Section 5 and
only the applicable entity can waive the rights hereunder with respect to its
confidential information and employees.
Section 6. If any provision of this Agreement shall be held invalid,
illegal or unenforceable in any jurisdiction, the validity, legality and
enforceability of the remaining provisions contained herein shall not in any way
be affected or impaired, and the parties hereto undertake to implement all
efforts which are necessary, desirable and sufficient to amend, supplement or
substitute all and any such invalid, illegal or unenforceable provisions with
enforceable and valid provisions which would produce as nearly as may be
possible the result previously intended by the parties without renegotiation of
any material terms and conditions stipulated herein.
Section 7. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas. Venue shall properly and
exclusively lie in Dallas, Texas for any and all actions arising out of or in
any way relating to this Agreement. The Company and the Employee hereby
irrevocably submit to the jurisdiction of the state or federal courts located in
Texas in connection with any suit, action or other proceeding arising out of or
relating to this Agreement and the transactions contemplated hereby, and hereby
agree not to assert, by way of
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motion, as a defense, or otherwise in any such suit, action or proceeding that
the suit, action or proceeding is brought in an inconvenient forum, that the
venue of the suit, action or proceeding is improper or that this Agreement or
the subject matter hereof may not be enforced by such courts.
Section 8. The masculine pronoun, wherever used herein, shall be
construed to include the feminine and the neuter, where appropriate.
Section 9. This Agreement contains the entire agreement between the
parties relating to the subject matter and supersedes and cancels all prior or
collateral agreements, proposals and understandings, whether written or oral,
relating to the subject matter hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
INTERNET GLOBAL SERVICES INC. EMPLOYEE:
By: Signature:
------------------------------ ------------------------------
Name: Address:
---------------------------- --------------------------------
Title:
--------------------------- ----------------------------------------
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EXHIBIT E
TO SHARE EXCHANGE AGREEMENT
FORM OF EMPLOYMENT AGREEMENT
This Agreement is made as of the [ ] day of February, 2000
between Internet Global Services, Inc., a Texas corporation, with offices at
12200 Stemmons, Suite 315, Dallas, Texas 75234 (the "Company"), and
[ ], an individual residing in the State of [Texas] (the
"Employee").
R E C I T A L S
WHEREAS, the Company desires to secure the services and
employment of the Employee on behalf of the Company, and the Employee desires to
enter into employment with the Company, upon the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and
promises contained herein, the
parties hereto, each intending to be legally bound hereby,
agree as follows:
1. Employment. The Company hereby employs the Employee as
[ ] of the Company, and the Employee accepts such
employment for the term of employment specified in Section 3 below. During the
Employment Term (as defined below), the Employee shall serve as
[ ], performing such duties as shall be
reasonably required of such an employee of the Company, and shall have such
other powers and perform such other additional executive duties as may from time
to time be assigned to him by the [ ] or such other
person designated by the senior management or the Board of Directors of the
Company. The Company acknowledges that the Employee's primary place of business
shall be Dallas, Texas and the Employee acknowledges that in performance of his
duties hereunder, the Employee shall be required to travel to the Company's
facilities located throughout the United States.
2. Performance. The Employee will serve the Company faithfully
and to the best of his ability and will devote substantially all of his time,
energy, experience and talents during regular business hours and as otherwise
reasonably necessary to such employment, to the exclusion of all other business
activities.
3. Employment Term. The employment term shall begin on the
date of this Agreement and continue until and as set forth on Schedule 3, unless
earlier terminated pursuant to Section 6 below (the "Term").
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4. Compensation.
(a) Salary. During the Term, the Company shall pay the
Employee the base salary set forth on Schedule 4(a), with such increases thereto
as shall be in the sole discretion of the Board of Directors of the Company. The
base salary shall be payable in accordance with current Company procedures and
shall be subject to applicable withholding for taxes and the base salary shall
not be decreased by any amount or for any reason other than pursuant to Section
7.
(b) Incentive Cash Compensation. For each fiscal year of the
Company or portion thereof during the Term, the Employee shall be eligible for
discretionary bonuses payable by the Company on such terms and conditions, and
subject to such standards, as shall be determined from time to time, in the sole
discretion of the Board of Directors or the compensation committee of the
Company.
(c) Stock Options and Other Non-Cash Incentive Compensation.
(i) During the Term, the Employee shall be eligible
for discretionary non-cash awards pursuant to the Company's stock incentive plan
and payable by the Company on such terms and conditions, and subject to such
standards, as shall be determined from time to time, in the sole discretion of
the Board of Directors or the compensation committee of the Company. All awards
referred to in this Section 4(c)(i) shall have the terms and conditions as set
forth in any award agreement pursuant to which such non-cash awards are granted.
All awards will immediately vest upon the following enumerated events: (1) the
Company terminates the Employee's employment hereunder without "cause" as
provided in Section 6(c), or (2) the Employee terminates his employment
hereunder for Good Reason as provided in Section 6(e).
(ii) During the Term, the Employee shall be eligible
to participate in the Company's 1999 Omnibus Securities Plan adopted and
approved as of September 22, 1999, as amended October 14, 1999, and to receive
awards of options thereunder issued by the Company on such terms and conditions,
and subject to such standards, as shall be determined from time to time, in the
sole discretion of the Board of Directors or the compensation committee of the
Company. All awards will immediately vest upon the following enumerated events:
(1) the Company terminates the Employee's employment hereunder without "cause"
as provided in Section 6(c), (2) the Employee terminates his employment
hereunder for Good Reason as provided in Section 6(e) or (3) a Change in Control
occurs.
(d) Medical and Dental Health and Other Benefits. During the
Term, the Employee shall be entitled to medical and dental health and other
benefits in accordance with the current Company procedures with respect to its
executive level employees.
(e) Vacation; Sick Leave. During the Term, the Employee shall
be entitled to up to four weeks of vacation and shall be entitled to sick leave
in accordance with the current Company procedures with respect to its executive
level employees.
(f) For purposes of this Section 4, the term "Change in
Control" shall mean the occurrence of any of the following: (1) any "person" as
such term is used in Sections 13(d) and
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14(d) of the Securities Exchange Act of 1934 ("Act") (other than (a) Permitted
Assignees, (b) the Company, (c) any trustee or other fiduciary holding
securities under any employee benefit plan of the Company, (d) any company
owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of Common Stock of the
Company, or (e) any entity holding non-participating shares of an entity which
is a stockholder of the Company or which owns or controls, directly or
indirectly, a stockholder of the Company) is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Act), directly or indirectly, of securities
of the Company representing fifty percent (50%) or more of the combined voting
power of the Company's then outstanding securities. Permitted Assignees shall
mean the holders of the equity securities (whether or not voting) of any
shareholder of the Company owning more than fifteen percent (15%) of the Company
on the date after the date of execution of this Agreement; (2) during any period
of two (2) consecutive years, individuals who at the beginning of such period
constitute the Board, and any new director (other than a director designated by
a person who has entered into an agreement with the Company to effect a
transaction described in clause (1), (3), or (4) of this paragraph) whose
election by the Board or nomination for election by the Company's stockholders
was approved by a vote of at least two-thirds of the directors then still in
office who either were directors at the beginning of the two-year period or
whose election or nomination for election was previously so approved, cease for
any reason to constitute at least a majority of the Board; (3) a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than fifty percent (50%) of the combined voting power of
the voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation; provided, however, that a merger
or consolidation effected to implement a recapitalization of the Company (or
similar transaction) in which no person acquires more than fifty percent (50%)
of the combined voting power of the Company's then outstanding securities shall
not constitute a Change in Control of the Company; and provided, further, a
merger or consolidation in which the Company is the surviving entity (other than
as a wholly owned subsidiary or another entity) and in which the Board of the
Company after giving effect to the merger or consolidation is comprised of a
majority of members who are either (x) directors of the Company immediately
preceding the merger or consolidation, or (y) appointed to the Board of the
Company by the Company (or its Board) as an integral part of such merger or
consolidation, shall not constitute a Change in Control of the Company; or (4)
the stockholders of the Company approve a plan of complete liquidation of the
Company or the sale or disposition by the Company of all or substantially all of
the Company's assets other than (x) the sale or disposition of all or
substantially all of the assets of the Company to a person or persons who
beneficially own, directly or indirectly, at least fifty percent (50%) or more
of the combined voting power of the outstanding voting securities of the Company
at the time of the sale or (y) pursuant to a dividend in kind or spinoff type
transactions, directly or indirectly, of such assets to the stockholders of the
Company.
5. Expenses. The Employee shall be reimbursed by the Company
for all reasonable expenses incurred by him in connection with the performance
of his duties hereunder in accordance with policies established by the Board
from time to time and upon receipt of appropriate documentation.
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6. Termination. The employment of the Employee hereunder shall
automatically terminate at the end of the Term. The employment of the Employee
hereunder may also be terminated prior to the end of the Term under the
following circumstances:
(a) Death or Disability. The Term of employment shall
terminate upon the death or Disability of the Employee. For purposes of this
Agreement, "Disability" occurs if the Employee is unable to perform his duties,
pursuant to this Agreement, on a full-time basis because of mental or physical
incapacity, including, without limitation, alcoholism or drug abuse, which
requires a leave of absence in excess of 90 days during any calendar year. In
the event the Employee is a "Qualified Individual with a Disability", as defined
in the Americans with Disabilities Act, the Company shall not terminate the
Employee's employment hereunder if the Employee is able to perform the essential
functions of the Employee's job with reasonable accommodation from the Company.
(b) With "Cause." For purposes of this Agreement, the Company
shall have "Cause" to terminate the Employee's employment hereunder upon the
occurrence of any of the following: (i) embezzlement, theft or other
misappropriation of any property of the Company or any of its subsidiaries by
the Employee, (ii) gross or willful misconduct by the Employee resulting in
substantial loss to the Company or any of its subsidiaries or substantial damage
to the reputation of the Company or any of its subsidiaries, (iii) any act by
the Employee involving moral turpitude which results in a conviction of, or a
pleading nolo contendere to, a felony or other crime involving moral turpitude,
fraud or misrepresentation, (iv) willful and continued failure or neglect by the
Employee to substantially perform his assigned duties to the Company or any of
its subsidiaries, (v) gross breach of the Employee's fiduciary obligations to
the Company or any of its subsidiaries, (vi) any chemical dependence which
materially affects the performance of the Employee's duties and responsibilities
to the Company or any of its subsidiaries, or (vii) commission of a felony or a
crime by the Employee involving moral turpitude or the commission of any other
significant act by the Employee involving dishonesty, disloyalty or fraud with
respect to the Company; provided that in the case of the misconduct set forth in
clauses (iv) and (vi) above, such misconduct shall continue for a period of 15
days following written notice thereof by the Company to the Employee.
(c) Without "Cause." Notwithstanding any provisions of this
Agreement to the contrary, the Company may terminate the Employee's employment
hereunder for any reason other than those specified in the foregoing paragraphs
(a) and (b), or for no reason, at any time during the Term, effective upon
delivery of two (2) day's notice by the Company.
(d) Voluntary resignation. The Employee may terminate his
employment hereunder at any time during the Term subject only to the requirement
that the Employee shall provide the Company with a minimum of thirty (30) days
prior written notice.
(e) With "Good Reason." Notwithstanding any provision of this
Agreement to the contrary, the Employee may terminate his employment hereunder
for Good Reason, subject to the requirement that the Employee shall provide the
Company with a minimum of two (2) weeks prior written notice. For purposes of
this Agreement, the Employee shall have "Good Reason" to terminate his
employment hereunder upon the occurrence, without the Employee's written
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consent, of any of the following: (i) a significant change in the nature or
scope of the Employee's duties from those described in Section 1 above,
including a material demotion or any assignment of duties materially and
adversely inconsistent with Employee's position as [ ] (except in
connection with the termination of Employee's employment for Cause or due to
Disability or as a result of Employee's death, or temporarily as a result of
Employee's illness or other absence); (ii) a failure by the Company to pay to
the Employee any amounts due under this Agreement in accordance with the terms
hereof, which failure is not cured within fifteen (15) days following receipt by
the Company of notice from the Employee of such failure; (iii) any other
material breach by the Company of this Agreement that remains uncured for
fifteen (15) days after written notice thereof by the Employee to the Company;
or (iv) if the Company requires the Employee to relocate to an area more than
twenty-five (25) miles from the location of his office immediately prior to the
date first written above, and the Employee declines to so relocate.
7. Compensation upon Termination. The Employee shall be
entitled to the following compensation from the Company, in lieu of all other
sums owed or payable to the Employee hereunder, upon the termination of the
Employee's employment during the Employment Term of this Agreement.
(a) Death or Disability. In the event of the death or
Disability of the Employee during the Term of this Agreement, except for amounts
of base salary and accrued vacation time earned by the Employee as of the date
of termination but not yet paid by the Company, the Company shall have no
obligation to make payments to the Employee or his estate, in accordance with
the provisions of Section 4 or otherwise, for the periods after the date the
Employee's employment with the Company terminates on account of death or
Disability.
(b) With Cause. In the event that the Employee's employment is
terminated by the Company for Cause, except for the amounts of base salary and
accrued vacation time earned by the Employee as of the date of termination but
not yet paid by the Company, the Company shall have no obligation to make
payments to the Employee, in accordance with the provisions of Section 4 or
otherwise, for the periods after the date the Employee's employment with the
Company terminates.
(c) Without Cause. In the event that the Employee's employment
is terminated by the Company without Cause at any time during the Term, or in
the event the Company gives the Employee written notice, as provided in Schedule
3, that the Company does not intend to extend the Term upon the current
expiration date thereof, the Employee shall be entitled to receive upon delivery
to the Company of a general release and waiver releasing the Company of all
claims of the Employee (1) an amount equal to his base salary, then in effect,
for the remainder of the Term or for six months, whichever is longer (the
"Severance Period"), such amount to be payable, at the Company's option, in a
lump sum on the date of termination or the date on which the Term expires, as
the case may be, or ratably over the Severance Period and (2) the amounts of
base salary and accrued vacation time earned by the Employee as of the date of
termination but not yet paid by the Company pursuant to Section 4.
(d) Voluntary Resignation. In the event that the Employee's
employment is terminated by the Employee pursuant to Section 6(d), except for
amounts of base salary and
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accrued vacation time earned by the Employee as of the date of termination but
not yet paid by the Company pursuant to Section 4, the Company shall have no
obligation to make payments to the Employee, in accordance with the provisions
of Section 4 or otherwise, for the periods after the date the Employee's
employment with the Company terminates on account of voluntary resignation.
Notwithstanding any provision of this Agreement to the contrary, if the
Employee's employment with the Company terminates on account of voluntary
resignation for Good Reason, the Employee shall be entitled to receive (1) an
amount equal to his base salary, then in effect, for the Severance Period, such
amount to be payable, at the Company's option, in a lump sum on the date of
termination, or ratably over the Severance Period and (2) the amounts of base
salary and accrued vacation time earned by the Employee as of the date of
termination but not yet paid by the Company pursuant to Section 4.
8. Non-Competition and Non-Solicitation.
(a) (i) The Employee acknowledges that as a result of his
employment by the Company, the Employee will acquire knowledge of the trade and
proprietary and confidential information as to the Company and its Affiliates
and will create relationships with customers, suppliers and other persons
dealing with the Company and its Affiliates and the Company and its Affiliates
will suffer substantial damage, which would be difficult to ascertain and is not
compensable by monetary damages, if the Employee should use such trade secrets
or other proprietary and confidential information or take advantage of such
relationship and that because of the nature of the information that will be
known to the Employee and the relationships created, it is necessary for the
Company and its Affiliates to be protected by the prohibition against
Competition as set forth herein.
(ii) The Employee acknowledges that the retention of
nonclerical employees employed by the Company and its Affiliates in which the
Company and its Affiliates have invested training and depends on for the
operation of their businesses is important to the businesses of the Company and
its Affiliates, that the Employee will obtain unique information as to such
employees and will develop unique relationships with such persons as a result of
being an employee of the Company and, therefore, it is necessary for the Company
and its Affiliates to be protected from the Employee's Solicitation (as defined
below) of such employees as set forth below.
(iii) The Employee acknowledges that the provisions of
this Agreement are reasonable and necessary for the protection of the businesses
of the Company and its Affiliates and that part of the compensation paid under
this Agreement and the agreement to pay compensation upon termination in certain
instances is in consideration for the agreements in this Section 8.
(b) For the purposes of this Agreement, "Competition" shall
mean: participating, directly or indirectly, as an individual proprietor,
partner, stockholder, officer, employee, director, joint venturer, investor,
lender, consultant or in any capacity whatsoever (within the United States of
America, or in any country where the Company or its Affiliates do business) in a
Competing Business (as defined below); provided, however, that such
participation shall not include (i) the mere ownership of not more than three
percent (3%) of the total
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outstanding stock of a publicly held company; or (ii) any activity engaged in
with the prior written approval of the Board of Directors of the Company.
For the purposes of this Agreement, "Competing Business" shall
mean any line of business engaged in by the Company and/or its subsidiaries
and/or any entity in which the Company and/or its subsidiaries holds securities
(other than entities in which the Company or its subsidiaries make a nominal
investment) (i) from time to time (while Employee is employed by the Company) or
(ii) at the time of termination (upon termination of Employee's employment).
For the purposes of this Agreement, "Affiliate" of the Company
shall mean any Person directly or indirectly controlling, controlled by, or
under common control with, the Company; provided that, for the purposes of this
definition, "control" (including with correlative meanings, the terms
"controlled by" and "under common control with"), as used with respect to the
Company, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and polices of the Company,
whether through the ownership of voting securities or partnership interests, by
contract or otherwise.
For purposes of this Agreement, "Person" shall mean and
include an individual, a partnership, a joint venture, a corporation, a trust,
an unincorporated organization, a group and a government or other department or
agency thereof.
(c) For purposes of this Agreement, "Solicitation" shall mean:
recruiting, soliciting or inducing, of any nonclerical employee or employees of
the Company or its Affiliates to terminate their employment with, or otherwise
cease their relationship with, the Company or its Affiliates or hiring or
assisting another person or entity to hire any nonclerical employee of the
Company or its Affiliates or any person who within twelve (12) months before had
been a nonclerical employee of the Company or its Affiliates and were recruited
or solicited for such employment or other retention while an employee of the
Company, provided, however, that solicitation shall not include any of the
foregoing activities engaged in with the prior written approval of the Board of
Directors of the Company.
(d) If any restriction set forth with regard to Competition or
Solicitation is found by any court of competent jurisdiction, or in arbitration,
to be unenforceable because it extends for too long a period of time or over too
great a range of activities or in too broad a geographic area, it shall be
interpreted to extend over the maximum period of time, range of activities or
geographic area as to which it may be enforceable. If any provision of this
Section 8 shall be declared to be invalid or unenforceable, in whole or in part,
as a result of the foregoing, as a result of public policy or for any other
reason, such invalidity shall not affect the remaining provisions of this
Section 8 which shall remain in full force and effect.
(e) During the Employment Term and for two (2) years following
a termination of Employee's employment for any reason whatsoever, whether by the
Company or by the Employee and whether or not with Cause, Good Reason or
non-extension of the Term, the Employee will not engage in Solicitation.
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<PAGE> 130
(f) During the Term and for the Restricted Period (as
hereafter defined) following a termination of Employee's employment, Employee
will not enter into Competition with the Company. The "Restricted Period" shall
mean (i) for a termination with Cause, two (2) years following the date of
termination, (ii) for termination without Cause by the Company, or for Good
Reason by the Employee, the period in which the Company is making payments to
Employee as specified in Section 7 above, (iii) for termination as a result of
the voluntary resignation by the Employee without Good Reason, one (1) year from
the date of termination, and (iv) for termination as a result of the Company
giving Employee written notice, as provided in Schedule 3, that the Company does
not intend to extend the Term upon the current expiration date thereof, six (6)
months following the date of termination.
(g) In the event of a breach or potential breach of this
Section 8, Employee acknowledges that the Company and its Affiliates will be
caused irreparable injury and that money damages may not be an adequate remedy
and agree that the Company and its Affiliates shall be entitled to injunctive
relief (in addition to its other remedies at law) to have the provisions of this
Section 8 enforced. It is hereby acknowledged that the provisions of this
Section 8 are for the benefit of the Company and all of the Affiliates of the
Company and each such entity may enforce the provisions of this Section 8 and
only the applicable entity can waive the rights hereunder with respect to its
confidential information and employees.
(h) Furthermore, in addition to and not in limitation of any
other remedies provided herein or at law or in equity, in the event of breach of
this Section 8 by the Employee, while he is receiving amounts under Section 7(c)
or (d) hereof, the Employee shall not be entitled to receive any future amounts
pursuant to Section 7(c) or (d) hereof and shall reimburse the Company for any
amounts previously paid to the Employee pursuant to Section 7(c) or (d) hereof.
9. Confidential Information, Inventions and Trade Secrets. As
a condition to the effectiveness of this Agreement, the Employee shall enter
into a Confidential Information and Invention Assignment Agreement,
substantially in the form of Annex A attached hereto.
10. Arbitration
(a) (i) Any dispute, controversy or claim arising out of,
relating to, or in connection with, this contract, or the breach, termination or
validity thereof, shall be finally settled by arbitration. The arbitration shall
be conducted in accordance with the Commercial Arbitration Rules of the American
Arbitration Association in effect at the time of the arbitration, except as they
may be modified herein or by mutual agreement of the parties. The seat of the
arbitration shall be Dallas, Texas. Notwithstanding Section 12(c), the
arbitration and this clause shall be governed by the Federal Arbitration Act, 9
U.S.C. Sections 1 et seq.
(ii) The arbitration shall be conducted by three arbitrators.
The party initiating arbitration (the "Claimant") shall appoint an arbitrator in
its request for arbitration (the "Request"). The other party (the "Respondent")
shall appoint an arbitrator within 30 days of receipt of the Request and shall
notify the Claimant of such appointment in writing. If within 30 days of receipt
of the Request by the Respondent, either party has not appointed an arbitrator,
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then the arbitrator shall be appointed by the American Arbitration Association.
The first two arbitrators appointed in accordance with this provision shall
appoint a third arbitrator within 30 days after the Respondent has notified
Claimant of the appointment of the Respondent's arbitrator or, in the event of a
failure by a party to appoint, within 30 days after the American Arbitration
Association has notified the parties and any arbitrator already appointed of its
appointment of an arbitrator on behalf of the party failing to appoint. When the
third arbitrator has accepted the appointment, the two arbitrators making the
appointment shall promptly notify the parties of the appointment. If the first
two arbitrators appointed fail to appoint a third arbitrator or so to notify the
parties of the appointment, the American Arbitration Association shall appoint
the third arbitrator and shall promptly notify the parties of the appointment.
The third arbitrator shall act as Chair of the tribunal.
(iii) The arbitral award shall be in writing, state the
reasons for the award, and be final and binding on the parties. The award shall
include an award of costs, as set forth in Section 10(iv) below, including the
costs and expenses of the arbitration. Judgment upon the award may be entered by
any court having jurisdiction thereof or having jurisdiction over the relevant
party or its assets. A request for interim measures by a party to a court shall
not be deemed incompatible with, or a waiver of, this agreement to arbitrate.
(iv) Enforcement Costs. In the event that either the Company
or the Employee initiates an arbitration, in accordance with this Section 10, to
enforce any provision or term of this Agreement, the costs and expenses of the
arbitration (excluding attorney's fees) of the prevailing party shall be paid by
the other party, such party to be deemed to have prevailed if such arbitration
is concluded pursuant to an order, award or final judgment of the arbitrators
which is not subject to a modification, an appeal, a settlement agreement or a
dismissal of the principle claims. Each party shall pay its own attorney's fees.
11. Notice. All notices, objections and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
personally delivered (return receipt requested) or mailed by certified mail
(return receipt requested) or by Federal Express or another nationally
recognized courier service or by facsimile transmission upon electronic
confirmation of receipt thereof during normal business hours at the following
addresses (or at such other address for a party as shall be specified by like
notice):
If to the Employee:
[ ]
-----------------------
-----------------------
-----------------------
If to the Company:
Internet Global Services, Inc.
12200 Stemmons, Suite 315
Dallas, Texas 75234
Attention: David N. Link
Telephone: (972) 247-3883
Facsimile Number: (972) 247-3870
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<PAGE> 132
12. General.
(a) Construction and Severability. If any provision of this
Agreement shall be held invalid, illegal or unenforceable in any jurisdiction,
the validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired, and the parties undertake
to implement all efforts which are necessary, desirable and sufficient to amend,
supplement or substitute all and any such invalid, illegal or unenforceable
provisions with enforceable and valid provisions which would produce as nearly
as may be possible the result previously intended by the parties without
renegotiation of any material terms and conditions stipulated therein.
(b) Assignability. The Employee may not assign his interest in
or delegate his duties under this Agreement. Notwithstanding anything else in
this Agreement to the contrary, the Company may assign this Agreement to and all
rights hereunder shall inure to the benefit of any person, firm or corporation
succeeding to all or substantially all of the business or assets of the Company
by purchase, merger or consolidation.
(c) Governing Law. This Agreement shall be governed in all
respects, including as to validity, interpretation, construction, performance
and effect, by the laws of the State of Texas applicable to contracts executed
and to be performed entirely within said State.
(d) Binding Effect. This Agreement is for the employment of
the Employee, personally, and for the services to be rendered by him must be
rendered by him and no other person. This Agreement shall be binding upon and
inure to the benefit of the Company and its successors and assigns.
(e) Entire Agreement; Modification. This Agreement of the
parties hereto with respect to the subject matter hereof and may not be modified
or amended in any way except in writing by the parties hereto.
(f) Duration. Notwithstanding the term of employment
hereunder, this Agreement shall continue for so long as any obligations remain
under this Agreement.
(g) Survival. The covenants set forth in Sections 6, 8 and 9
of this Agreement shall survive and shall continue to be binding upon Employee
notwithstanding the termination of this Agreement for any reason whatsoever. The
covenants set forth in Sections 6, 8 and 9 of this Agreement shall be deemed and
construed as separate agreements independent of any other provision of this
Agreement. The existence of any claim or cause of action by Employee against
Company, whether predicated on this Agreement or otherwise, shall not constitute
a defense to the enforcement by Company of any or all covenants. It is expressly
agreed that the remedy at law for the breach or any such covenant is inadequate
and that injunctive relief shall be available to prevent the breach or any
threatened breach thereof.
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<PAGE> 133
IN WITNESS WHEREOF, the parties hereto, intending to be
legally bound, have hereunto executed this Agreement the day and year first
written above.
INTERNET GLOBAL SERVICES, INC.
By:
--------------------------
Name:
Title:
EMPLOYEE
---------------------------
[ ]
------------------------
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<PAGE> 134
JOINDER
eVentures Group, Inc. joins in this Employment Agreement for the sole
purpose of undertaking to perform the Company's obligations set forth in
Sections 4, 5 and 7 thereof, and has hereunto executed this Agreement this
____day of _____________, 2000.
eVENTURES GROUP, INC.
By:
------------------------------------
Name: Stuart J. Chasanoff
Title: Vice President of Business
Development, Secretary and
General Counsel
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SCHEDULE 3
to Employment Agreement
Employment Term
The initial term of this Agreement shall be two years and such initial
term shall be automatically extended for subsequent one-year terms unless either
party gives written notice of its intention not to extend the Employment Term at
least 90 days prior to the end of the initial two year term or any additional
one year term.
<PAGE> 136
SCHEDULE 4(A)
to Employment Agreement
Base Salary
<PAGE> 137
ANNEX A
to Employment Agreement
This CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENT (the
"Agreement") is made between eVentures Group, Inc. (the "Company") and the
undersigned employee.
In consideration of my employment with the Company (which for purposes
of this Agreement shall be deemed to include any subsidiaries or Affiliates of
the Company), the receipt of confidential information while associated with the
Company, and other good and valuable consideration, I, the undersigned
individual, agree that:
1. Term of Agreement. This Agreement shall continue in full force and
effect for the duration of my employment by the Company (the "Period of
Employment") and shall continue thereafter until terminated through a written
instrument signed by both parties.
2. Confidentiality.
(a) Definitions. "Proprietary Information" is all information
and any idea whatever form, tangible or intangible, pertaining in any manner to
the business of the Company, or any of its Affiliates, or its employees,
clients, consultants, or business associates, which was produced by any employee
or consultant of the Company in the course of his or her employment or
consulting relationship with the Company or otherwise produced or acquired by or
on behalf of the Company. All Proprietary Information not generally known
outside of the Company's organization, and all Proprietary Information so known
only through improper means, shall be deemed "Confidential Information." By
example and without limiting the foregoing definition, Proprietary and
Confidential Information shall include, but not be limited to:
(i) formulas, research and development techniques,
processes, trade secrets, computer programs, software, hardware,
electronic codes, mask works, inventions, innovations, patents, patent
applications, discoveries, improvements, data, know-how, formats, test
results, and research projects.
(ii) information about pricing, costs, profits,
markets, sales, contracts and lists of customers, and distributors;
(iii) business, financial, marketing, and strategic
plans;
(iv) forecasts, unpublished financial information,
budgets, projections, and customer identities, characteristics, data,
and agreements; and
(v) employee personnel files and compensation
information.
Confidential Information is to be broadly defined, and
includes all information that has or could have commercial value or other
utility in the business in which the Company is engaged or contemplates
engaging, and all information of which the unauthorized disclosure could be
detrimental to the interests of the Company, whether or not such information is
identified as Confidential Information by the Company.
<PAGE> 138
(b) Existence of Confidential Information. The Company owns
and has developed and compiled, and will continue to develop and compile,
certain trade secrets, proprietary techniques and other Confidential Information
which have great value to its business. This Confidential Information includes
not only information disclosed by the Company to me, but also information
developed or learned by me during the course of my employment with the Company.
(c) Protection of Confidential Information. I will not,
directly or indirectly, use, make available, sell, disclose or otherwise
communicate to any third party, other than in my assigned duties and for the
benefit of the Company, any of the Company's Confidential Information, at any
time during or after my employment with the Company. In the event I desire to
publish the results of my work for the Company through literature or speeches, I
will submit such literature or speeches to the President of the Company at least
ten (10) days before dissemination of such information for a determination of
whether such disclosure may alter trade secret status, may be highly prejudicial
to the interests of the Company, or may constitute an invasion of its privacy. I
agree not to publish, disclose or otherwise disseminate such information without
prior written approval of the President of the Company. I acknowledge that I am
aware that the unauthorized disclosure of Confidential Information of the
Company may be highly prejudicial to its interests, an invasion of privacy, and
an improper disclosure of trade secrets.
(d) Delivery of Confidential Information. Upon request or when
my employment with the Company terminates for any reason, I will immediately
deliver to the Company all copies of any and all materials and writings received
from, created for, or belonging to the Company including, but not limited to,
those which relate to or contain Confidential Information.
(e) Location and Reproduction. I shall maintain at my work
station and/or any other place under my control only such Confidential
Information as I have a current "need to know." I shall return to the
appropriate person or location or otherwise properly dispose of Confidential
Information once that need to know no longer exists. I shall not make copies of
or otherwise reproduce Confidential Information unless there is a legitimate
business need of the Company for reproduction.
(f) Prior Actions and Knowledge. I represent and warrant that,
from the time of my first contact with the Company, I have held in strict
confidence all Confidential Information and have not disclosed any Confidential
Information, directly or indirectly, to anyone outside the Company, or used,
copied, published, or summarized any Confidential Information, except to the
extent otherwise permitted in this Agreement.
(g) Third-Party Information. I acknowledge that the Company
has received and in the future will receive from third parties their
confidential information subject to a duty on the Company's part to maintain the
confidentiality of such information and to use it only for certain limited
purposes. I agree that, during the Period of Employment and thereafter, I will
hold all such confidential information in the strictest confidence and not to
disclose or use it, except as necessary to perform my obligations hereunder and
as is consistent with the Company's agreement with such third parties.
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<PAGE> 139
(h) Third Parties. I represent that my employment with the
Company does not and will not breach any agreements with or duties to a former
employer or any other third party. I will not disclose to the Company or use on
its behalf any confidential information belonging to others and I will not bring
onto the premises of the Company any confidential information belonging to any
such party unless consented to in writing by such party.
I acknowledge that the Company would not hire me or give me access to
Confidential or Proprietary Information, but for my covenants contained in this
Section 2.
3. Proprietary Rights, Inventions and New Ideas.
(a) Definition. The term "Subject Ideas or Inventions"
includes any and all ideas, processes, trademarks, service marks, inventions,
designs, technologies, computer hardware or software, original works of
authorship, formulas, discoveries, patents, copyrights, copyrightable works,
products, marketing and business ideas, and all improvements, know-how, data,
rights, and claims related to the foregoing that, whether or not patentable,
which are conceived, developed or created which: (i) relate to the Company's
current or contemplated business or activities; (ii) relate to the Company's
actual or demonstrably anticipated research or development; (iii) result from
any work performed by me for the Company no matter where the work is or was
performed; (iv) involve the use of the Company's equipment, supplies, facilities
or trade secrets; (v) result from or are suggested by any work done by the
Company or at the Company's request, or any projects specifically assigned to
me; or (vi) result from my access to any of the Company's memoranda, notes,
records, drawings, sketches, models, maps, customer lists, research results,
data, formulae, specifications, inventions, processes, Confidential Information,
equipment, or other materials (collectively, "Company Materials").
(b) Company Ownership. All right, title and interest in and to
all Subject Ideas and Inventions, including but not limited to all registrable
and patent rights which may subsist therein, shall be held and owned solely by
the Company, and where applicable, all Subject Ideas and Inventions shall be
considered works made for hire. I shall mark all Subject Ideas and Inventions
with the Company's copyright or other proprietary notice as directed by the
Company and shall take all actions deemed necessary by the Company to protect
the Company's rights therein. In the event that the Subject Ideas and Inventions
shall be deemed not to constitute works made for hire, or in the event that I
should otherwise, by operation of law, be deemed to retain any rights (whether
moral rights or otherwise) to any Subject Ideas and Inventions, I agree to
assign to the Company, without further consideration, my entire right, title and
interest in and to each and every such Subject Idea and Invention.
(c) Maintenance of Records. I agree to keep and maintain
adequate and current written records of all Subject Ideas and Inventions and
their development made by me (solely or jointly with others) during the term of
my employment with the Company. These records will be in the form of notes,
sketches, drawings, and any other format that may be specified by the Company.
These records will be available to and remain the sole property of the Company
at all times. I agree that all copies of any documents or materials related to
Subject Ideas and Inventions will remain with the Company after my termination
(for whatever reason).
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<PAGE> 140
(d) Determination of Subject Ideas and Inventions. I further
agree that all information and records pertaining to any idea, process,
trademark, service mark, invention, technology, computer hardware or software,
original work of authorship, design, formula, discovery, patent, copyright,
product, and all improvements, know-how, rights, and claims related to the
foregoing ("Intellectual Property"), that I do not believe to be a Subject Idea
or Invention, but that is conceived, developed, or reduced to practice by the
Company (alone by me or with others) during the Period of Employment and for one
(1) year thereafter, shall be disclosed promptly by me to the Company (such
disclosure to be received in confidence). The Company shall examine such
information to determine if in fact the Intellectual Property is a Subject Idea
or Invention subject to this Agreement.
(e) Access. Because of the difficulty of establishing when any
Subject Ideas or Inventions are first conceived by me, or whether they result
from my access to Confidential Information or Company Materials, I agree that
any Subject Idea and Invention shall, among other circumstances, be deemed to
have resulted from my access to Company Materials if: (i) it grew out of or
resulted from my work with the Company or is related to the business of the
Company, and (ii) it is made, used, sold, exploited or reduced to practice, or
an application for patent, trademark, copyright or other proprietary protection
is filed thereon, by me or with my significant aid, within one (1) year after
termination of the Period of Employment.
(f) Assistance. I further agree to assist the Company in every
proper way (but at the Company's expense) to obtain and from time to time
enforce patents, copyrights or other rights or registrations on said Subject
Ideas and Inventions in any and all countries, and to that end will execute all
documents necessary:
(i) to apply for, obtain and vest in the name of the
Company alone (unless the Company otherwise directs) letters patent,
copyrights or other analogous protection in any country throughout the
world and when so obtained or vested to renew and restore the same; and
(ii) to defend any opposition proceedings in respect
of such applications and any opposition proceedings or petitions or
applications for revocation of such letters patent, copyright or other
analogous protection; and
(iii) to cooperate with the Company (but at the
Company's expense) in any enforcement or infringement proceeding on
such letters patent, copyright or other analogous protection.
(g) Authorization to Company. In the event the Company is
unable, after reasonable effort, to secure my signature on any patent, copyright
or other analogous protection relating to a Subject Idea and Invention, whether
because of my physical or mental incapacity or for any other reason whatsoever,
I hereby irrevocably designate and appoint the Company and its duly authorized
officers and agents as my agent and attorney-in-fact, to act for and on my
behalf and stead to execute and file any such application, applications or other
documents and to do all other lawfully permitted acts to further the
prosecution, issuance, and enforcement of letters patent, copyright or other
analogous rights or protections thereon with the same legal force and
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<PAGE> 141
effect as if executed by me. My obligation to assist the Company in obtaining
and enforcing patents and copyrights for Subject Ideas and Inventions in any and
all countries shall continue beyond the termination of my relationship with the
Company, but the Company shall compensate me at a reasonable rate after such
termination for time actually spent by me at the Company's request on such
assistance.
(h) Exclusion. I acknowledge that there are no currently
existing ideas, processes, inventions, discoveries, marketing or business ideas
or improvements which I desire to exclude from the operation of this Agreement.
To the best of my knowledge, there is no other contract to assign inventions,
trademarks, copyrights, ideas, processes, discoveries or other intellectual
property that is now in existence between me and any other person (including any
business or governmental entity).
(i) No Use of Name. I shall not at any time use the Company's
name or any of the Company trademark(s) or trade name(s) in any advertising or
publicity without the prior written consent of the Company.
(j) Acknowledgment. I acknowledge that the Company would not
hire me but for my covenants contained in these Sections.
4. Representations and Warranties. I represent and warrant (i) that I
have no obligations, legal, contractual, or otherwise, inconsistent with the
terms of this Agreement or with my undertaking a relationship with the Company;
(ii) that the performance of the services called for by this Agreement do not
and will not violate any applicable law, rule or regulation or any proprietary
or other right of any third party; (iii) that I will not use in the performance
of my responsibilities for the Company any materials or documents of a former
employer; and (iv) that I have not entered into and will not enter into any
agreement (whether oral or written) in conflict with this Agreement.
5. Termination Obligations.
(a) Upon the termination of my relationship with the Company
(for whatever reason) or promptly upon the Company's request, I shall surrender
to the Company all equipment, tangible Proprietary Information, Confidential
Information, documents, books, notebooks, records, reports, notes, memoranda,
drawings, sketches, models, maps, contracts, lists, computer disks (and other
computer-generated files and data), any other data and records of any kind, and
copies thereof (collectively, "Company Records"), created on any medium and
furnished to, obtained by, or prepared by myself in the course of or incident to
my employment, that are in my possession or under my control.
(b) My representations, warranties, and obligations contained
in this Agreement shall survive the termination of my employment with the
Company.
(c) Following any termination of the Period of Employment, I
will fully cooperate with the Company in all matters relating to my continuing
obligations under this Agreement.
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<PAGE> 142
(d) Upon the termination of my employment with the Company,
and at all times thereafter, I hereby grant consent to notification by the
Company to my new employer about my rights and obligations under this Agreement.
(e) Upon termination of the Period of Employment, I will
execute a Certificate acknowledging compliance with this Agreement in the form
reasonably provided by the Company.
6. Injunctive Relief. I acknowledge that my failure to carry out any
obligation under this Agreement, or a breach by me of any provision herein, will
constitute immediate and irreparable damage to the Company, which cannot be
fully and adequately compensated in money damages and which will warrant
preliminary and other injunctive relief, an order for specific performance, and
other equitable relief. I further agree that no bond or other security shall be
required in obtaining such equitable relief and I hereby consent to the issuance
of such injunction and to the ordering of specific performance. I also
understand that other legal and equitable action may be taken and remedies
enforced against me.
7. Modification. No modification of this Agreement shall be valid
unless made in writing and signed by both parties. Any such writing may only be
signed on behalf of the Company by the President of the Company.
8. Binding Effect. This Agreement shall be binding upon me, my heirs,
executors, assigns and administrators and is for the benefit of the Company and
its successors and assigns.
9. Arbitration. Any dispute or controversy arising out of or relating
to any interpretation, construction, performance or breach of this Agreement,
shall be settled by arbitration to be held in Dallas, Texas in accordance with
the rules then in effect of the American Arbitration Association. The arbitrator
may grant injunctions or any other relief in such dispute or controversy. The
decision of the arbitrator shall be final, conclusive and binding on the parties
to the arbitration. Judgment may be entered on the arbitrator's decision in any
court having jurisdiction; provided, however, that the arbitrator shall not have
the power to alter or amend this Agreement.
10. Governing Law. This Agreement shall be construed in accordance
with, and all actions arising under or in connection therewith shall be governed
by, the internal laws of the State of Texas (without reference to conflict of
law principles).
11. Integration. This Agreement sets forth the parties' mutual rights
and obligations with respect to Proprietary Information, Confidential
Information, prohibited competition, and intellectual property. It is intended
to be the final, complete, and exclusive statement of the terms of the parties'
agreements regarding these subjects. This Agreement supersedes all other prior
and contemporaneous agreements and statements on these subjects, and it may not
be contradicted by evidence of any prior or contemporaneous statements or
agreements. To the extent that the practices, policies, or procedures of the
Company, now or in the future, apply to myself and are inconsistent with the
terms of this Agreement, the provisions of this Agreement shall control unless
changed in writing by the Company.
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<PAGE> 143
12. Employment at Will. This Agreement is not an employment agreement.
I understand that the Company may terminate my association or employment with it
at any time, with or without cause, subject to the terms of any separate written
employment agreement, if any, executed by a duly authorized officer of the
Company.
13. Construction. This Agreement shall be construed as a whole,
according to its fair meaning, and not in favor of or against any party. By way
of example and not limitation, this Agreement shall not be construed against the
party responsible for any language in this Agreement. The headings of the
paragraphs hereof are inserted for convenience only, and do not constitute part
of and shall not be used to interpret this Agreement.
14. Attorneys' Fees. Should either I or the Company, or any heir,
personal representative, successor or permitted assign of either party, resort
to legal proceedings to enforce this Agreement, the prevailing party in such
legal proceeding as determined by the arbitrator or other trier of fact, shall
be awarded, in addition to such other relief as may be granted, attorneys' fees
and costs incurred in connection with such proceeding.
15. Severability. If any term, provision, covenant or condition of this
Agreement, or the application thereof to any person, place or circumstance,
shall be held to be invalid, unenforceable or void, the remainder of this
Agreement and such term, provision, covenant or condition as applied to other
persons, places and circumstances shall remain in full force and effect.
16. Rights Cumulative. The rights and remedies provided by this
Agreement are cumulative, and the exercise of any right or remedy by either the
Company or me (or by that party's successor), whether pursuant hereto, to any
other agreement, or to law, shall not preclude or waive that party's right to
exercise any or all other rights and remedies. This Agreement will inure to the
benefit of the Company and its successors and assigns.
17. Nonwaiver. The failure of either the Company or me, whether
purposeful or otherwise, to exercise in any instance any right, power or
privilege under this Agreement or under law shall not constitute a waiver of any
other right, power or privilege, nor of the same right, power or privilege in
any other instance. Any waiver by the Company or by me must be in writing and
signed by either myself, if I am seeking to waive any of my rights under this
Agreement, or by an officer of the Company (other than me) or some other person
duly authorized by the Company.
18. Notices. All notices, objections and other communications hereunder
shall be in writing and shall be deemed to have been duly given if personally
delivered (return receipt requested) or mailed by certified mail (return receipt
requested) or by Federal Express or another nationally recognized courier
service or by facsimile transmission upon electronic confirmation of receipt
thereof during normal business hours at the following addresses (or at such
other address for a party as shall be specified by like notice):
A-7
<PAGE> 144
If to the Employee:
[ ]
-----------------------
-----------------------
-----------------------
If to the Company:
eVentures Group, Inc.
One Evertrust Plaza, 8th Floor
Jersey City, New Jersey 07302
Attention: Vice President and Chief Financial Officer
Telephone: (201) 200-5515
Facsimile Number: (201) 200-5532
with a copy to:
eVentures Group, Inc.
c/o HW Partners, L.P.
1601 Elm Street, 40th Floor
Dallas, Texas 75201
Attention: General Counsel
Telephone: (214) 720-1608
Facsimile Number: (214) 720-1667
and to:
White & Case LLP
200 S. Biscayne Blvd. Suite 4900
Miami, FL 33131
Attention: Thomas E Lauria
Telephone: (305) 371-2700
Facsimile Number: (305) 358-5744
19. Date of Effectiveness. This Agreement shall be deemed effective as
of the commencement of my employment with the Company.
20. Agreement to Perform Necessary Acts. I agree to perform any further
acts and execute and deliver any documents that may be reasonably necessary to
carry out the provisions of this Agreement.
21. Assignment. This Agreement may not be assigned without the
Company's prior written consent. The Company may assign its rights under this
Agreement.
22. Compliance with Law. I agree to abide by all federal, state, and
local laws, ordinances and regulations.
A-8
<PAGE> 145
23. Employee Acknowledgment. I acknowledge that I have had the
opportunity to consult legal counsel in regard to this Agreement, that I have
read and understand this Agreement, that I am fully aware of its legal effect,
and that I have entered into it freely and voluntarily and based on my own
judgment and not on any representations or promises other than those contained
in this Agreement.
* * *
A-9
<PAGE> 146
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date set forth below.
CAUTION: THIS AGREEMENT CREATES IMPORTANT OBLIGATIONS OF TRUST AND
AFFECTS THE EMPLOYEE'S RIGHTS TO INVENTIONS AND OTHER INTELLECTUAL PROPERTY THE
EMPLOYEE MAY DEVELOP DURING HIS OR HER EMPLOYMENT.
Dated:
--------------------
------------------------------
Employee Signature
------------------------------
Printed Name of Employee
eVENTURES GROUP, INC.
By:
-------------------------------
Name: Stuart J. Chasanoff
Title: Vice President of Business Development,
Secretary and General Counsel
A-10
<PAGE> 147
EXHIBIT F
TO SHARE EXCHANGE AGREEMENT
OPINION MATTERS FOR COUNSEL TO THE STOCKHOLDERS
The opinion of counsel to the Company shall be addressed to eVentures
Group, Inc. and IGS Acquisition Corporation and shall include the following
opinions:
(1) The Company and each of the Subsidiaries is a corporation duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and each such Person has all requisite
corporate power and authority to own, lease and operate its properties and to
carry on its business as now being conducted.
(2) The duly authorized capital stock of the Company consists of
20,000,000 shares of Company Common Stock, 6,195,644 shares of Company Common
Stock are issued and outstanding as of the date hereof. All outstanding shares
of capital stock of the Company and the Subsidiaries are duly authorized,
validly issued and outstanding, fully paid and non-assessable. To our knowledge,
there are no outstanding subscriptions, options, warrants, rights, calls,
commitments, conversion rights, rights of exchange, plans or other agreements or
commitments, contingent or otherwise, of any character providing for the
purchase, redemption, acquisition, retirement, issuance or sale by the Company
or any of the Subsidiaries of any shares of capital stock of the Company or any
of the Subsidiaries or other securities exchangeable or convertible into capital
stock of the Company or the Subsidiaries and there are no stock appreciation
rights or phantom stock plans outstanding, in each case, other than as disclosed
in Schedule 3.3 of the Share Exchange Agreement.
(3) To the best of our knowledge, there are no actions, suits,
proceedings, orders, investigations or claims pending or threatened against the
Company or any of the Subsidiaries, at law or in equity, or before or by any
federal, state, municipal or other governmental department, commission, board,
bureau, agency or other instrumentality, domestic or foreign, which might
adversely affect the Company's performance under the Share Exchange Agreement or
the Transaction Documents to which it is a party or the consummation of the
transactions contemplated thereby.
(4) Except as set forth in the schedules to the Share Exchange
Agreement, to the best of our knowledge, there are no actions, suits,
proceedings, orders, investigations or claims pending or threatened against the
Company, at law or in equity, or before or by any federal, state, municipal or
other governmental department, commission, board, bureau, agency or other
instrumentality, domestic or foreign, which might adversely affect the assets,
properties, businesses, financial condition or results of operation of the
Company.
<PAGE> 148
EXHIBIT G
to Share Exchange Agreement
FORM OF INVESTOR REPRESENTATION LETTER
READ CAREFULLY BEFORE SIGNING
ALL INFORMATION REQUIRED TO BE PROVIDED HEREIN WILL BE KEPT STRICTLY
CONFIDENTIAL.
FOLLOWING THE CLOSING OF THE SHARE EXCHANGE AGREEMENT REFERRED TO HEREIN, THE
COMPANY CONTEMPLATES CAUSING SUBSIDIARY AND IGS TO MERGE. IN SUCH MERGER, THE
HOLDERS OF IGS COMMON STOCK WILL RECEIVE AS MERGER CONSIDERATION THE SAME
SECURITIES OF THE COMPANY THAT THE STOCKHOLDER WILL RECEIVE IN THE TRANSACTION.
THE SECURITIES TO BE ISSUED PURSUANT TO THE SHARE EXCHANGE AGREEMENT AND THE
MERGER WILL NOT BE REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE TRANSFERRED UNLESS
THEY ARE SO REGISTERED OR, IN THE OPINION OF COUNSEL ACCEPTABLE TO THIS
CORPORATION, SUCH TRANSFER IS EXEMPT FROM REGISTRATION.
eVentures Group, Inc.
One Evertrust Plaza
8th Floor
Jersey City, New Jersey 07302
Ladies and Gentlemen:
The undersigned (the "Securityholder") is executing this Agreement in
connection with the acquisition by the Securityholder of shares of the common
stock, par value $0.00002 per share ("eVentures Common Stock"), of eVentures
Group, Inc., a Delaware corporation (the "Company"), options to purchase shares
of eVentures Common Stock ("eVentures Options") and/or warrants to purchase
shares of eVentures Common Stock ("eVentures Warrants" and, together with
eVentures Common Stock and eVentures Options, "eVentures Securities") from the
Company pursuant to the Share Exchange Agreement (the "Share Exchange
Agreement"), dated as of February 22, 2000, by and among the Company, IGS
Acquisition Corporation ("Subsidiary") and certain stockholders of Internet
Global Services, Inc. ("IGS"), and/or in connection with the subsequent proposed
merger (the "Merger") of IGS with and into Subsidiary. Capitalized terms used
herein and not otherwise defined herein have the meanings ascribed to them in
the Share Exchange agreement. The Securityholder acknowledges that it is a
condition to the Closing under the Share Exchange Agreement that the Company
receive this letter, executed by the Securityholder.
<PAGE> 149
1. REPRESENTATIONS AND WARRANTIES OF THE SECURITYHOLDER. The Securityholder
hereby represents and warrants to Company as follows:
(a) The Securityholder has adequate means of providing for his (her)
current needs and possible personal contingencies and he (she) has no need
now and anticipates no need in the foreseeable future to sell the eVentures
Securities for which he (she) hereby is exchanging his or her equity
interest in IGS. The Securityholder has carefully evaluated his (her)
financial resources and investment position and the risks associated with
an investment in the Company and is able to bear the economic risks of this
investment and consequently, without limiting the generality of the
foregoing, the Securityholder is able to hold the eVentures Securities for
an indefinite period of time and has a sufficient net worth to sustain a
loss of his (her) entire investment in the Company in the event such loss
should occur.
(b) The Securityholder has such knowledge and experience in financial
and business matters as to be capable of evaluating the merits and risks of
an investment in the Company. In addition, the Securityholder represents
that, on the basis of his (her) business and financial experience, he (she)
has acquired the capacity to protect his (her) own interest in investments
of this nature. The Securityholder recognizes that his (her) investment in
the Company involves a high degree of risk. The Securityholder further
understands that an investment in the eVentures Securities is highly
speculative and is not suitable for investors who cannot afford to lose all
of their investment. The Securityholder is familiar with the nature of, and
risks attendant to, investments in securities of the type being subscribed
for hereby and has determined that the purchase of such securities is
consistent with his (her) investment objectives.
(c) The Securityholder is acquiring the eVentures Securities for his
(her) own account for investment and not with a view to or for resale in
connection with any distribution of the eVentures Securities.
(d) The Securityholder has not offered or sold any portion of the
eVentures Securities and has no present intention of dividing the eVentures
Securities with others or of selling, distributing or otherwise disposing
of any portion of the eVentures Securities either currently or after the
passage of a fixed or determinable period of time or upon the occurrence or
non-occurrence of any predetermined event or circumstance.
(e) The Securityholder is aware that he (she) must bear the economic
risk of his (her) investment in the Company for an indefinite period of
time because the eVentures Securities will not be registered under the
Securities Act of 1933, as amended (the "Securities Act"), or under the
securities laws of various states and, therefore, such securities cannot be
sold unless they are subsequently registered under the Securities Act and
any applicable state securities laws or an exemption from registration is
available. Further, the Securityholder understands that only the Company
can take action so as to register the eVentures Securities on behalf of the
Company and the Company is under no obligation to do so and does not
otherwise propose to do so, except as otherwise provided for in any
Registration Rights Agreement negotiated between the Company and
G-2
<PAGE> 150
the Securityholders. The Securityholder understands that neither the
Securities and Exchange Commission nor the securities administrator of any
state has made any finding or determination relating to the fairness or
desirability of an investment in the eVentures Securities and that the
eVentures Securities have not been approved or disapproved by the
Securities and Exchange Commission or by any other federal or state agency,
and no such agency has passed on the accuracy or adequacy of this
Agreement, the Transaction Documents or the Parent SEC Reports.
(f) The Securityholder understands and agrees that he (she) cannot
sell, transfer, or otherwise dispose of any of the eVentures Securities
received pursuant to the Share Exchange Agreement without delivering to the
Company an opinion of counsel satisfactory to the Company that the
transaction contemplated by him (her) would not be in violation of the
Securities Act or any applicable state securities laws. The Securityholder
understands that there is no substantial public trading market for the
eVentures Securities which he, she or it is receiving pursuant to the Share
Exchange Agreement and it is unlikely that a substantial trading market for
any of these securities will ever develop. In addition, the Securityholder
acknowledges that there can be no assurance that the Securityholder will be
able to sell or dispose of the eVentures Securities at any point in the
future.
(g) THE SECURITYHOLDER (i) IS FAMILIAR WITH THE COMPANY AND HAS
RECEIVED ALL THE INFORMATION THAT HE OR IT DEEMS NECESSARY TO MAKE AN
INFORMED INVESTMENT DECISION WITH RESPECT TO AN INVESTMENT IN THE COMPANY;
(ii) HAS HAD THE UNRESTRICTED OPPORTUNITY TO MAKE SUCH INVESTIGATION AS HE
OR IT DESIRES PERTAINING TO THE COMPANY AND AN INVESTMENT IN THE COMPANY
AND TO VERIFY ANY INFORMATION FURNISHED TO HIM OR IT WITH RESPECT TO EACH
OF THE ENTITIES; (iii) HAS HAD THE UNRESTRICTED OPPORTUNITY TO ASK
QUESTIONS OF REPRESENTATIVES OF THE COMPANY AND IGS CONCERNING THE COMPANY
AND HIS OR ITS INVESTMENT IN THE COMPANY; (iv) HAS HAD THE UNRESTRICTED
OPPORTUNITY TO REVIEW AND ASK QUESTIONS REGARDING THE TERMS OF THE SHARE
EXCHANGE AGREEMENT; AND (v) ACKNOWLEDGES THAT HE OR IT HAS EITHER RECEIVED
OR BEEN AFFORDED THE OPPORTUNITY TO RECEIVE, ON OR PRIOR TO THE DATE
HEREOF, THE PARENT SEC REPORTS. THE SECURITYHOLDER FURTHER ACKNOWLEDGES
THAT THE COMPANY HAS MADE AVAILABLE TO HIM (HER) THE OPPORTUNITY TO OBTAIN
ADDITIONAL INFORMATION TO VERIFY THE ACCURACY OF THE INFORMATION CONTAINED
IN THE INFORMATION MEMORANDUM AND TO EVALUATE THE MERITS AND RISKS OF THE
INVESTMENT.
(h) The Securityholder confirms that the eVentures Securities were not
offered to him (her) by any means of general solicitation or advertising,
including, without limitation, (i) any advertisement, article, notice or
other communication published in any newspaper, magazine, or similar
broadcast over television or radio, and (ii) any seminar or meeting whose
attendees have been invited by any general solicitation or general
advertising; and the Securityholder has received no representations from
the Company or its respective employees, attorneys or agents, other than
those contained in the Share Exchange Agreement and the Transaction
Documents. In making his (her) decision to exchange the Securityholder's
equity interests in IGS for eVentures Securities, the Securityholder has
relied solely upon his (her) review of the documents described herein and
independent investigations made by him (her) without assistance of the
Company and
G-3
<PAGE> 151
he (she) confirms that all documents, records and books pertaining to this
proposed investment have been made available to him (her) and, if
applicable, his (her) stockholder representative as such term is defined in
Regulation D ("Stockholder Representative").
(i) The Securityholder acknowledges that he (she) has been advised to
consult with his (her) own attorney regarding legal matters concerning the
Company, an investment in the eVentures Securities or any other action to
be taken in connection with the transaction described in the Share Exchange
Agreement, and to consult with his (her) tax advisor regarding the tax
consequences of exchanging securities of IGS for eVentures Securities or
becoming a stockholder of the Company.
(j) If the equity interests in IGS are owned by a corporation,
partnership or other entity, the decision to exchange such equity interests
and the execution and delivery of this letter have been duly authorized by
such corporation, partnership or other entity and the person executing this
letter on behalf of such corporation, partnership or other entity has the
right, power and authority, in his (her) capacity as an officer, general
partner, trustee, executor or other representative of such corporation,
partnership or other entity, as the case may be, to execute and deliver
this letter on behalf of such corporation, partnership or other entity.
(k) The Securityholder, if an individual, has reached the age of
majority in the state in which he (she) resides.
(l) This letter constitutes a legal, valid and binding obligation of
the Securityholder, enforceable against the Securityholder in accordance
with its terms, and the execution, delivery and performance of this letter
and the fulfillment and compliance with its terms do not and will not
conflict with, violate or cause a breach of the terms, conditions or
provisions of the Securityholder's charter documents, if applicable, any
agreement, non-compete provision, contract or instrument to which the
Securityholder is a party or any judgment, order or decree to which the
Securityholder is subject.
(m) The Securityholder understands that the eVentures Securities to be
issued and delivered to the Securityholder pursuant to the terms of the
Share Exchange Agreement will not be registered under the Securities Act
but will be issued in reliance upon the exemption afforded by Section 4(2)
of the Securities Act and/or Regulation D promulgated by the SEC thereunder
("Regulation D"). The Securityholder acknowledges that certificates
representing the eVentures Securities will bear a legend substantially as
follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE TRANSFERRED
UNLESS THEY ARE SO REGISTERED OR, IN THE OPINION OF COUNSEL
ACCEPTABLE TO THIS CORPORATION, SUCH TRANSFER IS EXEMPT FROM
REGISTRATION.
G-4
<PAGE> 152
(n) The information contained herein and in the Stockholder
Questionnaire previously submitted to the Company by the Securityholder is
complete and accurate as of the date hereof and may be relied upon by the
Company, its officers, directors, agents and advisors. The Securityholder
understands the information contained in the Stockholder Questionnaire is
being used by the Company and its advisers to determine whether this
transaction may be made to the Securityholder pursuant to Section 4(2) of
the Securities Act, Rule 506 of Regulation D and any other applicable
states' securities laws. The Securityholder understands that (i) the
information contained herein will be relied upon for purposes of such
determination and (ii) the eVentures Securities will not be registered
under the Securities Act, or any state securities act, in reliance upon the
exemptions from registration provided by Section 4(2) of the Securities
Act, Rule 506 of Regulation D or exemptions available for resales by
affiliates in private transactions. THE SECURITYHOLDER REPRESENTS AND
WARRANTS THAT THE SECURITYHOLDER WILL NOTIFY THE COMPANY IMMEDIATELY OF ANY
MATERIAL CHANGE IN ANY OF SUCH INFORMATION OCCURRING PRIOR TO THE CLOSING
OF THE PURCHASE TRANSACTION.
(o) The Securityholder is an "accredited investor" as that term is
defined in Rule 501 of Regulation D, as more fully indicated in the
Securityholder's Stockholder Questionnaire, or a person either alone or
with his Stockholder Representative having such knowledge and experience in
financial and business matters that he is capable of evaluating the merits
and risks of the prospective investment, as that term is defined or
described in Regulation D and applicable states securities laws. If the
Securityholder is not an accredited investor, he or she must obtain the
assistance of a Stockholder Representative, who must complete the
Stockholder Representative Certificate (herein so called) attached as Annex
A to the Stockholder Questionnaire.
(p) The Securityholder understands that if he (she) is using the
services of a Stockholder Representative, the Closing under the Share
Exchange Agreement is conditioned on the completion of a Stockholder
Representative Certificate in the form attached as Annex A to the
Stockholder Questionnaire.
(q) The Securityholder has been granted the opportunity to ask
questions of, and receive answers from, representatives of the Company
concerning the terms and conditions of the stated transaction in which the
eVentures Securities will be issued and has been given the opportunity to
obtain any additional information, and to request exhibits to the Company's
filing with the SEC.
6. INDEPENDENT ADVICE.
a. THE SECURITYHOLDER IS HEREBY ADVISED TO OBTAIN INDEPENDENT
INVESTMENT, LEGAL AND TAX COUNSEL WITH RESPECT TO ISSUES WHICH MAY ARISE IN
CONNECTION WITH LEGAL MATTERS CONCERNING THE COMPANY OR AN INVESTMENT IN
EVENTURES SECURITIES.
G-5
<PAGE> 153
b. THE SECURITYHOLDER AND HIS OR HER SPOUSE, IF ANY, ACKNOWLEDGE THAT
HE OR THEY HAVE HAD THE OPPORTUNITY TO SEEK COUNSEL TO REVIEW THIS LETTER,
THE SHARE EXCHANGE AGREEMENT AND ALL OF THE TRANSACTION DOCUMENTS AND TO
OBTAIN THE ADVICE OF COUNSEL RELATING THERETO. THE SECURITYHOLDER AND HIS
OR HER SPOUSE, IF ANY, ALSO ACKNOWLEDGE THAT IF HE OR SHE OR THEY HAVE NOT
EMPLOYED COUNSEL TO REVIEW THIS AGREEMENT AND ALL OF THE OTHER TRANSACTION
DOCUMENTS, IT HAS BEEN THE CHOICE OF SUCH PARTY(IES) TO FOREGO ADVICE OF
COUNSEL.
7. SURVIVAL. The Securityholder represents and warrants that the
information contained herein is true and correct as of the date hereof. The
Securityholder agrees that all representations, warranties and covenants
contained in this Agreement shall be true and accurate as of the date of the
Closing under the Share Exchange Agreement and shall survive (a) the Closing of
the Share Exchange Agreement, and (b) if an individual, the death or disability
of the Securityholder.
8. GOVERNING LAW. This Agreement shall be governed and construed for all
purposes in accordance with the laws (without giving effect to the principles
governing conflicts of laws) of the State of New York.
9. COUNTERPARTS. This Agreement may be executed by one or more of the
parties hereto in any number of counterparts, each of which shall be deemed to
be an original, but all such counterparts shall together constitute one and the
same instrument.
10. SUCCESSORS AND ASSIGNS. This letter and the representations and
warranties contained herein shall be binding upon the heirs, executors,
administrators, and other successors of the Securityholder and this letter shall
inure to the benefit of and be enforceable by the Company and its successors and
assigns.
[SIGNATURE PAGE TO FOLLOW]
G-6
<PAGE> 154
SIGNATURE PAGE TO RESTRICTED STOCK INVESTMENT REPRESENTATION AGREEMENT
(PLEASE PRINT, EXCEPT FOR REQUIRED SIGNATURES):
SECURITYHOLDER:
(for Entities)
- ---------------------------------
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
(for Individuals)
Signature of Securityholder:
- ------------------------------------ ------------
Printed Name Date:
-----------------------------------
Date:
If a married individual, the spouse
of the Securityholder must sign:
Signature of spouse:
- ----------------------------------- --------------------
(Printed name of spouse) Date:
-----------------------------------
ADDRESS: PHONE (include area code):
(1) ------------------------------- ( )
--- -----------------------------------
-------------------------------
(2) ------------------------------- ( )
--- ----------------------------------
-------------------------------
TAXPAYER I.D. NUMBER OR SOCIAL SECURITY NUMBER OF EACH SECURITYHOLDER:
Entity:
------------------------------
Taxpayer Identification Number
Individual:
Social Security Number (1)
------------------------------------
Social Security Number (2)
------------------------------------
G-7
<PAGE> 155
(Individual Form)
STATE OF )
------------ )
COUNTY OF )
------------
This instrument was acknowledged before me on the ________ day of
_____________, 2000, by _________________________.
------------------------------
Notary Public
(Entity Form)
STATE OF )
------------ )
COUNTY OF )
------------
This instrument was acknowledged before me on the _______ day of
________________, 2000, by ________________________, ______________________ of
______________________, a _______________ (corporation, partnership or trust),
on behalf of said ______________ (corporation, partnership or trust).
-----------------------------
Notary Public
G-8
<PAGE> 156
EXHIBIT H
to Share Exchange Agreement
PURCHASER REPRESENTATIVE CERTIFICATE
The undersigned has been named by _________________________________
(the "Securityholder") as the Securityholders' Representative (the "Purchaser
Representative") in evaluating the merits and risks of investment in shares of
common stock, par value $0.00002 per share ("eVentures Common Stock"), of
eVentures Group, Inc., a Delaware corporation (the "Company"), an investment in
options to acquire eVentures Common Stock ("eVentures Warrants") and/or warrants
to purchase shares of eVentures Common Stock ("eVentures Warrants" and, together
with eVentures Common Stock and eVentures Options, "eVentures Securities") in
connection with the Agreement and Plan of Merger between IGS Acquisition
Corporation and Internet Global Services, Inc. (the "Merger Agreement"). The
undersigned hereby represents and warrants as follows:
1. I have reviewed and discussed the Merger Agreement with the Securityholder,
with a view to determining whether an investment in eVentures Securities by
the Securityholder is appropriate in light of such Securityholder's
financial circumstances, as such circumstances have been disclosed to me by
such Securityholder.
2. I am not an affiliate, or a director, officer or other employee of the
Company, or a beneficial owner of 10% or more of any class of equity
securities or equity interest in the Company. There is no material
relationship between me or any affiliates and the Company, or its
affiliates, which now exists or is mutually understood to be contemplated,
or which has existed at any time during the previous two years, nor has
compensation been received, or will be received, as a result of any such
relationship, except as follows:
(State, "None," or set forth exceptions and give details.)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
I have heretofore disclosed in writing to the Securityholder any relations
described immediately above. I further understand that the disclosure of
any of the material relationships set forth immediately above, if any, does
not relieve me of my obligation to act in the interest of the
Securityholder .
3. My professional affiliation with the Securityholder is as follows:
Attorney ( )
Accountant ( )
Financial Advisor ( )
Other (specify)
-----------------------------------------------------------
<PAGE> 157
4. I have such knowledge and experience in financial and business matters
as to be capable of evaluating the merits and risks of an investment in
the Company. I offer as evidence thereof the following information
(e.g., investment experience, business experience, education) [This
information must be provided]:
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
5. I have known the Securityholder for __________ years, and am familiar
with the financial and tax positions and plans of the Securityholder .
6. I (please mark one):
_____ (a) have not relied on the advice of, and have not consulted
with, anyone else in advising the Securityholder with regard to an
investment in the eVentures Securities; or a
_____ (b) have relied on the advice of, or have consulted with, the
following person(s), in advising the Securityholder with regard to an
investment in the eVentures Securities.
- -------------------------------- --------------------------------------
Name Name
- -------------------------------- --------------------------------------
- -------------------------------- --------------------------------------
Address Address
7. I represent and warrant that I have no business relationship with the
Company or any of its affiliates, that I represent only the
Securityholder and not the Company or any of its affiliates, and, to
the extent I am compensated, I am compensated only by the
Securityholder.
Signature Page Following
H-2
<PAGE> 158
SIGNATURE OF PURCHASER REPRESENTATIVE
I agree to notify you promptly of any changes in the information
described in this Purchaser Representative Certificate that may occur prior to
the closing of the proposed transactions contemplated in the Merger Agreement.
Dated:
----------------
-------------------------------------------
[Name], Purchaser Representative
Address:
Telephone:
SIGNATURE OF PURCHASER
The undersigned Securityholder hereby represents that the person whose signature
appears above has been engaged to act as his or her Purchaser Representative in
connection with evaluating the merits and risks of a prospective investment in
the Company.
INDIVIDUALS:
-------------------------------------------
Signature of Securityholder
-------------------------------------------
Print or Type Name
ENTITIES:
----------------------------
By
-----------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
H-3
<PAGE> 159
EXHIBIT I
TO SHARE EXCHANGE AGREEMENT
FORM OF OPINION OF COUNSEL TO PARENT AND ACQUISITION SUB
The opinion of counsel to Parent and Acquisition Sub shall be addressed
to the Stockholders' Representative and shall include the following opinions:
1. Each of Parent, Acquisition Sub and the Parent's Material
Subsidiaries is a corporation duly incorporated, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, with full
corporate power and authority to carry on its business as now being conducted,
and to own, operate and lease its properties and assets.
2. Upon approval by the Board of Directors of Parent and Acquisition
Sub, each of Parent and Acquisition Sub will have the requisite corporate power
and authority to execute and deliver the Share Exchange Agreement and the other
Transaction Documents to which it is a party, to perform its obligations
thereunder and to consummate the transactions contemplated thereby. The Share
Exchange Agreement and the other Transaction Documents to which it is a party
have been duly executed and delivered by Parent and Acquisition Sub and, once
the aforementioned approval has been obtained, will be valid and binding
obligations of Parent and Acquisition Sub enforceable against Parent and
Acquisition Sub in accordance with their terms, except as such enforcement may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance, or other similar laws affecting the enforcement of
creditors' rights generally, and general equitable principles.
3. The execution and delivery of the Share Exchange Agreement and the
other Transaction Documents by Parent and Acquisition Sub and the consummation
of the transactions contemplated thereby do not and will not (A) violate any
provision of Parent's or Acquisition Sub's Certificate of Incorporation or
By-Laws; (B) to the best of our knowledge, violate with any statute, ordinance,
rule, regulation, order or decree of any court or of any governmental or
regulatory body, agency or authority applicable to Parent or Acquisition Sub or
any of Parent's Material Subsidiaries or by which any of their respective
properties or assets may be bound, other than any rule, regulation, order or
decree of the Federal Communications Commission (the "FCC") as to which no
opinion is expressed, (C) require any filing with, or permit, consent or
approval of, or the giving of any notice to, any Texas or federal governmental
or regulatory body, agency or authority, other than the FCC with respect to
which no opinion is expressed, or (D) result in a violation or breach of,
conflict with, constitute (with or without due notice or lapse of time or both)
a default (or give rise to any right of termination, cancellation, payment or
acceleration) under, or result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties or assets of Parent or
Acquisition Sub or any of Parent's Material Subsidiaries under, or give rise to
any obligation, right of termination, cancellation, acceleration or increase of
any obligation or a loss of a material benefit under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
franchise, permit, agreement, contract, lease, franchise agreement or other
instrument or obligation filed as an exhibit to Parent's registration statement
on Form 10 filed with the SEC on December 20, 1999, as it may be
<PAGE> 160
amended prior to the Closing Date, to which Parent or Acquisition Sub or any of
Parent's Material Subsidiaries is a party, or by which any such Person or any of
its properties or assets are bound.
4. No permit, consent, approval or authorization of, or declaration to
or filing with, any Texas or federal regulatory or other governmental authority
is required in connection with the execution and delivery of the Share Exchange
Agreement and the other Transaction Documents by Parent or the Acquisition Sub
and the consummation of the transactions contemplated thereby, except those
which have been accomplished or obtained or those which may be required by the
FCC.
5. To the best of our knowledge and other than as disclosed in the
Share Exchange Agreement, there are no actions, suits, proceedings, orders,
investigations or claims pending or threatened against Parent or the Acquisition
Sub, at law or in equity, or before or by any federal, state, municipal or other
governmental department, commission, board, bureau, agency or other
instrumentality, domestic or foreign, which might adversely affect its
performance under the Share Exchange Agreement or the other Transaction
Documents to which it is a party or the consummation of the transactions
contemplated thereby.
6. All of the shares of Parent Common Stock issuable pursuant to the
Share Exchange Agreement, when issued as provided therein, will be, duly
authorized, validly issued, fully paid and nonassessable.
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<PAGE> 1
EXHIBIT 3.9
CERTIFICATE OF DESIGNATION, PREFERENCES
AND RIGHTS OF SERIES C CONVERTIBLE
PREFERRED STOCK OF eVENTURES GROUP, INC.
I, STUART J. CHASANOFF, being the Vice President and Secretary of eVENTURES
GROUP, INC., a corporation organized and existing under the laws of Delaware
(the "Corporation"), DO HEREBY CERTIFY that, pursuant to authority conferred
upon the Board of Directors by the Amended Certificate of Incorporation and
Section 141(f) of the Delaware General Corporation Law, the Board of Directors,
by a unanimous written consent dated the 31st day of December, 1999, adopted the
following resolution:
RESOLVED, that pursuant to authority vested in the Board of Directors by
Article Fourth of the Amended Certificate of Incorporation of this
Corporation, there is hereby established a series of Preferred Stock
designated as "Series C Convertible Preferred Stock"; that the series shall
consist of 30,000 shares, par value $.00002 per share, which series shall
have the preferences and rights set forth in a Certificate of Designation,
Preference and Rights of Series C Convertible Preferred Stock of eVentures
Group, Inc. to be filed with the Delaware Secretary of State, as the same
may be amended and restated from time to time, as set forth below:
SERIES C CONVERTIBLE PREFERRED STOCK
1. Dividends. The holders of the Series C Convertible Preferred Stock
(the "Series C Stock") shall have no rights to the payment of dividends on the
Series C Stock (regardless of whether the Corporation declares or pays dividends
on any other class of preferred stock or common stock of the Corporation).
2. Redemption.
2.1 Optional Redemption. The Corporation may, at any time and from
time to time, pursuant to a resolution of its Board of Directors, redeem all or
any of the outstanding shares of Series C Stock in the manner prescribed in this
Section 2; provided that the Corporation shall not redeem less than 750 shares
of Series C Stock pursuant to any single Redemption Notice. Any such redemption
shall be made on a pro rata basis among all holders of Series C Stock, and the
terms of redemption (including with respect to the timing of redemption and the
redemption price) applying to each holder of Series C Stock shall be equivalent
to those offered to other holders of Series C Stock.
2.2 Redemption Notice. At any time that the Corporation elects to
redeem shares of Series C Stock pursuant to Section 2.1, the Corporation shall
mail by certified or registered mail, return receipt requested, to each holder
of any shares of Series C Stock as shown on the books and records of the
Corporation (each, a "Registered Holder") at the address shown
<PAGE> 2
on the Corporation's records, a written notice (a "Redemption Notice"), stating:
(i) the number of shares of Series C Stock held of record by such Registered
Holder which the Corporation proposes to redeem; (ii) the date on which the
Corporation proposes to redeem such shares (the "Redemption Date"); (iii) that
in consideration for such shares, the Corporation will pay to such holder the
Liquidation Value (as defined below) of each such share (the "Redemption
Price"); and (iv) the place at which the shares to be redeemed may be
surrendered in exchange for the Redemption Price for such shares. Upon the
mailing of a Redemption Notice, the Corporation shall become obligated to redeem
the shares of Series C Stock specified in such notice on the Redemption Date.
Each Redemption Notice shall be mailed at least 10 days prior to the Redemption
Date stated therein.
2.3 DETERMINATION OF NUMBER OF EACH HOLDER'S SHARES TO BE REDEEMED. At
any time that the Corporation elects to redeem shares of Series C Stock pursuant
to Section 2.1, the number of shares of Series C Stock that the Corporation
shall redeem from each holder of Series C Stock shall be equal to the product of
(i) the total number of shares of Series C Stock to be redeemed (the "Redeemed
Shares"), and (ii) a fraction, the numerator of which shall be the total number
of shares of Series C Stock held by such holder on the Redemption Date, and the
denominator of which shall be the total number of shares of Series C Stock
outstanding on the Redemption Date.
2.4 STATUS OF REDEMPTION OBLIGATION; PAYMENT OF REDEMPTION PRICE.
(a) Payment of the Redemption Price with respect to each share of
Series C Stock subject to a Redemption Notice shall be deemed to become
"due" on the Redemption Date regardless of whether the Corporation shall be
able or legally permitted to make such payments on the Redemption Date.
(b) Each holder of Series C Stock shall receive on or at any time after
any Redemption Date the aggregate Redemption Price for the Redeemed Shares
held by such holder upon surrender by such holder at the place specified in
the Redemption Notice of the certificate representing such Redeemed Shares
duly endorsed in blank or accompanied by an appropriate form of assignment
duly endorsed in blank. Payment of the Redemption Price shall be made
promptly following any holder's surrender of certificates for Redeemed
Shares in the manner set forth in Section 4.2. Upon payment of the
Redemption Price with respect to any Redeemed Shares, all rights of the
holder of such Redeemed Shares shall cease and terminate with respect to
such Redeemed Shares. Unless all of the shares of Series C Stock evidenced
by any certificate delivered shall have been redeemed, the Corporation shall
within a 15 day period prepare a new certificate, substantially identical to
that surrendered, representing the balance of the shares of Series C Stock
formerly represented by the certificate which shall not have been redeemed
and shall within such 15 day period deliver such certificate to the
Registered Holder thereof.
2.5 REDEEMED SHARES TO BE CANCELED. The Corporation shall cancel each
share of Series C Stock which it shall redeem or for any other reason acquire,
and no share of
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<PAGE> 3
Series C Stock which shall be redeemed or otherwise acquired by the Corporation
shall thereafter be reissued, sold, or transferred by the Corporation to any
person. The number of shares of Series C Stock which the Corporation shall be
authorized to issue shall be deemed to be reduced by the number of shares of
Series C Stock which the Corporation shall redeem or otherwise acquire.
2.6 Allocation of Partial Redemption Payments Among Holders of Series
C Stock. If any time the Corporation shall not be able to pay the full
Redemption Price for all Series C Stock which the Corporation shall have become
obligated to redeem at or prior to such time pursuant to this Section 2, of the
Corporation shall redeem shares of Series C Stock from each holder Stock equal
to the product of (i) the total number of shares of Series C Stock which the
Corporation shall be able to redeem at such time, and (ii) a fraction, the
numerator of which shall be the total number of shares of Series C Stock which
the Corporation intends to redeem from such holder at or prior to such time (but
which the Corporation shall not have redeemed at or prior to such time), and the
denominator of which shall be the total number of shares of Series C Stock which
the Corporation intends to redeem at or prior to such time (but which the
Corporation shall not have redeemed at or prior to such time).
3. Liquidation.
3.1 Rights of Holders of Series C Stock. In the event of any
voluntary or involuntary liquidation (whether complete or partial), dissolution
or winding up of the Corporation (a "Dissolution"), the holders of shares of
Series C Stock shall be entitled to be paid out of the assets of the
Corporation available for distribution to its stockholders, whether from
capital, surplus or earnings prior to any distribution to the holders of Common
Stock and pari passu with the holders of any outstanding shares of Series B
Convertible Preferred Stock, par value $0.00002 per share, of the Corporation
(the "Series B Stock"), an amount in cash equal to the sum of one thousand
dollars ($1,000) per share (the "Liquidation Value").
3.2 Allocation of Liquidation Payments Among Holders of Stock. If
upon any Dissolution, the assets of the Corporation available for distribution
to holders of shares of Series B Stock and Series C Stock (the "Total Amount
Available") shall be insufficient to pay the holders of outstanding shares of
Series B Stock and Series C Stock the full amounts to which they shall be
entitled under Section 3.1, each holder of shares of Series C Stock shall be
entitled to receive an amount equal to the product derived by multiplying the
Total Amount Available times a fraction the numerator of which shall be the
number of shares of Series C Stock held by such holder and the denominator of
which shall be the total number of shares of Series B Stock and Series C Stock
then outstanding.
4. Additional Provisions Governing Preferred Stock.
4.1 Voting Rights. (a) Except as otherwise provided herein, by the
Certificate of Incorporation or by applicable law, the shares of Series C
Stock shall have no voting rights.
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<PAGE> 4
(b) Not withstanding the foregoing, the vote of at least a
majority of the outstanding shares of Series C Stock shall be required
to effect any of the following:
(i) any amendment or change to the rights, preferences,
privileges or power of the Series C Stock;
(ii) any action that authorizes, creates or issues shares
of any class of stock having rights, preferences or privileges
superior to the Series C Stock;
(iii) any increase or decrease in the authorized number of
shares of the Series C Stock; and
(iv) any amendment or waiver of any provisions of the
Company's Certificate of Incorporation (the "Certificate of
Incorporation") or Bylaws that adversely affects the rights of
the Series C Stock.
4.2 METHOD OF PAYMENT.
(a) PAYMENTS. Any payment at any time due with respect to any
share of Series C Stock (including but not limited to the payment of
the Redemption Price for such share, and any payment due with respect
to such share under Section 3) shall be made by means of a check
(drawn upon funds which are immediately available not later than the
due date of the payment being made by such check) to the order of the
Registered Holder of such share which check shall be mailed by United
States certified or registered mail, return receipt requested, to the
address for such Registered Holder shown on the Corporation's records.
(b) WHEN PAYMENT DEEMED TO HAVE BEEN MADE. Any payment at any
time due with respect to any share of Series C Stock (including but
not limited to payment of the Redemption Price for such share and any
payment due on such share under Section 3) shall be deemed to have
been paid by the Corporation at the time the Corporation shall have
received a receipt therefor from the U.S. postal service.
4.3 REGISTRATION AND TRANSFER
(a) The Corporation will keep at its principal office a register
for the registration of the shares of Series C Stock.
(b) The Corporation will record a transfer in such register of
any share or shares of Series C Stock and all rights evidenced thereby
upon the request of the Registered Holder thereof in person or by duly
authorized attorney upon the surrender of the certificate(s)
representing such share of Series C Stock with the form of assignment
set forth on the reverse of such certificate properly completed and
executed, properly endorsed at the Corporation's principal office. For
so long as such certificate bears any legend to such effect, prior to
any registration of transfer of any shares of Series C Stock.
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<PAGE> 5
the Corporation shall have received an appropriate investment
representation for purposes of confirming the availability of an
exemption from applicability of the registration provisions of the
Securities Act of 1933, as amended, signed by the Registered Holder of
such shares of Series C Stock, and an opinion of counsel reasonably
acceptable to the Corporation to the same effect.
(c) Upon the surrender of any certificate representing shares
of Series C Stock at the Corporation's principal office, the
Corporation will, at the request of the registered holder of such
certificate, execute and deliver, at the Corporation's expense, a new
certificate or certificates in exchange representing the number of
shares of Series C Stock represented by the surrendered certificate.
Each such new certificate shall be registered in the name of such
Registered Holder or, if any such shares are to be transferred to
another person in compliance with this Section 4.3, such other person
and shall represent such number of shares of Series C Stock as shall be
requested by the holder of the surrendered certificate and shall be
substantially identical in form to the surrendered certificate,
provided that if the certificate is to be issued in a name other than
that of a Registered Holder, the Corporation shall not be required to
issue or deliver any such certificate unless and until the person
requesting the issuance thereof shall have paid to the Corporation the
amount of any tax that may be payable with respect to any transfer
involved in the issuance and delivery of such certificate or has
established to the satisfaction of the Corporation that such tax has
been paid.
4.4 Replacement Certificates. Upon receipt by the Corporation
of evidence reasonably satisfactory to it of the ownership of and the loss,
theft, destruction or mutilation of any certificate evidencing one or more
shares of Series C Stock (an affidavit of the Registered Holder, shall be
satisfactory) the Corporation at its expense will execute and deliver in lieu of
such certificate, a new certificate of like kind, representing the number of
shares of Series C Stock which shall have been represented by such lost, stolen,
destroyed, or mutilated certificate. If required by the Corporation, an
indemnity bond sufficient in the judgment of the Corporation to protect itself
from any loss which it may suffer if a certificate is replaced must be
delivered. The Corporation may charge such Registered Holder for reasonable
expenses directly related to replacing the certificate.
5. Interpretation of this Instrument.
5.1 Definitions. As used in this Certificate of Designation,
each term defined in this Section 5.1 has the meaning set forth below:
(a) Business Day. The term "Business Day" means any day except
Saturday, Sunday and any day which shall be in New York or Texas a
legal holiday or a day on which banking institutions are authorized or
required by law or other government action to close.
(b) Common Stock. The term "Common Stock" designates and
includes the Corporation's common stock, par value $0.00002 per share.
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<PAGE> 6
(c) Conversion Price. The term "Conversion Price" means the
Initial Conversion Price of $17.90, as such price may be adjusted from
time to time pursuant to the provisions of Section 7 hereof.
(d) Conversion Share. The term "Conversion Share" means one share
of the Corporation's authorized Common Stock, provided that if under
the provisions hereof, there shall be a change in the class of
securities purchasable hereunder or such that the securities
purchasable hereunder shall be issued by an entity other than the
Corporation. The term "Conversion Share" shall mean one share of the
security purchasable upon the exercise of the rights granted hereunder
if such security shall be issuable in shares or shall mean the smallest
unit in which such security shall be issuable if such security shall
not be issuable in shares.
(e) Market Value. The term "Market Value" means the average
closing sale price of the Common Stock for the 10 preceding days.
(f) Trading Day. The term "Trading Day" means any Business Day
in which the Common Stock may be traded in a securities market or
exchange in the United States.
6. Conversion Rights. Each share of Series C Stock shall initially be
convertible into 55.865922 shares (subject to adjustment in Section 7) of Common
Stock as set forth in this Section 6.
(a) Conversion Rights.
(i) Optional Conversion by the Holder. At any time or from
time to time prior to the earlier to occur of (x) the Corporation
Conversion Date (as defined below), (y) the Mandatory Conversion Date
(as defined below), or (z) the Redemption Date with respect to all
outstanding shares of Series C Stock, each Registered Holder shall have
the right to convert any or all of such Registered Holder's shares of
Series C Stock into the number of shares of fully paid and
nonassessable Common Stock derived by dividing the Liquidation Value of
each such share by the Conversion Price by delivering the certificate
representing such shares to the Corporation, duly endorsed in blank or
accompanied by an appropriate form of assignment duly endorsed in
blank, together with a written notice stating that the Registered
Holder is converting such shares.
(ii) Mandatory Conversion. On the date following (i) the
completion by the Corporation of an underwritten offering with proceeds
of no less than $50 million at a price per share of no less than $35.80
and (ii) the date upon which the trading volume for shares of common
stock of the Corporation for the preceding three consecutive calendar
months has equaled or exceeded 700,000 shares per month (the "Mandatory
Conversion Date"), each share of Series C Stock shall, automatically
and without further action on the part of any Registered Holder of
Series C Stock, be converted into the number of shares of fully paid
and nonassessable Common Stock derived by dividing the Liquidation
Value of each
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<PAGE> 7
such share by the Conversion Price. Upon such conversion, each share of
Series C Stock shall be canceled and not subject to reissuance. On or
prior to the twentieth (20th) Business Day prior to the Mandatory
Conversion Date, the Corporation may mail by certified or registered
mail, return receipt requested, to each Registered Holder of any
shares of Series C Stock at the address shown on the Corporation's
records, a written notice (the "Mandatory Conversion Notice"),
stating that the Corporation (x) does not intend to exercise the
redemption option provided for in Section 3 hereof, and (y) does
intend to allow the shares of Series C Stock to automatically convert
pursuant to this Section 6.1(a)(ii). Notwithstanding the delivery of
any Mandatory Conversion Notice, the Corporation shall not be deemed
to have waived its right to redeem the Series C Stock pursuant to
Section 2 hereof by virtue of the issuance of the Mandatory Conversion
Notice.
(iii) Optional Conversion by the Corporation. At any time that
(i) any shares of the Series C Stock are outstanding and (ii) the
trading volume for shares of common stock of the Corporation has
equaled or exceeded 700,000 shares per month for three consecutive
calendar months, at any time during the thirty (30) trading days
following the last of any ten consecutive Trading Days (the "Trigger
Date") on which the Market Price of the Common Stock equals or exceeds
an amount equal to 2.5 multiplied by the Conversion Price per share
(the "Target Price"), the Corporation may (but has no obligation to )
elect to convert each outstanding share of Series C Stock
(automatically and without further action on the part of any holder of
outstanding shares of Series C Stock) into the number of shares of
fully paid and nonassessable Common Stock derived by dividing the
Liquidation Value of each such share by the Conversion Price. Upon such
conversion, each share of Series C Stock shall be canceled and not
subject to reissuance. An optional conversion by the Corporation
pursuant to this paragraph 6.1(a)(iii) shall be deemed to have taken
place on the fifth (5th) Business Day following the delivery by the
Corporation of written notice (the "Corporation Conversion Notice") to
the holders of shares of Series C Stock that the Corporation has
elected to convert the outstanding shares of Series C Stock pursuant to
this Section 6.1(a)(iii). The immediately preceding sentence
notwithstanding, the Corporation shall not be deemed to have waived its
right to redeem the Series C stock pursuant to Section 2 hereof by
virtue of the issuance of the Corporation Conversion Notice. The
failure of the Corporation to elect to convert the shares of Series C
Stock following any particular Trigger Date shall not prejudice in any
manner the Corporation's rights under this paragraph 6.1 (a)(iii) with
respect to any other Trigger Date or under Section 2 hereof.
(b) DELIVERY OF SERIES C CERTIFICATES. Following a conversion pursuant
to Section 6(a)(ii) or (iii), each holder of Series C Stock shall be entitled to
receive a certificate or certificates representing the shares of Common Stock
into which such holder's Series C Stock was converted upon surrender by such
holder at the place
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<PAGE> 8
specified in the Mandatory Conversion Notice or Corporate Conversion
Notice of the certificate representing such shares of Series C Stock,
duly endorsed in blank or accompanied by an appropriate form of
assignment duly endorsed in a blank. Each share of Series C Stock
surrendered pursuant to Section 6(a)(i) or this Section 6(b) shall
constitute payment of the Conversion Price equal to the Liquidation
Value of such share surrendered.
(c) DELIVERY OF CERTIFICATES FOR CONVERSION SHARES.
Certificates for Conversion Shares shall be issued and delivered to the
Registered Holder of the converted shares of Series C Stock within 15
days after the delivery of the certificates representing the shares of
Series C Stock to be converted. Unless all of the shares of Series C
Stock evidenced by any certificate delivered shall have been converted,
the Corporation shall within a 15 day period prepare a new certificate,
substantially identical to that surrendered, representing the balance
of the shares of Series C Stock formerly represented by the certificate
which shall not have been converted and shall within such 15 day period
deliver such certificate to the Registered Holder thereof.
(d) FRACTIONAL SHARES. The Corporation may, if it so elects,
issue fractional shares of Common Stock or scrip representing
fractional shares upon the conversion of shares of Series C Stock. If
the Corporation does not elect to issue fractional shares, the
Corporation shall pay to the holder of the shares of Series C Stock
which were converted a cash adjustment in respect of such fractional
shares in an amount equal to the same fraction of the market price per
share of the Common Stock (as determined in a reasonable manner
prescribed by the Board of Directors) at the close of business on the
day of such conversion. The determination as to whether or not any
fractional shares are issuable shall be based upon the total number of
shares of Series C Stock being converted at any one time by any holder
thereof, not upon each share of Series C Stock being converted.
(e) AUTHORIZATION AND ISSUANCE. The Corporation covenants and
agrees that:
(i) the Conversion Shares issuable upon any
conversion of any shares of Series C Stock shall be deemed to
have been issued to the Registered Holder of such shares of
Series C Stock at the time of such conversion, such Registered
Holder shall be deemed for all purposes to have become the
Registered Holder of such Conversion Shares at such time, and
all rights of such Registered Holder with respect to such
Redeemed Shares (other than the right to surrender the
certificates therefor and receive in exchange certificates for
Conversion Shares) shall cease and terminate;
(ii) all Conversion Shares which may be issued upon
any conversion of any shares of Series C Stock will, upon
issuance, be fully paid and nonassessable and free from all
taxes, liens and charges with respect to the issue thereof;
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(iii) the Corporation will take all such action as may be
necessary to assure that all Conversion Shares issuable upon
conversion of Series C Stock may be issued without violation of any
applicable law or regulation or of any requirements of any domestic
securities exchange upon which securities of the same class may be
listed. The Corporation will not take any action which would result
in any adjustment of the Conversion Price if the total number of
shares of Common Stock issuable after such action upon conversion of
all Series C Stock together with all shares of Common Stock then
outstanding and all shares of Common Stock then issuable upon the
exercise of all outstanding options, warrants, conversion and other
rights, would exceed the total number of shares of Common Stock then
authorized by the Corporation's Certificate of Incorporation;
(iv) the issuance of certificates for shares of Common Stock
issuable upon conversion shall be made without charge to the
Registered Holder; provided, however, that if any certificate is to
be issued in a name other than that of the Registered Holder of the
shares being converted, the Corporation shall not be required to
issue or deliver any such certificate unless and until the person
requesting the issuance thereof shall have paid to the Corporation
the amount of any tax that may be payable with respect to any
transfer involved in the issuance and delivery of such certificate
or has established to the satisfaction of the Corporation that such
tax has been paid;
(v) the Corporation will at no time close its transfer books
against the transfer of the Series C Stock or of any Conversion
Share issued or issuable upon the conversion of the Series C Stock
in any manner which interferes with the timely conversion of the
Series C Stock; and
(vi) the Corporation shall at all times reserve and keep
available out of its authorized but unissued shares of Common Stock,
solely for the purpose of issuance upon conversion of the outstanding
shares of Series C Stock, such number of shares of Common Stock as
shall be issuable upon the conversion of all such shares of Series C
Stock then outstanding.
7. Anti-dilution Provisions.
7.1. Adjustment of Number of Shares. In order to prevent dilution of
the rights granted hereunder, the Conversion Price shall be subject to
adjustment from time to time in accordance with this Section 7. At any given
time the Conversion Price, whether as the Initial Price or as last adjusted,
shall be that dollar (or part of a dollar) amount the payment of which shall be
sufficient at the given time to acquire one Conversion Share. Upon each
adjustment of the Conversion Price pursuant to this Section 7, the Registered
Holder of the shares of Series C Stock shall thereafter be entitled to acquire
upon exercise, at the Conversion Price resulting from such adjustment, the
number of Conversion Shares obtainable by multiplying the Conversion Price
in effect immediately prior to such adjustment by the number of Conversion
Shares
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<PAGE> 10
acquirable immediately prior to such adjustment and dividing the product thereof
by the Conversion Price resulting from such adjustment.
7.2 LIQUIDATING DIVIDENDS. In the event the Corporation shall declare a
divided upon the Common Stock (other than a dividend payable in Common Stock)
payable otherwise than out of earnings or earned surplus, determined in
accordance with generally accepted accounting principles, including the making
of appropriate deductions for minority interests, if any, in subsidiaries
(herein referred to as "Liquidating Dividends"), then as soon as possible after
the conversion of any shares of Series C Stock the Corporation shall pay to the
person converting such shares of Series C Stock an amount equal to the aggregate
value at the time of such exercise of all Liquidating Dividends (including but
not limited to the Common Stock which would have been issued at the time of such
earlier exercise and all other securities which would have been issued with
respect to such Common Stock by reason of stock splits, stock dividends,
mergers or reorganizations, or for any other reason). For the purposes of this
Section 7.2, a dividend other than in cash shall be considered payable out of
earnings or earned surplus only to the extent that such earnings or earned
surplus is charged an amount equal to the fair value of such dividend.
7.3. SUBDIVISION OR COMBINATION OF STOCK; STOCK DIVIDENDS. In case the
Corporation shall at any time subdivide its outstanding shares of Common Stock
into a greater number of shares or declare a dividend or other distribution
payable in shares of Common Stock, the Conversion Price in effect immediately
prior to such subdivision, dividend or distribution shall be approximately
reduced, and, conversely, in case the outstanding shares of Common Stock of the
Corporation shall be combined into a smaller number of shares, the Conversion
Price in effect immediately prior to such combination shall be proportionately
increased.
7.4. REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE.
If any capital reorganization or reclassification of the capital stock of the
Corporation, or consolidation or merger of the Corporation with another
corporation, or the sale of all or substantially all of its assets to another
corporation shall be effected in such a way that holders of Common Stock shall
be entitled to receive stock, securities or assets with respect to or in
exchange for Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provision
shall be made whereby the Registered Holders of the shares of Series C Stock
shall thereafter have the right to acquire and receive upon conversion of the
shares of Series C Stock such shares of stock, securities or assets as would
have been issuable or payable (as part of the reorganization, reclassification,
consolidation, merger or sale) with respect to or in exchange for such number
of outstanding shares of the Corporation's Common Stock as would have been
received upon conversion of the Series C Stock immediately before such
reorganization, reclassification, consolidation, merger or sale and the number
of shares of Common Stock that would have been so received), and in any such
case appropriate provisions shall be made with respect to the rights and
interests of the holders of the Series C Stock to the end that the provisions
hereof (including without limitation provisions for adjustments of the
Conversion Price and of the number of Conversion Shares acquirable and
receivable upon the conversion of the Series C Stock) shall thereafter be
applicable, in relation to any shares of stock, securities or assets
thereafter deliverable upon the conversion of the Series C Stock. In the event
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of a merger or consolidation of the Corporation with or into another
corporation or the sale of all or substantially all of its assets as a
result of which a number of shares of Common Stock of the surviving or
purchasing corporation, greater or lesser than the number of shares of
Common Stock of the Corporation outstanding immediately prior to such
merger, consolidation or purchase are issuable to holders of Common Stock
of the Corporation, then the Conversion Price in effect immediately prior
to such merger, consolidation or purchase shall be adjusted in the same
manner as though there were a subdivision or combination of the outstanding
shares of Common Stock of the Corporation.
7.5. Notices. In the event that:
(a) there shall be any capital reorganization or
reclassification of the capital stock of the Corporation, or
consolidation or merger of the Corporation with, or sale of all or
substantially all of its assets to, another corporation; or
(b) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then, in connection with such event, the Corporation shall give to the
Registered Holders of the shares of Series C Stock at least (20) days prior
written notice of the date when the same shall take place.
Such notice shall also specify the date on which the holders of
Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger or sale, dissolution, liquidation
or winding up, as the case may be. Each such written notice shall be given
by first class mail, postage prepaid, address to the Registered Holders of
the Series C Stock.
7.6. Certain Events. If any event occurs as to which, in the
opinion of the Board of Directors of the Corporation, the provisions of
this Section 7 are not strictly applicable or if strictly applicable would
not fairly protect the rights of the holders of the Series C Stock in
accordance with the essential intent and principles of such provisions,
then the Board of Directors shall make an adjustment in the application of
such provision, in accordance with such essential intent and principles, so
as to protect such rights as aforesaid, but in no event shall any
adjustment have the affect of increasing the Conversion Price as otherwise
determined pursuant to any of the provisions of this Section 7 except in
the case of a combination of shares of a type contemplated in Section 7.3.
and be it RESOLVED FURTHER, that the Secretary of this corporation be, and
is hereby authorized, empowered and directed, for and on behalf of this
corporation, to file the Certificate of Designations with the Secretary of
State of the State of Delaware, with any amendments or modifications
thereto as he shall deem necessary and proper, the filing of the
Certificate of Designations by such officer shall conclusively evidence his
authority therefor.
-11-
<PAGE> 12
IN WITNESS WHEREOF, I have hereunto set my hand this 22nd day of
February, 2000, and we hereby affirm that the foregoing Certificate is my act
and deed and the act and deed of the Corporation and that the facts stated
therein are true.
/s/ STUART J. CHASANOFF
-------------------------------------
Stuart J. Chasanoff
Vice President - Business Development,
Secretary and General Counsel
-12-
<PAGE> 1
EXHIBIT 4.2
ADDENDUM A
This Addendum (the "Addendum") is made effective as of the 19 day of
October, 1999, by and among each of the persons listed on Schedule 1 hereto
(each, a "New Shareholder"), eVentures Group, Inc., a Delaware corporation (the
"Company"), and other shareholders (the "Shareholders") of the Company that are
parties to that certain Registration Rights Agreement dated as of September 22,
1999 (as amended, modified, supplemented or restated, the "Agreement"), between
the Company and its shareholders.
R E C I T A L S:
A. The Company and the Shareholders entered into the Agreement to
impose certain restrictions and obligations upon themselves and the shares of
stock (the "Stock") of the Company.
B. Each New Shareholder is desirous of becoming a Shareholder of
the Company.
C. Holders of a majority of the Registrable Shares have consented
to including each New Shareholder as a "Stockholder" under the Agreement, and
each New Shareholder desires to enter into an Addendum to extend to each New
Shareholder the benefits of and obligations under the Agreement to the same
extent as if they were original parties thereto.
NOW THEREFORE, in consideration of the mutual promises of the parties,
the parties agree as follows:
1. Each New Shareholder acknowledges that he or she has read the
Agreement, which is attached hereto as Exhibit A and incorporated herein for all
purposes, and knows and understands its content.
2. Each New Shareholder shall be bound by, and shall have the
benefit of, all the terms and conditions set out in the Agreement to the same
extent as if the New Shareholder were an original party thereto, but only
effective as of the date of this Addendum Agreement.
3. This Addendum shall be attached to, be incorporated into and
become part of the Agreement.
4. Except to the extent defined in this Addendum, all defined
terms shall have the meaning set forth in the Agreement.
<PAGE> 2
SCHEDULE 1
Russell Biersodorf
Elliot Broidy
Joseph DeMeo
Oscar Goodman
John Higgins
Lynn Bainbridge Huffard
Susan Huffard
Trevor Huffard, Jr.
Clark Hunt
Lamar Hunt
Norma Hunt
HW Capital, L.P.
Lawrence Johnson
Eckley Keach
David Loglisci
Carl Lovell
Neal Matthews
Robert Michel
Preston Paine
Martina Quaglia
Kerry Rogers
Jeff Samsen
Shackles Children Family Trust
Shackles Family Trust
Sienna Trust
Robert Toricelli
Susan Trimboli
W. Bruce Voss
Richard Weese
<PAGE> 3
AGREED TO AND ACCEPTED
On behalf of the shareholders and the Company
COMPANY:
eVentures Group, Inc.
By: /s/ STUART CHASANOFF
-----------------------------------------
Name: Stuart Chasanoff
--------------------------------------
Title: Vice President - Business Development
--------------------------------------
3
<PAGE> 4
IN WITNESS WHEREOF, the undersigned parties have executed this Addendum as
of the date first written above.
NEW SHAREHOLDER
/s/ ELLIOTT BROIDY
------------------------------
Name: Elliott Broidy
-------------------------
<PAGE> 5
IN WITNESS WHEREOF, the undersigned parties have executed this Addendum as
of the date first written above.
NEW SHAREHOLDER
/s/ JOSEPH F. DE MEO
------------------------------
Name: Joseph F. De Meo
-------------------------
<PAGE> 6
IN WITNESS WHEREOF, the undersigned parties have executed this Addendum as
of the date first written above.
NEW SHAREHOLDER
/s/ OSCAR B. GOODMAN
------------------------------
Name: Oscar B. Goodman
-------------------------
<PAGE> 7
IN WITNESS WHEREOF, the undersigned parties have executed this Addendum as
of the date first written above.
NEW SHAREHOLDER
/s/ JOHN HIGGINS
------------------------------
Name: John Higgins
-------------------------
<PAGE> 8
IN WITNESS WHEREOF, the undersigned parties have executed this Addendum as
of the date first written above.
NEW SHAREHOLDER
/s/ TREVOR L. HUFFARD
------------------------------
Name: Trevor L. Huffard
-------------------------
as natural guardian of
Trevor L. Hufford, Jr.,
a minor.
<PAGE> 9
IN WITNESS WHEREOF, the undersigned parties have executed this Addendum as
of the date first written above.
NEW SHAREHOLDER
/s/ SUSAN HUFFARD
------------------------------
Name: Susan Huffard
-------------------------
<PAGE> 10
IN WITNESS WHEREOF, the undersigned parties have executed this Addendum as
of the date first written above.
NEW SHAREHOLDER
/s/ TREVOR L. HUFFARD
------------------------------
Name: Trevor L. Huffard
-------------------------
as natural guardian of
Lynn Barnbridge Huffard,
a minor
<PAGE> 11
IN WITNESS WHEREOF, the undersigned parties have executed this Addendum as
of the date first written above.
NEW SHAREHOLDER
/s/ LAMAR HUNT
------------------------------
Name: LAMAR HUNT
-------------------------
<PAGE> 12
IN WITNESS WHEREOF, the undersigned parties have executed this Addendum as
of the date first written above.
NEW SHAREHOLDER
/s/ LAWRENCE JOHNSON
------------------------------
Name: LAWRENCE JOHNSON
-------------------------
<PAGE> 13
IN WITNESS WHEREOF, the undersigned parties have executed this Addendum as
of the date first written above.
NEW SHAREHOLDER
/s/ ECKLEY M. KEACH
------------------------------
Name: Eckley M. Keach
-------------------------
<PAGE> 14
IN WITNESS WHEREOF, the undersigned parties have executed this Addendum as
of the date first written above.
NEW SHAREHOLDER
/s/ CARL LOVELL
------------------------------
Name: Carl Lovell
-------------------------
<PAGE> 15
NEW SHAREHOLDER
---------------
NAME: NEAL MATTHEWS
AGREED TO AND ACCEPTED
On behalf of the shareholders and the Company
COMPANY:
eVentures Group, Inc.
By: /s/ NEAL MATTHEWS
-------------------
Name: Neal Matthews
Title: Stockholder
<PAGE> 16
IN WITNESS WHEREOF, the undersigned parties have executed this Addendum as
of the date first written above.
NEW SHAREHOLDER
/s/ ROBERT A. MICHEL
------------------------------
Name: Robert A. Michel
-------------------------
<PAGE> 17
IN WITNESS WHEREOF, the undersigned parties have executed this Addendum as
of the date first written above.
NEW SHAREHOLDER
/s/ PRESTON PAINE
------------------------------
Name: Preston Paine
-------------------------
<PAGE> 18
IN WITNESS WHEREOF, the undersigned parties have executed this Addendum as
of the date first written above.
NEW SHAREHOLDER
/s/ KERRY ROGERS
------------------------------
Name: Kerry Rogers
-------------------------
<PAGE> 19
IN WITNESS WHEREOF, the undersigned parties have executed this Addendum as
of the date first written above.
NEW SHAREHOLDER
/s/ JEFF SAMSEN
------------------------------
Name: Jeff Samsen
-------------------------
<PAGE> 20
IN WITNESS WHEREOF, the undersigned parties have executed this Addendum as
of the date first written above.
NEW SHAREHOLDER
/s/ ROBERT TORRICELLI
------------------------------
Name: Robert Torricelli
-------------------------
<PAGE> 21
IN WITNESS WHEREOF, the undersigned parties have executed this Addendum as
of the date first written above.
NEW SHAREHOLDER
/s/ SUSAN TRIMBOLI
------------------------------
Name: Susan Trimboli
-------------------------
<PAGE> 22
IN WITNESS WHEREOF, the undersigned parties have executed this Addendum as
of the date first written above.
NEW SHAREHOLDER
/s/ W. BRUCE VOSS
------------------------------
Name: W. Bruce Voss
-------------------------
<PAGE> 23
NEW SHAREHOLDER
Name: RICHARD M. WEESE
/s/ Richard M. Weese
AGREE TO AND ACCEPTED
On behalf of the shareholders and the Company
COMPANY:
eVentures Group, Inc.
By: /s/ RICHARD M. WEESE
--------------------------------
Name: Richard M. Weese
-----------------------------
Title:
----------------------------
<PAGE> 24
IN WITNESS WHEREOF, the undersigned parties have executed this Addendum as
of the date first written above.
NEW SHAREHOLDER
/s/ THOMAS S. BAINBRIDGE SR.
------------------------------
Name: Thomas S. Bainbridge Sr.
-------------------------
<PAGE> 25
IN WITNESS WHEREOF, the undersigned parties have executed this Addendum as
of the date first written above.
NEW SHAREHOLDER
/s/ STUART CHASANOFF
------------------------------
Name: Stuart Chasanoff
-------------------------
<PAGE> 26
IN WITNESS WHEREOF, the undersigned parties have executed this Addendum as
of the date first written above.
NEW SHAREHOLDER
/s/ ARNOLD GLABERSON
------------------------------
Name: Arnold Glaberson
-------------------------
<PAGE> 27
IN WITNESS WHEREOF, the undersigned parties have executed this Addendum as
of the date first written above.
NEW SHAREHOLDER
/s/ DAVID M. LEUSCHEN
------------------------------
Name: David M. Leuschen
-------------------------
<PAGE> 28
IN WITNESS WHEREOF, the undersigned parties have executed this Addendum as
of the date first written above.
NEW SHAREHOLDER
/s/ DOUGLAS R. NICHOLS
------------------------------
Name: Douglas R. Nichols
-------------------------
<PAGE> 29
IN WITNESS WHEREOF, the undersigned parties have executed this Addendum as
of the date first written above.
NEW SHAREHOLDER
/s/ KEITH OSER
------------------------------
Name: Keith Oser
-------------------------
<PAGE> 30
IN WITNESS WHEREOF, the undersigned parties have executed this Addendum as
of the date first written above.
NEW SHAREHOLDER
/s/ [ILLEGIBLE]
------------------------------
Name: IEO Investments Limited
-------------------------
<PAGE> 1
EXHIBIT 4.3
eVENTURES GROUP, INC.
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and
entered into on the 24th day of November, 1999, by and among eVENTURES GROUP,
INC., a Delaware corporation (the "Company"), and the persons and entities
signatories hereto (collectively, the "Stockholders"), as holders of shares of
Series B Convertible Preferred Stock, par value $0.00002 per share, of the
Company ("Series B Stock").
W I T N E S S E T H:
WHEREAS, the Company and the Stockholders have entered into that
certain Preferred Stock Subscription Agreement dated as of November 24, 1999
(the "Subscription Agreement"), pursuant to which certain of the Stockholders
acquired shares of the Company's Series B Stock; and
WHEREAS, in connection with the Subscription Agreement, the parties
have agreed to enter into this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained in this Agreement and in the Subscription Agreement, the sufficiency
of which is hereby acknowledged, the parties hereby agree as follows:
1. REGISTRABLE SHARES. For purposes of this Agreement
"Registrable Shares" shall mean, at any time, and with respect to any
Stockholder or Qualified Transferee (as defined in Section 8(g) below), any
Restricted Securities (as defined below) held by such Stockholder or Qualified
Transferee, and "Holder" shall mean any Stockholder or Qualified Transferee
holding Registrable Shares. As to any particular Registrable Shares, once
issued, such Registrable Shares shall cease to be Registrable Shares (1) when
such Registrable Shares have been registered under the Securities Act of 1933,
as amended or any successor Federal statute (the "Act"), the Registration
Statement in connection therewith has been declared effective and they have been
disposed of pursuant to and in the manner described in such effective
Registration Statement, (2) when such Registrable Shares are sold or distributed
pursuant to Rule 144, (3) when such Registrable Shares have ceased to be
outstanding, or (4) when such Registrable Shares have been transferred to a
person or entity other than a Qualified Transferee. For purposes of this
Agreement, the term "Restricted Securities" shall mean, at any time and with
respect to any Stockholder or Qualified Transferee, the shares of Series B Stock
and any other securities which by their terms are directly or indirectly
exercisable or exchangeable for or convertible into Common Stock (other than
stock options granted to employees or directors of the Company in their capacity
as such, or Common Stock issuable upon the exercise thereof), and any securities
received on or with respect to any of the foregoing securities, which are held
by such Stockholder or Qualified Transferee and which theretofor have not been
sold to the public pursuant to a Registration Statement or pursuant to Rule 144
under the Act. For purposes of this Agreement, the term "Registration Statement"
shall mean any registration statement of the Company which covers any of the
Registrable Shares, and all amendments and supplements to any such
<PAGE> 2
Registration Statement, including post-effective amendments, in each case
including the Prospectus (defined herein) contained therein, all exhibits
thereto and all material incorporated by reference therein. For purposes of this
Agreement, the term "Prospectus" shall mean the prospectus included in a
Registration Statement, including any prospectus subject to completion, and any
such Prospectus as amended or supplemented by any prospectus supplement with
respect to the terms of the offering of any portion of the Registrable Shares
and, in each case, by all other amendments and supplements to such prospectus,
including post-effective amendments, and in each case including all material
incorporated by reference therein. For purposes of this Agreement, the term
"Rule 144" shall mean Rule 144 promulgated under the Act or any successor or
similar rule thereto, as may be enacted by the Securities and Exchange
Commission (the "Commission") from time to time.
2. PIGGYBACK REGISTRATIONS.
(a) RIGHT TO PIGGYBACK. If the Company proposes to register
any of its securities under the Act (other than pursuant to (i) a
registration solely in connection with an employee benefit or stock
ownership plan on Form S-8 or any comparable or successor form, (ii) a
registration solely in connection with an acquisition consummated in a
manner which would permit registration of such securities to the public
on Form S-4 or any comparable or successor form or (iii) a "shelf" or
similar registration for use solely in connection with future
acquisitions), and the registration form to be used may be used for the
registration of Registrable Shares (a "Piggyback Registration"), the
Company will give prompt written notice to all Holders of Registrable
Shares of its intention to effect such a registration (each a
"Piggyback Notice"). Subject to Section 2(b) below, the Company will
include in such registration all shares of Registrable Shares which
Holders of Registrable Shares request the Company to include in such
registration by written notice given to the Company within twenty (20)
days after the date of sending of the Piggyback Notice.
(b) PRIORITY ON PRIMARY REGISTRATIONS. If a Piggyback
Registration relates to an underwritten public offering of equity
securities by the Company and the managing underwriters for such
offering advise the Company in writing that in their opinion the number
of securities requested to be included in such registration exceeds the
number which can be sold in an orderly manner in such offering within a
price range acceptable to the Company, the Company will include in such
registration (i) first, the securities proposed to be sold by the
Company, (ii) second, the securities proposed to be sold by any other
persons with registration rights prior to those of the Holder, (iii)
third, the Registrable Shares requested to be included in such
registration, pro rata among the Holders of such Registrable Shares on
the basis of the number of shares owned by each such Holder, and (iv)
fourth, other securities requested to be included in such registration.
(c) PRIORITY ON SECONDARY REGISTRATIONS. If a Piggyback
Registration relates to an underwritten public offering of equity
securities held solely by Holders of the Company's securities and the
managing underwriters advise the Company in writing that in their
opinion the number of securities requested to be included in such
registration exceeds the number which can be sold in an orderly manner
in such offering within a price range acceptable to the Holders
initially requesting such registration, the Company will include
2
<PAGE> 3
in such registration (i) first, the securities requested to be
included therein by the Holders requesting such registration, (ii)
second, the securities proposed to be sold by any other persons with
registration rights prior to those of the Holder, (iii) third, the
Registrable Shares requested to be included in such registration, pro
rata among the Holders of such Registrable Shares on the basis of the
number of shares owned by each such Holder, and (iv) fourth, other
securities requested to be included in such registration.
3. REGISTRATION PROCEDURES. Whenever the Holders of Registrable
Shares have requested that any Registrable Shares be registered pursuant to this
Agreement, the Company will use its best efforts to effect the registration and
the sale of such Registrable Shares in accordance with the intended method of
distribution thereof and will as expeditiously as possible:
(i) prepare and file with the Commission a
Registration Statement with respect to such Registrable Shares
on any appropriate form under the Act, which form shall be
selected by the Company and shall be available for the sale of
Registrable Shares in accordance with the intended method or
methods of distribution thereof and use its best efforts to
cause such Registration Statement to become effective,
provided that before filing a Registration Statement or
Prospectus or any amendments or supplements thereto, the
Company will furnish to the counsel selected by the Holders of
a majority of the Registrable Shares included in such
Registration Statement copies of all such documents proposed
to be filed, which documents will be subject to the review of
such counsel;
(ii) prepare and file with the Commission such
amendments and post-effective amendments to such Registration
Statement and supplements to the Prospectus used in connection
therewith (and to file the Prospectus, as so supplemented,
under Rule 424 under the Act, if required) as may be necessary
to keep such Registration Statement effective for a period of
up to one (1) year, and comply with the provisions of the Act
with respect to the disposition of all securities included in
such Registration Statement during such period in accordance
with the intended methods of distribution by the selling
Holders thereof set forth in such Registration Statement or
supplement to such Prospectus;
(iii) furnish to each selling Holder of
Registrable Shares such number of copies of such Registration
Statement, each amendment and supplement thereto (in each case
including all exhibits), the Prospectus included in such
Registration Statement (including each preliminary Prospectus)
and such other documents as such selling Holder may reasonably
request in order to facilitate the disposition of the
Registrable Shares owned by such selling Holder;
(iv) notify the selling Holders of Registrable
Shares and the managing underwriters, if any, promptly and (if
requested by any such Stockholder) confirm such advice in
writing, (A) when a Prospectus, including any Prospectus
supplement or post-effective amendment has been filed, and,
with respect to a Registration Statement or any post-effective
amendment, when the same has become effective, (B) of any
request by the Commission for amendments or supplements to a
Registration Statement or related Prospectus or for additional
3
<PAGE> 4
information, (C) of the issuance by the Commission of any stop
order suspending the effectiveness of a Registration Statement
or the initiation of any proceedings for that purpose, (D) of
the receipt by the Company of any notification with respect to
the suspension of the qualification of any of the Registrable
Shares for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose, and (E) of the
existence of any fact which results in a Registration
Statement, a Prospectus or any document incorporated therein
by reference containing an untrue statement of a material fact
or omitting to state a material fact necessary to make the
statements therein, in light of the circumstances under which
they were made, not misleading;
(v) use its best efforts to register or qualify
such Registrable Shares under such other securities or blue
sky laws of such jurisdictions as any selling Holder
reasonably requests and do any and all other acts and things
which may be reasonably necessary or advisable to enable such
selling Holder to consummate the disposition in such
jurisdictions of the Registrable Shares owned by such selling
Holder, provided that the Company will not be required (A) to
qualify generally to do business in any jurisdiction where it
would not otherwise be required to qualify but for this
subparagraph, (B) to subject itself to taxation in any such
jurisdiction, or (C) to consent to general service of process
in any such jurisdiction;
(vi) notify each selling Holder of such
Registrable Shares, at any time when a Prospectus relating
thereto is required to be delivered under the Act, of the
happening of any event referred to in clause (iv)(E) of this
Section 3, and, at the request of any such seller, prepare a
supplement to such Prospectus or a post-effective amendment to
such Registration Statement so that, as thereafter delivered
to the purchasers of such Registrable Shares, such Prospectus
will not contain an untrue statement of a material fact or
omit to state any fact necessary to make the statements
therein not misleading;
(vii) cause all such Registrable Shares to be
listed on each securities exchange on which similar securities
issued by the Company are then listed and to be qualified for
trading on each system on which similar securities issued by
the Company are from time to time qualified;
(viii) provide a transfer agent and registrar for
all such Registrable Shares not later than the effective date
of such Registration Statement and thereafter maintain such
transfer agent and registrar;
(ix) enter into such customary agreements
(including underwriting agreements in customary form) and take
all such other actions as the Holders of a majority of the
Registrable Shares being sold or the underwriters, if any,
reasonably request in order to expedite or facilitate the
disposition of such Registrable Shares;
(x) in connection with an underwritten offering,
use its best efforts to (A) obtain opinions of counsel to the
Company and updates thereof, which counsel and opinions (in
form, scope and substance) shall be reasonably satisfactory to
the
4
<PAGE> 5
managing underwriters, addressed to the underwriters, covering
the matters customarily covered in opinions requested in
underwritten offerings and such other matters as may be
reasonably requested by such underwriters; and (B) obtain
"cold comfort" letters and updates thereof from the Company's
independent certified public accountants, addressed to the
underwriters, such letters to be in customary form and
covering matters of the type customarily covered in "cold
comfort" letters to underwriters in connection with
underwritten offerings; make available for inspection during
normal business hours by any underwriter participating in any
disposition pursuant to a registration statement, and any
attorney or accountant retained by such underwriter, all
financial and other records, pertinent corporate documents and
properties of the Company, and cause the Company's officers,
directors and employees to supply all information reasonably
requested by such underwriter, attorney or accountant in
connection with such registration statement; provided that
such underwriters execute prior thereto an agreement with the
Company that all such records, information or documents shall
be kept confidential by such persons unless (1) disclosure of
such records, information or documents is required by law or
by a court or administrative order or (2) such records,
information or documents are or become (but only when they
become) generally available to the public other than as a
result of disclosure in violation of this paragraph; and make
available for inspection by any underwriter participating in
any disposition pursuant to such registration statement and
any attorney, accountant or other agent retained by any such
underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause
the Company's officers, directors, employees and independent
accountants to supply all information reasonably requested by
any such underwriter, attorney, accountant or agent in
connection with such registration statement;
(xi) otherwise use its best efforts to comply
with all applicable rules and regulations of the Commission;
(xii) permit any Holder of Registrable Shares
which might be deemed, in the sole and exclusive judgment of
such Holder, to be an underwriter or a controlling person of
the Company, to participate in the preparation of such
registration or comparable statement and to require the
insertion therein of material, furnished to the Company in
writing, which in the reasonable judgment of such Holder and
its counsel should be included;
(xiii) in the event of the issuance of any stop
order suspending the effectiveness of a registration
statement, or of any order suspending or preventing the use of
any related prospectus or suspending the qualification of any
Registrable Shares included in such registration statement for
sale in any jurisdiction, the Company will use its reasonable
efforts promptly to obtain the withdrawal of such order; and
(xiv) provide a CUSIP number for all Registrable
Shares, not later than the effective date of the applicable
registration statement.
5
<PAGE> 6
If any such registration or comparable statement refers to any Holder by name or
otherwise as the Holder of any securities of the Company and if, in the sole and
exclusive judgment of such Holder, such Holder is or might be deemed to be a
controlling person of the Company, such Holder shall have the right to require
(a) the inclusion in such registration statement of language, in form and
substance reasonably satisfactory to such Holder, to the effect that the holding
of such securities by such Holder is not to be construed as a recommendation by
such Holder of the investment quality of the Company's securities covered
thereby and that such holding does not imply that such Holder will assist in
meeting any future financial requirements of the Company, or (b) in the event
that such reference to such Holder by name or otherwise is not required by the
Act or any similar federal statute then in force, the deletion of the reference
to such Holder; provided, that with respect to this clause (b) such Holder shall
furnish to the Company an opinion of counsel to such effect, which opinion and
counsel shall be reasonably satisfactory to the Company.
4. REGISTRATION EXPENSES.
(a) DEFINITION. The term "Registration Expenses" means
any expenses incident to the Company's performance of or compliance
with this Agreement, including, without limitation, all registration
and filing fees, listing fees, fees and expenses of compliance with
securities or blue sky laws, printing expenses, messenger and delivery
expenses, internal expenses, the fees and expenses of counsel for the
Company (but not the fees and expenses of counsel to the Holders of the
Registrable Shares included in such registration) and all independent
certified public accountants, underwriting fees and expenses (excluding
discounts and commissions attributable to the Registrable Shares, which
shall be paid by the selling Holders out of the proceeds of the
offering) and the fees and expenses of any other Persons (defined
below) retained by the Company. For purposes of this Agreement, the
term "Person" shall be construed as broadly as possible and shall
include an individual or natural person, a partnership (including a
limited liability partnership), a company, an association, a joint
stock company, a limited liability company, a trust, a joint venture,
an unincorporated entity and a governmental authority.
(b) PAYMENT. The Company shall pay the Registration
Expenses in connection with any and all Piggyback Registrations.
5. INDEMNIFICATION.
(a) INDEMNIFICATION BY THE COMPANY. The Company agrees to
indemnify, to the extent permitted by law, each Holder of Registrable
Shares, such holder's general and limited partners, officers and
directors and each Person who controls such Holder (within the meaning
of the Act) against all losses, claims, damages, liabilities and
expenses caused by any untrue or alleged untrue statement of material
fact contained in any Registration Statement, Prospectus or preliminary
Prospectus or any amendment thereof or supplement thereto or any
omission or alleged omission of a material fact required to be stated
therein or necessary to make the statements therein not misleading,
except insofar as the same are caused by or contained in any
information furnished in writing to the Company by such Holder
expressly for use therein. In connection with an underwritten offering,
the Company will indemnify such underwriters, their officers and
directors and each Person
6
<PAGE> 7
who controls such underwriters (within the meaning of the Act) to the
same extent as provided above with respect to the indemnification of
the Holders of Registrable Shares.
(b) INDEMNIFICATION BY HOLDERS. In connection with any
registration statement in which a Holder of Registrable Shares is
participating, each such Holder will furnish to the Company in writing
such information and affidavits as the Company reasonably requests for
use in connection with any such Registration Statement or Prospectus
and, to the extent permitted by law, will indemnify the Company, its
directors and officers and each Person who controls the Company (within
the meaning of the Act) against any losses, claims, damages,
liabilities and expenses resulting from any untrue or alleged untrue
statement of material fact contained in the registration statement,
prospectus or preliminary prospectus or any amendment thereof or
supplement thereto or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements
therein not misleading, but only to the extent that such untrue
statement or omission is contained in any written information or
affidavit so furnished in writing by such Holder; provided, that the
obligation to indemnify will be individual to each Holder and will be
limited to the net amount of proceeds received by such Holder from the
sale of Registrable Shares pursuant to such registration statement.
(c) NOTICE; DEFENSE OF CLAIMS. Any Person entitled to
indemnification hereunder will (i) give prompt written notice to the
indemnifying party of any claim with respect to which it seeks
indemnification and (ii) unless in such indemnified party's reasonable
judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. If such defense is
assumed, the indemnifying party will not be subject to any liability
for any settlement made by the indemnified party without its consent
(but such consent will not be unreasonably withheld or delayed). An
indemnifying party who is not entitled to, or elects not to, assume the
defense of a claim will not be obligated to pay the fees and expenses
of more than one special and one local counsel for all parties
indemnified by such indemnifying party with respect to such claim.
(d) CONTRIBUTION. If the indemnification provided for in
this Section 5 is held by a court of competent jurisdiction to be
unavailable to an indemnified party with respect to any loss,
liability, claim, damage or expense referred to herein, then the
indemnifying party, in lieu of indemnifying such indemnified party
hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage,
or expense in such proportion as is appropriate to reflect (i) the
relative benefits received by the indemnifying party or parties on the
one hand and the indemnified party on the other from the offering of
the Registrable Shares or (ii) if the allocation provided for by the
foregoing clause (i) is not permitted by applicable law, not only such
relative benefits but also the relative fault of the indemnifying party
or parties on the one hand and the indemnified party on the other hand
in connection with the statements or omissions or alleged statements or
omissions that resulted in such losses, claims, damages or liabilities
(or actions in respect thereof). The relative fault of the indemnifying
party and of the indemnified party shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission to state a material
7
<PAGE> 8
fact relates to information supplied by the indemnifying party or by
the indemnified party and the parties' relative intent, knowledge,
access to information, and opportunity to correct or prevent such
statement or omission. The obligation to contribute will be individual
to each Holder of Registrable Shares and will be limited to the amount
by which the net amount of proceeds received by such Holder from the
sale of Registrable Shares exceeds the amount of losses, liabilities,
damages, and expenses which such Holder has otherwise been required to
pay by reason of such statements or omissions.
(e) SURVIVAL. The indemnification provided for under this
Agreement will remain in full force and effect regardless of any
investigation made by or on behalf of the indemnified party or any
officer, director or controlling Person of such indemnified party and
will survive the transfer of securities.
(f) UNDERWRITING AGREEMENT. To the extent that the
provisions on indemnification and contribution contained in the
underwriting agreement entered into in connection with an underwritten
public offering are in conflict with the provisions of this Section 5,
the provisions contained in the underwriting agreement shall control.
6. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Person may
participate in any registration hereunder which is underwritten unless such
Person (i) agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Person or Persons entitled hereunder
to approve such arrangements, (ii) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwriting arrangements; provided that no
Holder of Registrable Shares included in any underwritten registration shall be
required to make any representations or warranties to the Company or the
underwriters other than representations and warranties regarding such Holder and
such Holder's intended method of distribution, and (iii) if requested by the
managing underwriter or underwriters or the Demanding Persons (as defined in the
Registration Rights Agreement, dated as of September 22, 1999, among the Company
and the persons and entities set forth on Schedule 1 thereto), agrees not to
sell Registrable Shares or other securities held by such Person in any
transaction other than pursuant to such underwriting for such period following
the effective date of the registration statement relating to such underwriting
as determined by either the Board of Directors or the Demanding Persons;
provided that no Holder of Registrable Shares shall be required to enter into
such an agreement unless each other Holder of Registrable Shares, each director
and executive officer of the Company and each other Holder of at least one
percent of the Series B Stock then outstanding enters into a substantially
identical agreement relating to such underwriting.
7. STOCKHOLDER LOCK-UP; AGREEMENT NOT TO SELL. Prior to the first
anniversary of the date hereof, no Holder of Registrable Shares may make any
public sale of Registrable Shares (pursuant to a Registration Statement, Rule
144 or otherwise); provided, however, that nothing herein shall prevent any
Holder (a) that is a partnership or corporation from making a distribution of
Registrable Shares to the partners or shareholders thereof that are otherwise in
compliance with applicable securities laws, so long as such permitted
distributees agree to be bound by the terms and conditions of the Lock-up
Conditions; (b) that desires to sell any Registrable Shares in a private
transaction in compliance with applicable securities laws from consummating such
a sale so long as the purchaser in any private sale agrees in writing to be
bound by the restrictions set
8
<PAGE> 9
forth in this Section 7; or (c) that is an individual, from making a transfer of
Registrable Shares by gift, will or the laws of descent and distribution,
subject to the restrictions set forth in this Section 7.
8. MISCELLANEOUS.
(a) INFORMATION AND REPORTING.
(i) The Company shall, at all times during which
it is neither subject to the reporting requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), nor exempt from reporting pursuant to
Rule 12g3-2(b) under the Exchange Act, upon the written
request of any Stockholder, provide in writing to such
Stockholder and to any prospective transferee of the
Registrable Shares of such Stockholder the information
concerning the Company described in Rule 144A(d)(4) or any
successor rule under the Act ("Rule 144A Information"). Upon
the written request of any Stockholder, the Company shall
cooperate with and assist such Stockholder or any member of
the National Association of Securities Dealers, Inc. PORTAL
system in applying to designate and thereafter maintain the
eligibility of the Registrable Shares for trading through
PORTAL. The Company's obligations under this Section 8(a)(i)
shall at all times be contingent upon receipt from the
prospective transferee of Registrable Shares of a written
agreement to take all reasonable precautions to safeguard the
Rule 144A Information from disclosure to anyone other than
Persons who will assist such transferee in evaluating the
purchase of any Registrable Shares.
(ii) When it is first legally required to do so,
the Company shall register its Common Stock under Section 12
of the Exchange Act and shall keep effective such registration
and shall timely file such information, documents and reports
as the Commission may require or prescribe under Section 13 of
the Exchange Act. From and after the effective date of the
first registration statement filed by the Company under the
Act, the Company shall (whether or not it shall then be
required to do so) timely file such information, documents and
reports which a corporation, partnership or other entity
subject to Section 13 or 15(d) (whichever is applicable) of
the Exchange Act is required to file. The Company shall
promptly upon request furnish any Holder of Registrable Shares
(a) a written statement by the Company that it has complied
with the reporting requirements of Section 13 or 15(d) of the
Exchange Act, (b) a copy of the most recent annual or
quarterly report of the Company, and (c) such other reports
and documents filed by the Company with the Commission as such
Holder may reasonably request in availing itself of an
exemption for the sale of Registrable Shares without
registration under the Act. The Company acknowledges and
agrees that the purposes of the requirements contained in this
Section 8(a)(ii) are to enable any such Holder to comply with
the current public information requirement contained in
paragraph (c) of Rule 144 under the Act, should such Holder
ever wish to dispose of any of the securities of the Company
acquired by it without registration under the Act in reliance
upon Rule 144 (or any other similar exemptive provision), and
to qualify
9
<PAGE> 10
the Company for the use of registration statements on Form
S-3. In addition, the Company shall take such other measures
and file such other information, documents and reports, as
shall hereafter be required by the Commission as a condition
to the availability of Rule 144 under the Act (or any similar
exemptive provision hereafter in effect) and the use of Form
S-3. The Company also covenants to use its best efforts, to
the extent that it is reasonably within its power to do so, to
qualify for the use of Form S-3.
(b) NO INCONSISTENT AGREEMENTS. The Company will not
hereafter (i) enter into any agreement with respect to its securities which is
inconsistent with or violates the rights granted to the Holders of Registrable
Shares in this Agreement, provided, however, that other purchasers of Series B
Stock from the Company may become Holders and parties to this Agreement by
executing and delivering to the Company a signature page to this Agreement or
(ii) grant registration rights that are superior to the registration rights
granted hereunder to any other Person other than to Persons who purchase Series
B Stock from the Company (unless consented to by a majority vote of the
Stockholders).
(c) ADJUSTMENTS AFFECTING REGISTRABLE SHARES. The Company
will not take any action, or permit any change to occur, with respect to its
securities for the purpose of materially and adversely affecting the ability of
the Holders of Registrable Shares to include such Registrable Shares in a
registration undertaken pursuant to this Agreement or materially and adversely
affecting the marketability of such Registrable Shares in any such registration
(including, without limitation, effecting a stock split or a combination of
shares); provided that this Section 8(c) shall not apply to actions or changes
with respect to the Company's business, balance sheet, earnings or revenue where
the effect of such actions or changes on the Registrable Shares is merely
incidental.
(d) NOTICES. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be deemed
effectively given when delivered personally or by facsimile transmission or by
overnight delivery service or 72 hours after being mailed by first class
certified or registered mail, return recent requested, postage prepaid:
(i) If to the Company, c/o Stuart Chasanoff,
1601 Elm Street, Suite 4000, Dallas, Texas 75201, or at such
other address or addresses as may have been furnished in
writing by the Company to the Stockholders.
(ii) If to a Stockholder, to it at its address as
set forth in the applicable Subscription Agreement, or at such
other address or addresses as may have been furnished in
writing by such Stockholder with a copy to (which shall not
constitute notice): White & Case LLP, 200 S. Biscayne
Boulevard, Suite 4900, Miami, Florida 33131, Attention: Thomas
E Lauria, Esq. (Fax: 305-995-5282).
(e) REMEDIES. Any Person having rights under any
provision of this Agreement will be entitled to enforce such rights specifically
to recover damages caused by reason of any breach of any provision of this
Agreement and to exercise all other rights granted by law. The parties hereto
agree and acknowledge that money damages may not be an adequate remedy for any
breach of the provisions of this Agreement and that any
10
<PAGE> 11
party may in its sole discretion apply to any court of law or equity of
competent jurisdiction (without posting any bond or other security) for specific
performance and for other injunctive relief in order to enforce or prevent
violation of the provisions of this Agreement.
(f) AMENDMENTS AND WAIVERS. Except as otherwise provided
herein, no amendment, modification, termination or cancellation of this
Agreement shall be effective unless made in writing signed by the Company and
the Holders of a majority of the shares of Registrable Shares; provided that no
amendment may be made to Sections 7 or 8(f) of this Agreement unless agreed upon
by the Company and the Holders of all the Registrable Shares.
(g) ASSIGNMENT OF REGISTRATION RIGHTS. The rights to
cause the Company to register Registrable Shares pursuant to this Agreement may
be assigned (but only with all related obligations) by a Holder to any
transferee (a "Qualified Transferee") that acquires from a Holder either (i)
100,000 or more Registrable Shares or (ii) if less than 100,000 Registrable
Shares are owned by a Holder at the time of a transfer, all of the Registrable
Shares owned by such Holder, in either case in connection with the permitted
transfer of Registrable Shares. Such assignment shall not affect the rights of
Holders hereunder which shall remain in full force in accordance with the terms
hereof. Any transferring Holder shall provide the Company with prior written
notice of such transfer(s)/assignment(s); provided, however, that the failure to
provide such notice shall not be deemed to preclude assignment hereunder.
(h) SEVERABILITY. The invalidity or unenforceability of
any provision of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement.
(i) ENTIRE AGREEMENT. This Agreement embodies the entire
agreement of the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements relating to such subject matter.
(j) HEADINGS. The headings of this Agreement are for
convenience only and do not constitute a part of this Agreement.
(k) GOVERNING LAW. The construction, validity and
interpretation of this Agreement will be governed by the internal laws of the
State of Texas without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of Texas or any other jurisdiction) that
would cause the application of the laws of any jurisdiction other than the State
of Texas.
(l) FURTHER ASSURANCES. Each party to this Agreement
hereby covenants and agrees, without the necessity of any further consideration,
to execute and deliver any and all such further documents and take any and all
such other actions as may be necessary or appropriate to carry out the intent
and purposes of this Agreement and to consummate the transactions contemplated
hereby.
11
<PAGE> 12
(m) COUNTERPARTS. This Agreement may be executed by
facsimile and in one or more counterparts, each of which shall be deemed to be
an original, but all of which shall be one and the same document.
(Signature Page Follows)
12
<PAGE> 13
IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto as of the date first written above.
COMPANY:
eVENTURES GROUP, INC.
By: /s/ BARRETT WISSMAN
-------------------------------
Name: Barrett Wissman
-----------------------------
Title: Chief Executive Officer
----------------------------
[SIGNATURE PAGE FOR EACH STOCKHOLDER FOLLOWS]
13
<PAGE> 14
Signature page to Registration Rights Agreement dated November 24, 1999 among
eVentures Group, Inc. the undersigned and certain of its other Stockholders.
STOCKHOLDER:
GOFF MOORE STRATEGIC PARTNERS, L.P.
By: GMSP Operating Partners, L.P., its general
partner
By: GMSP, L.L.C., its general partner
By: /s/ KENNETH A HERSH
--------------------------------------
Name: Kenneth A. Hersh
---------------------------------
Title: Principal
--------------------------------
14
<PAGE> 15
Signature page to Registration Rights Agreement dated December __, 1999 among
eVentures Group, Inc. the undersigned and certain of its other Stockholders.
STOCKHOLDER:
By: /s/ LAURA L. FUTRELL
--------------------------------
Name: Albin Income Trust
---------------------------
Title: Trustee
--------------------------
<PAGE> 16
Signature page to Registration Rights Agreement dated December __, 1999 among
eVentures Group, Inc. the undersigned and certain of its other Stockholders.
STOCKHOLDER:
By: /s/ J. RANDALL CHAPPEL
--------------------------------
Name: J. Randall Chappel
---------------------------
Title:
--------------------------
<PAGE> 17
Signature page to Registration Rights Agreement dated December __, 1999 among
eVentures Group, Inc. the undersigned and certain of its other Stockholders.
STOCKHOLDER:
By: /s/ RICHARD L. COVINGTON
--------------------------------
Name: Richard L. Covington
--------------------------
Title:
--------------------------
<PAGE> 18
Signature page to Registration Rights Agreement dated December 2, 1999 among
eVentures Group, Inc. the undersigned and certain of its other Stockholders.
STOCKHOLDER:
FAYEZ SAROFIM INVESTMENT
PARTNERSHIP NO. 5, L.P.
By: /s/ RAYE G. WHITE
--------------------------------
Name: (Mrs.) Raye G. White
---------------------------
Title: Officer of the Managing
--------------------------
General Partner,
FSI No. 2 Corporation
<PAGE> 19
Signature page to Registration Rights Agreement dated December __, 1999 among
eVentures Group, Inc. the undersigned and certain of its other Stockholders.
STOCKHOLDER:
GNA Investments I, L.P.
by: GOFF MOORE STRATEGIC PARTNERS, L.P.
By: /s/ J. RANDALL CHAPPEL
--------------------------------
Name: J. Randall Chappel
---------------------------
Title: Principal
--------------------------
<PAGE> 20
Signature page to Registration Rights Agreement dated December __, 1999 among
eVentures Group, Inc. the undersigned and certain of its other Stockholders.
STOCKHOLDER:
By: /s/ JOHN GOFF
--------------------------------
Name: John Goff
---------------------------
Title:
--------------------------
15
<PAGE> 21
Signature page to Registration Rights Agreement dated December __, 1999 among
eVentures Group, Inc. the undersigned and certain of its other Stockholders.
STOCKHOLDER:
By: /s/ KENNETH A. HERSH
--------------------------------
Name: Kenneth A. Hersh
---------------------------
Title:
--------------------------
<PAGE> 22
Signature page to Registration Rights Agreement dated December __, 1999 among
eVentures Group, Inc. the undersigned and certain of its other Stockholders.
STOCKHOLDER:
By: /S/ HUGH M. DALLOCH
--------------------------------
Name: Hugh M. Dalloch
---------------------------
Title:
--------------------------
15
<PAGE> 23
Signature page to Registration Rights Agreement dated December __, 1999 among
eVentures Group, Inc. the undersigned and certain of its other Stockholders.
STOCKHOLDER:
By: /s/ DARLA D. MOORE BY J. RANDALL CHAPPEL
-------------------------------------
Name: Darla D. Moore
-------------------------------
Title: by J. Randall Chappel,
Attorney-in-Fact
------------------------------
<PAGE> 24
Signature page to Registration Rights Agreement dated December __, 1999 among
eVentures Group, Inc. the undersigned and certain of its other Stockholders.
STOCKHOLDER:
By: /s/ WILLIAM J. QUINN
--------------------------------
Name: William J. Quinn
---------------------------
Title:
--------------------------
<PAGE> 25
Signature page to Registration Rights Agreement dated December __, 1999 among
eVentures Group, Inc. the undersigned and certain of its other Stockholders.
STOCKHOLDER:
By: /s/ COURTNEY E. RAINWATER
--------------------------------
Name: Courtney E. Rainwater
Title: by J. Randall Chappell,
Attorney-in-fact
15
<PAGE> 26
Signature page to Registration Rights Agreement dated December __, 1999 among
eVentures Group, Inc. the undersigned and certain of its other Stockholders.
STOCKHOLDER:
By: /s/ MATTHEW J. RAINWATER by /s/ JRC
------------------------------------
Name:
------------------------------
Title: Matthew J. Rainwater
------------------------------
by J. Randall Chappel,
Attorney-in-fact
<PAGE> 27
Signature page to Registration Rights Agreement dated December __, 1999 among
eVentures Group, Inc. the undersigned and certain of its other Stockholders.
STOCKHOLDER:
By: /s/ RICHARD E. RAINWATER by /s/ JRC
------------------------------------
Name:
------------------------------
Title: Richard E. Rainwater
------------------------------
by J. Randall Chappel,
Attorney-in-fact
<PAGE> 28
Signature page to Registration Rights Agreement dated December __, 1999 among
eVentures Group, Inc. the undersigned and certain of its other Stockholders.
STOCKHOLDER:
By: /s/ R. TODD RAINWATER by /s/ JRC
---------------------------------------------
Name:
---------------------------------------
Title:
---------------------------------------
R. Todd Rainwater
by J. Randall Chappel, Attorney-in-fact
<PAGE> 29
Signature page to Registration Rights Agreement dated December 15, 1999 among
eVentures Group, Inc. the undersigned and certain of its other Stockholders.
STOCKHOLDER:
By: /s/ RICHARD P. RUOECHIO
--------------------------------
Name: Richard P. Ruoechio
---------------------------
Title:
--------------------------
<PAGE> 30
Signature page to Registration Rights Agreement dated December 15, 1999 among
eVentures Group, Inc. the undersigned and certain of its other Stockholders.
STOCKHOLDER:
By: /s/ JOHN A. WEINZIERL
--------------------------------
Name: John A. Weinzierl
---------------------------
Title:
--------------------------
<PAGE> 31
Signature page to Registration Rights Agreement dated December __, 1999 among
eVentures Group, Inc. the undersigned and certain of its other Stockholders.
STOCKHOLDER:
By: /s/ JEFFREY A. ZLOTLEY
--------------------------------
Name: Jeffrey A. Zlotley
---------------------------
Title:
--------------------------
15
<PAGE> 1
EXHIBIT 4.4
November 24, 1999
To the parties to the
Registration Rights Agreement
dated as of September 22, 1999
Ladies and Gentlemen:
Reference is made to the Registration Rights Agreement dated as of
September 22, 1999 (the "Registration Rights Agreement") among eVentures Group,
Inc. and the persons and entities signatories thereto and each other person who
has or shall become a party to the Registration Rights Agreement as provided
therein. Capitalized terms used herein and not defined have the meanings
ascribed to them in the Registration Rights Agreement.
In consideration of the covenants and agreements contained in the
Registration Rights Agreement, the undersigned hereby confirms and agrees that
it shall be bound, to the same extent and in the same manner as the transferor,
by all of the provisions thereof.
This letter shall be construed and enforced in accordance with the laws
of the State of Texas.
Very truly yours,
GOFF MOORE STRATEGIC PARTNERS, L.P.
By: GMSP Operating Partners, L.P.,
its General Partner
By: GMSP, L.L.C.,
its General Partner
By:
-----------------------------------
Name:
--------------------------
Title:
--------------------------
Acknowledged and Agreed
this 24th day of November, 1999
eVENTURES GROUP, INC.
By:
----------------------
Name:
--------------------
Title:
-------------------
<PAGE> 2
December___, 1999
To the parties to the
Registration Rights Agreement
dated as of September 22, 1999
Ladies and Gentlemen:
Reference is made to the Registration Rights Agreement dated as of
September 22, 1999 (the "Registration Rights Agreement") among eVentures Group,
Inc. and the persons and entities signatories thereto and each other person who
has or shall become a party to the Registration Rights Agreement as provided
therein. Capitalized terms used herein and not defined have the meanings
ascribed to them in the Registration Rights Agreement.
In consideration of the covenants and agreements contained in the
Registration Rights Agreement, the undersigned hereby confirms and agrees that
it shall be bound, to the same extent and in the same manner as the transferor,
by all of the provisions thereof.
This letter shall be construed and enforced in accordance with the laws of
the State of Texas.
Very truly yours,
Albin Income Trust
-----------------------------
Name
/s/ LAURA L. FUTRELL
-----------------------------
Signature
Trustee
-----------------------------
Title
12/16/99
-----------------------------
Date
Acknowledged and Agreed
this ___ day of December, 1999
eVENTURES GROUP, INC.
By:
-----------------------
Name:
---------------------
Title:
--------------------
<PAGE> 3
December___, 1999
To the parties to the
Registration Rights Agreement
dated as of September 22, 1999
Ladies and Gentlemen:
Reference is made to the Registration Rights Agreement dated as of
September 22, 1999 (the "Registration Rights Agreement") among eVentures Group,
Inc. and the persons and entities signatories thereto and each other person who
has or shall become a party to the Registration Rights Agreement as provided
therein. Capitalized terms used herein and not defined have the meanings
ascribed to them in the Registration Rights Agreement.
In consideration of the covenants and agreements contained in the
Registration Rights Agreement, the undersigned hereby confirms and agrees that
it shall be bound, to the same extent and in the same manner as the transferor,
by all of the provisions thereof.
This letter shall be construed and enforced in accordance with the laws of
the State of Texas.
Very truly yours,
Hugh L. Balloch
-----------------------------
Name
/s/ HUGH L. BALLOCH
-----------------------------
Signature
-----------------------------
Title
-----------------------------
Date
Acknowledged and Agreed
this ___ day of December, 1999
eVENTURES GROUP, INC.
By:
-----------------------
Name:
---------------------
Title:
--------------------
<PAGE> 4
December___, 1999
To the parties to the
Registration Rights Agreement
dated as of September 22, 1999
Ladies and Gentlemen:
Reference is made to the Registration Rights Agreement dated as of
September 22, 1999 (the "Registration Rights Agreement") among eVentures Group,
Inc. and the persons and entities signatories thereto and each other person who
has or shall become a party to the Registration Rights Agreement as provided
therein. Capitalized terms used herein and not defined have the meanings
ascribed to them in the Registration Rights Agreement.
In consideration of the covenants and agreements contained in the
Registration Rights Agreement, the undersigned hereby confirms and agrees that
it shall be bound, to the same extent and in the same manner as the transferor,
by all of the provisions thereof.
This letter shall be construed and enforced in accordance with the laws of
the State of Texas.
Very truly yours,
J. Randall Chappel
-----------------------------
Name
/s/ J. RANDALL CHAPPEL
-----------------------------
Signature
-----------------------------
Title
12/15/99
-----------------------------
Date
Acknowledged and Agreed
this ___ day of December, 1999
eVENTURES GROUP, INC.
By:
-----------------------
Name:
---------------------
Title:
--------------------
<PAGE> 5
December___, 1999
To the parties to the
Registration Rights Agreement
dated as of September 22, 1999
Ladies and Gentlemen:
Reference is made to the Registration Rights Agreement dated as of
September 22, 1999 (the "Registration Rights Agreement") among eVentures Group,
Inc. and the persons and entities signatories thereto and each other person who
has or shall become a party to the Registration Rights Agreement as provided
therein. Capitalized terms used herein and not defined have the meanings
ascribed to them in the Registration Rights Agreement.
In consideration of the covenants and agreements contained in the
Registration Rights Agreement, the undersigned hereby confirms and agrees that
it shall be bound, to the same extent and in the same manner as the transferor,
by all of the provisions thereof.
This letter shall be construed and enforced in accordance with the laws of
the State of Texas.
Very truly yours,
Richard L. Covington
-----------------------------
Name
/s/ RICHARD L. COVINGTON
-----------------------------
Signature
-----------------------------
Title
12/15/99
-----------------------------
Date
Acknowledged and Agreed
this ___ day of December, 1999
eVENTURES GROUP, INC.
By:
-----------------------
Name:
---------------------
Title:
--------------------
<PAGE> 6
EXHIBIT A
December 2, 1999
To the parties to the
Registration Rights Agreement
dated as of September 22, 1999
Ladies and Gentlemen:
Reference is made to the Registration Rights Agreement dated as of
September 22, 1999 (the "Registration Rights Agreement") among eVentures Group,
Inc. and the persons and entities signatories thereto and each other person who
has or shall become a party to the Registration Rights Agreement as provided
therein. Capitalized terms used herein and not defined have the meanings
ascribed to them in the Registration Rights Agreement.
In consideration of the covenants and agreements contained in the
Registration Rights Agreement, the undersigned hereby confirms and agrees that
it shall be bound, to the same extent and in the same manner as the transferor,
by all of the provisions thereof.
This letter shall be construed and enforced in accordance with the laws of
the State of Texas.
Very truly yours,
FAYEZ SAROFIM INVESTMENT
PARTNERSHIP NO. 5, L.P
-----------------------------
Name
/s/ RAYE G. WHITE
-----------------------------
Signature (Mrs.) Raye G. White
Officer of the Managing
General Partner, FSI No.2
Corporation
-----------------------------
Title
December 2, 1999
-----------------------------
Date
Acknowledged and Agreed
this ___ day of December, 1999
eVENTURES GROUP, INC.
By:
-----------------------
Name:
---------------------
Title:
--------------------
<PAGE> 7
EXHIBIT A
December___, 1999
To the parties to the
Registration Rights Agreement
dated as of September 22, 1999
Ladies and Gentlemen:
Reference is made to the Registration Rights Agreement dated as of
September 22, 1999 (the "Registration Rights Agreement") among eVentures Group,
Inc. and the persons and entities signatories thereto and each other person who
has or shall become a party to the Registration Rights Agreement as provided
therein. Capitalized terms used herein and not defined have the meanings
ascribed to them in the Registration Rights Agreement.
In consideration of the covenants and agreements contained in the
Registration Rights Agreement, the undersigned hereby confirms and agrees that
it shall be bound, to the same extent and in the same manner as the transferor,
by all of the provisions thereof.
This letter shall be construed and enforced in accordance with the laws of
the State of Texas.
Very truly yours,
GNA Investments I, L.P.
by: Goff Moore Strategic
Partners, L.P.
-----------------------------
Name
/s/ J. RANDALL CHAPPEL
-----------------------------
Signature
J. Randall Chappel
Principal
-----------------------------
Title
-----------------------------
Date
Acknowledged and Agreed
this ___ day of December, 1999
eVENTURES GROUP, INC.
By:
-----------------------
Name:
---------------------
Title:
--------------------
<PAGE> 8
EXHIBIT A
December___, 1999
To the parties to the
Registration Rights Agreement
dated as of September 22, 1999
Ladies and Gentlemen:
Reference is made to the Registration Rights Agreement dated as of
September 22, 1999 (the "Registration Rights Agreement") among eVentures Group,
Inc. and the persons and entities signatories thereto and each other person who
has or shall become a party to the Registration Rights Agreement as provided
therein. Capitalized terms used herein and not defined have the meanings
ascribed to them in the Registration Rights Agreement.
In consideration of the covenants and agreements contained in the
Registration Rights Agreement, the undersigned hereby confirms and agrees that
it shall be bound, to the same extent and in the same manner as the transferor,
by all of the provisions thereof.
This letter shall be construed and enforced in accordance with the laws of
the State of Texas.
Very truly yours,
John Goff
-----------------------------
Name
/s/ JOHN GOFF
-----------------------------
Signature
-----------------------------
Title
-----------------------------
Date
Acknowledged and Agreed
this ___ day of December, 1999
eVENTURES GROUP, INC.
By:
-----------------------
Name:
---------------------
Title:
--------------------
<PAGE> 9
December 15, 1999
To the parties to the
Registration Rights Agreement
dated as of September 22, 1999
Ladies and Gentlemen:
Reference is made to the Registration Rights Agreement dated as of
September 22, 1999 (the "Registration Rights Agreement") among eVentures Group,
Inc. and the persons and entities signatories thereto and each other person who
has or shall become a party to the Registration Rights Agreement as provided
therein. Capitalized terms used herein and not defined have the meanings
ascribed to them in the Registration Rights Agreement.
In consideration of the covenants and agreements contained in the
Registration Rights Agreement, the undersigned hereby confirms and agrees that
it shall be bound, to the same extent and in the same manner as the transferor,
by all of the provisions thereof.
This letter shall be construed and enforced in accordance with the laws of
the State of Texas.
Very truly yours,
Kenneth A. Hersh
-----------------------------
Name
/s/ KENNETH A. HERSH
-----------------------------
Signature
-----------------------------
Title
12-15-99
-----------------------------
Date
Acknowledged and Agreed
this ___ day of December, 1999
eVENTURES GROUP, INC.
By:
-----------------------
Name:
---------------------
Title:
--------------------
<PAGE> 10
December___, 1999
To the parties to the
Registration Rights Agreement
dated as of September 22, 1999
Ladies and Gentlemen:
Reference is made to the Registration Rights Agreement dated as of
September 22, 1999 (the "Registration Rights Agreement") among eVentures Group,
Inc. and the persons and entities signatories thereto and each other person who
has or shall become a party to the Registration Rights Agreement as provided
therein. Capitalized terms used herein and not defined have the meanings
ascribed to them in the Registration Rights Agreement.
In consideration of the covenants and agreements contained in the
Registration Rights Agreement, the undersigned hereby confirms and agrees that
it shall be bound, to the same extent and in the same manner as the transferor,
by all of the provisions thereof.
This letter shall be construed and enforced in accordance with the laws of
the State of Texas.
Very truly yours,
Darla D. Moore
by: J. Randall Chappel,
Attorney-in-fact
-----------------------------
Name
/s/ DARLA D. MOORE
by /s/ J. Randall Chappel
-----------------------------
Signature
-----------------------------
Title
12-15-99
-----------------------------
Date
Acknowledged and Agreed
this ___ day of December, 1999
eVENTURES GROUP, INC.
By:
-----------------------
Name:
---------------------
Title:
--------------------
<PAGE> 11
December___, 1999
To the parties to the
Registration Rights Agreement
dated as of September 22, 1999
Ladies and Gentlemen:
Reference is made to the Registration Rights Agreement dated as of
September 22, 1999 (the "Registration Rights Agreement") among eVentures Group,
Inc. and the persons and entities signatories thereto and each other person who
has or shall become a party to the Registration Rights Agreement as provided
therein. Capitalized terms used herein and not defined have the meanings
ascribed to them in the Registration Rights Agreement.
In consideration of the covenants and agreements contained in the
Registration Rights Agreement, the undersigned hereby confirms and agrees that
it shall be bound, to the same extent and in the same manner as the transferor,
by all of the provisions thereof.
This letter shall be construed and enforced in accordance with the laws of
the State of Texas.
Very truly yours,
William J. Quinn
-----------------------------
Name
/s/ William J. Quinn
-----------------------------
Signature
-----------------------------
Title
12/15/99
-----------------------------
Date
Acknowledged and Agreed
this ___ day of December, 1999
eVENTURES GROUP, INC.
By:
-----------------------
Name:
---------------------
Title:
--------------------
<PAGE> 12
December___, 1999
To the parties to the
Registration Rights Agreement
dated as of September 22, 1999
Ladies and Gentlemen:
Reference is made to the Registration Rights Agreement dated as of
September 22, 1999 (the "Registration Rights Agreement") among eVentures Group,
Inc. and the persons and entities signatories thereto and each other person who
has or shall become a party to the Registration Rights Agreement as provided
therein. Capitalized terms used herein and not defined have the meanings
ascribed to them in the Registration Rights Agreement.
In consideration of the covenants and agreements contained in the
Registration Rights Agreement, the undersigned hereby confirms and agrees that
it shall be bound, to the same extent and in the same manner as the transferor,
by all of the provisions thereof.
This letter shall be construed and enforced in accordance with the laws of
the State of Texas.
Very truly yours,
Matthew J. Rainwater
by J. Randall Chappel,
Attorney-in-fact
-----------------------------
Name
/s/ MATTHEW J. RAINWATER
by J. RANDALL CHAPPEL
-----------------------------
Signature
-----------------------------
Title
12/15/99
-----------------------------
Date
Acknowledged and Agreed
this ___ day of December, 1999
eVENTURES GROUP, INC.
By:
-----------------------
Name:
---------------------
Title:
--------------------
<PAGE> 13
December___, 1999
To the parties to the
Registration Rights Agreement
dated as of September 22, 1999
Ladies and Gentlemen:
Reference is made to the Registration Rights Agreement dated as of
September 22, 1999 (the "Registration Rights Agreement") among eVentures Group,
Inc. and the persons and entities signatories thereto and each other person who
has or shall become a party to the Registration Rights Agreement as provided
therein. Capitalized terms used herein and not defined have the meanings
ascribed to them in the Registration Rights Agreement.
In consideration of the covenants and agreements contained in the
Registration Rights Agreement, the undersigned hereby confirms and agrees that
it shall be bound, to the same extent and in the same manner as the transferor,
by all of the provisions thereof.
This letter shall be construed and enforced in accordance with the laws of
the State of Texas.
Very truly yours,
Courtney E. Rainwater
by J. Randall Chappel,
Attorney-in-fact
-----------------------------
Name
/s/ COURTNEY E. RAINWATER
by J. RANDALL CHAPPEL
-----------------------------
Signature
-----------------------------
Title
12/15/99
-----------------------------
Date
Acknowledged and Agreed
this ___ day of December, 1999
eVENTURES GROUP, INC.
By:
-----------------------
Name:
---------------------
Title:
--------------------
<PAGE> 14
EXHIBIT A
December___, 1999
To the parties to the
Registration Rights Agreement
dated as of September 22, 1999
Ladies and Gentlemen:
Reference is made to the Registration Rights Agreement dated as of
September 22, 1999 (the "Registration Rights Agreement") among eVentures Group,
Inc. and the persons and entities signatories thereto and each other person who
has or shall become a party to the Registration Rights Agreement as provided
therein. Capitalized terms used herein and not defined have the meanings
ascribed to them in the Registration Rights Agreement.
In consideration of the covenants and agreements contained in the
Registration Rights Agreement, the undersigned hereby confirms and agrees that
it shall be bound, to the same extent and in the same manner as the transferor,
by all of the provisions thereof.
This letter shall be construed and enforced in accordance with the laws of
the State of Texas.
Very truly yours,
Richard E. Rainwater
by J. Randall Chappel,
Attorney-in-fact
-----------------------------
Name
/s/ RICHARD E. RAINWATER
by J. RANDALL CHAPPEL
-----------------------------
Signature
-----------------------------
Title
12/15/99
-----------------------------
Date
Acknowledged and Agreed
this ___ day of December, 1999
eVENTURES GROUP, INC.
By:
-----------------------
Name:
---------------------
Title:
--------------------
<PAGE> 15
December___, 1999
To the parties to the
Registration Rights Agreement
dated as of September 22, 1999
Ladies and Gentlemen:
Reference is made to the Registration Rights Agreement dated as of
September 22, 1999 (the "Registration Rights Agreement") among eVentures Group,
Inc. and the persons and entities signatories thereto and each other person who
has or shall become a party to the Registration Rights Agreement as provided
therein. Capitalized terms used herein and not defined have the meanings
ascribed to them in the Registration Rights Agreement.
In consideration of the covenants and agreements contained in the
Registration Rights Agreement, the undersigned hereby confirms and agrees that
it shall be bound, to the same extent and in the same manner as the transferor,
by all of the provisions thereof.
This letter shall be construed and enforced in accordance with the laws of
the State of Texas.
Very truly yours,
R. Todd Rainwater
by J. Randall Chappel,
Attorney-in-fact
-----------------------------
Name
/s/ R. TODD RAINWATER
by J. RANDALL CHAPPEL
-----------------------------
Signature
-----------------------------
Title
12/15/99
-----------------------------
Date
Acknowledged and Agreed
this ___ day of December, 1999
eVENTURES GROUP, INC.
By:
-----------------------
Name:
---------------------
Title:
--------------------
<PAGE> 16
December 15, 1999
To the parties to the
Registration Rights Agreement
dated as of September 22, 1999
Ladies and Gentlemen:
Reference is made to the Registration Rights Agreement dated as of
September 22, 1999 (the "Registration Rights Agreement") among eVentures Group,
Inc. and the persons and entities signatories thereto and each other person who
has or shall become a party to the Registration Rights Agreement as provided
therein. Capitalized terms used herein and not defined have the meanings
ascribed to them in the Registration Rights Agreement.
In consideration of the covenants and agreements contained in the
Registration Rights Agreement, the undersigned hereby confirms and agrees that
it shall be bound, to the same extent and in the same manner as the transferor,
by all of the provisions thereof.
This letter shall be construed and enforced in accordance with the laws of
the State of Texas.
Very truly yours,
Richard P. Ruocchro
-----------------------------
Name
/s/ RICHARD P. RUOCCHRO
-----------------------------
Signature
-----------------------------
Title
12/15/99
-----------------------------
Date
Acknowledged and Agreed
this ___ day of December, 1999
eVENTURES GROUP, INC.
By:
-----------------------
Name:
---------------------
Title:
--------------------
<PAGE> 17
December 15, 1999
To the parties to the
Registration Rights Agreement
dated as of September 22, 1999
Ladies and Gentlemen:
Reference is made to the Registration Rights Agreement dated as of
September 22, 1999 (the "Registration Rights Agreement") among eVentures Group,
Inc. and the persons and entities signatories thereto and each other person who
has or shall become a party to the Registration Rights Agreement as provided
therein. Capitalized terms used herein and not defined have the meanings
ascribed to them in the Registration Rights Agreement.
In consideration of the covenants and agreements contained in the
Registration Rights Agreement, the undersigned hereby confirms and agrees that
it shall be bound, to the same extent and in the same manner as the transferor,
by all of the provisions thereof.
This letter shall be construed and enforced in accordance with the laws of
the State of Texas.
Very truly yours,
John A. Weinzierl
-----------------------------
Name
/s/ JOHN A. WEINZIERL
-----------------------------
Signature
-----------------------------
Title
DEC 15, 1999
-----------------------------
Date
Acknowledged and Agreed
this ___ day of December, 1999
eVENTURES GROUP, INC.
By:
-----------------------
Name:
---------------------
Title:
--------------------
<PAGE> 18
December___, 1999
To the parties to the
Registration Rights Agreement
dated as of September 22, 1999
Ladies and Gentlemen:
Reference is made to the Registration Rights Agreement dated as of
September 22, 1999 (the "Registration Rights Agreement") among eVentures Group,
Inc. and the persons and entities signatories thereto and each other person who
has or shall become a party to the Registration Rights Agreement as provided
therein. Capitalized terms used herein and not defined have the meanings
ascribed to them in the Registration Rights Agreement.
In consideration of the covenants and agreements contained in the
Registration Rights Agreement, the undersigned hereby confirms and agrees that
it shall be bound, to the same extent and in the same manner as the transferor,
by all of the provisions thereof.
This letter shall be construed and enforced in accordance with the laws of
the State of Texas.
Very truly yours,
Jeffrey A. Zlotky
-----------------------------
Name
/s/ JEFFREY A. ZLOTKY
-----------------------------
Signature
-----------------------------
Title
December 16, 1999
-----------------------------
Date
Acknowledged and Agreed
this ___ day of December, 1999
eVENTURES GROUP, INC.
By:
-----------------------
Name:
---------------------
Title:
--------------------
<PAGE> 1
EXHIBIT 4.5
eVENTURES GROUP, INC.
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and
entered into on the ___ day of January, 2000, by and among eVENTURES GROUP,
INC., a Delaware corporation (the "Company"), and the persons and entities
signatories hereto (collectively, the "Stockholders"), as holders of shares of
Series C Convertible Preferred Stock, par value $0.00002 per share, of the
Company ("Series C Stock").
W I T N E S S E T H:
WHEREAS, the Company and the Stockholders have entered into that
certain Preferred Stock Subscription Agreement dated as of January __, 2000 (the
"Subscription Agreement"), pursuant to which certain of the Stockholders
acquired shares of the Company's Series C Stock; and
WHEREAS, in connection with the Subscription Agreement, the parties
have agreed to enter into this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained in this Agreement and in the Subscription Agreement, the sufficiency
of which is hereby acknowledged, the parties hereby agree as follows:
1. REGISTRABLE SHARES. For purposes of this Agreement "Registrable
Shares" shall mean, at any time, and with respect to any Stockholder or
Qualified Transferee (as defined in Section 8(g) below), any Restricted
Securities (as defined below) held by such Stockholder or Qualified Transferee,
and "Holder" shall mean any Stockholder or Qualified Transferee holding
Registrable Shares. As to any particular Registrable Shares, once issued, such
Registrable Shares shall cease to be Registrable Shares (1) when such
Registrable Shares have been registered under the Securities Act of 1933, as
amended or any successor Federal statute (the "Act"), the Registration Statement
in connection therewith has been declared effective and they have been disposed
of pursuant to and in the manner described in such effective Registration
Statement, (2) when such Registrable Shares are sold or distributed pursuant to
Rule 144, (3) when such Registrable Shares have ceased to be outstanding, or (4)
when such Registrable Shares have been transferred to a person or entity other
than a Qualified Transferee. For purposes of this Agreement, the term
"Restricted Securities" shall mean, at any time and with respect to any
Stockholder or Qualified Transferee, the shares of Series C Stock and any other
securities which by their terms are directly or indirectly exercisable or
exchangeable for or convertible into Common Stock (other than stock options
granted to employees or directors of the Company in their capacity as such, or
Common Stock issuable upon the exercise thereof), and any securities received on
or with respect to any of the foregoing securities, which are held by such
Stockholder or Qualified Transferee and which theretofor have not been sold to
the public pursuant to a Registration Statement or pursuant to Rule 144 under
the Act. For purposes of this Agreement, the term "Registration Statement" shall
mean any registration statement of the Company which covers any of the
Registrable Shares, and all amendments and supplements to any such
<PAGE> 2
Registration Statement, including post-effective amendments, in each case
including the Prospectus (defined herein) contained therein, all exhibits
thereto and all material incorporated by reference therein. For purposes of this
Agreement, the term "Prospectus" shall mean the prospectus included in a
Registration Statement, including any prospectus subject to completion, and any
such Prospectus as amended or supplemented by any prospectus supplement with
respect to the terms of the offering of any portion of the Registrable Shares
and, in each case, by all other amendments and supplements to such prospectus,
including post-effective amendments, and in each case including all material
incorporated by reference therein. For purposes of this Agreement, the term
"Rule 144" shall mean Rule 144 promulgated under the Act or any successor or
similar rule thereto, as may be enacted by the Securities and Exchange
Commission (the "Commission") from time to time.
2. PIGGYBACK REGISTRATIONS.
(a) RIGHT TO PIGGYBACK. If the Company proposes to register
any of its securities under the Act (other than pursuant to (i) a
registration solely in connection with an employee benefit or stock
ownership plan on Form S-8 or any comparable or successor form, (ii) a
registration solely in connection with an acquisition consummated in a
manner which would permit registration of such securities to the public
on Form S-4 or any comparable or successor form or (iii) a "shelf" or
similar registration for use solely in connection with future
acquisitions), and the registration form to be used may be used for the
registration of Registrable Shares (a "Piggyback Registration"), the
Company will give prompt written notice to all Holders of Registrable
Shares of its intention to effect such a registration (each a
"Piggyback Notice"). Subject to Section 2(b) below, the Company will
include in such registration all shares of Registrable Shares which
Holders of Registrable Shares request the Company to include in such
registration by written notice given to the Company within twenty (20)
days after the date of sending of the Piggyback Notice.
(b) PRIORITY ON PRIMARY REGISTRATIONS. If a Piggyback
Registration relates to an underwritten public offering of equity
securities by the Company and the managing underwriters for such
offering advise the Company in writing that in their opinion the number
of securities requested to be included in such registration exceeds the
number which can be sold in an orderly manner in such offering within a
price range acceptable to the Company, the Company will include in such
registration (i) first, the securities proposed to be sold by the
Company, (ii) second, the securities proposed to be sold by any other
persons with registration rights prior to those of the Holder, (iii)
third, the Registrable Shares requested to be included in such
registration, pro rata among the Holders of such Registrable Shares on
the basis of the number of shares owned by each such Holder, and (iv)
fourth, other securities requested to be included in such registration.
(c) PRIORITY ON SECONDARY REGISTRATIONS. If a Piggyback
Registration relates to an underwritten public offering of equity
securities held solely by Holders of the Company's securities and the
managing underwriters advise the Company in writing that in their
opinion the number of securities requested to be included in such
registration exceeds the number which can be sold in an orderly manner
in such offering within a price range acceptable to the Holders
initially requesting such registration, the Company
2
<PAGE> 3
will include in such registration (i) first, the securities requested
to be included therein by the Holders requesting such registration,
(ii) second, the securities proposed to be sold by any other persons
with registration rights prior to those of the Holder, (iii) third, the
Registrable Shares requested to be included in such registration, pro
rata among the Holders of such Registrable Shares on the basis of the
number of shares owned by each such Holder, and (iv) fourth, other
securities requested to be included in such registration.
3. REGISTRATION PROCEDURES. Whenever the Holders of Registrable Shares
have requested that any Registrable Shares be registered pursuant to this
Agreement, the Company will use its best efforts to effect the registration and
the sale of such Registrable Shares in accordance with the intended method of
distribution thereof and will as expeditiously as possible:
(i) prepare and file with the Commission a
Registration Statement with respect to such Registrable Shares
on any appropriate form under the Act, which form shall be
selected by the Company and shall be available for the sale of
Registrable Shares in accordance with the intended method or
methods of distribution thereof and use its best efforts to
cause such Registration Statement to become effective,
provided that before filing a Registration Statement or
Prospectus or any amendments or supplements thereto, the
Company will furnish to the counsel selected by the Holders of
a majority of the Registrable Shares included in such
Registration Statement copies of all such documents proposed
to be filed, which documents will be subject to the review of
such counsel;
(ii) prepare and file with the Commission such
amendments and post-effective amendments to such Registration
Statement and supplements to the Prospectus used in connection
therewith (and to file the Prospectus, as so supplemented,
under Rule 424 under the Act, if required) as may be necessary
to keep such Registration Statement effective for a period of
up to one (1) year, and comply with the provisions of the Act
with respect to the disposition of all securities included in
such Registration Statement during such period in accordance
with the intended methods of distribution by the selling
Holders thereof set forth in such Registration Statement or
supplement to such Prospectus;
(iii) furnish to each selling Holder of Registrable
Shares such number of copies of such Registration Statement,
each amendment and supplement thereto (in each case including
all exhibits), the Prospectus included in such Registration
Statement (including each preliminary Prospectus) and such
other documents as such selling Holder may reasonably request
in order to facilitate the disposition of the Registrable
Shares owned by such selling Holder;
(iv) notify the selling Holders of Registrable Shares
and the managing underwriters, if any, promptly and (if
requested by any such Stockholder) confirm such advice in
writing, (A) when a Prospectus, including any Prospectus
supplement or post-effective amendment has been filed, and,
with respect to a Registration Statement or any post-effective
amendment, when the same has become effective, (B) of any
request by the Commission for amendments or
3
<PAGE> 4
supplements to a Registration Statement or related Prospectus
or for additional information, (C) of the issuance by the
Commission of any stop order suspending the effectiveness of a
Registration Statement or the initiation of any proceedings
for that purpose, (D) of the receipt by the Company of any
notification with respect to the suspension of the
qualification of any of the Registrable Shares for sale in any
jurisdiction or the initiation or threatening of any
proceeding for such purpose, and (E) of the existence of any
fact which results in a Registration Statement, a Prospectus
or any document incorporated therein by reference containing
an untrue statement of a material fact or omitting to state a
material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not
misleading;
(v) use its best efforts to register or qualify such
Registrable Shares under such other securities or blue sky
laws of such jurisdictions as any selling Holder reasonably
requests and do any and all other acts and things which may be
reasonably necessary or advisable to enable such selling
Holder to consummate the disposition in such jurisdictions of
the Registrable Shares owned by such selling Holder, provided
that the Company will not be required (A) to qualify generally
to do business in any jurisdiction where it would not
otherwise be required to qualify but for this subparagraph,
(B) to subject itself to taxation in any such jurisdiction, or
(C) to consent to general service of process in any such
jurisdiction;
(vi) notify each selling Holder of such Registrable
Shares, at any time when a Prospectus relating thereto is
required to be delivered under the Act, of the happening of
any event referred to in clause (iv)(E) of this Section 3,
and, at the request of any such seller, prepare a supplement
to such Prospectus or a post-effective amendment to such
Registration Statement so that, as thereafter delivered to the
purchasers of such Registrable Shares, such Prospectus will
not contain an untrue statement of a material fact or omit to
state any fact necessary to make the statements therein not
misleading;
(vii) cause all such Registrable Shares to be listed
on each securities exchange on which similar securities issued
by the Company are then listed and to be qualified for trading
on each system on which similar securities issued by the
Company are from time to time qualified;
(viii) provide a transfer agent and registrar for all
such Registrable Shares not later than the effective date of
such Registration Statement and thereafter maintain such
transfer agent and registrar;
(ix) enter into such customary agreements (including
underwriting agreements in customary form) and take all such
other actions as the Holders of a majority of the Registrable
Shares being sold or the underwriters, if any, reasonably
request in order to expedite or facilitate the disposition of
such Registrable Shares;
4
<PAGE> 5
(x) in connection with an underwritten offering, use
its best efforts to (A) obtain opinions of counsel to the
Company and updates thereof, which counsel and opinions (in
form, scope and substance) shall be reasonably satisfactory to
the managing underwriters, addressed to the underwriters,
covering the matters customarily covered in opinions requested
in underwritten offerings and such other matters as may be
reasonably requested by such underwriters; and (B) obtain
"cold comfort" letters and updates thereof from the Company's
independent certified public accountants, addressed to the
underwriters, such letters to be in customary form and
covering matters of the type customarily covered in "cold
comfort" letters to underwriters in connection with
underwritten offerings; make available for inspection during
normal business hours by any underwriter participating in any
disposition pursuant to a registration statement, and any
attorney or accountant retained by such underwriter, all
financial and other records, pertinent corporate documents and
properties of the Company, and cause the Company's officers,
directors and employees to supply all information reasonably
requested by such underwriter, attorney or accountant in
connection with such registration statement; provided that
such underwriters execute prior thereto an agreement with the
Company that all such records, information or documents shall
be kept confidential by such persons unless (1) disclosure of
such records, information or documents is required by law or
by a court or administrative order or (2) such records,
information or documents are or become (but only when they
become) generally available to the public other than as a
result of disclosure in violation of this paragraph; and make
available for inspection by any underwriter participating in
any disposition pursuant to such registration statement and
any attorney, accountant or other agent retained by any such
underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause
the Company's officers, directors, employees and independent
accountants to supply all information reasonably requested by
any such underwriter, attorney, accountant or agent in
connection with such registration statement;
(xi) otherwise use its best efforts to comply with
all applicable rules and regulations of the Commission;
(xii) permit any Holder of Registrable Shares which
might be deemed, in the sole and exclusive judgment of such
Holder, to be an underwriter or a controlling person of the
Company, to participate in the preparation of such
registration or comparable statement and to require the
insertion therein of material, furnished to the Company in
writing, which in the reasonable judgment of such Holder and
its counsel should be included;
(xiii) in the event of the issuance of any stop order
suspending the effectiveness of a registration statement, or
of any order suspending or preventing the use of any related
prospectus or suspending the qualification of any Registrable
Shares included in such registration statement for sale in any
5
<PAGE> 6
jurisdiction, the Company will use its reasonable efforts
promptly to obtain the withdrawal of such order; and
(xiv) provide a CUSIP number for all Registrable
Shares, not later than the effective date of the applicable
registration statement.
If any such registration or comparable statement refers to any Holder by name or
otherwise as the Holder of any securities of the Company and if, in the sole and
exclusive judgment of such Holder, such Holder is or might be deemed to be a
controlling person of the Company, such Holder shall have the right to require
(a) the inclusion in such registration statement of language, in form and
substance reasonably satisfactory to such Holder, to the effect that the holding
of such securities by such Holder is not to be construed as a recommendation by
such Holder of the investment quality of the Company's securities covered
thereby and that such holding does not imply that such Holder will assist in
meeting any future financial requirements of the Company, or (b) in the event
that such reference to such Holder by name or otherwise is not required by the
Act or any similar federal statute then in force, the deletion of the reference
to such Holder; provided, that with respect to this clause (b) such Holder shall
furnish to the Company an opinion of counsel to such effect, which opinion and
counsel shall be reasonably satisfactory to the Company.
4. REGISTRATION EXPENSES.
(a) DEFINITION. The term "Registration Expenses" means any
expenses incident to the Company's performance of or compliance with
this Agreement, including, without limitation, all registration and
filing fees, listing fees, fees and expenses of compliance with
securities or blue sky laws, printing expenses, messenger and delivery
expenses, internal expenses, the fees and expenses of counsel for the
Company (but not the fees and expenses of counsel to the Holders of the
Registrable Shares included in such registration) and all independent
certified public accountants, underwriting fees and expenses (excluding
discounts and commissions attributable to the Registrable Shares, which
shall be paid by the selling Holders out of the proceeds of the
offering) and the fees and expenses of any other Persons (defined
below) retained by the Company. For purposes of this Agreement, the
term "Person" shall be construed as broadly as possible and shall
include an individual or natural person, a partnership (including a
limited liability partnership), a company, an association, a joint
stock company, a limited liability company, a trust, a joint venture,
an unincorporated entity and a governmental authority.
(b) PAYMENT. The Company shall pay the Registration Expenses
in connection with any and all Piggyback Registrations.
5. INDEMNIFICATION.
(a) INDEMNIFICATION BY THE COMPANY. The Company agrees to
indemnify, to the extent permitted by law, each Holder of Registrable
Shares, such holder's general and limited partners, officers and
directors and each Person who controls such Holder (within the meaning
of the Act) against all losses, claims, damages, liabilities and
expenses caused by any untrue or alleged untrue statement of material
fact contained in any Registration Statement, Prospectus or preliminary
Prospectus or any amendment thereof
6
<PAGE> 7
or supplement thereto or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as the same are caused by or
contained in any information furnished in writing to the Company by
such Holder expressly for use therein. In connection with an
underwritten offering, the Company will indemnify such underwriters,
their officers and directors and each Person who controls such
underwriters (within the meaning of the Act) to the same extent as
provided above with respect to the indemnification of the Holders of
Registrable Shares.
(b) INDEMNIFICATION BY HOLDERS. In connection with any
registration statement in which a Holder of Registrable Shares is
participating, each such Holder will furnish to the Company in writing
such information and affidavits as the Company reasonably requests for
use in connection with any such Registration Statement or Prospectus
and, to the extent permitted by law, will indemnify the Company, its
directors and officers and each Person who controls the Company (within
the meaning of the Act) against any losses, claims, damages,
liabilities and expenses resulting from any untrue or alleged untrue
statement of material fact contained in the registration statement,
prospectus or preliminary prospectus or any amendment thereof or
supplement thereto or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements
therein not misleading, but only to the extent that such untrue
statement or omission is contained in any written information or
affidavit so furnished in writing by such Holder; provided, that the
obligation to indemnify will be individual to each Holder and will be
limited to the net amount of proceeds received by such Holder from the
sale of Registrable Shares pursuant to such registration statement.
(c) NOTICE; DEFENSE OF CLAIMS. Any Person entitled to
indemnification hereunder will (i) give prompt written notice to the
indemnifying party of any claim with respect to which it seeks
indemnification and (ii) unless in such indemnified party's reasonable
judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. If such defense is
assumed, the indemnifying party will not be subject to any liability
for any settlement made by the indemnified party without its consent
(but such consent will not be unreasonably withheld or delayed). An
indemnifying party who is not entitled to, or elects not to, assume the
defense of a claim will not be obligated to pay the fees and expenses
of more than one special and one local counsel for all parties
indemnified by such indemnifying party with respect to such claim.
(d) CONTRIBUTION. If the indemnification provided for in this
Section 5 is held by a court of competent jurisdiction to be
unavailable to an indemnified party with respect to any loss,
liability, claim, damage or expense referred to herein, then the
indemnifying party, in lieu of indemnifying such indemnified party
hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage,
or expense in such proportion as is appropriate to reflect (i) the
relative benefits received by the indemnifying party or parties on the
one hand and the indemnified party on the other from the offering of
the Registrable Shares or (ii) if the allocation provided for by the
foregoing clause (i) is not permitted by applicable law, not only such
relative
7
<PAGE> 8
benefits but also the relative fault of the indemnifying party or
parties on the one hand and the indemnified party on the other hand in
connection with the statements or omissions or alleged statements or
omissions that resulted in such losses, claims, damages or liabilities
(or actions in respect thereof). The relative fault of the indemnifying
party and of the indemnified party shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission to state a material fact relates to
information supplied by the indemnifying party or by the indemnified
party and the parties' relative intent, knowledge, access to
information, and opportunity to correct or prevent such statement or
omission. The obligation to contribute will be individual to each
Holder of Registrable Shares and will be limited to the amount by which
the net amount of proceeds received by such Holder from the sale of
Registrable Shares exceeds the amount of losses, liabilities, damages,
and expenses which such Holder has otherwise been required to pay by
reason of such statements or omissions.
(e) SURVIVAL. The indemnification provided for under this
Agreement will remain in full force and effect regardless of any
investigation made by or on behalf of the indemnified party or any
officer, director or controlling Person of such indemnified party and
will survive the transfer of securities.
(f) UNDERWRITING AGREEMENT. To the extent that the provisions
on indemnification and contribution contained in the underwriting
agreement entered into in connection with an underwritten public
offering are in conflict with the provisions of this Section 5, the
provisions contained in the underwriting agreement shall control.
6. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Person may
participate in any registration hereunder which is underwritten unless such
Person (i) agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Person or Persons entitled hereunder
to approve such arrangements, (ii) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwriting arrangements; provided that no
Holder of Registrable Shares included in any underwritten registration shall be
required to make any representations or warranties to the Company or the
underwriters other than representations and warranties regarding such Holder and
such Holder's intended method of distribution, and (iii) if requested by the
managing underwriter or underwriters or the Demanding Persons (as defined in the
Registration Rights Agreement, dated as of September 22, 1999, among the Company
and the persons and entities set forth on Schedule 1 thereto), agrees not to
sell Registrable Shares or other securities held by such Person in any
transaction other than pursuant to such underwriting for such period following
the effective date of the registration statement relating to such underwriting
as determined by either the Board of Directors or the Demanding Persons;
provided that no Holder of Registrable Shares shall be required to enter into
such an agreement unless each other Holder of Registrable Shares, each director
and executive officer of the Company and each other Holder of at least one
percent of the Series C Stock then outstanding enters into a substantially
identical agreement relating to such underwriting.
7. STOCKHOLDER LOCK-UP; AGREEMENT NOT TO SELL. Prior to the first
anniversary of the date hereof, no Holder of Registrable Shares may make any
public sale of Registrable Shares
8
<PAGE> 9
(pursuant to a Registration Statement, Rule 144 or otherwise); provided,
however, that nothing herein shall prevent any Holder (a) that is a partnership
or corporation from making a distribution of Registrable Shares to the partners
or shareholders thereof that are otherwise in compliance with applicable
securities laws, so long as such permitted distributees agree to be bound by the
terms and conditions of the Lock-up Conditions; (b) that desires to sell any
Registrable Shares in a private transaction in compliance with applicable
securities laws from consummating such a sale so long as the purchaser in any
private sale agrees in writing to be bound by the restrictions set forth in this
Section 7; or (c) that is an individual, from making a transfer of Registrable
Shares by gift, will or the laws of descent and distribution, subject to the
restrictions set forth in this Section 7.
8. MISCELLANEOUS.
(a) INFORMATION AND REPORTING.
(i) The Company shall, at all times during which it
is neither subject to the reporting requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), nor exempt from reporting pursuant to
Rule 12g3-2(b) under the Exchange Act, upon the written
request of any Stockholder, provide in writing to such
Stockholder and to any prospective transferee of the
Registrable Shares of such Stockholder the information
concerning the Company described in Rule 144A(d)(4) or any
successor rule under the Act ("Rule 144A Information"). Upon
the written request of any Stockholder, the Company shall
cooperate with and assist such Stockholder or any member of
the National Association of Securities Dealers, Inc. PORTAL
system in applying to designate and thereafter maintain the
eligibility of the Registrable Shares for trading through
PORTAL. The Company's obligations under this Section 8(a)(i)
shall at all times be contingent upon receipt from the
prospective transferee of Registrable Shares of a written
agreement to take all reasonable precautions to safeguard the
Rule 144A Information from disclosure to anyone other than
Persons who will assist such transferee in evaluating the
purchase of any Registrable Shares.
(ii) When it is first legally required to do so, the
Company shall register its Common Stock under Section 12 of
the Exchange Act and shall keep effective such registration
and shall timely file such information, documents and reports
as the Commission may require or prescribe under Section 13 of
the Exchange Act. From and after the effective date of the
first registration statement filed by the Company under the
Act, the Company shall (whether or not it shall then be
required to do so) timely file such information, documents and
reports which a corporation, partnership or other entity
subject to Section 13 or 15(d) (whichever is applicable) of
the Exchange Act is required to file. The Company shall
promptly upon request furnish any Holder of Registrable Shares
(a) a written statement by the Company that it has complied
with the reporting requirements of Section 13 or 15(d) of the
Exchange Act, (b) a copy of the most recent annual or
quarterly report of the Company, and (c) such other reports
and documents filed by the Company with the Commission as such
Holder may reasonably request in
9
<PAGE> 10
availing itself of an exemption for the sale of Registrable
Shares without registration under the Act. The Company
acknowledges and agrees that the purposes of the requirements
contained in this Section 8(a)(ii) are to enable any such
Holder to comply with the current public information
requirement contained in paragraph (c) of Rule 144 under the
Act, should such Holder ever wish to dispose of any of the
securities of the Company acquired by it without registration
under the Act in reliance upon Rule 144 (or any other similar
exemptive provision), and to qualify the Company for the use
of registration statements on Form S-3. In addition, the
Company shall take such other measures and file such other
information, documents and reports, as shall hereafter be
required by the Commission as a condition to the availability
of Rule 144 under the Act (or any similar exemptive provision
hereafter in effect) and the use of Form S-3. The Company also
covenants to use its best efforts, to the extent that it is
reasonably within its power to do so, to qualify for the use
of Form S-3.
(b) NO INCONSISTENT AGREEMENTS. The Company will not hereafter
(i) enter into any agreement with respect to its securities which is
inconsistent with or violates the rights granted to the Holders of
Registrable Shares in this Agreement, provided, however, that other
purchasers of Series C Stock from the Company may become Holders and
parties to this Agreement by executing and delivering to the Company a
signature page to this Agreement or (ii) grant registration rights that
are superior to the registration rights granted hereunder to any other
Person other than to Persons who purchase Series C Stock from the
Company (unless consented to by a majority vote of the Stockholders).
(c) ADJUSTMENTS AFFECTING REGISTRABLE SHARES. The Company will
not take any action, or permit any change to occur, with respect to its
securities for the purpose of materially and adversely affecting the
ability of the Holders of Registrable Shares to include such
Registrable Shares in a registration undertaken pursuant to this
Agreement or materially and adversely affecting the marketability of
such Registrable Shares in any such registration (including, without
limitation, effecting a stock split or a combination of shares);
provided that this Section 8(c) shall not apply to actions or changes
with respect to the Company's business, balance sheet, earnings or
revenue where the effect of such actions or changes on the Registrable
Shares is merely incidental.
(d) NOTICES. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be
deemed effectively given when delivered personally or by facsimile
transmission or by overnight delivery service or 72 hours after being
mailed by first class certified or registered mail, return recent
requested, postage prepaid:
(i) If to the Company, c/o Stuart Chasanoff, 1601 Elm
Street, Suite 4000, Dallas, Texas 75201, or at such other
address or addresses as may have been furnished in writing by
the Company to the Stockholders.
(ii) If to a Stockholder, to it at its address as set
forth in the applicable Subscription Agreement, or at such
other address or addresses as may have been furnished in
writing by such Stockholder with a copy to (which shall not
10
<PAGE> 11
constitute notice): White & Case LLP, 200 S. Biscayne
Boulevard, Suite 4900, Miami, Florida 33131, Attention: Thomas
E Lauria, Esq. (Fax: 305-995-5282).
(e) REMEDIES. Any Person having rights under any provision of
this Agreement will be entitled to enforce such rights specifically to
recover damages caused by reason of any breach of any provision of this
Agreement and to exercise all other rights granted by law. The parties
hereto agree and acknowledge that money damages may not be an adequate
remedy for any breach of the provisions of this Agreement and that any
party may in its sole discretion apply to any court of law or equity of
competent jurisdiction (without posting any bond or other security) for
specific performance and for other injunctive relief in order to
enforce or prevent violation of the provisions of this Agreement.
(f) AMENDMENTS AND WAIVERS. Except as otherwise provided
herein, no amendment, modification, termination or cancellation of this
Agreement shall be effective unless made in writing signed by the
Company and the Holders of a majority of the shares of Registrable
Shares; provided that no amendment may be made to Sections 7 or 8(f) of
this Agreement unless agreed upon by the Company and the Holders of all
the Registrable Shares.
(g) ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Shares pursuant to this Agreement may
be assigned (but only with all related obligations) by a Holder to any
transferee (a "Qualified Transferee") that acquires from a Holder
either (i) 100,000 or more Registrable Shares or (ii) if less than
100,000 Registrable Shares are owned by a Holder at the time of a
transfer, all of the Registrable Shares owned by such Holder, in either
case in connection with the permitted transfer of Registrable Shares.
Such assignment shall not affect the rights of Holders hereunder which
shall remain in full force in accordance with the terms hereof. Any
transferring Holder shall provide the Company with prior written notice
of such transfer(s)/assignment(s); provided, however, that the failure
to provide such notice shall not be deemed to preclude assignment
hereunder.
(h) SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement.
(i) ENTIRE AGREEMENT. This Agreement embodies the entire
agreement of the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements relating to such subject
matter.
(j) HEADINGS. The headings of this Agreement are for
convenience only and do not constitute a part of this Agreement.
(k) GOVERNING LAW. The construction, validity and
interpretation of this Agreement will be governed by the internal laws
of the State of New York without giving effect to any choice of law or
conflict of law provision or rule (whether of the State of
11
<PAGE> 12
New York or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of New York.
(l) FURTHER ASSURANCES. Each party to this Agreement hereby
covenants and agrees, without the necessity of any further
consideration, to execute and deliver any and all such further
documents and take any and all such other actions as may be necessary
or appropriate to carry out the intent and purposes of this Agreement
and to consummate the transactions contemplated hereby.
(m) COUNTERPARTS. This Agreement may be executed by facsimile
and in one or more counterparts, each of which shall be deemed to be an
original, but all of which shall be one and the same document.
(Signature Page Follows)
12
<PAGE> 13
IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto as of the date first written above.
COMPANY:
eVENTURES GROUP, INC.
By: /s/ BARRETT WISSMAN
---------------------------------------
Name: Barrett Wissman
-------------------------------------
Title: CEO
------------------------------------
[SIGNATURE PAGE FOR EACH STOCKHOLDER FOLLOWS]
13
<PAGE> 14
Signature page to Registration Rights Agreement dated December __, 1999 among
eVentures Group, Inc. the undersigned and certain of its other Stockholders.
STOCKHOLDER:
KUWAIT FUND FOR ARAB ECONOMIC
DEVELOPMENT
Name of Stockholder
By: /s/ JOSEPH A. WOLINSKY
------------------------------------
Name: Joseph A. Wolinsky
---------------------------------
Title: Attorney-in-Fact
--------------------------------
14
<PAGE> 15
Signature page to Registration Rights Agreement dated December 31, 1999 among
eVentures Group, Inc. the undersigned and certain of its other Stockholders.
STOCKHOLDER:
Omar Wohabe
----------------------------------------
Name of Stockholder
By: /s/ OMAR WOHABE
--------------------------------
Name: Omar Wohabe
---------------------------
Title:
--------------------------
14
<PAGE> 16
Signature page to Registration Rights Agreement dated December 31, 1999 among
eVentures Group, Inc. the undersigned and certain of its other Stockholders.
STOCKHOLDER:
/s/ DAVID WOHABE
-------------------------------
Name of Stockholder
By: /s/ DAVID WOHABE
--------------------------------
Name: David Wohabe
---------------------------
Title: Attorney-in-Fact
--------------------------
<PAGE> 17
Signature page to Registration Rights Agreement dated January 14, 2000 among
eVentures Group, Inc. the undersigned and certain of its other Stockholders.
STOCKHOLDER:
HUNT VENTURES, L.P.
-------------------
Name of Stockholder
by: HVI, LLC, its General Partner
By: /s/ CHRISTOPHER W. KLEINERT
--------------------------------
Name: Christopher W. Kleinert
---------------------------
Title: Manager
--------------------------
<PAGE> 18
Signature page to Registration Rights Agreement dated January 24, 2000 among
eVentures Group, Inc. the undersigned and certain of its other Stockholders.
Very truly yours,
EOS PARTNERS SBIC, L.P.
By: EOS SBIC GENERAL, L.P.
its General Partner
By: EOS SBIC, INC.
its General Partner
By: /s/
----------------------------
Name:
Title:
EOS PARTNERS, L.P.
By: /s/
----------------------------
Name:
Title:
EOS (OFFSHORE), L.P.
By: /s/
----------------------------
Name:
15
<PAGE> 19
Signature page to Registration Rights Agreement date December 31, 1999 among
eVentures Group Inc. the undersigned and certain of its other Stockholders.
STOCKHOLDER
By:/s/ AHMAD ALKHALED
-----------------------------------------
Name: AHMAD ALKHALED
---------------------------------------
Title:
--------------------------------------
<PAGE> 1
Exhibit 10.1
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (the "Agreement") dated as of June
11, 1998 is entered into by and among ORIX GLOBAL COMMUNICATIONS, INC., a Nevada
corporation (the "Company"), KERRY ROGERS, JACK HIGGINS and BOB MICHAELS (the
"Founders") and the Persons listed on the Schedule of Purchasers attached as
Exhibit A (individually, a "Purchaser" and, collectively, the "Purchasers").
This Agreement, together with the Related Agreements (as hereafter defined) are
being executed and delivered as the Additional Agreements, as such term is
defined in that certain letter agreement dated June 11, 1998 by and among
Infinity Investors Limited ("Infinity"), Touch Tone America, Inc. ("Touch
Tone"), the Company and the Founders (the "Letter Agreement"). This Agreement
and the Related Agreements supersede and replace the Letter Agreement.
In consideration of the mutual promises and covenants contained in this
Agreement, the parties agree as follows:
1. ASSUMPTION OF DEBT; ISSUANCE OF DEBENTURES AND OTHER SECURITIES.
(a) ASSUMPTION OF TOUCH TONE INDEBTEDNESS. Pursuant to the
terms of the Letter Agreement, the Company has assumed and agreed to
pay and discharge (the "Assumption") $2,610,477 aggregate principal
amount of debentures, together with accrued and unpaid interest of
$87,133 thereon through June 11, 1998 (the "Assumed Debentures"),
issued by Touch Tone to Infinity pursuant to that certain Securities
Purchase Agreement dated December 31, 1997 by and among Touch Tone, the
Company and Infinity. In connection with the Assumption, Infinity has
released and discharged Touch Tone from its obligation to repay the
Assumed Debentures.
(b) RESTATEMENT OF ASSUMED DEBENTURES; ISSUANCE OF ADDITIONAL
DEBENTURES.
The Company and the Purchasers have agreed pursuant to the terms of
this Agreement to (x) amend and restate in their entirety the Assumed
Debentures on the terms set forth herein as a direct obligation of the
Company to Infinity (the "Restated Debentures") and (y) provide for the
issuance of additional debentures of the Company (the "New Debentures")
to the Purchasers in an aggregate principal amount of $6,000,000 minus
the outstanding balance due and owing on the Assumed Debentures on June
11, 1998 (the difference between $6,000,000 and the outstanding balance
due and owing on the Assumed Debentures on June 11, 1998, i.e.,
$3,303,390 being herein referred to as the "New Advance"). The Restated
Debentures and the New Debentures (collectively, the "Debentures")
issued by the Company to the Purchasers pursuant to the terms of this
Agreement shall be (x) in the form attached hereto as Exhibit B, and
(y) secured by a pledge of all of the assets of the Company pursuant to
the terms of the Security Agreement (as hereafter defined).
- --------------------------------------------------------------------------------
SECURITIES PURCHASE AGREEMENT - PAGE 1
<PAGE> 2
(c) FUTURE LETTERS OF CREDIT. At the sole and exclusive
discretion of the Purchasers, from time to time the Purchasers may
provide credit enhancement to the Company and its Subsidiaries (as
hereafter defined) by the issuance of letters of credit or similar
instruments (collectively, the "Letters of Credit"). In the event the
Purchasers provide any Letters of Credit, and amounts thereunder are
drawn upon by the issuing institution, the proceeds so drawn shall be
deemed to be an advance from the Purchasers to the Company in exchange
for a new Debenture in the original principal balance of the amount so
drawn, which Debenture shall be issued on terms identical to the
Debentures set forth on Exhibit B hereto and subject to all of the
terms and conditions of this Agreement and each Related Agreement.
(d) OTHER SECURITIES. As of the date hereof the Company shall
issue to the Purchasers, at a purchase price of $0.01 per share, 2,400
shares (the "Closing Shares") of common stock, no par value, of the
Company ("Common Stock"), representing a 66-2/3% ownership interest in
the issued and outstanding shares of Common Stock of the Company on a
Fully Diluted Basis (as hereafter defined). In addition to all other
remedies available to the Purchasers, in the event the Closing Shares
do not represent at least 66-2/3% of the issued and outstanding shares
of Common Stock of the Company as of the Closing on a Fully Diluted
Basis as specified herein (the "Fully Diluted Representation"), the
Purchasers shall be entitled to receive from the Company, without
additional consideration, such additional shares of Common Stock as
shall be necessary to cause the Fully Diluted Representation to be
accurate.
(e) USE OF PROCEEDS. The Company (x) used the proceeds from
the sale of the Assumed Debentures by Touch Tone and (y) will use the
proceeds from the sale of the New Debentures, in each case for working
capital and other general corporate purposes (and, with respect to the
New Advance, as more fully described in Section 9(h) below).
2. DEFINITIONS. For the purposes of this Agreement, the following terms
shall have the meanings set forth below:
"ACCREDITED INVESTOR" has the meaning as set forth in Regulation D
promulgated under the Securities Act.
"AFFILIATE" means with respect to any Person, a Person that directly,
or indirectly through one or more intermediaries, controls, is controlled by, or
is under common control with, such Person, and, in the case of an individual,
includes any relative or spouse of such Person, or any relative or such spouse,
who has the same home as such Person. The term "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
- --------------------------------------------------------------------------------
SECURITIES PURCHASE AGREEMENT - PAGE 2
<PAGE> 3
"APPROVED PLAN" means any written stock option, stock purchase or
similar incentive plan approved by the Board of Directors constituted after the
Closing and the Majority Holders for senior executives of the Company who are
not stockholders of the Company as of the Closing.
"ASSUMED DEBENTURES" has the meaning set forth in Section 1(a).
"ASSUMPTION" has the meaning set forth in Section 1(a).
"AVANTEL" means Avantel, S.A.
"BALANCE SHEET" and "BALANCE SHEET DATE" have the meanings set forth in
Section 4(i).
"BOARD OF DIRECTORS" means the board of directors of the Company.
"BUDGET" has the meaning set forth in Section 9(b)(iv).
"BUSINESS DAY" means any day other than a Saturday, Sunday or any day
that national banks having offices in Texas or New York are required or
authorized to be closed for the transaction of business.
"BUSINESS PLAN" means the Company's business plan entitled "Status
Report Global Gate Network" dated May 14, 1998 and attached hereto as
Exhibit C.
"BYLAWS" means the bylaws of the Company or Subsidiary, as applicable,
as amended and in effect at the Closing.
"CERTIFICATE OF INCORPORATION" means the Company's or Subsidiary's, as
applicable, Certificate of Incorporation, as amended.
"CLOSING SHARES" has the meaning set forth in Section 1(d).
"CLOSING" has the meaning set forth in Section 3.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMON STOCK" has the meaning set forth in Section 1(c).
"COMPANY" has the meaning set forth in the preamble to this Agreement.
"COMPUTER SYSTEMS" has the meaning set forth in Section 4(y)(i).
"CURRENT STOCKHOLDERS" has the meaning set forth in Section 7(d)(ii).
"DATE DATA" has the meaning set forth in Section 4(y)(iii).
"DEBENTURES" has the meaning set forth in Section 1(b).
- --------------------------------------------------------------------------------
SECURITIES PURCHASE AGREEMENT - PAGE 3
<PAGE> 4
"DEBT" means of any Person at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes, or other similar instruments
issued by such Person, (iii) all obligations of such Person as lessee which (y)
are capitalized in accordance with GAAP or (z) arise pursuant to sale-leaseback
transactions, (iv) all reimbursement obligations of such Person in respect of
letters of credit or other similar instruments, (v) all Debt of others secured
by a Lien on any asset of such Person, whether or not such Debt is otherwise an
obligation of such Person and (vi) all Debt of others Guaranteed by such Person.
"DEFAULT" means any event or condition which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"DISCLOSURE SCHEDULE" has the meaning set forth in Section 4.
"EMPLOYMENT AGREEMENTS" has the meaning set forth in Section 7(d)(x).
"ENVIRONMENTAL LAWS" has the meaning set forth in Section 4(s)(iv).
"EQUITY SECURITIES" means any capital stock or similar security of the
Company, including without limitation, securities containing equity features and
securities containing profit participation features, or any security convertible
or exchangeable, with or without consideration, into or for any stock or similar
security of the Company, or any security carrying any warrant or right to
subscribe for or purchase any stock or similar security of the Company, or any
such warrant or right to acquire any security of the Company.
"ERISA" has the meaning set forth in Section 4(t).
"ESTIMATED EXPENSE REIMBURSEMENT FEE" has the meaning set forth in
Section 12(d)(i).
"EVENT OF DEFAULT" has the meaning set forth in the Debentures.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FACILITIES" has the meaning set forth in Section 4(p)(i).
"FAIR MARKET VALUE" has the meaning set forth in the Stockholders
Agreement.
"FINANCIAL STATEMENTS" has the meaning set forth in Section 4(i).
"FOUNDERS" has the meaning set forth in the preamble to this Agreement.
"FULLY DILUTED BASIS" means the sum of (i) the shares of Common Stock
outstanding, and (ii) the shares of Common Stock that would be outstanding at
the Closing assuming that (A) all shares of Common Stock issuable pursuant to
all outstanding Equity Securities and other rights to acquire Common Stock
(excluding, however, all options issued or issuable pursuant to any Approved
Plan) had been issued and (B) the Closing Shares had been issued.
- --------------------------------------------------------------------------------
SECURITIES PURCHASE AGREEMENT - PAGE 4
<PAGE> 5
"FULLY DILUTED REPRESENTATION" has the meaning set forth in Section
1(d).
"GAAP" has the meaning set forth in Section 4(i).
"GUARANTEE" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing (whether by virtue
of partnership arrangements, by agreement to keep well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain a minimum net
worth, financial ratio or similar requirements, or otherwise) any Debt of any
other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Debt or (ii) entered into for the purpose of assuring in any other manner the
holder of such Debt of the payment thereof or to protect such holder against
loss in respect thereof (in whole or in part); provided that the term Guarantee
shall not include endorsements for collection or deposit in the ordinary course
of business. The term Guarantee used as a verb has a corresponding meaning.
"HAZARDOUS MATERIALS" has the meaning set forth in Section 4(s)(v).
"INDEMNIFICATION AGREEMENT" means the Indemnification Agreement
executed by the Company as contemplated by the Stockholders Agreement.
"INFINITY" means Infinity Investors Limited, a Nevis West Indies
corporation.
"INTELLECTUAL PROPERTY RIGHTS" has the meaning set forth in Section
4(m).
"LETTER AGREEMENT" has the meaning set forth in the Preamble to this
Agreement.
"LETTERS OF CREDIT" has the meaning set forth in Section 1(c).
"LIEN" means any lien, security interest, pledge, mortgage, deed of
trust, charge or encumbrance in real, personal or mixed property (tangible or
intangible, and wherever located).
"LOSSES" has the meaning set forth in Section 12(o).
"MAJORITY HOLDERS" has the meaning set forth in Section 9(d).
"MOST RECENT FINANCIAL STATEMENTS" has the meaning set forth in
Section 4(i).
"NEW ADVANCE" has the meaning set forth in Section 1(b).
"NEW DEBENTURE" has the meaning set forth in Section 1(a).
"OTHER SYSTEMS" has the meaning set forth in Section 4(y)(i).
"PARI PASSU AGREEMENT" has the meaning set forth in Section 7(d)(xi).
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SECURITIES PURCHASE AGREEMENT - PAGE 5
<PAGE> 6
"PERMITS" has the meaning set forth in Section 4(p)(i).
"PERMITTED LIENS" means Liens for taxes and assessments not yet due and
payable or which are being challenged in good faith and with respect to which
adequate reserves have been established in the financial statements of the
Company, informational filings made by equipment lessors under the Uniform
Commercial Code, landlords' liens created by statute and not by affirmative
action of any landlord, and statutory liens created in the ordinary course of
business securing indebtedness or obligations whose payment is not yet due.
"PERSON" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, a limited
liability company, an unincorporated organization or a governmental entity or
any department, agency or political subdivision thereof.
"PURCHASER DIRECTOR" means a Person serving as a director of the
Company as the designee or nominee of the Purchasers pursuant to the
Stockholders Agreement.
"PURCHASER(S)" has the meaning set forth in the preamble to this
Agreement.
"QUALIFIED PUBLIC OFFERING" has the meaning set forth in the
Stockholders Agreement.
"REGISTRATION RIGHTS AGREEMENT" has the meaning set forth in Section
7(d)(vi).
"RELATED AGREEMENTS" mean any and all agreements other than this
Agreement required to be executed by the parties to this Agreement at or prior
to the Closing pursuant to Section 7, including, without limitation, the
Debentures, the Employment Agreements, the Letter Agreement, the Pari Passu
Agreement, the Stockholders Agreement, the Indemnification Agreement, the
Registration Rights Agreement and the Security Agreement.
"RESTATED DEBENTURES" has the meaning set forth in Section 1(b).
"ROGERS NOTE" has the meaning set forth in Section 7(d)(xi).
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
similar federal law then in force.
"SECURITY AGREEMENT" has the meaning as set forth in Section 7(d)(v).
"STOCKHOLDERS AGREEMENT" has the meaning set forth in Section 7(d)(iv).
"SUBSIDIARY" means any corporation more than 50% of the outstanding
voting securities of which are owned by the Company or any Subsidiary, directly
or indirectly, or a partnership or limited liability company in which the
Company or any Subsidiary is a general partner or manager or holds interests
entitling it to receive more than 50% of the profits or losses of the
partnership or limited liability company.
"TOUCH TONE" has the meaning set forth in Section 1(a).
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SECURITIES PURCHASE AGREEMENT - PAGE 6
<PAGE> 7
"USE OF PROCEEDS STATEMENT" has the meaning set forth in Section 9(h).
"YEAR 2000 CAPABILITIES" has the meaning as set forth in
Section 4(y)(iii).
3. THE CLOSING.
(a) The closing of the issuance, sale and purchase of the
Debentures (the "Closing") shall take place on June 11, 1998, at the
offices of Arter & Hadden, LLP, 1717 Main Street, Ste. 4100, Dallas,
Texas at 10:00 a.m., local time.
(b) At the Closing, (x) the Company shall deliver to the
Purchasers the Debentures in the aggregate principal amount of
$6,000,000, and (y) the Purchasers shall deliver to the Company, by
direct payment to Avantel at the direction of the Company, $250,000 of
the New Advance. In addition, at the Closing, the Purchasers shall
deliver a statement of the Estimated Expense Reimbursement Fee (which
is expected to be approximately $35,000), which sum shall be deemed
advanced by the Purchasers to the Company as part of the New Advance at
the Closing. From time to time after the Closing, the Purchasers shall
advance to the Company the remaining portion of the New Advance not
advanced (or deemed advanced) at the Closing, upon receipt of written
request thereof from the Company, provided no Default or Event of
Default then exists. The Company and the Purchasers hereby agree that
notwithstanding the $6,000,000 aggregate stated principal balance of
the Debentures issued at the Closing, interest shall only accrue on the
New Advance from the various dates the proceeds thereof are advanced
(or deemed advanced) to the Company in accordance with the terms of
this Agreement.
(c) In addition to the deliveries specified in subsection (b)
above, at the Closing the Company shall deliver to the Purchasers the
Closing Shares, and the Purchasers shall deliver to the Company $24 in
the aggregate, representing the purchase price of the Closing Shares.
(d) If at the Closing any of the conditions specified in
Section 7 to be fulfilled at or prior to the Closing shall not have
been fulfilled, each of the Purchasers shall, at its election, be
relieved of all of its obligations under this Agreement to be performed
at the Closing without thereby waiving any other rights such Purchaser
may have by reason of such failure or such nonfulfillment.
(e) Immediately preceding the Closing the Purchasers shall
deliver to the Company a Schedule setting forth the allocation among
the Purchasers of the Debentures and Closing Shares to be acquired
pursuant to the terms hereof.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Purchasers that the
statements contained in this Section 4 are true as of the date of this Agreement
and shall be true as of the Closing (as though made then), except as set forth
in the Schedule of Exceptions attached hereto
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SECURITIES PURCHASE AGREEMENT - PAGE 7
<PAGE> 8
as Exhibit D (the "Disclosure Schedule"). The Disclosure Schedule shall be
arranged in paragraphs corresponding to the numbered paragraphs contained in
this Section 4. Nothing contained in the Disclosure Schedule shall be deemed
adequate to disclose an exception to a representation or warranty made in this
Agreement unless the Disclosure Schedule identifies the exception with
particularity and describes the relevant facts in reasonable detail. Without
limiting the generality of the foregoing, the mere listing (or inclusion of a
copy) of a document or other item shall not be deemed adequate to disclose an
exception to a representation or warranty made herein (unless the representation
or warranty relates to the existence of the document or other item itself).
(a) ORGANIZATION AND STANDING.
The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Nevada and has full
corporate power and authority to conduct its business as presently
conducted and as proposed to be conducted by it and to enter into and
perform this Agreement and to carry out the transactions contemplated
by this Agreement. The Company is duly qualified and in good standing
to do business in each jurisdiction where the failure to be so
qualified would have a material adverse effect on the Company. The
Company has furnished to each Purchaser true and complete copies of its
Certificate of Incorporation and Bylaws, and the Certificate of
Incorporation and Bylaws of each of its Subsidiaries, each as amended
to date and currently in effect.
(b) CAPITALIZATION.
The authorized capital stock of the Company, following the amendment
contemplated in Section 7(f)(iii) below, consists of 100,000 shares of
Common Stock, of which 1,200 shares are issued and outstanding. All of
the issued and outstanding shares of Common Stock have been duly
authorized and validly issued and are fully paid and nonassessable.
Except (i) as provided in this Agreement or any Related Agreement, or
(ii) as set forth in the Disclosure Schedule: (a) no Equity Securities
or subscription or other right (contingent or otherwise) to purchase or
acquire any shares of capital stock of the Company are authorized or
outstanding; (b) neither the Company nor any Subsidiary has any
obligation (contingent or otherwise) to issue any Equity Securities or
subscription or other such right or to issue or distribute to holders
of any shares of its capital stock any evidences of indebtedness or
assets of the Company or any Subsidiary; and (c) neither the Company
nor any Subsidiary has any obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any shares of its capital stock
or any interest therein or to pay any dividend or make any other
distribution in respect thereof. All of the issued and outstanding
shares of capital stock of the Company have been offered, issued and
sold by the Company in compliance with applicable federal and state
securities laws or pursuant to valid exemptions therefrom.
(c) SUBSIDIARIES, ETC.
Except as set forth in the Disclosure Schedule, the Company has no
Subsidiaries and does
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SECURITIES PURCHASE AGREEMENT - PAGE 8
<PAGE> 9
not own or control, directly or indirectly, any shares of capital stock
of any other corporation or any interest in any partnership, joint
venture, limited liability company, professional association or other
business enterprise. Except as set forth in the Disclosure Schedule,
the Company owns 100% of the issued and outstanding capital stock of
each of the Subsidiaries (including, without limitation, Latin Gate,
S.A., whose shares are owned 99% by the Company and 1% by UCI Teleport,
Inc., a wholly-owned subsidiary of the Company) in each case, free and
clear of all Liens. Each of the Company's Subsidiaries is a corporation
organized, validly existing and in good standing under the laws of the
state of its incorporation or formation, as the case may be, and has
full power and authority and all licenses, permits and authorization
necessary to conduct its business and own its properties as presently
conducted and owned and as proposed to be conducted and owned, and to
carry out the transactions contemplated in this Agreement and the
Related Agreements, as applicable. Each of the Company's Subsidiaries
is qualified to do business and is in good standing in each
jurisdiction in which the nature of its business or the properties
owned or leased by it requires qualification.
(d) STOCKHOLDER LIST AND AGREEMENTS.
The Disclosure Schedule sets forth a true and complete list of the
stockholders of the Company, showing the number of shares of Common
Stock or other securities of the Company held by each stockholder as of
the date of this Agreement and the consideration paid to the Company,
if any, therefor. Except (i) as provided in this Agreement or any
Related Agreement or (ii) as set forth in the Disclosure Schedule,
there are no agreements, written or oral, between the Company and any
holder of its capital stock or, to the best of the Company's knowledge,
among any holders of its capital stock relating to the acquisition
(including without limitation rights of first refusal or preemptive
rights), transfer, sale or other disposition, registration under the
Securities Act, or voting of the capital stock of the Company. The
Disclosure Schedule sets forth a true and complete list of stockholders
of the Company (x) as of the date hereof and (y) on a Fully Diluted
Basis. As set forth thereon, assuming conversion or exercise in full of
all Equity Securities and any other derivative securities of the
Company outstanding immediately after the Closing, the Purchasers would
own 2,400 shares of Common Stock, representing 66-2/3% of the issued
and outstanding shares of Common Stock of the Company on a Fully
Diluted Basis, without giving effect to any issuance of Common Stock
under any Approved Plan.
(e) ISSUANCE OF SECURITIES.
The issuance, sale and delivery of the Debentures in accordance with
this Agreement and the Related Agreements, and the issuance and
delivery of the Closing Shares have been, or will be prior to the
Closing, duly authorized by all necessary corporate action on the part
of the Company and its officers, directors and stockholders, and all
such Closing Shares have been duly reserved for issuance. The
Debentures and Closing Shares, when so issued, sold and delivered
against payment therefor in accordance with the provisions of this
Agreement and the Related Agreements will be duly and validly issued,
fully paid and non-assessable, free and clear of any taxes, Liens and
charges with respect to issuance and
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SECURITIES PURCHASE AGREEMENT - PAGE 9
<PAGE> 10
shall not be subject to preemptive rights or similar rights of any
other stockholders of the Company. Based in part on the representations
made by each of the Purchasers in Section 6 of this Agreement, the
offer and sale of the Debentures and Closing Shares to each of the
Purchasers will be in compliance with applicable federal and state
securities laws.
(f) AUTHORIZATION.
The execution, delivery and performance by the Company of this
Agreement and all Related Agreements and the consummation by the
Company of the transactions contemplated hereby and thereby, have been
duly authorized by all necessary corporate action. All corporate action
on the part of the Company and its officers, directors and stockholders
necessary for the authorization, execution and delivery of this
Agreement and all Related Agreements, and the performance of all
obligations of the Company hereunder and thereunder has been taken or
will be taken prior to the Closing. This Agreement and each of the
Related Agreements have been duly executed and delivered by the Company
and constitute valid and binding obligations of the Company enforceable
in accordance with their respective terms. The execution, delivery and
performance of the transactions contemplated by this Agreement and the
Related Agreements and compliance with their provisions by the Company
will not violate any provision of law and will not conflict with or
result in any breach of any of the terms, conditions or provisions of,
or constitute a default under, or require a consent or waiver under,
the Certificate of Incorporation or Bylaws (each as amended to date) or
any indenture, lease, agreement or other instrument to which the
Company or any Subsidiary is a party or by which any of them or any of
their properties is bound, or any decree, judgment, order, statute,
rule or regulation applicable to the Company or any such Subsidiary.
(g) GOVERNMENTAL CONSENTS.
No consent, approval, order or authorization of, or registration,
qualification, designation, declaration or filing with, any
governmental authority is required on the part of the Company in
connection with the execution and delivery of this Agreement or the
Related Agreements, the offer, issuance, sale and delivery of the
Closing Shares or Debentures, or the other transactions to be
consummated at the Closing, as contemplated by this Agreement, except
such filings as shall have been made prior to and shall be effective on
and as of the Closing.
(h) LITIGATION.
There is no action, suit or proceeding, or governmental inquiry or
investigation, pending, or, to the best of the Company's knowledge, any
basis therefor or threat thereof, against the Company or any
Subsidiary, which questions the validity of this Agreement or any
Related Agreement or the right of the Company to enter into or perform
this Agreement or any Related Agreement, or which could reasonably be
expected to have, either individually or in the aggregate, any material
adverse effect on the business, prospects, assets or condition,
financial or otherwise, of the Company or any Subsidiary, nor is there
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SECURITIES PURCHASE AGREEMENT - PAGE 10
<PAGE> 11
any litigation pending, or, to the best of the Company's knowledge, any
basis therefor or threat thereof, against the Company or any Subsidiary
by reason of the proposed activities of the Company or negotiations by
the Company with possible investors in the Company.
(i) FINANCIAL STATEMENTS.
The Company has furnished to each of the Purchasers a complete and
correct copy of the following financial statements (collectively, the
"Financial Statements"): (i) the Company's consolidated audited balance
sheet, statements of operations, changes in stockholders' equity and
cash flows for the fiscal year ended December 31, 1997, and (ii) the
Company's consolidated unaudited balance sheet (the "Balance Sheet") as
of April 30, 1998 (the "Balance Sheet Date") and statements of
operations and cash flow for the month ended as of the Balance Sheet
Date (the "Most Recent Financial Statements"). The Financial Statements
are complete and correct, are in accordance with the books and records
of the Company and present fairly the financial condition and results
of operations of the Company and each Subsidiary on a consolidated
basis, as at the dates and for the periods indicated, and have been
prepared in accordance with generally accepted accounting principles
consistently applied ("GAAP"), except that the Most Recent Financial
Statements lack footnotes and other presentation items and are subject
to normal year-end audit adjustments, which will not be material,
individually or in the aggregate.
(j) ABSENCE OF LIABILITIES.
Except as disclosed in the Disclosure Schedule, at the Balance Sheet
Date, the Company and its Subsidiaries did not have any liabilities of
any type that in the aggregate exceeded $50,000, whether absolute or
contingent, which were not fully reflected on the Balance Sheet, and,
since the Balance Sheet Date, the Company and its Subsidiaries have not
incurred or otherwise become subject to any such liabilities or
obligations except in the ordinary course of business.
(k) TAXES.
The amount shown on the Balance Sheet as provision for taxes is
sufficient for the payment of all accrued and unpaid federal, state,
county, local and foreign taxes for the period then ended and all prior
periods. The Company and its Subsidiaries have filed all federal,
state, county, local and foreign tax returns which are required to be
filed by it on or prior to the date of the Closing, such returns are
true and correct and all taxes shown thereon to be due have been timely
paid with exceptions not material to the Company and its Subsidiaries.
Federal income tax returns of the Company and its Subsidiaries have not
been audited by the Internal Revenue Service, and no controversy with
respect to taxes of any type is pending or, to the best of the
Company's knowledge, threatened. Neither the Company nor any of its
stockholders has ever filed (i) an election pursuant to Section 1362 of
the Code, that the Company be taxed as an S Corporation or (ii) a
consent pursuant to Section 341(f) of the Code relating to collapsible
corporations. The Company and its Subsidiaries have withheld or
collected from each payment made to each of its
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SECURITIES PURCHASE AGREEMENT - PAGE 11
<PAGE> 12
employees, the amount of all taxes (including, without limitation,
federal income taxes, Federal Insurance Contribution Act taxes, Federal
Unemployment Tax Act taxes and Medicare taxes) required to be withheld
or collected therefrom, and has timely paid the same to the proper tax
receiving officers or authorized depositories.
(l) TITLE TO PROPERTY AND ASSETS.
The Company and its Subsidiaries have good and indefeasible title to or
a valid leasehold interest in all of its properties and assets, which
comprise all of the properties and assets reflected in the Balance
Sheet (except those disposed of since the Balance Sheet Date in the
ordinary course of business) and all of the properties and assets
necessary or useful for the conduct of its business as described in the
Business Plan and none of such properties or assets is subject to any
Lien of any nature whatsoever other than those the material terms of
which are described in the Balance Sheet or in the Disclosure Schedule.
(m) INTELLECTUAL PROPERTY.
The Company is the sole owner of or possesses all legal rights to all
trademarks, service marks, trademark and service mark applications,
trade names, copyrights, trade secrets, licenses, information and
proprietary rights and processes presently used by the Company or its
Subsidiaries or necessary for the conduct of the Company's or its
Subsidiaries' business as presently conducted and as proposed to be
conducted (the "Intellectual Property Rights") free and clear of any
Lien, license or other restriction. The Disclosure Schedule contains a
complete list of the Intellectual Property Rights. The Company has
taken all actions reasonable in light of its financial position to
protect the Intellectual Property Rights. The business conducted or
proposed to be conducted by the Company and its Subsidiaries does not
and will not cause the Company or any Subsidiary to infringe or violate
any of the trademarks, service marks, trade names, copyrights,
licenses, trade secrets, patents or other intellectual property rights
of any other Person, and, except as set forth in the Disclosure
Schedule, does not and will not require the Company or any Subsidiary
to obtain any license or other agreement to use any trademarks, service
marks, trade names, copyrights, licenses, patents, trade secrets or
other intellectual property rights of others. There are no outstanding
options, licenses or agreements of any kind relating to the
Intellectual Property Rights, nor is the Company or any Subsidiary
bound by or a party to any options, licenses or agreements of any kind
with respect to the patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information and proprietary rights
and processes of any other Person. The Company has not received any
communications alleging that the Company or any Subsidiary has violated
or, by conducting its business as proposed to be conducted, would
violate any of the patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information and proprietary rights
and processes of any other Person. The Company does not believe that it
is or will be necessary to use any inventions or works of authorship of
its employees (or Persons it currently intends to hire) made prior to
their employment by the Company. Except as set forth in the Disclosure
Schedule, neither the Company nor any Subsidiary have granted rights to
manufacture, produce, assemble, license, market or
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SECURITIES PURCHASE AGREEMENT - PAGE 12
<PAGE> 13
sell its products to any other Person and is not bound by any agreement
that affects the Company's or any Subsidiary's exclusive rights to
develop, manufacture, assemble, distribute, market or sell its
products.
(n) INSURANCE.
The Company and each Subsidiary maintains valid policies of insurance
with respect to its properties and business of the kinds and in the
amounts not less than is customarily obtained by corporations engaged
in the same or similar business and similarly situated, including,
without limitation, workers compensation insurance and insurance
against casualty loss, public liability, libel, slander, defamation,
advertising injury and other risks. The Disclosure Schedule sets forth
a schedule and brief description of the policies of insurance currently
maintained by the Company and each Subsidiary. With respect to each
such insurance policy: (a) the policy is in full force and effect; (b)
neither the Company nor any Subsidiary is in breach or default
(including with respect to the payment of premiums or the giving of
notices), and no event has occurred which, with notice or the lapse of
time, would constitute such a breach or default or permit termination,
cancellation, modification or denial of coverage under the policy and
(c) no party to the policy has repudiated any of its provisions.
(o) MATERIAL CONTRACTS AND OBLIGATIONS.
The Disclosure Schedule sets forth a list and description of the
material terms of all material agreements or commitments of any nature
to which the Company or any Subsidiary is a party or by which it is
bound, including without limitation (i) each agreement which requires
future expenditures by the Company or any Subsidiary in excess of
$50,000 or which might result in payments to the Company or any
Subsidiary in excess of $50,000, (ii) all management and similar
agreements, (iii) all employment and consulting agreements, employee
benefit, bonus, pension, profit-sharing, stock option, stock purchase
and similar plans and arrangements, and distributor and sales
representative agreements, (iv) each agreement with any stockholder,
officer or director of the Company or any Subsidiary, or any Affiliate
of such Persons, including without limitation any agreement or other
arrangement providing for the furnishing of services by, rental of real
or personal property from, or otherwise requiring payments to, any such
Person or entity, and (v) any agreement relating to the Intellectual
Property Rights. The Company has delivered to the Purchasers copies of
such of the foregoing agreements as the Purchasers have requested. All
of such agreements and contracts are valid, binding and in full force
and effect.
(p) PERMITS.
(i) The Company and each Subsidiary is and has been in
possession of all (a) material franchises, grants, authorizations,
licenses, permits, easements, variances, exemptions, consents,
certificates, identification and registration numbers, approvals and
orders necessary to own, lease and operate its properties
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SECURITIES PURCHASE AGREEMENT - PAGE 13
<PAGE> 14
(collectively, the "Facilities") and to carry on its business as it is
now being conducted and as proposed to be conducted as set forth in the
Business Plan, and (b) agreements, licenses and certificates or
determinations from all federal, state and local governmental agencies
and accrediting and certifying organizations having jurisdiction over
the Facilities necessary to own, lease and operate the Facilities in
the manner in which they are now being operated and as proposed to be
operated as set forth in the Business Plan (collectively, the
"Permits"). The Disclosure Schedule sets forth a list of each of the
Permits held by Company and the jurisdiction issuing the same, all of
which are now, and as of the Closing shall be, in good standing and not
subject to meritorious challenge. The Disclosure Schedule also sets
forth all actions, proceedings, investigations or surveys pending or,
to the knowledge of the Company, threatened against the Company or any
Subsidiary that could reasonably be expected to result in (1) the loss
or revocation of a Permit necessary to operate one or more Facility or
(2) the suspension or cancellation of any other Permit. Except as set
forth in the Disclosure Schedule, neither the Company nor any
Subsidiary is in conflict with, in default under or in violation of and
has not received from any governmental entity any written notice with
respect to any conflict with, default under or violation of, (A) any
law, regulation or order applicable to the Company or any Subsidiary or
by or to which any of their respective properties is bound or subject,
(B) any judgment, order or decree applicable to the Company or any
Subsidiary or (C) any of the Permits.
(ii) The Company and each Subsidiary have complied in all
material respects with all laws, regulations and orders applicable to
its present and proposed business as conducted and as proposed to be
conducted and has all material Permits and licenses required thereby.
There is no term or provision of any mortgage, indenture, contract,
agreement or instrument to which the Company or any Subsidiary is a
party or by which it is bound or of any provision of any existing
judgment, decree, order, statute, rule or regulation applicable to or
binding upon the Company or any Subsidiary, which materially adversely
affects or, so far as the Company may now reasonably foresee, in the
future is reasonably likely to materially adversely affect, the
business, prospects, assets or condition, financial or otherwise, of
the Company or any Subsidiary.
(iii) To the Company's knowledge, no Founder or any other
employee of the Company or any Subsidiary is obligated under any
contract (including any license, covenant or commitment of any nature),
or subject to any judgment, decree or order of any court or
administrative agency, that would conflict or interfere with (i) the
performance of any employee's duties as an officer, employee or
director of the Company or any Subsidiary, (ii) the use of any
employee's best efforts to promote the interests of the Company or any
Subsidiary, or (iii) the Company's and its Subsidiaries' business as
conducted or proposed to be conducted. To the best of the Company's
knowledge, no employee of the Company is in violation of any term of
any contract or covenant (either with the Company or with another
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SECURITIES PURCHASE AGREEMENT - PAGE 14
<PAGE> 15
entity) relating to employment, patents, proprietary information
disclosure, non-competition or non-solicitation.
(q) ABSENCE OF CHANGES.
Since the Balance Sheet Date, there has been no material adverse change
in the condition, financial or otherwise, net worth or results of
operations of the Company or any Subsidiary, other than changes
occurring in the ordinary course of business which changes have not,
individually or in the aggregate, had a materially adverse effect on
the business, prospects, properties or condition, financial or
otherwise, of the Company or any Subsidiary. Without limiting the
foregoing and except as set forth in the Disclosure Schedule, since the
Balance Sheet Date:
(i) neither the Company nor any Subsidiary has sold,
leased, transferred, or assigned any of its assets, tangible
or intangible, other than for a fair consideration in the
ordinary course of business;
(ii) neither the Company nor any Subsidiary has
entered into any agreement, contract, commitment, lease, or
license (or series of related agreements, contracts,
commitments, leases, and licenses) either involving more than
$50,000 or outside the ordinary course of business;
(iii) no party (including the Company) has
accelerated, terminated, modified, or canceled any agreement,
contract, lease, or license (or series of related agreements,
contracts, leases, and licenses) involving more than $50,000
to which the Company or any Subsidiary is a party or by which
the Company or any Subsidiary or their assets are bound;
(iv) neither the Company nor any Subsidiary has
imposed or permitted any other Person to impose any Lien upon
any of its assets, tangible or intangible;
(v) neither the Company nor any Subsidiary has made
any capital expenditure (or series of related capital
expenditures) either involving more than $50,000 or outside
the ordinary course of business;
(vi) neither the Company nor any Subsidiary has made
any capital investment in, any loan to or any acquisition of
the securities or assets of any other Person (or series of
related capital investments, loans and acquisitions) either
involving more than $50,000 outside the ordinary course of
business;
(vii) neither the Company nor any Subsidiary has
issued any note, bond or other debt security or created,
incurred, assumed or guaranteed any indebtedness for borrowed
money or capitalized lease obligation either involving more
than $25,000 alone or $50,000 in the aggregate;
(viii) [RESERVED];
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SECURITIES PURCHASE AGREEMENT - PAGE 15
<PAGE> 16
(ix) neither the Company nor any Subsidiary has
canceled, compromised, waived, or released any right or claim
(or series of related rights and claims) either involving more
than $50,000 or outside the ordinary course of business;
(x) neither the Company nor any Subsidiary has
granted any license or sublicense of any rights under or with
respect to any Intellectual Property Rights except in the
ordinary course of business;
(xi) neither the Company nor any Subsidiary has
declared, set aside, or paid any dividend or made any
distribution with respect to its capital stock (whether in
cash or in kind) or redeemed, purchased, or otherwise acquired
any of its capital stock;
(xii) neither the Company nor any Subsidiary has
experienced any damage, destruction, or loss (whether or not
covered by insurance) to its property;
(xiii) neither the Company nor any Subsidiary has
made any loan to, or entered into any other transaction with,
any of its directors, officers and employees outside the
ordinary course of business;
(xiv) neither the Company nor any Subsidiary has
entered into any employment contract or collective bargaining
agreement, written or oral, or modified the terms of any such
contract or agreement;
(xv) neither the Company nor any Subsidiary has
granted any increase in the base compensation of any of its
directors, officers, and employees outside the ordinary course
of business;
(xvi) neither the Company nor any Subsidiary has
adopted, amended, modified or terminated any bonus,
profit-sharing, incentive, severance or other plan, contract
or commitment for the benefit of any of its directors,
officers, and employees (or taken any such action with respect
to any other benefit plan);
(xvii) neither the Company nor any Subsidiary has
made any other change in employment terms for any of its
directors, officers, and employees outside the ordinary course
of business;
(xviii) neither the Company nor any Subsidiary has
made or pledged to make any charitable or other capital
contribution outside the ordinary course of business;
(xix) there has not been any other material
occurrence, event, incident, action, failure to act or
transaction outside the ordinary course of business involving
the Company or any Subsidiary or their assets or business; and
(xx) neither the Company nor any Subsidiary has
committed to do any of the foregoing.
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SECURITIES PURCHASE AGREEMENT - PAGE 16
<PAGE> 17
(r) EMPLOYEES. The Disclosure Schedule sets forth the annual salary and
any related payments or benefits of each (x) officer of the Company and (y)
Person who as an employee, consultant or manager receives annual compensation in
excess of $50,000. None of the employees of the Company or any Subsidiary is
represented by any labor union, and there is no labor strike or other labor
trouble pending with respect to the Company or any Subsidiary (including,
without limitation, any organizational drive) or, to the best of the Company's
knowledge, threatened.
(s) ENVIRONMENTAL MATTERS.
With respect to environmental matters:
(i) The Company and each Subsidiary is and has been
in compliance with all Environmental Laws (as defined below),
and no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, demand, or notice has been made,
given, filed or commenced by any Person, nor has any such
making, giving, filing or commencement been threatened,
against any of them alleging any failure to comply with the
Environmental Laws, or seeking contribution towards, or
participation in, any remediation of any contamination of any
property or thing with Hazardous Materials (as defined in
paragraph 4(s)(v)). Without limiting the generality of the
preceding sentence, the Company and each Subsidiary has
obtained and been, and currently is, in compliance with all of
the terms and conditions of all permits, licenses, and other
authorizations which are required under, and has complied with
all other limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules, and
timetables which are contained in, all Environmental Laws;
(ii) Neither the Company nor any Subsidiary has any
obligation to remediate or any other liabilities of any kind
arising in connection with or under any of the Environmental
Laws, nor is there any basis for such obligation or
liabilities;
(iii) Except as set forth in the Disclosure Schedule,
all properties and equipment used in the business of the
Company and each Subsidiary are and have been free of
Hazardous Materials;
(iv) "Environmental Laws" means all federal, state
and local laws, regulations, ordinances, codes, rules,
permits, decisions, orders or decrees relating or pertaining
to the public health and safety or the environment, or
otherwise governing the generation, use, handling, collection,
treatment, storage, transportation, recovery, recycling,
removal, discharge or disposal of Hazardous Materials,
including, without limitation, the Solid Waste Disposal Act,
42 U.S.C. 6901 et seq., as amended ("SWDA," also known as
"RCRA" for a subsequent amending act), (b) the Comprehensive
Environmental Response, Compensation and Liability Act, 42
U.S.C. ss.9601 et seq., as amended ("CERCLA", (c) the Clean
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SECURITIES PURCHASE AGREEMENT - PAGE 17
<PAGE> 18
Water Act, 33 U.S.C. ss.1251 et seq., as amended ("CWA"), (d)
the Clean Air Act, 42 U.S.C. ss.7401 et seq., as amended
("CAA"), (e) the Toxic Substances Control Act, 15 U.S.C.
ss.2601 et seq., as amended ("TSCA"), (f) the Emergency
Planning and Community Right To Know Act, 15 U.S.C. ss.2601 et
seq., as amended ("EPCRKA"), and (g) the Occupational Safety
and Health Act, 29 U.S.C. ss. 651 et seq., as amended
("OSHA"); and
(v) Hazardous Materials means, without limitation,
(a) any "hazardous wastes" as defined under RCRA, (b) any
"hazardous substances" as defined under CERCLA, (c) any toxic
pollutants as defined under the Clean Water Act, (d) any
hazardous air pollutants as defined under the Clean Air Act,
(e) any hazardous chemicals as defined under TSCA, (f) any
hazardous substances as defined under EPCRKA, (g) asbestos,
(h) polychlorinated biphenyls, (i) petroleum or petroleum
products, (j) underground storage tanks, whether empty, filled
or partially filled with any substance, (k) any substance the
presence of which on the property in question is prohibited
under any Environmental Law, and (1) any other substance which
under any Environmental Law requires special handling or
notification of or reporting to any federal, state or local
governmental entity in its generation, use, handling,
collection, treatment, storage, re-cycling, treatment,
transportation, recovery, removal, discharge or disposal.
(t) ERISA.
(i) Except as set forth in the Disclosure Schedule, neither
the Company nor any Subsidiary maintains or contributes to any (a)
nonqualified deferred compensation, bonus, retirement or retiree health
plans or arrangements, (b) qualified defined contribution or defined
benefit plans or arrangements which are employee pension benefit plans
(as defined in Section 3(2) of the Employee Retirement Income Security
Act of 1974 ("ERISA")), or (c) employee welfare benefit plans (as
defined in Section 3(l) of ERISA), or material fringe benefit plans or
programs. Neither the Company nor any Subsidiary has within the past
five years, contributed to any multi-employer pension plan (as defined
in Section 3(37) of ERISA). Neither the Company nor any Subsidiary
maintains or contributes to any employee welfare benefit plan which
provides health, accident or life insurance benefits to former
employees, their spouses or dependents, other than in accordance with
Section 4980B of the Code.
(ii) With respect to each employee pension benefit plan, all
contributions which are due (including all employer contributions and
employee salary reduction contributions) have been paid to such
employee pension benefit plan, all contributions, if any, for prior
plan years have been paid and all contributions for the current plan
year will be paid prior to the filing of the federal income tax return
for the Company and each Subsidiary for the current plan year. With
respect to the employee welfare benefit plans, all premiums or other
payments which are due have been paid.
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SECURITIES PURCHASE AGREEMENT - PAGE 18
<PAGE> 19
(iii) The Company has furnished to the Purchasers true and
complete descriptions of each employee pension benefit plan and each
employee welfare benefit plan.
(u) TRANSACTIONS WITH RELATED PARTIES. Except as set forth in the
Disclosure Schedule, no employee, officer, director or stockholder of the
Company or any Subsidiary or member of his or her immediate family is indebted
to the Company or any Subsidiary , nor is the Company or any Subsidiary indebted
(or committed to make loans or extend or guarantee credit) to any of them, other
than (i) for payment of salary for services rendered, (ii) reimbursement for
reasonable expenses incurred on behalf of the Company or any Subsidiary, and
(iii) for other employee benefits made generally available to all employees. To
the Company's knowledge, none of such persons has any direct or indirect
ownership interest in any Person with which the Company or any Subsidiary is
affiliated or with which the Company or any Subsidiary has a business
relationship, or any Person that competes with the Company or any Subsidiary,
except that employees, stockholders, officers or directors of the Company and
each Subsidiary and members of their immediate families may own less than five
percent (5%) of the outstanding stock in publicly traded companies that may
compete with the Company and each Subsidiary. To the Company's knowledge, no
officer, director or stockholder or any member of their immediate families is,
directly or indirectly, interested in any material contract with the Company or
any Subsidiary (other than such contracts as relate to any such person's
ownership of capital stock or other securities of the Company).
(v) BUSINESS PLAN.
The Company has furnished to each Purchaser a complete and correct copy of the
Business Plan. While the Company does not warrant that it will achieve the
financial projections appearing in the Business Plan, the Business Plan
discloses all assumptions used in the preparation of these projections, all such
assumptions are reasonable, the Company has a reasonable basis for making these
projections and has no reason to believe that the Company will be unable to meet
these projections, and these projections fairly present the information which
they purport to show.
(w) NO SOLICITATION; NO INTEGRATION WITH OTHER OFFERINGS. No form of
general solicitation or general advertising was used by the Company or, to the
best of its actual knowledge, any other Person acting on behalf of the Company,
in connection with the offer and sale of the Closing Shares or Debentures.
Neither the Company, nor, to its knowledge, any Person acting on behalf of the
Company, has, either directly or indirectly, sold or offered for sale to any
Person (other than the Purchasers) any Debentures or, within the six months
prior to the date hereof, any shares of Common Stock or security similar to the
Debentures, except as contemplated by this Agreement, and the Company represents
that neither itself nor any Person authorized to act on its behalf (except that
the Company makes no representation as to the Purchasers and their Affiliates)
will sell or offer for sale any such security to, or solicit any offers to buy
any such security from, or otherwise approach or negotiate in respect thereof
with, any Person or Persons so as
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SECURITIES PURCHASE AGREEMENT - PAGE 19
<PAGE> 20
thereby to cause the issuance or sale of any of the securities referenced herein
to be in violation of any of the provisions of Section 5 of the Securities Act.
(x) INTERNAL ACCOUNTING CONTROLS. The minute books of the Company and
each Subsidiary contain complete and accurate records of all meetings and other
corporate actions of its shareholders and its Board of Directors and committees
thereof. The stock ledger of the Company and each Subsidiary is complete and
reflects all issuances, transfers, repurchases and cancellations of shares of
capital stock of the Company and such Subsidiary, as applicable. The Company and
each Subsidiary maintains a system of internal accounting controls sufficient,
in the judgment of the Company's Board of Directors, to provide reasonable
assurance that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with GAAP and to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management's general or specific authorization and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(y) YEAR 2000 COMPLIANCE.
(i) COMPUTER AND OTHER SYSTEMS. (a) All software programs and
computer hardware that are owned, leased or licensed by the Company and
each Subsidiary, or used by third parties on behalf of the Company and
each Subsidiary ("Computer Systems"), are designated to be used prior
to, during and after the calendar year 2000 A.D., including leap years;
(b) all other operational systems that use software or equipment that
are owned, leased, or licensed by the Company and each Subsidiary, or
used by third parties on behalf of the Company and each Subsidiary
("Other Systems"), are designated to be used prior to, during and after
the calendar year 2000 A.D., including leap years; (c) the Computer
Systems and Other Systems will properly operate during each such period
without error or degradation of performance caused by a lack of Year
2000 Capabilities, and (d) the Computer Systems and Other Systems will
properly operate during each such period without requiring intervention
or modification to Date Data.
(ii) CAPABILITIES OF SUPPLIERS, VENDORS AND LANDLORDS. To the
best of the Company's knowledge after specific inquiry of all of its
material suppliers, vendors and landlords, the Company and each
Subsidiary will not suffer a loss from interruption or cessation of
business operations, in whole or in part, as a result of such
suppliers, vendors or landlords failing to provide materials, labor,
supplies or access to leased space for the operation of the Company and
each Subsidiary as a result of such suppliers or vendors not having
Year 2000 Capabilities.
(iii) For purposes of this Agreement, (x) "Year 2000
Capabilities" means the ability to: (i) manage and manipulate data
involving dates, including single century formulas and multi-century
formulas, in a manner that will not cause an
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SECURITIES PURCHASE AGREEMENT - PAGE 20
<PAGE> 21
abnormally ending scenario or generate incorrect values or invalid
results involving such dates, (ii) include the indication of proper
century dates in all date-related user interface functions and date
fields, and (iii) operate with proper century dates in date-related
software or hardware interface functions and (y) "Date Data" means any
existing data or input of date which includes an indication of or
reference to date.
(z) FOREIGN PRACTICES. Neither the Company nor any of its
Subsidiaries nor, to the Company's knowledge, any employee or agent of
the Company or any Subsidiary has made any payments of funds of the
Company or any Subsidiary, or received or retained any funds, in each
case in violation of any law, rule or regulation.
(aa) DISCLOSURES. Neither this Agreement, any Related
Agreement nor any exhibit hereto or thereto, nor any report,
certificate or instrument furnished to any of the Purchasers in
connection with the transactions contemplated in this Agreement or the
Related Agreements, when read together, contains any untrue statement
of a material fact or omits to state a material fact necessary in order
to make the statements contained herein or therein, in light of the
circumstances under which they were made, not misleading. The Company
knows of no information or fact that has or would have a material
adverse effect on the business, prospects, assets or condition,
financial or otherwise, of the Company and each Subsidiary which has
not been disclosed to the Purchasers in this Agreement, the Related
Agreements, the exhibits hereto or thereto, or other written materials
furnished to the Purchasers.
(bb) REPRESENTATIONS IN RELATED AGREEMENTS. Each of the
representations and warranties contained in this Section 4 is in
addition to, and not in lieu of, any representation or warranty made by
the Company in any Related Agreement.
5. REPRESENTATIONS AND WARRANTIES OF FOUNDERS.
The Founders jointly and severally represent and warrant to each of the
Purchasers as follows:
(a) CONFLICTING AGREEMENTS. The Founders are not, as a result
of the nature of the business conducted or proposed to be conducted by
the Company, or for any other reason, in violation of (i) any fiduciary
or confidential relationship, (ii) any term of any contract or covenant
(either with the Company or with another entity) relating to
employment, patents, proprietary information disclosure,
non-competition or non-solicitation or (iii) any other contract or
agreement, or any judgment, decree or order of any court or
administrative agency, in each case relating to or affecting the right
of any Founder to be employed by the Company. No such relationship,
term, judgment, decree or order conflicts with any Founder's
obligations to use his best efforts to promote the interests of the
Company nor does the execution, delivery and performance of this
Agreement or any Related Agreement by any Founder or the activities of
any Founder as an employee, officer or director of the Company,
conflict with any such relationship, term, judgment, decree or order.
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SECURITIES PURCHASE AGREEMENT - PAGE 21
<PAGE> 22
(b) LITIGATION.
There is no action, suit or proceeding, or governmental inquiry or
investigation, pending or, to the knowledge of any Founder, threatened
against a Founder, and, to the knowledge of any Founder, there is no
basis for any such action, suit, proceedings or governmental inquiry or
investigation which could reasonably be expected to have a material
adverse effect on the Company or to result in any change in ownership
of the Company's capital stock (provided Kerry Rogers has disclosed
that he is under investigation by various federal and state agencies).
(c) STOCKHOLDER AGREEMENTS.
Except as contemplated by this Agreement, no Founder is a party to and
has no knowledge of any agreements, written or oral, relating to the
acquisition (including without limitation rights of first refusal or
preemptive rights), sale, transfer or other disposition, registration
under the Securities Act or voting of the capital stock of the Company.
(d) REPRESENTATIONS CORRECT.
To the knowledge of the Founders, each of the representations and
warranties of the Company contained in Section 4 is true and correct.
(e) DISCLOSURE.
Neither this Agreement, any Related Agreement nor any exhibit hereto or
thereto, nor any report, certificate or instrument furnished to any of
the Purchasers in connection with the transactions contemplated by this
Agreement or the Related Agreements when read together, contains any
untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements contained herein or therein,
in light of the circumstances under which they were made, not
misleading. The Founders know of no information or fact that has or
would have a material adverse effect on the business, prospects, assets
or condition, financial or otherwise, of the Company and each
Subsidiary which has not been disclosed to the Purchasers in this
Agreement, the Related Agreements, the exhibits hereto or thereto, or
other written materials furnished to the Purchasers.
(f) REPRESENTATIONS IN RELATED AGREEMENTS. Each of the
representations and warranties contained in this Section 5 is in
addition to, and not in lieu of, any representation or warranty made
each Founder in any Related Agreement.
6. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.
Each of the Purchasers severally represents and warrants to the Company
as follows:
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SECURITIES PURCHASE AGREEMENT - PAGE 22
<PAGE> 23
(a) PURCHASE FOR INVESTMENT.
Such Purchaser is acquiring the Closing Shares for its own account for
investment and not with a view to, or for sale in connection with, any
distribution thereof, nor with any present intention of distributing or
selling the same, and, except as contemplated by this Agreement, the
Related Agreements, and the exhibits hereto and thereto, such Purchaser
has no present or contemplated agreement, undertaking, arrangement,
obligation, indebtedness or commitment providing for the disposition
thereof. Such Purchaser acknowledges the restrictions on transfer of
the Closing Shares as set forth in Section 9 of this Agreement. Nothing
contained in this Agreement shall limit or restrict the ability of a
Purchaser from pledging or granting a Lien in respect of any of the
Debentures or Closing Shares to secure bona fide obligations or
indebtedness of the Purchaser.
(b) AUTHORITY.
Such Purchaser has full power and authority to enter into and to
perform this Agreement in accordance with its terms. Any Purchaser
which is a corporation, partnership or trust represents that it has not
been organized, reorganized or recapitalized specifically for the
purpose of investing in the Company.
(c) ACCREDITED INVESTOR.
Such Purchaser is an "accredited investor," as such term is defined in
Regulation D promulgated under the Securities Act.
7. CONDITIONS TO THE OBLIGATIONS OF THE PURCHASERS.
The obligation of each of the Purchasers to purchase Debentures at the
Closing is subject to the fulfillment or the waiver by each Purchaser of each of
the following conditions on or before the Closing.
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES.
The representations and warranties contained in Sections 4 and 5 shall
have been true at and as of the date of this Agreement and shall be
true at and as of the Closing with the same effect as though such
representations and warranties had been made on and as of the date of
the Closing.
(b) PERFORMANCE.
The Company, each Founder and each other Current Stockholder shall have
performed and complied with all agreements and conditions contained in
this Agreement and the Related Agreements required to be performed or
complied with by the Company or such Founder or other Current
Stockholder prior to or at the Closing.
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SECURITIES PURCHASE AGREEMENT - PAGE 23
<PAGE> 24
(c) OPINION OF COUNSEL.
Each Purchaser shall have received an opinion from counsel for the
Company, dated the date of the Closing, addressed to the Purchasers,
satisfactory in form and substance to the Purchasers and their special
counsel and substantially in the form attached as Exhibit E.
(d) RELATED AGREEMENTS.
(i) Debentures in the aggregate principal amount of
$6,000,000 in the form attached hereto as Exhibit B shall have
been executed and delivered by the Company at the Closing.
(ii) The Stockholders Agreement attached hereto as
Exhibit F (the "Stockholders Agreement") shall have been
executed and delivered by the Company, the Founders and each
of the other current stockholders of the Company
(collectively, with the Founders, the "Current Stockholders")
and each of the Purchasers at or prior to the Closing. All
actions to be taken by the Company and the Current
Stockholders as contemplated by the Stockholders Agreement
shall have occurred, including, without limitation, all
actions necessary to (x) elect a Board of Directors of the
Company of five (5) members, three (3) of which shall be the
Purchaser Directors, (y) appoint Steve Loglisci as the
President and Treasurer of the Company, and (z) appoint Kerry
Rogers as the Chief Technology Officer of the Company.
(iii) [RESERVED].
(iv) [RESERVED].
(v) The Security Agreement and the Pledge Agreement
attached hereto as Exhibits G and H (collectively, the
"Security Agreement") shall have been executed and delivered
by the Company, together with the delivery to the Purchasers
of UCC financing statements duly executed by the Company
necessary to perfect the collateral pledged thereunder (which
represents all of the stock of the Company's two subsidiaries
and all of the assets of the Company).
(vi) The Registration Rights Agreement attached
hereto as Exhibit I (the "Registration Rights Agreement")
shall have been executed and delivered by the Company and each
of the Purchasers at or prior to the Closing.
(vii) [RESERVED].
(viii) [RESERVED].
(ix) The Closing Shares shall have been duly issued
to the Purchasers by the Company at the Closing.
(x) Each of the Founders and the Company shall have
executed and delivered the form of Employment and
Noncompetition Agreement attached hereto as Exhibit J
(collectively, the "Employment Agreements").
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SECURITIES PURCHASE AGREEMENT - PAGE 24
<PAGE> 25
(xi) Kerry Rogers shall execute and deliver to the
Company and the Purchasers the Pari Passu Agreement in the
form attached hereto as Exhibit K (the "Pari Passu Agreement")
which (x) confirms that the only sum owed by the Company or
its Subsidiaries to Mr. Rogers or his Affiliates at the
Closing is $164,000 (the "Rogers Note") and (y) provides the
terms of repayment of the interest and principal due on the
Rogers Note.
(xii) [RESERVED]
(e) [RESERVED]
(f) CERTIFICATES AND DOCUMENTS.
The Company shall have delivered to the Purchasers or special counsel
to the Purchasers:
(i) a certificate dated the date of the Closing
certifying to the fulfillment of the conditions specified in
this Section 7;
(ii) certificates, as of the most recent practicable
dates, as to the existence and corporate good standing of the
Company and each Subsidiary;
(iii) Certificates of Incorporation and Bylaws of the
Company and each Subsidiary, certified by its Secretary as of
the date of the Closing (with the Certificate of Incorporation
of the Company amended in a form acceptable to the Purchasers
to increase the authorized shares of Common Stock to 100,000
shares, waive any preemptive rights of the stockholders, and
provide that a vote of only a majority of the outstanding
Common Stock is necessary to approve any merger, sale of all
or substantially all assets, share exchange or similar action
of the Company);
(iv) resolutions of the Board of Directors of the
Company, authorizing and approving all matters in connection
with this Agreement, the Related Agreements and the
transactions contemplated herein and therein, certified by the
Secretary of the Company as of the date of the Closing; and
(v) such other documents relating to the transactions
contemplated in this Agreement and the Related Agreements as
any Purchaser may reasonably request.
(g) EXCHANGE OF ASSUMED DEBENTURES.
At the Closing, Infinity shall have surrendered the Assumed Debentures
to the Company in exchange for the Restated Debentures and in complete
discharge and satisfaction of the indebtedness represented by the
Assumed Debentures.
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SECURITIES PURCHASE AGREEMENT - PAGE 25
<PAGE> 26
(h) SECURITY INTERESTS. The Purchasers shall have received
evidence satisfactory to them that Uniform Commercial Code financing
statements in proper form have been executed by all proper parties,
that such financing statements have been filed in all necessary filing
offices and that all security interests created under the Related
Agreements are of first priority.
(i) USE OF PROCEEDS. The Purchasers shall have received the
Use of Proceeds Statement in a form acceptable to the Purchasers.
(j) AVANTEL AMENDMENT. The contractual agreement between the
Company and Avantel shall have been amended on terms satisfactory to
the Purchasers, with evidence of the execution and delivery of such
amendment in a form acceptable to the Purchasers.
(k) OTHER MATTERS.
All corporate and other proceedings in connection with the transactions
contemplated in this Agreement and the Related Agreements and all
documents and instruments incident to such transactions shall be
reasonably satisfactory in substance and form to the Purchasers and
their special counsel, and the Purchasers and their special counsel
shall have received all such counterpart originals or certified or
other copies of such documents as they may reasonably request.
The Purchasers shall advance all of the New Advance to the Company at
the Closing or on such date thereafter as the Company shall request; provided,
the Company shall not pay any more funds to Avantel after the date hereof until
the condition in clause (j) above is satisfied.
8. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY.
The obligations of the Company to issue and sell Debentures and Closing
Shares to the Purchasers at the Closing are subject to fulfillment or the waiver
by the Company of each of the following conditions on or before the Closing:
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Purchasers contained in
Section 6 shall be true at and as of the Closing with the same effect
as though such representations and warranties had been made on and as
of the date of the Closing.
(b) INVESTMENT.
At the Closing, (a) Infinity shall have surrendered the Assumed
Debentures to the Company as payment of the purchase price for
$2,697,610 of the Debentures to be purchased at the Closing and (b) the
Purchasers shall have tendered to the Company (I) $250,000 of the New
Advance as contemplated by the Letter Agreement (by direct remittance
to Avantel at the direction of the Company) for the purchase of the
remaining Debentures to be purchased at the Closing by such Purchasers
and (II) $24 for the purchase of the Closing Shares to be purchased at
the Closing by the Purchasers.
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SECURITIES PURCHASE AGREEMENT - PAGE 26
<PAGE> 27
(c) OTHER MATTERS.
All corporate and other proceedings in connection with the transactions
contemplated in this Agreement and the Related Agreements and all
documents and instruments incident to such transactions shall be
reasonably satisfactory in substance and form to the Company and its
counsel, and the Company and its counsel shall have received all such
counterpart originals or certified or other copies of such documents as
they may reasonably request.
9. AFFIRMATIVE COVENANTS OF THE COMPANY.
(a) INSPECTION AND OBSERVATION.
The Company shall permit each Purchaser or any authorized
representative of a Purchaser, to visit and inspect the properties of
the Company and each Subsidiary, including its corporate and financial
records, and to discuss its business and finances with officers of the
Company, during normal business hours following reasonable notice,
without interference to the conduct of the Company's or any
Subsidiary's business and as often as may be reasonably requested.
(b) FINANCIAL STATEMENTS AND OTHER INFORMATION.
The Company shall deliver to each Purchaser:
(i) within 90 days after the end of each fiscal year
of the Company, a consolidated audited balance sheet of the
Company and each Subsidiary as at the end of such year and
consolidated audited statements of operations and of cash
flows of the Company and each Subsidiary for such year,
certified by public accountants of established national
reputation selected by the Company, and prepared in accordance
with GAAP;
(ii) within 45 days after the end of each of the
first three fiscal quarters of each fiscal year a consolidated
unaudited balance sheet of the Company and each Subsidiary as
at the end of such quarter and consolidated unaudited
statements of operations and of cash flows of the Company and
each Subsidiary for such quarter and for the current fiscal
year to the end of such quarter, prepared in accordance with
GAAP, and setting forth in comparative form the Company's
Budget for the corresponding periods for the current fiscal
year;
(iii) within 30 days after the end of each month, a
consolidated unaudited balance sheet of the Company and each
Subsidiary as at the end of such month and consolidated
unaudited statements of operations and of cash flows of the
Company and each Subsidiary for such month and for the current
fiscal year to the end of such month, setting forth in
comparative form the Company's Budget for the corresponding
periods for the current fiscal year, accompanied by an
executive
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SECURITIES PURCHASE AGREEMENT - PAGE 27
<PAGE> 28
summary of the activities of the Company and each Subsidiary
during such month, signed by the Company's chief executive
officer and chief financial officer;
(iv) as soon as available, but in any event not later
than 30 days prior to the beginning of each new fiscal year,
an operating and capital budget for the Company and each
Subsidiary for such fiscal year approved by the Board of
Directors (the "Budget"); and
(v) with reasonable promptness, such other notices,
information and data with respect to the Company and each
Subsidiary as the Company delivers to the holders of its
Common Stock and such other information and data as such
Purchaser may from time to time reasonably request.
The financial statements delivered pursuant to clauses (ii) and (iii)
shall be accompanied by a certificate of the chief financial officer of the
Company stating that (x) such statements have been prepared in accordance with
GAAP consistently applied and fairly present the financial condition and results
of operations of the Company and each Subsidiary at the date thereof and for the
periods covered thereby and (y) no Default or Event of Default has occurred or
then exists.
(c) MATERIAL CHANGES AND LITIGATION.
The Company shall promptly notify each Purchaser of any Default or
Event of Default or of any material adverse change in the business,
prospects, assets or condition, financial or otherwise, of the Company
or any Subsidiary and of any litigation or governmental proceeding or
investigation brought or, to the Company's knowledge, threatened
against the Company or any Subsidiary, or against any officer,
director, employee or stockholder of the Company or any Subsidiary
materially adversely affecting or which, if adversely determined, could
reasonably be expected to materially adversely affect its business,
prospects, assets or condition, financial or otherwise.
(d) OTHER AFFIRMATIVE COVENANTS.
Unless the prior approval of holders of at least 66-2/3% of the
Debentures (by aggregate outstanding principal balance thereof) (the
"Majority Holders") has been obtained, the Company shall (and shall
cause each Subsidiary to):
(i) maintain in full force and effect all leases,
Permits and other rights necessary to the operation of the
business of the Company and each Subsidiary;
(ii) maintain its corporate existence and its
business and maintain all properties which are reasonably
necessary for the conduct of its business, now or hereafter
owned by it, in good repair, working order and condition,
reasonable wear and tear excepted, and make any replacements
of properties necessary for the successful operation of its
business;
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SECURITIES PURCHASE AGREEMENT - PAGE 28
<PAGE> 29
(iii) maintain on all insurable properties now or
hereafter owned by it insurance against loss or damage by fire
or other casualty to the extent customary with respect to
similar properties of companies conducting business similar to
that conducted by it, and to maintain public liability and
workers' compensation insurance covering it to the extent
customary with respect to companies conducting business
similar to the business conducted by the Company and each
Subsidiary;
(iv) comply in all material respects with all
material contracts, Permits or other agreements or instruments
to which it is now or hereafter a party or by which it or any
of its properties and assets are now or hereafter bound,
unless and to the extent that the same are being contested in
good faith and by appropriate proceedings and adequate
reserves have been established on its books with respect
thereto in accordance with GAAP;
(v) pay and discharge when payable all taxes,
assessments and governmental charges imposed upon its
respective properties or upon the income or profits therefrom
(in each case before the same becomes delinquent and before
penalties accrue thereon) and all claims for labor, materials
or supplies which if unpaid might by law become a lien or
other encumbrance upon any of its respective properties,
unless and to the extent that the same are being contested in
good faith and by appropriate proceedings and adequate
reserves (as determined in accordance with GAAP) have been
established on its respective books with respect thereto;
(vi) comply with all applicable laws, rules and
regulations of all governmental authorities, the violation of
which could reasonably be expected to have a material adverse
effect on its financial condition, operating results or
business prospects of the Company or any Subsidiary; and
(vii) maintain proper books of record and account
which fairly represent its financial condition and results of
operations and make provisions on its financial statements for
all such proper reserves as in each case are required in
accordance with GAAP;
(e) KEY PERSONNEL LIFE INSURANCE.
The Company shall on or prior to the Closing obtain, and will use its
best efforts to maintain in force with a financially sound and
reputable insurer, one or more policies for term life insurance on the
life of Kerry Rogers in the aggregate amount of at least $3,000,000.
Each such policy shall name the Purchasers as the sole beneficiary and
as loss payee (to the extent of the indebtedness due under the
Debentures, and thereafter the Company as the sole beneficiary and as
loss payee) of all amounts payable under such policy and shall not be
cancelable by the Company without the prior approval of the Majority
Holders.
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SECURITIES PURCHASE AGREEMENT - PAGE 29
<PAGE> 30
(f) [RESERVED]
(g) ELECTION OF PURCHASER DIRECTORS.
(i) The Company shall use its best efforts to enforce
the obligations of the Current Stockholders under the
Stockholders Agreement and shall not permit to occur any
amendment to the Stockholders Agreement without the prior
written consent of the Majority Holders.
(ii) The Company will promptly reimburse all
Directors for all reasonable costs incurred in connection with
attending any meeting of the Board of Directors of the Company
or otherwise incurred in connection with fulfilling their
duties as Directors of the Company.
(h) USE OF PROCEEDS. The proceeds of the New Advance will be
used by the Company for working capital and other general corporate
purposes. Specifically, at the Closing the Company shall provide a
detailed use of the proceeds of the New Advance and direct payment
instructions for various account payees, their addresses, the amounts
to be so paid, wire transfer instructions, the name of a contact person
of such payee and an explanation of the reason for the incurrence of
such payable (the "Use of Proceeds Statement"). All funds directly paid
to such third parties shall be deemed to have been advanced by the
Purchasers to the Company hereunder and under the Debentures.
(i) STOCK OPTION PLAN. Following the Closing, the Board of
Directors shall adopt a stock option plan of the Company providing for
the issuance of up to a maximum aggregate of 360 shares of Common Stock
(inclusive of all shares previously authorized and/or issued pursuant
to any stock option plan of the Company) to senior executives or other
employees of the Company; provided, however, the Founders acknowledge
that no current intention exists to include the Founders in such plan.
10. NEGATIVE COVENANTS. Unless the prior approval of the Majority
Holders has been obtained, the Company shall not, and shall not allow any
Subsidiary to:
(i) Effect any sale, lease, assignment, transfer,
exchange or other conveyance of all or substantially all of
the assets of the Company or any Subsidiary, or any
consolidation or merger involving the Company or any
reclassification or other change of any capital stock or any
recapitalization of the Company, or any dissolution,
liquidation or winding up of the Company or, make any
agreement or become obligated to do so;
(ii) Enter into or engage in any line of business
other than as described in the Business Plan and related
activities;
(iii) Declare or pay any dividends or declare or make
any other distribution,
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SECURITIES PURCHASE AGREEMENT - PAGE 30
<PAGE> 31
direct or indirect on account of the Common Stock (or any
other shares of capital stock of the Company) or set apart any
sum for any such purpose;
(iv) Purchase, redeem or otherwise acquire for value
(or pay into or set aside as a sinking fund for such purpose)
any of the Common Stock (or any other shares of capital stock
of the Company); provided, however, that this restriction
shall not apply to the repurchase of shares of Common Stock
from employees, officers, directors, consultants or other
persons performing services for the Company or any Subsidiary
pursuant to agreements under which the Company has the option
to repurchase such shares, such as the termination of
employment or service to the Company or any Subsidiary;
(v) Create or commit to create a Subsidiary unless
all of the outstanding securities of such Subsidiary are owned
by the Company or by a Subsidiary of the Company; provided
that the Company owns all of the outstanding securities of
such Subsidiary;
(vi) Incur any Debt not in existence on the date
hereof other than Debt owed to the Purchasers and additional
Debt after the Closing not to exceed $500,000 in the aggregate
(unless approved by the Purchaser Directors);
(vii) Incur any Lien, or permit to exist any Lien, of
any kind against any of the assets or properties of the
Company or any of its Subsidiaries, except the Liens granted
to the Purchasers and Permitted Liens;
(viii) Enter into any transaction with an Affiliate
or make any payment to an Affiliate (whether in cash or
property) or any type except on terms to the Company or such
Subsidiary no less favorable than terms that could be obtained
by the Company or such Subsidiary from a Person that is not an
Affiliate of the Company, as determined in good faith by the
Board of Directors of the Company;
(ix) Make any expenditure not specified in the Budget
in excess of $5,000 or become liable under any agreement which
requires annual payments not specified in the Budget in excess
of $5,000 unless approved in advance by either (i) the
President (currently Steve Loglisci) and Kerry Rogers (so long
as he owns shares of Common Stock) or (ii) the Board of
Directors of the Company; or
(x) Make payments of salary, bonus or otherwise
provide compensation (including benefits) to its officers or
employees in excess of the amounts listed on item 4.r. of the
Disclosure Schedule; provided in no event will any such
Persons or their Affiliates receive any stock options or other
securities as a result of serving as an officer, director,
employee or consultant to or of the Company or any of its
Subsidiaries except as set forth in any Approved Plan.
- --------------------------------------------------------------------------------
SECURITIES PURCHASE AGREEMENT - PAGE 31
<PAGE> 32
11. TRANSFERS OF SECURITIES.
(a) RESTRICTIONS.
The restrictions on the sale or transfer of the Closing Shares set
forth in this Section 11 shall cease to apply to such Closing Shares
(i) upon any sale of such Closing Shares pursuant to the Registration
Rights Agreement, Section 4(l) of the Securities Act, or Rule 144 under
the Securities Act or (ii) at such time as such Closing Shares become
eligible for resale under Rule 144(k) under the Securities Act.
(b) REQUIREMENTS FOR TRANSFER.
(i) The Closing Shares shall not be sold or
transferred unless either (a) they first shall have been
registered under the Securities Act or (b) the Company first
shall have been furnished with an opinion of legal counsel,
reasonably satisfactory to the Company, to the effect that
such sale or transfer is exempt from the registration
requirements of the Securities Act.
(ii) Notwithstanding the foregoing, no registration
or opinion of counsel shall be required for (a) a transfer by
a Purchaser to an Affiliate which agrees in writing to be
subject to the terms of this Section 11 to the same extent as
if such Affiliate were an original Purchaser hereunder, or (b)
a transfer made in accordance with Rule 144 under the
Securities Act.
(c) LEGENDS.
Each certificate representing Closing Shares shall bear a legend
substantially in the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD OR
TRANSFERRED WITHOUT COMPLIANCE WITH THE REGISTRATION OR
QUALIFICATION PROVISIONS OF APPLICABLE FEDERAL AND STATE
SECURITIES LAWS OR APPLICABLE EXEMPTIONS THEREFROM."
The foregoing legend shall be removed from the certificates
representing Closing Shares at the request of the holder thereof, at such time
as they become eligible for resale pursuant to Rule 144(k) under the Securities
Act.
(d) DEBENTURES. Each Debenture may be sold or transferred,
together with the Security Agreement, by the Purchasers without regard
to the restrictions contained in this Section 11, unless in the written
opinion of counsel to the Company the Debentures are a security (as
such term is defined in Section 2(1) of the Securities Act), whereupon
the Debentures may be sold or transferred on the same basis as the
Closing Shares pursuant to the foregoing provisions.
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SECURITIES PURCHASE AGREEMENT - PAGE 32
<PAGE> 33
(e) RIGHT OF PARTICIPATION. Notwithstanding the foregoing, the
Purchasers may assign or participate 50% or less of the Closing Shares
and any portion of the Debentures (together with all rights of the
Purchasers under this Agreement and the Related Agreements associated
therewith) to AXIS or any other Person without the consent or approval
of the Company or any Founder or any other Current Stockholders, which
assignee shall (x) make representations and warranties to the Company
substantially similar to those set forth in Section 6 hereof as made by
the Purchasers and (y) agree to be bound by the terms of this Agreement
and the Related Agreements (including the transfer restrictions set
forth in this Section 11).
12. MISCELLANEOUS.
(a) SUCCESSORS AND ASSIGNS.
The rights and obligations of each Purchaser under this Agreement and
each Related Agreement may be assigned by such Purchaser to any Person
or entity to which Debentures are transferred by such Purchaser, and
such transferee shall be deemed a "Purchaser" for purposes of this
Agreement.
(b) CONFIDENTIALITY.
Except as required by law, each Purchaser agrees that it will keep
confidential and will not disclose or divulge any confidential,
proprietary or secret information which such Purchaser may obtain from
the Company pursuant to financial statements, reports and other
materials submitted by the Company to such Purchaser pursuant to this
Agreement or otherwise, or pursuant to visitation or inspection rights
granted hereunder, unless such information is known, or until such
information becomes known, to the public; provided, however, that a
Purchaser may disclose such information (i) to its attorneys,
accountants, consultants and other professionals to the extent
necessary to obtain their services in connection with its investment in
the Company, (ii) to any prospective purchaser of any Debentures from
such Purchaser as long as such prospective purchaser agrees in writing
to be bound by the provisions of this Section 12 or (iii) to any
Affiliate of such Purchaser or to a partner or shareholder of such
Purchaser.
(c) SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
All agreements, representations and warranties contained herein shall
survive the execution and delivery of this Agreement and the closing of
the transactions contemplated herein, regardless of any investigation
by the Purchasers or on behalf of the Purchasers.
(d) EXPENSES.
The Company agrees to pay and hold the Purchasers and holders of the
Debentures harmless from liability for the payment of:
(i) the fees and expenses of the Purchasers,
including the reasonable fees and
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SECURITIES PURCHASE AGREEMENT - PAGE 33
<PAGE> 34
expenses of Arter & Hadden, LLP, special counsel to the
Purchasers, arising in connection with the negotiation and
execution of this Agreement, the Related Agreements and
consummation of the transactions contemplated herein. At the
Closing, the Purchasers shall provide an estimate of such
reimbursable amounts (the "Estimated Expense Reimbursement
Fee"). To the extent the actual fees and expenses of the
Purchasers exceed the Estimated Expense Reimbursement Fee, the
Company shall promptly pay such excess to the Purchasers or,
at their election, their counsel;
(ii) the fees and expenses incurred with respect to
the interpretation of, or any amendments or waivers to this
Agreement or the Related Agreements (whether or not the same
become effective):
(iii) if a Purchaser or other holder of Debentures or
Conversion Shares desires to sell or otherwise transfer any or
all of the Debentures or Conversion Shares held by it and
counsel for the Company declines to render a legal opinion to
such Purchaser or holder, without cost or expense to such
Purchaser or holder, whether or not registration under the
Securities Act will be required for such sale or transfer, the
fees and expenses of counsel for such Purchaser or holder in
obtaining such an opinion;
(iv) the fees and expenses incurred in reviewing any
registration statement or prospectus or any amendments or
supplements thereto prepared pursuant to the Registration
Rights Agreement;
(v) the fees and expenses incurred in connection with
any requested waiver of the right of any holder of Debentures
or the consent of any holder of Debentures to contemplated
acts of the Company not otherwise permissible by the terms of
this Agreement or the Related Agreements;
(vi) stamp and other taxes, excluding income taxes,
which may be payable with respect to the execution and
delivery of this Agreement or the issuance, delivery or
acquisition of the Debentures or the Closing Shares;
(vii) the fees and expenses incurred in respect of
the enforcement of the rights granted under this Agreement and
the Related Agreements;
(viii) all costs, fees and expenses incurred by the
Company in its performance of and compliance with this
Agreement and the Related Agreements; and
(ix) fees and expenses incurred by each such Person
in any filing with any governmental with respect to its
investment in the Company or in any other filing with any
governmental agency with respect to the Company which mentions
such Person.
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SECURITIES PURCHASE AGREEMENT - PAGE 34
<PAGE> 35
(e) NOTICES.
All notices, requests, consents, and other communications under this
Agreement shall be in writing and shall be delivered personally or by
facsimile transmission or by overnight delivery service or 72 hours
after having been mailed by first class certified or registered mail,
return receipt requested, postage prepaid:
If to the Company, at its address set forth on the signature page
hereto, or at such other address or addresses as may have been furnished in
writing by the Company to the Purchasers.
If to a Purchaser, at its address set forth on the signature page
hereto, or at such other address or addresses as may have been furnished to the
Company in writing by such Purchaser.
(f) BROKERS.
The Company, the Founders and the Purchasers each represent and warrant
to the other parties hereto that it has not retained or engaged any
finder or broker in connection with the transactions contemplated in
this Agreement. The Company, the Founders and each Purchaser will
indemnify and save the other parties harmless from and against any and
all claims, liabilities or obligations with respect to brokerage or
finders fees or commissions, or consulting fees in connection with the
transactions contemplated in this Agreement asserted by any Person on
the basis of any statement or representation alleged to have been made
by such indemnifying party.
(g) ENTIRE AGREEMENT.
This Agreement, the exhibits hereto and the Related Agreements embody
the entire agreement and understanding between the parties hereto with
respect to the subject matter hereof and supersedes all prior
agreements and understandings relating to such subject matter.
(h) AMENDMENTS AND WAIVERS.
Except as otherwise expressly set forth in this Agreement, any term of
this Agreement may be amended and the observance of any term of this
Agreement may be waived (either generally or in a particular instance
and either retroactively or prospectively), with the written consent of
the Company and the Majority Holders. Any amendment or waiver effected
in accordance with this Section 12 shall be binding upon each holder of
any Debentures, each future holder of all such Debentures and the
Company. No waivers of or exceptions to any term, condition or
provision of this Agreement, in any one or more instances, shall be
deemed to be, or construed as, a further or continuing waiver of any
such term, condition or provision.
(i) COUNTERPARTS.
This Agreement may be executed by facsimile signature and in one or
more counterparts,
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SECURITIES PURCHASE AGREEMENT - PAGE 35
<PAGE> 36
each of which shall be deemed to be an original, but all of which shall
be one and the same document.
(j) HEADINGS.
The headings of this Agreement are for convenience only and do not
constitute a part of this Agreement.
(k) SEVERABILITY.
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision
of this Agreement.
(l) RULES OF CONSTRUCTION.
Each covenant contained in this Agreement and each Related Agreement
shall be construed (absent an express contrary provision therein) as
being independent of each other covenant contained herein and therein
and compliance with one covenant shall not (absent such an express
contrary provision) be deemed to excuse compliance with any or all
other covenants. The parties hereto have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity
or question of intent or interpretation arises, this Agreement shall be
construed as if drafted jointly by the parties hereto and no
presumption or burden of proof shall arise favoring or disfavoring any
party by virtue of the authorship of any of the provisions of this
Agreement. The term "to the Company's knowledge" shall mean the
knowledge of the Company after reasonable inquiry and investigation
concerning the subject matter of the representation and warranty. Any
statements, representations or warranties that are based upon the
knowledge of the Company shall be deemed to have been made after
reasonable inquiry by the Company with respect to the matter in
question. Whenever the terms "satisfactory to Purchaser", "determined
by Purchaser", "acceptable to Purchaser", "consent of Purchaser",
"approved by Purchaser", "as Purchaser shall elect", "as Purchaser
shall request" or similar terms used in this Agreement or any Related
Agreement with respect to the Purchasers (or the Majority Holders, as
applicable), except as otherwise specifically provided herein or
therein, such terms shall mean satisfactory to, at the election of,
determined by, acceptable to or requested by, as applicable, such
Purchasers (or Majority Holders, as applicable) in their sole and
absolute discretion.
(m) GOVERNING LAW.
THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS AGREEMENT WILL BE
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEVADA WITHOUT GIVING
EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE
(WHETHER OF THE STATE OF NEVADA OR ANY OTHER JURISDICTION) THAT WOULD
CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE
STATE OF NEVADA.
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SECURITIES PURCHASE AGREEMENT - PAGE 36
<PAGE> 37
(n) FURTHER ASSURANCES.
Each party to this Agreement hereby covenants and agrees, without the
necessity of any further consideration, to execute and deliver any and
all such further documents and take any and all such other actions as
may be necessary or appropriate to carry out the intent and purposes of
this Agreement and to consummate the transactions contemplated herein.
(o) INDEMNIFICATION.
The Company without limitation as to time, will indemnify each
Purchaser and its agents and representatives against, and hold each
Purchaser and its agents and representatives harmless from, all losses,
claims, damages, liabilities, costs (including the costs of preparation
and attorneys' fees and expenses) (collectively, the "Losses") incurred
pursuant to any investigation or proceeding against the Company, any
Purchaser or any of their agents and representatives arising out of or
in connection with this Agreement, any Related Agreement (or any other
document or instrument executed pursuant hereto or thereto), which
investigation or proceeding requires the participation of, or is
commenced or filed against, one or more of the Purchasers and any of
their agents because of this Agreement, the Related Agreements and the
transactions contemplated herein and therein, other than any Losses
resulting from action on the part of such Purchaser or its agents or
representatives which is finally determined in such proceeding to be
primarily and directly a result of (i) such Purchaser's gross
negligence or willful misconduct, (ii) a breach of a fiduciary duty, if
any, owed by such Purchaser to the Company, (iii) an act or omission
that involves intentional misconduct or a knowing violation of law by
such Purchaser, (iv) a transaction from which the Purchaser received an
improper personal benefit or (v) Losses incurred by or on behalf of an
agent of a Purchaser which are the subject of the Indemnification
Agreement entered into by the Company and such agent pursuant to the
Stockholders Agreement, as to which Losses such Indemnification
Agreement, rather than this Section 12, shall apply. The Company agrees
to reimburse each Purchaser and its agents and representatives promptly
for all such Losses as they are incurred by such Purchaser and its
agents. Each Purchaser agrees to reimburse the Company for any payments
made by the Company to such Purchaser pursuant to this Section 12 for
Losses which are finally determined in such proceeding to primarily and
directly result from the gross negligence or willful misconduct of such
Purchaser. The obligations of the Company to each Purchaser and its
agents and representatives under this Section 12 will be separate
obligations. The obligations of the Company under this Section 12 will
survive any transfer of securities by any Purchaser and the termination
of this Agreement or any Related Agreement.
(p) EXCULPATION AMONG PURCHASERS.
Each Purchaser acknowledges that it is not relying upon any other
Purchaser, or any officer, director, employee, agent, partner or
Affiliate of any such other Purchaser, in making its investment or
decision to invest in the Company or in monitoring such investment.
Each Purchaser agrees that no Purchaser nor any controlling Person,
officer,
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SECURITIES PURCHASE AGREEMENT - PAGE 37
<PAGE> 38
director, shareholder, partner, agent or employee of any Purchaser
shall be liable for any action heretofore or hereafter taken or omitted
to be taken by any of them relating to or in connection with the
Company or the Debentures, or both. Without limiting the foregoing, no
Purchaser (nor any of its Affiliates, officers, directors,
shareholders, partners, agents or employees) or other holder of any
Debentures shall have any obligation, liability or responsibility
whatsoever for the accuracy, completeness or fairness of any or all
information about the Company or any subsidiary or their respective
properties, business or financial and other affairs, acquired by such
Purchaser or holder from the Company or any subsidiary or the
respective officers, directors, employees, agents, representatives,
counsel or auditors of either, and in turn provided to another
Purchaser or holder, nor shall any such Purchaser (or such other
Person) have any obligation or responsibility whatsoever to provide any
such information to any other Purchaser (or such other Person) or
holder or to continue to provide any such information if any
information is provided.
[SIGNATURE PAGES FOLLOW]
IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto as of the date first written above.
ORIX GLOBAL COMMUNICATIONS, INC.
By:
Title:
Address: 1771 East Flamingo Road, Ste. B200
Las Vegas, NV 89119
Fax: 702/792-3313
FOUNDERS:
KERRY ROGERS
Address: 1771 East Flamingo Road, Ste. B200
Las Vegas, NV 89119
Fax: 702/792-3313
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SECURITIES PURCHASE AGREEMENT - PAGE 38
<PAGE> 39
JACK HIGGINS
Address: 1771 East Flamingo Road, Ste. B200
Las Vegas, NV 89119
Fax: 702/792-3313
BOB MICHAELS
Address: 1771 East Flamingo Road, Ste. B200
Las Vegas, NV 89119
Fax: 702/792-3313
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SECURITIES PURCHASE AGREEMENT - PAGE 39
<PAGE> 40
PURCHASERS:
INFINITY INVESTORS LIMITED
By:
Title:
Address: 38 Hertford Street
London, England W1Y 7TG
Fax: 011-44-171-355-4975
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SECURITIES PURCHASE AGREEMENT - PAGE 40
<PAGE> 41
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF
NAME AMOUNT OF INDEBTEDNESS CLOSING SHARES
- ---- ---------------------- --------------
<S> <C> <C>
Infinity Investors Limited $6,000,000 2,400
</TABLE>
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SECURITIES PURCHASE AGREEMENT - PAGE 41
<PAGE> 42
<TABLE>
<CAPTION>
EXHIBITS:
<S> <C>
Exhibit A Schedule of Purchasers
Exhibit B Form of Debentures
Exhibit C Business Plan
Exhibit D Schedule of Exceptions (Disclosure Schedule)
Exhibit E Opinion of Counsel (for the Company as provided to Purchaser)
Exhibit F Stockholders Agreement
Exhibit G Security Agreement
Exhibit H Pledge Agreement
Exhibit I Registration Rights Agreement
Exhibit J Employment and Noncompetition Agreement
Exhibit K Pari Passu Agreement
</TABLE>
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SECURITIES PURCHASE AGREEMENT - PAGE 42
<PAGE> 43
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF
NAME AMOUNT OF INDEBTEDNESS CLOSING SHARES
- ---- ---------------------- --------------
<S> <C> <C>
Infinity Investors Limited $6,000,000 2,400
</TABLE>
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SECURITIES PURCHASE AGREEMENT - PAGE 40
(INFINITY/ORIX GLOBAL)
<PAGE> 44
FORM EXHIBIT B
DEBENTURE
___________ June __, 1998
FOR VALUE RECEIVED, on or before ________, 2000 ("Maturity Date"), the
undersigned and if more than one, each of them, jointly and severally
(hereinafter referred to as "Borrower"), promises to pay to the order of
_________________("Lender") at its offices at _______________________ the
principal amount of ________________ DOLLARS ($_______) ("Total Principal
Amount"), or such amount less than the Total Principal Amount which is
outstanding from time to time if the total amount outstanding under this
Debenture ("Debenture") is less than the Total Principal Amount, together with
interest on such portion of the Total Principal Amount which has been advanced
to Borrower from the date advanced until paid at a fixed rate per annum equal to
the lesser of (a) the Maximum Rate (as hereinafter defined) or (b) eight percent
(8%), calculated on the basis of actual days elapsed but computed as if each
year consisted of 360 days. The term "Maximum Rate," as used herein, shall mean
at the particular time in question the maximum rate of interest, if any, which,
under applicable law, may then be charged on this Debenture. If such maximum
rate of interest changes after the date hereof and this Debenture provides for a
fluctuating rate of interest, the Maximum Rate shall be automatically increased
or decreased, as the case may be, without notice to Borrower from time to time
as of the effective date of each change in such maximum rate. If applicable law
ceases to provide for such a maximum rate of interest, the Maximum Rate shall be
equal to eighteen percent (18%) per annum.
The principal of and all accrued but unpaid interest on this Debenture
shall be due and payable as follows:
(a) interest shall be due and payable monthly as it accrues,
commencing on the ___ day of ____, 1998 and continuing on the last day
of each successive month thereafter during the term of this Debenture;
(b) principal of the Debenture shall be due and payable in
_________ equal monthly installments in the amount of ________ each,
commencing on ________, 1999 and continuing on the last day of each
successive month thereafter;
(c) in addition to the payments pursuant to subsection (b)
above, Borrower shall, on the last day of each calendar month, prepay
all or a portion of the principal balance of this Debenture from all
Available Cash Flow of Borrower. As used herein, Available Cash Flow
means the amount of cash on hand on such last day of such month and
received by Borrower from any source, less the cash expenses of
Borrower, any capital expenditures of Borrower, any principal and
interest payments on indebtedness of Borrower and a reserve maintained
in an amount determined by Borrower's Board of Directors, considering
current needs for operating capital and prudent reserves for future
operating capital; and
(d) the outstanding principal balance of this Debenture,
together with all accrued but unpaid interest, shall be due and payable
on the Maturity Date.
If a payment is ten (10) or more days late, Borrower will pay a
delinquency charge in an amount equal to the greater of (i) 5.0% of the amount
of the delinquent payment up to the maximum amount of $250.00, or (ii) $25.00.
Upon an Event of Default, including failure to pay upon final maturity, Lender,
at its option, may also, if permitted under applicable law, do one or both of
the following: (a) increase the interest rate provided for herein by three
(3.00) percentage points and (b) add any unpaid accrued interest to principal
and such sum will bear interest therefrom until paid at the rate provided in
this Debenture.
This Debenture evidences obligations and indebtedness from time to time
owing by Borrower to Lender pursuant to that certain Securities Purchase
Agreement of even date herewith by and between Borrower and Lender ("Securities
Purchase Agreement"), and is secured by a Security Agreement and Pledge
Agreement, each of even
DEBENTURE-Page 1
<PAGE> 45
FORM
date herewith by Borrower, covering certain collateral as more particularly
described therein.
This Debenture, the Securities Purchase Agreement, such Security
Agreement and Pledge Agreement, and all other documents evidencing, securing,
governing, guaranteeing and/or pertaining to this Debenture, including but not
limited to those documents described above, are hereinafter collectively
referred to as the "Loan Documents." The holder of this Debenture is entitled to
the benefits and security provided in the Loan Documents.
Borrower may from time to time prepay all or any portion of the
principal of this Debenture without premium or penalty. Unless otherwise agreed
to in writing, or otherwise required by applicable law, payments will be applied
first to unpaid accrued interest, then to principal, and any remaining amount to
any unpaid collection costs, delinquency charges and other charges; provided,
however, upon delinquency or other Event of Default, Lender reserves the right
to apply payments among principal, interest, delinquency charges, collection
costs and other charges, at its discretion. All prepayments shall be applied to
the indebtedness owing hereunder in such order and manner as Lender may from
time to time determine in its sole discretion. All payments and prepayments of
principal of or interest on this Debenture shall be made in lawful money of the
United States of America in immediately available funds, at the address of
Lender indicated above, or such other place as the holder of this Debenture
shall designate in writing to Borrower. If any payment of principal of or
interest on this Debenture shall become due on a day which is not a Business Day
(as hereinafter defined), such payment shall be made on the next succeeding
Business Day and any such extension of time shall be included in computing
interest in connection with such payment. As used herein, the term "Business
Day" shall mean any day other than a Saturday, Sunday or any other day on which
national banking associations are authorized to be closed. The books and records
of Lender shall be prima facie evidence of all outstanding principal of and
accrued and unpaid interest on this Debenture.
Borrower agrees that no advances under this Debenture shall be used for
personal, family or household purposes, and that all advances hereunder shall be
used solely for business, commercial, investment or other similar purposes.
Borrower agrees that upon the occurrence of any one or more of the
following events of default ("Event of Default"):
(a) failure of Borrower to pay when due all or any part of the
principal on this Debenture or any other Debenture issued pursuant to
the terms of the Securities Purchase Agreement;
(b) failure of Borrower to pay (i) within twenty (20) Business
Days of the due date thereof any interest on this Debenture or any
other Debenture issued pursuant to the terms of the Securities Purchase
Agreement or (ii) within twenty (20) Business Days following the
delivery of notice to Borrower of any fees or any other amount payable
(not otherwise referred to in (a) above or this clause (b)) by Borrower
under this Debenture or any other Debenture issued pursuant to the
terms of the Securities Purchase Agreement;
(c) any representation, warranty, certification or statement
made by Borrower in the Securities Purchase Agreement or any Related
Agreement (as such term is defined in the Securities Purchase
Agreement) or which is contained in any certificate, document or
financial or other statement furnished at any time under or in
connection with the Securities Purchase Agreement or any Related
Agreement shall prove to have been untrue in any material respect when
made;
(d) failure on the part of Borrower to observe or perform any
of the covenants or agreement contained in Section 10 of the Securities
Purchase Agreement (Negative Covenants);
(e) failure on the part of Borrower to observe or perform any
covenant or agreement contained in the Securities Purchase Agreement or
any Related Document (other than those covered by
DEBENTURE-Page 2
<PAGE> 46
FORM
clauses (a) through (d) above), which failure is not cured within
thirty (30) days of such failure;
(f) any of the Current Stockholders (as such term is defined
in the Securities Purchase Agreement) shall fail to perform, in any
material respect, any of their respective obligations under, or shall
have breached any material item of, the Securities Purchase Agreement
or any Related Agreement;
(g) Borrower or any Subsidiary (as such term is defined in the
Securities Purchase Agreement) has commenced a voluntary case or other
proceeding seeking liquidation, winding-up, reorganization or other
relief with respect to itself or its debts under any bankruptcy,
insolvency, moratorium or other similar law now or hereafter in effect
or seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial part of
its property, or has consented to any such relief or to the appointment
of or taking possession by any such official in an involuntary case or
other proceeding commenced against it, or has made a general assignment
for the benefit of creditors, or has failed generally to pay its debts
as they become due, or has taken any corporate action to authorize any
of the foregoing;
(h) an involuntary case or other proceeding has been commenced
against Borrower or any Subsidiary, seeking liquidation, winding-up,
reorganization or other relief with respect to it or its debts under
any bankruptcy, insolvency, moratorium or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other
proceeding shall remain undismissed and unstayed for a period of 60
days, or an order for relief has been entered against Borrower or any
Subsidiary under the federal bankruptcy laws as now or hereafter in
effect; or
(i) judgments or orders for the payment of money which in the
aggregate at any one time exceed $250,000 and are not covered by
insurance have been rendered against Borrower or any Subsidiary by a
court of competent jurisdiction and such judgments or orders shall
continue unsatisfied and unstayed for a period of 60 days,
the holder of this Debenture may, at its option, without further notice or
demand, (i) declare the outstanding principal balance of and accrued but unpaid
interest on this Debenture at once due and payable, (ii) refuse to advance any
additional amounts under this Debenture, (iii) foreclose all liens securing
payment hereof, (iv) pursue any and all other rights, remedies and recourses
available to the holder hereof, including but not limited to any such rights,
remedies or recourses under the Related Agreements and Loan Documents, at law or
in equity, or (v) pursue any combination of the foregoing.
The failure to exercise the option to accelerate the maturity of this
Debenture or any other right, remedy or recourse available to the holder hereof
upon the occurrence of an Event of Default hereunder shall not constitute a
waiver of the right of the holder of this Debenture to exercise the same at that
time or at any subsequent time with respect to such Event of Default or any
other Event of Default. The rights, remedies and recourses of the holder hereof,
as provided in this Debenture and in any of the other Loan Documents, shall be
cumulative and concurrent and may be pursued separately, successively or
together as often as occasion therefore shall arise, at the sole discretion of
the holder hereof. The acceptance by the holder hereof of any payment under this
Debenture which is less than the payment in full of all amounts due and payable
at the time of such payment shall not (i) constitute a waiver of or impair,
reduce, release or extinguish any right, remedy or recourse of the holder
hereof, or nullify any prior exercise of any such right, remedy or recourse, or
(ii) impair, reduce, release or extinguish the obligations of any party liable
under any of the Loan Documents as originally provided herein or therein.
This Debenture and all of the other Loan Documents and Related
Agreements are intended to be performed in accordance with, and only to the
extent permitted by, all applicable usury laws. If any provision hereof or of
any of the other Loan Documents or Related Agreements or the application thereof
to any person or circumstance shall, for any reason and to any extent, be
invalid or unenforceable, neither the application of such provision to any other
person or circumstance nor the remainder of the instrument in which such
provision is
DEBENTURE-Page 3
<PAGE> 47
FORM
contained shall be affected thereby and shall be enforced to the greatest extent
permitted by law. It is expressly stipulated and agreed to be the intent of the
holder hereof to at all times comply with the usury and other applicable laws
now or hereafter governing the interest payable on the indebtedness evidenced by
this Debenture. If the applicable law is ever revised, repealed or judicially
interpreted so as to render usurious any amount called for under this Debenture
or under any of the other Loan Documents, or contracted for, charged, taken,
reserved or received with respect to the indebtedness evidenced by this
Debenture, or if Lender's exercise of the option to accelerate the maturity of
this Debenture, or if any prepayment by Borrower results in Borrower having paid
any interest in excess of that permitted by law, then it is the express intent
of Borrower and Lender that all excess amounts theretofore collected by Lender
be credited on the principal balance of this Debenture (or, if this Debenture
and all other indebtedness arising under or pursuant to the other Loan Documents
have been paid in full, refunded to Borrower), and the provisions of this
Debenture and the other Loan Documents and Related Documents immediately be
deemed reformed and the amounts thereafter collectable hereunder and thereunder
reduced, without the necessity of the execution of any new document, so as to
comply with the then applicable law, but so as to permit the recovery of the
fullest amount otherwise called for hereunder or thereunder. All sums paid, or
agreed to be paid, by Borrower for the use, forbearance, detention, taking,
charging, receiving or reserving of the indebtedness of Borrower to Lender under
this Debenture or arising under or pursuant to the other Loan Documents and
Related Agreements shall, to the maximum extent permitted by applicable law, be
amortized, prorated, allocated and spread throughout the full term of such
indebtedness until payment in full so that the rate or amount of interest on
account of such indebtedness does not exceed the usury ceiling from time to time
in effect and applicable to such indebtedness for so long as such indebtedness
is outstanding. Notwithstanding anything to the contrary contained herein or in
any of the other Loan Documents and Related Agreements, it is not the intention
of Lender to accelerate the maturity of any interest that has not accrued at the
time of such acceleration or to collect unearned interest at the time of such
acceleration.
If this Debenture is placed in the hands of an attorney for collection,
or is collected in whole or in part by suit or through probate, bankruptcy or
other legal proceedings of any kind, Borrower agrees to pay, in addition to all
other sums payable hereunder, all costs and expenses of collection, including
but not limited to reasonable attorneys' fees.
Borrower and any and all endorsers and guarantors of this Debenture
severally waive presentment for payment, notice of nonpayment, protest, demand,
notice of protest, notice of intent to accelerate, notice of acceleration and
dishonor, diligence in enforcement and indulgences of every kind and without
further notice hereby agree to renewals, extensions, exchanges or releases of
collateral, taking of additional collateral, indulgences or partial payments,
either before or after maturity.
Any and all payments by Borrower hereunder to any holder of this
Debenture and each "qualified assignee" thereof shall be made free and clear of
and without deduction or withholding for any and all present or future taxes,
levies, imposts, deductions, charges or withholdings, and all liabilities with
respect thereto (all such taxes, levies, imposts, deductions, charges,
withholdings and liabilities being hereinafter referred to as "Taxes") unless
such Taxes are required by law or the administration thereof to be deducted or
withheld. If Borrower shall be required by law or the administration thereof to
deduct or withhold any Taxes from or in respect of any sum payable with respect
to this Debenture (i) the sum payable shall be increased as may be necessary so
that after making all required deductions or withholdings (including deductions
or withholdings applicable to additional amounts paid under this paragraph) such
holder of this Debenture receives an amount equal to the sum it would have
received if no such deduction or withholding had been made; (ii) Borrower shall
make such deductions or withholdings; and (iii) Borrower shall forthwith pay the
full amount deducted or withheld to the relevant taxation or other authority in
accordance with applicable law. A "qualified assignee" of a holder of this
Debenture is a person that is organized under the laws of (I) the United States
or (II) any jurisdiction other than the United States or any political
subdivision thereof and that (y) represents and warrants to Borrower that
payments of Borrower to such assignee under applicable law would not be subject
to any Taxes and (z) from time to time, as and when requested by Borrower,
executes and delivers to Borrower and the Internal Revenue Service forms, and
provides Borrower with any information, necessary to establish such assignee's
continued exemption from Taxes under applicable law. Borrower shall forthwith
pay any present or future stamp or documentary taxes or any other excise
DEBENTURE-Page 4
<PAGE> 48
FORM
or property taxes, charges or similar levies (all such taxes, charges and levies
hereinafter referred to as "Other Taxes") which arise from any payment made
under this Debenture or the transactions contemplated hereby. Borrower shall
indemnify each holder of this Debenture, or qualified assignee, for the full
amount of Taxes or Other Taxes (including, without limitation, any Taxes or
Other Taxes imposed by any jurisdiction on amounts payable under this paragraph)
paid by each holder of this Debenture, or qualified assignee, and any liability
(including penalties, interest and expenses) arising therefrom or with respect
thereto, whether or not such Taxes or Other Taxes were correctly or legally
asserted. Payment under this indemnification shall be made within 30 days from
the date such holder of this Debenture or assignee makes written demand
therefor. A certificate as to the amount of such Taxes or Other Taxes submitted
to Borrower by such holder of this Debenture or assignee shall be conclusive
evidence of the amount due from Borrower to such party. Within 30 days after the
date of any payment of Taxes, Borrower will furnish to each holder of this
Debenture the original or a certified copy of a receipt evidencing payment
thereof.
[SIGNATURE PAGE FOLLOWS]
DEBENTURE-Page 5
<PAGE> 49
FORM
THIS DEBENTURE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF
THE STATE OF NEVADA AND FOR ALL PURPOSES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF SAID STATE.
BORROWER:
--------------------------
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
DEBENTURE-Page 6
<PAGE> 50
EXHIBIT C
SECURITIES PURCHASE AGREEMENT
DATED JUNE 11, 1998
[INTENTIONALLY OMITTED]
<PAGE> 51
DISCLOSURE SCHEDULE
SCHEDULE 4(d)
SECURITIES PURCHASE AGREEMENT
DATED JUNE 11, 1998
LIST OF SHAREHOLDERS
<TABLE>
<CAPTION>
Holder Number of Shares
------ ----------------
<S> <C>
Kerry L. Rogers 650
W. Bruce Voss 50
Eckley M. Keach 50
Richard W. Weese 30
John Higgins 305
Robert A. Michel 100
Nea1 Matthews l5
</TABLE>
<PAGE> 52
SCHEDULE 4(m)
SECURITIES PURCHASE AGREEMENT
DATED JUNE 11, 1998
INTELLECTUAL PROPERTY
THE COMPANY DOES NOT HOLD ANY PATENTS OR REGISTERED TRADEMARKS. MATERIAL AND
MARKS DEVELOPED AND USED IN THE NORMAL COURSE OF BUSINESS ARE SUBJECT TO
PROTECTION UNDER COPYRIGHT AND TRADEMARK LAW.
<PAGE> 53
SCHEDULE 4(n)
SECURITIES PURCHASE AGREEMENT
DATED JUNE 11, 1998
INSURANCE
1. PROPERTY, INLAND MARINE, GENERAL LIABILITY COVERAGE FOR LAS VEGAS
AND KANSAS:
RELIANCE INSURANCE CO.
2. GROUP HEALTH INSURANCE (COMPANY PAYS 80% OF PREMIUM FOR EMPLOYEES)
SIERRA HEALTH & LIFE INSURANCE CO.
3. PROGRESSIVE AUTO INSURANCE
4. TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
LIFE INSURANCE POLICY FOR KERRY L. ROGERS
<PAGE> 54
SCHEDULE 4(o)
SECURITIES PURCHASE AGREEMENT
DATED JUNE 11, 1998
AGREEMENTS
<PAGE> 55
INDEX
CONTRACTS:
1. AT&T MASTER CARRIER AGREEMENT
2. DIGITAL
3. DSC EQUIPMENT LEASE & FINANCING
4. FIBERNET
5. IXC
6. MCI/AVANTEL
7. QWEST
8. RSL COMMUNICATIONS
9. STAR TELECOM
10. TOTAL
11. VERIO
12. WORLDCOM
LEASES:
1. KANSAS OFFICE LEASE
2. LAS VEGAS OFFICE LEASE
3. MEXICO CITY OFFICE LEASE
4. MEXICO CITY APARTMENT LEASE
<PAGE> 56
SCHEDULE 4(p)
SECURITIES PURCHASE AGREEMENT
DATED JUNE 11, 1998
PERMITS AND INVESTIGATION
<PAGE> 57
STREAMLINE INTERNATIONAL SECTION 214 APPLICATION
ACCEPTED FOR FILING
(Formal Section 63.18)
The applications listed below have been found, upon initial review, to be
acceptable for filing and subject to the streamlined processing procedures set
forth in Section 63.12 of the Commission's Rules, 47 C.F.R. Section 63.12. These
applications are for authority: (1) to be a facilities-based carrier; and/or (2)
to resell the switched services of other common carriers to provide
international switched telecommunications services between the United States and
international points; and/or (3) to resell the private line services of other
common carriers to provide: (i) non-interconnected international private line
services between the United States and international points, and/or (ii)
switched services to a country which the Commission has determined provides
equivalent resale opportunities to U.S. carriers. See Regulation of
International Accounting Rates 7 FCC Rcd 7927, 7928 (1992).
ITC-97-199 ORIX LEASING, INC
Global Facilities-based/Global Resale Services
Application for authority to operate as a facilities-based carrier in accordance
with the provisions of Section 63.18(e)(1) of the rules and also to provide
service in accordance with the provisions of Section 63.18(e)(2) of the rules.
ITC-97-198 PACIFIC RIM DATA GROUP, INC
Global Facilities-based/Global Resale Services
Application for authority to operate as a facilities-based carrier in accordance
with the provisions of Section 63.18(e)(1) of the rules and also to provide
service in accordance with the provisions of Section 63.18(e)(2) of the rules.
ITC-97-197 TELSTAR INTERNATIONAL, INC
Global Resale Services
Application for authority to provide service in accordance with the provisions
of Section 63.18(e)(2) of the rules.
ITC-97-196 CRG INTERNATIONAL, INC D/B/A NETWORK ONE
Global Resale Services
Application for authority to provide service in accordance with the provisions
of Section 63.18(e)(2) of the rules.
ITC-97-195 NUMERA COMMUNICATIONS EXCHANGE, INC
Global Resale Services
Application for authority to provide service in accordance with the provisions
of Section 63.18(e)(2) of the rules.
ITC-97-194 STRATACOM INTERNATIONAL LTD
Global Resale Services
Application for authority to provide service in accordance with the provisions
of Section 63.18(e)(2) of the rules.
ITC-97-193 RURAL NETWORK SERVICES, INC
Global Resale Services
Application for authority to provide service in accordance with the provisions
of Section 63.18(e)(2) of the rules.
ITC-97-192 KEYART COMM, INC
<PAGE> 58
[HALEY BADER & POTTS P.L.C. LETTERHEAD]
Our File No.
1556-101-60
July 25, 1997
Via Facsimile (702) 792-3313
Mr. Robert Michel
Executive President
Orix Leasing, Inc.
1771 E. Flamingo Road
Building B, Suite 200
Las Vegas, NV 89109
Dear Mr. Michel:
Attached hereto is a Public Notice issued by the Federal Communications
on May 22, 1997. This Public Notice indicates that the application of Orix
Leasing, Inc. to operate as an international facilities-based and resale
carrier was granted, effective May 16, 1997.
This Public Notice will serve as authorization to offer the services
specified in the application of Orix Leasing, Inc. The FCC will not issue any
further authorization pursuant to this application.
If I can provide you with any further information concerning this
application, please contact me immediately.
Sincerely yours,
/s/ JOHN CRIGLER
John Crigler
JC:dr
Enclosure
<PAGE> 59
[SEAL] PUBLIC NOTICE [HALEY BADER, & POTTS STAMP]
FEDERAL COMMUNICATIONS COMMISSION
1919 M STREET N.W.
WASHINGTON D.C. 20554
----------------------------------------------------------------
News media information 202-418-0500. Recorded listing of releases and
texts 202-418-2222
Report No.: I-8243 Thursday, May 22, 1997
DA 97-1076
OVERSEAS COMMON CARRIER SECTION 214 APPLICATIONS
ACTIONS TAKEN
The following applications for international section 214 certification have been
granted pursuant to the Commission's streamlined processing procedures set forth
in Section 63.12 of the Commission's Rules. 47 C.F.R. Section 63.12. Unless
otherwise noted, these authorizations grant the referenced applicants (1) global
or limited global facilities-based authority; and/or (2) global or limited
global resale authority. The general terms and conditions of such global
authority are set forth in Section 63.18(e)(1) & (2) of the Commission's rules,
47 C.F.R. Section 63.18(e)(1) & (2). These authorizations also are subject to
all other applicable Commission rules and policies. This Public Notice serves as
each referenced carrier's Section 214 authorization. It contains general and
specific conditions which are set forth below.
ITC-97-199 GLOBAL FACILITIES-BASED/GLOBAL RESALE SERVICES
ORIX LEASING, INC effective: 5/16/97
Application for authority to operate as a facilities-based carrier in accordance
with the provisions of Section 63.18(e)(1) of the rules and also to provide
service in accordance with the provisions of Section 63.18(e)(2) of the rules.
ITC-97-198 GLOBAL FACILITIES-BASED/GLOBAL RESALE SERVICES
PACIFIC RIM DATA GROUP, INC effective: 5/16/97
Application for authority to operate as a facilities-based carrier in accordance
with the provisions of Section 63.18(e)(1) of the rules and also to provide
service in accordance with the provisions of Section 63.18(e)(2) of the rules.
ITC-97-197 GLOBAL RESALE SERVICES
TELSTAR INTERNATIONAL, INC effective: 5/16/97
Application for authority to provide service in accordance with the provisions
of Section 63.18(e)(2) of the rules.
lTC-97-196 GLOBAL RESALE SERVICES
CRG INTERNATIONAL, INC D/B/A NETWORK ONE effective: 5/16/97
Application for authority to provide service in accordance with the provisions
of Section 63.18(e)(2) of the rules.
ITC-97-195 GLOBAL RESALE SERVICES
NUMERA COMMUNICATIONS EXCHANGE, INC effective: 5/16/97
Application for authority to provide service in accordance with the provisions
of Section 63.18(e)(2) of the rules.
ITC-97-194 GLOBAL RESALE SERVICES
STRATACOM INTERNATIONAL LTD effective: 5/16/97
Application for authority to provide service in accordance with the provisions
of Section 63.18(e)(2) of the rules.
ITC-97-193 GLOBAL RESALE SERVICES
RURAL NETWORK SERVICES, INC effective: 5/16/97
Application for authority to provide service in accordance with the provisions
of Section 63.18(e)(2) of the rules.
ITC-97-192* GLOBAL RESALE SERVICES
KEYART COMM, INC effective: 5/16/97
Application for authority to provide service in accordance with the provisions
of Section 63.18(e)(2) of the rules.
See Appendix A.
<PAGE> 60
SCHEDULE 4(r)
SECURITIES PURCHASE AGREEMENT
DATED JUNE 11, 1998
EMPLOYEES
<PAGE> 61
ORIX GLOBAL COMMUNICATIONS
re: Annual Salary
thru: 6/12/98
<TABLE>
<CAPTION>
Employee Annual Salary
- -------- -------------
<S> <C>
Bauman 70,000.00
Coyle 12,000.00
Deilaporta 18,000.00
Foley 26,000.00
Hartman 39,000.00
Manfred 60,000.00
McComas 50,000.00
McGovern 30,000.00
McGuirl 25,000.00
Michel, J. 19,760.00
Michel, R. 120,000.00
Murrieta 36,000.00
Poras, A. 29,000.00
Poras, J. 26,000.00
Reyes 33,000.00
Rightmyer 45,000.00
Rogers 150,000.00
Thorpe 22,737.00
Trimboli 36,000.00
</TABLE>
<TABLE>
<CAPTION>
Consultants Annual Salary
- ----------- -------------
<S> <C>
Logan 18,000.00
Stewart 65,000.00
</TABLE>
<PAGE> 62
SCHEDULE 4(u)
SECURITIES PURCHASE AGREEMENT
DATED JUNE 11, 1998
INDEBTEDNESS - RELATED PARTY TRANSACTION
KERRY ROGERS ADVANCED THE SUM OF $164,000 TO THE COMPANY.
<PAGE> 63
[JOHNSON & COMPANY LETTERHEAD]
June 11, 1998
Infinity Investments Limited
38 Hertford Street
London, England
W1Y7TG
Dear Sirs:
We have acted as counsel to Orix Global Communications, Inc., a Nevada
Corporation (the "Corporation"), in connection with the issuance and amendment
of debentures of the Corporation, and the assumption of debentures of Touch Tone
America, Inc., pursuant to a certain Securities Purchase Agreement dated June
11, 1998, by and among Infinity Investments Limited and the Corporation (the
"Agreement"), the issuance of 2,400 shares of the capital stock of the
Corporation to Infinity Investments Limited (the "Shares"), and the execution
of Related Agreements, as such term is defined under the Agreement.
In connection with rendering this opinion, we have relied on the certificates of
officers of the Corporation, and upon representations and agreements of the
Corporation contained in the Agreement and the Related Agreements. We further
examined originals or copies identified to our satisfaction of the following:
1. Articles of Incorporation of the Corporation, as amended;
2. The Minute Book of the Corporation containing the written deliberations
and resolutions of the Board of Directors and Shareholders of the
Corporation; and
3. The Agreement and Related Agreements.
We have examined such other corporate documents and records, instruments and
certificates of public officials, officers and representatives of the
Corporation, and have made such investigations as we have deemed necessary or
appropriate under the circumstances.
Based on the foregoing, and on reliance thereon, we are of the opinion that:
1. The Corporation has full corporate power and authority to enter into
the Agreement and the Related Agreements.
2. The Corporation has taken all requisite corporate action to authorize
and approve the execution and delivery of the Agreement and the Related
Agreements, and the consummation of the transactions contemplated
therein.
3. The Agreement and the Related Agreements have been duly executed and
delivered by the
<PAGE> 64
Infinity Investments Limited
June 11, 1998
Page 2
Corporation and is binding on the Corporation in accordance with its
terms, except (i) as enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium, or other similar laws of
general application now and hereafter in effect relating to creditors'
rights, and (ii) that the remedy of specific performance and injunctive
and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court (in equity or in law)
before which any proceeding therefore may brought.
4. The issuance of the Shares has been duly authorized as fully paid and
non assessable.
This opinion is delivered solely to you and not be relied upon by any other
person or entity.
Very truly yours,
/s/ JOHNSON & COMPANY
JOHNSON & COMPANY
<PAGE> 65
STOCKHOLDERS AGREEMENT
THIS STOCKHOLDERS AGREEMENT ("Agreement") is entered into as of June
11, 1998 among ORIX GLOBAL COMMUNICATIONS, INC. (the "Company"), the purchasers
of Common Stock of the Company listed on the signature pages below (individually
a "Purchaser" and collectively the "Purchasers"), the current holders of Common
Stock of the Company listed on the signature pages below and such other parties
as may from time to time and with the consent of the Company become parties
hereto (collectively, but excluding the Purchasers, the "Common Stockholders").
The Purchasers and Common Stockholders are collectively referred to as the
"Stockholders".
RECITALS:
The Company, certain of the Common Stockholders and the Purchasers
have entered into a Securities Purchase Agreement (the "Purchase Agreement") on
this date, providing, among other things, for the extension by the Purchasers of
credit to the Company pursuant to the purchase by the Purchasers of Debentures
of the Company (the "Debentures") on the terms and conditions set forth in such
Purchase Agreement. In connection with such extension of credit, the Company
shall issue to the Purchasers 2,400 shares of common stock ("Common Stock")
of the Company (the "Closing Shares") for a purchase price of $0.01 per share.
Terms defined in the Purchase Agreement and not otherwise defined herein are
used herein with the same meanings as defined in the Purchase Agreement.
This Agreement is the Stockholders Agreement referred to in the
Purchase Agreement. The parties deem it in the best interests of the Company to
provide for consistent and uniform management of the Company. The parties also
desire to restrict the sale, assignment, transfer, encumbrance or other
disposition of certain shares of Common Stock and to provide for certain rights
in respect of Purchaser's holdings of securities as hereinafter provided.
Furthermore, the execution and delivery of this Agreement is a condition to the
Closing under the Purchase Agreement.
Accordingly, the parties agree as follows:
1. WAIVER OF PREEMPTIVE RIGHTS. Each Common Stockholder, by his or her
execution and delivery of this Agreement, hereby approves and consents to the
issuance to the Purchasers of the Closing Shares and waives any preemptive right
of such Common Stockholder under applicable law or the Company's Articles of
Incorporation associated therewith.
2. VOTING PROVISIONS.
(a) NUMBER AND COMPOSITION OF BOARD OF DIRECTORS. The Board of
Directors of the Company shall at all times consist of not more than
five (5) and not less
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than three (3) members. The initial Board of Directors shall
consist of five (5) Directors. Such number of directors may be
increased only by a unanimous vote of the Board of Directors. The
Purchasers and the Common Stockholders agree that in any election
of directors of the Company they shall vote all shares of capital
stock of the Company owned or controlled by them to elect a Board
of Directors designated as follows:
(i) three (3) directors shall be designated by
the Purchasers (each a "Purchaser Director") for so long
as the Purchasers shall continue to hold at least
one-third of the Closing Shares. Such Purchaser Directors
shall be designated by the Purchasers of a majority in
interest of the Closing Shares then held by the Purchasers
at the time of such designation; and
(ii) two (2) directors shall be designated by the
Founders (each a "Common Stockholder Director"), by a
majority in interest of Common Stock then held by the
Founders, for so long as the Founders continue to hold at
least one-third of the shares of Common Stock held by
the Common Stockholders as of the date hereof (except as
otherwise specified in Section 4 below).
In the event the Purchasers assign a portion of their Closing
Shares to AXIS, the Stockholders agree to increase the Board of Directors
to seven (7) members, two (2) selected by the Purchasers, two (2) selected
by AXIS, two (2) selected by the Founders and the President of the Company,
which agreement shall apply during the same time periods as specified in
clauses (i) and (ii) above.
(b) INITIAL BOARD. The initial Board of Directors shall
consist of the individuals listed on Schedule A hereto.
(c) VACANCIES; REMOVAL. In the event of any vacancy in the
Board of Directors, each of the Purchasers and the Common
Stockholders agrees to vote all shares of Common Stock owned or
controlled by them and to otherwise use their best efforts to fill
such vacancy so that the Board of Directors of the Company will
include directors designated as provided in Paragraph 2(a). Each
of the Purchasers and the Common Stockholders agree to vote all
shares of Common Stock owned or controlled by them for the removal
of a director whenever (but only whenever) there shall be
presented to the Board of Directors the written direction that
such director be removed, signed by the holders of a majority in
interest of the Common Stock entitled to designate such director.
Following the removal of any director, each of the parties agrees
to use its best efforts to cause replacement designees to be
elected to the Board of Directors so that the Board will include
directors designated as provided in Paragraph 2(a).
(d) MEETINGS. The Company agrees to hold regular meetings
of the Board of Directors at least once during each fiscal
quarter. The Company will give each Purchaser written notice at
least three days (24 hours, in the case of a telephone meeting) in
advance of all meetings of the Board of Directors, and will permit
such Purchaser, if such
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Purchaser has not designated a Purchaser Director, to attend
meetings of the Board of Directors. If the Purchaser Director
designated by a Purchaser is not able to attend a Board of
Directors meeting or a meeting of a committee on which he
serves, such Purchaser may designate any one Person to attend
as an observer. The Company shall furnish each Purchaser with
a copy of the minutes and other records of all meetings and
other actions taken by the Board of Directors and its
committees and all written materials given to directors in
connection with such meeting at the same time such materials
and information are given to the directors. If the Company
proposes to take any action by written consent in lieu of a
meeting of its Board of Directors or any committee thereof,
the Company shall give written notice thereof to each such
Purchaser prior to the effective date of such consent
describing in reasonable detail the nature and the substance
of such action.
(e) EXPENSES. The Company shall reimburse all Persons
serving as directors for their actual and reasonable
out-of-pocket expenses incurred in attending meetings of the
Board of Directors and all committees thereof and otherwise
incurred in connection with the business of the Company or in
fulfilling their duties as directors. If a Purchaser has not
designated a Purchaser Director or if the Purchaser Director
designated by such Purchaser is unable to attend a meeting of
the Board of Directors or a committee on which he serves, the
Company shall reimburse one representative of such Purchaser
for actual and reasonable out-of-pocket expenses incurred in
attending meetings of the Board of Directors and such
committees.
(f) PRESIDENT. The Company, each Purchaser and each
Common Stockholder further hereby agrees to take all actions
(and to use their best efforts to cause the Board designees
specified in Paragraph (b) above to take all actions)
necessary to (x) cause Steve Loglisci to be elected as the
President and Treasurer of the Company and each Subsidiary,
and (y) adopt a resolution of the Board of Directors of the
Company and each Subsidiary granting the President and
Treasurer the sole and exclusive authority over the banking
and cash management activities of the Company and each
Subsidiary, including the authority to make any disbursement
of cash or non-cash assets of the Company or any Subsidiary
consistent with, and on the terms specified in, Section
10(ix) of the Purchase Agreement.
(g) INDEMNIFICATION AGREEMENTS. At the Closing and on
each later date that a Purchaser Director or any other
director is first elected or appointed to the Board of
Directors, the Company shall enter into an indemnification
agreement in substantially the form attached as Exhibit A with
each Purchaser Director and each other director of the Company
who is elected or appointed to the Board of Directors on such
date.
(h) DIRECTORS AND OFFICERS LIABILITY INSURANCE. The
Company will use its best efforts to obtain and maintain in
force with a financially sound and reputable insurer, a
director, officers and corporate liability insurance policy
having a limit of liability of
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not less than $10,000,000 and providing coverage acceptable to
the Board of Directors (with a majority of the Purchaser
Directors concurring).
(i) CHARTER, BY-LAWS. The Company, each Purchaser and
each Common Stockholder shall vote all shares of Common Stock
owned by them and take all other action necessary (including,
without limitation, removing any director) to ensure that the
Company's Articles of Incorporation and By-Laws do not at any
time conflict with the provisions of this Agreement.
3. PROVISIONS RELATING TO RESTRICTED STOCK.
(a) RESTRICTIONS ON TRANSFER.
(i) For purposes of this Agreement,
"Restricted Stock" means all Common Stock and other
capital stock now owned or subsequently acquired by
any Stockholder (or a transferee of a Stockholder in
a Permitted Transfer). During the term of this
Agreement, none of the shares of Restricted Stock may
be sold, assigned, transferred, pledged, encumbered
or otherwise disposed of (a "transfer") except in a
"Permitted Transfer" (as defined below) or a transfer
that complies with the provisions of this Section 3.
(ii) Any attempted transfer of shares of
Restricted Stock other than in accordance with this
Agreement shall be null and void and the Company
shall refuse to recognize any such transfer and shall
not reflect on its records any change in record
ownership of shares of Restricted Stock pursuant to
any such transfer. The certificates representing all
shares of Restricted Stock shall bear the legend set
forth in Paragraph 7(a) of this Agreement.
(iii) The following transfers of Restricted
Stock (each a "Permitted Transfer") may be made free
of the restrictions and requirements of Paragraph
3(b) hereof: (A) an individual holder of Restricted
Stock may transfer any or all of the shares of
Restricted Stock owned by him to his spouse or
children, or to trusts established for the benefit of
his spouse or children, provided that the transferee
grants to the transferor an irrevocable proxy coupled
with an interest to vote all of the shares of
Restricted Stock so transferred; (B) a partnership,
corporation or trust holding Restricted Stock may
transfer any shares of Restricted Stock owned by such
holder (1) to its Affiliates, (2) to its general or
limited partners, stockholders or beneficiaries, or
(3) to an entity owned by or organized for the
benefit of the general or limited partners,
stockholders, officers, directors, employees,
Affiliates or beneficiaries of such holder, as
applicable; (c) a Person may sell Restricted Stock to
the Company or to the Stockholders pursuant to an
agreement under which the Company or such
Stockholders have the option to repurchase such
Restricted Stock upon the occurrence of certain
events, including the termination of employment by or
service to the Company or any
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subsidiary of the Company; (D) the Purchasers may
participate or assign 50% or less of the Closing
Shares to AXIS or any other Person; and (E) in
addition to the rights under clause (A) above, the
Founders may assign, within 30 days of the date
hereof, up to 10% of the aggregate shares of Common
Stock owned by the Founders to employees of the
Company or other Persons. Any transferee in a
Permitted Transfer is referred to herein as a
"Permitted Transferee". Any transferee of shares of
Common Stock in any Permitted Transfer shall,
however, take such shares subject to the terms of
this Agreement.
(b) RIGHT OF FIRST REFUSAL AND CO-SALE.
(i) Except as set forth herein no Stockholder
or Permitted Transferee of Stockholder may sell any
shares of Restricted Stock other than in a Permitted
Transfer.
(ii) Subject to this Section 3, whenever and
as often as any Stockholder or a Permitted Transferee
of any Stockholder desires to sell any shares of
Restricted Stock pursuant to a bona fide written
offer to purchase such shares other than in a
Permitted Transfer, such Person (the "Selling Holder"
for purposes of this Paragraph 3(b)) shall give
written notice (the "Notice") to the Company, and to
each other Stockholder (each an "Offeree") to such
effect, enclosing a copy of such offer and
specifying the number of shares of Restricted Stock
which the Selling Holder desires to sell, the name of
the person or persons to whom the Selling Holder
desires to make such sale and the consideration per
share of Common Stock which has been offered in
connection with such offer. In the event such
consideration includes non-cash consideration, the
dollar value of such non-cash consideration shall be
its fair market value, as determined by the Board of
Directors.
(iii) Upon receipt of the notice, the Company
shall have the first right and option to purchase the
shares proposed to be sold for cash at the purchase
price per share specified in the Notice, exercisable
for ten (10) Business Days after receipt of the
Notice. Failure of the Company to respond to such
Notice within such 10-day period shall be deemed to
constitute a notification to the Selling Holder and
the Offerees of the Company's decision not to
exercise the first right and option to purchase such
shares under this Paragraph 3(b)(iii). The Company
may exercise its right and option to purchase such
Restricted Stock by giving written notice of exercise
to the Selling Holder within such 10-day period,
specifying the date (not later than three Business
Days from the date of such notice) upon which payment
of the purchase price for the shares shall be made.
The Selling Holder shall deliver to the Company's
principal office, on or before the payment date
specified in such notice, the certificate or
certificates representing the shares being purchased
by the Company, properly endorsed for
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transfer, against payment of the purchase price
therefor by the Company in immediately available
funds.
(iv) In the event that all of the shares of
Restricted Stock proposed to be transferred are not
purchased by the Company, the Offerees shall have the
right and option to purchase the shares not purchased
by the Company for cash at the purchase price and on
the same terms as specified in the Notice to the
Company, pro rata according to their respective
holdings of Common Equivalents, exercisable for five
Business Days after the expiration of the 10-day
period during which the Company may exercise its
option pursuant to Paragraph 3(b)(iii). Failure of
any Offeree to respond to the Notice within such
five-day period shall be deemed to constitute a
notification to the Selling Holder of such Offeree's
decision not to exercise the first right and option
to purchase shares of Restricted Stock under this
Paragraph 3(b)(iv). If any Offeree fails to exercise
its first right and option to purchase its full pro
rata shares of the shares of Restricted Stock
proposed to be transferred, the Selling Holder shall
give written notice to each of the other Offerees who
has elected to purchase its full pro rata share of
the shares of Restricted Stock proposed to be
transferred, and each such Offeree shall have the
right, exercisable for a period of three Business
Days from the date of receipt of such notice, to
purchase the remaining shares of Restricted Stock,
pro rata according to the Common Equivalents held by
all such electing Offerees or in such other
proportions as they may agree upon.
(v) The Offerees may exercise the right and
option provided under Paragraph 3(b)(iv) by giving
written notice of exercise to the Selling Holder
within the period or periods set forth above,
specifying the date (not later than five Business
Days from the date of expiration of all applicable
first right and options to purchase shares under
Paragraphs 3(b)(ii) and 3(b)(iv)) upon which payment
of the purchase price for the shares purchased under
Paragraphs 3(b)(iv) shall be made. The Selling Holder
shall deliver to the Offeree(s) at the Company's
principal office, at least one day prior to the
payment date, wire transfer instructions, and on or
before the payment date specified in such notice, the
certificate or certificates representing such shares,
properly endorsed for transfer, against payment of
the purchase price therefor by the Offeree(s) in
immediately available funds.
(vi) If all the shares of Restricted Stock
proposed to be transferred are not purchased by the
Offerees and the Company in accordance with this
Paragraph 3(b), the Selling Holder shall not be
required to sell any of the shares of Restricted
Stock proposed to be transferred to the Offerees or
to the Company, and during the 90-day period
commencing on the expiration of the rights and
options provided for in this paragraph, may sell all
(but not less than all) of such shares to the
transferee named in the Notice for a consideration
equal to or greater
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than the consideration specified in the Notice
subject to the terms and conditions of Paragraph
3(b)(vii) below.
(vii) Each Stockholder, at such Stockholder's
option, may elect either to exercise the right and
option to purchase shares of Restricted Stock
proposed to be transferred under Paragraph 3(b)(iv)
or to participate in the sale to the prospective
purchaser pursuant to this Paragraph 3(b)(vii). The
Selling Holder will use best efforts to arrange for
the sale to the prospective purchaser by each such
Stockholder of the number of shares of Common Stock
which bears the same proportion to the total number
of shares of Common Stock owned by such Stockholder
as the number of shares of Restricted Stock being
sold by the Selling Holder bears to the total number
of shares of Restricted Stock owned by the Selling
Holder and such other Stockholder, at the purchase
price per share and on the terms and conditions
specified in the Notice. If the prospective purchaser
will not purchase all the shares of Restricted Stock
which the Selling Holder wishes to sell together with
the number of shares of Common Stock that
Stockholders wish to sell pursuant to this Paragraph
3(b)(vii), the number of shares which the Selling
Holder and such Stockholders shall be entitled to
sell to such prospective purchaser shall be a number
of shares equal to the number of shares which the
prospective purchaser desires to purchase times a
fraction, the numerator of which is the number of
shares of Common Stock owned by the Selling Holder or
each Stockholder, as applicable and the denominator
of which is the aggregate number of shares of Common
Stock held by the Selling Holder and all such
Stockholders. A Stockholder may exercise its right
under this paragraph by written notice given within
15 Business Days after receipt of the Notice.
(c) PURCHASERS OR TRANSFEREES OF RESTRICTED STOCK.
Except as otherwise specifically provided herein, any
Permitted Transferee or other Person who shall acquire (either
voluntarily or involuntarily, by operation of law or
otherwise) any shares of Restricted Stock shall be bound by
all the terms and conditions of this Agreement to the same
extent as the parties hereto and, prior to registration of the
transfer of any such securities on the books of the Company,
any purchaser or other transferee shall execute an agreement
with the parties hereto agreeing to be bound hereby.
4. PURCHASE OPTION UPON TERMINATION OF EMPLOYMENT.
(a) PURCHASER'S RIGHT TO PURCHASE. In the event the
employment of any Founder (as defined in the Purchase
Agreement) is terminated by the Company or any of its
Subsidiaries (for any reason or for no reason) or by such
Founder including, without limitation, by reason of voluntary
resignation, the death or disability of such Founder, such
Founder (the "Offering Stockholder") and/or the Company shall
immediately give written notice (the "Notice of Termination")
to the Stockholders of such termination. The occurrence of an
event requiring delivery of a Notice of Termination (whether
or not
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delivered) shall constitute an offer by the Offering
Stockholder to sell all shares of Common Stock of the Company
then owned by such Offering Stockholder, together with all
shares of such Offering Shareholder previously transferred to
a Permitted Transferee (collectively, the "Termination
Shares") to the Other Stockholders (collectively, the "Offeree
Stockholders" and individually, an "Offeree Stockholder"). In
such event the Offeree Stockholders will have the right and
option, but shall not be required, to purchase for cash all,
but not less than all, of the Termination Shares of the
Offering Stockholder. The option to purchase may be exercised
by Offeree Stockholders at any time through and including the
30th day after the Purchase Price Determination Date (as
hereafter defined) or such option will expire. The Offeree
Stockholders shall, at their option, be authorized to acquire
the Termination Shares of the Offering Stockholder pro rata
according to their respective holdings of shares of Common
Stock.
(b) FOUNDERS AND COMPANY'S RIGHT TO PURCHASE.
Notwithstanding subsection (a) above to the contrary, the
remaining Founders who continue to own shares of Common Stock
at the time of a delivery of a Notice of Termination shall
have the right, prior to the right specified in subsection (a)
above, to purchase, on a pro rata basis, the Termination
Shares of the Offering Stockholder. Such option must be
exercised within ten (10) days of the date of the Notice or
Termination of such option shall expire. In the event that the
Founders and/or the Offeree Stockholders elect not to purchase
all of the Termination Shares from the Offering Stockholder,
the Company shall have the right, but not the obligation,
exercisable for a period of fifteen (15) days following the
expiration of the Offeree Stockholders' option as specified in
subsection (a) above, to purchase the Termination Shares.
(c) PURCHASE PRICE. The total purchase price to be
paid for the Offering Stockholder's Termination Shares
pursuant to this Section (the "Purchase Price") will be an
amount equal to the Fair Market Value Per Share multiplied by
the number of such Termination Shares to be sold. Fair Market
Value Per Share means the fair market value of the Common
Stock as determined by the Company based on a valuation of the
Company and its Subsidiaries as a going concern and not for
purposes of liquidation on the Valuation Date, and without
taking into account any discount for minority interest or lack
of liquidity of the shares of Common Stock being valued. The
Valuation Date shall be selected by the Offering Stockholder
by written notice delivered to the Company and Purchasers
within ten (10) days of the date of the Notice of Termination
and shall be either (x) the date of the Notice of Termination,
(y) one of the dates which is three (3) months, six (6) months
and nine (9) months following the Notice of Termination or (z)
the date which is one (1) year following the Notice of
Termination. Failure of the Offering Stockholder to timely
exercise this option shall result in the Valuation Date being
the date of the Notice of Termination. Upon such determin-
ation, the Company shall promptly give notice thereof to the
Offeree Stockholders and the Offering Stockholder, setting
forth in reasonable detail the calculation of such fair market
value and the method and basis of determination thereof (the
"Company Determination"). If
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the Offering Stockholder shall disagree with the Company
Determination and shall, by notice to the Company given within
ten (10) days after the delivery of the Company's notice of
the Company Determination, elect to dispute the Company
Determination, the Company shall, within five (5) days after
such notice, engage an investment bank or other qualified
appraisal firm selected by the Company and the Offering
Stockholder (the "Appraiser") to make an independent
determination of the Fair Market Value of the Common Stock
within fifteen (15) days after being engaged (the "Appraiser
Determination"). The Appraiser Determination shall be final
and binding on the Company and the Offering Stockholder. The
cost of the Appraiser Determination shall be borne by the
Company. In the event the Offering Stockholder and the Company
can not agree upon the selection of the Appraiser, each of
them shall within five (5) days of their failure to so agree
select an Appraiser, and the two (2) Appraisers as so selected
shall, within ten (10) days of their selection, select a third
Appraiser who shall be the sole Appraiser engaged to make the
Appraiser Determination. If the two (2) Appraisers fail, in
good faith, to so select a third Appraiser, each shall make an
Appraiser Determination, and the average of such Appraiser
Determinations shall be the Appraiser Determination hereunder.
The Purchase Price Determination Date means the day
immediately following the Company Determination or the final
Appraiser Determination, as applicable.
(d) RIGHT OF CERTAIN SHAREHOLDERS. In the event the
Offering Stockholder is Kerry Rogers and either the Offeree
Stockholders, the Founders or the Company, as applicable,
acquire the Termination Shares of Kerry Rogers, then at the
closing described in subsection (e) below, the purchaser
acquiring such Termination Shares must offer to acquire all of
the shares of Common Stock then owned by Bruce Voss, Neal
Matthews, Richard W. Weese and Eckley M. Keach (collectively
the "Other Stockholders"), whom collectively, as of the date
hereof, own an aggregate of 145 shares of Common Stock. Such
purchase shall be on the same terms and at the same Purchase
Price (pro rata per share) as applicable to the Termination
Shares of Kerry Rogers. Each Other Stockholder may, in its
discretion, decline to sell his shares of Common Stock at such
closing, in which case the purchaser of the Termination Shares
of Kerry Rogers shall have no obligation to acquire such
shares (and from and after such date no Offeree Stockholder,
Founder or the Company shall have any obligation to acquire
such shares at any future date).
(e) CLOSING. The closing of the purchase and sale of
Termination Shares provided for in this Agreement will be held
at the offices of the Company or such other place as may be
mutually agreed to by all of the parties to such sale, on the
fortieth (40th) day following the Valuation Date. At the
Closing, the selling party will duly execute and deliver the
certificates evidencing such Termination Shares to the Offeree
Stockholder(s), Founders or the Company, as applicable, in
proper form for transfer, free and clear of all Liens, adverse
claims and encumbrances, and the purchasing party shall
deliver the Purchase Price to the applicable selling party.
Until such closing and payment of such
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Purchase Price, the Offering Stockholder shall be a
Stockholder of the Company for all purposes (including,
without limitation, receipt of dividends and election of
Directors).
5. PREEMPTIVE RIGHTS.
(a) PREEMPTIVE RIGHT GRANTED. If the Company proposes
to issue or sell any New Securities (as defined below) prior
to the consummation of a Qualified Public Offering (as
hereafter defined), each Stockholder shall have a preemptive
right to purchase a pro rata share of such New Securities
proposed to be issued or sold. For purposes of this Paragraph
3(a), a Stockholder's pro rata share is the ratio of the
number of shares of Common Stock held by such Stockholder
immediately prior to the issuance or sale of New Securities to
the total number of shares of Common Stock outstanding
immediately prior to the issuance or sale of New Securities.
If any Stockholder fails to exercise its preemptive right to
purchase its full pro rata share of New Securities under this
Paragraph 5(a), each other Stockholder who exercises its
preemptive right to purchase its full pro rata share of New
Securities shall also have a right of over-allotment to
purchase such remaining New Securities, ratably according to
the shares of Common Stock held by all such electing
Stockholders or in such other proportions as they may agree
within 10 days after the date such non-purchasing Stockholder
fails to exercise its preemptive right hereunder to purchase
its full pro rata share of New Securities.
(b) NEW SECURITIES. "New Securities" shall mean any
Equity Securities of the Company whether now authorized or
not, provided that the term "New Securities" does not include
(i) shares of Common Stock reserved for issuance to employees,
consultants, officers or directors of the Company who are not
Common Stockholders on the date of this Agreement pursuant to
any Approved Plan, (ii) securities issued in a Qualified
Public Offering, (iii) securities issued in connection with
any stock split, stock dividend or recapitalization of the
Company, and (iv) any right, option, warrant to acquire, or
any security convertible into, the securities excluded from
the definition of New Securities pursuant to subsections (i)
through (iv) above. Qualified Public Offering means any
underwritten offering by the Company of shares of Common Stock
to the public pursuant to an effective registration statement
under the Securities Act, then in effect, or any comparable
statement under any similar federal statute then in force, in
which (i) the aggregate cash proceeds to be received by the
Company and selling shareholders from such offering (without
deducting underwriting discounts, expenses and commissions)
are at least $17,500,000 and (ii) the price per share paid by
Persons subscribing for such shares in the offering is at
least $10.00.
(c) NOTICE; EXERCISE OF PREEMPTIVE RIGHTS. In the
event the Company proposes to issue or sell New Securities, it
shall give each Stockholder written notice of its intention,
describing the New Securities, their price and the terms upon
which the Company proposes to issue or sell the same. Each
Stockholder shall have 30 days after such notice is mailed or
delivered to agree to purchase such Stockholder's pro rata
share
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of such New Securities for the price and upon the terms
specified in the notice by giving written notice to the
Company and stating therein the quantity of New Securities to
be purchased.
(d) SALE OF NEW SECURITIES. In the event the
Stockholders fail to exercise fully all preemptive rights
within said 30-day period and after the expiration of the
10-day period for the exercise of the over-allotment
provisions of Paragraph 5(a), the Company shall have 120 days
thereafter to sell the remaining New Securities that the
Stockholders do not elect to purchase upon exercise of the
preemptive rights pursuant to this part 5, at a price and upon
terms no more favorable to the purchasers thereof than
specified in the Company's notice to Stockholders pursuant to
Paragraph 5(c). In the event the Company has not sold all such
remaining New Securities within such 120-day period, the
Company shall not thereafter issue or sell any New Securities,
without first again offering such securities to the
Stockholders in the manner provided in Paragraph 5(c) above.
(e) ASSIGNMENT OF PREEMPTIVE RIGHTS. The preemptive
rights set forth in this part 5 may not be assigned or
transferred, except that such rights are assignable (i) by
each Stockholder to any Affiliate of such Stockholder, (ii) by
a Stockholder to any Person to which Debentures or Closing
Shares are transferred by such Stockholder and (iii) between
and among any of the Stockholders.
6. "MARKET STAND-OFF" AGREEMENT.
(a) CURRENT PURCHASERS. Each Stockholder hereby
agrees that, during the one hundred eighty (180) day period
(or such lesser period as shall be specified by the
underwriter of Common Stock or other securities of the
Company) following the effective date of the registration
statement of the Company filed under the Securities Act
covering the initial offering of Common Stock of the Company
for its own account to the public, it shall not, to the extent
requested by the Company and such underwriter, directly or
indirectly sell, offer to sell, contract to sell (including,
without limitation, any short sale), grant any option to
purchase or otherwise transfer or dispose of (other than to
donees who agree to be similarly bound) any securities of the
company held by it at any time during such period except
Common Stock included in such registration.
(b) FUTURE PURCHASERS. Unless waived by unanimous
vote of the Board of Directors, the Company shall require each
employee or other purchaser, as a condition to purchasing
capital stock of the Company or rights to acquire capital
stock of the Company, to execute a market stand-off agreement
in the form set forth in subparagraph (a). This covenant shall
terminate and be of no further force and effect upon
termination of the effectiveness of subparagraph (a).
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STOCKHOLDERS AGREEMENT - PAGE 11
(INFINITY/ORIX)
<PAGE> 76
7. GENERAL PROVISIONS.
(a) LEGENDS ON CERTIFICATES. During the term of this
Agreement, each certificate representing shares of capital
stock of the Company held by the Purchasers or the Common
Stockholders will bear a legend in substantially the following
form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND THE SALE,
ASSIGNMENT, TRANSFER, PLEDGE OR OTHER DISPOSITION AND VOTING
THEREOF ARE SUBJECT TO CERTAIN RESTRICTIONS AND AGREEMENTS
CONTAINED IN A STOCKHOLDERS AGREEMENT DATED AS OF JUNE 11,
1998 AMONG THE COMPANY AND CERTAIN STOCKHOLDERS. A COPY OF THE
STOCKHOLDERS AGREEMENT AND ALL APPLICABLE AMENDMENTS THERETO
WILL BE FURNISHED BY THE COMPANY TO THE RECORD HOLDER OF THIS
CERTIFICATE WITHOUT CHARGE UPON WRITTEN REQUEST TO THE
COMPANY AT ITS PRINCIPAL PLACE OF BUSINESS OR REGISTERED
OFFICE."
(b) TERMINATION; AMENDMENT.
(i) This Agreement shall terminate upon the
earliest to occur of (a) a Qualified Public Offering,
or (b) at such time as the written consent or
agreement of the holders of at least 80% of the
shares of Common Stock held by the Purchasers and the
holders of a majority of the shares of Restricted
Stock is procured.
(ii) This Agreement may be amended by the
written agreement of the Company, the holders of at
least 80% of the shares of Common Stock held by the
Purchasers and the holders of a majority of the
shares of Restricted Stock.
(c) NOTICES. All notices, requests, consents, and
other communications under this Agreement shall be in writing
and shall be deemed effectively given when delivered
personally or by facsimile transmission or by overnight
delivery service or 72 hours after being mailed by first class
certified or registered mail, return recent requested, postage
prepaid:
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STOCKHOLDERS AGREEMENT - PAGE 12
(INFINITY/ORIX)
<PAGE> 77
If to the Company:
Orix Global Communications, Inc.
1771 East Flamingo Road, Ste. B200
Las Vegas, NV 89119
Attn: Steve Loglisci, President
Fax: 702.792.3313
If to a Purchaser to it at the address set
forth on Schedule A hereto.
with a copy to:
Arter & Hadden LLP
1717 Main Street, Suite 4100
Dallas, Texas 75201
Attn: Victor B. Zanetti, Esq.
Fax: (214)741-7139
Or at such other address or addresses as may have been furnished in writing.
(d) GOVERNING LAW. THE CONSTRUCTION, VALIDITY AND
INTERPRETATION OF THIS AGREEMENT WILL BE GOVERNED BY THE
INTERNAL LAWS OF THE STATE OF NEVADA WITHOUT GIVING EFFECT TO
ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE
(WHETHER OF THE STATE OF NEVADA OR ANY OTHER JURISDICTION)
THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY
JURISDICTION OTHER THAN THE STATE OF NEVADA.
(e) COUNTERPARTS. This Agreement may be executed by
facsimile and in one or more counterparts, each of which
shall be deemed to be an original, but all of which shall be
one and the same document. The provisions of this Agreement
shall apply to any shares or other securities resulting from
any stock split or reverse split, stock dividend,
reclassification, subdivision, consolidation or
reorganization of any shares or other equity securities of
the Company and to any shares or other securities of the
Company or of any successor company which may be received by
any of the parties hereto by virtue of their respective
ownership of any shares of Common Stock of the Company.
(f) HEADINGS. The headings of this Agreement are
for convenience only and do not constitute a part of this
Agreement.
(g) SEVERABILITY. The invalidity or
unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other
provision of this Agreement.
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STOCKHOLDERS AGREEMENT - PAGE 13
(INFINITY/ORIX)
<PAGE> 78
(h) BINDING EFFECT. Except as provided herein, the
rights and obligations of each Purchaser under this Agreement
may be assigned by such Purchaser to any Person to whom
Debentures or the Closing Shares are transferred by such
Purchaser, and such transferee shall be deemed a "Purchaser"
for purposes of this Agreement, provided that the transferee
provides written notice of such assignment to the Company.
(i) ENTIRE AGREEMENT. This Agreement embodies the
entire agreement of the parties with respect to the subject
matter hereof and supersedes all prior agreements relating to
such subject matter.
[SIGNATURE PAGES FOLLOWS]
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STOCKHOLDERS AGREEMENT - PAGE 14
(INFINITY/ORIX)
<PAGE> 79
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
as of the date first written above.
COMPANY:
ORIX GLOBAL COMMUNICATIONS, INC.
By: /s/ KERRY ROGERS
--------------------------------
Name: Kerry Rogers
------------------------------
Title: President
-----------------------------
PURCHASERS:
INFINITY INVESTORS LIMITED
By: /s/ JAMES A. LOUGHRAN
--------------------------------
Name: James A. Loughran
------------------------------
Title: Director
-----------------------------
<PAGE> 80
COMMON STOCKHOLDERS:
/s/ KERRY ROGERS
----------------------------------------
Kerry Rogers
/s/ BEKLEY M.[ILLEGIBLE]
----------------------------------------
Beckley M. [Illegible]
/s/ ROBERT MICHEL
----------------------------------------
Robert Michel
/s/ JOHN HIGGINS
----------------------------------------
John Higgins
/s/ BRUCE VOSS
----------------------------------------
Bruce Voss
/s/ NEAL MATTHEWS
----------------------------------------
Neal Matthews
/s/ RICHARD W. WEESE
----------------------------------------
Richard W. Weese
<PAGE> 81
SECURITY AGREEMENT
SECURITY AGREEMENT dated June 11, 1998 between ORIX GLOBAL
COMMUNICATIONS, INC. ("Borrower"), a Nevada corporation, and HW PARTNERS, L.P.
as agent for and representative (in such capacity, "Pledgee") of INFINITY
INVESTORS LIMITED ("Lender").
W I T N E S S E T H:
WHEREAS, pursuant to that certain Securities Purchase Agreement dated
as of the date hereof between Borrower and Lender (as the same may from time to
time be amended, modified or supplemented, the "Purchase Agreement"), Borrower
has issued to Lender its Debentures dated the date hereof (the "Notes") in the
aggregate stated principal amount of $6,000,000 payable by Borrower to the order
of Lender; and
WHEREAS, Lender is willing to purchase the Notes but only upon the
condition, among others, that Borrower shall have executed and delivered to
Pledgee this Security Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained and for other good and valuable consideration, the
receipt of which is hereby acknowledged, the parties hereto agree as follows:
1. DEFINED TERMS. Unless otherwise defined herein, terms defined in the
Purchase Agreement are used herein as therein defined, and the following terms
shall have the following meanings (such meanings being equally applicable to
both the singular and plural forms of the terms defined):
"ACCOUNT DEBTOR" shall mean any "account debtor," as such term is
defined in Section 9.105 of the UCC.
"ACCOUNTS" shall mean any "account," as such term is defined in Section
9.106 of the UCC, now owned or hereafter acquired by Borrower and, in any event,
shall include, without limitation, all accounts receivable, book debts and other
forms of obligations (other than forms of obligations evidenced by Chattel
Paper, Documents or Instruments) now owned or hereafter received or acquired by
or belonging or owing to Borrower (including, without limitation, under any
trade names, styles or divisions thereof) whether arising out of goods sold or
services rendered by Borrower or from any other transaction, whether or not the
same involves the sale of goods or services by Borrower (including, without
limitation, any such obligation which might be characterized as an account or
contract right under the UCC) and all of Borrower's rights in, to and under all
purchase orders or receipts now owned or hereafter acquired by it for goods or
services, and all of Borrower's rights to any goods represented by any of the
foregoing (including, without limitation, unpaid seller's rights of rescission,
replevin, reclamation and stoppage in transit and
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SECURITY AGREEMENT - PAGE 1
(HW PARTNERS/ORIX GLOBAL)
<PAGE> 82
rights to returned, reclaimed or repossessed goods), and all moneys due or to
become due to Borrower under all contracts for the sale of goods or the
performance of services or both by Borrower (whether or not yet earned by
performance on the part of Borrower or in connection with any other
transaction), now in existence or hereafter occurring, including, without
limitation, the right to receive the proceeds of said purchase orders and
contracts, and all collateral security and guarantees of any kind given by any
Person with respect to any of the foregoing.
"CHATTEL PAPER" shall mean any "chattel paper," as such term is defined
in Section 9.105 of the UCC, now owned or hereafter acquired by Borrower.
"COLLATERAL" shall have the meaning assigned to such term in Section 2
of this Security Agreement.
"CONTRACTS" shall mean all contracts, undertakings, or other agreements
(other than rights evidenced by Chattel Paper, Documents or Instruments) in or
under which Borrower may now or hereafter have any right, title or interest,
including, without limitation, with respect to an Account, any agreement
relating to the terms of payment or the terms of performance thereof.
"DOCUMENTS" shall mean any "documents" as such term is defined in
Section 9.105 of the UCC, now owned or hereafter acquired by Borrower.
"EQUIPMENT" shall mean any "equipment" as such term is defined in
Section 9.109 of the UCC, now owned or hereafter acquired by Borrower and, in
any event, shall include, without limitation, all machinery, equipment,
furnishings, fixtures, vehicles and computers and other electronic
data-processing and other office equipment now owned or hereafter acquired by
Borrower and any and all additions, substitutions and replacements of any of the
foregoing, wherever located, together with all attachments, components, parts,
equipment and accessories installed thereon or affixed thereto.
"GENERAL INTANGIBLES" shall mean any "general intangibles," as such
term is defined in Section 9.106 of the UCC, now owned or hereafter acquired by
Borrower and, in any event, shall include, without limitation, all right, title
and interest which Borrower may now or hereafter have in or under any Contract,
all customer lists, Trademarks, Patents, rights in intellectual property,
Licenses, permits, copyrights, trade secrets, proprietary or confidential
information, inventions (whether patented or patentable or not) and technical
information, procedures, designs, knowledge, know-how, software, data bases,
data, skill, expertise, experience, processes, models, drawings, materials and
records now owned or hereafter acquired by Borrower, goodwill and rights of
indemnification.
"HEREBY," "HEREIN," "HEREOF," "HEREUNDER" and words of similar import
refer to this Security Agreement as a whole (including, without limitation, any
schedules hereto) and not merely to the specific section, paragraph or clause in
which the respective word appears.
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SECURITY AGREEMENT - PAGE 2
(HW PARTNERS/ORIX GLOBAL)
<PAGE> 83
"INSTRUMENTS" shall mean any "instrument," as such term is defined in
Section 9.105 of the UCC, now owned or hereafter acquired by Borrower, other
than instruments that constitute, or are a part of a group of writings that
constitute, Chattel Paper.
"INVENTORY" shall mean any "inventory," as such term is defined in
Section 9.109 of the UCC, now owned or hereafter acquired by Borrower and, in
any event, shall include, without limitation, all inventory, merchandise, goods
and other personal property now owned or hereafter acquired by Borrower which
are held for sale or lease or are furnished or are to be furnished under a
contract of service or which constitute raw materials, work in process or
materials used or consumed or to be used or consumed in Borrower's business, or
the processing, packaging, delivery or shipping of the same, and all finished
goods.
"LICENSE" shall mean any Patent License, Trademark License or other
license as to which Lender has been granted a security interest hereunder.
"PATENT LICENSE" shall mean all of the following now owned or hereafter
acquired by Borrower: any written agreement granting any right to practice any
invention on which a Patent is in existence.
"PATENTS" shall mean all of the following now or hereafter owned by
Borrower: (i) all letters patent of the United States or any other country, all
registrations and recordings thereof, and all applications for letters patent of
the United States or any other country, including, without limitation,
registrations, recordings and applications in the United States Patent and
Trademark Office or in any similar office or agency of the United States, any
State thereof or any other country, and (ii) all reissues, continuations,
continuations-in-part or extensions thereof.
"PROCEEDS" shall mean "proceeds," as such term is defined in Section
9.306 of the UCC and, in any event, shall include, without limitation, (i) any
and all proceeds of any insurance, indemnity, warranty or guaranty payable to
Borrower from time to time with respect to any of the Collateral, (ii) any and
all payments (in any form whatsoever) made or due and payable to Borrower from
time to time in connection with any requisition, confiscation, condemnation,
seizure or forfeiture of all or any part of the Collateral by any governmental
body, authority, bureau or agency (or any person acting under color of
governmental authority), (iii) any claim of Borrower against third parties (A)
for past, present or future infringement of any Patent or Patent License or (B)
for past, present or future infringement or dilution of any Trademark or
Trademark License or for injury to the goodwill associated with any Trademark,
Trademark registration or Trademark licensed under any Trademark License and
(iv) any and all other amounts from time to time paid or payable under or in
connection with any of the Collateral.
"SECURED OBLIGATIONS" shall mean (i) all indebtedness, obligations and
liabilities of Borrower to any Lender of any kind or character, now existing or
hereafter arising, whether direct, indirect, related, unrelated, fixed,
contingent, liquidated, unliquidated, joint, several or joint and several, and
regardless of whether such indebtedness, obligations and liabilities may, prior
to their acquisition by Lender, be or have been payable to or in favor of a
third party and subsequently
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SECURITY AGREEMENT - PAGE 3
(HW PARTNERS/ORIX GLOBAL)
<PAGE> 84
acquired by Lender (it being contemplated that Lender may make such acquisitions
from third parties), including without limitation all indebtedness, obligations
and liabilities of Borrower to Lender now existing or hereafter arising by note,
draft, acceptance, guaranty, endorsement, letter of credit, assignment,
purchase, overdraft, discount, indemnity agreement or otherwise, (ii) all
accrued but unpaid interest on any of the indebtedness described in (i) above,
(iii) all obligations of Borrower to Lender under any documents evidencing,
securing, governing and/or pertaining to all or any part of the indebtedness
described in (i) and (ii) above, including, without limitation, the Purchase
Agreement and the Notes, (iv) all costs and expenses incurred by Lender in
connection with the collection and administration of all or any part of the
indebtedness and obligations described in (i), (ii) and (iii) above or the
protection or preservation of, or realization upon, the collateral securing all
or any part of such indebtedness and obligations, including without limitation
all reasonable attorneys' fees, and (v) all renewals, extensions, modifications
and rearrangements of the indebtedness and obligations described in (i), (ii),
(iii) and (iv) above.
"SECURITY AGREEMENT" shall mean this Security Agreement, as the same
may from time to time be amended, modified or supplemented and shall refer to
this Security Agreement as in effect of the date such reference becomes
operative.
"TRADEMARK LICENSE" shall mean all of the following now owned or
hereafter acquired by Borrower: any written agreement granting any right to use
any Trademark or Trademark registration.
"TRADEMARKS" shall mean all of the following now owned or hereafter
acquired by Borrower: (i) all trademarks, trade names, corporate names, business
names, fictitious business names, trade styles, service marks, logos, other
source or business identifier, prints and labels on which any of the foregoing
have appeared or appear, designs and general intangibles of like nature, now
existing or hereafter adopted or acquired, all registrations and recordings
thereof, and all applications in connection therewith, including, without
limitation, registrations, recordings and applications in the United States
Patent and Trademark Office or in any similar office or agency of the United
States, any State thereof or any other country or any political subdivision
thereof, and (ii) all reissues, extensions or renewals thereof.
"UCC" shall mean the Uniform Commercial Code as the same may, from time
to time, be in effect in the State of Nevada; provided, however, in the event
that, by reason of mandatory provisions of law, any or all of the attachment,
perfection or priority of Pledgee's and Lender's security interest in any
Collateral is governed by the Uniform Commercial Code as in effect in a
jurisdiction other than the State of Nevada, the term "UCC" shall mean the
Uniform Commercial Code as in effect in such other jurisdiction for purposes of
the provisions hereof relating to such attachment, perfection or priority and
for purposes of definitions related to such provisions.
2. GRANT OF SECURITY INTEREST.
(a) As collateral security for the prompt and complete payment and
performance when due (whether at stated maturity, by acceleration or
otherwise) of all the
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SECURITY AGREEMENT - PAGE 4
(HW PARTNERS/ORIX GLOBAL)
<PAGE> 85
Secured Obligations and to induce Lender to enter into the Purchase
Agreement and to purchase the Notes in accordance with the terms thereof,
Borrower hereby assigns, conveys, mortgages, pledges, hypothecates and
transfers to Pledgee, for the benefit of Lender, and to Lender, and hereby
grants to Pledgee and Lender a security interest in, all of Borrower's
right, title and interest in, to and under the following (all of which
being hereinafter collectively called the "Collateral"):
(i) all Accounts of Borrower;
(ii) all Chattel Paper of Borrower;
(iii) all Contracts of Borrower;
(iv) all Documents of Borrower;
(v) all Equipment of Borrower;
(vi) all General Intangibles of Borrower;
(vii) all Instruments of Borrower,
(viii) all Inventory of Borrower;
(ix) all right, title and interest of Borrower in and any
deposit accounts of Borrower and all amounts deposited therein;
(x) all other goods and personal property of Borrower whether
tangible or intangible or whether now owned or hereafter acquired by
Borrower and wherever located; and
(xi) to the extent not otherwise included, all Proceeds of each
of the foregoing and all accessions to, substitutions and replacements
for, and rents, profits and product of each of the foregoing.
(b) In addition, as collateral security for the prompt and complete
payment when due of the Secured Obligations and in order to induce Lender
as aforesaid, Pledgee, for the benefit of Lender, is hereby granted a lien
and security interest in all property of Borrower held by Pledgee or any
Lender, including, without limitation, all property of every description,
now or hereafter in the possession or custody of or in transit to Pledgee
or any Lender for any purpose, including safekeeping, collection or pledge,
for the account of Borrower, or as to which Borrower may have any right or
power.
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SECURITY AGREEMENT - PAGE 5
(HW PARTNERS/ORIX GLOBAL)
<PAGE> 86
3. RIGHTS OF LENDER; LIMITATIONS ON LENDER'S OBLIGATIONS.
(a) It is expressly agreed by Borrower that, anything herein to the
contrary notwithstanding, Borrower shall remain liable under each of its
Contracts and each of its Licenses to observe and perform all the
conditions and obligations to be observed and performed by it thereunder
and Borrower shall perform all of its duties and obligations thereunder,
all in accordance with and pursuant to the terms and provisions of each
such Contract or License. Lender shall not have any obligation or liability
under any Contract or License by reason of or arising out of this Security
Agreement or the granting to Pledgee of a security interest therein or the
receipt by Pledgee or any Lender of any payment relating to any Contract or
License pursuant hereto, nor shall Pledgee or any Lender be required or
obligated in any manner to perform or fulfill any of the obligations of
Borrower under or pursuant to any Contract or License, or to make any
payment, or to make any inquiry as to the nature or the sufficiency of any
payment received by it or the sufficiency of any performance by any party
under any Contract or License, or to present or file any claim, or to take
any action to collect or enforce any performance or the payment of any
amounts which may have been assigned to it or to which it may be entitled
at any time or times.
(b) Pledgee authorizes Borrower to collect its Accounts and
Instruments provided that such collection is performed in a prudent and
businesslike manner, and Pledgee may, upon the occurrence and during the
continuation of any Event of Default and without notice, limit or terminate
said authority at any time. Such Proceeds shall continue to be collateral
security for all of the Secured Obligations and shall not constitute
payment thereof until applied as hereinafter provided. At any time, Lender
shall be entitled to apply all or any part of the funds on deposit in said
account to the principal of or interest on or both in respect of any of the
Secured Obligations in accordance with the provisions of Section 8(d)
hereof and any part of such funds which Lender elect not so to apply and
deemed not required as collateral security for the Secured Obligations
shall be paid over from time to time by Lender to Borrower. If an Event of
Default has occurred and is continuing, at the request of Pledgee, Borrower
shall deliver to Pledgee all original and other documents evidencing, and
relating to, the sale and delivery of such Inventory or the performance of
labor or service which created such Accounts, including, without
limitation, all original orders, invoices and shipping receipts; and, prior
to the occurrence of an Event of Default, Borrower shall deliver
photocopies thereof to Pledgee at its request.
(c) Pledgee may at any time, upon the occurrence and during the
continuance of any Event of Default (whether or not waived), after first
notifying Borrower of its intention to do so, notify Account Debtors of
Borrower, parties to the Contracts of Borrower, obligors of Instruments of
Borrower and obligors in respect of Chattel Paper of Borrower that the
Accounts and the right, title and interest of Borrower in and under such
Contracts, such Instruments and such Chattel Paper have been assigned to
Pledgee and Lender and that payments shall be made directly to Pledgee.
Upon the request of Pledgee, Borrower will so notify such Account Debtors,
parties to such Contracts, obligors of such Instruments and
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SECURITY AGREEMENT - PAGE 6
(HW PARTNERS/ORIX GLOBAL)
<PAGE> 87
obligors in respect of such Chattel Paper. Pledgee may at any time in its
own name or in the name of others communicate with such Account Debtors,
parties to such Contracts, obligors of such Instruments and obligors in
respect of such Chattel Paper to verify with such Persons to Pledgee's
satisfaction the existence, amount and terms of any such Accounts,
Contracts, Instruments or Chattel Paper.
(d) Upon reasonable prior notice to Borrower (unless an Event of
Default has occurred and is continuing, in which case no notice is
necessary), Pledgee shall have the right to make test verifications of the
Accounts, Instruments and Chattel Papers and physical verifications of the
Inventory in any manner and through any medium that it considers advisable,
and Borrower agrees to furnish all such assistance and information as
Pledgee may require in connection therewith. Borrower at its expense will
cause certified independent public accountants satisfactory to Pledgee to
prepare and deliver to Pledgee at any time and from time to time promptly
upon Pledgee's request, the following reports: (i) a reconciliation of all
its Accounts, Instruments and Chattel Paper, (ii) an aging of all its
Accounts, Instruments and Chattel Paper, (iii) trial balances, and (iv) a
test verification of such Accounts, Instruments and Chattel Paper as Lender
may request. Borrower at its expense will cause certified independent
public accountants satisfactory to Pledgee to prepare and deliver to
Pledgee the results of the annual physical verification of its Inventory
made or observed by such accountants.
4. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants the Pledgee and each Lender that:
(a) Except for the security interest granted to Pledgee pursuant to
this Security Agreement, Borrower is the sole owner of each item of the
Collateral in which it purports to grant a security interest hereunder,
having good and marketable title thereto, free and clear of any and all
liens, security interests or other encumbrances. No amount payable under or
in connection with any of its Accounts or Contracts are evidenced by
Instruments which have not been delivered to Pledgee.
(b) No effective security agreement, financing statement, equivalent
security or lien instrument or continuation agreement covering all or any
part of the Collateral is on file or of record in any public office, except
such as may have been filed by Borrower in favor of Pledgee pursuant to
this Security Agreement
(c) Appropriate financing statements having been filed in the
jurisdictions listed on Schedule I hereto, this Security Agreement is
effective to create a valid and continuing first priority lien on and first
priority perfected security interest in the Collateral (other than
fixtures) with respect to which a security interest may be perfected by
filing pursuant to the UCC in favor of Pledgee, prior to all other security
interests (other than the security interests granted to Pledgee under this
Security Agreement), and is enforceable as such as against creditors of and
purchasers from Borrower and as against any purchaser of real property
where any of the Equipment is located and any present or future creditor
obtaining
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SECURITY AGREEMENT - PAGE 7
(HW PARTNERS/ORIX GLOBAL)
<PAGE> 88
a Lien on such real property. All action necessary or desirable to protect
and perfect such security interest in each item of the Collateral has been
duly taken.
(d) The address of Borrower's principal place of business and the
place where its records concerning the Collateral are kept is set forth on
Schedule II hereto, and Borrower will not change such principal place of
business or remove such records unless it has taken such action as is
necessary to cause the security interest of Pledgee and Lender in the
Collateral to continue to be perfected. Borrower will not change its
principal place of business or the place where its records concerning the
Collateral is kept without giving 40 days prior written notice thereof to
Pledgee.
(e) The amount represented by Borrower to Pledgee from time to time as
owing by each Account Debtor or by all Account Debtors in respect of the
Accounts, Instruments and Chattel Paper of Borrower or will at such time be
the correct amount actually and unconditionally owing by such Account
Debtors thereunder.
5. COVENANTS. Borrower covenants and agrees with Pledgee and Lender
that from and after the date of this Security Agreement and until the Secured
Obligations are fully satisfied:
(a) FURTHER DOCUMENTATION; PLEDGE OF INSTRUMENTS. At any time and from
time to time, upon the written request of Pledgee, and at the sole expense
of Borrower, Borrower will promptly and duly execute and deliver any and
all such further instruments and documents and take such further action as
Pledgee may reasonably deem necessary to obtain the full benefits of this
Security Agreement and of the rights and powers herein granted, including,
without limitation, using its best efforts to secure all consents and
approvals necessary or appropriate for the assignment to Pledgee and Lender
of any License or Contract held by Borrower or in which Borrower has any
rights not heretofore assigned, the filing of any financing or continuation
statements under the UCC with respect to the liens and security interests
granted hereby, transferring Collateral to Pledgee's possession (if a
security interest in such Collateral can be perfected by possession),
placing the interest of Pledgee and Lender as lienholder on the certificate
of title or any vehicle and using its best efforts to obtain waivers of
liens from landlords and mortgagees. Borrower also hereby authorizes
Pledgee to file any such financing or continuation statement without the
signature of Borrower to the extent permitted by applicable law. A
photocopy of this Security Agreement may be filed as a financing statement.
If any amount payable under or in connection with any of the Collateral
shall be or become evidenced by any Instrument, such Instrument shall be
immediately pledged to Pledgee hereunder, and shall be duly endorsed in a
manner satisfactory to Pledgee and delivered to Pledgee.
(b) MAINTENANCE OF RECORDS. Borrower will keep and maintain at its
own cost and expense satisfactory and complete records of the Collateral,
including, without limitation, a record of all payments received and all
credits granted with respect to the Collateral and all other dealings with
the Collateral. Borrower will mark its books and records pertaining to the
Collateral to evidence this Security Agreement and the security
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SECURITY AGREEMENT - PAGE 8
(HW PARTNERS/ORIX GLOBAL)
<PAGE> 89
interests granted hereby. If requested by Pledgee, the security interest of
Pledgee and Lender shall be noted on the certificate of title of each
vehicle. For Pledgee's and Lender's further security, Borrower agrees that
Pledgee shall have a special property interest in all of Borrower's books
and records, and pertaining to the Collateral and, upon the occurrence and
during the continuation of any Event of Default, Borrower shall deliver and
turn over any such books and records to Pledgee or to its representatives
at any time on demand of Pledgee. Prior to the occurrence of an Event of
Default and upon reasonable notice from Pledgee, Borrower shall permit any
representative of Pledgee to inspect such books and records during normal
business hours, and will provide photocopies thereof to Pledgee.
(c) INDEMNIFICATION. In any suit, proceeding or action brought by
Pledgee or any Lender relating to any Account, Chattel Paper, Contract,
General Intangible or instrument for any sum owing thereunder, or to
enforce any provision of any Account, Chattel Paper, Contract, General
Intangible or Instrument, Borrower will save, indemnify and keep Pledgee
and each Lender harmless from and against all expense, loss or damage
suffered by reason of any defense, setoff, counterclaim, recoupment or
reduction of liability whatsoever of the obligor thereunder, arising out of
a breach by Borrower of any obligation thereunder or arising out of any
other agreement, indebtedness or liability at any time owing to, or in
favor of, such obligor or its successors from Borrower, and all such
obligations of Borrower shall be and remain enforceable against and only
against Borrower and shall not be enforceable against Pledgee or any
Lender.
(d) COMPLIANCE WITH LAWS, ETC. Borrower will comply, in all material
respects, with all acts, rules, regulations, orders, decrees and directions
of any governmental authority, applicable to the Collateral or any part
thereof or to the operation of Borrower's business; provided, however, that
Borrower may contest any act, regulation, order, decree or direction in any
reasonable manner which shall not, in the sole opinion of Pledgee,
adversely affect Pledgee's or Lender's rights hereunder or adversely affect
the first priority of its security interest in the Collateral.
(e) PAYMENT OF OBLIGATIONS. Borrower will pay promptly when due all
taxes, assessments and governmental charges or levies imposed upon the
Collateral.
(f) COMPLIANCE WITH TERMS OF ACCOUNTS, ETC. Borrower will perform and
comply with all obligations in respect of Accounts, Chattel Paper,
Instruments, Contracts and Licenses and all other agreements to which it is
a party or by which it is bound.
(g) LIMITATION ON LIENS ON COLLATERAL. Borrower will not create,
permit or suffer to exist, and will defend the Collateral against and take
such other action as is necessary to remove, any lien, security interest or
other encumbrance on the Collateral, and will defend the right, title and
interest of Pledgee and Lender in and to any of Borrower's rights under the
Chattel Paper, Contracts, Documents, General Intangibles and Instruments
and to the Equipment and Inventory and in and to the Proceeds thereof
against the claims and demands of all Persons whomsoever.
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SECURITY AGREEMENT - PAGE 9
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<PAGE> 90
(h) LIMITATIONS ON MODIFICATIONS OF ACCOUNTS, ETC. Upon the occurrence
and during the continuation of any Event of Default, Borrower will not,
without Pledgee's prior written consent, grant any extension of the time of
payment of any of the Accounts, Chattel Paper or Instruments, compromise,
compound or settle the same for less than the full amount thereof, release,
wholly or partly, any Person liable for the payment thereof, or allow any
credit or discount whatsoever thereon.
(i) [This subsection (i) has been intentionally omitted.]
(j) LIMITATIONS ON DISPOSITION. Borrower will not sell, lease,
transfer or otherwise dispose of any of the Collateral except in the
ordinary course of its business.
(k) FURTHER IDENTIFICATION OF COLLATERAL. Borrower will if so
requested by Lender furnish to Pledgee, as often as Pledgee reasonably
requests, statements and schedules further identifying and describing the
Collateral and such other reports in connection with the Collateral as
Pledgee may reasonably request, all in reasonable detail.
(l) NOTICES. Borrower will advise Pledgee promptly, in reasonable
detail, (i) of any material lien, security interest, encumbrance or claim
made or asserted against any of the Collateral, (ii) of any material change
in the composition of the Collateral, and (iii) of the occurrence of any
other event which would have a material adverse effect on the aggregate
value of the Collateral or on the security interests created hereunder.
(m) RIGHT OF INSPECTION. Upon reasonable notice to Borrower (unless
an Event of Default has occurred and is continuing, in which case no notice
is necessary), Pledgee shall at all times have full and free access during
normal business hours to all the books and records and correspondence of
Borrower, and Lender or its representatives may examine the same, take
extracts therefrom and make photocopies thereof, and Borrower agrees to
render to Pledgee, at Borrower's cost and expense, such clerical and other
assistance as may be reasonably requested with regard thereto. Upon
reasonable notice to Borrower (unless an Event of Default has occurred and
is continuing, in which case no notice is necessary), Pledgee and its
representatives shall also have the right to enter into and upon any
premises where any of the Equipment or Inventory is located for the purpose
of inspecting the same, observing its use or otherwise protecting its
interests therein.
(n) MAINTENANCE OF EQUIPMENT. Borrower will keep and maintain the
Equipment in good operating condition sufficient for the continuation of
the business conducted by Borrower on a basis consistent with past
practices, and Borrower will provide all maintenance and service and all
repairs necessary for such purpose.
(o) CONTINUOUS PERFECTION. Borrower will not change its name, identity
or corporate structure in any manner which might make any financing or
continuation statement filed in connection herewith seriously misleading
within the meaning of Section 9.402(g) of the UCC (or any other then
applicable provision of the UCC) unless Borrower
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SECURITY AGREEMENT - PAGE 10
(HW PARTNERS/ORIX GLOBAL)
<PAGE> 91
shall have given Pledgee at least 40 days prior written notice thereof and
shall have taken all action (or made arrangements to take such action
substantially simultaneously with such change if it is impossible to take
such action in advance) necessary or reasonably requested by Pledgee to
amend such financing statement or continuation statement so that it is not
seriously misleading.
(p) COVENANTS REGARDING TRADEMARK COLLATERAL.
(i) Borrower shall notify Pledgee immediately if it knows or
has reason to know that any application or registration relating to
any Trademark which is material to the conduct of Borrower's business
may become abandoned or dedicated, or of any adverse determination or
development (including, without limitation, the institution of, or any
such determination or development in, any proceeding in the United
States Patent and Trademark Office or any court) regarding Borrower's
ownership of any Trademark which is material to the conduct of
Borrower's business, its right to register the same, or to keep and
maintain the same.
(ii) In no event shall Borrower, either itself or through any
agent, employee, licensee or designee, file an application for the
registration of any Trademark with the United States Patent or
Trademark Office or any similar office or agency in any other country
or any political subdivision thereof, unless it promptly informs
Pledgee, and, upon request of Pledgee, executes and delivers any and
all agreements, instruments, documents, and papers as Lender may
request to evidence Pledgee's and Lender's security interest in such
Trademark and the General Intangibles, including, without limitation,
the goodwill of Borrower, relating thereto or represented thereby.
(iii) Borrower will take necessary actions, including, without
limitation, in any proceeding before the United States Patent and
Trademark Office, to maintain and pursue each application (and to
obtain the relevant registration) and to maintain each registration of
the Trademarks which are material to the conduct of Borrower's
business, including, without limitation, filing of applications for
renewal, affidavits of use, affidavits of incontestability and
opposition, interference and cancellation proceedings.
(iv) In the event that any of the Trademark Collateral is
infringed, misappropriated or diluted by a third party, Borrower shall
notify promptly after it learns thereof and shall, unless Borrower
shall reasonably determine that such Trademark Collateral is not
material to the conduct of Borrower's business, promptly sue for
infringement, misappropriation or dilution and to recover any and all
damages for such infringement, misappropriation or dilution, and take
such other actions as Borrower shall reasonably deem appropriate under
the circumstances to protect such Trademark Collateral.
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SECURITY AGREEMENT - PAGE 11
(HW PARTNERS/ORIX GLOBAL)
<PAGE> 92
6. APPOINTMENT AS ATTORNEY-IN-FACT.
(a) Borrower hereby irrevocably constitutes and appoints Pledgee and
any officer or agent thereof, with full power of substitution, as its true
and lawful attorney-in-fact with full irrevocable power and authority in
the place and stead of Borrower and in the name of Borrower or in its own
name, from time to time in Pledgee's reasonable discretion, for the purpose
of carrying out the terms of this Security Agreement, to take any and all
appropriate action and to execute and deliver any and all documents and
instruments which may be necessary or desirable to accomplish the purpose
of this Security Agreement and, without limiting the generality of the
foregoing, hereby gives Pledgee the power and right, on behalf of Borrower,
without notice to or assent by Borrower to do the following:
(i) to ask, demand, collect, receive and give acquittances and
receipts for any and all moneys due and to become due under any
Collateral and, in the name of Borrower or its own name or otherwise,
to take possession of and endorse and collect any checks, drafts,
notes, acceptances or other Instruments for the payment of monies due
under any Collateral, to access all post office boxes maintained by or
for Borrower for the collection of any of the Collateral, and to file
any claim or to take any other action or proceeding in any court of
law or equity or otherwise deemed appropriate by Pledgee for the
purpose of collecting any and all such moneys due under any Collateral
whenever payable and to file any claim or to take any other action or
proceeding in any court of law or equity or otherwise deemed
appropriate by Pledgee for the purpose of collecting any and all such
moneys due under any Collateral whenever payable;
(ii) to pay or discharge taxes, liens, security interests or
other encumbrances levied or placed on or threatened against the
Collateral, to effect any repairs or any insurance called for by the
terms of this Security Agreement and to pay all or any part of the
premiums therefor and the costs thereof; and
(iii) (A) to direct any party liable for any payment under any of
the Collateral to make payment of any and all moneys due, and to
become due thereunder, directly to Lender or as Lender shall direct;
(B) to receive payment of and receipt for any and all moneys, claims
and other amounts due, and to become due at any time, in respect of or
arising out of any Collateral; (C) to sign and endorse any invoices,
freight or express bills, bills of lading, storage or warehouse
receipts, drafts against debtors, assignments, verifications and
notices in connection with accounts and other Documents constituting
or relating to the Collateral; (D) to commence and prosecute any
suits, actions or proceedings at law or in equity in any court of
competent jurisdiction to collect the Collateral or any part thereof
and to enforce any other right in respect of any Collateral; (E) to
defend any suit, action or proceeding brought against Borrower with
respect to any Collateral; (F) to settle, compromise or adjust any
suit, action or proceeding described above and, in
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SECURITY AGREEMENT - PAGE 12
(HW PARTNERS/ORIX GLOBAL)
<PAGE> 93
conjunction therewith, to give such discharges or releases as Pledgee
may deem appropriate; (G) to license or, to the extent permitted by an
applicable license, sublicense, whether general, special or otherwise,
and whether on an exclusive or non-exclusive basis, any Patent or
Trademark, throughout the world for such term or terms, on such
conditions, and in such manner, as Pledgee shall in its sole
discretion determine; and (H) generally to sell, transfer, pledge,
make any agreement with respect to or otherwise deal with any of the
Collateral as fully and completely as though Pledgee were the absolute
owner thereof for all purposes, and to do, at Pledgee's option and
Borrower's expense, at any time, or from time to time, all acts and
things which Pledgee reasonably deems necessary to protect, preserve
or realize upon the Collateral and Pledgee's and Lender's security
interest therein, in order to effect the intent of this Security
Agreement, all as fully and effectively as Borrower might do.
(b) Pledgee agrees that, except upon the occurrence and during the
continuation of an Event of Default, it will forebear from exercising the
power of attorney or any rights granted to Pledgee pursuant to this Section
6. Borrower hereby ratifies, to the extent permitted by law, all that said
attorneys shall lawfully do or cause to be done by virtue hereof. The power
of attorney granted pursuant to this Section 6 is a power coupled with an
interest and shall be irrevocable until the Secured Obligations are
indefeasibly paid in full.
(c) The powers conferred on Pledgee hereunder are solely to protect
Pledgee's interests in the Collateral and shall not impose any duty upon it
or Lender to exercise any such powers. Pledgee shall be accountable only
for amounts that it actually receives as a result of the exercise of such
powers and neither it nor any of its officers, directors, employees or
agents shall be responsible to Borrower for any act or failure to act,
except for its or their own gross negligence or willful misconduct.
(d) Borrower also authorizes Pledgee, at any time and from time to
time upon the occurrence and during the continuation any Event of Default,
(i) to communicate in its own name with any party to any Contract with
regard to the assignment of the right, title and interest of Borrower in
and under the Contracts hereunder and other matters relating thereto and
(ii) to execute, in connection with the sale provided for in Section 8
hereof, any endorsements, assignments or other instruments of conveyance or
transfer with respect to the Collateral.
7. PERFORMANCE BY LENDER OF BORROWER'S OBLIGATIONS. If Borrower fails
to perform or comply with any of its agreements contained herein and Pledgee or
any Lender, as provided for by the terms of this Security Agreement, shall
itself perform or comply, or otherwise cause performance or compliance, with
such agreement, the reasonable expenses of Pledgee and such Lender incurred in
connection with such performance or compliance, together with interest thereon
at the rate then in effect under the Notes, shall be payable by Borrower to
Pledgee and Lender on demand and shall constitute Secured Obligations secured
hereby.
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SECURITY AGREEMENT - PAGE 13
(HW PARTNERS/ORIX GLOBAL)
<PAGE> 94
8. REMEDIES, RIGHTS UPON DEFAULT.
(a) If any Event of Default shall occur and be continuing, Pledgee and
Lender may exercise in addition to all other rights and remedies granted to
it in this Security Agreement and in any other instrument or agreement
securing, evidencing or relating to the Secured Obligations, all rights and
remedies of a secured party under the UCC. Without limiting the generality
of the foregoing, Borrower expressly agrees that in any such event Pledgee,
without demand of performance or other demand, advertisement or notice of
any kind (except the notice specified below of time and place of public or
private sale) to or upon Borrower or any other Person (all and each of
which demands, advertisements and/or notices are hereby expressly waived to
the maximum extent permitted by the UCC and other applicable law), may
forthwith collect, receive, appropriate and realize upon the Collateral, or
any part thereof, and/or may forthwith sell, lease, assign, give an option
or options to purchase, or sell or otherwise dispose of and deliver said
Collateral (or contract to do so), or any part thereof, in one or more
parcels at public or private sale or sales, at any exchange or broker's
board or at any of Pledgee's offices or elsewhere at such prices as it may
deem best, for cash or on credit or for future delivery without assumption
of any credit risk. Pledgee and Lender shall have the right upon any such
public sale or sales, and, to the extent permitted by law, upon any such
private sale or sales, to purchase the whole or any part of said Collateral
so sold, free of any right or equity of redemption, which equity of
redemption Borrower hereby releases. Borrower further agrees, at Pledgee's
request, to assemble the Collateral and make it available to Pledgee at
places which Pledgee shall reasonably select, whether at Borrower's
premises or elsewhere. Pledgee shall apply the net proceeds of any such
collection, recovery, receipt, appropriation, realization or sale, as
provided in Section 8(d) hereof, Borrower remaining liable for any
deficiency remaining unpaid after such application, and only after so
paying over such net proceeds and after the payment by Pledgee of any other
amount required by any provision of law, including Section 9.504(a)(3) of
the UCC, need Pledgee and Lender account for the surplus, if any, to
Borrower. To the maximum extent permitted by applicable law, Borrower
waives all claims, damages, and demands against Lender arising out of the
repossession, retention or sale of the Collateral except such as arise out
of the gross negligence or willful misconduct of Lender. Borrower agrees
that the Pledgee need not give more than ten days' notice (which
notification shall be deemed given when mailed or delivered on an overnight
basis, postage prepaid, addressed to Borrower at its address referred to in
Section 12 hereof) of the time and place of any public sale or of the time
after which a private sale may take place and that such notice is
reasonable notification of such matters. Borrower shall remain liable for
any deficiency if the proceeds of any sale or disposition of the Collateral
are insufficient to pay all amounts to which Pledgee and Lender are
entitled, Borrower also being liable for the reasonable fees of any
attorneys employed by Pledgee and Lender to collect such deficiency.
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SECURITY AGREEMENT - PAGE 14
(HW PARTNERS/ORIX GLOBAL)
<PAGE> 95
(b) Borrower also agrees to pay all costs of Pledgee and Lender,
including, without limitation, reasonable attorneys' fees, incurred in
connection with the enforcement of any of its or their rights and remedies
hereunder.
(c) Borrower hereby waives presentment, demand, protest or any notice
(to the maximum extent permitted by applicable law) of any kind in
connection with this Security Agreement or any Collateral.
(d) The Proceeds of any sale, disposition or other realization upon
all or any part of the Collateral shall be distributed by Pledgee in the
following order of priorities:
first, to Pledgee and Lender in an amount sufficient to pay in
full the expenses of Pledgee and Lender in connection with such sale,
disposition or other realization, including all expenses, liabilities
and advances incurred or made by Pledgee and Lender in connection
therewith, including, without limitation, reasonable attorney's fees;
second, to Lender in an amount equal to the then unpaid principal
of and accrued interest and prepayment premiums, if any, on the
Secured Obligations;
third, to Lender in an amount equal to any other Secured
Obligations which are then unpaid; and
finally, upon payment in full of all of the Secured Obligations,
to pay to Borrower, or its representatives or as a court of competent
jurisdiction may direct, any surplus then remaining from such
Proceeds.
9. GRANT OF LICENSE TO USE PATENT AND TRADEMARK COLLATERAL. For the
purpose of enabling Pledgee and Lender to exercise rights and remedies under
Section 8 hereof at such time as Pledgee and Lender, without regard to this
Section 9, shall be lawfully entitled to exercise such rights and remedies,
Borrower hereby grants to Pledgee and Lender an irrevocable, non-exclusive
license (exercisable without payment of royalty or other compensation to
Borrower) to use, license or sublicense any Patent or Trademark, now owned or
hereafter acquired by Borrower, and wherever the same may be located, and
including, without limitation, in such license reasonable access to all media in
which any of the licensed items may be recorded or stored and to all computer
and automatic machinery software and programs used for the compilation or
printout thereof.
10. LIMITATION ON LENDER'S DUTY IN RESPECT OF COLLATERAL. Pledgee shall
use reasonable care with respect to the Collateral in its possession or under
its control. Neither Pledgee nor any Lender shall have any other duty as to any
Collateral in its possession or control or in the possession or control of any
agent or nominee of it or any income thereon or as to the preservation of rights
against prior parties or any other rights pertaining thereto. Upon request of
Borrower,
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SECURITY AGREEMENT - PAGE 15
(HW PARTNERS/ORIX GLOBAL)
<PAGE> 96
Pledgee shall account for any moneys received by it in respect of any
foreclosure on or disposition of the Collateral.
11. REINSTATEMENT. This Agreement shall remain in full force and effect
and continue to be effective should any petition be filed by or against Borrower
for liquidation or reorganization, should Borrower become insolvent or make an
assignment for the benefit of creditors or should a receiver or trustee be
appointed for all or any significant part of Borrower's assets, and shall
continue to be effective or be reinstated, as the case may be, if at any time
payment and performance of the Secured Obligations, or any part thereof, is,
pursuant to applicable law, rescinded or reduced in amount, or must otherwise be
restored or returned by any obligee of the Secured Obligations, whether as a
"voidable preference", "fraudulent conveyance", or otherwise, all as though such
payment or performance had not been made. In the event that any payment, or any
part thereof, is rescinded, reduced, restored or returned, the Secured
Obligations shall be reinstated and deemed reduced only by such amount paid and
not so rescinded, reduced, restored or returned.
12. NOTICES. Except as otherwise provided herein, whenever it is
provided herein that any notice, demand, request, consent, approval, declaration
or other communication shall be given as set forth in the Purchase Agreement.
Failure or delay in delivering copies of any notice, demand, request, consent,
approval, declaration or other communication to the persons designated above to
receive copies shall in no way adversely affect the effectiveness of such
notice, demand, request, consent, approval, declaration or other communication.
13. SEVERABILITY. Any provision of this Security Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceabiity in any jurisdiction shall not invalidate or render unenforceable
such provision in any other jurisdiction.
14. NO WAIVER; CUMULATIVE REMEDIES. Pledgee and Lender shall not by any
act, delay, omission or otherwise be deemed to have waived any of its or their
rights or remedies hereunder, and no waiver shall be valid unless in writing,
signed by Pledgee, and then only to the extent therein set forth. A waiver by
Pledgee or any Lender of any right or remedy hereunder on any one occasion shall
not be construed as a bar to any right or remedy which Pledgee or any Lender
would otherwise have had on any future occasion. No failure to exercise nor any
delay in exercising on the part of Pledgee or any Lender, any right, power or
privilege hereunder, shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or privilege hereunder preclude any other
or future exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies hereunder provided are cumulative and may be
exercised singly or concurrently, and are not exclusive of any rights and
remedies provided by law. None of the terms or provisions of this Security
Agreement may be waived, altered, modified or amended except by an instrument in
writing, duly executed by Pledgee and, where applicable, by Borrower.
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SECURITY AGREEMENT - PAGE 16
(HW PARTNERS/ORIX GLOBAL)
<PAGE> 97
15. SUCCESSORS AND ASSIGNS; GOVERNING LAW.
(a) This Security Agreement and all obligations of Borrower hereunder
shall be binding upon the successors and assigns of Borrower, and shall,
together with the rights and remedies of Pledgee and Lender hereunder,
inure to the benefit of Pledgee, Lender, all future holders of the Notes
and their respective successors and assigns. No sales of participations,
other sales, assignments, transfers or other dispositions of any agreement
governing or instrument evidencing the Secured Obligations or any portion
thereof or interest therein shall in any manner affect the security
interest granted to Pledgee and Lender hereunder.
(b) THIS SECURITY AGREEMENT SHALL BE GOVERNED BY, AND BE CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEVADA.
16. USE AND PROTECTION OF PATENT AND TRADEMARK COLLATERAL. Notwithstanding
anything to the contrary contained herein, unless an Event of Default has
occurred and is continuing, Pledgee shall from time to time execute and deliver,
upon the written request of any grantor, any and all instruments, certificates
or other documents, in the form so requested, necessary or appropriate in the
judgment of Borrower to permit Borrower to continue to exploit, license, use,
enjoy and protect the Patents and Trademarks.
17. FURTHER INDEMNIFICATION. Borrower agrees to pay, and to save Pledgee
and each Lender harmless from, any and all liabilities with respect to, or
resulting from any delay in paying, any and all excise, sales or other similar
taxes which may be payable or determined to be payable with respect to any of
the Collateral or in connection with any of the transactions contemplated by
this Security Agreement.
18. WAIVER OF JURY TRIAL. BORROWER HEREBY WAIVES ALL RIGHT TO TRIAL BY JURY
IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES
HEREUNDER.
19. TERMINATION. At such time as (i) the entire unpaid principal balance of
the Notes and all accrued interest thereon have been indefeasibly paid in full
("Payment in Full") and (ii) all other payment obligations under the Notes and
the Purchase Agreement due and owing as of the date of such Payment in Full have
been indefeasibly paid in full, this Agreement and the security interests
created hereby shall terminate. Upon termination of this Agreement and
Borrower's written request, Pledgee will, at Borrower's sole cost and expense,
return to Borrower such of the Collateral as shall not have been sold or
otherwise disposed of or applied pursuant to the terms hereof and execute and
deliver to Borrower such documents as Borrower shall reasonably request to
evidence such termination.
[SIGNATURE PAGE FOLLOWS]
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(HW PARTNERS/ORIX GLOBAL)
<PAGE> 98
IN WITNESS WHEREOF, each of the parties hereto has caused this
Security Agreement to be executed and delivered by its duly authorized officer
on the date first set forth above.
ORIX GLOBAL COMMUNICATIONS, INC.
By: /s/ [ILLEGIBLE]
---------------------------------------
Title: President
-----------------------------------
HW PARTNERS, L.P., as Agent for Lender
By: HW Finance, L.L.C., its general partner
By: /s/ CLARK K. HUNT
---------------------------------------
Title: Manager
-----------------------------------
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SECURITY AGREEMENT - PAGE 18
(HW PARTNER/ORIX GLOBAL)
<PAGE> 99
SCHEDULE I
FILINGS
DEBTOR JURISDICTION FILING OFFICE
<PAGE> 100
SCHEDULE II
LOCATION OF RECORDS AND CERTAIN COLLATERAL
Principal Place of Location of
Business and Inventory
Location of Records and Equipment
<PAGE> 101
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT ("Agreement") is made as of the 11th day of June,
1998, by ORIX GLOBAL COMMUNICATIONS, INC., a Nevada corporation (hereinafter
called "Pledgor", whether one or more), in favor of HW Partners, L.P., as agent
for and representative of (in such capacity, "Pledgee") the Secured Party (as
hereinafter defined). Pledgor hereby agrees with Pledgees as follows:
1. DEFINITIONS. As used in this Agreement, the following terms shall
have the meanings indicated below:
(a) The term "Borrower" shall mean Pledgor.
(b) The term "Code" shall mean the Uniform Commercial Code as in
effect in the State of Nevada on the date of this Agreement or as it may
hereafter be amended from time to time.
(c) The term "Collateral" shall mean all of the following property:
(i) all of Pledgor's right, title and interest as a partner
(whether as a general partner or limited partner) in and to any
partnership (the "Pledged Partnerships"), whether now owned or
hereafter acquired, including, but not limited to, Pledgor's right to
vote and to manage and administer the business of each Pledged
Partnership pursuant to the partnership agreements of any such
partnership (the "Partnership Agreements"), together with all other
rights, interests, claims and other property of Pledgor in any manner
arising out of or relating to its general partnership interests or
limited partnership interests, as the case may be, whether such
rights, interests, claims or other property are now owned or hereafter
acquired by Pledgor, whatever their respective kind or character,
whether they are tangible or intangible property, and wheresoever they
may exist or be located, including without limitation any certificates
or instruments, however designated or titled, issued by any
partnership and evidencing Pledgor's interest as a general partner or
limited partner, as the case may be, now owned or hereafter acquired
by Pledgor and in any manner arising out of or relating to Pledgor's
general partnership interests or limited partnership interests, as the
case may be, and further including, without limitation, all of the
rights of Pledgor as a general partner or limited partner, as the case
may be (whether now owned or hereafter acquired) to: (A) receive money
due and to become due (including, without limitation, dividends,
distributions, interest, income from partnership properties and
returns of capital) under or pursuant to any of the Partnership
Agreements, to receive payments upon termination of any or all of the
Partnership Agreements and to receive any other payments or
distributions, whether cash or non-cash, in respect of Pledgor's
partnership interests; (B) fees, income, rents, proceeds of sale,
earnings, deposits, receipts, royalties, revenues, recoveries,
compensation, claims and causes of action arising out of or relating
to any partnership, and all other rights, powers, property and
remedies of Pledgor with respect to any of the foregoing; and (C)
access to any Pledged Partnership's books and records and to other
information concerning or affecting any Pledged Partnership;
(ii) all of Pledgor's right, title and interest as a member or
owner in and to any limited liability company (the "Pledged LLCs"),
whether now owned or hereafter acquired, including, but not limited
to, Pledgor's right to vote and to manage and administer the business
of each Pledged LLC pursuant to the agreements of any such LLC (the
"LLC Agreements"), together with all other rights, interests, claims
and other property of Pledgor in any manner arising out of or relating
to its interests in such LLCs, whether such rights, interests, claims
or other property are now owned or hereafter acquired by Pledgor,
whatever their respective kind or character, whether they are tangible
or intangible property, and wheresoever they may exist or be located,
including without limitation any certificates or instruments, however
designated or titled, issued by any LLC and evidencing Pledgor's
interest therein now owned or hereafter acquired by Pledgor and in any
manner arising out of or relating to Pledgor's interest including,
without limitation, all of the rights
PLEDGE AGREEMENT - PAGE 1
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of Pledgor (whether now owned or hereafter acquired) to: (A) receive
money due and to become due (including, without limitation, dividends,
distributions, interest, income from properties and returns of
capital) under or pursuant to any of the LLC Agreements, to receive
payments upon termination of any or all of the LLC Agreements and to
receive any other payments or distributions, whether cash or non-cash,
in respect of Pledgor's membership or ownership interests, (B) fees,
income, rents, proceeds of sale, earnings, deposits, receipts,
royalties, revenues, recoveries, compensation, claims and causes of
action arising out of or relating to any LLC, and all other rights,
powers, property and remedies of Pledgor with respect to any of the
foregoing; and (C) access to any Pledged LLC's books and records and
to other information concerning or affecting any Pledged LLC;
(iii) all shares of capital stock or other equity interests now
owned or hereafter acquired by Pledgor in any person or entity,
together with certificates representing all of such shares or other
interests (the "Pledged Shares"), and any interest of Pledgor in the
entries on the books of any financial intermediary pertaining to the
Pledged Shares, and all dividends, cash, options, warrants, rights,
instruments and other property or proceeds from time to time received,
receivable or otherwise distributed in respect of or in exchange for
any and all of the Pledged Shares; and
(iv) all property specifically described on Schedule "A" attached
hereto and made a part hereof.
The term Collateral, as used herein, shall also include (A) all
certificates, instruments and/or other documents evidencing the
foregoing, (B) all renewals, replacements and substitutions of all of
the foregoing, (C) all Additional Property (as hereinafter defined),
and (D) all PRODUCTS and PROCEEDS of all of the foregoing. The
designation of proceeds does not authorize Pledgor to sell, transfer
or otherwise convey any of the foregoing property. The delivery at any
time by Pledgor to Secured Party of any property as a pledge to secure
payment or performance of any indebtedness or obligation whatsoever
shall also constitute a pledge of such property as Collateral
hereunder.
(d) The term "Indebtedness" shall mean all indebtedness, obligations
and liabilities of Borrower to Secured Party of any kind or character, now
existing or hereafter arising, whether direct, indirect, related,
unrelated, fixed, contingent, liquidated, unliquidated, joint, several or
joint and several, and regardless of whether such indebtedness, obligations
and liabilities may, prior to their acquisition by Secured Party, be or
have been payable to or in favor of a third party and subsequently acquired
by Secured Party (it being contemplated that Secured Party may make such
acquisitions from third parties), including without limitation all
indebtedness, obligations and liabilities of Borrower to Secured Party now
existing or hereafter arising by note, draft, acceptance, guaranty,
endorsement, letter of credit, assignment, purchase, overdraft, discount,
indemnity agreement or otherwise, (ii) all accrued but unpaid interest on
any of the indebtedness described in (i) above, (iii) all obligations of
Borrower to Secured Party under any documents evidencing, securing,
governing and/or pertaining to all or any part of the indebtedness
described in (i) and (ii) above, including, without limitation, the
Securities Purchase Agreement dated as of the date hereof (the "Purchase
Agreement") between Infinity Investors Limited and Borrower and the
Debentures issued pursuant thereto (the "Debentures"), (iv) all costs and
expenses incurred by Secured Party in connection with the collection and
administration of all or any part of the indebtedness and obligations
described in (i), (ii) and (iii) above or the protection or preservation
of, or realization upon, the collateral securing all or any part of such
indebtedness and obligations, including without limitation all reasonable
attorneys' fees, and (v) all renewals, extensions, modifications and
rearrangements of the indebtedness and obligations described in (i), (ii),
(iii) and (iv) above.
(e) The term "Loan Documents" shall mean all instruments and documents
evidencing, securing, governing, guaranteeing and/or pertaining to the
Indebtedness, including the Purchase Agreement and the Debentures.
PLEDGE AGREEMENT - PAGE 2
<PAGE> 103
(f) The term "Obligated Party" shall mean any party other than
Borrower who secures, guarantees and/or is otherwise obligated to pay all
or any portion of the Indebtedness.
(g) The term "Secured Party" shall mean Infinity Investors Limited and
any other holder of Debentures, and the Pledgee as agent for such Secured
Party(s), their successors and assigns, including without limitation, any
party to whom any Secured Party or the Pledgee, or any of their successors
or assigns, may assign all or any part of the Indebtedness or any of its or
their rights and interests under this Agreement.
All words and phrases used herein which are expressly defined in Section 1.201,
Chapter 8 or Chapter 9 of the Code shall have the meaning provided for therein.
Other words and phrases defined elsewhere in the Code shall have the meaning
specified therein except to the extent such meaning is inconsistent with a
definition in Section 1-201, Chapter 8 or Chapter 9 of the Code.
2. Security Interest. As security for the Indebtedness, Pledgor, for value
received, hereby grants to Secured Party a continuing security interest in the
Collateral.
3. Additional Property. Collateral shall also include the following
property (collectively, the "Additional Property") which Pledgor becomes
entitled to receive or shall receive in connection with any other Collateral:
(a) any stock certificate, including without limitation, any certificate
representing a stock dividend or any certificate in connection with any
recapitalization, reclassification, merger, consolidation, conversion, sale of
assets, combination of shares, stock split or spin-off; (b) any option, warrant,
subscription or right, whether as an addition to or in substitution of any other
Collateral; (c) any dividends or distributions of any kind whatsoever, whether
distributable in cash, stock or other property; (d) any interest, premium or
principal payments; and (e) any conversion or redemption proceeds; provided,
however, that until the occurrence of an Event of Default (as hereinafter
defined), Pledgor shall be entitled to all cash dividends and all interest paid
on the Collateral (except interest paid on any certificate of deposit pledged
hereunder) free of the security interest created under this Agreement. All
Additional Property received by Pledgor shall be received in trust for the
benefit of Secured Party. All Additional Property and all certificates or other
written instruments or documents evidencing and/or representing the Additional
Property that is received by Pledgor, together with such instruments of transfer
as Secured Party may request, shall immediately be delivered to or deposited
with Secured Party and held by Secured Party as Collateral under the terms of
this Agreement. If the Additional Property received by Pledgor shall be shares
of stock or other securities, such shares of stock or other securities shall be
duly endorsed in blank or accompanied by proper instruments of transfer and
assignment duly executed in blank with, if requested by Secured Party,
signatures guaranteed by a member or member organization in good standing of an
authorized Securities Transfer Agents Medallion Program, all in form and
substance satisfactory to Secured Party. Secured Party shall be deemed to have
possession of any Collateral in transit to Secured Party or its agent
4. Voting Rights. As long as no Event of Default shall have occurred
hereunder, any voting rights incident to any stock or other securities pledged
as Collateral may be exercised by Pledgor; provided, however, that Pledgor will
not exercise, or cause to be exercised, any such voting rights, without the
prior written consent of Secured Party, if the direct or indirect effect of such
vote will result in an Event of Default hereunder.
5. Maintenance of Collateral. Other than the exercise of reasonable care to
assure the safe custody of any Collateral in Secured Party's possession from
time to time, Secured Party does not have any obligation, duty or responsibility
with respect to the Collateral. Without limiting the generality of the
foregoing, Secured Party shall not have any obligation, duty or responsibility
to do any of the following: (a) ascertain any maturities, calls, conversions,
exchanges, offers, tenders or similar matters relating to the Collateral or
informing Pledgor with respect to any such matters; (b) fix, preserve or
exercise any right, privilege or option (whether conversion, redemption or
otherwise) with respect to the Collateral unless (i) Pledgor makes written
demand to Secured Party to do so, (ii) such written demand is received by
Secured Party in sufficient time to permit Secured Party to take the action
demanded in the ordinary course of its business, and (iii) Pledgor provides
additional collateral, acceptable to Secured Party in its sole discretion; (c)
collect any amounts payable in respect of the Collateral (Secured Party being
PLEDGE AGREEMENT - PAGE 3
<PAGE> 104
liable to account to Pledgor only for what Secured Party may actually receive or
collect thereon); (d) sell all or any portion of the Collateral to avoid market
loss; (e) sell all or any portion of the Collateral unless and until (i) Pledgor
makes written demand upon Secured Party to sell the Collateral, and (ii) Pledgor
provides additional collateral, acceptable to Secured Party in its sole
discretion; or (f) hold the Collateral for or on behalf of any party other than
Pledgor.
6. Representations and Warranties. Pledgor hereby represents and warrants
the following to Secured Party:
(a) Due Authorization. The execution, delivery and performance of this
Agreement and all of the other Loan Documents by Pledgor have been duly
authorized by all necessary corporate action of Pledgor, to the extent Pledgor
is a corporation, or by all necessary partnership action, to the extent Pledgor
is a partnership.
(b) Enforceability. This Agreement and the other Loan Documents
constitute legal, valid and binding obligations of Pledgor, enforceable in
accordance with their respective terms, except as limited by bankruptcy,
insolvency or similar laws of general application relating to the enforcement of
creditors' rights and except to the extent specific remedies may generally be
limited by equitable principles.
(c) Ownership and Liens. Pledgor has good and marketable title to the
Collateral free and clear of all liens, security interests, encumbrances or
adverse claims, except for the security interest created by this Agreement. No
dispute, right of setoff, counterclaim or defense exists with respect to all or
any part of the Collateral. Pledgor has not executed any other security
agreement currently affecting the Collateral and no financing statement or other
instrument similar in effect covering all or any part of the Collateral is on
file in any recording office except as may have been executed or filed in favor
of Secured Party. The capital stock described on Schedule "A" hereto constitutes
100% of the issued and outstanding capital stock of the issuer thereof.
(d) No Conflicts or Consents. Neither the ownership, the intended use
of the Collateral by Pledgor, the grant of the security interest by Pledgor to
Secured Party herein nor the exercise by Secured Party of its rights or remedies
hereunder, will (i) conflict with any provision of (A) any domestic or foreign
law, statute, rule or regulation, (B) the articles or certificate of
incorporation, charter, bylaws or partnership agreement, as the case may be, of
Pledgor, or (C) any agreement, judgment, license, order or permit applicable to
or binding upon Pledgor or otherwise affecting the Collateral, or (ii) result in
or require the creation of any lien, charge or encumbrance upon any assets or
properties of Pledgor or of any person except as may be expressly contemplated
in the Loan Documents. No consent, approval, authorization or order of, and no
notice to or filing with, any court, governmental authority or third party is
required in connection with the grant by Pledgor of the security interest herein
or the exercise by Secured Party of its rights and remedies hereunder.
(e) Security Interest. Pledgor has and will have at all times full
right, power and authority to grant a security interest in the Collateral to
Secured Party in the manner provided herein, free and clear of any lien,
security interest or other charge or encumbrance. This Agreement creates a
legal, valid and binding security interest in favor of Secured Party in the
Collateral.
(f) Location. Pledgor's residence or chief executive office, as the
case may be, and the office where the records concerning the Collateral are kept
is located at its address set forth on the signature page hereof.
(g) Solvency of Pledgor. As of the date hereof, and after giving
effect to this Agreement and the completion of all other transactions
contemplated by Pledgor at the time of the execution of this Agreement, (i)
Pledgor is and will be solvent, (ii) the fair saleable value of Pledgor's assets
exceeds and will continue to exceed Pledgor's liabilities (both fixed and
contingent), (iii) Pledgor is paying and will continue to be able to pay its
debts as they mature, and (iv) if Pledgor is not an individual, Pledgor has and
will have sufficient capital to carry on Pledgor's businesses and all businesses
in which Pledgor is about to engage.
PLEDGE AGREEMENT - PAGE 4
<PAGE> 105
(h) Securities. Any certificates evidencing securities pledged as
Collateral are valid and genuine and have not been altered. All securities
pledged as Collateral have been duly authorized and validly issued, are fully
paid and non-assessable, and were not issued in violation of the preemptive
rights of any party or of any agreement by which Pledgor or the issuer thereof
is bound. No restrictions or conditions exist with respect to the transfer or
voting of any securities pledged as Collateral, except as has been disclosed to
Secured Party in writing. To the best of Pledgor's knowledge, no issuer of such
securities (other than securities of a class which are publicly traded) has any
outstanding stock rights, rights to subscribe, options, warrants or convertible
securities outstanding or any other rights outstanding entitling any party to
have issued to such party capital stock of such issuer, except as has been
disclosed to Secured Party in writing.
7. Affirmative Covenants. Pledgor will comply with the covenants contained
in this Section at all times during the period of time this Agreement is
effective unless Secured Party shall otherwise consent in writing.
(a) Ownership and Liens. Pledgor will maintain good and marketable
title to all Collateral free and clear of all liens, security interests,
encumbrances or adverse claims, except for the security interest created by this
Agreement and the security interests and other encumbrances expressly permitted
by the other Loan Documents. Pledgor will not permit any dispute, right of
setoff, counterclaim or defense to exist with respect to all or any part of the
Collateral. Pledgor will cause any financing statement or other security
instrument with respect to the Collateral to be terminated, except as may exist
or as may have been filed in favor of Secured Party. Pledgor will defend at its
expense Secured Party's right, title and security interest in and to the
Collateral against the claims of any third party.
(b) Inspection of Books and Records. Pledgor will keep adequate
records concerning the Collateral and will permit Secured Party and all
representatives and agents appointed by Secured Party to inspect Pledgor's books
and records of or relating to the Collateral at any time during normal business
hours, to make and take away photocopies, photographs and printouts thereof and
to write down and record any such information.
(c) Adverse Claim. Pledgor covenants and agrees to promptly notify
Secured Party of any claim, action or proceeding affecting title to the
Collateral, or any part thereof, or the security interest created hereunder and,
at Pledgor's expense, defend Secured Party's security interest in the Collateral
against the claims of any third party. Pledgor also covenants and agrees to
promptly deliver to Secured Party a copy of all written notices received by
Pledgor with respect to the Collateral, including without limitation, notices
received from the issuer of any securities pledged hereunder as Collateral.
(d) Delivery of Instruments and/or Certificates. Contemporaneously
herewith, Pledgor covenants and agrees to deliver to Secured Party any
certificates, documents or instruments representing or evidencing the
Collateral, with Pledgor's endorsement thereon and/or accompanied by proper
instruments of transfer and assignment duly executed in blank with, if requested
by Secured Party, signatures guaranteed by a member or member organization in
good standing of an authorized Securities Transfer Agents Medallion Program, all
in form and substance satisfactory to Secured Party.
(e) Further Assurances. Pledgor will contemporaneously with the
execution hereof and from time to time thereafter at its expense promptly
execute and deliver all further instruments and documents and take all further
action necessary or appropriate or that Secured Party may request in order (i)
to perfect and protect the security interest created or purported to be created
hereby and the first priority of such security interest, (ii) to enable Secured
Party to exercise and enforce its rights and remedies hereunder in respect of
the Collateral, and (iii) to otherwise effect the purposes of this Agreement,
including without limitation: (A) executing and filing any financing or
continuation statements, or any amendments thereto; (B) obtaining written
confirmation from the issuer of any securities pledged as Collateral of the
pledge of such securities, in form and substance satisfactory to Secured Party;
(C) cooperating with Secured Party in registering the pledge of any securities
pledged as Collateral with the issuer of such securities; (D) delivering notice
of Secured Party's security interest in any securities pledged as Collateral to
any securities or financial intermediary, clearing corporation or other party
required by Secured Party, in form and substance satisfactory to Secured Party;
and (E) obtaining written confirmation of the pledge of any securities
constituting Collateral from any securities or financial intermediary, clearing
corporation or other party
PLEDGE AGREEMENT - PAGE 5
<PAGE> 106
required by Secured Party, in form and substance satisfactory to Secured Party.
If all or any part of the Collateral is securities issued by an agency or
department of the United States, Pledgor covenants and agrees, at Secured
Party's request, to cooperate in registering such securities in Secured Party's
name or with Secured Party's account maintained with a Federal Reserve Bank.
When applicable law provides more than one method of perfection of Secured
Party's security interest in the Collateral, Secured Party may choose the
method(s) to be used.
8. Negative Covenants. Pledgor will comply with the covenants contained in
this Section at all times during the period of time this Agreement is effective,
unless Secured Party shall otherwise consent in writing.
(a) Transfer or Encumbrance. Pledgor will not (i) sell, assign (by
operation of law or otherwise) or transfer Pledgor's rights in any of the
Collateral, (ii) grant a lien or security interest in or execute, file or record
any financing statement or other security instrument with respect to the
Collateral to any party other than Secured Party, or (iii) deliver actual or
constructive possession of any certificate, instrument or document evidencing
and/or representing any of the Collateral to any party other than Secured Party.
(b) Impairment of Security Interest. Pledgor will not take or fail to
take any action which would in any manner impair the value or enforceability of
Secured Party's security interest in any Collateral.
(c) Dilution of Ownership. As to any securities pledged as Collateral
(other than securities of a class which are publicly traded), Pledgor will not
consent to or approve of the issuance of (i) any additional shares of any class
of securities of such issuer (unless immediately upon issuance additional
securities are pledged and delivered to Secured Party pursuant to the terms
hereof to the extent necessary to give Secured Party a security interest after
such issuance in at least the same percentage of such issuer's outstanding
securities as Secured Party had before such issuance), (ii) any instrument
convertible voluntarily by the holder thereof or automatically upon the
occurrence or non-occurrence of any event or condition into, or exchangeable
for, any such securities, or (iii) any warrants, options, contracts or other
commitments entitling any third party to purchase or otherwise acquire any such
securities.
(d) Restrictions on Securities. Pledgor will not enter into any
agreement creating, or otherwise permit to exist, any restriction or condition
upon the transfer, voting or control of any securities pledged as Collateral,
except as consented to in writing by Secured Party.
9. Rights of Secured Party. Secured Party shall have the rights contained
in this Section at all times during the period of time this Agreement is
effective.
(a) Power of Attorney. Pledgor hereby irrevocably appoints Secured
Party as Pledgor's attorney-in-fact, such power of attorney being coupled with
an interest, with full authority in the place and stead of Pledgor and in the
name of Pledgor or otherwise, to take any action and to execute any instrument
which Secured Party may from time to time in Secured Party's discretion deem
necessary or appropriate to accomplish the purposes of this Agreement, including
without limitation, the following action: (i) transfer any securities,
instruments, documents or certificates pledged as Collateral in the name of
Secured Party or its nominee; (ii) use any interest, premium or principal
payments, conversion or redemption proceeds or other cash proceeds received in
connection with any Collateral to reduce any of the Indebtedness; (iii) exchange
any of the securities pledged as Collateral for any other property upon any
merger, consolidation, reorganization, recapitalization or other readjustment of
the issuer thereof, and, in connection therewith, to deposit and deliver any and
all of such securities with any committee, depository, transfer agent, registrar
or other designated agent upon such terms and conditions as Secured Party may
deem necessary or appropriate; (iv) exercise or comply with any conversion,
exchange, redemption, subscription or any other right, privilege or option
pertaining to any securities pledged as Collateral; provided, however, except as
provided herein, Secured Party shall not have a duty to exercise or comply with
any such right, privilege or option (whether conversion, redemption or
otherwise) and shall not be responsible for any delay or failure to do so; and
(v) file any claims or take any action or institute any proceedings which
Secured Party may deem necessary or appropriate for the collection and/or
preservation of the Collateral or otherwise to enforce the rights of Secured
Party with respect to the Collateral.
PLEDGE AGREEMENT - PAGE 6
<PAGE> 107
(b) Performance by Secured Party. If Pledgor fails to perform any
agreement or obligation provided herein, Secured Party may itself perform, or
cause performance of, such agreement or obligation, and the expenses of Secured
Party incurred in connection therewith shall be a part of the Indebtedness,
secured by the Collateral and payable by Pledgor on demand.
Notwithstanding any other provision herein to the contrary, Secured Party does
not have any duty to exercise or continue to exercise any of the foregoing
rights and shall not be responsible for any failure to do so or for any delay in
doing so.
10. Events of Default. Each of the following constitutes an "Event of
Default" under this Agreement:
(a) Default Under Loan Documents. The occurrence of any Event of
Default under Article of the Purchase Agreement, any Event of Default under
any Debenture or any event of default under any other Loan Document; or
(b) Bankruptcy or Insolvency. If Borrower or any Obligated Party: (i)
becomes insolvent, or makes a transfer in fraud of creditors, or makes an
assignment for the benefit of creditors, or admits in writing its inability
to pay its debts as they become due; (ii) generally is not paying its debts
as such debts become due; (iii) has a receiver, trustee or custodian
appointed for, or take possession of, all or substantially all of the
assets of such party or any of the Collateral, either in a proceeding
brought by such party or in a proceeding brought against such party and
such appointment is not discharged or such possession is not terminated
within sixty (60) days after the effective date thereof or such party
consents to or acquiesces in such appointment or possession; (iv) files a
petition for relief under the United States Bankruptcy Code or any other
present or future federal or state insolvency, bankruptcy or similar laws
(all of the foregoing hereinafter collectively called "Applicable
Bankruptcy Law") or an involuntary petition for relief is filed against
such party under any Applicable Bankruptcy Law and such involuntary
petition is not dismissed within sixty (60) days after the filing thereof,
or an order for relief naming such party is entered under any Applicable
Bankruptcy Law, or any composition, rearrangement, extension,
reorganization or other relief of debtors now or hereafter existing is
requested or consented to by such party; (v) fails to have discharged
within a period of sixty (60) days any attachment, sequestration or similar
writ levied upon any property of such party; or (vi) fails to pay within
thirty (30) days any final money judgment against such party; or
(c) Execution on Collateral. The Collateral or any portion thereof is
taken on execution or other process of law in any action against Pledgor;
or
(d) Abandonment. Pledgor abandons the Collateral or any portion
thereof; or
(e) Action by Other Lienholder. The holder of any lien or security
interest on any of the assets of Pledgor, including without limitation, the
Collateral (without hereby implying the consent of Secured Party to the
existence or creation of any such lien or security interest on the
Collateral), declares a default thereunder or institutes foreclosure or
other proceedings for the enforcement of its remedies thereunder; or
(f) Dilution of Ownership. The issuer of any securities (other than
securities of a class which are publicly traded) constituting Collateral
hereafter issues any shares of any class of capital stock (unless
immediately upon issuance, additional securities are pledged and delivered
to Secured Party pursuant to the terms hereof to the extent necessary to
give Secured Party a security interest after such issuance in at least the
same percentage of such issuer's outstanding securities as Secured Party
had before such issuance) or any options, warrants or other rights to
purchase any such capital stock; or
(g) Bankruptcy of Issuer. (i) The issuer of any securities
constituting Collateral files a petition for relief under any Applicable
Bankruptcy Law, (ii) an involuntary petition for relief is filed against
any such issuer under any Applicable Bankruptcy Law and such involuntary
petition is not dismissed within thirty (30) days after the filing thereof,
or (iii) an order for relief naming any such issuer is entered under any
Applicable Bankruptcy Law.
PLEDGE AGREEMENT - PAGE 7
<PAGE> 108
11. Remedies and Related Rights. If an Event of Default shall have
occurred, and without limiting any other rights and remedies provided herein,
under any of the other Loan Documents or otherwise available to Secured Party,
Secured Party may exercise one or more of the rights and remedies provided in
this Section.
(a) Remedies. Secured Party may from time to time at its discretion,
without limitation and without notice except as expressly provided in any of the
Loan Documents:
(i) exercise in respect of the Collateral all the rights and
remedies of a secured party under the Code (whether or not the Code applies to
the affected Collateral);
(ii) reduce its claim to judgment or foreclose or otherwise
enforce, in whole or in part, the security interest granted hereunder by any
available judicial procedure;
(iii) sell or otherwise dispose of, at its office, on the
premises of Pledgor or elsewhere, the Collateral, as a unit or in parcels, by
public or private proceedings, and by way of one or more contracts (it being
agreed that the sale or other disposition of any part of the Collateral shall
not exhaust Secured Party's power of sale, but sales or other dispositions may
be made from time to time until all of the Collateral has been sold or disposed
of or until the Indebtedness has been paid and performed in full), and at any
such sale or other disposition it shall not be necessary to exhibit any of the
Collateral;
(iv) buy the Collateral, or any portion thereof, at any public
sale;
(v) buy the Collateral, or any portion thereof, at any private
sale if the Collateral is of a type customarily sold in a recognized market or
is of a type which is the subject of widely distributed standard price
quotations;
(vi) apply for the appointment of a receiver for the Collateral,
and Pledgor hereby consents to any such appointment; and
(vii) at its option, retain the Collateral in satisfaction of the
Indebtedness whenever the circumstances are such that Secured Party is entitled
to do so under the Code or otherwise.
Pledgor agrees that in the event Pledgor is entitled to receive any
notice under the Uniform Commercial Code, as it exists in the state governing
any such notice, of the sale or other disposition of any Collateral, reasonable
notice shall be deemed given when such notice is deposited in a depository
receptacle under the care and custody of the United States Postal Service,
postage prepaid, at Pledgor's address set forth on the signature page hereof,
five (5) days prior to the date of any public sale, or after which a private
sale, of any of such Collateral is to be held. Secured Party shall not be
obligated to make any sale of Collateral regardless of notice of sale having
been given. Secured Party may adjourn any public or private sale from time to
time by announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was so
adjourned. Pledgor further acknowledges and agrees that the redemption by
Secured Party of any certificate of deposit pledged as Collateral shall be
deemed to be a commercially reasonable disposition under Section 9-504(3) of the
Code.
(b) Private Sale of Securities. Pledgor recognizes that Secured Party may
be unable to effect a public sale of all or any part of the securities pledged
as Collateral because of restrictions in applicable federal and state securities
laws and that Secured Party may, therefore, determine to make one or more
private sales of any such securities to a restricted group of purchasers who
will be obligated to agree, among other things, to acquire such securities for
their own account, for investment and not with a view to the distribution or
resale thereof. Pledgor acknowledges that any such private sale may be at
prices and other terms less favorable than what might have been obtained at a
public sale and, notwithstanding the foregoing, agrees that each such private
sale shall be deemed to have been made in a commercially reasonable manner and
that Secured Party shall have no obligation to delay the sale of any such
securities for the period of time necessary to permit the issuer to register
such securities for public sale under any federal or state securities laws.
Pledgor further acknowledges and agrees that any offer to sell
PLEDGE AGREEMENT - PAGE 8
<PAGE> 109
such securities which has been made privately in the manner described above to
not less than five (5) bona fide offerees shall be deemed to involve a "public
sale" for the purposes of Section 9-504(3) of the Code, notwithstanding that
such sale may not constitute a "public offering" under any federal or state
securities laws and that Secured Party may, in such event, bid for the purchase
of such securities.
(c) Application of Proceeds. If any Event of Default shall have
occurred, Secured Party may at its discretion apply or use any cash held by
Secured Party as Collateral, and any cash proceeds received by Secured Party in
respect of any sale or other disposition of, collection from, or other
realization upon, all or any part of the Collateral as follows in such order and
manner as Secured Party may elect:
(i) to the repayment or reimbursement of the reasonable costs and
expenses (including, without limitation, reasonable attorneys' fees and
expenses) incurred by Secured Party in connection with (A) the administration of
the Loan Documents, (B) the custody, preservation, use or operation of, or the
sale of, collection from, or other realization upon, the Collateral, and (C) the
exercise or enforcement of any of the rights and remedies of Secured Party
hereunder;
(ii) to the payment or other satisfaction of any liens and other
encumbrances upon the Collateral;
(iii) to the satisfaction of the Indebtedness;
(iv) by holding such cash and proceeds as Collateral;
(v) to the payment of any other amounts required by applicable
law (including without limitation, Section 9-504(l)(c) of the Code or any other
applicable statutory provision); and
(vi) by delivery to Pledgor or any other party lawfully entitled
to receive such cash or proceeds whether by direction of a court of competent
jurisdiction or otherwise.
(d) Deficiency. In the event that the proceeds of any sale of,
collection from, or other realization upon, all or any part of the Collateral by
Secured Party are insufficient to pay all amounts to which Secured Party is
legally entitled, Borrower and any party who guaranteed or is otherwise
obligated to pay all or any portion of the Indebtedness shall be liable for the
deficiency, together with interest thereon as provided in the Loan Documents.
(e) Non-Judicial Remedies. In granting to Secured Party the power to
enforce its rights hereunder without prior judicial process or judicial hearing,
Pledgor expressly waives, renounces and knowingly relinquishes any legal right
which might otherwise require Secured Party to enforce its rights by judicial
process. Pledgor recognizes and concedes that non-judicial remedies are
consistent with the usage of trade, are responsive to commercial necessity and
are the result of a bargain at arm's length. Nothing herein is intended to
prevent Secured Party or Pledgor from resorting to judicial process at either
party's option.
(f) Other Recourse. Pledgor waives any right to require Secured Party
to proceed against any third party, exhaust any Collateral or other security for
the Indebtedness, or to have any third party joined with Pledgor in any suit
arising out of the Indebtedness or any of the Loan Documents, or pursue any
other remedy available to Secured Party. Pledgor further waives any and all
notice of acceptance of this Agreement and of the creation, modification,
rearrangement, renewal or extension of the Indebtedness. Pledgor further waives
any defense arising by reason of any disability or other defense of any third
party or by reason of the cessation from any cause whatsoever of the liability
of any third party. Until all of the Indebtedness shall have been paid in full,
Pledgor shall have no right of subrogation and Pledgor waives the right to
enforce any remedy which Secured Party has or may hereafter have against any
third party, and waives any benefit of and any right to participate in any other
security whatsoever now or hereafter held by Secured Party. Pledgor authorizes
Secured Party, and without notice or demand and without any reservation of
rights against Pledgor and without affecting Pledgor's liability hereunder or on
the Indebtedness, to (i) take or hold any other property of any type from any
third party as security for the
PLEDGE AGREEMENT - PAGE 9
<PAGE> 110
Indebtedness, and exchange, enforce, waive and release any or all of such other
property, (ii) apply such other property and direct the order or manner of sale
thereof as Secured Party may in its discretion determine, (iii) renew, extend,
accelerate, modify, compromise, settle or release any of the Indebtedness or
other security for the Indebtedness, (iv) waive, enforce or modify any of the
provisions of any of the Loan Documents executed by any third party, and (v)
release or substitute any third party.
(g) Voting Rights. Upon the occurrence of an Event of Default, Pledgor
will not exercise any voting rights with respect to securities pledged as
Collateral. Pledgor hereby irrevocably appoints Secured Party as Pledgor's
attorney-in-fact (such power of attorney being coupled with an interest) and
proxy to exercise any voting rights with respect to Pledgor's securities pledged
as Collateral upon the occurrence of an Event of Default.
(h) Dividend Rights and Interest Payments. Upon the occurrence of an
Event of Default:
(i) all rights of Pledgor to receive and retain the dividends and
interest payments which it would otherwise be authorized to receive and retain
pursuant to Section 3 shall automatically cease, and all such rights shall
thereupon become vested with Secured Party which shall thereafter have the sole
right to receive, hold and apply as Collateral such dividends and interest
payments; and
(ii) all dividend and interest payments which are received by
Pledgor contrary to the provisions of clause (i) of this Subsection shall be
received in trust for the benefit of Secured Party, shall be segregated from
other funds of Pledgor, and shall be forthwith paid over to Secured Party in
the exact form received (properly endorsed or assigned if requested by Secured
Party), to be held by Secured Party as Collateral.
12. Indemnity. Pledgor hereby indemnifies and agrees to hold harmless
Secured Party, and its officers, directors, employees, agents and
representatives (each an "Indemnified Person") from and against any and all
liabilities, obligations, claims, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
(collectively, the "Claims") which may be imposed on, incurred by, or asserted
against, any Indemnified Person arising in connection with the Loan Documents,
the Indebtedness or the Collateral (including without limitation, the
enforcement of the Loan Documents and the defense of any Indemnified Person's
actions and/or inactions in connection with the Loan Documents). WITHOUT
LIMITATION, THE FOREGOING INDEMNITIES SHALL APPLY TO EACH INDEMNIFIED PERSON
WITH RESPECT TO ANY CLAIMS WHICH IN WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT
OF THE NEGLIGENCE OF SUCH AND/OR ANY OTHER INDEMNIFIED PERSON, except to the
limited extent the Claims against an Indemnified Person are proximately caused
by such Indemnified Person's gross negligence or willful misconduct. If Pledgor
or any third party ever alleges such gross negligence or willful misconduct by
any Indemnified Person, the indemnification provided for in this Section shall
nonetheless be paid upon demand, subject to later adjustment or reimbursement,
until such time as a court of competent jurisdiction enters a final judgment as
to the extent and effect of the alleged gross negligence or willful misconduct.
The indemnification provided for in this Section shall survive the termination
of this Agreement and shall extend and continue to benefit each individual or
entity who is or has at any time been an Indemnified Person hereunder.
13. Miscellaneous.
(a) Entire Agreement. This Agreement contains the entire agreement of
Secured Party and Pledgor with respect to the Collateral. If the parties hereto
are parties to any prior agreement, either written or oral, relating to the
Collateral, the terms of this Agreement shall amend and supersede the terms of
such prior agreements as to transactions on or after the effective date of this
Agreement, but all security agreements, financing statements, guaranties, other
contracts and notices for the benefit of Secured Party shall continue in full
force and effect to secure the Indebtedness unless Secured Party specifically
releases its rights thereunder by separate release.
(b) Amendment. No modification, consent or amendment of any provision
of this Agreement or any of the other Loan Documents shall be valid or effective
unless the same is in writing and signed by the party against whom it is sought
to be enforced.
PLEDGE AGREEMENT - PAGE 10
<PAGE> 111
(c) Actions by Secured Party. The lien, security interest and other
security rights of Secured Party hereunder shall not be impaired by (i) any
renewal, extension, increase or modification with respect to the Indebtedness,
(ii) any surrender, compromise, release, renewal, extension, exchange or
substitution which Secured Party may grant with respect to the Collateral, or
(iii) any release or indulgence granted to any endorser, guarantor or surety of
the Indebtedness. The taking of additional security by Secured Party shall not
release or impair the lien, security interest or other security rights of
Secured Party hereunder or affect the obligations of Pledgor hereunder.
(d) Waiver by Secured Party. Secured Party may waive any
Event of Default without waiving any other prior or subsequent Event of Default.
Secured Party may remedy any default without waiving the Event of Default
remedied. Neither the failure by Secured Party to exercise, nor the delay by
Secured Party in exercising, any right or remedy upon any Event of Default shall
be construed as a waiver of such Event of Default or as a waiver of the right to
exercise any such right or remedy at a later date. No single or partial exercise
by Secured Party of any right or remedy hereunder shall exhaust the same or
shall preclude any other or further exercise thereof, and every such right or
remedy hereunder may be exercised at any time. No waiver of any provision hereof
or consent to any departure by Pledger therefrom shall be effective unless the
same shall be in writing and signed by Secured Party and then such waiver or
consent shall be effective only in the specific instances, for the purpose for
which given and to the extent therein specified. No notice to or demand
on Pledgor in any case shall of itself entitle Pledgor to any other or further
notice or demand in similar or other circumstances.
(e) Costs and Expenses. Pledgor will upon demand pay to
Secured Party the amount of any and all costs and expenses (including without
limitation, attorneys' fees and expenses), which Secured Party may incur in
connection with (i) the transactions which give rise to the Loan Documents, (ii)
the preparation of this Agreement and the perfection and preservation of the
security interests granted under the Loan Documents, (iii) the administration of
the Loan Documents, (iv) the custody, preservation, use or operation of, or the
sale of, collection from, or other realization upon, the Collateral, (v) the
exercise or enforcement of any of the rights of Secured Party under the Loan
Documents, or (vi) the failure by Pledgor to perform or observe any of the
provisions hereof.
(f) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEVADA AND APPLICABLE
FEDERAL LAWS, EXCEPT TO THE EXTENT PERFECTION AND THE EFFECT OF PERFECTION OR
NON-PERFECTION OF THE SECURITY INTEREST GRANTED HEREUNDER, IN RESPECT OF ANY
PARTICULAR COLLATERAL, ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE
STATE OF NEVADA.
(g) Appointment of Pledgee as Agent. Pledgee has been appointed to act
as Pledgee hereunder by and for the benefit of the Secured Parties.
(h) Severability. If any provision of this Agreement is held by a court
of competent jurisdiction to be illegal, invalid or unenforceable under present
or future laws, such provision shall be fully severable, shall not impair or
invalidate the remainder of this Agreement and the effect thereof shall be
confined to the provision held to be illegal, invalid or unenforceable.
(i) No Obligation. Nothing contained herein shall be construed as an
obligation on the part of Secured Party to extend or continue to extend credit
to Borrower.
(j) Notices. All notices, requests, demands or other communications
required or permitted to be given pursuant to this Agreement shall be in writing
and given by (i) personal delivery, (ii) expedited delivery service with proof
of delivery, or (iii) United States mail, postage prepaid, registered or
certified mail, return receipt requested, sent to the intended addressee at the
address set forth on the signature page hereof or to such different address as
the addressee shall have designated by written notice sent pursuant to the terms
hereof and shall be deemed to have been received either, in the case of personal
delivery, at the time of personal delivery, in the case of expedited delivery
service, as of the date of first attempted delivery at the address and in the
manner provided herein, or in the case of mail, upon deposit in a depository
receptacle under the care and custody of the United States Postal Service.
Either party shall have the right to change its address for notice hereunder to
any other
PLEDGE AGREEMENT - PAGE 11
<PAGE> 112
location within the continental United States by notice to the other party of
such new address at least thirty (30) days prior to the effective date of such
new address.
(k) Binding Effect and Assignment. This Agreement (i) creates a
continuing security interest in the Collateral, (ii) shall be binding on Pledgor
and the heirs, executors, administrators, personal representatives, successors
and assigns of Pledgor, and (iii) shall inure to the benefit of Secured Party
and its successors and assigns. Without limiting the generality of the
foregoing, Secured Party may pledge, assign or otherwise transfer the
Indebtedness and its rights under this Agreement and any of the other Loan
Documents to any other party. Pledgor's rights and obligations hereunder may not
be assigned or otherwise transferred without the prior written consent of
Secured Party.
(l) Termination. It is contemplated by the parties hereto that from
time to time there may be no outstanding Indebtedness, but notwithstanding such
occurrences, this Agreement shall remain valid and shall be in full force and
effect as to subsequent outstanding Indebtedness. Upon (i) the satisfaction in
full of the Indebtedness, (ii) the termination or expiration of any commitment
of Secured Party to extend credit to Borrower, (iii) written request for the
termination hereof delivered by Pledgor to Secured Party, and (iv) written
release delivered by Secured Party to Pledgor, this Agreement and the security
interests created hereby shall terminate. Upon termination of this Agreement and
Pledgor's written request, Secured Party will, at Pledgor's sole cost and
expense, return to Pledgor such of the Collateral as shall not have been sold or
otherwise disposed of or applied pursuant to the terms hereof and execute and
deliver to Pledgor such documents as Pledgor shall reasonably request to
evidence such termination.
(m) Cumulative Rights. All rights and remedies of Secured Party
hereunder are cumulative of each other and of every other right or remedy which
Secured Party may otherwise have at law or in equity or under any of the other
Loan Documents, and the exercise of one or more of such rights or remedies shall
not prejudice or impair the concurrent or subsequent exercise of any other
rights or remedies.
(n) Gender and Number. Within this Agreement, words of any gender shall
be held and construed to include the other gender, and words in the singular
number shall be held and construed to include the plural and words in the plural
number shall be held and construed to include the singular, unless in each
instance the context requires otherwise.
(o) Descriptive Headings. The headings in this Agreement are for
convenience only and shall in no way enlarge, limit or define the scope or
meaning of the various and several provisions hereof.
[SIGNATURE PAGE FOLLOWS]
PLEDGE AGREEMENT - PAGE 12
<PAGE> 113
EXECUTED as of the date first written above.
Pledgor's Address: PLEDGOR:
ORIX GLOBAL COMMUNICATIONS, INC.
By: [ILLEGIBLE]
- -------------------------- ----------------------------
Name: [ILLEGIBLE]
- -------------------------- --------------------------
Title: President
-------------------------
Secured Party's Address:
c/o HW Partners, L.P.
1601 Elm Street
4000 Thanksgiving Tower
Dallas, Texas 75201
Fax: 214/720-1662
Attn: Barrett Wissman
PLEDGE AGREEMENT - PAGE 13
<PAGE> 114
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is entered into as
of June 11, 1998 among ORIX GLOBAL COMMUNICATIONS, INC. (the "Company"), and the
purchasers of Common Stock of the Company listed on the signature pages below
(individually a "Purchaser" and collectively the "Purchasers").
RECITALS:
The Company and the Purchasers have entered into a Securities Purchase
Agreement (the "Purchase Agreement") providing, among other things, for the
purchase by the Purchasers of Debentures of the Company and 2,400 shares of
Common Stock of the Company (the "Closing Shares"). Terms defined in the
Purchase Agreement and not otherwise defined herein are used herein with the
same meanings as defined in the Purchase Agreement.
This Agreement is the Registration Rights Agreement referred to in the
Purchase Agreement. The execution and delivery of this Agreement is a condition
to the Closing under the Purchase Agreement.
The parties agree as follows:
1. REGISTRABLE SECURITIES. For purposes of this Agreement, "Registrable
Stock" means (i) the Closing Shares and all other shares of Common Stock owned
now or in the future by the Purchasers or any assignee of the Purchasers
permitted pursuant to Paragraph 8(g) of this Agreement (a "Permitted Assignee"),
and (ii) any other capital stock of the Company now or hereafter owned and held
by any Purchaser or any Permitted Assignee, including any such capital stock
issued or issuable with respect to the Common Stock referred to in (i)) above by
way of a stock dividend, stock split or in connection with a combination of
shares, reclassification, recapitalization, merger or consolidation or
reorganization. Shares will cease to be "Registrable Stock" when sold pursuant
to an effective registration statement under the Securities Act or Rule 144
under the Securities Act.
2. DEMAND REGISTRATIONS.
(a) REQUESTS FOR REGISTRATION.
(i) At any time and from time to time after the
earlier of (1) May 2000 or (2) the date which is six (6)
months after the effective date of the Company's first
registration statement for an offering of securities of the
Company under the Securities Act, holders owning or having the
right to acquire an aggregate of at least one-third (1/3) of
the Registrable Stock then issued or issuable shall have the
right to request that the Company file a registration
- --------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT - PAGE 1
(INFINITY/ORIX)
<PAGE> 115
statement under the Securities Act covering the registration
of all or any part of their Registrable Stock (each, a "Demand
Registration"), provided, however, that unless the reasonably
anticipated aggregate offering price (net of underwriting
discounts and commissions) for the Registrable Stock proposed
to be registered shall equal at least $15,000,000 then such
request shall cover the registration of at least twenty
percent (20%) of the Registrable Stock then issued or
issuable. Any request (a "Registration Request") for a Demand
Registration shall specify (x) the approximate number of
shares of Registrable Stock requested to be registered, and
(y) the intended method of distribution of such shares. Within
ten days after the date of sending of such request, the
Company will give written notice of such requested
registration to all other holders of Registrable Stock and
will include in such registration all shares of Registrable
Stock which holders of Registrable Stock request the Company
to include in such registration by written notice given to the
Company within thirty (30) days after the date of sending of
the Company's notice.
(ii) The company will be required to effect up to two
(2) Demand Registrations pursuant to this Paragraph 2(a).
(iii) A registration will not count as one of the
Demand Registrations effected by the Company unless (a) the
holders of Registrable Stock are able to register and sell the
Registrable Stock requested to be included in such
registration or (b) the registration statement relating to a
registration is withdrawn or abandoned at the request of the
holders of the Registrable Stock covered by such registration
statement (other than as a result of a material adverse change
to the Company or following a postponement by the Company
pursuant to Paragraph 2(d)).
(iv) The Company will not include in any Demand
Registration any securities other than shares of Registrable
Stock and securities to be registered for offering and sale on
behalf of the Company without the prior written consent of the
holders of a majority of the shares of Registrable Stock
included in such registration. If the managing underwriters
advise the Company in writing that in their opinion the number
of shares of Registrable Stock and, if permitted hereunder,
other securities in such offering, exceeds the number of
shares of Registrable Stock and other securities, if any,
which can be sold in an orderly manner in such offering within
a price range acceptable to the holders of a majority of the
shares of Registrable Stock initially requesting registration,
the Company will include in such registration, prior to the
inclusion of any securities which are not shares of
Registrable Stock, the number of shares of Registrable Stock
requested to be included which in the opinion of such
underwriters can be sold in an orderly manner within the price
range of such offering, pro rata among the respective holders
thereof on the basis of the number of shares of Registrable
- --------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT - PAGE 2
(INFINITY/ORIX)
<PAGE> 116
Stock which each such holder has requested the Company to
include in such registration.
(b) SELECTION OF UNDERWRITER. The holders of a majority of the
shares of Registrable Stock to be included in a registration will have
the right to select one or more underwriters to manage the offering,
subject to the Company's approval which will not be unreasonably
withheld or delayed.
(c) REGISTRATIONS ON FORM S-3. Following its initial public
offering of securities under the Securities Act, the Company shall use
its reasonable best efforts to qualify for registration on Form S-3 or
any comparable or successor form or forms. At any time and from time to
time, after the Company has qualified for the use of Form S-3, in
addition to the rights contained in Paragraph 2(a), the holders of at
least 25% of the Registrable Stock then issued or issuable shall have
the right to request registrations on Form S-3; provided, that the
Company shall not be required to effect a registration on Form S-3
pursuant to this Paragraph 2(c) unless the reasonably anticipated
aggregate offering price (net of underwriting discounts and
commissions) for the Registrable Stock proposed to be registered shall
equal at least $2,500,000. Such requests shall be in writing and shall
state the number of shares of Registrable Stock proposed to be disposed
of and the intended method of distribution of such shares by such
holder or holders. The Company shall be required to effect up to four
(4) registrations pursuant to this Paragraph 2(c), provided, however,
that a registration shall not count as one of the four unless it meets
the requirements set forth in subparagraph 2(a)(iii) above.
(d) RIGHT TO DEFER REGISTRATION. The Company shall not be
obligated to effect any registration within 90 days after the effective
date of a previous registration statement on Form S-I in which the
holders of Registrable Securities participated or were given an
opportunity to participate and declined to do so. The Company may
postpone for up to 90 days the filing or the effectiveness of a
registration statement for a demand registration set forth above if (i)
the Board of Directors determines, reasonably and in good faith, that
such registration might have an adverse effect on any proposal or plan
by the Company, including, without limitation, a plan or proposal to
engage in any acquisition, merger, consolidation, tender offer or
similar transaction or (ii) any other material, nonpublic development
or transaction is pending; provided, that the Company may not postpone
the filing or effectiveness of a registration statement pursuant to
this sentence more frequently than once during any period of 12
consecutive months.
3. PIGGYBACK REGISTRATIONS.
(a) RIGHT TO PIGGYBACK. If the Company proposes to register
any of its securities under the Securities Act (other than pursuant to
a Demand Registration or a registration solely in connection with an
employee benefit or stock ownership plan) and the registration form to
be used may be used for the registration of Registrable Stock (a
- --------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT - PAGE 3
(INFINITY/ORIX)
<PAGE> 117
"Piggyback Registration"), the Company will give prompt written notice
to all holders of Registrable Stock of its intention to effect such a
registration (each a "Piggyback Notice"). Subject to subparagraph 3(b)
below, the Company will include in such registration all shares of
Registrable Stock which holders of Registrable Stock request the
Company to include in such registration by written notice given to the
Company within twenty (20) days after the date of sending of the
Company's notice.
(b) PRIORITY ON PRIMARY REGISTRATIONS. If a Piggyback
Registration relates to an underwritten public offering of equity
securities by the Company and the managing underwriters advise the
Company in writing that in their opinion the number of securities
requested to be included in such registration exceeds the number which
can be sold in an orderly manner in such offering within a price range
acceptable to the Company, the Company will include in such
registration (i) first, the securities proposed to be sold by the
Company, (ii) second, the Registrable Stock requested to be included
in such registration, pro rata among the holders of such Registrable
Stock on the basis of the number of shares owned by each such holder,
and (iii) third, other securities requested to be included in such
registration.
(c) PRIORITY ON SECONDARY REGISTRATIONS. If a Piggyback
Registration relates to an underwritten public offering of equity
securities by holders of the Company's securities and the managing
underwriters advise the Company in writing that in their opinion the
number of securities requested to be included in such registration
exceeds the number which can be sold in an orderly manner in such
offering within a price range acceptable to the holders initially
requesting such registration, the Company will include in such
registration (i) first, the securities requested to be included
therein by the holders requesting such registration, (ii) second, the
Registrable Stock requested to be included in such registration, pro
rata among the holders of such Registrable Stock on the basis of the
number of shares owned by each such holder and (iii) third, other
securities requested to be included in such registration.
4. REGISTRATION PROCEDURES. Whenever the holders of Registrable Stock
have requested that any Registrable Stock be registered pursuant to this
Agreement, the Company will use its best efforts to effect the registration and
the sale of such Registrable Stock in accordance with the intended method of
distribution thereof and will as expeditiously as possible:
(i) prepare and file with the Securities and
Exchange Commission (the "Commission") a registration
statement with respect to such Registrable Stock and use its
best efforts to cause such registration statement to become
effective, provided that before filing a registration
statement or prospectus or any amendments or supplements
thereto, the Company will furnish to the counsel selected by
the holders of a majority of the Registrable Stock included
in such registration statement copies of all such documents
proposed to be filed, which documents will be subject to the
review of such counsel;
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REGISTRATION RIGHTS AGREEMENT - PAGE 4
(INFINITY/ORIX)
<PAGE> 118
(ii) prepare and file with the Commission such
amendments and supplements to such registration statement and
the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for a
period of up to two (2) years, and comply with the provisions
of the Securities Act with respect to the disposition of all
securities included in such registration statement during such
period in accordance with the intended methods of distribution
by the selling holders thereof set forth in such registration
statement (the Company hereby agrees that such registration
statement shall include a Plan of Distribution section
reasonably acceptable to the holders of Registrable Stock and
substantially in the form annexed hereto);
(iii) furnish to each selling holder of Registrable
Stock such number of copies of such registration statement,
each amendment and supplement thereto (in each case including
all exhibits), the prospectus included in such registration
statement (including each preliminary prospectus) and such
other documents as such selling holder may reasonably request
in order to facilitate the disposition of the Registrable
Stock owned by such selling holder;
(iv) use its best efforts to register or qualify such
Registrable Stock under such other securities or blue sky laws
of such jurisdictions as any selling holder reasonably
requests and do any and all other acts and things which may be
reasonably necessary or advisable to enable such selling
holder to consummate the disposition in such jurisdictions of
the Registrable Stock owned by such selling holder, provided
that the Company will not be required (i) to qualify generally
to do business in any jurisdiction where it would not
otherwise be required to qualify but for this subparagraph,
(ii) to subject itself to taxation in any such jurisdiction,
or (iii) to consent to general service of process in any such
jurisdiction;
(v) notify each selling holder of such Registrable
Stock, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the
happening of any event as a result of which the prospectus
included in such registration statement contains an untrue
statement of a material fact or omits any fact necessary to
make the statements therein not misleading, and, at the
request of any such seller, the Company will prepare a
supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Registrable
Stock, such prospectus will not contain an untrue statement of
a material fact or omit to state any fact necessary to make
the statements therein not misleading;
(vi) cause all such Registrable Stock to be listed on
each securities exchange on which similar securities issued by
the Company are then listed and to
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REGISTRATION RIGHTS AGREEMENT - PAGE 5
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<PAGE> 119
be qualified for trading on each system on which similar
securities issued by the Company are from time to time
qualified;
(vii) provide a transfer agent and registrar for all
such Registrable Stock not later than the effective date of
such registration statement and thereafter maintain such a
transfer agent and registrar;
(viii) enter into such customary agreements
(including underwriting agreements in customary form) and
take all such other actions as the holders of a majority of
the shares of Registrable Stock being sold or the
underwriters, if any, reasonably request in order to expedite
or facilitate the disposition of such Registrable Stock;
(ix) make available for inspection by any underwriter
participating in any disposition pursuant to such registration
statement and any attorney, accountant or other agent retained
by any such underwriter, all financial and other records,
pertinent corporate documents and properties of the Company,
and cause the Company's officers, directors, employees and
independent accountants to supply all information reasonably
requested by any such underwriter, attorney, accountant or
agent in connection with such registration statement;
(x) otherwise use its best effort 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 twelve months beginning with the first day of the
Company's first full calendar quarter after the effective date
of the registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act
and Rule 158 thereunder;
(xi) permit any holder of Registrable Stock which
might be deemed, in the sole and exclusive judgment of such
holder, to be an underwriter or a controlling person of the
Company, to participate in the preparation of such
registration or comparable statement and to require the
insertion therein of material, furnished to the Company in
writing, which in the reasonable judgment of such holder and
its counsel should be included; and
(xii) in the event of the issuance of any stop order
suspending the effectiveness of a registration statement, or
of any order suspending or preventing the use of any related
prospectus or suspending the qualification of any Registrable
Stock included in such registration statement for sale in any
jurisdiction, the Company will use its reasonable best efforts
promptly to obtain the withdrawal of such order.
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REGISTRATION RIGHTS AGREEMENT - PAGE 6
(INFINITY/ORIX)
<PAGE> 120
If any such registration or comparable statement refers to any holder by name or
otherwise as the holder of any securities of the Company and if, in the sole and
exclusive judgment of such holder, such holder is or might be deemed to be a
controlling person of the Company, such holder shall have the right to require
(a) the inclusion in such registration statement of language, in form and
substance reasonably satisfactory to such holder, to the effect that the holding
of such securities by such holder is not to be construed as a recommendation by
such holder of the investment quality of the Company's securities covered
thereby and that such holding does not imply that such holder will assist in
meeting any future financial requirements of the Company, or (b) in the event
that such reference to such holder by name or otherwise is not required by the
Securities Act or any similar federal statute then in force, the deletion of the
reference to such holder; provided, that with respect to this clause (b) such
holder shall furnish to the Company an opinion of counsel to such effect, which
opinion and counsel shall be reasonably satisfactory to the Company.
5. REGISTRATION EXPENSES.
(a) DEFINITION. The term "Registration Expenses" means any
expenses incident to the Company's performance of or compliance with
this Agreement, including without limitation all registration and
filing fees, listing fees, fees and expenses of compliance with
securities or blue sky laws, printing expenses, messenger and delivery
expenses, internal expenses, the fees and expenses of counsel for the
Company (but not the fees and expenses of counsel to the holders the
Registrable Stock included in such registration) and all independent
certified public accountants, underwriting fees and expenses (excluding
discounts and commissions attributable to the Registrable Securities,
which shall be paid by the selling holders out of the proceeds of the
offering) and the fees and expenses of any other Persons retained by
the Company.
(b) PAYMENT. The Company shall pay the Registration Expenses
in connection with two (2) Demand Registrations, any and all
registrations on Form S-3 pursuant to paragraph 2(c), and any and all
Piggyback Registrations.
6. INDEMNIFICATION.
(a) INDEMNIFICATION BY THE COMPANY. The Company agrees to
indemnify, to the extent permitted by law, each holder of Registrable
Stock, its general and limited partners, officers and directors and
each Person who controls such holder (within the meaning of the
Securities Act) against all losses, claims, damages, liabilities and
expenses caused by any untrue or alleged untrue statement of material
fact contained in any registration statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto or any
omission or alleged omission of a material fact required to be stated
therein or necessary to make the statements therein not misleading,
except insofar as the same are caused by or contained in any
information furnished in writing to the Company by such holder
expressly for use therein. In connection with an
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REGISTRATION RIGHTS AGREEMENT - PAGE 7
(INFINITY/ORIX)
<PAGE> 121
underwritten offering, the Company will indemnify such
underwriters, their officers and directors and each Person
who controls such underwriters (within the meaning of the
Securities Act) to the same extent as provided above with
respect to the indemnification of the holders of Registrable
Stock.
(b) INDEMNIFICATION BY HOLDERS. In connection with
any registration statement in which a holder of Registrable
Stock is participating, each such holder will furnish to the
Company in writing such information and affidavits as the
Company reasonably requests for use in connection with any
such registration statement or prospectus and, to the extent
permitted by law, will indemnify the Company, its directors
and officers and each Person who controls the Company
(within the meaning of the Securities Act) against any
losses, claims, damages, liabilities and expenses resulting
from any untrue or alleged untrue statement of material fact
contained in the registration statement, prospectus or
preliminary prospectus or any amendment thereof or
supplement thereto or any omission or alleged omission of a
material fact required to be stated therein or necessary to
make the statements therein not misleading, but only to the
extent that such untrue statement or omission is contained
in any written information or affidavit so furnished in
writing by such holder; provided, that the obligation to
indemnify will be individual to each holder and will be
limited to the net amount of proceeds received by such
holder from the sale of Registrable Stock pursuant to such
registration statement.
(c) NOTICE; DEFENSE OF CLAIMS. Any Person entitled
to indemnification hereunder will (i) give prompt written
notice to the indemnifying party of any claim with respect
to which it seeks indemnification and (ii) unless in such
indemnified party's reasonable judgment a conflict of
interest between such indemnified and indemnifying parties
may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with
counsel reasonably satisfactory to the indemnified party. If
such defense is assumed, the indemnifying party will not be
subject to any liability for any settlement made by the
indemnified party without its consent (but such consent will
not be unreasonably withheld). An indemnifying party who is
not entitled to, or elects not to, assume the defense of a
claim will not be obligated to pay the fees and expenses of
more than one counsel for all parties indemnified by such
indemnifying party 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 of such indemnified parties with respect to such
claim.
(d) CONTRIBUTION. If the indemnification provided
for in this part 6 is held by a court of competent
jurisdiction to be unavailable to an indemnified party with
respect to any loss, liability, claim, damage or expense
referred to herein, then the indemnifying party, in lieu
of indemnifying such indemnified party hereunder, shall
contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability,
claim, damage, or expense in such proportion as is
appropriate to reflect the relative fault of the
indemnifying party, on the one hand, and of the indemnified
party, on the other, in
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REGISTRATION RIGHTS AGREEMENT - PAGE 8
(INFINITY/ORIX)
<PAGE> 122
connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense, as well as any other relevant
equitable considerations. The relative fault of the indemnifying party
and of the indemnified party shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a
material fact or the omission to state a material fact relates to
information supplied by the indemnifying party or by the indemnified
party and the parties' relative intent, knowledge, access to
information, and opportunity to correct or prevent such statement or
omission. The obligation to contribute will be individual to each
holder of Registrable Stock and will be limited to the amount by which
the net amount of proceeds received by such holder from the sale of
Registrable Stock exceeds the amount of losses, liabilities, damages,
and expenses which such holder has otherwise been required to pay by
reason of such statements or omissions.
(e) SURVIVAL. The indemnification provided for under this Agreement
will remain in full force and effect regardless of any investigation
made by or on behalf of the indemnified party or any officer, director
or controlling Person of such indemnified party and will survive the
transfer of securities.
(f) UNDERWRITING AGREEMENT. To the extent that the provisions on
indemnification and contribution contained in the underwriting
agreement entered into in connection with an underwritten public
offering are in conflict with the provisions of this part 6, the
provisions contained in the underwriting agreement shall control.
7. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Person may
participate in any registration hereunder which is underwritten unless such
Person (i) agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Person or Persons entitled hereunder
to approve such arrangements, (ii) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwriting arrangements, provided, that no
holder of Registrable Stock included in any underwritten registration shall be
required to make any representations or warranties to the Company or the
underwriters other than representations and warranties regarding such holder and
such holder's intended method of distribution, and (iii) if requested by the
managing underwriter or underwriters, agrees not to sell Registrable Stock or
other securities held by such Person in any transaction other than pursuant to
such underwriting for such period (not to exceed 180 days) following the
effective date of the registration statement relating to such underwriting as
determined by the Board of Directors; provided, that no holder of Registrable
Stock shall be required to enter into such an agreement unless each other holder
of Registrable Stock, each director and executive officer of the Company and
each other holder of at least one percent of the Common Stock then outstanding
enters into a substantially identical agreement relating to such underwriting.
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REGISTRATION RIGHTS AGREEMENT - PAGE 9
(INFINITY/ORIX)
<PAGE> 123
8. MISCELLANEOUS.
(a) INFORMATION AND REPORTING.
(i) The Company shall, at all times during which it is
neither subject to the reporting requirements of Section 13 or
15(d) of the Exchange Act, nor exempt from reporting pursuant
to Rule 12g3-2(b) under the Exchange Act, upon the written
request of any Purchaser, provide in writing to such Purchaser
and to any prospective transferee of the Registrable Stock of
such Purchaser the information concerning the Company
described in Rule 144A(d)(4) under the Securities Act ("Rule
144A Information"). Upon the written request of any Purchaser,
the Company shall cooperate with and assist such Purchaser or
any member of the National Association of Securities Dealers,
Inc. PORTAL system in applying to designate and thereafter
maintain the eligibility of the Registrable Stock for trading
through PORTAL. The Company's obligations under this Paragraph
8(a) shall at all times be contingent upon receipt from the
prospective transferee of Registrable Stock of a written
agreement to take all reasonable precautions to safeguard the
Rule 144A Information from disclosure to anyone other than
Persons who will assist such transferee in evaluating the
purchase of any Registrable Stock.
(ii) When it is first legally required to do so, the
Company shall register its Common Stock under Section 12 of
the Exchange Act and shall keep effective such registration
and shall timely file such information, documents and reports
as the Commission may require or prescribe under Section 13
of the Exchange Act. From and after the effective date of the
first registration statement filed by the Company under the
Securities Act, the Company shall (whether or not it shall
then be required to do so) timely file such information,
documents and reports which a corporation, partnership or
other entity subject to Section 13 or 15(d) (whichever is
applicable) of the Exchange Act is required to file.
Immediately upon becoming subject to the reporting
requirements of either Section 13 or 15(d) of the Exchange
Act, the Company shall promptly upon request furnish any
holder of Registrable Stock (a) a written statement by the
Company that it has complied with such reporting requirements,
(b) a copy of the most recent annual or quarterly report of
the Company, and (c) such other reports and documents filed by
the Company with the Commission as such holder may reasonably
request in availing itself of an exemption for the sale of
Registrable Stock without registration under the Securities
Act. The Company acknowledges and agrees that the purposes of
the requirements contained in this Paragraph 8(a)(ii) are to
enable any such holder to comply with the current public
information requirement contained in paragraph (c) of Rule 144
under the Securities Act, should such holder ever wish to
dispose of any of the securities of the Company acquired by it
without registration under the Securities Act in
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REGISTRATION RIGHTS AGREEMENT - PAGE 10
(INFINITY/ORIX)
<PAGE> 124
reliance upon Rule 144 (or any other similar exemptive
provision), and to qualify the Company for the use of
registration statements on Form S-3. In addition, the Company
shall take such other measures and file such other
information, documents and reports, as shall hereafter be
required by the Commission as a condition to the availability
of Rule 144 under the Securities Act (or any similar exemptive
provision hereafter in effect) and the use of Form S-3. The
Company also covenants to use its best efforts, to the extent
that it is reasonably within its power to do so, to qualify
for the use of Form S-3.
(b) NO INCONSISTENT AGREEMENTS. The Company will not hereafter
enter into any agreement with respect to its securities which is
inconsistent with or violates the rights granted to the holders of
Registrable Stock in this Agreement. Without the consent of the holders
of at least fifty-one percent (51%) of the Registrable Stock, the
Company will not grant registration rights to any other Person.
(c) ADJUSTMENTS AFFECTING REGISTRABLE STOCK. The Company will
not take any action, or permit any change to occur, with respect to its
securities for the purpose of materially and adversely affecting the
ability of the holders of Registrable Stock to include such Registrable
Stock in a registration undertaken pursuant to this Agreement or
materially and adversely affecting the marketability of such
Registrable Stock in any such registration (including, without
limitation, effecting a stock split or a combination of shares),
provided that this subparagraph 8(c) shall not apply to actions or
changes with respect to the Company's business, balance sheet, earnings
or revenue where the effect of such actions or changes on the
Registrable Stock is merely incidental.
(d) NOTICES. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be
deemed effectively given when delivered personally or by facsimile
transmission or by overnight delivery service or 72 hours after being
mailed by first class certified or registered mail, return receipt
requested, postage prepaid:
If to the Company to it at its address as set forth in the Purchase
Agreement together with such copies as are set forth in the Purchase Agreement,
or at such other address or addresses as may have been furnished in writing by
the Company to the Purchasers.
If to a Purchaser to it at its address as set forth on Exhibit A
hereto, or at such other address or addresses as may have been furnished in
writing by such Purchaser with a copy to Arter & Hadden LLP, 1717 Main Street,
Suite 4100, Dallas, Texas 75201, Attention: Victor B. Zanetti, Esq. (Fax: (214)
741-7139).
(e) REMEDIES. Any Person having rights under any provision of
this Agreement will be entitled to enforce such rights specifically to
recover damages caused by reason of any breach of any provision of this
Agreement and to exercise all other
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REGISTRATION RIGHTS AGREEMENT - PAGE 11
(INFINITY/ORIX)
<PAGE> 125
rights granted by law. The parties hereto agree and acknowledge that
money damages may not be an adequate remedy for any breach of the
provisions of this Agreement and that any party may in its sole
discretion apply to any court of law or equity of competent
jurisdiction (without posting any bond or other security) for specific
performance and for other injunctive relief in order to enforce or
prevent violation of the provisions of this Agreement.
(f) AMENDMENTS AND WAIVERS. Except as otherwise provided
herein, no amendment, modification, termination or cancellation of this
Agreement shall be effective unless made in writing signed by the
Company and the holders of a majority of the shares of Registrable
Stock.
(g) ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Stock pursuant to this Agreement may be
assigned (but only with all related obligations) by a Purchaser to any
transferee or set of related transferees in connection with the
transfer of Common Stock of the Company, in a single transaction or any
series of related transactions as a result of which the transferee(s)
will acquire an amount of Common Stock equivalent to at least
twenty-five percent (25%) of the shares of Common Stock acquired by
such Purchaser as of the Closing under the Purchase Agreement. Such
assignment shall not affect the rights of Purchasers hereunder which
shall remain in full force in accordance with the terms hereof.
Purchaser(s) shall provide the Company with written notice of such
transfer(s)/assignment(s), provided however, that the failure to
provide such notice shall not be deemed to preclude assignment
hereunder.
(h) SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement.
(i) ENTIRE AGREEMENT. This Agreement embodies the entire
agreement of the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements relating to such subject
matter.
(j) HEADINGS. The headings of this Agreement are for
convenience only and do not constitute a part of this Agreement.
(k) GOVERNING LAW. The construction, validity and
interpretation of this Agreement will be governed by the internal laws
of the State of Nevada without giving effect to any choice of law or
conflict of law provision or rule (whether of the State of Nevada or
any other jurisdiction) that would cause the application of the laws of
any jurisdiction other than the State of Nevada.
(l) FURTHER ASSURANCES. Each party to this Agreement hereby
covenants and agrees, without the necessity of any further
consideration, to execute and deliver any and
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REGISTRATION RIGHTS AGREEMENT - PAGE 12
(INFINITY/ORIX)
<PAGE> 126
all such further documents and take any and all such other actions as
may be necessary and appropriate to carry out the intent and purposes
of this Agreement and to consummate the transactions contemplated
hereby.
(m) COUNTERPARTS. This Agreement may be executed by facsimile
and in one or more counterparts, each of which shall be deemed to be an
original, but all of which shall be one and the same document.
[SIGNATURE PAGES FOLLOW.]
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REGISTRATION RIGHTS AGREEMENT - PAGE 13
(INFINITY/ORIX)
<PAGE> 127
IN WITNESS WHEREOF, this Agreement has been executed by the parites hereto
as of the date first written above.
COMPANY:
ORIX GLOBAL COMMUNICATIONS, INC.
By: /s/ KERRY ROGERS
-------------------------------
Name: Kerry Rogers
-----------------------------
Title: President
----------------------------
PURCHASERS:
INFINITY INVESTORS LIMITED
By: /s/ JAMES A. LOUGHRAN
-------------------------------
Name: James A. Loughran
-----------------------------
Title: Director
----------------------------
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REGISTRATION RIGHTS AGREEMENT - PAGE 14
(INFINITY/ORIX)
<PAGE> 128
EMPLOYMENT AND NONCOMPETITION AGREEMENT
THIS EMPLOYMENT AND NONCOMPETITION AGREEMENT is made and entered into
this 11th day of June, 1998, by and between ORIX GLOBAL COMMUNICATIONS, INC., a
Nevada corporation ("Employer") and JOHN HIGGINS ("Employee").
RECITALS:
Employer desires to employ Employee, and Employee desires to accept
such employment, on the terms and conditions set forth in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants set forth in this Agreement, the parties hereto hereby agree as
follows:
1. EMPLOYMENT; DUTIES. Employer hereby employs Employee, and Employee
hereby accepts such employment, to perform such duties and services for and on
behalf of Employer as may from time to time be determined by the President
and/or Board of Directors of Employer. Employee shall devote his full and
undivided business time, attention and efforts to Employer's business and to the
performance of Employee's duties under this Agreement. Employee shall fully and
faithfully perform all duties assigned to him under this Agreement to the best
of Employee's abilities. In the performance of Employee's duties hereunder,
Employee agrees to report to the President of the Employer.
2. COMPENSATION. Employee shall be entitled to receive a per annum
salary of Ninety Thousand Dollars ($90,000) ("Base Salary") as full compensation
for all the services rendered by Employee during the Term (as hereafter defined)
of Employee's employment hereunder. Employee shall be entitled to receive the
Base Salary in twenty-six (26) equal payments; payments to be made every two
weeks (less all applicable deductions for all taxes, including federal, state
and FICA). In addition to Employee's Base Salary and Additional Compensation (as
hereafter defined), Employee shall receive an automobile allowance, automobile
insurance and standard health insurance together with any other benefits
approved by the President of Employer, in each case not to exceed in the
aggregate a cost of $1,200 per month to Employer during the Term (as hereinafter
defined) of employment. Employee shall be eligible for merit bonuses as
determined in the sole discretion of the Board of Directors of Employer.
3. ADDITIONAL COMPENSATION. As additional compensation for Employee's
agreements and covenants set forth in Section 5 hereof, Employer shall pay
Employee, in addition to the Base Salary, the per annum sum of Ten Thousand
Dollars ($10,000) which shall be paid in twenty six (26) equal payments;
payments to be made every two weeks (less all
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EMPLOYMENT AND NONCOMPETITION AGREEMENT - PAGE 1
(JOHN HIGGINS)
<PAGE> 129
applicable deductions for all taxes, including federal state and FICA) (the
"Additional Compensation").
4. TERM OF EMPLOYMENT AND TERMINATION.
(a) EMPLOYMENT TERM. The term of Employee's employment
hereunder shall commence on June 11, 1998, and shall continue for two
(2) years, unless earlier terminated in accordance with the terms of
this Agreement. This Agreement, at the sole discretion of Employer, may
be renewed at the end of the Term for additional one (1) year periods
(the term of this Agreement, including any applicable renewal thereof,
being herein referred to as the "Term").
(b) EMPLOYER RIGHT OF TERMINATION. Notwithstanding anything
contained in this Agreement to the contrary, Employee's employment may
be terminated by Employer with or without cause, subject only to the
payment obligations of Employer as hereinafter set forth.
(c) TERMINATION FOR CAUSE. In the event Employer terminates
Employee's employment hereunder for Cause (as hereinafter defined)
during the Term of this Agreement, then Employee's employment hereunder
shall immediately terminate, and Employee shall only receive the Base
Salary and the Additional Compensation prorated in each case through
the effective date of termination of Employee's employment. For
purposes of this Agreement, "Cause" means: (i) "Total and Permanent
Incapacity" (as hereinafter defined) of Employee; (ii) the failure or
inability (not as a consequence of any illness, accident or other
disability, as confirmed by competent medical evidence) of Employee to
perform his duties hereunder for a period in excess of sixty (60) days
in any twelve (12) month period in a manner reasonably satisfactory to
Employer's Board of Directors; or (iii) "Serious Misconduct" (as
hereinafter defined) of Employee. "Total and Permanent Incapacity"
means such physical or mental condition of Employee, including, without
limitation, alcoholism, which renders Employee incapable of performing
his duties hereunder for a period in excess of sixty (60) days in any
twelve (12) month period. In the event Employee is a Qualified
Individual with a Disability, as defined in the Americans with
Disabilities Act, Employer shall not terminate Employee's employment
hereunder if Employee is able to perform the essential functions of the
Employee's job with reasonable accommodation from Employer. "Serious
Misconduct" means embezzlement or misappropriation of corporate funds;
acts of Dishonesty (as hereinafter defined); activities that cause
material adverse harm to the Employer (other than as a consequence of
good faith decisions made by Employee in the normal performance of
Employee's duties hereunder); the conviction of or the plea by Employee
to any misdemeanor involving dishonesty or moral turpitude or to any
criminal felony offense (other than those arising within the course of
Employee's employment hereunder with respect to environmental laws,
ERISA, products liability or civil rights, of which offenses Employee
was not personally aware and did not have operational control over
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EMPLOYMENT AND NONCOMPETITION AGREEMENT - PAGE 2
(JOHN HIGGINS)
<PAGE> 130
the matter, or did not personally and knowingly order in violation of
the law; any violation of laws (other than a traffic or other offense
which in the sole discretion (exercised in good faith) of the Board of
Directors of Employer does not affect the performance of Employee's
duties hereunder); the refusal to perform the duties assigned to
Employee pursuant to this Agreement (unless such duties shall be
unlawful); or the material breach of any of the terms or conditions
contained in this Agreement. "Dishonesty" shall mean the furnishing of
any information, reports, documents or certificates by Employee to
Employer that Employee knew or reasonably should have known to be false
or misleading, or in which Employee omitted to state a material fact
necessary in order to make the statements made by Employee, in light of
the circumstances under which they were made, not misleading.
(d) VOLUNTARY RESIGNATION. Notwithstanding anything contained
in this Agreement to the contrary, Employee may resign and terminate
Employee's employment hereunder subject only to the requirement that
Employee shall provide Employer with a minimum of thirty (30) days
prior written notice. In such event, Employee shall only receive the
unpaid Base Salary and Additional Compensation prorated in each case
through the effective date of Employee's resignation.
(e) DEATH. In the event of the death of Employee during the
Term of this Agreement, this Agreement and Employee's employment
hereunder shall terminate as of the date of the death of Employee, and
his estate or personal representative shall be entitled to receive the
unpaid Base Salary and Additional Compensation prorated in each case
for the period of Employee's employment to the date of his death.
(f) PAYMENT UPON TERMINATION WITHOUT CAUSE. In the event
Employee's employment hereunder is terminated for reasons other than
(x) for Cause, (y) as a result of the voluntary resignation of Employee
or (z) as a result of Employee's death, then, in such event, Employee
shall be entitled to receive the unpaid Base Salary and Additional
Compensation prorated in each case for the period of Employee's
employment to the date of such termination, together with an additional
payment equal to the sum of (x) the unpaid Base Salary in effect on the
date of termination and (y) the Additional Compensation, in each case
for the remaining Term of the Agreement (or renewal term, if such
termination occurs during the renewal term), in each case payable at
the same time and amounts as if Employee had continued his employment
hereunder.
(g) SUSPENSION. Employer shall have the right to suspend
Employee with full pay and benefits for any period of time the Board of
Directors of Employer deems, in its sole discretion, necessary or
appropriate to investigate Employee's conduct.
5. COVENANT NOT TO COMPETE. During the Restricted Period (or such
lesser period to the maximum extent permitted by applicable law), Employee
agrees that Employee will not, directly or indirectly (including, without
limitation, as a partner, shareholder, director, officer or
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EMPLOYMENT AND NONCOMPETITION AGREEMENT - PAGE 3
(JOHN HIGGINS)
<PAGE> 131
employee of, or lender or consultant to, any other person, firm or other
entity), in any capacity, within, into or from the Restricted Territory (as
defined below) engage or cause others to engage in the business that Employer
and/or its subsidiaries or affiliates is engaged in at the time of termination,
or any aspect thereof or consisting, as of the date hereof, principally of the
activities described in the Business Plan referenced in the Securities Purchase
Agreement dated the date hereof to which this Agreement is attached (the
"Business"), unless first authorized in writing by Employer, which authorization
may be withheld in the sole and absolute discretion of Employer. For purposes of
this Agreement, Restricted Period means the period of Employee's employment
hereunder and the following applicable period after the date of termination of
Employee's employment for any reason: (i) if Employee voluntarily resigns, a
period equal to two (2) years after the date of such resignation; (ii) for any
termination without Cause, the period through June 11, 2000; (iii) for any
termination with Cause, a period equal to one (1) year after the date of such
termination; and (iv) for any other termination, including non-renewal, a period
of one (1) year after the date of termination or non-renewal. For purposes of
this Agreement, the term "Restricted Territory" shall mean that the Business of
Employer has been initiated in any of North America, Central America or South
America and completed in any of North America, Central America or South America
(or such lesser territory to the maximum extent permitted by applicable law). If
Employee violates any obligations under this Section 5, then the time periods
hereunder shall be extended by the period of time equal to that period beginning
when the activities constituting such violation commenced and ending when the
activities constituting such violation terminate.
6. NONSOLICITATION. During the Employee's employment hereunder, and for
a period of thirty-six (36) months from and after the date of termination of
Employee's employment for any reason (or such lesser period to the maximum
extent permitted by applicable law), Employee agrees that Employee shall not,
directly or indirectly, for himself or on behalf of, or in connection with, any
person, firm or other entity other than Employer, solicit or cause others to
solicit (i) the business or patronage of any person, firm or other entity with
whom Employer has or had a business relationship (as a customer, supplier or
otherwise) or with whom Employer has proposed entering into a business
relationship (as a customer, supplier or otherwise), or (ii) any person who, on
the date hereof and on the date of termination of Employee's employment
hereunder, was an employee or consultant of Employer, or any of its subsidiaries
or their affiliates, for employment or as an independent contractor with any
person or entity, unless first authorized in writing by Employer, which
authorization may be withheld in Employer's sole and absolute discretion. If
Employee violates his obligations contained in this Section 6, then the time
periods hereunder shall be extended by the period of time equal to that period
beginning when the activities constituting such violation commenced and ending
when the activities constituting such violation terminate.
7. CONFIDENTIALITY. From and after the date hereof, Employee shall not
communicate or divulge to, or use for the benefit of, any person, firm or other
entity other than Employer, any of the trade secrets, business and/or marketing
plans, or any proprietary or confidential information with respect to Employer,
its subsidiaries or their affiliates, and their business,
- --------------------------------------------------------------------------------
EMPLOYMENT AND NONCOMPETITION AGREEMENT - PAGE 4
(JOHN HIGGINS)
<PAGE> 132
financial condition, business operations or methods or business prospects. The
preceding sentence shall not apply to information which (i) is, was or becomes
generally known or available to the public or the industry other than as a
result of a disclosure by Employee in violation of this Agreement, or (ii) is
required to he disclosed by law. Employee shall advise Employer, in writing, of
any request, including a subpoena or similar legal inquiry, to disclose any such
confidential information, so that Employer may, at its option, seek appropriate
legal relief.
8. RETURN OF EMPLOYER PROPERTY. Immediately upon the expiration or
earlier termination of this Agreement, Employee shall return to Employer any and
all property of Employer, including, but not limited to, all documents,
agreements, schedules, statements, customer lists, supplier lists, plans,
designs, parts and equipment, that is in the possession or control (direct or
indirect) of Employee.
9. SURVIVAL: REMEDIES; SEVERABILITY. Employee specifically acknowledges
that (a) Employer itself or through one or more of Employer's subsidiaries
currently operates, or will operate following the date hereof, in the Restricted
Territory; (b) Employer itself or through one or more of Employer's subsidiaries
or affiliates receives a significant amount of business from and throughout the
Restricted Territory; (c) Employer itself or through one or more of Employer's
subsidiaries or affiliates, plans to expand operations within and throughout
the Restricted Territory; and (d) the geographic restrictions contained in
Section 5 hereof, and the length of time restrictions in Sections 5, 6 and 7
hereof are each necessary and reasonable and were negotiated between Employer
and Employee. The restrictions and obligations set forth in Sections 5, 6, 7 and
8 hereof shall survive the expiration or termination of this Agreement. The
parties hereto hereby acknowledge and agree that the restrictions and
obligations set forth in Sections 5, 6, 7 and 8 hereof are reasonable and
necessary, and that any violation thereof would result in substantial and
irreparable injury to Employer, and that Employer may not have an adequate
remedy at law with respect to any such violation. Accordingly, Employee agrees
that, in the event of any actual or threatened violation thereof, Employer shall
have the right and privilege to obtain, without the necessity of posting bond
therefor, and in addition to any other remedies that may be available, equitable
relief, including temporary and permanent injunctive relief, to cease or prevent
any actual or threatened violation of any provision hereof. Further, in the
event of a breach by Employee of any of the provisions of this Agreement,
Employer shall be entitled to an accounting and repayment of all profits,
compensation, commissions, remunerations or other benefits that Employee,
directly or indirectly, has realized and/or may realize as a result of, arising
out of or in connection with any such breach. Each and every provision set forth
in Sections 5, 6, 7 and 8 hereof is independent and severable from the others,
and no restriction will be rendered unenforceable by virtue of the fact that,
for any reason, any other or others of them may be unenforceable in whole or in
part. If any provision in this Agreement, including, without limitation, those
in Sections 5, 6, 7 and 8 hereof is unenforceable for any reason whatsoever,
that provision will be appropriately limited and reformed to the maximum extent
provided by applicable law. If the scope of any restriction contained herein is
too broad to permit enforcement to its full extent, then such restriction shall
be enforced to the
- --------------------------------------------------------------------------------
EMPLOYMENT AND NONCOMPETITION AGREEMENT - PAGE 5
(JOHN HIGGINS)
<PAGE> 133
maximum extent permitted by law so as to be judged reasonable and enforceable,
and the parties agree that such scope may be modified by an arbitrator or judge
in any proceeding to enforce this Agreement. This includes, without limitation,
altering or enforcing only portions of the limits on activity restrictions, the
geographic scope, and/or the duration of the restrictions unless to do so would
be contrary to law or public policy.
10. MISCELLANEOUS.
(a) NOTICES. All notices required or permitted to be given
hereunder shall be in writing and shall be deemed given when delivered
in person, or three (3) business days after being placed in the hands
of a courier service (e.g., DHL or Federal Express) prepaid or faxed
provided that a confirming copy is delivered forthwith as herein
provided, addressed as follows:
IF TO EMPLOYER:
Orix Global Communications, Inc.
1771 East Flamingo Road, Ste. B200
Las Vegas, NV 89119
Attn: Steve Loglisci, President
Fax: 702.792.3313
IF TO EMPLOYEE:
John Higgins
1771 East Flamingo Road, Ste. B200
Las Vegas, NV 89119
Fax: 702.792.3313
and/or to such other respective addresses and/or addressees as may be designated
by notice given in accordance with the provisions of this Section.
(b) ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter
hereof, and shall be binding upon and inure to the benefit of the
parties hereto and their respective legal representatives, successors
and permitted assigns. Except as set forth herein, the provisions of
this Agreement supersede any and all other agreements or
understandings, whether oral or written, with respect to Employee's
employment by Employer. Any amendments, or alternative or supplementary
provisions to this Agreement must be made in writing and duly executed
by the authorized representative or agent of each of the parties
hereto.
(c) NON-WAIVER. The failure in any one or more instances of a
party to insist upon performance of any of the terms, covenants or
conditions of this Agreement, to
- --------------------------------------------------------------------------------
EMPLOYMENT AND NONCOMPETITION AGREEMENT - PAGE 6
(JOHN HIGGINS)
<PAGE> 134
exercise any right or privilege conferred in this Agreement or the
waiver by said party of any breach of any of the terms, covenants or
conditions of this Agreement, shall not be construed as a subsequent
waiver of any such terms, covenants, conditions, rights or privileges,
but the same shall continue and remain in full force and effect as if
no such forbearance or waiver had occurred. No waiver shall be
effective unless it is in writing and signed by an authorized
representative of the waiving party.
(d) COUNTERPARTS. This Agreement may be executed by facsimile
signature and in multiple counterparts, each of which shall be deemed
to be an original, and all such counterparts shall constitute but one
instrument.
(e) APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED AND
CONTROLLED AS TO VALIDITY, ENFORCEMENT, INTERPRETATION, CONSTRUCTION,
EFFECT AND IN ALL OTHER RESPECTS BY THE INTERNAL LAWS OF THE STATE OF
NEVADA APPLICABLE TO CONTRACTS MADE IN THAT STATE.
(f) CONSTRUCTION. The parties hereto acknowledge and agree
that each party has participated in the drafting of this Agreement and
that this document has been reviewed by the respective legal counsel
for the parties hereto and that the normal rule of construction to the
effect that any ambiguities are to be resolved against the drafting
party shall not be applied to the interpretation of this Agreement. No
inference in favor of, or against, any party shall be drawn from the
fact that one party has drafted any portion hereof.
BOTH PARTIES HERETO HAVE READ THIS ENTIRE AGREEMENT CAREFULLY AND FULLY
UNDERSTAND THE LIMITATIONS THAT THIS AGREEMENT IMPOSES UPON THEM AND ACKNOWLEDGE
AND AGREE THAT THOSE LIMITATIONS ARE REASONABLE.
[SIGNATURE PAGE FOLLOWS]
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EMPLOYMENT AND NONCOMPETITION AGREEMENT - PAGE 7
(JOHN HIGGINS)
<PAGE> 135
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first above written.
EMPLOYER
ORIX GLOBAL COMMUNICATIONS, INC.,
a Nevada Corporation
By: /s/ STEVE LOGLISCI
-------------------------------
Steve Loglisci, President
EMPLOYEE
/s/ JOHN HIGGINS
-----------------------------------
John Higgins
- --------------------------------------------------------------------------------
EMPLOYMENT AND NONCOMPETITION AGREEMENT - PAGE 8
(JOHN HIGGINS)
<PAGE> 136
EMPLOYMENT AND NONCOMPETITION AGREEMENT
THIS EMPLOYMENT AND NONCOMPETITION AGREEMENT is made and entered into
this 11th day of June, 1998, by and between ORIX GLOBAL COMMUNICATIONS, INC., a
Nevada corporation ("Employer") and ROBERT MICHEL ("Employee").
R E C I T A L S:
Employer desires to employ Employee, and Employee desires to accept
such employment, on the terms and conditions set forth in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants set forth in this Agreement, the parties hereto hereby agree as
follows:
1. EMPLOYMENT; DUTIES. Employer hereby employs Employee, and Employee
hereby accepts such employment, to perform such duties and services for and on
behalf of Employer as may from time to time be determined by the President
and/or Board of Directors of Employer. Employee shall devote his full and
undivided business time, attention and efforts to Employer's business and to the
performance of Employee's duties under this Agreement. Employee shall fully and
faithfully perform all duties assigned to him under this Agreement to the best
of Employee's abilities. In the performance of Employee's duties hereunder,
Employee agrees to report to the President of the Employer.
2. COMPENSATION. Employee shall be entitled to receive a per annum
salary of One Hundred Fifteen Thousand Dollars ($115,000) ("Base Salary") as
full compensation for all the services rendered by Employee during the Term (as
hereafter defined) of Employee's employment hereunder. Employee shall be
entitled to receive the Base Salary in twenty-six (26) equal payments; payments
to be made every two weeks (less all applicable deductions for all taxes,
including federal, state and FICA). In addition to Employee's Base Salary and
Additional Compensation (as hereafter defined), Employee shall receive an
automobile allowance, automobile insurance and standard health insurance
together with any other benefits approved by the President of Employer, in each
case not to exceed in the aggregate a cost of $1,500 per month to Employer
during the Term (as hereinafter defined) of employment. Employee shall be
eligible for merit bonuses as determined in the sole discretion of the Board of
Directors of Employer.
3. ADDITIONAL COMPENSATION. As additional compensation for Employee's
agreements and covenants set forth in Section 5 hereof, Employer shall pay
Employee, in addition to the Base Salary, the per annum sum of Ten Thousand
Dollars (S10,000) which shall be paid in twenty-six (26) equal payments;
payments to be made every two weeks (less all
- --------------------------------------------------------------------------------
EMPLOYMENT AND NONCOMPETITION AGREEMENT - PAGE 1
(ROBERT MICHEL)
<PAGE> 137
applicable deductions for all taxes, including federal state and FICA) (the
"Additional Compensation").
4. TERM OF EMPLOYMENT AND TERMINATION.
(a) EMPLOYMENT TERM. The term of Employee's employment hereunder
shall commence on June 11, 1998, and shall continue for two (2) years,
unless earlier terminated in accordance with the terms of this
Agreement. This Agreement, at the sole discretion of Employer, may be
renewed at the end of the Term for additional one (1) year periods (the
term of this Agreement, including any applicable renewal thereof, being
herein referred to as the "Term").
(b) EMPLOYER RIGHT OF TERMINATION. Notwithstanding anything
contained in this Agreement to the contrary, Employee's employment may
be terminated by Employer with or without cause, subject only to the
payment obligations of Employer as hereinafter set forth.
(c) TERMINATION FOR CAUSE. In the event Employer terminates
Employee's employment hereunder for Cause (as hereinafter defined)
during the Term of this Agreement, then Employee's employment hereunder
shall immediately terminate, and Employee shall only receive the Base
Salary and the Additional Compensation prorated in each case through
the effective date of termination of Employee's employment. For
purposes of this Agreement, "Cause" means: (i) "Total and Permanent
Incapacity" (as hereinafter defined) of Employee; (ii) the failure or
inability (not as a consequence of any illness, accident or other
disability, as confirmed by competent medical evidence) of Employee to
perform his duties hereunder for a period in excess of sixty (60) days
in any twelve (12) month period in a manner reasonably satisfactory to
Employer's Board of Directors; or (iii) "Serious Misconduct" (as
hereinafter defined) of Employee. "Total and Permanent Incapacity"
means such physical or mental condition of Employee, including, without
limitation, alcoholism, which renders Employee incapable of performing
his duties hereunder for a period in excess of sixty (60) days in any
twelve (12) month period. In the event Employee is a Qualified
Individual with a Disability, as defined in the Americans with
Disabilities Act, Employer shall not terminate Employee's employment
hereunder if Employee is able to perform the essential functions of the
Employee's job with reasonable accommodation from Employer. "Serious
Misconduct" means embezzlement or misappropriation of corporate funds;
acts of Dishonesty (as hereinafter defined); activities that cause
material adverse harm to the Employer (other than as a consequence of
good faith decisions made by Employee in the normal performance of
Employee's duties hereunder); the conviction of or the plea by Employee
to any misdemeanor involving dishonesty or moral turpitude or to any
criminal felony offense (other than those arising within the course of
Employee's employment hereunder with respect to environmental laws,
ERISA, products liability or civil rights, of which offenses Employee
was not personally aware and did not have operational control over
- --------------------------------------------------------------------------------
EMPLOYMENT AND NONCOMPETITION AGREEMENT - PAGE 2
(ROBERT MICHEL)
<PAGE> 138
the matter, or did not personally and knowingly order in violation of
the law; any violation of laws (other than a traffic or other offense
which in the sole discretion (exercised in good faith) of the Board of
Directors of Employer does not affect the performance of Employee's
duties hereunder); the refusal to perform the duties assigned to
Employee pursuant to this Agreement (unless such duties shall be
unlawful); or the material breach of any of the terms or conditions
contained in this Agreement. "Dishonesty" shall mean the furnishing of
any information, reports, documents or certificates by Employee to
Employer that Employee knew or reasonably should have known to be false
or misleading, or in which Employee omitted to state a material fact
necessary in order to make the statements made by Employee, in light of
the circumstances under which they were made, not misleading.
(d) VOLUNTARY RESIGNATION. Notwithstanding anything contained in
this Agreement to the contrary, Employee may resign and terminate
Employee's employment hereunder subject only to the requirement that
Employee shall provide Employer with a minimum of thirty (30) days
prior written notice. In such event, Employee shall only receive the
unpaid Base Salary and Additional Compensation prorated in each case
through the effective date of Employee's resignation.
(e) DEATH. In the event of the death of Employee during the Term of
this Agreement, this Agreement and Employee's employment hereunder
shall terminate as of the date of the death of Employee, and his estate
or personal representative shall be entitled to receive the unpaid Base
Salary and Additional Compensation prorated in each case for the period
of Employee's employment to the date of his death.
(f) PAYMENT UPON TERMINATION WITHOUT CAUSE. In the event Employee's
employment hereunder is terminated for reasons other than (x) for
Cause, (y) as a result of the voluntary resignation of Employee or (z)
as a result of Employee's death, then, in such event, Employee shall be
entitled to receive the unpaid Base Salary and Additional Compensation
prorated in each case for the period of Employee's employment to the
date of such termination, together with an additional payment equal to
the sum of (x) the unpaid Base Salary in effect on the date of
termination and (y) the Additional Compensation, in each case for the
remaining Term of the Agreement (or renewal term, if such termination
occurs during the renewal term), in each case payable at the same time
and amounts as if Employee had continued his employment hereunder.
(g) SUSPENSION. Employer shall have the right to suspend Employee
with full pay and benefits for any period of time the Board of
Directors of Employer deems, in its sole discretion, necessary or
appropriate to investigate Employee's conduct.
5. COVENANT NOT TO COMPETE. During the Restricted Period (or such
lesser period to the maximum extent permitted by applicable law), Employee
agrees that Employee will not, directly or indirectly (including, without
limitation, as a partner, shareholder, director, officer or
- --------------------------------------------------------------------------------
EMPLOYMENT AND NONCOMPETITION AGREEMENT - PAGE 3
(ROBERT MICHEL)
<PAGE> 139
employee of, or lender or consultant to, any other person, firm or other
entity), in any capacity, within, into or from the Restricted Territory (as
defined below) engage or cause others to engage in the business that Employer
and/or its subsidiaries or affiliates is engaged in at the time of termination,
or any aspect thereof, (consisting, as of the date hereof, principally of the
activities described in the Business Plan referenced in the Securities Purchase
Agreement dated the date hereof to which this Agreement is attached (the
"Business"), unless first authorized in writing by Employer, which authorization
may be withheld in the sole and absolute discretion of Employer. For purposes of
this Agreement, Restricted Period means the period of Employee's employment
hereunder and the following applicable period after the date of termination of
Employee's employment for any reason: (i) if Employee voluntarily resigns, a
period equal to two (2) years after the date of such resignation; (ii) for any
termination without Cause, the period through June 11, 2000; (iii) for any
termination with Cause, a period equal to one (1) year after the date of such
termination; and (iv) for any other termination, including non-renewal, a period
of one (1) year after the date of termination or non-renewal. For purposes of
this Agreement, the term "Restricted Territory" shall mean that the Business of
Employer has been initiated in any of North America, Central America or South
America and completed in any of North America, Central America or South America
(or such lesser territory to the maximum extent permitted by applicable law). If
Employee violates any obligations under this Section 5, then the time periods
hereunder shall be extended by the period of time equal to that period beginning
when the activities constituting such violation commenced and ending when the
activities constituting such violation terminate.
6. NONSOLICITATION. During the Employee's employment hereunder, and for
a period of thirty-six (36) months from and after the date of termination of
Employee's employment for any reason (or such lesser period to the maximum
extent permitted by applicable law), Employee agrees that Employee shall not,
directly or indirectly, for himself or on behalf of, or in connection with, any
person, firm or other entity other than Employer, solicit or cause others to
solicit (i) the business or patronage of any person, firm or other entity with
whom Employer has or had a business relationship (as a customer, supplier or
otherwise) or with whom Employer has proposed entering into a business
relationship (as a customer, supplier or otherwise), or (ii) any person who, on
the date hereof and on the date of termination of Employee's employment
hereunder, was an employee or consultant of Employer, or any of its subsidiaries
or their affiliates, for employment or as an independent contractor with any
person or entity, unless first authorized in writing by Employer, which
authorization may be withheld in Employer's sole and absolute discretion. If
Employee violates his obligations contained in this Section 6, then the time
periods hereunder shall be extended by the period of time equal to that period
beginning when the activities constituting such violation commenced and ending
when the activities constituting such violation terminate.
7. CONFIDENTIALITY. From and after the date hereof, Employee shall not
communicate or divulge to, or use for the benefit of, any person, firm or other
entity other than Employer, any of the trade secrets, business and/or marketing
plans, or any proprietary or confidential information with respect to Employer,
its subsidiaries or their affiliates, and their business,
- --------------------------------------------------------------------------------
EMPLOYMENT AND NONCOMPETITION AGREEMENT - PAGE 4
(ROBERT MICHEL)
<PAGE> 140
financial condition, business operations or methods or business prospects. The
preceding sentence shall not apply to information which (i) is, was or becomes
generally known or available to the public or the industry other than as a
result of a disclosure by Employee in violation of this Agreement, or (ii) is
required to be disclosed by law. Employee shall advise Employer, in writing, of
any request, including a subpoena or similar legal inquiry, to disclose any such
confidential information, so that Employer may, at its option, seek appropriate
legal relief.
8. RETURN OF EMPLOYER PROPERTY. Immediately upon the expiration or
earlier termination of this Agreement, Employee shall return to Employer any and
all property of Employer, including, but not limited to, all documents,
agreements, schedules, statements, customer lists, supplier lists, plans,
designs, parts and equipment, that is in the possession or control (direct or
indirect) of Employee.
9. SURVIVAL; REMEDIES; SEVERABILITY. Employee specifically acknowledges
that (a) Employer itself or through one or more of Employer's subsidiaries
currently operates, or will operate following the date hereof, in the Restricted
Territory; (b) Employer itself or through one or more of Employer's
subsidiaries or affiliates receives a significant amount of business from and
throughout the Restricted Territory; (c) Employer itself or through one or more
of Employer's subsidiaries or affiliates, plans to expand operations within and
throughout the Restricted Territory; and (d) the geographic restrictions
contained in Section 5 hereof, and the length of time restrictions in Sections
5, 6 and 7 hereof are each necessary and reasonable and were negotiated between
Employer and Employee. The restrictions and obligations set forth in Sections 5,
6, 7 and 8 hereof shall survive the expiration or termination of this Agreement.
The parties hereto hereby acknowledge and agree that the restrictions and
obligations set forth in Sections 5, 6, 7 and 8 hereof are reasonable and
necessary, and that any violation thereof would result in substantial and
irreparable injury to Employer, and that Employer may not have an adequate
remedy at law with respect to any such violation. Accordingly, Employee agrees
that, in the event of any actual or threatened violation thereof, Employer shall
have the right and privilege to obtain, without the necessity of posting bond
therefor, and in addition to any other remedies that may be available, equitable
relief, including temporary and permanent injunctive relief, to cease or prevent
any actual or threatened violation of any provision hereof. Further, in the
event of a breach by Employee of any of the provisions of this Agreement,
Employer shall be entitled to an accounting and repayment of all profits,
compensation, commissions, remunerations or other benefits that Employee,
directly or indirectly, has realized and/or may realize as a result of, arising
out of or in connection with any such breach. Each and every provision set
forth in Sections 5, 6, 7 and 8 hereof is independent and severable from the
others, and no restriction will be rendered unenforceable by virtue of the fact
that, for any reason, any other or others of them may be unenforceable in whole
or in part. If any provision in this Agreement, including, without limitation,
those in Sections 5, 6, 7 and 8 hereof is unenforceable for any reason
whatsoever, that provision will be appropriately limited and reformed to the
maximum extent provided by applicable law. If the scope of any restriction
contained herein is too broad to permit enforcement to its full extent, then
such restriction shall be enforced to the
- --------------------------------------------------------------------------------
EMPLOYMENT AND NONCOMPETITION AGREEMENT - PAGE 5
(ROBERT MICHEL)
<PAGE> 141
maximum extent permitted by law so as to be judged reasonable and enforceable,
and the parties agree that such scope may be modified by an arbitrator or judge
in any proceeding to enforce this Agreement. This includes, without limitation,
altering or enforcing only portions of the limits on activity restrictions, the
geographic scope, and/or the duration of the restrictions unless to do so would
be contrary to law or public policy.
10. MISCELLANEOUS.
(a) NOTICES. All notices required or permitted to be given
hereunder shall be in writing and shall be deemed given when delivered
in person, or three (3) business days after being placed in the hands
of a courier service (e.g., DHL or Federal Express) prepaid or faxed
provided that a confirming copy is delivered forthwith as herein
provided, addressed as follows:
IF TO EMPLOYER:
Orix Global Communications, Inc.
1771 East Flamingo Road, Ste. B200
Las Vegas, NV 89119
Attn: Steve Loglisci, President
Fax: 702.792.3313
IF TO EMPLOYEE:
Robert Michel
1771 East Flamingo Road, Ste. B200
Las Vegas, NV 89119
Fax: 702.792.3313
and/or to such other respective addresses and/or addressees as may be designated
by notice given in accordance with the provisions of this Section.
(b) ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter
hereof, and shall be binding upon and inure to the benefit of the
parties hereto and their respective legal representatives, successors
and permitted assigns. Except as set forth herein, the provisions of
this Agreement supersede any and all other agreements or
understandings, whether oral or written, with respect to Employee's
employment by Employer. Any amendments, or alternative or supplementary
provisions to this Agreement must be made in writing and duly executed
by the authorized representative or agent of each of the parties
hereto.
(c) NON-WAIVER. The failure in any one or more instances of a
party to insist upon performance of any of the terms, covenants or
conditions of this Agreement, to
- --------------------------------------------------------------------------------
EMPLOYMENT AND NONCOMPETITION AGREEMENT - PAGE 6
(ROBERT MICHEL)
<PAGE> 142
exercise any right or privilege conferred in this Agreement or the
waiver by said party of any breach of any of the terms, covenants or
conditions of this Agreement, shall not be construed as a subsequent
waiver of any such terms, covenants, conditions, rights or privileges,
but the same shall continue and remain in full force and effect as if
no such forbearance or waiver had occurred. No waiver shall be
effective unless it is in writing and signed by an authorized
representative of the waiving party.
(d) COUNTERPARTS. This Agreement may be executed by facsimile
signature and in multiple counterparts, each of which shall be deemed
to be an original, and all such counterparts shall constitute but one
instrument.
(e) APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED AND
CONTROLLED AS TO VALIDITY, ENFORCEMENT, INTERPRETATION, CONSTRUCTION,
EFFECT AND IN ALL OTHER RESPECTS BY THE INTERNAL LAWS OF THE STATE OF
NEVADA APPLICABLE TO CONTRACTS MADE IN THAT STATE.
(f) CONSTRUCTION. The parties hereto acknowledge and agree
that each party has participated in the drafting of this Agreement and
that this document has been reviewed by the respective legal counsel
for the parties hereto and that the normal rule of construction to the
effect that any ambiguities are to be resolved against the drafting
party shall not be applied to the interpretation of this Agreement. No
inference in favor of, or against, any party shall be drawn from the
fact that one party has drafted any portion hereof.
BOTH PARTIES HERETO HAVE READ THIS ENTIRE AGREEMENT CAREFULLY AND FULLY
UNDERSTAND THE LIMITATIONS THAT THIS AGREEMENT IMPOSES UPON THEM AND ACKNOWLEDGE
AND AGREE THAT THOSE LIMITATIONS ARE REASONABLE.
[Signature page follows]
- --------------------------------------------------------------------------------
EMPLOYMENT AND NONCOMPETITION AGREEMENT - Page 7
(ROBERT MICHAELS)
<PAGE> 143
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first above written.
EMPLOYER
ORIX GLOBAL COMMUNICATIONS, INC.,
a Nevada Corporation
By: /s/ STEVE LOGLISCI
-------------------------------
Steve Loglisci, President
EMPLOYEE
/s/ ROBERT MICHEL
-----------------------------------
Robert Michel
- --------------------------------------------------------------------------------
EMPLOYMENT AND NONCOMPETITION AGREEMENT - PAGE 8
(ROBERT MICHEL)
<PAGE> 144
EMPLOYMENT AND NONCOMPETITION AGREEMENT
THIS EMPLOYMENT AND NONCOMPETITION AGREEMENT is made and entered into
this 11th day of June, 1998, by and between ORIX GLOBAL COMMUNICATIONS, INC., a
Nevada corporation ("Employer") and KERRY L. ROGERS ("Employee").
RECITALS:
Employer desires to employ Employee, and Employee desires to accept
such employment, on the terms and conditions set forth in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants set forth in this Agreement, the parties hereto hereby agree as
follows:
1. EMPLOYMENT; DUTIES. Employer hereby employs Employee, and Employee
hereby accepts such employment, to perform such duties and services for and on
behalf of Employer as may from time to time be determined by the President
and/or Board of Directors of Employer. Employee shall devote his full and
undivided business time, attention and efforts to Employer's business and to the
performance of Employee's duties under this Agreement. Employee shall fully and
faithfully perform all duties assigned to him under this Agreement to the best
of Employee's abilities. In the performance of Employee's duties hereunder,
Employee agrees to report to the President of the Employer. Employee shall be
designated as the Chief Technology Officer of the Employer.
2. COMPENSATION. Employee shall be entitled to receive a per annum
salary of One Hundred Forty Thousand Dollars ($140,000) ("Base Salary") as full
compensation for all the services rendered by Employee during the Term (as
hereafter defined) of Employee's employment hereunder. Employee shall be
entitled to receive the Base Salary in twenty-six (26) equal payments; payments
to be made every two weeks (less all applicable deductions for all taxes,
including federal, state and FICA). Employee's Base Salary will increase to Two
Hundred Forty Thousand Dollars ($240,000) per annum if Employer achieves
$150,000 positive EBIDTA (as calculated in accordance with generally accepted
accounting principles) for three (3) consecutive months. In addition to
Employee's Base Salary and Additional Compensation (as hereafter defined),
Employee shall receive an automobile allowance, automobile insurance and
standard health insurance together with any other benefits approved by the
President of Employer, in each case not to exceed in the aggregate a cost of
$3,000 per month to Employer during the Term (as hereinafter defined) of
employment. Employee shall be eligible for merit bonuses as determined in the
sole discretion of the Board of Directors of Employer. Employee hereby releases
and discharges Employer from any obligation to pay "withheld or deferred sums"
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EMPLOYMENT AND NONCOMPETITION AGREEMENT - PAGE 1
(KERRY L. ROGERS)
<PAGE> 145
under the terms of Employee's employment agreement with Employer in effect prior
to the date hereof. In lieu thereof, Employer agrees to pay to Employee the
Deferred Bonus upon satisfaction of the Bonus Event. The Bonus Event means
Employer has achieved net income from operations during the month of January,
1999 of $1,831,327 or more, as determined in accordance with generally accepted
accounting principles. The Deferred Bonus means the sum of (x) $50,000 and (y)
the product of $8,333 multiplied by the number of months between and including
July 1998 through December 1998 that Employee's Base Salary is $140,000 rather
than $240,000 per annum as specified herein. The Deferred Bonus shall be paid in
one lump sum (less any required withholding) promptly following the calculation
of whether Employer has satisfied the Bonus Event.
3. ADDITIONAL COMPENSATION. As additional compensation for Employee's
agreements and covenants set forth in Section 5 hereof, Employer shall pay
Employee, in addition to the Base Salary, the per annum sum of Ten Thousand
Dollars ($10,000) which shall be paid in twenty six (26) equal payments;
payments to be made every two weeks (less all applicable deductions for all
taxes, including federal state and FICA) (the "Additional Compensation").
4. TERM OF EMPLOYMENT AND TERMINATION.
(a) EMPLOYMENT TERM. The term of Employee's employment
hereunder shall commence on June 11, 1998, and shall continue for two
(2) years, unless earlier terminated in accordance with the terms of
this Agreement. This Agreement, at the sole discretion of Employer, may
be renewed at the end of the Term for additional one (1) year periods
(the term of this Agreement, including any applicable renewal thereof,
being herein referred to as the "Term").
(b) EMPLOYER RIGHT OF TERMINATION. Notwithstanding anything
contained in this Agreement to the contrary, Employee's employment may
be terminated by Employer with or without cause, subject only to the
payment obligations of Employer as hereinafter set forth.
(c) TERMINATION FOR CAUSE. In the event Employer terminates
Employee's employment hereunder for Cause (as hereinafter defined)
during the Term of this Agreement, then Employee's employment hereunder
shall immediately terminate, and Employee shall only receive the Base
Salary and the Additional Compensation prorated in each case through
the effective date of termination of Employee's employment. For
purposes of this Agreement, "Cause" means: (i) "Total and Permanent
Incapacity" (as hereinafter defined) of Employee; (ii) the failure or
inability (not as a consequence of any illness, accident or other
disability, as confirmed by competent medical evidence) of Employee to
perform his duties hereunder for a period in excess of sixty (60) days
in any twelve (12) month period in a manner reasonably satisfactory to
Employer's Board of Directors; or (iii) "Serious Misconduct" (as
hereinafter defined) of Employee. "Total and
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EMPLOYMENT AND NONCOMPETITION AGREEMENT - PAGE 2
(KERRY L. ROGERS)
<PAGE> 146
Permanent Incapacity" means such physical or mental condition of
Employee, including, without limitation, alcoholism, which renders
Employee incapable of performing his duties hereunder for a period in
excess of sixty (60) days in any twelve (12) month period. In the event
Employee is a Qualified Individual with a Disability, as defined in the
Americans with Disabilities Act, Employer shall not terminate
Employee's employment hereunder if Employee is able to perform the
essential functions of the Employee's job with reasonable accommodation
from Employer. "Serious Misconduct" means embezzlement or
misappropriation of corporate funds; acts of Dishonesty (as hereinafter
defined); activities that cause material adverse harm to the Employer
(other than as a consequence of good faith decisions made by Employee
in the normal performance of Employee's duties hereunder); the
conviction of or the plea by Employee to any misdemeanor involving
dishonesty or moral turpitude or to any criminal felony offense (other
than those arising within the course of Employee's employment hereunder
with respect to environmental laws, ERISA, products liability or civil
rights, of which offenses Employee was not personally aware and did not
have operational control over the matter, or did not personally and
knowingly order in violation of the law; any violation of laws (other
than a traffic or other offense which in the sole discretion (exercised
in good faith) of the Board of Directors of Employer does not affect
the performance of Employee's duties hereunder); the refusal to perform
the duties assigned to Employee pursuant to this Agreement (unless such
duties shall be unlawful); or the material breach of any of the terms
or conditions contained in this Agreement. "Dishonesty" shall mean the
furnishing of any information, reports, documents or certificates by
Employee to Employer that Employee knew or reasonably should have known
to be false or misleading, or in which Employee omitted to state a
material fact necessary in order to make the statements made by
Employee, in light of the circumstances under which they were made, not
misleading.
(d) VOLUNTARY RESIGNATION. Notwithstanding anything contained
in this Agreement to the contrary, Employee may resign and terminate
Employee's employment hereunder subject only to the requirement that
Employee shall provide Employer with a minimum of thirty (30) days
prior written notice. In such event, Employee shall only receive the
unpaid Base Salary and Additional Compensation prorated in each case
through the effective date of Employee's resignation.
(e) DEATH. In the event of the death of Employee during the
Term of this Agreement, this Agreement and Employee's employment
hereunder shall terminate as of the date of the death of Employee, and
his estate or personal representative shall be entitled to receive the
unpaid Base Salary and Additional Compensation prorated in each case
for the period of Employee's employment to the date of his death.
(f) PAYMENT UPON TERMINATION WITHOUT CAUSE. In the event
Employee's employment hereunder is terminated for reasons other than
(x) for Cause, (y) as a result of the voluntary resignation of Employee
or (z) as a result of Employee's death, then, in
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EMPLOYMENT AND NONCOMPETITION AGREEMENT - PAGE 3
(KERRY L. ROGERS)
<PAGE> 147
such event, Employee shall be entitled to receive the unpaid Base
Salary and Additional Compensation prorated in each case for the period
of Employee's employment to the date of such termination, together with
an additional payment equal to the sum of (x) the unpaid Base Salary in
effect on the date of termination and (y) the Additional Compensation,
in each case for the remaining Term of the Agreement (or renewal term,
if such termination occurs during the renewal term), in each case
payable at the same time and amounts as if Employee had continued his
employment hereunder. In addition, if the Bonus Event is satisfied by
Employer, the Employee shall be entitled to the Deferred Bonus even if
the Employee has previously been terminated without Cause.
(g) SUSPENSION. Employer shall have the right to suspend
Employee with full pay and benefits for any period of time the Board of
Directors of Employer deems, in its sole discretion, necessary or
appropriate to investigate Employee's conduct.
5. COVENANT NOT TO COMPETE. During the Restricted Period (or such
lesser period to the maximum extent permitted by applicable law), Employee
agrees that Employee will not, directly or indirectly (including, without
limitation, as a partner, shareholder, director, officer or employee of, or
lender or consultant to, any other person, firm or other entity), in any
capacity, within, into or from the Restricted Territory (as defined below)
engage or cause others to engage in the business that Employer and/or its
subsidiaries or affiliates is engaged in at the time of termination, or any
aspect thereof (consisting, as of the date hereof, principally of the activities
described in the Business Plan referenced in the Securities Purchase Agreement
dated the date hereof to which this Agreement is attached (the "Business"),
unless first authorized in writing by Employer, which authorization may be
withheld in the sole and absolute discretion of Employer. For purposes of this
Agreement, Restricted Period means the period of Employee's employment hereunder
and the following applicable period after the date of termination of Employee's
employment for any reason: (i) if Employee voluntarily resigns, a period equal
to two (2) years after the date of such resignation; (ii) for any termination
without Cause, the period through June 11, 2000; (iii) for any termination with
Cause, a period equal to one (1) year after the date of such termination; and
(iv) for any other termination, including non-renewal, a period of one (1) year
after the date of termination or non-renewal. For purposes of this Agreement,
the term "Restricted Territory" shall mean that the Business of Employer has
been initiated in any of North America, Central America or South America and
completed in any of North America, Central America or South America (or such
lesser territory to the maximum extent permitted by applicable law). If Employee
violates any obligations under this Section 5, then the time periods hereunder
shall be extended by the period of time equal to that period beginning when the
activities constituting such violation commenced and ending when the activities
constituting such violation terminate.
6. NONSOLICITATION. During the Employee's employment hereunder, and for
a period of thirty-six (36) months from and after the date of termination of
Employee's employment for any reason (or such lesser period to the maximum
extent permitted by applicable law), Employee agrees that Employee shall not,
directly or indirectly, for himself or on behalf of, or in
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EMPLOYMENT AND NONCOMPETITION AGREEMENT - PAGE 4
(KERRY L. ROGERS)
<PAGE> 148
connection with, any person, firm or other entity other than Employer, solicit
or cause others to solicit (i) the business or patronage of any person, firm or
other entity with whom Employer has or had a business relationship (as a
customer, supplier or otherwise) or with whom Employer has proposed entering
into a business relationship (as a customer, supplier or otherwise), or (ii) any
person who, on the date hereof and on the date of termination of Employee's
employment hereunder, was an employee or consultant of Employer, or any of its
subsidiaries or their affiliates, for employment or as an independent contractor
with any person or entity, unless first authorized in writing by Employer, which
authorization may be withheld in Employer's sole and absolute discretion. If
Employee violates his obligations contained in this Section 6, then the time
periods hereunder shall be extended by the period of time equal to that period
beginning when the activities constituting such violation commenced and ending
when the activities constituting such violation terminate.
7. CONFIDENTIALITY. From and after the date hereof, Employee shall not
communicate or divulge to, or use for the benefit of, any person, firm or other
entity other than Employer, any of the trade secrets, business and/or marketing
plans, or any proprietary or confidential information with respect to Employer,
its subsidiaries or their affiliates, and their business, financial condition,
business operations or methods or business prospects. The preceding sentence
shall not apply to information which (i) is, was or becomes generally known or
available to the public or the industry other than as a result of a disclosure
by Employee in violation of this Agreement, or (ii) is required to be disclosed
by law. Employee shall advise Employer, in writing, of any request, including a
subpoena or similar legal inquiry, to disclose any such confidential
information, so that Employer may, at its option, seek appropriate legal relief.
8. RETURN OF EMPLOYER PROPERTY. Immediately upon the expiration or
earlier termination of this Agreement, Employee shall return to Employer any and
all property of Employer, including, but not limited to, all documents,
agreements, schedules, statements, customer lists, supplier lists, plans,
designs, parts and equipment, that is in the possession or control (direct or
indirect) of Employee.
9. SURVIVAL: REMEDIES; SEVERABILITY. Employee specifically acknowledges
that (a) Employer itself or through one or more of Employer's subsidiaries
currently operates, or will operate following the date hereof, in the Restricted
Territory; (b) Employer itself or through one or more of Employer's subsidiaries
or affiliates receives a significant amount of business from and throughout the
Restricted Territory; (c) Employer itself or through one or more of Employer's
subsidiaries or affiliates, plans to expand operations within and throughout the
Restricted Territory; and (d) the geographic restrictions contained in Section 5
hereof, and the length of time restrictions in Sections 5, 6 and 7 hereof are
each necessary and reasonable and were negotiated between Employer and Employee.
The restrictions and obligations set forth in Sections 5, 6, 7 and 8 hereof
shall survive the expiration or termination of this Agreement. The parties
hereto hereby acknowledge and agree that the restrictions and obligations set
forth in Sections 5, 6, 7 and 8 hereof are reasonable and necessary, and that
any violation thereof would
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EMPLOYMENT AND NONCOMPETITION AGREEMENT - PAGE 5
(KERRY L. ROGERS)
<PAGE> 149
result in substantial and irreparable injury to Employer, and that Employer may
not have an adequate remedy at law with respect to any such violation.
Accordingly, Employee agrees that, in the event of any actual or threatened
violation thereof, Employer shall have the right and privilege to obtain,
without the necessity of posting bond therefor, and in addition to any other
remedies that may be available, equitable relief, including temporary and
permanent injunctive relief, to cease or prevent any actual or threatened
violation of any provision hereof. Further, in the event of a breach by Employee
of any of the provisions of this Agreement, Employer shall be entitled to an
accounting and repayment of all profits, compensation, commissions,
remunerations or other benefits that Employee, directly or indirectly, has
realized and/or may realize as a result of, arising out of or in connection with
any such breach. Each and every provision set forth in Sections 5, 6, 7 and 8
hereof is independent and severable from the others, and no restriction will be
rendered unenforceable by virtue of the fact that, for any reason, any other or
others of them may be unenforceable in whole or in part. If any provision in
this Agreement, including, without limitation, those in Sections 5, 6, 7 and 8
hereof is unenforceable for any reason whatsoever, that provision will be
appropriately limited and reformed to the maximum extent provided by applicable
law. If the scope of any restriction contained herein is too broad to permit
enforcement to its full extent, then such restriction shall be enforced to the
maximum extent permitted by law so as to be judged reasonable and enforceable,
and the parties agree that such scope may be modified by an arbitrator or judge
in any proceeding to enforce this Agreement. This includes, without limitation,
altering or enforcing only portions of the limits on activity restrictions, the
geographic scope, and/or the duration of the restrictions unless to do so would
be contrary to law or public policy.
10. MISCELLANEOUS.
(a) NOTICES. All notices required or permitted to be given
hereunder shall be in writing and shall be deemed given when delivered
in person, or three (3) business days after being placed in the hands
of a courier service (e.g., DHL or Federal Express) prepaid or faxed
provided that a confirming copy is delivered forthwith as herein
provided, addressed as follows:
IF TO EMPLOYER:
Orix Global Communications, Inc.
1771 East Flamingo Road, Ste. B200
Las Vegas, NV 89119
Attn: Steve Loglisci, President
Fax: 702.792.3313
IF TO EMPLOYEE:
Kerry L. Rogers
1771 East Flamingo Road, Ste. B200
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EMPLOYMENT AND NONCOMPETITION AGREEMENT - PAGE 6
(KERRY L. ROGERS)
<PAGE> 150
Las Vegas, NV 89119
Fax: 702.792.3313
and/or to such other respective addresses and/or addressees as may be designated
by notice given in accordance with the provisions of this Section.
(b) ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter
hereof, and shall be binding upon and inure to the benefit of the
parties hereto and their respective legal representatives, successors
and permitted assigns. Except as set forth herein, the provisions of
this Agreement supersede any and all other agreements or
understandings, whether oral or written, with respect to Employee's
employment by Employer. Any amendments, or alternative or supplementary
provisions to this Agreement must be made in writing and duly executed
by the authorized representative or agent of each of the parties
hereto.
(c) NON-WAIVER. The failure in any one or more instances of a
party to insist upon performance of any of the terms, covenants or
conditions of this Agreement, to exercise any right or privilege
conferred in this Agreement or the waiver by said party of any breach
of any of the terms, covenants or conditions of this Agreement, shall
not be construed as a subsequent waiver of any such terms, covenants,
conditions, rights or privileges, but the same shall continue and
remain in full force and effect as if no such forbearance or waiver had
occurred. No waiver shall be effective unless it is in writing and
signed by an authorized representative of the waiving party.
(d) COUNTERPARTS. This Agreement may be executed by facsimile
signature and in multiple counterparts, each of which shall be deemed
to be an original, and all such counterparts shall constitute but one
instrument.
(e) APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED AND
CONTROLLED AS TO VALIDITY, ENFORCEMENT, INTERPRETATION, CONSTRUCTION,
EFFECT AND IN ALL OTHER RESPECTS BY THE INTERNAL LAWS OF THE STATE OF
NEVADA APPLICABLE TO CONTRACTS MADE IN THAT STATE.
(f) CONSTRUCTION. The parties hereto acknowledge and agree
that each party has participated in the drafting of this Agreement and
that this document has been reviewed by the respective legal counsel
for the parties hereto and that the normal rule of construction to the
effect that any ambiguities are to be resolved against the drafting
party shall not be applied to the interpretation of this Agreement. No
inference in favor of, or against, any party shall be drawn from the
fact that one party has drafted any portion hereof.
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EMPLOYMENT AND NONCOMPETITION AGREEMENT - PAGE 7
(KERRY L. ROGERS)
<PAGE> 151
BOTH PARTIES HERETO HAVE READ THIS ENTIRE AGREEMENT CAREFULLY AND
FULLY UNDERSTAND THE LIMITATIONS THAT THIS AGREEMENT IMPOSES UPON THEM AND
ACKNOWLEDGE AND AGREE THAT THOSE LIMITATIONS ARE REASONABLE.
(SIGNATURE PAGE FOLLOWS]
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EMPLOYMENT AND NONCOMPETITION AGREEMENT - PAGE 8
(KERRY L. ROGERS)
<PAGE> 152
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first above written.
EMPLOYER
ORIX GLOBAL COMMUNICATIONS, INC.,
a Nevada corporation
By:
-----------------------------------------
Steve Loglisci, President
EMPLOYEE
--------------------------------------------
KERRY L. ROGERS
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EMPLOYMENT AND NONCOMPETITION AGREEMENT - PAGE 9
(KERRY L. ROGERS)
<PAGE> 153
EMPLOYMENT AND NONCOMPETITION AGREEMENT
THIS EMPLOYMENT AND NONCOMPETITION AGREEMENT is made and entered into
this 11th day of June, 1998, by and between ORIX GLOBAL COMMUNICATIONS, INC., a
Nevada corporation ("Employer") and KERRY L. ROGERS ("Employee").
R E C I T A L S:
Employer desires to employ Employee, and Employee desires to accept
such employment, on the terms and conditions set forth in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants set forth in this Agreement, the parties hereto hereby agree as
follows:
1. EMPLOYMENT; DUTIES. Employer hereby employs Employee, and Employee
hereby accepts such employment, to perform such duties and services for and on
behalf of Employer as may from time to time be determined by the President
and/or Board of Directors of Employer. Employee shall devote his full and
undivided business time, attention and efforts to Employer's business and to the
performance of Employee's duties under this Agreement. Employee shall fully and
faithfully perform all duties assigned to him under this Agreement to the best
of Employee's abilities. In the performance of Employees duties hereunder,
Employee agrees to report to the President of the Employer. Employee shall be
designated as the Chief Technology Officer of the Employer.
2. COMPENSATION. Employee shall be entitled to receive a per annum
salary of One Hundred Forty Thousand Dollars ($140,000) ("Base Salary") as full
compensation for all the services rendered by Employee during the Term (as
hereafter defined) of Employee's employment hereunder. Employee shall be
entitled to receive the Base Salary in twenty-six (26) equal payments; payments
to be made every two weeks (less all applicable deductions for all taxes,
including federal, state and FICA). Employee's Base Salary will increase to Two
Hundred Forty Thousand Dollars ($240,000) per annum if Employer achieves
$150,000 positive EBIDTA (as calculated in accordance with generally accepted
accounting principles) for three (3) consecutive months. In addition to
Employee's Base Salary and Additional Compensation (as hereafter defined),
Employee shall receive standard employee benefits (such as health insurance)
available to all employees of Employer, but shall not otherwise receive any
benefits (such as an automobile allowance) or be eligible to participate in any
stock option, defined benefit or related pension plans of Employer. Employer
shall continue the terms of the existing automobile lease for the Employee, but
shall not be required to extend or renew such lease.
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EMPLOYMENT AND NONCOMPETITION AGREEMENT - PAGE 1
(KERRY L. ROGERS)
<PAGE> 154
3. ADDITIONAL COMPENSATION. As additional compensation for Employee's
agreements and covenants set forth in Section 5 hereof, Employer shall pay
Employee, in addition to the Base Salary, the per annum sum of Ten Thousand
Dollars ($10,000) which shall be paid in twenty six (26) equal payments;
payments to be made every two weeks (less all applicable deductions for all
taxes, including federal, state and FICA) (the "Additional Compensation").
4. TERM OF EMPLOYMENT AND TERMINATION.
(a) EMPLOYMENT TERM. The term of Employee's employment
hereunder shall commence on June 11, 1998, and shall continue for two
(2) years, unless earlier terminated in accordance with the terms of
this Agreement. This Agreement, at the sole discretion of Employer, may
be renewed at the end of the Term for additional one (1) year periods
(the term of this Agreement, including any applicable renewal thereof,
being herein referred to as the "Term").
(b) EMPLOYER RIGHT OF TERMINATION. Notwithstanding anything
contained in this Agreement to the contrary, Employee's employment may
be terminated by Employer with or without cause, subject only to the
payment obligations of Employer as hereinafter set forth.
(c) TERMINATION FOR CAUSE. In the event Employer terminates
Employee's employment hereunder for Cause (as hereinafter defined)
during the Term of this Agreement, then Employee's employment hereunder
shall immediately terminate, and Employee shall only receive the Base
Salary and the Additional Compensation prorated in each case through
the effective date of termination of Employee's employment. For
purposes of this Agreement, "Cause" means: (i) "Total and Permanent
Incapacity" (as hereinafter defined) of Employee; (ii) the failure or
inability (not as a consequence of any illness, accident or other
disability, as confirmed by competent medical evidence) of Employee to
perform his duties hereunder for a period in excess of sixty (60) days
in any twelve (12) month period in a manner reasonably satisfactory to
Employer's Board of Directors; or (iii) "Serious Misconduct" (as
hereinafter defined) of Employee. "Total and Permanent Incapacity"
means such physical or mental condition of Employee, including, without
limitation, alcoholism, which renders Employee incapable of performing
his duties hereunder for a period in excess of sixty (60) days in any
twelve (12) month period. In the event Employee is a Qualified
Individual with a Disability, as defined in the Americans with
Disabilities Act, Employer shall not terminate Employee's employment
hereunder if Employee is able to perform the essential functions of the
Employee's job with reasonable accommodation from Employer. "Serious
Misconduct" means embezzlement or misappropriation of corporate funds;
acts of Dishonesty (as hereinafter defined); activities that cause
material adverse harm to the Employer (other than as a consequence of
good faith decisions made by Employee in the normal performance of
Employee's duties hereunder); the conviction of or the plea by Employee
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EMPLOYMENT AND NONCOMPETITION AGREEMENT - PAGE 2
(KERRY L. ROGERS)
<PAGE> 155
to any misdemeanor involving dishonesty or moral turpitude or to any
criminal felony offense (other than those arising within the course of
Employee's employment hereunder with respect to environmental laws,
ERISA, products liability or civil rights, of which offenses Employee
was not personally aware and did not have operational control over the
matter, or did not personally and knowingly order in violation of the
law; any violation of laws (other than a traffic or other offense which
in the sole discretion (exercised in good faith) of the Board of
Directors of Employer does not affect the performance of Employee's
duties hereunder); the refusal to perform the duties assigned to
Employee pursuant to this Agreement (unless such duties shall be
unlawful); or the material breach of any of the terms or conditions
contained in this Agreement. "Dishonesty" shall mean the furnishing of
any information, reports, documents or certificates by Employee to
Employer that Employee knew or reasonably should have known to be false
or misleading, or in which Employee omitted to state a material fact
necessary in order to make the statements made by Employee, in light of
the circumstances under which they were made, not misleading.
(d) VOLUNTARY RESIGNATION. Notwithstanding anything contained
in this Agreement to the contrary, Employee may resign and terminate
Employee's employment hereunder subject only to the requirement that
Employee shall provide Employer with a minimum of thirty (30) days
prior written notice. In such event, Employee shall only receive the
unpaid Base Salary and Additional Compensation prorated in each case
through the effective date of Employee's resignation.
(e) DEATH. In the event of the death of Employee during the
Term of this Agreement, this Agreement and Employee's employment
hereunder shall terminate as of the date of the death of Employee, and
his estate or personal representative shall be entitled to receive the
unpaid Base Salary and Additional Compensation prorated in each case
for the period of Employee's employment to the date of his death.
(f) PAYMENT UPON TERMINATION WITHOUT CAUSE. In the event
Employee's employment hereunder is terminated for reasons other than
(x) for Cause, (y) as a result of the voluntary resignation of Employee
or (z) as a result of Employee's death, then, in such event, Employee
shall be entitled to receive the unpaid Base Salary and Additional
Compensation prorated in each case for the period of Employee's
employment to the date of such termination, together with an additional
payment equal to the sum of (x) the unpaid Base Salary in effect on the
date of termination and (y) the Additional Compensation, in each case
for the remaining Term of the Agreement (or renewal term, if such
termination occurs during the renewal term), in each case payable at
the same time and amounts as if Employee had continued his employment
hereunder.
(g) SUSPENSION. Employer shall have the right to suspend
Employee with full pay and benefits for any period of time the Board of
Directors of Employer deems, in its sole discretion, necessary or
appropriate to investigate Employee's conduct.
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EMPLOYMENT AND NONCOMPETITION AGREEMENT - PAGE 3
(KERRY L. ROGERS)
<PAGE> 156
5. COVENANT NOT TO COMPETE. During the Restricted Period (or such
lesser period to the maximum extent permitted by applicable law), Employee
agrees that Employee will not, directly or indirectly (including, without
limitation, as a partner, shareholder, director, officer or employee of, or
lender or consultant to, any other person, firm or other entity), in any
capacity, within, into or from the Restricted Territory (as defined below)
engage or cause others to engage in the business that Employer and/or its
subsidiaries or affiliates is engaged in at the time of termination, or any
aspect thereof of (consisting, as of the date hereof, principally of the
activities described in the Business Plan referenced in the Securities Purchase
Agreement dated the date hereof to which this Agreement is attached (the
"Business"), unless first authorized in writing by Employer, which authorization
may be withheld in the sole and absolute discretion of Employer. For purposes of
this Agreement, Restricted Period means the period of Employee's employment
hereunder and the following applicable period after the date of termination of
Employee's employment for any reason: (i) if Employee voluntarily resigns, a
period equal to two (2) years after the date of such resignation; (ii) for any
termination without Cause, the period through June 11, 2000; (iii) for any
termination with Cause, a period equal to two (2) years after the date of such
termination; and (iv) for any other termination, including non-renewal, a period
of one (1) year after the date of termination or non-renewal. For purposes of
this Agreement, the term "Restricted Territory" shall mean North America,
Central America and South America (or such lesser territory to the maximum
extent permitted by applicable law). If Employee violates any obligations under
this Section 5, then the time periods hereunder shall be extended by the period
of time equal to that period beginning when the activities constituting such
violation commenced and ending when the activities constituting such violation
terminate.
6. NONSOLICITATION. During the Employee's employment hereunder, and for
a period of thirty-six (36) months from and after the date of termination of
Employee's employment for any reason (or such lesser period to the maximum
extent permitted by applicable law), Employee agrees that Employee shall not,
directly or indirectly, for himself or on behalf of, or in connection with, any
person, firm or other entity other than Employer, solicit or cause others to
solicit (i) the business or patronage of any person, firm or other entity with
whom Employer has or had a business relationship (as a customer, supplier or
otherwise) or with whom Employer has proposed entering into a business
relationship (as a customer, supplier or otherwise), or (ii) any person who, on
the date hereof and on the date of termination of Employee's employment
hereunder, was an employee or consultant of Employer, or any of its subsidiaries
or their affiliates, for employment or as an independent contractor with any
person or entity, unless first authorized in writing by Employer, which
authorization may be withheld in Employer's sole and absolute discretion. If
Employee violates his obligations contained in this Section 6, then the time
periods hereunder shall be extended by the period of time equal to that period
beginning when the activities constituting such violation commenced and ending
when the activities constituting such violation terminate.
7. CONFIDENTIALITY. From and after the date hereof, Employee shall not
communicate or divulge to, or use for the benefit of, any person, firm or other
entity other than Employer, any of the trade secrets, business and/or marketing
plans, or any proprietary or confidential
- --------------------------------------------------------------------------------
EMPLOYMENT AND NONCOMPETITION AGREEMENT - PAGE 4
(KERRY L. ROGERS)
<PAGE> 157
information with respect to Employer, its subsidiaries or their affiliates, and
their business, financial condition, business operations or methods or business
prospects. The preceding sentence shall not apply to information which (i) is,
was or becomes generally known or available to the public or the industry other
than as a result of a disclosure by Employee in violation of this Agreement, or
(ii) is required to be disclosed by law. Employee shall advise Employer, in
writing, of any request, including a subpoena or similar legal inquiry, to
disclose any such confidential information, so that Employer may, at its option,
seek appropriate legal relief.
8. RETURN OF EMPLOYER PROPERTY. Immediately upon the expiration or
earlier termination of this Agreement, Employee shall return to Employer any and
all property of Employer, including, but not limited to, all documents,
agreements, schedules, statements, customer lists, supplier lists, plans,
designs, parts and equipment, that is in the possession or control (direct or
indirect) of Employee.
9. SURVIVAL: REMEDIES; SEVERABILITY. Employee specifically acknowledges
that (a) Employer itself or through one or more of Employer's subsidiaries
currently operates, or will operate following the date hereof, in the Restricted
Territory; (b) Employer itself or through one or more of Employer's subsidiaries
or affiliates receives a significant amount of business from and throughout the
Restricted Territory; (c) Employer itself or through one or more of Employer's
subsidiaries or affiliates, plans to expand operations within and throughout the
Restricted Territory; and (d) the geographic restrictions contained in Section 5
hereof, and the length of time restrictions in Sections 5, 6 and 7 hereof are
each necessary and reasonable and were negotiated between Employer and Employee.
The restrictions and obligations set forth in Sections 5, 6, 7 and 8 hereof
shall survive the expiration or termination of this Agreement. The parties
hereto hereby acknowledge and agree that the restrictions and obligations set
forth in Sections 5, 6, 7 and 8 hereof are reasonable and necessary, and that
any violation thereof would result in substantial and irreparable injury to
Employer, and that Employer may not have an adequate remedy at law with respect
to any such violation. Accordingly, Employee agrees that, in the event of any
actual or threatened violation thereof, Employer shall have the right and
privilege to obtain, without the necessity of posting bond therefor, and in
addition to any other remedies that may be available, equitable relief,
including temporary and permanent injunctive relief, to cease or prevent any
actual or threatened violation of any provision hereof. Further, in the event of
a breach by Employee of any of the provisions of this Agreement, Employer shall
be entitled to an accounting and repayment of all profits, compensation,
commissions, remunerations or other benefits that Employee, directly or
indirectly, has realized and/or may realize as a result of, arising out of or in
connection with any such breach. Each and every provision set forth in Sections
5, 6, 7 and 8 hereof is independent and severable from the others, and no
restriction will be rendered unenforceable by virtue of the fact that, for any
reason, any other or others of them may be unenforceable in whole or in part. If
any provision in this Agreement, including, without limitation, those in
Sections 5, 6, 7 and 8 hereof is unenforceable for any reason whatsoever, that
provision will be appropriately limited and reformed to the maximum extent
provided by applicable law. If the scope of any restriction contained herein is
- --------------------------------------------------------------------------------
EMPLOYMENT AND NONCOMPETITION AGREEMENT - PAGE 5
(KERRY L. ROGERS)
<PAGE> 158
too broad to permit enforcement to its full extent, then such restriction shall
be enforced to the maximum extent permitted by law so as to be judged reasonable
and enforceable, and the parties agree that such scope may be modified by an
arbitrator or judge in any proceeding to enforce this Agreement. This includes,
without limitation, altering or enforcing only portions of the limits on
activity restrictions, the geographic scope, and/or the duration of the
restrictions unless to do so would be contrary to law or public policy.
10. MISCELLANEOUS.
(a) NOTICES. All notices required or permitted to be given
hereunder shall be in writing and shall be deemed given when delivered
in person, or three (3) business days after being placed in the hands
of a courier service (e.g., DHL or Federal Express) prepaid or faxed
provided that a confirming copy is delivered forthwith as herein
provided, addressed as follows:
IF TO EMPLOYER:
Orix Global Communications, Inc.
1771 East Flamingo Road, Ste. B200
Las Vegas, NV 89119
Attn: Steve Loglisci, President
Fax: 702.792.3313
IF TO EMPLOYEE:
Kerry L. Rogers
1771 East Flamingo Road, Ste. B200
Las Vegas, NV 89119
Fax: 702.792.3313
and/or to such other respective addresses and/or addressees as may be designated
by notice given in accordance with the provisions of this Section.
(b) ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter
hereof, and shall be binding upon and inure to the benefit of the
parties hereto and their respective legal representatives, successors
and permitted assigns. Except as set forth herein, the provisions of
this Agreement supersede any and all other agreements or
understandings, whether oral or written, with respect to Employee's
employment by Employer. Any amendments, or alternative or supplementary
provisions to this Agreement must be made in writing and duly executed
by the authorized representative or agent of each of the parties
hereto.
- --------------------------------------------------------------------------------
EMPLOYMENT AND NONCOMPETITION AGREEMENT - PAGE 6
(KERRY L. ROGERS)
<PAGE> 159
(c) NON-WAIVER. The failure in any one or more instances of a
party to insist upon performance of any of the terms, covenants or
conditions of this Agreement, to exercise any right or privilege
conferred in this Agreement or the waiver by said party of any breach
of any of the terms, covenants or conditions of this Agreement, shall
not be construed as a subsequent waiver of any such terms, covenants,
conditions, rights or privileges, but the same shall continue and
remain in full force and effect as if no such forbearance or waiver had
occurred. No waiver shall be effective unless it is in writing and
signed by an authorized representative of the waiving party.
(d) COUNTERPARTS. This Agreement may be executed by facsimile
signature and in multiple counterparts, each of which shall be deemed
to be an original, and all such counterparts shall constitute but one
instrument.
(e) APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED AND
CONTROLLED AS TO VALIDITY, ENFORCEMENT, INTERPRETATION, CONSTRUCTION,
EFFECT AND IN ALL OTHER RESPECTS BY THE INTERNAL LAWS OF THE STATE OF
NEVADA APPLICABLE TO CONTRACTS MADE IN THAT STATE.
(f) CONSTRUCTION. The parties hereto acknowledge and agree
that each party has participated in the drafting of this Agreement and
that this document has been reviewed by the respective legal counsel
for the parties hereto and that the normal rule of construction to the
effect that any ambiguities are to be resolved against the drafting
party shall not be applied to the interpretation of this Agreement. No
inference in favor of, or against, any party shall be drawn from the
fact that one party has drafted any portion hereof.
BOTH PARTIES HERETO HAVE READ THIS ENTIRE AGREEMENT CAREFULLY AND FULLY
UNDERSTAND THE LIMITATIONS THAT THIS AGREEMENT IMPOSES UPON THEM AND ACKNOWLEDGE
AND AGREE THAT THOSE LIMITATIONS ARE REASONABLE.
[SIGNATURE PAGE FOLLOWS]
- --------------------------------------------------------------------------------
EMPLOYMENT AND NONCOMPETITION AGREEMENT - PAGE 7
(KERRY L. ROGERS)
<PAGE> 160
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first above written.
EMPLOYER
ORIX GLOBAL COMMUNICATIONS, INC.,
a Nevada corporation
By: /s/ STEVE LOGLISCI
---------------------------------
Steve Loglisci, President
EMPLOYEE
By: /s/ KERRY L. ROGERS
---------------------------------
KERRY L. ROGERS
- --------------------------------------------------------------------------------
EMPLOYMENT AND NONCOMPETITION AGREEMENT - PAGE 8
(KERRY L. ROGERS)
<PAGE> 161
ORIX GLOBAL COMMUNICATIONS, INC.
1771 EAST FLAMINGO ROAD, STE. B200
LAS VEGAS, NV 89119
June 11, 1998
Mr. Kerry L. Rogers
1771 East Flamingo Road, Ste. B200
Las Vegas, NV 89119
Re: Pari Passu Agreement
Dear Mr. Rogers:
This letter sets forth our mutual agreement concerning a $164,000 debt
(the "Note") owed by us to you. The terms of repayment are as follows:
(a) The Note shall bear interest, commencing June 11, 1998, at 8% per
annum.
(b) $64,000 of principal, together with interest thereon, of the Note
shall be paid on or before July 11, 1998.
(c) The remaining balance of the Note shall be paid pari passu, on a
prorated basis, with the payment by us of the $5,000,000 8% Debentures issued as
of the date hereof by us to Infinity Investors Limited (the "Purchaser").
(d) We may prepay the Note, with the consent of the Purchaser, at any
time in whole or in part.
(e) Except for the Note, we do not owe you any other sums.
Yours very truly,
ORIX GLOBAL COMMUNICATIONS, INC.
By: /s/ STEVE LOGLISCI
----------------------------------------
Steve Loglisci, President
ACKNOWLEDGED AND AGREED TO:
/s/ KERRY L. ROGERS
- ---------------------------------
Kerry L. Rogers, Individually
INFINITY INVESTORS LIMITED
By: /s/ [ILLEGIBLE]
-----------------------------
Title: Director
--------------------------
<PAGE> 1
EXHIBIT 10.13
NOTE
(AXISTEL INTERNATIONAL, INC.)
$750,000 August 20, 1999
FOR VALUE RECEIVED, on or before the Maturity Date (as hereinafter
defined), the undersigned and if more than one, each of them, jointly and
severally (hereinafter referred to as "Borrower"), promises to pay to the order
of Infinity Emerging Holdings Subsidiary Limited ("Lender") at its offices at
Hawkins Waterfront Plaza, P.O. Box 556, Main Street, Charleston Nevis, West
Indies, the principal amount of Seven Hundred Fifty Thousand and 00/100 DOLLARS
($750,000) ("Total Principal Amount"), together with interest thereon from the
date of this Note until paid at a fixed rate per annum equal to the lesser of
(a) the Maximum Rate (as hereinafter defined) or (b) ten percent (10%),
calculated on the basis of actual days elapsed but computed as if each year
consisted of 360 days. The term "Maximum Rate," as used herein, shall mean at
the particular time in question the maximum rate of interest, if any, which,
under applicable law, may then be charged on this Note. If such maximum rate of
interest changes after the date hereof and this Note provides for a fluctuating
rate of interest, the Maximum Rate shall be automatically increased or
decreased, as the case may be, without notice to Borrower from time to time as
of the effective date of each change in such maximum rate. If applicable law
ceases to provide for such a maximum rate of interest, the Maximum Rate shall be
equal to eighteen percent (18%) per annum.
The principal of and all accrued but unpaid interest on this Note shall
be due and payable as follows:
(a) interest shall be due and payable monthly as it accrues,
commencing on the last day of September, 1999 and continuing
on the last day of each successive month thereafter during the
term of this Note; and
(b) the outstanding principal balance of this Note, together with
all accrued but unpaid interest, shall be due and payable on
the Maturity Date.
The Maturity Date means December 30, 1999. If a payment is ten (10) or
more days late, Borrower will pay a delinquency charge in an amount equal to the
greater of (i) 5.0% of the
NOTE - Page 1
(AxisTel International, Inc.)
<PAGE> 2
amount of the delinquent payment up to the maximum amount of $250.00, or (ii)
$25.00. Upon an Event of Default (as hereinafter defined), including failure to
pay upon final maturity, Lender, at its option, may also, if permitted under
applicable law and in addition to any other remedies available, do one or both
of the following: (a) increase the interest rate provided for herein by three
(3.00) percentage points and (b) add any unpaid accrued interest to principal
and such sum will bear interest therefrom until paid at the rate provided in
this Note.
This Note has been executed and delivered pursuant to that certain
Securities Purchase Agreement, as amended of even date herewith by and between
Borrower, Lender, IEO Holdings Limited and AxisTel Communications, Inc. (the
"Company"), the parent corporation of Borrower (as amended by the First
Amendment to Securities Purchase Agreement and Related Agreements dated as of
April __, 1999 and the Second Amendment to Securities Purchase Agreement and
Related Agreements (the "Second Amendment") dated as of August __, 1999, the
"Securities Purchase Agreement"), evidences obligations and indebtedness from
time to time owing by Borrower to Lender under the Securities Purchase Agreement
and is secured by the Security Documents, each of even date herewith by Borrower
and certain Affiliates of Borrower, covering certain collateral as more
particularly described therein.
This Note, the Securities Purchase Agreement, such Security Documents
and all other documents evidencing, securing, governing, guaranteeing and/or
pertaining to this Note, including, but not limited to, those documents
described above and the Company Guarantee, AxisTel Metro Guarantee and the
Shareholder Guarantees (as such term is defined in the Second Amendment), are
hereinafter collectively referred to as the "Loan Documents." The holder of this
Note is entitled to the benefits and security provided in the Loan Documents.
Borrower may from time to time prepay all or any portion of the
principal of this Note without premium or penalty. Unless otherwise agreed to in
writing, or otherwise required by applicable law, payments will be applied first
to unpaid accrued interest, then to principal, and any remaining amount to any
unpaid collection costs, delinquency charges and other charges (as hereinafter
defined); provided, however, upon delinquency or other Event of Default (as
hereinafter defined), Lender reserves the right to apply payments among
principal, interest, delinquency charges, collection costs and other charges, at
its discretion. All prepayments shall be applied to the indebtedness owing
hereunder in such order and manner as Lender may from time to time determine in
its sole discretion. All payments and prepayments of principal of or interest on
this Note shall be made in lawful money of the United States of America in
immediately available funds, at the address of Lender indicated above, or such
other place as the holder of this Note shall designate in writing to Borrower.
If any payment of principal of or interest on this Note shall become due on a
day which is not a Business Day (as hereinafter defined), such payment shall be
made on the next succeeding Business Day and any such extension of time shall be
included in computing interest in connection with such payment. As used herein,
the term "Business Day" shall mean any day other than a Saturday, Sunday or any
other day on which national banking associations are authorized to be closed.
The books and records of Lender shall be prima facie evidence of all outstanding
principal of and accrued and unpaid interest on this Note.
Borrower agrees that no advances under this Note shall be used for
personal, family or
NOTE - Page 2
(AxisTel International, Inc.)
<PAGE> 3
household purposes, and that all advances hereunder shall be used solely for
business, commercial, investment or other similar purposes.
Borrower agrees that upon the occurrence of any one or more of the
following events of default ("Event of Default"):
(a) failure of Borrower to pay when due all or any part of the
principal on this Note or any other Note issued pursuant to
the terms of the Securities Purchase Agreement;
(b) failure of Borrower to pay within five (5) Business Days of
the due date thereof any interest on this Note or any other
Note issued pursuant to the terms of the Securities Purchase
Agreement;
(c) any representation, warranty, certification or statement made
by the Company or Borrower in the Securities Purchase
Agreement or any Related Agreement (as such term is defined in
the Securities Purchase Agreement) or which is contained in
any certificate, document or financial or other statement
furnished at any time under or in connection with the
Securities Purchase Agreement or any Related Agreement shall
prove to have been untrue in any material respect when made;
(d) failure on the part of the Company or Borrower to observe or
perform any of the covenants or agreement contained in Section
11 of the Securities Purchase Agreement (Negative Covenants),
which failure, to the extent curable, is not cured within a
period of fifteen (15) days of such failure;
(e) failure on the part of the Company, Borrower or the Founders
(as such term is defined in the Securities Purchase Agreement)
to observe or perform any covenant or agreement contained in
the Securities Purchase Agreement or any Related Document
(other than those covered by clauses (a) through (d) above),
which failure is not cured within forty-five (45) days of such
failure (which cure period shall be extended for a period not
to exceed an additional forty-five (45) days in the event that
the Company, Borrower or the Founders are diligently pursuing
such cure);
(f) the Company, Borrower or any Subsidiary (as such term is
defined in the Securities Purchase Agreement) has commenced a
voluntary case or other proceeding seeking liquidation,
winding-up, reorganization or other relief with respect to
itself or its debts under any bankruptcy, insolvency,
moratorium or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial
part of its property, or has consented to any such relief or
to the appointment of or taking possession by any such
official in an involuntary case or other proceeding commenced
against it, or has made a general assignment for the benefit
of creditors, or has failed generally to pay its debts as they
become due, or has taken any corporate action to authorize any
of the foregoing;
NOTE - Page 3
(AxisTel International, Inc.)
<PAGE> 4
(g) an involuntary case or other proceeding has been commenced
against the Company, Borrower or any Subsidiary, seeking
liquidation, winding-up, reorganization or other relief with
respect to it or its debts under any bankruptcy, insolvency,
moratorium or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial
part of its property, and such involuntary case or other
proceeding shall remain undismissed and unstayed for a period
of 60 days, or an order for relief has been entered against
the Company, Borrower or any Subsidiary under the federal
bankruptcy laws as now or hereafter in effect;
(h) default in any provision (including payment) of any agreement
governing the terms of any Debt of the Company or any
Subsidiary in excess of $250,000, which has not been cured
within five (5) days of the expiration of any applicable
period of grace associated therewith; or
(i) judgments or orders for the payment of money which in the
aggregate at any one time exceed $250,000 and are not covered
by insurance have been rendered against the Company, Borrower
or any Subsidiary by a court of competent jurisdiction and
such judgments or orders shall continue unsatisfied and
unstayed for a period of 60 days;
then holder of this Note may, at its option, without further notice or demand,
(i) declare the outstanding principal balance of and accrued but unpaid interest
on this Note at once due and payable, (ii) refuse to advance any additional
amounts under this Note, (iii) foreclose all liens securing payment hereof, (iv)
pursue any and all other rights, remedies and recourses available to the holder
hereof, including but not limited to any such rights, remedies or recourses
under the Related Agreements and Loan Documents, at law or in equity, or (v)
pursue any combination of the foregoing.
The failure to exercise the option to accelerate the maturity of this
Note or any other right, remedy or recourse available to the holder hereof upon
the occurrence of an Event of Default hereunder shall not constitute a waiver of
the right of the holder of this Note to exercise the same at that time or at any
subsequent time with respect to such Event of Default or any other Event of
Default. The rights, remedies and recourses of the holder hereof, as provided in
this Note and in any of the other Loan Documents, shall be cumulative and
concurrent and may be pursued separately, successively or together as often as
occasion therefore shall arise, at the sole discretion of the holder hereof. The
acceptance by the holder hereof of any payment under this Note which is less
than the payment in full of all amounts due and payable at the time of such
payment shall not (i) constitute a waiver of or impair, reduce, release or
extinguish any right, remedy or recourse of the holder hereof, or nullify any
prior exercise of any such right, remedy or recourse, or (ii) impair, reduce,
release or extinguish the obligations of any party liable under any of the Loan
Documents as originally provided herein or therein.
This Note and all of the other Loan Documents and Related Agreements
are intended to be performed in accordance with, and only to the extent
permitted by, all applicable usury laws. If any provision hereof or of any of
the other Loan Documents or Related Agreements or the
NOTE - Page 4
(AxisTel International, Inc.)
<PAGE> 5
application thereof to any person or circumstance shall, for any reason and to
any extent, be invalid or unenforceable, neither the application of such
provision to any other person or circumstance nor the remainder of the
instrument in which such provision is contained shall be affected thereby and
shall be enforced to the greatest extent permitted by law. It is expressly
stipulated and agreed to be the intent of the holder hereof to at all times
comply with the usury and other applicable laws now or hereafter governing the
interest payable on the indebtedness evidenced by this Note. If the applicable
law is ever revised, repealed or judicially interpreted so as to render usurious
any amount called for under this Note or under any of the other Loan Documents,
or contracted for, charged, taken, reserved or received with respect to the
indebtedness evidenced by this Note, or if Lender's exercise of the option to
accelerate the maturity of this Note, or if any prepayment by Borrower results
in Borrower having paid any interest in excess of that permitted by law, then it
is the express intent of Borrower and Lender that all excess amounts theretofore
collected by Lender be credited on the principal balance of this Note (or, if
this Note and all other indebtedness arising under or pursuant to the other Loan
Documents have been paid in full, refunded to Borrower), and the provisions of
this Note and the other Loan Documents and Related Documents immediately be
deemed reformed and the amounts thereafter collectable hereunder and thereunder
reduced, without the necessity of the execution of any new document, so as to
comply with the then applicable law, but so as to permit the recovery of the
fullest amount otherwise called for hereunder or thereunder. All sums paid, or
agreed to be paid, by Borrower for the use, forbearance, detention, taking,
charging, receiving or reserving of the indebtedness of Borrower to Lender under
this Note or arising under or pursuant to the other Loan Documents and Related
Agreements shall, to the maximum extent permitted by applicable law, be
amortized, prorated, allocated and spread throughout the full term of such
indebtedness until payment in full so that the rate or amount of interest on
account of such indebtedness does not exceed the usury ceiling from time to time
in effect and applicable to such indebtedness for so long as such indebtedness
is outstanding. Notwithstanding anything to the contrary contained herein or in
any of the other Loan Documents and Related Agreements, it is not the intention
of Lender to accelerate the maturity of any interest that has not accrued at the
time of such acceleration or to collect unearned interest at the time of such
acceleration.
If this Note is placed in the hands of an attorney for collection, or
is collected in whole or in part by suit or through probate, bankruptcy or other
legal proceedings of any kind, Borrower agrees to pay, in addition to all other
sums payable hereunder, all costs and expenses of collection, including, but not
limited to, reasonable attorneys' fees.
Borrower and any and all endorsers and guarantors of this Note
severally waive presentment for payment, notice of nonpayment, protest, demand,
notice of protest, notice of intent to accelerate, notice of acceleration and
dishonor, diligence in enforcement and indulgences of every kind and without
further notice hereby agree to renewals, extensions, exchanges or releases of
collateral, taking of additional collateral, indulgences or partial payments,
either before or after maturity.
Any and all payments by Borrower hereunder to any holder of this Note
shall be made free and clear of and without deduction or withholding for any and
all present or future taxes, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto (all such taxes, levies,
imposts, deductions, charges, withholdings and liabilities being hereinafter
referred
NOTE - Page 5
(AxisTel International, Inc.)
<PAGE> 6
to as "Taxes") unless such Taxes are required by law or the administration
thereof to be deducted or withheld.
THIS NOTE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE
STATE OF DELAWARE AND FOR ALL PURPOSES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF SAID STATE.
BORROWER:
AXISTEL INTERNATIONAL, INC.
By:
Name:
Title:
NOTE - Page 6
(AxisTel International, Inc.)
<PAGE> 1
EXHIBT 10.14
THE SECURITIES REPRESENTED BY THIS PROMISSORY NOTE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES
LAW AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM UNDER SUCH ACT OR LAW. SUCH SECURITIES MAY BE TRANSFERRED
ONLY IN COMPLIANCE WITH THE CONDITIONS SPECIFIED HEREIN.
PROMISSORY NOTE
$3,000,000.00 New York, New York March 2, 2000
FOR VALUE RECEIVED, the undersigned, i2v2.com Inc., a Delaware corporation
(the "Maker"), hereby promises to pay to the order of eVentures Group, Inc., a
Delaware corporation (the "Payee"), or its registered assigns, the principal sum
of Three Million and no/100 Dollars ($3,000,000.00), with interest on the unpaid
balance thereof from date of advancement until maturity or the date of
prepayment in full at the rate or rates hereinafter provided, both principal and
interest payable as hereinafter provided in lawful money of the United States of
America, at the address of Payee as set forth in this Note, or at such other
place within Dallas County, Texas as from time to time may be designated by the
holder of this Note.
1. Interest. The unpaid principal of this Note from time to time
outstanding shall bear interest prior to maturity or the date of prepayment in
full at the rate equal to the lesser of (i) 7% per annum (the "Applicable Rate")
or (ii) the maximum interest rate permitted under applicable law (the "Maximum
Rate").
(a) The unpaid principal of and, to the extent permitted by applicable
law, unpaid interest on this Note from time to time outstanding shall bear
interest from and after maturity at the rate (the "Default Rate") per annum that
is 300 basis points above the Applicable Rate, provided that in no event shall
such interest rate be more than the Maximum Rate. Notwithstanding anything to
the contrary contained in this Note, at the option of the holder of this Note
and upon notice to Maker at any time after the occurrence of a Default (as
defined herein), from and after such notice and during the continuance of such
Default, the unpaid principal of this Note from time to time outstanding and all
past due installments of interest shall, to the extent permitted by applicable
law, bear interest at the Default Rate, provided that in no event shall such
interest rate be more than the Maximum Rate.
(b) All interest accruing under this Note shall be calculated on the
basis of the actual number of days elapsed over a 365 or, if applicable, a 366
day year. Maker shall make each payment which it owes hereunder not later than
12:00 Noon, Dallas, Texas time, on the date such payment becomes due and payable
(or the date any voluntary prepayment is made), in immediately available funds.
Any payment received by Payee after such time will be deemed to have been made
on the next following business day. As used in this paragraph, the term
"business day" shall mean a day on which commercial banks are open for business
with the public in Dallas, Texas.
-1-
<PAGE> 2
(c) Interest on the unpaid principal balance of this Note shall be due
and payable in a single installment on September 1, 2000 (the "Maturity Date"),
on which date all unpaid principal of and accrued interest on this Note shall be
due and payable.
(d) Unless otherwise agreed to in writing, or otherwise required by
applicable law, payments will be applied first to unpaid accrued interest, then
to principal, and any remaining amount to any unpaid collection costs, interest
accruing at the Default Rate, and other charges; provided, however, that upon
delinquency or other Default under this Note, Payee reserves the right to apply
payments among principal, interest, Default Rate interest, collection costs and
other charges, at its discretion.
2. Default. If Payee or any guarantor (a "Guarantor") under a guaranty of
all or part of the indebtedness evidenced by this Note (the "Indebtedness"): (a)
fails to pay any of the Indebtedness when due, by maturity, acceleration or
otherwise, including without limitation, any installment of principal and/or
interest when due under this Note; or (b) fails to comply in any material
respect with any of the terms or provisions of any agreement between Maker or
any Guarantor and Payee; or (c) becomes insolvent or is the subject of a
voluntary or involuntary proceeding in bankruptcy, or a reorganization,
arrangement or creditor composition proceeding, ceases doing business as a going
concern, or is the subject of a dissolution, merger or consolidation; or (d) if
any warranty or representation made by Maker or any Guarantor in connection with
this Note or any of the Indebtedness shall be discovered to be untrue or
incomplete in any material respect; or (e) if there is any termination, notice
of termination, or breach of any guaranty, pledge, collateral assignment or
subordination agreement or other agreement with Payee relating to all or any
part of the Indebtedness; or (f) if there is any failure by Maker or any
Guarantor to pay when due any of its other indebtedness for money loaned to
Maker or any such Guarantor (i.e., other than the Indebtedness) or in the
observance or performance of any term, covenant or condition in any document
evidencing, securing or relating to such indebtedness; or (g) if Payee deems
itself insecure believing that the prospect of payment of this Note or any of
the Indebtedness is impaired; or (h) if there is filed or issued a levy or writ
of attachment or garnishment or other like judicial process upon Maker or any
Guarantor, then Payee, upon the occurrence of any of these events (each, a
"Default"), may at its option and without prior notice to Maker or Guarantor (or
any of them), (i) declare any or all of the principal balance hereof and the
interest accrued hereon to be immediately due and payable, (ii) set off against
the Indebtedness any amounts owing by Payee to Maker or the Guarantor (or any of
them), (iii) charge interest at the Default Rate provided herein and (iv)
exercise any one or more of the rights and remedies granted to Payee by this
Note or any agreement with Maker or any Guarantor (or any of them) or available
to it under applicable law or in equity, as Payee may determine in its sole
discretion. All payments under this Note shall be in immediately available
United States funds, without setoff or counterclaim. During the existence of a
Default, which remains uncured beyond any applicable notice, cure or grace
period, the holder of this Note or any part thereof shall have the option of
declaring the principal balance hereof and the interest accrued hereon to be
immediately due and payable.
3. Prepayment. Subject to the Holder's conversion rights as set forth in
Section 4, Maker shall have the right to prepay without penalty at any time and
from time to time prior to maturity, all or any part of the unpaid principal
balance of this Note and/or all or any part of the
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<PAGE> 3
unpaid interest accrued to the date of such prepayment, provided that any such
principal thus paid is accompanied by accrued interest on such principal. Maker
shall provide any person who is the holder of this Note (the "Holder") with at
least five days' prior written notice of prepayment.
4. Conversion.
(a) The Holder shall have the right, at the Holder's option, at any
time prior to payment in full of the principal balance of this Note (but only in
connection with an Equity Financing (as defined herein) or on the Maturity
Date), to convert this Note, in accordance with the provisions of Section 4(c)
hereof, in whole or in part, into fully paid and nonassessable shares of common
stock in Maker, par value $0.001 per share ("Common Stock"). The number of
shares of Common Stock into which this Note may be converted (the "Conversion
Shares") shall be determined by dividing the aggregate unpaid principal amount
of this Note, together with all accrued interest to the date of conversion, by
the Conversion Price (as defined herein) in effect at the time of such
conversion.
(b) The "Conversion Price" shall be determined as follows:
(i) In the event that the Indebtedness is converted into Common
Stock in connection with a private placement or public offering of equity
securities of Maker that closes prior to the Maturity Date (each, an
"Equity Financing," and the closing date of such Equity Financing being
hereinafter referred to as the "Reference Financing Date"), the Conversion
Price shall be an amount equal to 95% of the amount received by Maker for
each share of Common Stock issued in the Equity Financing (and in the case
if an Equity Financing that involves the placement of securities
convertible into Common Stock, the Conversion Price shall be an amount
equal to 95% of the amount received by Maker for each common share
equivalent issued in the Equity Financing).
(ii) In the event that the Indebtedness is converted into Common
Stock at the Maturity Date (or thereafter, if the Maturity Date is extended
by Payee), the Conversion Price shall be an amount equal to the value of
one share of Common Stock calculated on the basis of a Company Valuation
(as defined herein) of $50,000,000. For purposes of the foregoing, "Company
Valuation" means the price per share of Common Stock (or common share
equivalent) that would be paid to acquire all equity securities of Maker on
a fully diluted basis after adding the amount attributable to any
indebtedness other than trade debt and the unpaid principal amount of, and
accrued interest on, the Indebtedness.
Maker agrees to give the Holder at least ten days' prior written notice of the
terms and conditions, and of the proposed closing date, of each Equity
Financing. Notwithstanding the provisions of Section 4(b)(ii), Maker
acknowledges that Payee has no obligation to extend the Maturity Date.
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<PAGE> 4
(c) Before the Holder shall be entitled to convert this Note into
shares of Common Stock, it shall give written notice by mail, postage prepaid,
to Maker at its principal corporate office, of the election to convert the same
pursuant to this Section 4, and shall state therein the name or names in which
the certificate or certificates for Conversion Shares are to be issued. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date on which such written notice is effective, 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 as of such date.
(d) As promptly as practicable after the conversion of this Note,
Maker at its expense will issue and deliver to the Holder of this Note a
certificate or certificates for the number of full shares of Common Stock
issuable upon such conversion.
(e) No fractional shares of Common Stock shall be issued upon
conversion of this Note. In lieu of Maker issuing any fractional shares to the
Holder upon the conversion of this Note, Maker shall pay to the Holder the
amount of outstanding principal that is not so converted, such payment to be in
the form as provided below. Upon the conversion of this Note pursuant to this
Section 4, Maker shall, at its expense and as soon as practicable thereafter,
issue and deliver to such Holder at such principal office a certificate or
certificates for the number of whole shares of such Common Stock to which the
Holder shall be entitled upon such conversion (bearing such legends as are
required by applicable state and federal securities laws in the opinion of
counsel to Maker), together with any securities and property to which the Holder
is entitled upon such conversion under the terms of this Note, including a check
payable to the Holder for any cash amounts payable as described above. Maker
shall be obligated to pay the Holder, within ten days after the date of such
conversion, any interest accrued and unpaid or unconverted to and including the
date of such conversion.
(f) If less than the entire unpaid principal amount of the Note is
converted into Common Stock, a replacement Note of like tenor shall be issued to
evidence the remaining unpaid principal amount of the Note, such re-issued Note
to be delivered to the Holder against delivery to Maker of the Note which has
been partially converted.
(g) The Conversion Shares shall be subject to the following
registration rights: (i) the Conversion Shares shall be included in the
registration rights granted in connection with the Equity Financing if more
favorable that those granted under the Registration Rights Agreement (herein so
called) dated as of June 25, 1999, between Maker and IEO Holdings Limited; or
(ii) the Conversion Shares shall be entitled to the same registration rights as
"Registrable Securities," as defined and described in the Registration Rights
Agreement. Upon request by Maker within 90 days after the Equity Financing
(except with respect to the first Equity Financing to occur subsequent to the
date hereof), which request shall provide a summary in reasonable detail of such
Equity Financing, Payee will advise Maker as to whether the Conversion Shares
will be subject to the registration rights granted in clause (i) or clause (ii)
above.
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<PAGE> 5
5. Conversion Price Adjustments.
(a) In the event that Holder elects to convert this Note in connection
with an Equity Financing:
(i) In the event Maker should at any time or from time to time
after a Reference Financing Date fix a record date for the effectuation of
a split or subdivision of the outstanding shares of Common Stock or the
determination of holders of Common Stock entitled to receive a dividend or
other distribution payable in additional shares of Common Stock or other
securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common Stock
(hereinafter referred to as "Common Stock Equivalents") without payment of
any consideration by such holder for the additional shares of Common Stock
or the Common Stock Equivalents (including the additional shares of Common
Stock issuable upon conversion or exercise thereof), then, as of such
record date (or the date of such dividend distribution, split or
subdivision if no record date is fixed), the Conversion Price of this Note
shall be appropriately decreased so that the number of shares of Common
Stock issuable upon conversion of this Note shall be increased in
proportion to such increase of outstanding shares.
(ii) If the number of shares of Common Stock outstanding at any
time after a Reference Financing Date is decreased by a combination of the
outstanding shares of Common Stock or a consolidation, by reclassification
or otherwise, then, following the record date of such combination, the
Conversion Price for this Note shall be appropriately increased so that the
number of shares of Common Stock issuable on conversion hereof shall be
decreased in proportion to such decrease in outstanding shares.
(b) If the Common Stock issuable on conversion of this Note shall be
changed into the same or a different number of shares of any other class or
classes of stock, whether by capital reorganization, reclassification or
otherwise (other than a stock split, subdivision or combination of shares
provided for above), the Holder shall, upon the conversion of this Note, be
entitled to purchase, in lieu of the Common Stock which the Holder would have
become entitled to purchase but for such change, a number of shares of such
other class or classes of stock equivalent to the number of shares of Common
Stock that would have been subject to purchase by the Holder on conversion of
this Note immediately prior to such change.
(c) In the event of:
(i) Any taking by Maker of a record of the holders of any class
of securities of Maker for the purpose of determining the holders thereof
who are entitled to receive any dividend or other distribution, or any
right to subscribe for, purchase or otherwise acquire any shares of stock
of any class or any other securities or property, or to receive any other
right; or
(ii) Any capital reorganization of Maker, any reclassification or
recapitalization of the capital stock of Maker or any transfer of all or
substantially all of
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<PAGE> 6
the assets of Maker to any other person or any consolidation or merger
involving Maker; or
(iii) Any voluntary or involuntary dissolution, liquidation or
winding up of Maker,
then and in each such event Maker shall mail to the holder of this Note at
least ten days prior to the earliest date specified therein, a notice
specifying (x) the date on which any such record is to be taken for the
purpose of such dividend, distribution or right, and the amount and
character of such dividend, distribution or right, and (y) the date on
which any such reorganization, reclassification, transfer, consolidation,
merger, dissolution, liquidation or winding up is expected to become
effective and the record date for determining stockholders entitled to vote
thereon.
(e) Maker shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock solely for the purpose of
effecting the conversion of the Note such number of its shares of Common Stock
as shall from time to time be sufficient to effect the conversion of the Note;
and if at any time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the conversion of the entire outstanding
principal amount of this Note, in addition to such other remedies as shall be
available to the holder of this Note, Maker will use its best efforts to take
such corporate action as may be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be sufficient
for such purposes.
(f) Upon the occurrence of each adjustment of the Conversion Price
pursuant to this Section 5, Maker at its expense shall promptly compute such
adjustment in accordance with the terms hereof and furnish to the Holder a
certificate setting forth such adjustment and showing in reasonable detail the
facts upon which such adjustment is based. Maker shall, upon the written request
at any time of the Holder, furnish or cause to be furnished to the Holder a like
certificate setting forth (i) such adjustments and (ii) the Conversion Price at
the time in effect.
(g) The form of this Note need not be changed because of any
adjustment in the Conversion Price. A Note issued after any adjustment on any
partial conversion or upon replacement may continue to express the same
Conversion Price as is stated in this Note as initially issued, and the
Conversion Price shall be considered to have been so changed as of the close of
business on the date or dates of adjustment.
(h) Maker will not, by amendment of its Certificate of Incorporation
or through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms to be observed
or performed hereunder by Maker, but will at all times in good faith assist in
the carrying out of all the provisions of this Section 5 and in the taking of
all such action as may be necessary or appropriate in order to protect against
impairment of the rights of the Holder of this Note set forth in this Section 5.
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<PAGE> 7
6. Adjustments for Other Distributions. In the event Maker shall declare a
distribution payable in securities of other persons, evidences of indebtedness
issued by Maker or other persons, assets (excluding cash dividends) or options
or rights, then, in each such case, the Holder hereof shall be entitled to a
proportionate share of any such distribution as though such Holder was the
holder of the number of shares of Common Stock into which this Note is
convertible as of the record date fixed for the determination of the holders of
Common Stock entitled to receive such distribution.
7. Representations and Warranties of Maker. Maker hereby represents and
warrants to Payee, which representations and warranties shall survive the
closing (the "Closing") of the advance contemplated hereby, regardless of what
investigation, if any, Payee shall have made thereof prior to such closing, as
follows:
(a) Maker is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Maker is duly licensed,
qualified or domesticated as a foreign corporation and in good standing under
the laws of each jurisdiction where the failure to be so licensed, qualified or
domesticated would have a Material Adverse Effect (as defined herein).
As used herein, the term "Material Adverse Effect," when used in
connection with an individual, corporation, partnership, joint venture,
unincorporated association, joint stock company, trust or other entity (each, a
"Person") or any of such Person's subsidiaries, means any event, change or
effect that is materially adverse to the condition (financial or otherwise),
properties, assets, liabilities, businesses, operations, results of operations
or prospects of such Person and its subsidiaries taken as a whole.
(b) Maker has all requisite power to execute and deliver this Note, to
perform its obligations hereunder, and consummate the transactions contemplated
hereby. The execution, delivery and performance of the obligations of Maker set
forth in this Note and all other agreements and documents to be delivered by
Maker at Closing shall be duly authorized by all necessary action (corporate or
otherwise), and this Note has been duly executed and delivered and is, and each
of the other agreements and documents to be delivered by Maker at Closing will
be, when executed and delivered, legal, valid and binding agreements of Maker,
enforceable against it in accordance with their respective terms. No other
proceedings on the part of Maker are necessary to authorize the execution and
delivery by Maker of this Note, the performance by Maker of its obligations
hereunder, and the consummation by Maker of the transactions contemplated
hereby.
(c) The authorized capitalization of Maker consists solely of
20,000,000 shares of common stock, par value $0.00l per share ("Common Stock"),
of which 11,251,514 shares are issued and outstanding (the "Shares"). The Shares
constitute all of the issued and outstanding shares of capital stock of Maker.
Except for options and warrants to acquire an aggregate of 2,178,586 shares of
Common Stock granted pursuant to employment and other agreements, Maker is not
obligated to issue or acquire any of its securities, and there are no
outstanding rights, warrants, subscriptions, options or commitments to purchase
or otherwise
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<PAGE> 8
acquire from Maker any shares of capital stock in Maker or any securities or
obligations convertible into or exchangeable for any shares of capital stock in
Maker.
(d) The execution, delivery and performance of this Note do not, and
the consummation of the transactions contemplated hereby will not, conflict with
or result in any violation of any statute, law, rule, regulation, judgment,
order, decree or ordinance applicable to Maker or its properties or assets, or
conflict with or result in any breach or default (with or without notice or
lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or to loss of a material benefit
under, or result in the creation of a lien or encumbrance on any of the
properties or assets of Maker pursuant to (i) any provision of Maker's
Certificate of Incorporation or Bylaws, or (ii) any agreement, contract, note,
mortgage, indenture, lease, instrument, permit, concession, franchise or license
to which Maker or any of its properties or assets may be bound or affected.
(e) No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency, commission,
regulatory authority or other governmental authority or instrumentality,
domestic or foreign (each, a "Governmental Entity"), is required by or with
respect to Maker in connection with the execution and delivery of this Note by
Maker, the performance by Maker of its obligations hereunder or the consummation
by Maker of the transactions contemplated hereby, other than notice filings that
may be required under applicable securities laws with respect to exemptions for
nonpublic offerings. No consent, approval, waiver or other action by any Person
under any contract, agreement, note, indenture, lease, instrument or other
document is required or necessary for the execution, delivery and performance of
this Note by Maker and the consummation of the transactions contemplated hereby.
(f) Maker is in compliance with, and has conducted its business so as
to comply with, all laws, rules and regulations, judgments, decrees or orders of
any Governmental Entity applicable to its operations or with respect to which
compliance is a condition of engaging in the business thereof, except to the
extent that failure to comply would, individually or in the aggregate, not have
had and is reasonably expected not to have a Material Adverse Effect. There are
no judgments, orders, injunctions, decrees, stipulations or awards (whether
rendered by a court or administrative agency or by arbitration) against Maker or
any of any of its properties.
(g) Other than a lawsuit alleging patent infringement brought by
Multi-Tech Systems Inc. (the "Multi-Tech Action"), there are currently no
pending, and Maker has no has knowledge of any threatened, claims, lawsuits or
administrative proceedings or investigations against Maker or to which any of
the assets of Maker are subject.
(h) Maker owns all right, title and interest in, or possesses adequate
licenses or other valid rights to use (without the making of any payment to
others or the obligation to grant rights to others in exchange), free and clear
of all liens, all Intellectual Property (as defined herein) used in connection
with the operation of Maker as currently conducted or proposed to be conducted.
Maker has taken or is in the process of taking all necessary and desirable
action to maintain and protect each item of Intellectual Property that Maker
owns or uses.
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<PAGE> 9
(i) To the knowledge of Maker, Maker has not interfered with,
infringed upon, misappropriated or otherwise come into conflict with any
Intellectual Property rights of any other Person (as defined herein), and,
other than with respect to the Multi-Tech Action and a suit brought by
Visitalk.com, none of the directors and officers (and employees with
responsibility for Intellectual Property matters) of Maker has ever
received any charge, complaint, claim, demand or notice from any
Governmental Entity or other Person alleging any such interference,
infringement, misappropriation or conflict (including any claim that Maker
must license or refrain from using any Intellectual Property rights of any
other Person) challenging the ownership, validity or effectiveness of any
of the Intellectual Property used in connection with the operation of Maker
or as proposed to be conducted, including any claim challenging or
questioning the validity or effectiveness of any license, sublicense or
agreement relating to such Intellectual Property, and Maker has no
knowledge of any facts that might constitute a valid basis for any such
charge, complaint, claim, demand or notice. To Maker's knowledge, no Person
has interfered with, infringed upon, misappropriated or otherwise come into
conflict with any Intellectual Property rights of Maker.
(ii) Maker has made available to Payee correct and complete
copies of all patents, registrations and applications (as amended to date)
of Maker and has made available to Payee correct and complete copies of all
other written documentation evidencing ownership and prosecution (if
applicable) of each such item of Intellectual Property. All patents and
registered trademarks, and other company, product or service identifiers
and registered copyrights held by Maker are valid and subsisting.
(iii) Maker has made available to Payee correct and complete
copies of all trademarks, registrations and applications (as amended to
date) of Maker and has made available to Payee correct and complete copies
of all other written documentation evidencing ownership and prosecution (if
applicable) of each such item of Intellectual Property.
(iv) Maker has made available to Payee correct and complete
copies of all copyrights, registrations and applications (as amended to
date) of Maker, and has made available to Payee correct and complete copies
of all other written documentation evidencing ownership and prosecution (if
applicable) of each such item of Intellectual Property.
(v) Maker has made available to Payee correct and complete copies
of all licenses, agreements or other permissions (as amended to date) by
which Maker has granted rights to any other Person with respect to any item
of Intellectual Property in the United States and any jurisdictions
worldwide, and has made available to Payee correct and complete copies of
all written documentation evidencing the legality, validity and
enforceability of each such license, agreement and other permission (if
applicable). With respect to each item of Intellectual Property of the
nature described in this Section 7(h)(v):
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<PAGE> 10
(A) Maker owns all right, title and interest in and to such
item, free and clear of any lien;
(B) such item is not subject to any outstanding injunction,
judgment, order, decree, ruling or charge;
(C) other than the Multi-Tech Action, no action, suit,
proceeding, hearing, investigation, charge, complaint, claim or demand
is pending or, to Maker's knowledge after due inquiry, threatened
which challenges the legality, validity, enforceability, use or
ownership of such item;
(D) Maker has not agreed to indemnify any Person for or
against any interference, infringement, misappropriation or other
conflict with respect to such item;
(E) all licenses, agreements and other permissions
pertaining to such item and all other rights to which Maker is
entitled with respect thereto are in compliance in all respects with
all applicable laws in all jurisdictions worldwide, including, without
limitation, those pertaining to remittance of foreign exchange and
taxes; and
(F) Maker has not made a previous assignment, sale, transfer
or agreement constituting a present or future assignment, sale or
transfer of, or granted any lien on, such item other than licenses
granted in the ordinary course of business consistent with past
practice; nor has Maker granted any release, covenant not to sue or
other non-assertion assurance to any Person with respect to such item
which could reasonably be expected to have an adverse effect on the
aggregate value of the Intellectual Property.
(vi) Maker has made available to Payee correct and complete
copies of all licenses, sublicenses, agreements and other permissions (as
amended to date) relating to each item of Intellectual Property that any
Person other than Maker owns and that Maker uses pursuant to any license,
sublicense, agreement or permission. With respect to each such item of
Intellectual Property of the nature described in this Section 7(h)(vi):
(A) the license, sublicense, agreement or other permission
covering such item is legal, valid, binding, enforceable and in full
force and effect;
(B) no party to such license, sublicense, agreement or other
permission is in breach or default thereof, and no event has occurred
which, with the giving of notice or the lapse of time, or both, would
constitute such a breach or default thereof or permit termination,
modification or acceleration thereunder;
(C) no party to such license, sublicense, agreement or other
permission has repudiated any provision thereof;
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<PAGE> 11
(D) with respect to each such sublicense, the
representations and warranties set forth in clauses (A) through (C)
above are true and correct with respect to the underlying license;
(E) the underlying item of Intellectual Property is not
subject to any outstanding injunction, judgment, order, decree, ruling
or charge;
(F) other than the Multi-Tech Action, no action, suit,
proceeding, hearing, investigation, charge, complaint, claim or demand
is pending or, to Maker's knowledge, threatened which challenges the
legality, validity or enforceability of the underlying item of
Intellectual Property; and
(G) Maker has not granted any sublicense or similar right
with respect to the underlying license, sublicense, agreement or other
permission.
(vii) To Maker's knowledge, the continued operation of the
business of Maker as currently conducted or as proposed to be conducted
does not and shall not interfere with, infringe upon, misappropriate or
otherwise come into conflict with, any Intellectual Property rights of any
Person.
(viii) Maker has no knowledge of any new products, inventions,
procedures, or methods of manufacturing or processing that any competitors
or other Persons have developed which reasonably could be expected to
supersede or make obsolete any product or process of Maker.
(ix) Maker has not entered into any agreement to indemnify any
other Person against any charge of infringement of any Intellectual
Property. Maker has not entered into any agreement granting any third party
the right to bring infringement actions with respect to, or otherwise to
enforce rights with respect to, any Intellectual Property. Maker has the
exclusive right to file, prosecute and maintain all applications and
registrations with respect to its Intellectual Property.
(x) The terms defined below shall have the respective meanings
indicated:
(A) "Intellectual Property" means (i) all inventions
(whether patentable or unpatentable and whether or not reduced to
practice), all improvements thereto, and all patents, patent
applications and patent disclosures, together with all reissues,
continuations, continuations-in-part, divisionals, revisions, utility
models, extensions and reexaminations thereof; (ii) all trademarks,
service marks, trade dress, logos, trade names and corporate names,
together with all translations, adaptations, derivations and
combinations thereof and including, without limitation, all goodwill
associated therewith, and all applications, registrations and renewals
in connection therewith, (iii) all copyrightable works, all copyrights
and all applications, registrations, renewals and derivatives in
connection therewith, (iv) all trade secrets and confidential business
information (including, without limitation, ideas, research and
development,
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<PAGE> 12
know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings,
specifications, customer and supplier lists, pricing and cost
information, and business and marketing plans and proposals), (v) all
computer software (including data and related documentation), (vi) all
other proprietary rights, (vii) all copies and tangible embodiments
thereof (in whatever form or medium), and (viii) all licenses or
agreements in connection with the foregoing, in each case on a
worldwide basis and used or useful in Maker's business.
(B) "Person" means any individual, corporation, partnership,
limited liability company, firm, joint venture, association,
joint-stock company, trust, unincorporated organization, Governmental
Entity or other entity.
(i) Maker is not an "investment company," as defined in the
Investment Company Act of 1940, as amended.
(j) No representation, warranty or statement made by Maker in or
pursuant to this Note contains or will contain any untrue statement of a
material fact or omits or will omit to state any material fact necessary to
make such representation, warranty or statement not misleading.
8. Representations and Warranties of Payee.
(a) Payee (i) represents that it is an "accredited investor" within
the meaning of the Securities Act of 1933, as amended (the "Securities Act") and
the rules and regulations promulgated thereunder, (ii) represents that it has
received adequate information about Maker to determine the advisability of a
purchase of Maker's securities, (iii) represents that it is acquiring the Note
and will acquire any Conversion Shares for its own account for investment and
not with a view to any distribution or public offering within the meaning of the
Securities Act, except with respect to the Conversion Shares pursuant to the
registration of the offer and sale thereof under the Securities Act (iv)
acknowledges that the offer and sale of the Note and any Conversion Shares have
not been registered under the Securities Act and (v) agrees that it will not
sell or otherwise transfer this Note or any Conversion Shares except pursuant to
the terms and conditions specified herein (including, without limitation,
Section 8(c)) and that it will cause any permitted transferee thereof to agree
to take and hold the same subject to the terms and conditions specified herein.
(b) Except as provided in Section 8(d), this Note and each certificate
for Conversion Shares issued to Payee or to a subsequent transferee thereof
pursuant to Section 8(c) shall include a legend in substantially the following
form (with such changes therein as may be appropriate to reflect whether such
legend refers to this Note or Conversion Shares); provided, however, that such
legend shall not be required if such transfer is being made in connection with a
sale which is exempt from registration pursuant to Rule 144 under the Securities
Act or if the opinion of counsel referred to in Section 8(c) is to the further
effect that neither such legend nor the restrictions on transfer in this Section
8 are required in order to ensure compliance with the Securities Act:
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<PAGE> 13
THIS PROMISSORY NOTE AND ANY SHARES PURCHASABLE ON CONVERSION OF THIS NOTE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY APPLICABLE STATE SECURITIES LAW AND MAY NOT BE SOLD OR TRANSFERRED IN
THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT
OR LAW. THIS NOTE AND ANY SUCH CONVERSION SHARES MAY BE TRANSFERRED ONLY IN
COMPLIANCE WITH THE CONDITIONS SPECIFIED IN AND ARE SUBJECT TO OTHER
PROVISIONS OF THAT CERTAIN PROMISSORY NOTE, DATED MARCH 2, 2000, MADE BY
MAKER AND THE INITIAL HOLDER THEREOF (AS SUCH PROMISSORY NOTE MAY BE
SUPPLEMENTED, MODIFIED, AMENDED OR RESTATED FROM TIME TO TIME), A COMPLETE
AND CORRECT COPY OF WHICH IS AVAILABLE FOR INSPECTION AT THE PRINCIPAL
OFFICE OF MAKER AND WILL BE FURNISHED TO THE HOLDER HEREOF UPON WRITTEN
REQUEST AND WITHOUT CHARGE.
(c) Prior to (or promptly after, in the case of a transfer to an
Affiliate) any assignment, transfer or sale of this Note or any Conversion
Shares (other than a transfer among the Holder and/or an Affiliate thereof), the
Holder shall give written notice to Maker of the Holder's intention to effect
such assignment, transfer or sale, which notice shall set forth the date of such
proposed assignment, transfer or sale and the identity of the proposed
transferee. A Holder wishing to effect such a transfer of this Note or any
Conversion Shares shall also furnish to Maker an agreement by the transferee
thereof that it is taking and holding the same subject to the terms and
conditions specified herein and, unless the transferee is an Affiliate of such
holder, a written opinion of such Holder's counsel to the effect that the
proposed transfer may be effected without registration under the Securities Act.
As used herein, "Affiliate" of any Person means any other Person directly or
indirectly controlling, controlled by or under direct or indirect common control
with such Person. For purposes of this definition, a Person shall be deemed to
"control" another Person if such first Person possesses directly or indirectly
the power to (i) vote 10% or more of the securities having ordinary voting power
for the selection of directors of such Person, or (ii) direct, or cause the
direction of, the management and policies of the second Person, whether through
the ownership of voting securities, by contract or otherwise.
(d) The restrictions set forth in this Section 9 shall terminate and
cease to be effective with respect to this Note or Conversion Shares the offer
and sale of which are registered under the Securities Act or upon receipt by
Maker of an opinion of counsel knowledgeable as to securities matters, in form
reasonably satisfactory to Maker, to the effect that compliance with such
restrictions is not necessary in order to comply with the Securities Act with
respect to the transfer of this Note or the Conversion Shares; provided,
however, that after two years from the date of issuance of any Conversion Shares
(or such shorter period as may be provided by Rule 144(k) promulgated under the
Securities Act), such restrictions shall automatically terminate with respect to
the Holder if not an affiliate (as defined in the Securities Exchange Act of
1934, as amended) of Maker (without the necessity of any opinion of counsel) as
to this Note and as to any Conversion Shares issued in respect of this Note upon
exercise of the conversion right set forth herein. Whenever such restrictions
shall so terminate the holder of this Note and/or Conversion Shares shall be
entitled to receive from Maker, without expense (other than transfer
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<PAGE> 14
taxes, if any), a reissued Note and certificates for such Conversion Shares not
bearing the legend set forth in Section 8(b), at which time Maker will rescind
any transfer restrictions relating thereto.
9. Assignment. Subject to the restrictions on transfer described in Section
8, the rights and obligations of Maker and the Holder of this Note shall be
binding upon and benefit the successors, permitted assigns, heirs,
administrators and permitted transferees of the parties.
10. No Stockholder Rights. Nothing contained in this Note shall be
construed as conferring upon the Holder or any other person the right to vote or
to consent or to receive notice as a stockholder in respect of meetings of
stockholders for the election of directors of Maker or any other matters or any
rights whatsoever as a stockholder of Maker; and no dividends or interest shall
be payable or accrued in respect of this Note or the interest represented hereby
or any shares of Common Stock obtainable hereunder until, and only to the extent
that, this Note shall have been converted.
11. Compliance with Usury Statutes. It is the intent of Payee and Maker in
the execution and delivery of this Note and all other instruments now or
hereafter securing this Note to contract in strict compliance with applicable
usury law. In furtherance thereof, Payee and Maker stipulate and agree that none
of the terms and provisions contained in this Note, or in any other instrument
executed in connection herewith, shall ever be construed to create a contract to
pay for the use, forbearance or detention of money, interest at a rate in excess
of the maximum interest rate permitted to be charged by applicable law, neither
Maker nor any guarantors, endorsers or other parties now or hereafter becoming
liable for payment of this Note shall ever be obligated or required to pay
interest on this Note at a rate or in an amount in excess of the maximum
interest that may be lawfully charged under applicable law, and the provisions
of this paragraph shall control over all other provisions of this Note and any
other instruments now or hereafter executed in connection herewith which may be
in apparent conflict herewith. Payee expressly disavows any intention to charge
or collect excessive unearned interest or finance charges in the event the
maturity of this Note is accelerated. If the maturity of this Note shall be
accelerated for any reason or if the principal of this Note is paid prior to the
end of the term of this Note, and as a result thereof the interest received for
the actual period of existence of the loan evidenced by this Note exceeds the
amount of interest that would have accrued at the applicable maximum lawful
rate, Payee or any other holder of this Note shall, at its option, either refund
to Maker the amount of such excess or credit the amount of such excess against
the principal balance of this Note then outstanding and thereby shall render
inapplicable any and all penalties of any kind provided by applicable law as a
result of such excess interest. In the event that Payee or any other holder of
this Note shall contract for, charge or receive any amounts and/or any other
thing of value which are determined to constitute interest which would increase
the effective interest rate on this Note to a rate in excess of that permitted
to be charged by applicable law, all such sums determined to constitute interest
in excess of interest at the lawful rate shall, upon such determination, at the
option of Payee or other holder of this Note, be either immediately returned to
Maker or credited against the principal balance of this Note then outstanding,
in which event any and all penalties of any kind under applicable law as a
result of such excess interest shall be inapplicable. By execution and delivery
of this Note, Maker acknowledges that it believes the loan evidenced by this
Note to be non-usurious and agrees that
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<PAGE> 15
if, at any time, Maker should have reason to believe that such loan is in fact
usurious, it will give Payee or other holder of this Note notice of such
condition and Maker agrees that Payee or other holder shall have 90 days in
which to make appropriate refund or other adjustment in order to correct such
condition if in fact such exists. The term "applicable law" as used in this Note
shall mean the laws of the State of New York or the laws of the United States,
whichever laws allow the greater rate of interest, as such laws now exist or may
be changed or amended or come into effect in the future.
12. Cost of Collection. Should the indebtedness represented by this Note or
any part thereof be collected at law or in equity or through any bankruptcy,
receivership, probate or other court proceedings or if this Note is placed in
the hands of attorneys for collection after default, Maker and all endorsers,
guarantors and sureties of this Note jointly and severally agree to pay to Payee
or other holder of this Note, in addition to the principal and interest due and
payable hereon, all costs and expenses of Payee or other holder in enforcing
this Note, including, without limitation, reasonable attorneys' and collection
fees.
13. Waivers. Maker and all endorsers, guarantors and sureties of this Note
and all other persons liable or to become liable on this Note severally waive
presentment for payment, demand, notice of demand and of dishonor and nonpayment
of this Note, notice of intention to accelerate the maturity of this Note,
protest and notice of protest, diligence in collecting, and the bringing of suit
against any other party, and agree to all renewals, extensions, modifications,
partial payments, releases or substitutions of security, in whole or in part,
with or without notice, before or after maturity.
14. Notices. Any notice, request, instruction or other document to be given
under this Note after the date hereof by any party hereto to any other party
shall be in writing and shall be deemed to have been duly given on the date of
service if delivered personally or by telecopier with confirmed receipt, or on
the third day after mailing if sent by certified mail, postage prepaid, at the
addresses set forth below:
If to Maker: i2v2.com Inc.
200 Church Street, Suite 401
New York, New York 10013
Attn: General Counsel
Facsimile: 212.571.9944
If to Payee: eVentures Group, Inc.
c/o HW Partners L.P.
1601 Elm Street, 40th Floor
Dallas, Texas 75201
Attn: General Counsel
Telecopy: 214.720.1667
Any change in the address of any party hereunder shall not be effective as to
the other party unless notice of such change of address is sent to the other
party in accordance with the foregoing.
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<PAGE> 16
15. Amendments and Waivers. Any provision of this Note may be amended,
supplemented, waived, discharged or terminated by a written instrument signed by
Maker and the Holder hereof.
16. Delays and Omissions. No delay or omission of Payee or any other holder
hereof to exercise any power, right or remedy accruing to Payee or any other
holder hereof shall impair any such power, right or remedy or shall be construed
to be a waiver of the right to exercise any such power, right or remedy. Payee's
right to accelerate this note for any late payment or Maker's failure to timely
fulfill its other obligations hereunder shall not be waived or deemed waived by
Payee by Payee's having accepted a late payment or late payments in the past or
Payee otherwise not accelerating this Note or exercising other remedies for
Maker's failure to timely perform its obligations hereunder. Payee shall not be
obligated or be deemed obligated to notify Maker that it is requiring Maker to
strictly comply with the terms and provisions of this Note before accelerating
this Note and exercising its other remedies hereunder because of Maker's failure
to timely perform its obligations under this Note.
17. Binding Effect. This Note and all the covenants and agreements
contained herein shall be binding upon, and shall inure to the benefit of, the
respective legal representatives, heirs, successors and permitted assigns of
Maker and Payee.
18. Headings; Pronouns. All pronouns and any variations thereof shall be
deemed to refer to the masculine, feminine, neuter, singular or plural, as the
identity of the entities or persons referred may require. The headings of the
sections of this Note are inserted for convenience only and shall not constitute
a part hereof nor affect in any way the meaning or interpretation of this Note.
"Herein," "hereof" and "hereunder" and other words of similar import refer to
this Note as a whole and not to any particular section or other subdivision.
19. Severability. If any provision of this Note is held to be illegal,
invalid or unenforceable under present or future laws, the legality, validity
and enforceability of the remaining provisions of this Note shall not be
affected thereby, and this Note shall be liberally construed so as to carry out
the intent of the parties to it.
22. Payment of Payee's Expenses. Maker agrees to pay the reasonable fees
and expenses of Payee's counsel in connection with the negotiation, execution
and delivery of this Note, that certain Warrant Agreement of even date herewith
between Maker and Payee, and any modification hereof or thereof.
23. Equity Financing. In connection with the first Equity Financing
occurring subsequent to the date hereof (and no other Equity Financing), Maker
shall give Payee written notice at least 20 days prior to the closing thereof,
which notice shall describe in reasonable detail the proposed material terms
thereof, including, without limitation, the number of shares of capital stock to
be sold, the consideration to be paid, the name and address of each prospective
purchaser, and the material rights to be accorded such proposed purchaser. Payee
shall have the right, exercisable by delivery of written notice to Maker within
15 days after receipt of such notice, to purchase up to 50% of the securities
proposed to be sold in such Equity Financing, on
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<PAGE> 17
the same terms and conditions specified in such notice. In the event that a
single purchaser of equity securities in the Company having a value of at least
$10 million requests in writing that the Payee not exercise the rights granted
in this Section 23, then the Payee will waive its rights set forth in this
Section 23.
21. Miscellaneous. The records of Payee shall be prima facie evidence of
the amounts owing on this Note.
THIS NOTE AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL IN
ALL RESPECTS BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK AND THE LAWS OF THE UNITED STATES APPLICABLE TO
TRANSACTIONS IN SUCH STATE. MAKER HEREBY AGREES AND CONSENTS THAT, IN ADDITION
TO ANY METHODS OF SERVICE OF PROCESS PROVIDED FOR UNDER APPLICABLE LAW, ALL
SERVICE OF PROCESS IN ANY SUCH SUIT, ACTION OR PROCEEDING MAY BE MADE BY
CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, DIRECTED TO MAKER AT
THE ADDRESS OF MAKER FOR THE GIVING OF NOTICES SET FORTH ABOVE, AND SERVICE SO
MADE SHALL BE COMPLETE FIVE DAYS AFTER THE SAME SHALL HAVE BEEN SO MAILED.
MAKER HEREBY EXPRESSLY AND UNCONDITIONALLY WAIVES, IN CONNECTION WITH ANY
SUIT, ACTION OR PROCEEDING BROUGHT BY THE HOLDER OF THIS NOTE, ANY AND EVERY
RIGHT IT MAY HAVE TO A TRIAL BY JURY.
THIS NOTE AND ALL OTHER CREDIT DOCUMENTS EXECUTED BY ANY OF THE PARTIES
SUBSTANTIALLY CONCURRENTLY HEREWITH TOGETHER CONSTITUTE A WRITTEN LOAN AGREEMENT
WHICH REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
[the next page is the execution page]
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<PAGE> 18
IN WITNESS WHEREOF, this Note has been executed and delivered as of the
date first above written.
MAKER:
i2v2.COM INC.
By:
-------------------------------------
Its:
--------------------------------
PAYEE:
eVENTURES GROUP, INC.
By: /s/ STUART CHASANOFF
-------------------------------------
Its: Vice President-Business
Development
--------------------------------
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<PAGE> 19
NOTICE OF CONVERSION
(TO BE SIGNED ONLY UPON CONVERSION OF NOTE)
TO: i2v2.COM INC.
The undersigned, the holder of the foregoing Note, hereby surrenders such
Note for conversion into shares of Common Stock of i2v2.com Inc., to the extent
of $__________ unpaid principal amount of such Note, and requests that the
certificates for such shares be issued in the name of, and delivered to,
____________________________, whose address is________________________________.
Dated:
----------------------------
--------------------------------------------------
(Signature must conform in all respects to name of
holder as specified on the face of the Note)
--------------------------------------------------
(Address)
<PAGE> 1
EXHIBIT 10.15
WARRANT AGREEMENT
THIS WARRANT AGREEMENT is dated as of March 2, 2000, between i2v2.com
Inc., a Delaware corporation (the "Company"), and eVentures Group, Inc., a
Delaware corporation (the "Holder").
Contemporaneously with the execution and delivery of this Agreement,
the Holder has advanced $3.0 million to the Company pursuant to the terms and
provisions of that certain Promissory Note (herein so called). As partial
consideration for the advance evidenced by the Promissory Note, the Company has
agreed to issue and deliver the Warrants (as defined herein) to the Holder.
NOW, THEREFORE, in consideration of the mutual promises,
representations, covenants and conditions contained herein, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. Defined Terms. As used in this Agreement, the following terms shall
have the meanings indicated below, unless the context clearly indicates to the
contrary:
"Affiliate" of any Person means any other Person directly or indirectly
controlling, controlled by or under direct or indirect common control with such
Person. For purposes of this definition, a Person shall be deemed to "control"
another Person if such first Person possesses directly or indirectly the power
to (i) vote 10% or more of the securities having ordinary voting power for the
selection of directors of such Person, or (ii) direct, or cause the direction
of, the management and policies of the second Person, whether through the
ownership of voting securities, by contract or otherwise.
"Agreement" means this Warrant Agreement, as amended, supplemented or
modified from time to time.
"Board of Directors" means the board of directors of the Company.
"Business Day" means any day other than Saturday, Sunday or a legal
holiday in the State of Texas.
"Closing Date" means March 2, 2000, the date of the closing of the
advance described in the Promissory Note.
"Commission" means the Securities and Exchange Commission or any entity
succeeding to any or all of its functions under the Securities Act and the
Exchange Act.
"Common Stock" means the common stock, par value $0.00l per share, of
the Company, which has voting rights, and shall include any stock into which
such Common Stock shall have been changed or any stock resulting from any
reclassification of such Common Stock and all other stock of any class or
classes (however designated) of the Company the registered holders of which have
the right, without limitation as to amount, either to all or to a share of the
balance of current dividends and liquidating dividends after the payment of
dividends and distributions on any shares entitled to preference.
<PAGE> 2
"Company" has the meaning given to such term in the first paragraph
hereof.
"Composite Transaction Tape" means a security price reporting service
that includes all transactions in a security on each of the exchanges and in the
over-the-counter market.
"Conversion Right" has the meaning given such term in Section 5(b)
hereof.
"Current Market Price Per Share" means, with respect to any share of
Common Stock, as of any particular date of determination:
(i) If the Common Stock is then reported on a Composite
Transaction Tape, the average of the daily closing prices for the
30 consecutive trading days immediately prior to such date, as
reported on the Composite Transaction Tape (as adjusted for any
stock dividend, split, combination or reclassification that
occurred during such 30-day period); or
(ii) If the Common Stock is not then reported on a Composite
Transaction Tape but is then listed or admitted to trading on a
national securities exchange, the average of the daily last sale
prices regular way of the Common Stock for the 30 consecutive
trading days immediately prior to such date (as adjusted for any
stock dividend, split, combination or reclassification that
occurred during such 30-day period), on the principal national
securities exchange on which the Common Stock is traded or, in
case no such sale takes place on any such day, the average of the
closing bid and asked prices regular way, in either case on such
national securities exchange; or
(iii) If the Common Stock is not then reported on a
Composite Transaction Tape but is then traded in the
over-the-counter market, the average of the daily closing sales
prices, or, if there is no closing sales price, the average of
the closing bid and asked prices, in the over-the-counter market,
for the 30 consecutive trading days immediately prior to such
date (as adjusted for any stock dividend, split, combination or
reclassification that occurred during such 30-day period), as
reported by the National Association of Securities Dealers'
Automated Quotation System, or, if not so reported, as reported
by the National Quotation Bureau, Incorporated or any successor
thereof, or, if not so reported the average of the closing bid
and asked prices as furnished by any member of the National
Association of Securities Dealers, Inc. selected from time to
time by the Board of Directors and agreed to by the holders of a
majority of the Warrants for that purpose; or
(iv) If no such prices are then furnished, the higher of (x)
the Exercise Price and (y) the fair market value of a share of
the Common Stock as determined by agreement between the Holder
and the Company or, in the absence of such an agreement, by an
independent investment banking firm or an independent appraiser
engaged by the Company (in either case, the cost of which
engagement will be borne by the Company) and acceptable to a
majority of the Warrant Holders.
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<PAGE> 3
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any successor federal statute.
"Exempted Securities" means: (i) Warrant Shares; (ii) shares of the
Company's capital stock issued as a stock dividend described in Section 11(a),
and (iii) shares of the Company's capital stock issued on any conversion of the
Promissory Note.
"Exercise Price" means 110% of the Conversion Price (as defined in the
Promissory Note).
"Expiration Date" means 5:00 p.m., Dallas time on March 1, 2004.
"Non-Public Warrant Shares" means Warrant Shares that have not been
sold to the public and bear the legend set forth in Section 13(b).
"Non-Surviving Combination" means any merger, consolidation or other
business combination by the Company with one or more Persons in which the
Company is not the survivor, or a sale of all or substantially all of the assets
of the Company to one or more such other Persons.
"Person" means any person, firm or entity.
"Promissory Note" has the meaning given to such term in the second
paragraph hereof.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor federal statute and the rules and regulations of the Commission
thereunder, all as the same may be in effect from time to time.
"Subsidiary" means, as to any Person, a corporation of which shares of
stock having ordinary voting power (other than stock having such power only by
reason of the occurrence of a contingency) to elect a majority of the board of
directors or other managers of such corporation are at the time owned, or the
management of which is otherwise controlled, directly or indirectly through one
or more intermediaries, or both, by such Person. Unless otherwise qualified, all
references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer
to a Subsidiary or Subsidiaries of the Company.
"Survivor" has the meaning given such term in Section 9(d).
"Warrant Certificate" means a certificate evidencing one or more
Warrants, substantially in the form of Exhibit A attached hereto, with such
changes therein as may be required to reflect any adjustments made pursuant to
Section 11.
"Warrant Holders" means the Holder or any Affiliate thereof and such
other Persons to whom the Holder or Affiliate thereof transfers Warrants in
compliance with the terms of this Agreement.
-3-
<PAGE> 4
"Warrant Office" means the office or agency of the Company at which the
Warrant Register shall be maintained and where the Warrants may be presented for
exercise, exchange, substitution and transfer, which office or agency will be
the office of the Company located at 200 Church Street, Suite 401, New York, New
York 10013, which office or agency may be changed by the Company pursuant to
notice in writing to the Persons named in the Warrant Register as the holders of
the Warrants.
"Warrant Register" means the register, substantially in the form of
Exhibit B attached hereto, maintained by the Company at the Warrant Office.
"Warrant Shares" means the shares of Common Stock issued or issuable
upon exercise of the Warrants, as the number of such shares may be adjusted from
time to time pursuant to Section 11 and the provisions of the Company's
Certificate of Incorporation.
"Warrants" means, collectively, the stock purchase warrants issued
pursuant to this Agreement entitling the record holders thereof to purchase from
the Company at the Warrant Office an aggregate of 240,000 shares of Common Stock
(subject to adjustment as provided in Section 11) at the Exercise Price at any
time after the Closing Date and before the Expiration Date; and, individually, a
"Warrant."
2. Issuance of Warrants. The Company hereby agrees to issue and deliver
to the Holder, on the Closing Date, the Warrants and one or more Warrant
Certificates evidencing the Warrants. No consideration other than the advance
evidenced by the Promissory Note shall be required from the Holder in
consideration of the receipt of the Warrants.
3. Registration, Transfer and Exchange of Certificates.
(a) The Company shall maintain, at the Warrant Office, the Warrant
Register for registration of the Warrants and Warrant Certificates and transfers
thereof. On the Closing Date, the Company shall register the Warrants and
Warrant Certificates in the Warrant Register in the name of the Holder. The
Company may deem and treat the registered holders of the Warrant Certificates as
the absolute owners thereof and the Warrants represented thereby
(notwithstanding any notation of ownership or other writing on the Warrant
Certificates made by any Person) for the purpose of any exercise thereof or any
distribution to the holders thereof, and for all other purposes, and the Company
shall not be affected by any notice to the contrary.
(b) Subject to Section 13, the Company shall register the transfer of
any outstanding Warrants in the Warrant Register upon surrender of the Warrant
Certificates evidencing such Warrants to the Company at the Warrant Office,
accompanied (if so required by it) by a written instrument or instruments of
transfer in form satisfactory to it, duly executed by the registered holder or
holders thereof or by the duly appointed legal representative thereof. Upon any
such registration of transfer, new Warrant Certificates evidencing such
transferred Warrants shall be issued to the transferee, and the surrendered
Warrant Certificates shall be canceled. If less than all the Warrants evidenced
by Warrant Certificates surrendered for transfer are to be transferred, new
Warrant Certificates shall be issued to the holder surrendering such Warrant
Certificates evidencing such remaining number of Warrants.
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<PAGE> 5
(c) Warrant Certificates may be exchanged at the option of the holders
thereof, when surrendered to the Company at the Warrant Office, for another
Warrant Certificate or other Warrant Certificates of like tenor and
representing, in the aggregate, a like number of Warrants. Warrant Certificates
surrendered for exchange shall be canceled.
(d) No charge shall be made for any such transfer or exchange, except
for any tax or other governmental charge imposed in connection therewith. Except
as provided in Section 13(b), each Warrant Certificate issued upon transfer or
exchange shall bear the legend set forth in Section 13(b) if the Warrant
Certificate presented for transfer or exchange bore such legend.
4. Mutilated or Missing Warrant Certificates. If any Warrant Certificate
shall be mutilated, lost, stolen or destroyed, the Company shall issue, in
exchange and substitution for and upon cancellation of the mutilated Warrant
Certificate, or in lieu of and substitution for the Warrant Certificate lost,
stolen or destroyed, a new Warrant Certificate of like tenor and representing an
equivalent number of Warrants, but only upon receipt of evidence satisfactory to
the Company of such loss, theft or destruction of such Warrant Certificate and,
if requested, indemnity satisfactory to it. The Company acknowledges that a
written indemnity by a Holder or, if an Affiliate of a Holder is the holder of
such lost, stolen or destroyed Warrant Certificate, by such Holder or such
Affiliate shall be satisfactory to the Company for such purpose. No service
charge shall be made for any such substitution; however, all expenses and
reasonable charges associated with procuring such indemnity and all stamp, tax
and other governmental duties that may be imposed in relation thereto shall be
borne by the holder of such Warrant Certificate. Each Warrant Certificate issued
in any such substitution shall bear the legend set forth in Section 13(b) if the
Warrant Certificate for which such substitution was made bore such legend.
5. Duration and Exercise of Warrants.
(a) The Warrants evidenced by a Warrant Certificate shall be
exercisable in whole or in part by the registered holder thereof on any Business
Day after the Closing Date and on or before the Expiration Date.
(b) Subject to the provisions of this Agreement, the Warrants evidenced
by a Warrant Certificate may be exercised by the registered holder thereof by
the surrender of the Warrant Certificate evidencing the Warrants to be
exercised, with the form of election to purchase on the reverse thereof or
attached thereto duly completed and signed, to the Company at the Warrant
Office, and upon payment of the aggregate Exercise Price for the number of
Warrant Shares in respect of which such Warrants are being exercised in lawful
money of the United States of America and/or by surrender to the Company of
shares of Common Stock then owned by the Warrant Holder and valued for purposes
hereof at their Current Market Price Per Share at the time of exercise. In lieu
of exercising Warrants pursuant to the immediately preceding sentence, the
Warrant Holder shall have the right to require the Company to convert the
Warrants, in whole or in part and at any time or times (the "Conversion Right"),
into Warrant Shares, by surrendering to the Company the Warrant Certificate
evidencing the Warrants to be converted, accompanied by the form of conversion
notice on the reverse thereof or attached thereto which has been duly completed
and signed. Upon exercise of the Conversion Right, the
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<PAGE> 6
Company shall deliver to the Warrant Holder (without payment by the Warrant
Holder of any Exercise Price) that number of Warrant Shares which is equal to
the quotient obtained by dividing (x) the value of the number of Warrants being
converted at the time the Conversion Right is exercised (determined by
subtracting the aggregate Exercise Price for all such Warrants immediately prior
to the exercise of the Conversion Right from the aggregate current market price
(determined on the basis of the Current Market Price Per Share) of that number
of Warrant Shares purchasable upon exercise of such Warrants immediately prior
to the exercise of the Conversion Right (taking into account all applicable
adjustments pursuant to Section 11, including, without limitation, any
adjustments which would be made pursuant to Section 11(b)(vii) upon exercise of
the Warrants being converted) by (y) the Current Market Price Per Share of one
share of Common Stock immediately prior to the exercise of the Conversion Right.
Any references in this Agreement to the "exercise" of any Warrants, and the use
of the term "exercise" herein, shall be deemed to include, without limitation,
any exercise of the Conversion Right. Any exercise of a Warrant hereunder may be
made subject to the satisfaction of one or more conditions (including, without
limitation, the consummation of a sale of the capital stock of the Company or a
merger or other business combination involving the Company) which are set forth
in a writing which is made a part of or is appended to the aforementioned form
of election to purchase or conversion notice (as the case may be) by the Warrant
Holder.
(c) Upon exercise of any Warrants hereunder, the Company shall issue
and cause to be delivered to or upon the written order of the registered holders
of such Warrants and in such name or names as such registered holders may
designate, a certificate for the Warrant Shares issued upon such exercise of
such Warrants. Any Persons so designated to be named therein shall be deemed to
have become holders of record of such Warrant Shares as of the date of exercise
of such Warrants.
(d) Warrants shall be deemed to have been exercised or converted
immediately prior to the close of business on the date of its surrender for
exercise or conversion as provided herein, and the Person entitled to receive
the Warrant Shares issuable upon such exercise shall be treated for all purposes
as the holder of record of such shares as of the close of business on such date.
(e) If less than all of the Warrants evidenced by a Warrant Certificate
are exercised at any time, a new Warrant Certificate or Certificates shall be
issued for the remaining number of Warrants evidenced by such Warrant
Certificate. Each new Warrant Certificate so issued shall bear the legend set
forth in Section 13(b) if the Warrant Certificate presented in connection with
partial exercise thereof bore such legend, unless the transfer restrictions
referred to in such legend are no longer applicable pursuant to Section 13(d).
All Warrant Certificates surrendered upon exercise of Warrants shall be
canceled.
6. No Fractional Shares. The Company shall not be required to issue
fractional shares of Common Stock upon exercise of any Warrants, but shall pay
for any such fraction of a share an amount in cash equal to the then Current
Market Price Per Share of one such share of Common Stock multiplied by such
fraction.
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7. Payment of Taxes. The Company shall pay all taxes (other than income
taxes) attributable to the initial issuance of Warrant Shares upon the exercise
of Warrants; provided, however, that the Company shall not be required to pay
any tax which may be payable in respect of any transfer involved in the issuance
of any Warrant Certificate or any certificate for Warrant Shares in a name other
than that of the registered holder of a Warrant Certificate surrendered upon the
exercise of a Warrant, and the Company shall not be required to issue or deliver
such certificate unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
8. Stockholder Rights. Nothing contained in this Agreement or in any of
the Warrant Certificates shall be construed as conferring upon the holders
thereof the right to vote or to consent or to receive notice as a stockholder in
respect of the meetings of stockholders or the election of directors of the
Company or any other matter, or any rights whatsoever as a stockholder of the
Company. Nothing contained in this Agreement or in any of the Warrant
Certificates shall be construed as imposing any obligation on the registered
holders thereof to purchase any securities or as imposing any liabilities on
such holders as stockholders of the Company, whether such obligation or
liabilities are asserted by the Company or by creditors of the Company.
9. Reservation and Issuance of Warrant Shares; Certain Corporate
Actions.
(a) The Company will at all times have authorized, and reserve and
keep available, free from statutory preemptive rights, for the purpose of
enabling it to satisfy any obligation to issue Warrant Shares upon the exercise
of the Warrants, the number of shares of Common Stock deliverable upon exercise
of all outstanding Warrants.
(b) The Company covenants that all Warrant Shares will, upon
issuance in accordance with the terms of this Agreement and the Company's
Certificate of Incorporation, be fully paid and nonassessable and free from all
liens, charges and security interests (other than any created by or on behalf of
any Warrant Holder).
(c) The Company will not, by amendment of its Certificate of
Incorporation or through any merger, consolidation, reorganization, transfer of
assets, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of this
Agreement or the Warrant Certificates. Without limiting the generality of the
foregoing, the Company (i) will not permit the par value or the determined or
stated value of any shares of Common Stock receivable upon the exercise of the
Warrants to exceed the amount payable therefor upon such exercise, (ii) will
take all such action as may be reasonably necessary or appropriate in order that
the Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of the Warrants from time to time outstanding,
including, without limitation, amending its Certificate of Incorporation to
reduce or eliminate the par value of the Common Stock, (iii) will not take any
action which results in an adjustment in the number of Warrant Shares obtainable
upon the exercise of any Warrants if the total number of shares of Common Stock
issuable after such action upon the exercise of all of the then-outstanding
Warrants would exceed the total number of shares of Common Stock then authorized
by the Company's Certificate of Incorporation and available for
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<PAGE> 8
purpose of issuance upon such exercise, (iv) will not have any class of
authorized common stock other than its existing authorized Common Stock, and (v)
will not amend its Certificate of Incorporation to change any terms of its
existing Common Stock (other than to increase the authorized number of shares of
Common Stock, upon such approval as may be required by the Delaware General
Corporation Law, as amended from time to time).
(d) If the Company proposes, prior to the Expiration Date, to enter
into a transaction that would constitute a Non-Surviving Combination, if
consummated, the Company shall give written notice thereof to each of the
Warrant Holders promptly after an agreement is reached with respect to the
Non-Surviving Combination, but in any event no less than ten days prior to the
consummation thereof. Such notice shall describe the proposed transaction in
reasonable detail and specify the consideration to be received by the Warrant
Holders in respect thereto and/or any adjustment to be made to the number of
Warrant Shares obtainable upon the exercise of the Warrants as a result of such
Non-Surviving Combination. The Company shall also furnish to each Warrant Holder
all notices and materials furnished to its stockholders in connection with such
transaction as and when such notices and materials are furnished to its
stockholders. The Company agrees that it will not enter into an agreement
providing for a Non-Surviving Combination or effect any such Non-Surviving
Combination unless the party to such transaction that is the surviving entity
thereof or the purchaser or purchasers of substantially all of the assets of the
Company (the "Survivor") (i) shall be obligated to distribute or pay to each
Warrant Holder, upon payment of the Exercise Price prior to the Expiration Date,
the number of shares of stock or other securities or other property (including
any cash) of the Survivor that would have been distributable or payable on
account of the Warrant Shares if such Warrant Holder's Warrants had been
exercised immediately prior to such Non-Surviving Combination (or, if
applicable, the record date therefor), as such number of shares or other
securities or other property may thereafter be adjusted pursuant to Section 11
and (ii) shall assume by written instrument all of the obligations of the
Company under this Agreement and the Warrants.
10. Obtaining of Governmental Approvals and Stock Exchange
Listings/Registration Rights.
(a) Subject, in the case of any registration under the Securities
Act, to the limitations set forth in any registration rights or similar
agreements, the Company will, at its own expense, from time to time take all
action which may be necessary to obtain and keep effective any and all
exemptions, permits, consents and approvals of governmental agencies and
authorities which are or become requisite in connection with the issuance, sale,
transfer and delivery of the Warrant Certificates, the exercise of the Warrants,
the issuance, sale, transfer and delivery of the Warrant Shares, and all action
which may be necessary so that such Warrant Shares, immediately upon their
issuance upon the exercise of Warrants, will be listed on each securities
exchange, if any, on which the Common Stock is then listed.
(b) The Warrant Shares shall be subject to the following
registration rights: (i) the Warrant Shares will be included in the registration
rights granted in connection with the first private placement of equity
securities of the Company that closes prior to the maturity date of the
Promissory Note (an "Equity Financing"), if more favorable than those granted
under the Registration Rights Agreement (herein so called) dated as of June 25,
1999, between the Company and IEO Holdings Limited; or (ii) the Warrant Shares
shall be entitled to the same
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<PAGE> 9
registration rights as "Registrable Securities," as defined and described in the
Registration Rights Agreement. Upon request by Maker within 90 days after the
Equity Financing (except with respect to the first Equity Financing occurring
subsequent to the date hereof), which request shall provide a summary in
reasonable detail of such Equity Financing, Payee will advise Maker as to
whether the Warrant Shares will be subject to the registration rights granted in
clause (i) or clause (ii) above.
11. Adjustment of Number of Warrant Shares Purchasable. The number of
shares of Common Stock purchasable upon the exercise of each Warrant is subject
to adjustment from time to time upon the occurrence of any of the events
enumerated in this Section 11 at any time or from time to time after the date
hereof and prior to the Expiration Date.
(a) If the Company (i) declares a dividend or makes a distribution
on its Common Stock in shares of its Common Stock, (ii) splits or subdivides its
outstanding shares of Common Stock into a greater number of shares, (iii)
combines its outstanding shares of Common Stock into a smaller number of shares,
(iv) makes a distribution on its Common Stock in shares of its capital stock
other than Common Stock, or (v) issues by reclassification of its Common Stock
any shares of its Common Stock (including any such reclassification in
connection with a merger or consolidation in which the Company is the surviving
entity), then each Warrant outstanding at the time of the record date for such
dividend or distribution or of the effective date of such split, subdivision,
merger or combination shall thereafter entitle the holder of such Warrant to
receive the aggregate number and kind of shares which, if such Warrant had been
exercised immediately prior to such time, such holder would have owned or have
become entitled to receive by virtue of such dividend, subdivision or
combination. Such adjustment shall be made successively whenever any event
listed above shall occur and, if a dividend which is declared is not paid, each
Warrant outstanding shall again entitle the holder thereof to receive the number
of shares of Common Stock as would have been the case had such dividend not been
declared. If at any time, as a result of an adjustment made pursuant to this
Section 11(a), the holder of any Warrant thereafter exercised shall become
entitled to receive any shares of capital stock of the Company other than shares
of Common Stock, thereafter the number of such other shares so receivable upon
exercise of any Warrant shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Warrant Shares contained in this Section 11, and the provisions
of this Agreement with respect to the Warrant Shares shall apply on like terms
to such other shares.
(b) If the Company shall issue any shares of Common Stock without
consideration or at a price per share less than the greater of the Exercise
Price or the Current Market Price Per Share of the Common Stock as at the date
of such issuance, including any shares of Common Stock deemed to have been
issued pursuant to this Section 11(b), but excluding any Exempted Securities (as
defined herein), each Warrant outstanding on the date of such issuance shall
thereafter entitle the holder of such Warrant to receive a number of shares of
Common Stock equal to the product of (x) the number of shares of Common Stock to
which the holder of such Warrant was entitled immediately prior to such issuance
and (y) the quotient that is obtained by dividing:
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<PAGE> 10
the total number of shares of Common Stock outstanding
immediately after such issuance (including any shares of Common
Stock deemed to have been issued pursuant to this Section 11(b))
by
the sum of
(1) the number of shares of Common Stock outstanding immediately
prior to such issuance, plus
(2) the number of shares of Common Stock which the aggregate
consideration received (or deemed to be received) by the
Company upon such issuance would purchase at such Current
Market Price Per Share.
For purposes of any adjustment of the number of shares of Common Stock
obtainable upon the exercise of any Warrants pursuant to this Section 11(b), the
following provisions shall be applicable:
(i) In the case of the issuance of Common Stock for cash, the
consideration therefor shall be deemed to be the amount of cash paid
therefor, without deducting therefrom any discounts, commissions or
other expenses allowed, paid or incurred by the Company in connection
with the issuance or sale thereof.
(ii) In the case of the issuance of Common Stock for a
consideration part or all of which shall be in a form other than cash,
the value of such consideration shall be as determined by agreement
between the holders of a majority of the Warrants outstanding and the
Company or, in the absence of such an agreement, by an independent
investment banking firm or an independent appraiser engaged by the
Company and reasonably acceptable to the holders of a majority of the
Warrants outstanding (in either case, the cost of which engagement
will be borne by the Company). In the case of any issuance of Common
Stock upon the exercise of any warrants, options or other rights or
the conversion or exchange of any convertible or exchangeable
securities, the aggregate consideration received by the Company upon
such issuance shall be deemed to include the consideration, if any,
received by the Company as consideration for the issuance of such
warrants, options or rights or such convertible or exchangeable
securities (excluding any cash received on account of accrued interest
or accrued dividends) and, in the case of any conversion or exchange
of securities, shall not include any amount attributable to the
converted or exchanged securities. If any warrant, option or right to
purchase or subscribe for any Common Stock or convertible securities
is issued in connection with the issuance or sale of other securities
by the Company, together comprising one integrated transaction in
which no specific consideration is allocated to such warrant, option,
right or security, such warrant, option, right or security shall be
deemed to have been issued for no consideration.
(iii) If (A) the Company shall issue warrants or options to
purchase or rights to subscribe for Common Stock (other than Exempted
Securities), and (B) the
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<PAGE> 11
consideration, if any, received by the Company as consideration for
the issuance of such warrants, options or rights plus the minimum
aggregate consideration required to be paid upon exercise of such
warrants, options or rights (the aggregate amount of such
consideration (the "Aggregate Consideration") to be determined in each
case as set forth above) shall be less than the product of the greater
of the then Exercise Price or the Current Market Price Per Share on
the date of such issuance multiplied by the maximum number of shares
of Common Stock deliverable upon such exercise, then such aggregate
maximum number of shares shall be deemed to have been issued at the
time such warrants, options or rights were issued and for a
consideration equal to the Aggregate Consideration.
(iv) If (A) the Company shall issue (1) securities (other than
Exempted Securities) which are by their terms convertible into or
exchangeable for Common Stock or (2) warrants or options to purchase
or rights to subscribe for any such convertible or exchangeable
securities, and (B) the consideration received by the Company for any
such securities or any such warrants, options or rights (excluding any
cash received on account of accrued interest or accrued dividends)
plus the minimum aggregate consideration (not including any amount
attributed to the converted or exchanged securities), if any, to be
received by the Company upon the conversion or exchange of such
securities or upon the exercise of such warrants, options or rights
and the conversion or exchange of the securities received upon such
exercise, as the case may be (the total amount of such consideration
(the "Total Consideration") to be determined in each case as set forth
above), shall be less than the product of the greater of the then
Exercise Price or the Current Market Price Per Share on the date of
such issuance multiplied by the maximum number of shares deliverable
upon conversion of or in exchange for such convertible or exchangeable
securities or upon the exercise of any such warrants, options or
rights and subsequent conversion or exchange thereof, then such
securities, warrants, options or rights shall be deemed to have been
exercised and/or converted or exchanged, and the aggregate maximum
number of shares of Common Stock shall be deemed to have been issued
at the time such securities, warrants, options or rights were issued
for a consideration equal to the Total Consideration.
(v) Upon any reduction in the exercise price of Common Stock
deliverable upon exercise of any of such warrants, options or rights
as are referred to in this Section 11(b) (for avoidance of doubt,
excluding Exempted Securities) any reduction in the amount of
consideration required to be paid or the conversion or exchange price
or ratio payable upon conversion or exchange of any of such
convertible or exchangeable securities, in each case other than a
change resulting from any antidilution provisions thereof which are no
more favorable in such instance to the holder thereof than the
provisions of this Section 11 are to the Warrant Holders, (A) if an
adjustment shall previously have been made pursuant to this Section
11(b) in respect of such warrants, options or rights or such
securities, the number of shares of Common Stock obtainable upon the
exercise of the Warrants shall forthwith be readjusted to such number
of shares as would have obtained had the adjustment made upon the
issuance of such warrants, options, rights or securities as have not
been exercised, converted or exchanged prior to such change (or any
prior adjustment made pursuant to this Section 11(b)(v)) been made
upon the basis of such change, and (B) if an adjustment has not
previously been made
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<PAGE> 12
pursuant to this Section 11(b) in respect of such options or rights or
such securities, then such warrants, options or rights or such
securities shall be deemed to have been granted or issued (as the case
may be) for purposes of this Section 11(b) as of the date of such
reduction, and any adjustments required to be made pursuant to this
Section 11(b) as a result of such deemed grant or issuance shall
forthwith be made effective as of such date.
(vi) All grants or issuances of options or other rights to
acquire shares of Common Stock (or securities convertible into or
exchangeable for shares of Common Stock) issued to any officer,
director or employee of the Company or of any Subsidiary of the
Company or to members of the immediate family of any of them
("Management Options"), and all issuances of shares of Common Stock
(or securities convertible into or exchangeable for shares of Common
Stock) under or pursuant to such Management Options shall, for
purposes of Section 11(b), be deemed to be granted and issued for no
consideration except to the extent cash or notes are paid or payable
therefor whether upon issuance or exercise. The foregoing shall not be
applicable to the grant or issuance of Exempted Securities.
(vii) If and when any Warrants shall be exercised as set forth
herein, (A) if there shall be any outstanding warrants or options to
purchase or rights to subscribe for shares of Common Stock or any
outstanding warrants or options to purchase or rights to subscribe for
or securities which are by their terms convertible into or
exchangeable for Common Stock (in each case, other than Exempted
Securities) which in each case would, if issued on the date of such
Warrant exercise, result in an adjustment pursuant to either of
Sections 11(b)(iii) or 11(b)(iv), then such warrants or options
shall be deemed to have been exercised in full immediately prior to
the exercise of such Warrants for a consideration equal to the
aggregate consideration, if any, received by the Company upon the
issuance of such warrants, options or rights plus the minimum
aggregate consideration required to be paid upon exercise of such
warrants, options or rights (the amount of such consideration to be
determined in each case as set forth above), and (B) if there shall be
any outstanding securities (other than Exempted Securities) which are
by their terms convertible into or exchangeable for Common Stock at
the time of such Warrant exercise or at any time thereafter which in
each case would, if issued on the date of such Warrant exercise,
result in an adjustment pursuant to Section 11(b)(iv), then such
securities shall be deemed to have been converted or exchanged in full
immediately prior to the exercise of such Warrants for a consideration
equal to the aggregate consideration received by the Company for any
such securities plus the minimum aggregate consideration (not
including any amount attributed to the converted or exchanged
securities), if any, required to be paid upon the conversion or
exchange of such securities (the amount of such consideration to be
determined in each case as set forth above); provided, however, that
any adjustment made pursuant to this Section 11(b)(vii) shall only be
made with respect to such Warrants as are then being exercised.
(viii) Shares of Common Stock owned by or held for the account of
the Company or any majority-owned Subsidiary shall not be deemed
outstanding for the purpose of any computation made pursuant to this
Section 11(b). Any adjustment required to be made pursuant to this
Section 11(b) shall be made successively whenever the date of issuance
or deemed issuance of any such Common Stock or any such options,
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<PAGE> 13
rights or convertible or exchangeable securities is fixed (which date
of issuance shall be the record date for such issuance if a record
date therefor is fixed) and, in the event that (A) such shares or
options, rights, warrants or convertible or exchangeable securities
are not so issued, or (B) any such option, right, warrant or
convertible or exchangeable security (or the conversion or exchange
right thereunder) expires according to its terms without having been
exercised, converted or exchanged, each Warrant outstanding shall, as
of the date of cancellation of such issuance in the case of clause (A)
above and the date of such expiration in the case of clause (B) above,
entitle the holder thereof to receive the number of shares of Common
Stock as would have been the case had the date of such issuance of
such unissued options, rights, warrants or convertible or exchangeable
securities not been fixed or such expired options, rights, warrants or
convertible or exchangeable securities not been issued, as the case
may be. If any adjustment is made pursuant to either of Section
11(b)(iii) or Section 11(b)(iv) upon the granting or issuance of any
warrants, options or other rights or any convertible or exchangeable
securities or any adjustment or readjustment is made pursuant to
Section 11(b)(v), then any adjustment required to be made hereunder
upon the exercise of any such warrants, options or other rights or
upon the exchange or conversion of any such convertible or
exchangeable securities (including any deemed exercise, conversion or
exchange pursuant to Section 11(b)(vii)) shall be made only to the
extent that the number of shares of Common Stock purchasable upon the
exercise of a Warrant shall not previously have been increased
pursuant to this Section 11(b) upon such grant or issuance (or upon
such adjustment or readjustment made pursuant to Section 11(b)(v), if
applicable).
(ix) Upon the expiration of the right to convert or exchange any
convertible securities, or upon the expiration of any rights, options
or warrants, if such convertible securities shall have not been
converted or exchanged, or if any such rights, options or warrants
shall not have been exercised, the number of shares of Common Stock
deemed to be issued and outstanding by reason of the fact that they
were issuable upon conversion or exchange of such convertible
securities or upon exercise of any such rights, options or warrants
shall no longer be computed as set forth above, and the number of
Warrant Shares purchasable upon conversion of a Warrant shall be
forthwith be readjusted, and thereafter the number of Warrant Shares
which are purchasable on the exercise of a Warrant shall be that
number which it would have been (but reflecting any other adjustments
made pursuant to the provisions of this Section 11 after the issuance
of such convertible securities, rights, options or warrants) had the
adjustment of the number of Warrant Shares upon the issuance of such
convertible securities, rights, warrants or options been made on the
basis of the issuance only of the number of shares of Common Stock
actually issued upon conversion or exchange of such convertible
securities or upon the exercise of such rights, options or warrants,
and thereupon only the number of additional shares of Common Stock
actually so issued shall be deemed to have been issued and only the
consideration actually received shall be deemed to have been received
by the Company.
(x) The term "Exempted Securities" shall mean (i) shares of
Common Stock issuable upon exercise of warrants and options to acquire
Common Stock and which are outstanding as of the date hereof, (ii)
shares of Common Stock issuable upon the exercise or conversion of
Warrants or the conversion of the Note, (iii) shares of Common Stock
or
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<PAGE> 14
securities convertible into Common Stock, options, warrants or other
rights to acquire Common Stock granted to employees, consultants or
directors of the Company, and any issuances related to the exercise or
conversion thereof, in each case as approved by the Board of Directors
or a duly constituted committee thereof, (iv) shares of Common Stock
or securities convertible into Common Stock issued to, options,
warrants or other rights to acquire Common Stock granted to, and any
issuances related to the exercise or conversion thereof by, vendors in
connection with commercial arrangements, in each case where the
issuance or grant of which is approved by the Board of Directors or a
duly constituted committee thereof, and (v) shares of Common Stock or
securities convertible into Common Stock issued, options, warrants or
rights to acquire Common Stock granted, and any issuances related to
the exercise or conversion thereof, in connection with establishing
strategic partnerships and alliances, in each case where the issuance
or grant of which is approved by the Board of Directors or a duly
constituted committee thereof.
(c) In the event of any capital reorganization of the Company, or of
any reclassification of the Common Stock (other than a subdivision or
combination of outstanding shares of Common Stock), or in case of the merger of
the Company with or the consolidation of the Company with or into any other
entity or of the sale of the properties and assets of the Company as, or
substantially as, an entirety to any other entity, each Warrant shall after such
capital reorganization, reclassification of Common Stock, merger, consolidation
or sale be exercisable upon the terms and conditions specified in this Warrant,
for the number of shares of stock or other securities or assets to which a
holder of the number of Warrant Shares purchasable (at the time of such capital
reorganization, reclassification of Common Stock, merger, consolidation or sale)
upon exercise of such Warrant would have been entitled upon such capital
reorganization, reclassification of Common Stock, merger, consolidation or sale;
and in any such case, if necessary, the provisions set forth in this Section 11
with respect to the rights thereafter of the holders of the Warrants shall be
appropriately adjusted so as to be applicable, as nearly as may reasonably be,
to any shares of stock or other securities or assets thereafter deliverable on
the exercise of the Warrants.
(d) No adjustment in the number of Warrant Shares purchasable shall be
required unless such adjustment would require an increase or decrease in the
aggregate number of Warrant Shares purchasable of at least 1%; provided,
however, that any adjustments which by reason of this Section 11(d) are not
required to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Section 11 shall be made to
the nearest whole cent or to the nearest hundredth of a share, as the case may
be.
(e) Irrespective of any adjustments in the number or kind of shares
purchasable upon the exercise of the Warrant, Warrant Certificates theretofore
or thereafter issued may continue to express the same number and kind of shares
as are stated on the Warrant Certificates initially issuable pursuant to this
Agreement.
(f) If any question shall at any time arise with respect to the number
of Warrant Shares purchasable following any adjustment pursuant to this Section
11, such question shall be determined by agreement between the holders of a
majority of the Warrants and the Company or, in the absence of such an
agreement, by an independent investment banking firm or
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<PAGE> 15
an independent appraiser engaged by the Company (in either case, the cost of
which engagement will be borne by the Company) and acceptable to the Company and
the holders of a majority of Warrants, and such determination shall be binding
upon the Company and all holders of Warrants.
(g) Anything in this Section 11 to the contrary notwithstanding:
(i) The Company shall be entitled to make such increases in the number
of Warrant Shares purchasable upon the exercise of each Warrant, in
addition to those adjustments required by this Section 11, as it in its
sole discretion shall determine to be advisable in order that any
consolidation or subdivision of the Common Stock, or any issuance wholly
for cash or any shares of Common Stock at less than the greater of the
Exercise Price or the Current Market Price Per Share, or any issuance
wholly for cash or shares of Common Stock or securities which by their
terms are convertible into or exchangeable for shares of Common Stock or
any stock dividend, or any issuance of rights, options or warrants referred
to hereinabove in this Section 11, hereinafter made by the Company to the
holders of its Common Stock shall not be taxable to them; and
(ii) No adjustment in the number of Warrant Shares purchasable shall
be required in the event the Company pays a cash dividend to holders of
Common Stock.
(h) The Company will not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid 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 the carrying out of all the provisions of this Section 11 and in
the taking of all such action as may be necessary or appropriate in order to
protect against impairment of the rights set forth in Section 11 of the holder
of any Warrants.
12. Notices to Warrant Holders; Notices of Issuances and Dividends.
(a) Whenever there is an adjustment in the number of Warrant Shares or
other securities or assets to which each Warrant Holder is entitled, the Company
shall promptly mail to all Warrant Holders a notice of adjustment. Such notice
shall be accompanied by (i) a certificate briefly stating the facts requiring
the adjustment and the manner of computing it and (ii) an Officer's Certificate
which shall certify that the adjustment is correct.
(b) If the Company takes any action that would require an adjustment in
the number of Warrant Shares or other securities or assets to which each Warrant
Holder is entitled pursuant to Section 11 or there is a liquidation or
dissolution of the Company, the Company shall mail to all Warrant Holders a
notice stating the proposed record date for a dividend or distribution or the
proposed effective date of a subdivision, combination, issuance,
reclassification, merger, consolidation, transfer, voluntary or involuntary
liquidation, or dissolution or the date on which such other action is to be
effective, and the date as of which it is expected that holders of record of
Common Stock shall be entitled to exchange their shares for securities or other
property, if any, deliverable upon such subdivision, combination, issuance,
reclassification, merger, consolidation, transfer, liquidation, dissolution,
winding up or other
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<PAGE> 16
action. The Company shall mail such notice at least ten Business Days before the
applicable record date or effective date, if any, or, if no such record date or
effective date is specified, ten Business Days prior to taking such action.
Failure to give the notice or any defect in it shall not affect the legality or
validity or the transaction.
13. Restrictions on Transfer.
(a) The Holder (i) represents that it is an "accredited investor"
within the meaning of the Securities Act and the rules and regulations
promulgated thereunder, (ii) represents that it has received adequate
information about the Company to determine the advisability of a purchase of the
Company's securities, (iii) represents that it is acquiring the Warrants and
will acquire any Warrant Shares for its own account for investment and not with
a view to any distribution or public offering within the meaning of the
Securities Act, except with respect to Warrant Shares, pursuant to the
registration of the offer and sale thereof under the Securities Act, (iv)
acknowledges that the Warrants and any Warrant Shares issuable upon exercise
thereof have not been registered under the Securities Act and (v) agrees that it
will not sell or otherwise transfer any of its Warrants or Warrant Shares except
pursuant to the terms and conditions specified herein and that it will cause any
permitted transferee thereof to agree to take and hold the same subject to the
terms and conditions specified herein (including, without limitation, Section
13(c)).
(b) Except as provided in Section 13(d), each Warrant Certificate and
each certificate for the Warrant Shares issued to the Holder or to a subsequent
transferee thereof pursuant to Section 13(c) shall include a legend in
substantially the following form (with such changes therein as may be
appropriate to reflect whether such legend refers to Warrants or Warrant
Shares); provided, however, that such legend shall not be required if such
transfer is being made in connection with a sale which is exempt from
registration pursuant to Rule 144 under the Securities Act or if the opinion of
counsel referred to in Section 13(c) is to the further effect that neither such
legend nor the restrictions on transfer in this Section 13 are required in order
to ensure compliance with the Securities Act:
THE WARRANTS AND SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE
STATE SECURITIES LAW AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT OR LAW. SUCH
WARRANTS AND SHARES MAY BE TRANSFERRED ONLY IN COMPLIANCE WITH THE
CONDITIONS SPECIFIED IN AND ARE SUBJECT TO OTHER PROVISIONS OF THE WARRANT
AGREEMENT, DATED AS OF MARCH 2, 2000, BETWEEN THE COMPANY AND CERTAIN
HOLDERS (AS SUCH AGREEMENT MAY BE SUPPLEMENTED, MODIFIED, AMENDED OR
RESTATED FROM TIME TO TIME), A COMPLETE AND CORRECT COPY OF WHICH IS
AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF THE COMPANY AND WILL BE
FURNISHED TO THE HOLDER HEREOF UPON WRITTEN REQUEST AND WITHOUT CHARGE.
-16-
<PAGE> 17
(c) Prior to (or promptly after, in the case of a transfer to an
Affiliate) any assignment, transfer or sale of any Warrant or any Warrant Shares
(other than a transfer among the Holder and/or its Affiliates), the holder
thereof shall give written notice to the Company of such holder's intention to
effect such assignment, transfer or sale, which notice shall set forth the date
of such proposed assignment, transfer or sale and the identity of the proposed
transferee. Each holder wishing to effect such a transfer of any Warrant or
Warrant Shares shall also furnish to the Company an agreement by the transferee
thereof that it is taking and holding the same subject to the terms and
conditions specified herein and, unless the transferee is an affiliate (as
defined in the Securities Exchange Act of 1934, as amended) of such holder, a
written opinion of such holder's counsel, in form reasonably satisfactory to the
Company, to the effect that the proposed transfer may be effected without
registration under the Securities Act.
(d) The restrictions set forth in this Section 13 shall terminate and
cease to be effective with respect to any Warrants or Warrant Shares the offer
and sale of which are registered under the Securities Act or upon receipt by the
Company of an opinion of counsel knowledgeable as to securities matters, in form
reasonably satisfactory to the Company, to the effect that compliance with such
restrictions is not necessary in order to comply with the Securities Act with
respect to the transfer of the Warrants and the Warrant Shares; provided,
however, that after two years from the date of issuance of any Warrants (or such
shorter period as may be provided by Rule 144(k) promulgated under the
Securities Act), such restrictions shall automatically terminate with respect to
the Holder if not an Affiliate of the Company (without the necessity of any
opinion of counsel) as to such Warrants and as to any Warrant Shares issued in
respect of such Warrants upon exercise of the Conversion Right set forth in
Section 6(b). Whenever such restrictions shall so terminate the holder of such
Warrants and/or Warrant Shares shall be entitled to receive from the Company,
without expense (other than transfer taxes, if any), Warrant Certificates or
certificates for such Warrant Shares not bearing the legend set forth in Section
13(b), at which time the Company will rescind any transfer restrictions relating
thereto.
14. Amendments and Waivers. Any provision of this Agreement may be
amended, supplemented, waived, discharged or terminated by a written instrument
signed by the Company and the holders of not less than a majority of the
outstanding Warrants (or in the case of Section 13, the holders of a majority of
the aggregate outstanding Warrants and Non-Public Warrant Shares, voting as a
single group); provided, however, that (i) this Agreement may not be amended,
supplemented or waived so as to increase the Exercise Price, reduce the number
of Warrant Shares issuable upon exercise of any Warrants, or alter the period
during which any Warrants may be exercised (except to provide for a later
Expiration Date), in each case without the consent of the holders of all
outstanding Warrants, and (ii) this Section 14 may not be amended or
supplemented without the consent of the holders of all outstanding Warrants and
Non-Public Warrant Shares, voting as a single group, and no waiver of the
requirements of this Section 14 shall be binding upon any such holder without
its consent.
15. Specific Performance. The parties agree that irreparable damage
will result in the event that the obligations of each party under this Agreement
are not specifically enforced, and that any damages available at law for a
breach of any such obligations would be inadequate. Therefore, the holders of
the Warrants and/or Non-Public Warrant Shares and the Company shall have the
right to seek specific performance by the Company and the holders of the
Warrants and/or Non-Public Warrant Shares, respectively, of the provisions of
this Agreement, and
-17-
<PAGE> 18
appropriate injunctive relief may be applied for and granted in connection
therewith. The Company and the holders of the Warrants and/or Non-Public
Warrant Shares hereby irrevocably waive, to the extent that each of them
may do so under applicable law, any defense based on the adequacy of a
remedy at law which may be asserted as a bar to the remedy of specific
performance in any action brought against such party for specific
performance of this Agreement. Such remedies and all other remedies
provided for in this Agreement shall, however, be cumulative and not
exclusive and shall be in addition to any other remedies which may be
available under this Agreement.
16. Notices. Any notice, request, instruction or other document to be
given under this Agreement after the date hereof by any party hereto to any
other party shall be in writing and shall be deemed to have been duly given on
the date of service if delivered personally or by telecopier with confirmed
receipt, or on the third day after mailing if sent by certified mail, postage
prepaid, at the addresses set forth below:
If to or on the Company, addressed to the Company at the Warrant
Office.
If to or on a Warrant Holder or holder of Warrant Shares, addressed to
such holder as such holder's name and address shall appear on the Warrant
Register or the Common Stock registry of the Company, as the case may be.
17. Binding Effect. This Agreement shall be binding upon and inure to
the sole and exclusive benefit of the Company, its successors and assigns, the
Holders, Affiliates of the Holders and the registered holders from time to time
of the Warrants and the Warrant Shares.
18. Continued Validity. A holder of Warrant Shares shall continue to be
entitled with respect to such Warrant Shares to all rights and subject to all
obligations to which it would have been entitled or subject as a Warrant Holder
under Sections 13 through 20 of this Agreement. Such rights and obligations
shall terminate as to any such holder upon the sale of the Warrant Shares held
by such holder. The Company will, at the time of each exercise of any Warrant,
in whole or in part, upon the request of the holder of the Warrant Shares issued
upon such exercise thereof, acknowledge in writing, in form reasonably
satisfactory to such holder, its continuing obligation to afford to such holder
all such rights; provided, however, that if such holder shall fail to make any
such request, such failure shall not affect the continuing obligation of the
Company to afford to such holder all such rights.
19. Governing Law. This Agreement and each Warrant Certificate shall be
governed by and construed in accordance with the laws, other than choice of law
rules, of the State of New York. The federal and state courts of competent
jurisdiction located in New York County, New York, shall have personal
jurisdiction over the parties to this Agreement, and no action to interpret or
enforce this Agreement shall be instituted in any other jurisdiction. Each party
hereby irrevocably waives, to the fullest extent permitted by law, any objection
which it may now or hereafter have to any suit, action or proceeding arising out
of or relating to this Agreement being brought in the federal or state courts of
competent jurisdiction located in New York County, New York, and hereby further
irrevocably waives any claim that any such suit, action or proceeding brought in
any such court has been brought in an inconvenient forum.
-18-
<PAGE> 19
20. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any Person other than the Company and the registered
holders of the Warrants and the Warrant Shares any legal or equitable right,
remedy or claim under this Agreement.
21. Voting and Consents to be on an As-Converted Basis. Wherever this
Agreement calls for the written consent or vote of any combinations of the
holders of the Warrants or any of the Warrant Shares, voting as a single group,
the Warrants shall be counted as if they had been exercised for Common Stock.
22. Multiple Counterparts. This Agreement may be executed in one or
more counterparts for the convenience of the parties hereto, all of which
together shall constitute one and the same instrument.
23. Entire Agreement. This Agreement contains the entire understanding
of the parties relating to the subject matter contained herein and supersedes
all prior agreements and understandings, written or oral, relating to the
subject matter hereof.
24. Headings; Pronouns. All pronouns and any variations thereof shall
be deemed to refer to the masculine, feminine, neuter, singular or plural, as
the identity of the entities or persons referred may require. The headings of
the sections of this Agreement are inserted for convenience only and shall not
constitute a part hereof nor affect in any way the meaning or interpretation of
this Agreement. "Herein," "hereof" and "hereunder" and other words of similar
import refer to this Agreement as a whole and not to any particular section or
other subdivision. All references herein to any action(s) which are to be taken
(or which are prohibited from being taken) by any Person, the Company or any
Subsidiary shall apply to such Person, the Company or such Subsidiary, as the
case may be, whether such action is taken directly or indirectly. All references
herein to actions by the Company or any Subsidiary (including, without
limitation, actions denoted by terms such as "create," "sell," "transfer" or
"dispose of") mean such action whether voluntary or involuntary, by operation of
law or otherwise.
25. Exhibits and Schedules. All exhibits and schedules attached hereto
are incorporated herein by reference.
26. Severability. In the event that any provision contained herein
shall be held to be invalid, illegal or unenforceable for any reason, such
invalidity, illegality or unenforceability shall not affect any other provision
hereof, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein.
[the next page is the execution page]
-19-
<PAGE> 20
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers, as of
the date and year first above written.
COMPANY:
i2v2.COM INC.
By:
---------------------------------------
Its:
----------------------------------
HOLDER:
eVENTURES GROUP, INC.
By: /s/ STUART CHASANOFF
---------------------------------------
Its: Vice President - Business Development
----------------------------------
-20-
<PAGE> 21
EXHIBIT A
TO
WARRANT AGREEMENT
THE WARRANTS REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAW AND
MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM UNDER SUCH ACT OR LAW. SUCH WARRANTS MAY BE TRANSFERRED ONLY
IN COMPLIANCE WITH THE CONDITIONS SPECIFIED IN AND ARE SUBJECT TO OTHER
PROVISIONS OF THE WARRANT AGREEMENT, DATED AS OF MARCH 2, 2000, BETWEEN THE
COMPANY AND CERTAIN HOLDERS (AS SUCH AGREEMENT MAY BE SUPPLEMENTED, MODIFIED,
AMENDED OR RESTATED FROM TIME TO TIME), A COMPLETE AND CORRECT COPY OF WHICH IS
AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF THE COMPANY AND WILL BE
FURNISHED TO THE HOLDER HEREOF UPON WRITTEN REQUEST AND WITHOUT CHARGE.
WARRANT CERTIFICATE
March 2, 2000 Certificate No.: W-1
This Warrant Certificate certifies that _____________________ (the
"Holder"), or registered assigns, is the registered holder of ________________
Warrants (the "Warrants") to purchase shares of common stock, par value $0.001
per share ("Common Stock"), of i2v2.com Inc., a Delaware corporation (the
"Company"). Each Warrant entitles the holder, but only subject to the conditions
set forth herein and in the Warrant Agreement referred to below, to purchase
from the Company before 5:00 p.m., Dallas time, on the "Expiration Date" as
defined in the Warrant Agreement, one fully paid and nonassessable share of
Common Stock (the "Warrant Shares") to the extent set forth in the Warrant
Agreement, at a price equal to the Exercise Price (as defined in the Warrant
Agreement), payable in lawful money of the United States of America, upon
surrender of this Warrant Certificate, execution of the annexed Form of Election
to Purchase and payment of the Exercise Price at the office of the Company at
200 Church Street, Suite 401, New York, New York 10013, or such other address as
the Company may specify in writing to the registered holder of the Warrants
evidenced hereby (the "Warrant Office"). In lieu of exercising Warrants pursuant
to the immediately preceding sentence, the Warrant holder shall have the right
to require the Company to convert the Warrants, in whole or in part and at any
time or times, into Warrant Shares, by surrendering to the Company the Warrant
Certificate evidencing the Warrants to be converted, accompanied by the annexed
Form of Notice of Conversion which has been duly completed and signed. The
Exercise Price and number of Warrant Shares purchasable upon exercise of the
Warrants are subject to adjustment prior to the Expiration Date as set forth in
the Warrant Agreement.
A-1
<PAGE> 22
No Warrant may be exercised after the Expiration Date and (except as
otherwise provided in the Warrant Agreement) all rights of the registered
holders of the Warrants shall cease after the Expiration Date.
The Company may deem and treat the registered holder of the Warrants
evidenced hereby as the absolute owner thereof (notwithstanding any notation of
ownership or other writing hereon made by any person), for the purpose of any
exercise hereof and of any distribution to the holder hereof and for all other
purposes, and the Company shall not be affected by any notice to the contrary.
Warrant Certificates, when surrendered at the office of the Company at
the above-mentioned address by the registered holder hereof in person or by a
legal representative duly authorized in writing, may be exchanged, in the manner
and subject to the limitations provided in the Warrant Agreement, but without
payment of any service charge, for another Warrant Certificate or Warrant
Certificates of like tenor evidencing, in the aggregate, a like number of
Warrants.
Upon due presentment for registration of transfer of this Warrant
Certificate at the office of the Company at the above-mentioned address, a new
Warrant Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued in exchange for this Warrant
Certificate to the transferee(s) and, if less than all the Warrants evidenced
hereby are to be transferred, to the registered holder hereof, subject to the
limitations provided in the Warrant Agreement, without charge except for any tax
or other governmental charge imposed in connection therewith.
This Warrant Certificate is one of the Warrant Certificates referred to
in the Warrant Agreement, dated as of March 2, 2000, between the Company and the
Holder (as such Warrant Agreement may be supplemented, modified, amended or
restated from time to time, the "Warrant Agreement"). The Warrant Agreement is
hereby incorporated by reference in and made a part of this instrument and is
hereby referred to for a description of the rights, limitation of rights,
obligations, duties and immunities thereunder of the Company and the holders.
IN WITNESS WHEREOF the Company has caused this Warrant Certificate to
be signed by its duly authorized officer.
i2v2.com Inc.
By:
---------------------------------------
Its:
----------------------------------
A-2
<PAGE> 23
FORM OF ELECTION TO PURCHASE
(To be executed upon exercise of Warrants)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase ______________ Warrant
Shares and herewith tenders payment for such Warrant Shares to the order of the
Company in the amount of $ _______________ in accordance with the terms hereof.
The undersigned requests that a certificate for such Warrant Shares be
registered in the name of____________________ whose address is _______________
and that such certificate be delivered to __________________________________
whose address is ___________________________________. If such number of Warrant
Shares is less than all of the Warrant Shares purchasable hereunder, the
undersigned requests that a new Warrant Certificate representing the remaining
balance of the Warrant Shares be registered in the name of ____________________
whose address is _________________________________ and that such Warrant
Certificate be delivered to ____________________ whose address is ____________.
Signature:
- -----------------------------------------------
(Signature must conform in all respects to name
of holder as specified on the face of the
Warrant Certificate)
- -----------------------------------------------
(Printed Name)
Date:
-----------------------------------------
A-3
<PAGE> 24
FORM OF NOTICE OF CONVERSION
(To be executed upon conversion of Warrants)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to convert Warrants represented hereby
into _________ Warrant Shares in accordance with the terms hereof. The
undersigned requests that a certificate for such Warrant Shares be registered in
the name of__________________________________ whose address is
______________________________________ and that such certificate be delivered to
___________________________ whose address is ___________________________________
_________________________________________. If such number of Warrant Shares is
less than all of the Warrant Shares obtainable hereunder, the undersigned
requests that a new Warrant Certificate representing the remaining balance of
the Warrant Shares be registered in the name of ______________________________
whose address is ___________________________________ and that such Warrant
Certificate be delivered to __________________________________ whose address is
_________________________________ .
Signature:
- -----------------------------------------------
(Signature must conform in all respects to name
of holder as specified on the face of the
Warrant Certificate)
- -----------------------------------------------
(Printed Name)
Date:
-----------------------------------------
A-4
<PAGE> 25
EXHIBIT B
TO
WARRANT AGREEMENT
WARRANT REGISTER
<TABLE>
<CAPTION>
Warrant Original Number Number of Names and
Certificate of Warrants and Warrants Addresses of
Number Warrant Shares Expired Warrant Holders
- ----------- --------------- --------- ---------------
<S> <C> <C> <C>
</TABLE>
B-l
<PAGE> 1
EXHIBIT 10.20
SUBLEASE AGREEMENT
THIS SUBLEASE AGREEMENT (this "Agreement") is made this 31 day of
January 2000, by and between TOTALTEL FLORIDA, INC., a New Jersey corporation,
having an address of 150 Clove Road, 8th Floor, Little Falls, New Jersey 07424
(the "Lessor") and AXISTEL GLOBAL NETWORK SERVICES INC., a Delaware corporation,
having an address of One Evertrust Plaza, 8th Floor, Jersey City, New Jersey
07302 (the "Lessee").
WITNESSETH
WHEREAS, Lessor, as lessee, entered into that certain Lease Agreement
dated February 6, 1998 (the "Prime Lease"), with Mosta Corporation, Inc., a
Florida corporation (the "Original Overlessor"), whereby Lessor leased from the
Original Overlessor certain premises consisting of approximately 4,959 square
feet on the Penthouse floor in the building commonly known as the "Courthouse
Plaza" located at 28 W. Flagler Street, Miami, Florida 33130, as more
particularly described in Exhibit "A" attached hereto (the "Premises"), to
which Prime Lease reference is hereby made as if the same were herein set forth
at length; and
WHEREAS, 28 Partners Ltd., a Florida limited partnership (the
"Overlessor") is the successor-in-interest to Original Overlessor and the holder
of the interest of the "lessor" under the Prime Lease; and
WHEREAS, Lessee has requested that Lessor sublet the Premises to
Lessee; and
WHEREAS, Lessor has agreed to sublet the Premises to Lessor pursuant to
the terms and conditions contained herein; and
WHEREAS, Overlessor simultaneously consents to this Agreement as
evidenced by its execution of the Overlessor's Consent to this Agreement, in the
form attached hereto as Exhibit "C".
NOW, THEREFORE, for and in consideration of the sum of TEN DOLLARS
($10.00) and other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties hereto agree as follows:
1. The initial capitalized terms used herein shall have the same meaning
given such terms in the Prime Lease, unless otherwise defined or unless the
context otherwise indicates.
2. Lessor hereby subleases to Lessee the Premises for a term commencing as
of January 1, 2000 and expiring on January 30, 2013 pursuant to the same terms
and conditions as set forth in the Prime Lease, except as otherwise set forth in
this Agreement.
3. This Agreement is subject and subordinate to the Prime Lease. Except as
may be inconsistent with the terms hereof or otherwise modified herein, all the
terms, covenants and conditions contained in the Prime Lease shall be applicable
to this Agreement with the same force and effect as if Lessor were the lessor
under the Prime Lease and Lessee were the lessee thereunder; and in case of any
breach hereof by Lessee, Lessor shall have all the rights against Lessee as
would be available to the lessor against the lessee under the Prime Lease if
such breach were by the lessee thereunder. Lessor represents and warrants to
Lessee that: (i) the Prime Lease has not been amended, modified, extended or
renewed, whether verbally or in writing; (ii) no default on the part of Lessor
exists as of the date hereof under the Prime Lease; (iii) no circumstances or
state of facts exist which would give Overlessor the right to declare Lessor in
default under the Prime Lease; and (iv) provided that Lessee is not in default
hereunder, Lessor shall maintain the Prime Lease in full force and effect during
the term of this Agreement. Notwithstanding anything contained in this Agreement
to the contrary, Lessor shall remain primarily liable for the obligations and
responsibilities of the lessee under the Prime Lease.
4. As between Lessor and Lessee, with respect to the Premises, Lessee shall
perform all of the obligations of Lessor under the Prime Lease. In the event
that Lessee does not perform any such obligation, Lessor may perform such
obligation and Lessee shall immediately pay to
<PAGE> 2
Lessor any costs incurred by Lessor in the performance of such obligation. In
the event that neither Lessor nor Lessee performs any such obligation,
Overlessor may, but shall not be required to, perform such obligation and Lessee
shall immediately pay to Overlessor any costs incurred by Overlessor in the
performance of such obligation. Lessee shall neither do nor permit anything to
be done which would cause the Prime Lease to be terminated or forfeited by
reason of any right of termination or forfeiture reserved or vested in the
lessor under the Prime Lease. Any failure of Lessee to comply with the
requirements of this Section 4 shall be a default under this Agreement.
5. Lessee represents that it has read and is familiar with the terms of the
Prime Lease.
6. Commencing as of January 1, 2000, Lessee shall, without offset, notice
or deduction, make all payments of Base Rental, Lessor's pro rata share of any
increase in the direct operating costs of the Building, and any other payments
required to be made by Lessor under the Prime Lease to Lessor at such times and
in such manner as Lessor is required to make such payments to Overlessor as
provided in the Prime Lease at the Lessor's address as set forth in Paragraph 18
below. Notwithstanding the foregoing, Lessee shall not receive the benefit of
the monthly rental payment credits given to Lessor by Overlessor under Section 2
of the Prime Lease. Throughout the term of this Agreement, Lessee shall make all
rental payments to Lessor when due, in the amounts required by the Prime Lease,
without regard to any monthly rental payment credits described in the Prime
Lease. Lessee shall also pay all Florida sales taxes or other taxes payable on
any amounts required to be paid under this Agreement.
7. Lessee acknowledges that Lessor's current use of the Premises and
Lessee's proposed use of the Premises under this Agreement involve the use of
electric current which is in excess of the electric current for normal and
customary usage for existing tenants in Courthouse Plaza. Lessee shall make such
improvements to the electrical system of the Premises as are necessary to
separately submeter the Premises from the remainder of the space in Courthouse
Plaza so that all electric current usage to the Premises shall be separately
billed to Lessee and not to Overlessor. Lessee shall timely pay all costs and
expenses billed to Lessee by the entity providing electrical service to the
Premises.
8. Simultaneous with the execution of this Agreement by Lessee, Lessee
shall pay to Overlessor in the form of a cashier's check the sum of $53,309.28
(the "Security Deposit"), which shall be held by Overlessor as security for the
faithful performance by Lessee of its obligations under this Agreement. Upon the
annual rent adjustment as set forth in Section 3 of the Prime Lease, Lessee
agrees to pay to Overlessor any additional amount necessary to increase the
Security Deposit to an amount equal to six (6) months' rent at adjusted amount;
provided that in no event shall the Security Deposit be reduced to an amount
less than the amount held immediately prior to the annual rent adjustment.
Overlessor shall hold the Security Deposit in a manner and for reasons similar
to those set forth in Section 19 of the Prime Lease; provided that with respect
to the Security Deposit described herein, any references in Section 19 to
"Tenant" shall be deemed references to Lessee and any references to the "Lease"
shall be deemed to include this Agreement. Lessee acknowledges and agrees that,
upon receipt of written notice from Overlessor stating that Lessee is in default
of the Agreement, Overlessor may use the Security Deposit or an appropriate
portion thereof for the payment of any rent, charges or other amounts then due
to Overlessor under the Prime Lease or this Agreement. Said use of the Security
Deposit for any reason pursuant to the provisions of the Prime Lease or of this
Agreement will not reduce or mitigate the obligations of either Lessor or Lessee
under the Prime Lease or this Agreement. In the event that Overlessor applies
the Security Deposit in whole or in part against a default by Lessee, Lessee
shall, upon written demand by Overlessor, deposit sufficient additional funds
with Overlessor to replenish and restore the Security Deposit to the amount held
by Overlessor immediately prior to Overlessor's application of the Security
Deposit to Lessee's default. Overlessor shall be solely responsible for holding
and maintaining the Security Deposit in accordance with this Agreement and
Lessee agrees that it shall look solely to Overlessor for the return of the
Security Deposit.
9. Lessor and Lessee acknowledge and agree that the Premises shall be
delivered to Lessee in "AS IS" condition, and Lessor makes no representations or
warranties concerning the
2
<PAGE> 3
Premises except as may be specifically set forth in this Agreement. Lessee
acknowledges and agrees that Lessor shall not be deemed in default of this
Agreement as the result of the failure of Overlessor to perform the obligations
of Overlessor under the Prime Lease.
10. Lessee shall not make any improvements to the Premises without the
written consent of Lessor and Overlessor. Lessor's consent to any improvements
may be conditioned upon Overlessor's consent to such improvements.
11. In the event that Lessee desires to make structural alterations to the
Premises, Lessee shall provide to Lessor and Overlessor written certification
(the "Certification") from a structural engineer ("Lessee's Structural
Engineer"), duly licensed by the State of Florida, and reasonably insured as
determined by Overlessor, that Lessee's actual or proposed improvements to the
Premises and Lessee's actual or proposed placement of equipment in the Premises
shall be in accordance with (i) all governmental laws and regulations applicable
to the Courthouse Plaza building and (ii) all structural standards and
limitations of the Courthouse Plaza. The Certification shall include, without
limitation, a statement that Lessee's placement of equipment in the Premises
shall not be in excess of the Premises' ability to bear the load of such
equipment. Lessee shall not place a load upon any part or all of any floor of
the Premises exceeding the floor load per square foot for said part or all which
such floor was designed to carry and which is allowed by law. Lessee shall not
move any safe, heavy equipment, business machines, freight, bulky matter or
fixtures (collectively, "Heavy Items") into or out of the Premises without
Overlessor's prior consent (which consent shall not be unreasonably withheld or
delayed, provided Landlord receives a certification letter from Lessee's
Structural Engineer, general contractor or architect stating that such Heavy
Items shall not exceed the floor load capacity of the area of the Premises upon
which such item or items will be placed and Lessee complies with Overlessor's
reasonable requirements for weight distribution and movement of such items in
and out of the Premises), and if Landlord's consent is granted, then Lessee
shall only move such Heavy Items in accordance with Landlord's reasonable rules
and regulations therefor. If such Heavy Items require special handling, Lessee
shall employ only persons holding a Master Rigger's license to do such work.
12. Lessor shall allow Lessee to use all of Lessor's equipment within the
Premises identified in the inventory attached hereto as Exhibit "D" and made a
part hereof. Lessee acknowledges that such equipment is owned by Lessor and
Lessee has no ownership rights to such equipment. Gas, electricity and or other
fuel for, and cleaning, insurance, repairs, maintenance and replacement of this
or any equipment and appurtenances located on the Premises shall be the sole
responsibility of Lessee. Lessee hereby acknowledges acceptance of the equipment
in good working order, and warrants that Lessee shall maintain the equipment in
good working order throughout the term of this Agreement and that Lessee shall
return the equipment in good working order at the termination of this Agreement,
reasonable wear and tear excepted with regard to the time period of utilization.
13. Lessee agrees that Lessor may continue to maintain on the premises,
without charge, cost, rent or payment to Lessee of any kind, for the term of
this Agreement, in Lessor's discretion, the equipment (the "Lessor's Equipment")
owned by Lessor identified in Exhibit "E" attached hereto and made a part
hereof. For the purpose of maintaining the Lessor's Equipment, Lessor shall be
permitted access to the Premises and to the Lessor's Equipment during regular
business hours and during non-regular business hours for emergency purposes.
Lessee shall, at Lessee's sole cost and expense, provide AC/DC power connected
to an uninterrupted power supply (UPS), as needed, to the Lessor's Equipment,
adequate HVAC and access to cross-connect facilities to MFS, Teleport and other
comparable facilities as installed.
14. Lessee shall not assign this Agreement or sublet all or any portion of
the Premises without the prior written consent of both Lessor and Overlessor,
which consent shall not be unreasonably withheld as set forth in Section 13 of
the Prime Lease.
15. In the event of a casualty, condemnation or other event described in
the Prime Lease wherein Lessor would have the right to terminate the Prime
Lease, Lessor shall have the right to terminate the Prime Lease without
liability to Lessee and in the event of any such termination, this Agreement
shall terminate effective as of the effective termination date of the Prime
Lease.
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16. Lessee shall indemnify, defend and hold harmless Lessor and Overlessor,
their respective subsidiaries, affiliates, officers, directors, shareholders,
partners, employees, managers, independent contractors, attorneys and agents
from and against any and all claims, demands, causes of action, judgments, costs
and expenses, and all losses and damages arising from or related to (i) any act
or omission of Lessee, its employees, agents, invitees or licensees, which
causes, directly or indirectly, a breach of the Prime Lease, or (ii) Lessee's
breach of this Agreement.
17. All prior understandings and agreements between the parties are merged
within this Agreement, which alone fully and completely sets forth the
understanding of the parties; and this Agreement may not be changed or
terminated orally or in any manner other than by an agreement in writing and
signed by the party against whom enforcement of the charge or termination is
sought. Notwithstanding anything contained herein to the contrary, the Prior
Lease shall remain in full force and effect.
18. Any notice or demand which either party may or must give to the other
hereunder shall be in writing and delivered personally or sent by registered
mail addressed, if to Lessor, as follows:
TotalTel Florida, Inc.
150 Clove Road, 8th Floor
Little Falls, New Jersey 07424
Attention: Karen Ryan, Vice President of
Administration
and if to Lessee, as follows:
Axistel Global Network Services Inc.
One Evertrust Plaza, 8th Floor
Jersey City, New Jersey 07302
Attention: Contracts Administrator
Either party may, by notice in writing, direct that future notices or
demands be sent to a different address.
19. In the event of any conflict between the provisions of this Agreement
and the provisions of the Prime Lease, the provisions of the Prime Lease shall
prevail.
20. The covenants and agreements herein contained shall bind and inure to
the benefit of Lessor, the Lessee, and their respective successors and assigns.
21. This Agreement shall be effective as of the date Overlessor executes
the Overlessor's Consent attached to and incorporated into this Agreement.
[The remainder of this page is intentionally left blank. Signatures are on the
following page.]
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IN WITNESS WHEREOF, the parties hereto have caused these presents to be
executed the day and year first above written.
LESSOR:
TOTALTEL FLORIDA, INC., a New Jersey
corporation
By: /s/ THOMAS P. GUNNING
- ---------------------------------- ----------------------------------
Print Name: Print Name: Thomas P. Gunning
----------------------- --------------------------
Title: Treasurer/Secretary
-------------------------------
- ----------------------------------
Print Name:
-----------------------
LESSEE:
AXISTEL GLOBAL NETWORK
SERVICES INC., a Delaware corporation
By: /s/ SAM LITWIN
- ---------------------------------- ----------------------------------
Print Name: Print Name: Sam Litwin
----------------------- --------------------------
Title: CEO
-------------------------------
- ----------------------------------
Print Name:
-----------------------
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EXHIBIT "A"
PRIME LEASE
LEASE AGREEMENT
THIS AGREEMENT, entered into this 6th day of February, 1998, by and
between MOSTA CORPORATION, INC., a Florida Corporation, hereinafter referred to
as "LANDLORD", whose business address is 28 West Flagler Street, Suite 303,
Miami, Florida 33130, and TOTALTEL FLORIDA, INC., a New Jersey Corporation,
hereinafter referred to as "TENANT", whose business address is 150 Clove Road,
Little Falls New Jersey 07424.
WITNESSETH, that the LANDLORD does hereby devise and lease unto said
TENANT, and TENANT does hereby hire and take as tenant under and from said
LANDLORD, the following described space and premises, hereinafter referred to as
the leased premises, to-wit:
Space designated as the Penthouse Floor, comprising approximately
4,959 square feet, more or less, being on the Penthouse Floor, in the
Courthouse Plaza, located at 28 W. Flagler Street, City of Miami, State
of Florida, hereinafter referred to as the "Building", subject to and
conditioned upon all of the term, provisions and conditions of this
lease.
1. TERM: TENANT to have and to hold the above described premises
subject to the provisions and conditions of the Lease, for the term of fifteen
(15) years, commencing on the lst day of February, 1998 and terminating on
the 31st day of January, 2013.
2. RENT: TENANT hereby covenants and agrees to pay, without deduction,
diminution or set-off, together with any and all sales and use taxes levied upon
the use and occupancy of the leased premises, during the term hereof, to the
LANDLORD, in advance and beginning on the commencement date of this Lease and on
the first day of each and every month thereafter, for the annual rent of ONE
HUNDRED SIX THOUSAND SIX HUNDRED EIGHTEEN AND 50/100 ($106,618.50) DOLLARS,
lawful money of the United States, hereinafter sometimes referred to as "Base
"Rent" or "Base Rental" in equal monthly installments of EIGHT THOUSAND EIGHT
HUNDRED EIGHTY FOUR AND 88/100 ($8,884.88) DOLLARS, plus applicable taxes, in
advance, to LANDLORD at its principal office or that of its agent (or at any
other place designated in writing by LANDLORD). Monthly base rent will be
adjusted annually in the manner set forth in Paragraph Three. If TENANT'S
possession commences on other than the first day of the month, TENANT shall
occupy the leased premises under the terms, conditions, and provisions of this
Lease, and the prorata portion of the monthly rent for said month shall be paid
and the term of this Lease shall commence on the first day of the month
following that in which possession is given. A service charge of three percent
(3%) of the delinquent rent or a minimum charge of Twenty Five ($25.00) Dollars,
whichever shall be the greater, may be assessed on the payment of rent received
after the due date thereof. A service charge of Twenty Five ($25.00) will be
assessed or handling of any returned check.
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TENANT shall not be required to make any rental payment for the month
of February, 1998. TENANT'S initial rental payment shall be applied to the
monthly rental payment due on March 1, 1998.
TENANT shall have five (5) day grace period in which to make the
monthly rental payments due under this Lease.
LANDLORD agrees to give a rent credit to TENANT, in the total amount
of SEVENTY FIVE THOUSAND ($75,000.00) DOLLARS, which rent credit shall be given
to TENANT based upon the following schedule:
(a) TENANT shall not be required to pay the monthly rental payment to
LANDLORD, in the monthly amount of EIGHT THOUSAND EIGHT HUNDRED EIGHTY FOUR
and 88/100 ($8,884.88) DOLLARS which is due on March 1, 1998, April 1, 1998,
and May 1, 1998.
(b) TENANT shall not be required to pay the monthly rental payment to
LANDLORD, which is due on February 1, 1999, March 1, 1999, and April 1, 1999.
(c) TENANT shall not be required to pay the monthly rental payment to
LANDLORD, which is due on February 1, 2000, and March 1, 2000.
(d) After deducting amount of the monthly rental payment credits set
forth in paragraphs (a), (b) and (c) hereinabove from the SEVENTY FIVE THOUSAND
($75,000.00) DOLLAR rental credit due TENANT, any remaining rental credit due
TENANT shall be deducted from the rental payment due LANDLORD on April 1, 2000.
The balance of the April 1, 2000 rental payment due LANDLORD shall be due and
payable to LANDLORD.
3. ANNUAL RENT ADJUSTMENT: The monthly base rent for each twelve
month period subsequent to the first complete twelve month period occurring
during the term of this Lease or any renewal thereof shall be computed by
multiplying the base rent, as set forth in Paragraph Two, by a fraction whose
numerator shall be the number reported by the U.S. Department of Labor, Bureau
of Labor Statistics as the Revised Urban Wage Earners and Clerical Workers Index
for the third month prior to the respective anniversary date and whose
denominator shall be the number supplied for the third month prior to the
commencement date of the Lease, provided that in no event shall such rent be
less than the rent paid by TENANT for each twelve (12) month period of this
Lease immediately prior to each anniversary date of this Lease.
The LANDLORD shall notify the lessee of the adjusted monthly base
rent, in writing, if such adjustment occurs. The TENANT agrees to pay the
adjusted monthly base rent, together with any applicable taxes, on the first day
of each and every month for the following twelve (12) month period.
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<PAGE> 8
In the event the Bureau of Labor Statistics changes the form or the
basis of calculating the Index, the parties agree that the burden shall be upon
the LANDLORD to select the new Index to be used. The new Index selected by
LANDLORD shall be an index comparable to the Index set forth hereinabove.
TENANT'S annual rental payment due LANDLORD for each subsequent year
that this lease shall be in effect shall be capped at a maximum of a three (3%)
percent increase annually based upon the amount of the prior years rental
payment.
4. PRO RATA SHARE OF INCREASE IN OPERATING COSTS: (a) In addition to
the "Base Rental" described above, each calendar year the TENANT is required to
pay his pro rata share of any increase in the direct operating costs of the
Building. The TENANT'S pro rata share of any increase in direct operating costs
is known herein as "additional rent". (b) The amount of increase in direct
operating costs for each calendar year (January 1 to December 31) shall be
computed by comparing the cost during that year with the costs incurred during
the "Base Year". The Base Year shall be 1998. TENANT'S prorata share of any
increase is hereby fixed at 7.96% percent.
4.1. PRO RATA SHARE: The pro rata share of the increase in direct
operating costs to be charged to TENANT shall be pro rated based upon the number
of square feet leased by the TENANT as it related to the whole leaseable square
footage of the Building. In the event part of the Building is unoccupied during
the Base Year or any subsequent calendar year, the direct operating costs
shall be adjusted so as to reflect operating costs of the Building as though
fully occupied and the computation of increase shall be based upon such
adjusted costs.
4.2. DIRECT OPERATING COSTS: Direct operating costs shall include taxes
and assessments, janitorial, guard and maintenance services, labor, reasonable
managerial expenses, insurance, air conditioning, heating, electricity, water,
sewage, payroll expenses, materials and supplies, services, charges and all
other direct operating costs of operating and maintaining the Building. Direct
operating costs shall not include expenditures for capital improvements,
interest expenses or depreciation, nor additional charges imposed under
Paragraphs six (6) and seven (7) hereof. Such additional charges shall be
computed separately for each TENANT. All expenditures scheduled less often than
annually shall be pro rated over the period to which such expenditures are
applicable.
4.3. TAXES: Taxes for the Base Year shall be computed for this purpose
by multiplying the general real estate rate by the assessed value of the land
and the completed building for the Base Year.
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Taxes for subsequent Base Years shall be deemed to be the taxes payable in the
respective calendar year even though the levy or assessment thereof may be for a
different year. Said taxes shall include general real estate taxes, special
assessments, and any other taxes that may be imposed partially or entirely in
lieu of general real estate taxes. Changes in taxes may be due to changes in the
tax rates and/or changes in the assessment of the land and/or Building.
4.4 CALCULATING ADDITIONAL RENT: For each calendar year after the
Base Year the direct operating costs for the Building during that calendar year
shall be determined. This determination shall be made as soon as appropriate
accounting information for the calendar year is available. This amount shall
then be compared to the direct operating costs of the Building during the
TENANT'S Base year. The "additional rent" payable by the TENANT shall be his pro
rata share (See Schedule 4.1) of the increase in direct operating costs when
said costs as compared to the direct costs of the Base Year.
4.5. STATEMENTS: A statement, in reasonable detail, containing the
above described calculations of "additional rent" shall be rendered to the
TENANT for each calendar year after the Base Year. The statement will be issued
subsequent to the termination of the calendar year and as soon as practicable
after appropriate accounting information for the calendar year is available as
set forth in Paragraph 4.6. The TENANT shall have thirty (30) days from the
receipt of said statement to make any "additional rent" payments due and owing
thereunder.
4.6. METHOD OF ACCOUNTING - BASE YEAR OPERATING COSTS: LANDLORD agrees
to keep books and records reflecting direct operating costs of the Building in
accordance with the standard method of accounting consistently applied. Within
thirty (30) days after receipt of this statement the TENANT shall have the
right upon reasonable notice and at such reasonable business hours to inspect
and review the books and records of the LANDLORD that verify such statement.
This statement shall be conclusive between all parties as to the operating costs
of the Building for each calendar year. Once the operating costs for the Base
Year have been determined, the parties hereto agree to acknowledge the same in
writing.
4.7. FINAL CALENDAR YEAR OF LEASE: Additional Rent" for the final
months of this Lease is due and payable even though it may not be calculated
until subsequent to the termination date of the Lease. In calculating
"additional rent" for the final months of the Lease, the direct operating costs
for the calendar year during which the Lease terminated shall be pro rated
according to that portion of said calendar year that this Lease was actually
in effect.
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<PAGE> 10
5. SERVICES TO BE FURNISHED: LANDLORD will furnish the following
services to TENANT: (1) twenty four (24) hour elevator service; (2) electric
current for normal and customary usage as is provided to the existing tenant;
water in such amounts as in LANDLORD'S reasonable judgment is necessary for
lavatory and like purposes; heat and/or air conditioning service to the demised
premises from 8:30 A.M. until 5:00 P.M., Monday through Friday, at such
temperatures and in such amounts as are reasonably considered by LANDLORD to be
standard, but LANDLORD shall not be required to furnish heat and/or air
conditioning on Saturdays, Sundays and legal holidays; provided, however, upon
the timely request by TENANT, LANDLORD shall furnished heat and/or air
conditioning service to the demised premises during hours other than the
foregoing at an hourly rate to be negotiated in advance, and such rate for
additional service shall be billed to TENANT monthly; and (5) cleaning and
janitorial service to the demised premises for all public and special service
areas, except on Saturdays, Sundays, and legal holidays, in the manner and to
the extent reasonably deemed by LANDLORD to be standard.
6. INCREASE IN SERVICE: If TENANT shall require electrical current or
shall install electrical equipment, including but not limited to electrical
heating, refrigeration equipment, electronic data processing machines,
computers, punch card machines, or machines or equipment using current in excess
of 110 volts, or which will in any way increase the amount of electricity and/or
water usually furnished for general or normal use of the demised premises, then
TENANT shall obtain prior written approval from the LANDLORD, who may condition
such consent upon the payment by the TENANT of additional rent as compensation
for excess consumption of water and/or electricity occasioned by the operation
of said equipment or machinery, including any installation costs thereof.
LANDLORD shall not be liable for any delay or failure to supply such services
due to unusual conditions beyond its control, and LANDLORD shall not be liable
for damages nor shall TENANT ever be entitled to any abatement of rent for
failure to supply the same. LANDLORD hereby acknowledges that the current
tenant's present use of the demised premises does not increase the amount of
electricity and/or water furnished for general or normal office use of the
demised premises. TENANT shall be solely responsible for payment of the cost of
electricity used to operate TENANT'S equipment.
7. INCREASE IN INSURANCE: TENANT shall not do or permit anything to
be done upon or bring or keep or permit anything to be brought or kept into or
on the premises which shall increase the rate of insurance on the Building of
which the premises form a part or on the property located therein. If by reason
of the failure of TENANT to comply with the terms of this Lease, or by reason of
TENANT'S occupancy (even though permitted or contemplated by this Lease), the
insurance rate shall at any time be higher than it would otherwise be, TENANT
shall reimburse LANDLORD for that part of all insurance premiums charged because
of such violation or
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<PAGE> 11
occupancy by TENANT. LANDLORD hereby acknowledges that the current tenant's
present use of the demised premises does not cause an increase the rate of
insurance on the Building of which the premises form a part or on the property
located therein.
8. NO LIABILITY: It is covenanted and agreed by and between the parties
hereto that the LANDLORD shall not in any event, whether caused by LANDLORD'S
negligence or otherwise, except for LANDLORD'S gross negligence or intentional
conduct, be liable for any failure of water supply, electric current,
heating or air conditioning, elevator service, or any other service, nor be
liable for any loss, damage or injury to the TENANT. TENANT'S agents, servants,
employees or visitors, or the TENANT'S property, for any damage or injury caused
by or from the bursting or leaking of boilers of water, sewer, steam or gas
pipes or gas pipes or from electricity, water, rain or dampness, which may leak
or flow from any part of the Building, or by fire or theft or by other tenants
or persons in the Building, or resulting from the operation of elevators,
heating or air conditioning or light apparatus, or from falling plaster or
tiles, or from electric wires equipment or fixtures, or from gas odors or
plumbing fixtures, or from the elements, or from any cause whatsoever, except
in the case of the willful neglect of the LANDLORD. All goods and property or
personal effects stored or placed by the TENANT in or about the Building shall
be at the sole risk of the TENANT.
9. LIENS: The TENANT herein shall not have any authority to create any
liens for labor or material on the LANDLORD'S interest in the above described
property, and all persons contracting with the TENANT for the destruction or
removal of any building or for the erection, installation, alteration, or repair
of any building or other improvements on the above described premises, and all
materialmen, contractors, mechanics, and laborers, are hereby charged with
notice that they must look to the TENANT and to the TENANT'S interests only in
the above described property to secure the payment of any bill for work done or
material furnished during the rental period created by this Lease. LANDLORD
shall not be liable nor shall the leased premises be subject to any mechanics,
materialmen or other type liens and TENANT shall keep the premises and property
in which the leased premises are situated free from any such liens and shall
indemnify LANDLORD against and satisfy any such liens which may be obtained
because of acts of TENANT notwithstanding the foregoing provision. TENANT
further agrees that TENANT will pay all liens of contractors, mechanics,
laborers, materialmen, and other items of like character, and will indemnify
LANDLORD against all legal costs and charges, bond premium for release of liens
and including counsel fees reasonably incurred in and about the defense of any
suit in discharging the said premises or any part thereof from any liens,
judgments, or encumbrance caused or suffered by TENANT. It is understood and
agreed between the parties hereto that the cost and charges above referred to
shall be considered as rent due and shall be included in any lien for rent.
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10. ALTERATIONS AND IMPROVEMENTS, ETC.: TENANT shall not make any
alterations, additions, or improvements to the premises without the prior
written consent from the LANDLORD which consent shall not be unreasonably
withheld. In making any alterations, decorations, additions, installments, or
improvements to or in the premises, TENANT shall employ only such labor as will
not cause strikes or labor trouble with other employees in the Building employed
by LANDLORD or LANDLORD'S contractors; and all such work done by TENANT shall be
performed and installed in such a manner that the same shall comply with all
provisions of law, ordinances, and all rules and regulations of any and all
agencies and authorities having jurisdiction over the premises, and at such time
and in such manner as not to interfere with the progress of any work being
performed by or on account of LANDLORD. Notwithstanding the foregoing, it is
understood that all alterations, additions, improvements, decorations or
installations, including, but not limited to, all presently existing or
hereinafter installed telephone communications equipment, generators and fuel
tanks, partitions, railings, air conditioning ducts or equipment, movable
equipment, furniture and fixtures contained within the demised premises shall be
removed by TENANT at the termination of the term of this Lease.
11. INSPECTION, EXAMINATION AND ENTRY: LANDLORD and LANDLORD'S agents
shall have the right to enter the premises at all reasonable hours to examine
the same, and workmen may enter at any reasonable time when authorized by
LANDLORD and LANDLORD'S agents to make such repairs, alterations or improvements
in the Building as LANDLORD may deem necessary or desirable. If during the last
month of the term, TENANT shall have removed all or substantially all of
TENANT'S property, LANDLORD may immediately enter the premises and prepare them
for any future TENANT. Furthermore the LANDLORD may allow such future TENANT to
occupy the premises. These acts shall have no effect upon TENANT'S obligation
under this Lease and TENANT shall be entitled to no abatement or diminution of
rent as a result thereof, except that in the event such future TENANT makes any
payment for the period up until the expiration of this Lease, TENANT shall be
entitled to a credit to the extent of such payment. If TENANT shall not be
personally present to open and permit entry into the premises, when entry
thereinto shall be permissible or necessary hereunder, LANDLORD may enter same
at all reasonable times. LANDLORD shall have the right, after reasonable prior
notice to TENANT, to enter the leased premises at all reasonable hours for the
purpose of displaying said premises to prospective tenants within ninety (90)
days prior to the termination of this Lease. LANDLORD shall give TENANT
reasonable prior notice of LANDLORD'S intention to enter the leased premises
except in the case of an emergency.
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<PAGE> 13
12. INDEMNIFICATION: The LANDLORD shall not be liable for any damage or
injury to any person or property whether it be the person or property of the
TENANT, the TENANT'S employees, agents, guests, invitees or otherwise by reason
of TENANT'S occupancy and use of the leased premises or because of fire, flood,
windstorm, Acts of God, or for any other reason. TENANT shall indemnify and save
LANDLORD harmless, and does agree to indemnify and save LANDLORD harmless, of
and from all fines, claims, demands and causes of action of every nature
whatsoever arising or growing out of or in any manner connected with the
occupation or use of the premises and Building, and every part thereof, by
TENANT and the employees, agents, servants, guests and invitees of TENANT
including without limiting the generality of the foregoing, any claims, demands
and causes of action for personal injury and/or property damage, and said
indemnification shall extend to any fines, claims, demands and causes of action
of every nature whatsoever which may be made upon, sustained, or incurred by
LANDLORD by reason of any breach, violation or non-performance of any term,
covenant or condition hereof on the part of TENANT, or by reason of any act or
omission on the part of TENANT and the employees, agents, servants, guests, and
invitees of TENANT. TENANT agrees that this indemnification shall further extend
to all costs incurred by LANDLORD including reasonable attorney's fees.
13. ASSIGNMENT AND SUBLEASE: The TENANT covenants and agrees not to
encumber or assign this Lease or to sublet all or any part of the leased
premises without the prior written consent of the LANDLORD. The LANDLORD
covenants and agrees that consent shall not be unreasonably withheld, provided
that:
A) The LANDLORD shall have the option to refuse to consent to any sublease
or assignment by canceling this Lease and mutually releasing the TENANT from
this Lease.
B) At the option of the LANDLORD there shall be deposited with LANDLORD
such additional sums as LANDLORD deems reasonably necessary to secure the
faithful performance of the terms and conditions of this Lease.
C) The LANDLORD may, at LANDLORD'S option, require that any sublease or
assignment include therein such terms, conditions or covenants as LANDLORD deems
reasonably necessary to safeguard LANDLORD'S interests.
D) In no event shall TENANT be entitled to sublease the leased premises for
a rental amount which exceeds the amount of rental which the TENANT is obligated
to pay to LANDLORD at the time the sublease is proposed.
TENANT agrees to give notice to LANDLORD, within ten (10) days, of the
transfer by TENANT of any controlling stock or interest in its business;
LANDLORD shall have the option to deem any such transfer to be an assignment by
TENANT of this Lease, and
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<PAGE> 14
subject to LANDLORD'S written consent and all other rights retained by LANDLORD
in respect of an assignment of the leased premises.
LANDLORD acknowledges that TENANT may permit the use of TENANT'S equipment
and improvements by other telephone service providers and that such use shall
not constitute an assignment or sublease of the demised premises by TENANT.
14. DEFAULT: In the event TENANT shall default in the payment of rent or
any other sums payable by TENANT herein and such default shall continue for a
period of three (3) days, or if the TENANT shall abandon the premises and remove
or attempt to remove therefrom the major portion of its furniture or fixtures,
or if the TENANT shall default in the performance of any other covenants or
agreements of this Lease and such default shall continue for thirty (30) days or
for fifteen (15) days after written notice thereof, or if TENANT should become
bankrupt or insolvent or any debtor proceedings be taken by or against the
TENANT, then and in addition to any and all other legal remedies and rights, the
LANDLORD may declare the entire balance of the rent for the remainder of the
term to be due and payable and may collect the same by distress or otherwise and
LANDLORD shall have a lien on the personal property of the TENANT which is
located in the leased premises and in order to protect its security interest in
the said property LANDLORD may, without first obtaining a distress warrant, lock
up the leased premises in order to protect said interest in the secured
property, or the LANDLORD may terminate this Lease and retake possession of the
leased premises, or enter the leased premises and relet the same without
termination, in which latter event the TENANT covenants and agrees to pay any
deficiency after TENANT is credited with the rent thereby obtained less all
repairs and expenses (including the expenses of obtaining possession), or the
LANDLORD may resort to any two or more of such remedies or rights, and adoption
of one or more such remedies or rights shall not necessarily prevent the
enforcement of others concurrently or thereafter. Any monies received from the
TENANT at any point during the period of the Lease will be applied at LANDLORD'S
discretion towards TENANT'S earliest obligation.
TENANT also covenants and agrees to pay reasonable attorney's fees and
costs and expenses of the LANDLORD, including court costs, if the LANDLORD
employs an attorney to collect rent or enforce other rights of the LANDLORD
herein in event of any breach as aforesaid and the same shall be payable
regardless of whether collection or enforcement is effected by suit or
otherwise.
15. DAMAGE BY FIRE OR OTHER CASUALTY: If, through no fault or negligence of
TENANT, its visitors, agents, or servants, the premises shall be partially
damaged by fire or other casualty, the damage shall be repaired by LANDLORD, and
the rent until such repairs are made, shall be apportioned according to the
portion of the premises which are still usable. If the damage shall be so
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extensive as to render the premises wholly untenantable, the rent shall cease
until such time as the premises shall become tenantable. However, if the damage
is so extensive that the premises cannot be made tenantable within three (3)
months from the date rehabilitation is started, either party shall have the
right to terminate this Lease upon ten (10) days written notice to the other. In
case the Building generally throughout (though the demised premises may not be
affected) is so injured or destroyed by fire or other casualty that LANDLORD
shall decide not to re-build or reconstruct the Building, the term of this Lease
shall cease upon ten (10) days' written notice sent by LANDLORD and the rent
shall be paid up to the time of such destruction and the Lease shall thereafter
be of no further effect. In the event that any question shall arise between
LANDLORD and TENANT as to whether or not repairs shall have been made with
reasonable dispatch, due allowance shall be made for any delays which may arise
in connection with the adjustment of the fire insurance loss and for any delays
arising out of what are commonly known as "labor troubles" or "material
troubles" or from any other cause beyond LANDLORD'S control. In any event
LANDLORD shall not be liable to TENANT by reason of fire or other damage to the
Building or the demised premises. LANDLORD shall not be liable to carry fire,
casualty or extended damage insurance on the person or property of the TENANT or
any person or property which may now or hereinafter be placed in the leased
premises.
16. CONDEMNATION: If during the term of this Lease, the whole of the
leased premises or Building, or such portion(s) thereof as will render the
leased premises unusable for the purpose leased, be condemned or otherwise
leased or taken under the right of eminent domain by any competent authority for
public or quasi-public use or purpose or is taken by private purchase in lieu of
condemnation, then in such event, this Lease shall, at the option of the
LANDLORD, cease and come to an end as of the date of the vesting of title in
such public authority or by private purchase, or when possession is given to
such public authority, whichever event last occurs. Upon such occurrence the
rent shall be proportioned as of such date and any prepaid rent shall be
returned to the TENANT. The LANDLORD shall be entitled to the entire award or
purchase price for the building and improvements owned by LANDLORD and the
TENANT shall have no right or claim, to any part thereof. TENANT shall be
entitled to claim an award for the value of TENANT'S property located upon the
demised premises. LANDLORD shall have no interest in those sums specifically
awarded to TENANT for TENANT'S interest in the leased premises which may be
recoverable by TENANT in the condemnation proceeding. The interest of LANDLORD
and TENANT shall be dealt with separately and according to law and TENANT shall
be a party in any condemnation proceeding and/or action at law in connection
with or relating to any condemnation proceeding; the foregoing being for the
purpose of establishing TENANT'S interest and compensation therefor in the
event that condemnation does occur.
10
<PAGE> 16
17. SUBORDINATION: This lease shall be subject to and
subordinate at all time to any mortgage or ground or underlying
lease now or hereafter placed upon or affecting the land or
Building or demised premises. To that effect TENANT agrees to
execute any and all instruments necessary to effect said
subordination. The liability of the LANDLORD or his assigns under
this Lease shall exist only so long as such person is the owner of
the subject real estate, and such liability shall not continue or
survive after transfer of ownership. LANDLORD shall assist TENANT,
and use its best efforts, in obtaining Non-Disturbance Agreements
from the existing first and second mortgagees but, in no event
shall the failure of TENANT to obtain such Non-Disturbance
Agreements affect the validity of this Lease.
A) TENANT agrees, in the event of any act or omission by
LANDLORD which would give TENANT the right to terminate this Lease
or to claim a partial or total eviction, not to exercise any such
right (i) until he has notified in writing the holder of any
mortgage which at the time shall be a lien on the demised premises
or the underlying LANDLORD, if any, of such act or omission, (ii)
until a reasonable period, not exceeding thirty (30) days, shall
have elapsed following the giving of such notice, and (iii) unless
such holder or underlying LANDLORD with reasonable diligence,
shall not have so commenced and continued to remedy such act or
omission or to cause the same to be remedied. During the period
between the giving of such notice and the remedying of such act or
omission, the rental herein recited shall be abated and
apportioned to the extent that any part of the demised premises
shall be untenable.
B) If such mortgage be foreclosed or such underlying Lease
be terminated, then, upon request of the mortgagee or underlying
LANDLORD, TENANT will attorn to the purchaser at any foreclosure
sale thereunder or the underlying LANDLORD and will execute such
instruments as may be necessary or appropriate to evidence such
attornment.
18. EXAMINATION OF PREMISES AND NO ORAL REPRESENTATIONS:
At the time of taking possession of the premises the TENANT shall
be afforded the opportunity to examine said premises and submit to
the LANDLORD a written list of any discrepancies it may know. If
said list is not provided to the LANDLORD within twenty-four (24)
hours of taking possession of the premises, said premises shall be
deemed to be in good condition at the time of said examination. No
representations, except those contained herein, have been made on
the part of LANDLORD with respect to the order, repair or
condition of the premises or the Building. TENANT will make no
claim on account of any representations whatsoever, whether made
by any renting agent, broker, officer or other representative of
LANDLORD or which may be contained in any circular, prospectus or
advertisement with respect to the order, repair or condition of
the premises or the Building unless the same is specifically set
forth in this Lease.
11
<PAGE> 17
19. SECURITY: TENANT has deposited with LANDLORD the sum
of EIGHT THOUSAND EIGHT HUNDRED EIGHTY FOUR AND 88/100 ($8,884.88)
DOLLARS, as security for the faithful performance and observance
by TENANT of the terms, provisions and conditions of this Lease;
it is agreed that, in the event TENANT defaults in respect to any
of the terms, provisions, and conditions of this Lease, including,
but not limited to the payment of rent and additional rent,
LANDLORD may use, apply or retain the whole or any part of the
security so deposited to the extent required for the payment of
any rent and additional rent or any other sum as to which TENANT
is in default or for amy sum which LANDLORD may expend or may be
required to expend by reason of TENANT'S default in respect to any
of the terms, covenants and conditions of this Lease, including,
but not limited to any damages or deficiency in the re-letting of
the premises, whether such damage or deficiency accrued before or
after summary proceedings or other re-entry by LANDLORD. In the
event that TENANT shall fully and faithfully comply with all of
the terms, provisions, covenants and conditions of this Lease the
security shall be returned to TENANT after the date fixed as the
end of the Lease and after delivery of entire possession of the
premises to LANDLORD. In the event of a sale of the land and
Building, of which the premises form a part, LANDLORD shall have
the right to transfer the security to the vendee, and LANDLORD
shall thereupon be released by TENANT from all liability for the
return of such security and TENANT agrees to look to the new
LANDLORD solely for the return of said security. It is agreed that
the provisions hereof shall apply to every transfer or assignment
made of the security to a new LANDLORD. TENANT further covenants
that it will not assign or encumber the monies deposited herein as
security and that neither LANDLORD nor its assigns shall be bound
by any such assignment or encumbrance. LANDLORD shall not be
required to keep the security in a segregated account and the
security may be commingled with other funds of LANDLORD, and in no
event shall TENANT be entitled to any interest on the security.
20. NOTICE: In every instance where it shall be necessary
or desirable for the LANDLORD to serve any notice or demand upon
the TENANT, it shall be sufficient (a) to deliver or cause to be
delivered to the TENANT, during regular business hours, at the
demised premises a written or printed copy thereof, in which event
the notice or demand shall be deemed to have been served at the
time the copy is so delivered, or (b) to send a written or printed
copy thereof by United States registered or certified mail, return
receipt requested, addressed to the TENANT at the demised
premises, in which event the notice or demand shall be deemed to
have been served three (3) business days from the date of deposit
in the United States mails, postage prepaid, or (c) to leave a
written or printed copy thereof, in or upon the demised premises
or to affix the same upon any door leading into the demised
premises, in which event the notice or demand shall be deemed to
have been served at the time the copy is so left or affixed. All
notices or demands shall be signed by or on behalf of the
LANDLORD.
12
<PAGE> 18
Any notice by TENANT to LANDLORD shall be deemed duly
given is sent by United States registered or certified mail,
return receipt requested, postage prepaid, to LANDLORD at 28 West
Flagler Street, Suite 301, Miami, Florida 33130 or at such address
as may hereafter be designated by LANDLORD, and also to the agent
of LANDLORD charged with the renting and management of the
Building.
21. USE OF PREMISES: TENANT shall use and occupy the
premises only for operation of telephone communication services or
other lawful general office purposes and for no other purpose. In
the event the TENANT uses premises for purposes not expressly
permitted herein, the LANDLORD may terminate the Lease or, without
notice to TENANT, restrain said improper use by injunction.
22. CERTIFICATE BY TENANT: TENANT shall deliver to
LANDLORD or to its mortgagee, auditors, or prospective purchaser,
or the owner of the fee, when requested by LANDLORD, a certificate
to the effect that this Lease is in full force and effect and that
LANDLORD is not in default therein, or stating specifically any
exceptions thereto. Failure to give such a certificate within two
(2) weeks after written request shall be conclusive evidence that
the TENANT is in full force and effect and LANDLORD is not in
default and TENANT shall be estopped from asserting any defaults
known to him at that time.
23. POSSESSION: If, for any reason, LANDLORD is unable to
give possession of the demised premises on the date of the
commencement of this Lease, this Lease shall not be affected
thereby nor shall TENANT have any claim against LANDLORD by reason
thereof. All claims for damages arising out of such delay other
than a proportionate abatement of rent are waived and released by
TENANT. Nothing herein contained shall operate to extend the term
of the Lease beyond the agreed expiration date and TENANT'S only
remedy and LANDLORD'S only liability shall be the abatement of
rent herein referred to. If LANDLORD is unable to give possession
of the demised premises to TENANT within ninety (90) days next
after the commencement of the term of this lease, then TENANT
shall have the right to cancel this Lease upon written notice
thereof delivered to LANDLORD within ten (10) days after the lapse
of said ninety (90) day period, and upon such cancellation,
LANDLORD and TENANT shall each be released and discharged from all
liability in connection with this Lease. This lease is contingent
upon the existing tenant vacating the subject property and
surrendering possession of the demised premises to LANDLORD at
which time the LANDLORD shall immediately tender possession and
occupancy of the demised premises to TENANT.
24. HOLDING OVER: In the event the TENANT shall withhold
from the LANDLORD the possession of the premiums demised herein
after the termination of this Lease and the term hereby demised,
whether by expiration of said term or by the election or act of
either party hereto, the damages for which the TENANT shall be
13
<PAGE> 19
liable to the LANDLORD for such detention shall be and hereby are
liquidated at a sum equal to double the amount of rent stipulated
herein for a period equal to the period of such detention. In the
event the TENANT shall remain in possession of said premises after
the expiration and termination of this Lease for any cause
whatsoever, the TENANT shall then be considered a tenant at will
and by sufferance, and no such holding over or retention of
possession or occupancy shall operate as an extension or renewal
of this Lease in any manner whatsoever.
25. TENANT TO TAKE GOOD CARE OF PREMISES: TENANT shall
keep the premises in a clean, safe and sanitary condition and
shall permit no waste or injury to occur to the premises and
fixtures therein, or to any additions, alterations, and
improvements thereto. All damage caused by TENANT'S negligence, or
that of its agents, servants, employees or visitors, shall be
repaired promptly by TENANT at his sole cost and expense. In the
event that the TENANT fails to comply with the foregoing
provisions the LANDLORD shall have the option to enter the
premises and make all necessary repairs at TENANT'S cost and
expense, the same to be added to and be payable with the next
monthly installment of rent.
26. COMPLIANCE WITH ORDINANCES AND DIRECTIVES OF
AUTHORITIES: TENANT shall at its own cost and expense comply with
all present or future rules, regulations, directives, laws,
ordinances and orders of all public authorities, and Fire
Underwriters, which are or may become applicable to TENANT'S
leased premises, which are required as a result of TENANT'S use of
the leased premises, except as said rules pertain to any
structural work or outside repairs or common areas. TENANT waives
any claim against LANDLORD for any expenses or damages resulting
from compliance with any of the said rules, regulations,
directives, laws, ordinances or orders which are or may become
applicable to the leased premises and space, except as said rules
pertain to any structural work or outside repairs.
27. NO ABATEMENT: No diminution or abatement of rent, or
other compensation, shall be allowed for inconvenience or injury
arising from the making of repairs, alterations, or improvements
to the Building nor for any space taken to comply with any law,
ordinance, or order of governmental authority, nor for the
LANDLORD'S failure, delay, or interruption in supplying any
service, or in performing any obligation on LANDLORD'S part to be
performed if the same be occasioned or caused, in whole or in
part, by accident, alterations, or repairs, desirable or necessary
to be made, or by LANDLORD'S inability or difficulty in obtaining
labor, material or supplies or by reason of any cause beyond
LANDLORD'S control. No such interruption, curtailment or change of
any such "service" shall be deemed a constructive or actual
eviction. LANDLORD shall not be required to furnish any of such
"services" during any period wherein TENANT shall be in default in
the payment of rent or additional rent. LANDLORD shall be required
to make reasonable efforts, when undertaking such repairs, so as
to
14
<PAGE> 20
permit TENANT'S continuous use and occupancy of the demised
premises.
28. NO WAIVER OF PERFORMANCE: No waiver by LANDLORD of any
provision hereof shall be deemed to have been made unless such
waiver be in writing signed by LANDLORD. The failure of LANDLORD
to insist upon the strict performance of any of the covenants or
conditions of this Lease, or to exercise any option herein
conferred, shall not be construed as waiving or relinquishing for
the future any such covenants, conditions or option but the same
shall continue and remain in full force and effect. No act of
LANDLORD or its agent during the term hereof shall be deemed an
acceptance of a surrender of the said premises unless made in
writing and personally subscribed by LANDLORD, neither shall the
delivery of the keys to the premises by TENANT to LANDLORD or its
agent be deemed a surrender and acceptance thereof. No payment by
TENANT of a lesser amount than the monthly rent herein stipulated
shall be deemed to be other than on account of the stipulated
rent.
29. TIME OF THE ESSENCE: Every term of this agreement
shall be deemed and construed to be of the essence thereof, and
any breach shall be deemed and construed to be of the very
substance of this agreement, and the lessee hereby consents to the
issuance of an injunction by any court of competent jurisdiction
restraining any threatened breach or any continuing breach of any
covenants imposed upon the TENANT herein and hereby. Said right of
injunction shall be cumulative to the other remedies mentioned
herein.
30. SURRENDER AT EXPIRATION OF TERM: TENANT agrees at the
expiration of the term to quit and surrender the premises hereby
demised and everything belonging to or connected therewith in as
good a state and condition as reasonable wear and use thereof will
permit, and to remove all signs, advertisements and rubbish from
the said premises; and TENANT hereby expressly authorizes
LANDLORD, as the agent of TENANT, to remove such rubbish and make
repairs as may be necessary to restore the premises to such
condition at the expense of TENANT. TENANT shall, upon the
expiration or termination of this Lease, reasonably restore the
learned premises to the condition as exists as of the date of
execution of this lease by LANDLORD and TENANT.
31. ADDITIONAL RENT: If LANDLORD shall make any
expenditure, for which TENANT is liable under this Lease, or if
TENANT shall fail to make any payment due from him under this
Lease, the amount thereof shall at LANDLORD'S option be deemed
"additional rent" and shall be due with the next succeeding
installment of rent. For the non payment of any "additional rent"
LANDLORD shall have the same remedies and rights and LANDLORD has
for the nonpayment of the base rent.
32. QUIET POSSESSION AND OTHER COVENANTS: LANDLORD
covenants
15
<PAGE> 21
that if and so long as TENANT pay the rent and additional rent
reserved by this Lease and performs and observes all of the
covenants, conditions, and rules and regulations hereof. TENANT
shall quietly enjoy the demised premises subject, however, to all
of the terms of this Lease. TENANT expressly agrees for itself,
and its successors and assigns that the covenant of quiet
enjoyment (express or implied) and all other covenants in this
Lease on the part of the LANDLORD to be performed shall be binding
upon LANDLORD only so long as LANDLORD remains the owner of the
Building of which the demised premises form a part.
33. RULES AND REGULATIONS: TENANT agrees to observe and
comply with and TENANT agrees that its agents and all persons
visiting in the demised premises will observe and comply with the
reasonable rules and regulations as LANDLORD may from time to time
deem needful and prescribe for the reputation, safety, care and
cleanliness of the Building and the preservation of good order
therein and the comfort, quiet and convenience of other occupants
of the Building which reasonable rules and regulations shall be
deemed terms and conditions of this Lease. LANDLORD shall not be
liable to TENANT for the violation of any said rules and
regulations by any other TENANT or person. LANDLORD shall not
enact any rules or regulations which shall limit TENANT'S ability
to use, occupy and conduct business within the demised premises.
34. EMERGENCY GENERATOR: TENANT specifically assumes
liability for the maintenance of generator and tank located upon
the terrace of the Penthouse Floor and agrees to indemnify and
hold LANDLORD harmless form any damage to or incurred by any
person as a result of the operation of the generator and tank.
35. PARKING: There is no parking provided under this
Lease.
36. LANDLORD'S WORK: LANDLORD shall paint the demised
premises using two (2) coats of building standard satin finish
paint. LANDLORD shall also re-carpet all areas of the demised
premises where carpeting presently exists, using building standard
carpeting, and shall make ordinary repairs. TENANT shall choose
the color of the paint and carpeting. LANDLORD shall also "power
clean" the floors located in the switch room and all floor tile
located within the demised premises.
37. "AS IS" CONDITION: The subject property is being
leased by TENANT in its existing "as is" condition.
39. ENVIRONMENTAL REQUIREMENTS: TENANT shall, if at any
time TENANT or LANDLORD believes or has any suspicion that there
are materials or wastes located on or under the property which,
under any Environmental Requirement require special handling in
collection, storage treatment, or disposal, take or cause to be
taken within thirty (30) days after written notice thereof, at
its sole expense, such investigations or tests or otherwise, and
if
16
<PAGE> 22
they exist, then to comply with all Environmental Requirements. If
TENANT fails to take such actions, LANDLORD may make advances or
payments towards performance or satisfaction of the same, but
shall be under no obligation so do to; and all sums so advanced or
paid, including all sums advanced or paid in connection with any
judicial or administrative investigation or proceeding relating
thereto, including, without limitation, reasonable attorneys'
fees, including paralegal assistants, fines or other penalty
payments, and any losses, claims, expenses, damages and
liabilities suffered or incurred by LANDLORD, directly or
indirectly, because of TENANT'S failure to take such actions
(including but not limited to tests, inspections, clean-up or
removal, etc.), shall be at once repayable to LANDLORD.
Failure of TENANT to comply with this Section and all
Environmental Requirements shall constitute and be a default under
these Lease Agreement and LANDLORD shall be entitled to all
remedies hereunder arising out of TENANT'S breach of this Lease
Agreement.
TENANT shall give LANDLORD prompt notice of any notice it
receives concerning Waste or material problem(s) under any
Environmental Requirement, or of any administrative review, claim,
demand, action or suit, threatened or instituted against LANDLORD
or TENANT or anyone having any relationship to the property, by
reason of or in connection with any Waste or material problem
under any Environmental Requirements.
TENANT shall remain totally liable for all damages and
losses to LANDLORD under this Section as to any and all hazardous
and/or toxic waste materials, products and violations caused by or
in behalf of TENANT, TENANT'S agents, guests, invitees and
employees and TENANT shall be responsible for all costs and
expenses to correct any environmental violations or remove any
hazardous waste or hazardous materials. TENANT shall not be liable
for any costs and expenses to correct any environmental violations
or remove any hazardous waste or hazardous materials which are in
existence prior to TENANT'S occupancy of the demised premises.
LANDLORD, to the best of LANDLORD'S knowledge, is not
aware of any environmental violations, hazardous waste, hazardous
materials or radon gas affecting the real property and/or
improvements containing the demised premises.
39. RADON GAS NOTIFICATION: Radon is a naturally occurring
radioactive gas that, when it has accumulated in a building in
sufficient quantities, may present health risks to persons who are
exposed to it over time. Levels of radon that exceed federal and
state guidelines have been found in buildings in Florida.
Additional information regarding radon and radon testing may be
obtained from you county public health unit.
17
<PAGE> 23
40. MISCELLANEOUS:
(a) It is understood that any dimensions or sizes on either working or
renting plans are merely approximations and whether such plans are attached or
are made part of this Lease or not, LANDLORD shall not be liable, because
exigencies arising during construction, alteration or preparation for TENANT'S
occupancy result in changes not indicated on such plans.
(b) Whenever the word "its" is used it shall refer likewise to "his",
or "her" or "their", whenever the word "his" is used it shall refer likewise
"her", "its" or "their", and whenever the word "Landlord" or "Tenant" is used it
shall refer likewise to "LANDLORD" and "TENANT", respectively. The plural shall
be substituted for the singular number in any place or places herein where the
context may require such substitution or substitutions.
(c) If any term or provision of this Lease or the application thereof
to any person or circumstance shall to any extent be invalid or unenforceable,
the remainder of this Lease or the application of such term or provision to
persons or circumstances other than those as to which it is held invalid or
unenforceable shall not be affected thereby and such term and provision of this
Lease shall be valid and be enforced to the fullest extent permitted by law.
(d) This Lease shall not be altered, changed, or amended, except by an
instrument in writing signed by both parties hereto. LANDLORD may at any time
change the name or number of the Building, remodel or alter the same, or the
location of any entrance thereto, or any other portion thereof not occupied by
TENANT, and the same shall not constitute a constructive or actual, total or
partial eviction.
(e) In the event this Lease or any instrument referring to this Lease
is recorded without the consent of lessor, then LANDLORD shall have the right to
void this Lease or bring an action to expunge this Lease from the Public Records
and shall be entitled to damages, costs and attorney's fees.
(f) LANDLORD shall not be held responsible for acts of God or anything
else beyond its control and in no event shall LANDLORD be liable to TENANT for a
sum greater than the balance of the unpaid rent.
41. DIRECTORY LISTING: LANDLORD shall provide TENANT with five (5)
listings in the directory located in the building lobby.
42. COMPENSATION OF BROKER: LANDLORD and TENANT acknowledge that TENANT
shall be solely responsible for payment of any and all compensation to
HARPER-LAWRENCE INC., hereinafter referred to as "BROKER", whose business
address is 600 Madison Avenue, New York,
18
<PAGE> 24
New York 10022, for BROKER'S services. rendered in behalf of TENANT. LANDLORD
shall have no obligation or responsibility for payment of BROKER'S services
rendered referable to the lease of the demised premises between LANDLORD and
TENANT.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals on
the dates as are set forth hereinbelow.
Executed by TENANT this 5th day of February, 1998.
Signed, Sealed and Delivered TENANT:
in the Presence of: TOTALTEL FLORIDA, INC.,
a New Jersey Corporation
/s/ [ILLEGIBLE] By: /s/ THOMAS P. GUNNING
- ------------------------------ ------------------------------
Authorized Agent
Thomas P. Gunning
/s/ [ILLEGIBLE]
- ------------------------------
Executed by LANDLORD this 6th day of February, 1998.
Signed, Sealed and Delivered LANDLORD:
in the Presence of: MOSTA CORPORATION, a Florida
Corporation
/s/ [ILLEGIBLE] By: /s/ [ILLEGIBLE], Mgr.
- ------------------------------ ------------------------------
Authorized Agent
[ILLEGIBLE], Mgr.
/s/ [ILLEGIBLE]
- ------------------------------
19
<PAGE> 25
EXHIBIT "B"
INTENTIONALLY OMITTED
<PAGE> 26
EXHIBIT "C"
OVERLESSOR'S CONSENT
THE UNDERSIGNED, 28 PARTNERS LTD., a Florida limited partnership (the
"Overlessor"), as successor-in-interest to Mosta Corporation, Inc., a Florida
corporation, executes this Overlessor's Consent (this "Consent") to be effective
simultaneous with the full execution of that certain Sublease Agreement (the
"Agreement") which is attached hereto as Exhibit "A," between TOTALTEL FLORIDA,
INC., a New Jersey corporation (the "Lessor"), and AXISTEL GLOBAL NETWORK
SERVICES INC., a Delaware corporation (the "Lessee").
W I T N E S S E T H:
WHEREAS, Overlessor, as lessor, and Lessor, as lessee, entered into
that certain Lease Agreement dated February 6, 1998 (the "Prime Lease"), whereby
Lessor leased from Overlessor certain premises consisting of approximately
4,959 square feet on the Penthouse floor of the building commonly known as the
"Courthouse Plaza" located at 28 W. Flagler Street, Miami, Florida (the
"Premises"); and
WHEREAS, as a condition to entering into the Agreement and as required
by the Prime Lease, Lessee has requested that Lessor cause Overlessor to execute
this Overlessor's Consent and that Overlessor, upon Lessor's payment of valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, has
agreed to do so; and
WHEREAS, Lessee is, simultaneously with its execution of the Agreement,
providing to Overlessor a cashier's check in the amount of $53,309.28 (the
"Security Deposit") to be used as set forth in the Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Overlessor hereby consents to the
Agreement and agrees to hold and use the Security Deposit as set forth in
Section 8 of the Agreement. Overlessor further confirms that the Prime Lease has
not been amended, modified, extended or renewed, whether verbally or in writing.
To the best of Overlessor's knowledge, no default on the part of Overlessor or
Lessor exists as of the date hereof under the Prime Lease, and no circumstances
or state of facts exist which would give Overlessor the right to declare Lessor
in default under same. Overlessor further agrees that in the event of any
default by Lessor under the terms of the Prime Lease, Overlessor hereby agrees
to deliver to Lessor and Lessee written notice of such default.
IN WITNESS WHEREOF, Overlessor has executed this Overlessor's Consent
as of this 18th day of February, 2000.
OVERLESSOR:
28 PARTNERS LTD., a Florida limited
partnership
By: Flagler 28, Inc., a Florida
/s/ [ILLEGIBLE] corporation, its general partner
- ----------------------------------
Print Name: [ILLEGIBLE]
/s/ CYNTHIA K. MORALES
- ---------------------------------- By: /s/ MICHAEL WERNER
Print Name: Cynthia K. Morales ----------------------------
--------------------- Name: Michael Werner
Title: Vice President
C-1
<PAGE> 27
EXHIBIT "D"
LEASED EQUIPMENT
<TABLE>
<S> <C>
GENERATOR: 1-ONAN 250
1-ONAN TRANSFER SWITCH
RECTIFIERS: 6-ITT PEC3874 200 amp
4-LORAIN RHM400 D50 400 amp
BATTERIES: 48-EXIDE GU 21 2020 amp hours WET CELL
AIR CONDITIONERS: 2-15 TON
3-5 TON
HALON: 3 Separate Units in three areas
</TABLE>
<PAGE> 28
EXHIBIT "B"
LESSOR'S EQUIPMENT
Located in the Switch Room of the Premises
Two (2) 23" lockable cabinets containing two (2) racks
Transmission Room
Three (3) racks containing fiber provided by Bell, TCG and MFS
<PAGE> 1
EXHIBIT 10.23
eVENTURES GROUP, INC.
1999 OMNIBUS SECURITIES PLAN
ADOPTED EFFECTIVE SEPTEMBER 22, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1. PURPOSE OF PLAN 4
ARTICLE 2. EFFECTIVE DATE AND TERM OF PLAN 4
2.1 Term of Plan 4
2.2 Effect on Awards 4
2.3 Stockholder Approval 4
ARTICLE 3. SHARES SUBJECT TO PLAN 4
3.1 Number of Shares 4
3.2 Source of Shares 5
3.3 Availability of Unused Shares 5
3.4 Adjustment Provisions 5
3.5 Substitute Awards 6
ARTICLE 4. ADMINISTRATION OF PLAN 6
4.1 Administering Body 6
4.2 Authority of Administering Body 7
4.3 Eligibility 8
4.4 No Liability 8
4.5 Amendments 8
4.6 Other Compensation Plans 9
4.7 Plan Binding on Successors 9
4.8 References to Successor Statutes, Regulations and Rules 9
4.9 Issuances for Compensation Purposes Only 9
4.10 Invalid Provisions 10
4.11 Governing Law 10
ARTICLE 5. GENERAL AWARD PROVISIONS 10
5.1 Participation in the Plan 10
5.2 Award Agreements 10
5.3 Exercise of Awards 11
5.4 Payment for Awards 11
5.5 No Employment or Other Continuing Rights 12
5.6 Restrictions Under Applicable Laws and Regulations 13
5.7 Additional Conditions 14
5.8 No Privileges of Stock Ownership 14
5.9 Transferability of Awards 14
5.10 Information to Recipients 15
5.11 Withholding Taxes 16
5.12 Legends on Common Stock Certificates 16
5.13 Effect of Termination of Employment on Awards - Employees Only 16
5.14 Effect of Termination of Engagement on Awards - Non-employees Only 18
5.15 Transfer; Leave of Absence 18
5.16 Limits on Awards to Certain Eligible Persons 19
5.17 Performance-based Compensation 20
ARTICLE 6. STOCK OPTIONS 20
6.1 Nature of Stock Options 20
6.2 Option Exercise Price 20
6.3 Option Period and Vesting 20
6.4 Special Provisions Regarding Incentive Stock Options 21
6.5 Reload Options 21
</TABLE>
1999 OMNIBUS SECURITIES PLAN (eVENTURES GROUP, INC.) 2
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<TABLE>
<S> <C>
6.6 RESTRICTIONS 21
ARTICLE 7. RESTRICTED STOCK AWARDS 22
7.1 Nature of Restricted Stock Awards 22
7.2 Rights as Stockholders 22
7.3 Restriction 22
7.4 Forfeiture or Repurchase or Restricted Stock 22
7.5 Certificates, Escrows 23
7.6 Vesting of Restricted Stock 23
7.7 Waiver, Deferral and Reinvestment of Dividends 23
7.8 Section 83(b) Election 24
ARTICLE 8. UNRESTRICTED STOCK AWARDS 24
8.1 Grant or Sale of Unrestricted Stock 24
ARTICLE 9. PERFORMANCE STOCK AWARDS 24
9.1 Nature of Performance Stock Awards 24
9.2 Rights as a Stockholder 25
ARTICLE 10. DIVIDEND EQUIVALENT RIGHTS 25
10.1 Dividend Equivalent Rights 25
10.2 Interest Equivalents 25
ARTICLE 11. STOCK APPRECIATION RIGHTS 25
11.1 Grant of Stock Appreciation Rights 25
11.2 Coupled Stock Appreciation Rights 26
11.3 Independent Stock Appreciation Rights 26
11.4 Payment and Limitations on Exercise 27
ARTICLE 12. REORGANIZATIONS 27
12.1 Corporate Transactions Not Involving a Change in Control 27
12.2 Corporate Transactions Involving a Change in Control 27
ARTICLE 13. DEFINITIONS 28
</TABLE>
1999 OMNIBUS SECURITIES PLAN (eVENTURES GROUP, INC.) 3
<PAGE> 4
eVENTURES GROUP, INC.
1999 OMNIBUS SECURITIES PLAN
1. PURPOSE OF PLAN
The Company adopted this Plan to promote the interests of the Company, its
Affiliated Entities and their respective stockholders by using investment
interests in the Company to attract, retain and motivate management and other
persons, including officers, directors, employees and certain consultants of the
Company and the Affiliated Entities to encourage and reward such persons'
contributions to the performance of the Company and to align their interests
with the interests of the Company's stockholders. Capitalized terms not
otherwise defined herein shall have the meanings ascribed to them in Article 13.
2. EFFECTIVE DATE AND TERM OF PLAN
2.1 TERM OF PLAN. This Plan became effective as of the Effective Date and
shall continue in effect until the Expiration Date, at which time this Plan
shall automatically terminate.
2.2 EFFECT ON AWARDS. Awards may be granted during the Plan Term, but no
Awards may be granted after the Plan Term. Notwithstanding the foregoing, each
Award properly granted under this Plan during the Plan Term shall remain in
effect after termination of this Plan until such Award has been exercised,
terminated or expired, as applicable, in accordance with its terms and the terms
of this Plan.
2.3 STOCKHOLDER APPROVAL. This Plan shall be approved by the Company's
stockholders within twelve (12) months after the Effective Date. The
effectiveness of any Awards granted prior to such stockholder approval shall be
specifically subject to, and conditioned upon, such stockholder approval.
3. SHARES SUBJECT TO PLAN
3.1 RESERVED NUMBER OF SHARES. The maximum number of shares of Common Stock
that may be delivered pursuant to Options or other Awards granted under this
Plan as of or prior to any date during the term of this Plan shall be equal to
fifteen percent (15%) of the issued and outstanding shares of Common Stock as
that number is determined by the Company to calculate fully diluted earnings per
share for the Company's fiscal year immediately preceding such date; provided,
however, that for the purposes of determining the number of issued and
outstanding shares of Common Stock as of the date of this Plan, 45,207,673
shares of Common Stock shall be deemed to have been issued and outstanding; and
provided, further, that the maximum number of
1999 OMNIBUS SECURITIES PLAN (eVENTURES GROUP, INC.)
1999 OMNIBUS SECURITIES PLAN (eVENTURES GROUP, INC.) - PAGE 4
<PAGE> 5
shares of Common Stock that may be delivered pursuant to Incentive Stock Options
granted under this Plan shall be four million (4,000,000), subject in any case
to adjustment as set forth in Section 3.4.
3.2 SOURCE OF SHARES. The Common Stock to be issued under this Plan will be
made available, at the discretion of the Board, either from authorized but
unissued shares of Common Stock or from previously issued shares of Common Stock
reacquired by the Company, including without limitation, shares purchased on the
open market.
3.3 AVAILABILITY OF UNUSED SHARES. Shares of Common Stock subject to and/or
underlying any unexercised, unearned or yet-to-be acquired portions of any Award
granted under this Plan that expire, terminate or are canceled, and shares of
Common Stock issued pursuant to Awards under this Plan that are reacquired by
the Company pursuant to the terms under which such shares were issued, will
again become available for the grant of further Awards under this Plan.
Notwithstanding the provisions of this Section 3.3, no shares of Common Stock
may again be optioned, granted or awarded if such action would cause an
Incentive Stock Option to fail to qualify as an incentive stock option under
Section 422 of the IRC.
3.4 ADJUSTMENT PROVISIONS.
(a) If (i) the outstanding shares of Common Stock are increased,
decreased or exchanged for a different number or kind of shares or other
securities, or if additional shares or new or different shares or other
securities are distributed in respect of such shares of Common Stock (or
any stock or securities received with respect to such Common Stock),
through merger, consolidation, sale or exchange of all or substantially all
of the assets of the Company, reorganization, recapitalization,
reclassification, stock dividend, stock split, reverse stock split,
spin-off or other distribution with respect to such shares of Common Stock
(or any stock or securities received with respect to such Common Stock), or
(ii) the value of the outstanding shares of Common Stock is reduced by
reason of an extraordinary dividend payable in cash or property, an
appropriate and proportionate adjustment may be made in (1) the maximum
number and kind of shares or securities available for issuance under this
Plan, (2) the number and kind of shares or other securities that can be
granted to any one individual Recipient under his or her Awards, (3) the
number and kind of shares or other securities subject to then outstanding
Awards under this Plan, and/or (4) the price for each share or other unit
of any other securities subject to then outstanding Awards under this Plan.
(b) No fractional interests will be issued under this Plan resulting
from any adjustments, but the Administering Body, in its sole discretion,
may make a cash payment in lieu of any fractional shares of Common Stock
issuable as a result of such adjustments.
(c) Any adjustments pursuant to this Section 3.4 shall be made by the
Administering Body, in its discretion, to preserve the benefits or
potential benefits intended to be made available under this Plan or with
respect to any outstanding Awards or otherwise
1999 OMNIBUS SECURITIES PLAN (eVENTURES GROUP, INC.) - PAGE 5
<PAGE> 6
necessary to reflect any capital change or other event described in Section
3.4(a), whose determination in that respect shall be final, binding and
conclusive.
(d) The grant of Awards pursuant to this Plan shall not affect in any
way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge or to consolidate or to dissolve, liquidate or sell,
or transfer all or any part of its business or assets.
(e) No adjustment to the terms of an Incentive Stock Option shall be
made unless such adjustment would not cause such Incentive Stock Option to
lose its status as an incentive stock option under the provisions of the
IRC, unless the Administering Body determines otherwise.
3.5 SUBSTITUTE AWARDS. The Administering Body may grant Awards under this
Plan in substitution for stock and stock based awards held by employees of
another corporation who become employees of the Company or an Affiliated Entity
as a result of a merger or consolidation of the employing corporation with the
Company or an Affiliated Entity or the acquisition by the Company or an
Affiliated Entity of property or stock of the employing corporation. The
Administering Body may direct that the substitute Awards be granted on such
terms and conditions as the Administering Body considers appropriate in the
circumstances. Any shares of Common Stock delivered under any such substitute
Awards shall not reduce the maximum number of shares of Common Stock available
for issuance under this Plan.
4. ADMINISTRATION OF PLAN
4.1 ADMINISTERING BODY.
(a) This Plan shall be administered by the Board; provided, however,
that if the Board appoints a Stock Plan Committee pursuant to Section
4.1(b), this Plan shall be administered by the Stock Plan Committee,
subject to the right of the Board to exercise, at any time and from time to
time, any and all of the duties and responsibilities of the Stock Plan
Committee as the Administering Body, including, but not limited to,
establishing procedures to be followed by the Stock Plan Committee;
provided further, however, that the Board shall not exercise any authority
regarding matters which under applicable law, rule or regulation,
including, without limitation, any exemptive rule under Section 16 of the
Exchange Act (including Rule 16b-3) or IRC Section 162(m), are required to
be determined in the sole discretion of the Stock Plan Committee. The Stock
Plan Committee may be (but is not required to be), in the discretion of the
Board, the same as the compensation committee of the Board, if such
committee has been appointed.
(b)
(i) The Board in its sole discretion may from time to time
appoint a Stock Plan Committee of not less than two (2) Board members
to administer this Plan. The Board may from time to time increase or
decrease (but not below two (2)) the
1999 OMNIBUS SECURITIES PLAN (eVENTURES GROUP, INC.) - PAGE 6
<PAGE> 7
number of members of the Stock Plan Committee, remove from membership
on the Stock Plan Committee all or any portion of its members, and/or
appoint such person or persons as it desires to fill any vacancy
existing on the Stock Plan Committee, whether caused by removal,
resignation or otherwise. The Board may disband the Stock Plan
Committee at any time and thereby revest in the Board the
administration of this Plan.
(ii) The Stock Plan Committee shall report to the Board the
names of Eligible Persons granted Awards, the precise type of Award
granted, the number of shares of Common Stock issuable pursuant to
such Award, if any, and the terms and conditions of each such Award.
4.2 AUTHORITY OF ADMINISTERING BODY.
(a) Subject to the express provisions of this Plan, the Administering
Body shall have the power to interpret and construe this Plan and any
agreements or other documents defining the rights and obligations of the
Company or any Affiliated Entity and such Eligible Persons who have been
granted Awards hereunder and thereunder, to determine all questions arising
hereunder and thereunder, to adopt and amend such rules and regulations for
the administration hereof and thereof as it may deem desirable, to correct
any errors, supply any omissions and reconcile any inconsistencies in this
Plan and/or any Award Agreement or any other instrument relating to any
Award, and to otherwise carry out the terms of this Plan and such
agreements and other documents. Such interpretations and constructions by
the Administering Body of any provisions of this Plan or of any Award, as
well as any other decisions, actions or inactions of the Administering Body
relating to this Plan or any Award or Award Agreement, shall be within the
absolute discretion of the Administering Body (subject only to the express
terms of this Plan and the Award Agreement and all applicable laws,
regulations and rules) and shall be final, conclusive and binding upon all
persons.
(b) Subject to the express provisions of this Plan, the Administering
Body may from time to time, in its discretion, select the Eligible Persons
to whom, and the time or times at which, Awards may be granted; the nature
of each Award; the number of shares of Common Stock that comprise or
underlie each Award; the period for the purchase or exercise of each Award,
as applicable and such other terms and conditions applicable to each
individual Award as the Administering Body shall determine. Subject to
Section 5.16(a), the Administering Body may grant, at any time, new Awards
to an Eligible Person who has previously received Awards whether such prior
Awards are still outstanding, have previously been canceled, disposed of or
exercised as a whole or in part, as applicable, or are canceled in
connection with the issuance of new Awards. The Administering Body may
grant Awards singly, in combination or in tandem with other Awards, as it
determines in its discretion. Subject to Section 5.16(a), any and all terms
and conditions of the Awards, including, without limitation, the purchase
or exercise price, may be established by the Administering Body without
regard to existing Awards.
1999 OMNIBUS SECURITIES PLAN (eVENTURES GROUP, INC.) - PAGE 7
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(c) Any action of the Administering Body with respect to the
administration of this Plan shall be taken pursuant to a majority vote of
the authorized number of members of the Administering Body or by the
unanimous written consent of its members; provided, however, that (i) if
the Administering Body is the Stock Plan Committee and consists of two (2)
members, then actions of the Administering Body must be unanimous and (ii)
if the Administering Body is the Board, actions taken at a meeting of the
Board shall be valid if approved by directors constituting a majority of
the required quorum for such meeting.
(d) Except to the extent prohibited by applicable law, including,
without limitation, the requirements applicable under IRC Section 162(m) to
any Award intended to be "qualified performance-based compensation," or the
requirements for any Award granted to an officer of the Company or a
Director to be covered by any exemptive rule under Section 16 of the
Exchange Act (including Rule 16b-3), or the rules of a stock exchange or
automated quotation system then listing shares of Common Stock, the
Administering Body may, in its discretion, allocate all or any portion of
its responsibilities and powers under this Plan to any one or more of its
members and/or delegate all or any part of its responsibilities and powers
under this Plan to any person or persons selected by it; provided, however,
that the Administering Body may not delegate its authority to correct
errors, omissions or inconsistencies in this Plan. Any such authority
delegated or allocated by the Administering Body under this paragraph (d)
of Section 4.2 shall be exercised in accordance with the terms and
conditions of this Plan and any rules, regulations or administrative
guidelines that may from time to time be established by the Administering
Body, and any such allocation or delegation may be revoked by the
Administering Body at any time.
4.3 ELIGIBILITY. Only Eligible Persons shall be eligible to receive Awards
under this Plan.
4.4 NO LIABILITY. No member of the Board or the Stock Plan Committee or any
designee thereof will be liable for any action or inaction with respect to this
Plan or any Award or any transaction arising under this Plan or any Award,
except in circumstances constituting bad faith of such member.
4.5 AMENDMENTS.
(a) The Administering Body may, insofar as permitted by applicable law,
rule or regulation, from time to time suspend or discontinue this Plan or
revise or amend it in any respect whatsoever, and this Plan as so revised
or amended will govern all Awards hereunder, including those granted before
such revision or amendment; provided, however, that, except as otherwise
provided by this Plan, no such revision or amendment shall materially
impair or diminish any rights or obligations under any Award previously
granted under this Plan, without the written consent of the Recipient.
Without limiting the generality of the foregoing, the Administering Body is
authorized to amend this Plan to
1999 OMNIBUS SECURITIES PLAN (eVENTURES GROUP, INC.) - PAGE 8
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comply with or take advantage of amendments to applicable laws, rules or
regulations, including amendments to the Securities Act, Exchange Act or
the IRC or any rules or regulations promulgated thereunder. No such
revision or amendment of this Plan shall be made without first obtaining
approval of the stockholders of the Company to the extent such approval is
required by applicable law, rule or regulation, including, without
limitation, the requirements of any stock exchange or automated quotation
system then listing the shares of Common Stock or any applicable
requirements relating to Incentive Stock Options or for exemption from IRC
Section 162(m) or the then-applicable requirements of Rule 16b-3.
(b) The Administering Body may amend the terms and conditions of an
Award previously granted under this Plan, including any Award Agreement,
retroactively or prospectively, but no such amendment shall materially
impair or diminish any rights or obligations of a Recipient under such
Award without such Recipient's written consent. Without limiting the
generality of the foregoing, the Administering Body may, in its discretion,
at any time and from time to time after the grant of any Award (i)
accelerate or extend the vesting or exercise period, or lapse of
restrictions, applicable to any Award as a whole or in part, (ii) adjust or
reduce the purchase or exercise price, as applicable, of Awards held by
such Recipient by cancellation of such Awards and granting of Awards at
lower purchase or exercise prices or by modification, extension or renewal
of such Awards and (iii) reduce or otherwise modify the performance goals
applicable to any Award. Notwithstanding any other provision of this Plan
to the contrary, no amendment or modification of this Plan or any
outstanding Award shall cause any outstanding Award granted with the
intention that it qualify as Performance-Based Compensation to fail to
continue to so qualify. In the case of Incentive Stock Options, Recipients
acknowledge that extensions of the exercise period may result in the loss
of the favorable tax treatment afforded incentive stock options under
Section 422 of the IRC.
4.6 OTHER COMPENSATION PLANS. The adoption of this Plan shall not affect
any other stock option, securities purchase, incentive or other compensation
plans in effect for the Company or any Affiliated Entity, and this Plan shall
not preclude the Company or an Affiliated Entity from establishing any other
forms of incentive or other compensation for Employees, Directors, Consultants
or others, whether or not approved by the stockholders of the Company.
4.7 PLAN BINDING ON SUCCESSORS. This Plan shall be binding upon the
successors and assigns of the Company.
4.8 REFERENCES TO SUCCESSOR STATUTES, REGULATIONS AND RULES. Any reference
in this Plan to a particular statute, regulation or rule shall also refer to any
successor provision of such statute, regulation or rule.
4.9 ISSUANCES FOR COMPENSATION PURPOSES ONLY. This Plan constitutes an
"employee benefit plan" as defined in Rule 405 promulgated under the Securities
Act. Awards to eligible Employees or Directors shall be granted for any lawful
consideration, including compensation for services
1999 OMNIBUS SECURITIES PLAN (eVENTURES GROUP, INC.) - PAGE 9
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rendered, promissory notes or otherwise. Awards to eligible Consultants shall be
granted only in exchange for bona fide services rendered by such Consultants and
such services must not be in connection with the offer and sale of securities in
a capital-raising transaction.
4.10 INVALID PROVISIONS. In the event that any provision of this Plan is
found to be invalid or otherwise unenforceable under any applicable law, such
invalidity or unenforceability shall not be construed as rendering any other
provisions contained herein invalid or unenforceable, and all such other
provisions shall be given full force and effect to the same extent as though the
invalid and unenforceable provision were not contained herein.
4.11 GOVERNING LAW. This Plan and each Award Agreement shall be governed by
and interpreted in accordance with the internal laws of the State of Delaware,
without giving effect to the principles of the conflicts of laws thereof.
5. GENERAL AWARD PROVISIONS
5.1 PARTICIPATION IN THIS PLAN.
(a) A person shall be eligible to receive Award grants under this Plan
if, at the time of the grant of such Award, such person is an Eligible
Person.
(b) Incentive Stock Options may be granted only to Employees who, at
the date of granting of such Incentive Stock Options, are Employees of the
Company or a Parent Corporation or a Subsidiary Corporation, and otherwise
meet the employment requirements of Section 422 of the IRC, or a similar
statute governing Incentive Stock Options.
(c) Notwithstanding anything to the contrary herein, the Administering
Body may, in its discretion, in order to fulfill the purposes of this Plan,
modify grants of Awards to Recipients who are foreign nationals or employed
outside of the United States to recognize differences in applicable law,
tax policy or local custom.
5.2 AWARD AGREEMENTS.
(a) Each Award granted under this Plan shall be evidenced by an
agreement duly executed on behalf of the Company and by the Recipient or,
in the Administering Body's discretion, a confirming memorandum issued by
the Company to the Recipient, setting forth such terms and conditions
applicable to such Award as the Administering Body may in its discretion
determine. Award Agreements may but need not be identical and shall comply
with and be subject to the terms and conditions of this Plan, a copy of
which shall be provided to each Recipient and incorporated by reference
into each Award Agreement. Any Award Agreement may contain such other
terms, provisions and conditions not inconsistent with this Plan as may be
determined by the Administering Body.
1999 OMNIBUS SECURITIES PLAN (eVENTURES GROUP, INC.) - PAGE 10
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(b) In case of any conflict between this Plan and any Award Agreement,
this Plan shall control except as specifically provided in the Award
Agreement.
(c) In case of any conflict between this Plan and any Award Agreement,
on the one hand, and any employment agreement (an "Employment Agreement")
between a Recipient and either the Company and/or an Affiliated Entity, on
the other hand, the terms and conditions of the Employment Agreement shall
apply with respect to those items specifically addressed in the Employment
Agreement.
(d) In consideration of the granting of an Award under this Plan, if
requested by the Company, the Recipient shall agree, in the Award
Agreement, to remain in the employ of (or to consult for or to serve as a
Director of, as applicable) the Company or any Affiliated Entity for a
period of at least one (1) year (or such shorter period as may be fixed in
the Award Agreement or by action of the Administering Body following grant
of the Award) after the Award is granted (or, in the case of a Director,
until the next annual meeting of stockholders of the Company).
5.3 EXERCISE OF AWARDS. No Award granted hereunder shall be issuable or
exercisable except in respect of whole shares, and fractional share interests
shall be disregarded. Not less than 100 shares of Common Stock (or such other
amount as is set forth in the applicable Award Agreement) may be purchased or
issued at one time upon exercise of a Stock Option or under any other Award, and
Stock Options and other Awards must be exercised, issued or purchased, as
applicable, in multiples of 100 shares unless the number of shares purchased is
the total number of shares at the time available under the terms of the Award.
An Award shall be deemed to be claimed or exercised when the Secretary or other
official of the Company designated by the Administering Body receives
appropriate written notice, on such form acceptable to the Administering Body,
from the Recipient together with payment of the applicable purchase or exercise
price, if any, made in accordance with the Award Agreement and any amounts
required under Section 5.11 of this Plan. Notwithstanding any other provision of
this Plan, the Administering Body may impose, by rule and/or in Award
Agreements, such conditions upon the exercise of Awards (including without
limitation conditions limiting the time of exercise to specified periods) as may
be required to satisfy applicable regulatory requirements, including without
limitation Rule 16b-3 and Rule 10b-5 under the Exchange Act, or any other
applicable law, regulation or rule, including, without limitation, any
applicable requirements under the IRC, or the regulations promulgated
thereunder.
5.4 PAYMENT FOR AWARDS.
(a) Awards requiring payment of a purchase or exercise price shall be
payable upon the exercise or purchase of such Award by delivery of legal
tender of the United States or payment of such other consideration
permitted by applicable law as the Administering Body may from time to time
deem acceptable in any particular instance, including consideration
pursuant to paragraph (b) or (c) of this Section 5.4.
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(b) The Company may, in the discretion of the Administering Body,
assist any Recipient (including without limitation any Employee, Director
or Consultant) in the payment of the exercise price or other amounts
payable in connection with the receipt or exercise of such Award, by
lending such amounts to such person on such terms and at such rates of
interest and upon such security (if any) as shall be approved by the
Administering Body.
(c) In the discretion of the Administering Body, and subject to such
limitations or conditions as it may prescribe, if permitted by applicable
law, (i) payments for purchase or exercise of Awards may be by matured
capital stock of the Company (i.e., capital stock owned longer than six (6)
months by the person delivering such capital stock (or by such person and
his or her spouse jointly)) delivered in transfer to the Company by or on
behalf of the Recipient exercising or purchasing the Award and duly
endorsed in blank or accompanied by stock powers duly endorsed in blank,
with signatures guaranteed in accordance with the Exchange Act if required
by the Administering Body (valued at Fair Market Value as of the exercise
or purchase date), or such other consideration as the Administering Body
may from time to time in the exercise of its discretion deem acceptable in
any particular instance; (ii) the Administering Body may allow the exercise
of Stock Options in a broker-assisted or similar transaction in which the
exercise price is not received by the Company until promptly after
exercise; and (iii) the Administering Body may allow the Company to loan
the applicable purchase or exercise price to the Recipient, if the purchase
or exercise will be followed by a prompt sale of some or all of the
underlying shares and a portion of the sale proceeds is dedicated to full
payment of the purchase or exercise price and amounts required pursuant to
Section 5.11 of this Plan.
5.5 NO EMPLOYMENT OR OTHER CONTINUING RIGHTS. Nothing contained in this
Plan (or in any Award Agreement or in any other agreement or document related to
this Plan or to Awards granted hereunder) shall confer upon (a) any Eligible
Person or Recipient any right to continue in the employ (or other business
relationship) of the Company or any Affiliated Entity or constitute any contract
or agreement of employment or engagement, or interfere in any way with the right
of the Company or any Affiliated Entity to reduce such person's compensation or
other benefits or to terminate the employment or engagement of such Eligible
Person or Recipient, with or without cause; or (b) any Recipient any right to
exercise or claim his or her Award otherwise than in accordance with the express
terms and conditions of his or her Award Agreement and this Plan. Except as
expressly provided in this Plan or in any Award Agreement pursuant to this Plan,
the Company and any Affiliated Entity shall have the right to deal with each
Recipient in the same manner as if this Plan and any such Award Agreement did
not exist, including without limitation with respect to all matters related to
the hiring, retention, discharge, compensation and conditions of the employment
or engagement of the Recipient. Any questions as to whether and when there has
been a termination of a Recipient's employment or engagement, the reason (if
any) for such termination, and/or the consequences thereof under the terms of
this Plan or any statement evidencing the grant of Awards pursuant to this Plan
shall be determined by the Administering Body, and the Administering Body's
determination thereof shall be final and binding.
1999 OMNIBUS SECURITIES PLAN (eVENTURES GROUP, INC.) - PAGE 12
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5.6 RESTRICTIONS UNDER APPLICABLE LAWS AND REGULATIONS.
(a) All Awards granted under this Plan shall be subject to the
requirement that, if at any time the Company shall determine, in its
discretion, that the listing, registration or qualification of the shares
subject to any such Award granted under this Plan upon any securities
exchange or under any federal, state or foreign law, or the consent or
approval of any government regulatory body, is necessary or desirable as a
condition of, or in connection with, the granting of such Awards or the
issuance, if any, or purchase of shares in connection therewith, such
Awards may not be granted or exercised as a whole or in part unless and
until such listing, registration, qualification, consent or approval shall
have been effected or obtained free of any conditions not acceptable to the
Administering Body. During the term of this Plan, the Company will use
reasonable efforts to seek to obtain from the appropriate regulatory
agencies any requisite qualifications, consents, approvals or
authorizations in order to issue and sell such number of shares of its
Common Stock as shall be sufficient to satisfy the requirements of this
Plan. The inability of the Company to obtain from any such regulatory
agency having jurisdiction thereof the qualifications, consents, approvals
or authorizations deemed by the Company to be necessary for the lawful
issuance and sale of any shares of its Common Stock hereunder shall relieve
the Company of any liability in respect of the nonissuance or sale of such
stock as to which such requisite authorization shall not have been
obtained.
(b) The Company shall be under no obligation to register or qualify the
issuance of Awards or underlying shares of Common Stock under the
Securities Act or applicable state securities laws. Unless the shares of
Common Stock applicable to any such Award have been registered under the
Securities Act and qualified or registered under applicable state
securities laws, the Company shall be under no obligation to issue any
shares of Common Stock covered by any Award unless the Award and underlying
shares of Common Stock, as applicable, may be issued pursuant to applicable
exemptions from such registration or qualification requirements. In
connection with any such exempt issuance, the Administering Body may
require the Recipient to provide a written representation and undertaking
to the Company, satisfactory in form and scope to the Administering Body
and upon which the Company may reasonably rely, that such Recipient is
acquiring such shares of Common Stock for his or her own account as an
investment and not with a view to, or for sale in connection with, the
distribution of any such shares of Common Stock, and that such person will
make no transfer of the same except in compliance with any rules and
regulations in force at the time of such transfer under the Securities Act
and other applicable law, and that if shares of Common Stock are issued
under this Plan without such registration, a legend to this effect
(together with any other legends deemed appropriate by the Administering
Body) may be endorsed upon the certificates evidencing the shares of Common
Stock so issued. The Administering Body may also order its transfer agent
to stop transfers of such shares. The Administering Body may also require
the Recipient to provide the Company such information and other documents
as the Administering Body may request in order to satisfy the Administering
Body as to the
1999 OMNIBUS SECURITIES PLAN (eVENTURES GROUP, INC.) - PAGE 13
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investment sophistication and experience of the Recipient and as to any other
conditions for compliance with any such exemptions from registration or
qualification.
5.7 ADDITIONAL CONDITIONS. Any Award may also be subject to such other
provisions (whether or not applicable to any other Award or Eligible Person) as
the Administering Body determines appropriate, in accordance with this Plan and
the Award Agreement, including, without limitation, (a) provisions to assist the
Recipient in financing the purchase of Common Stock issuable as a result of such
Award, (b) provisions for the forfeiture of or restrictions on resale or other
disposition of shares of Common Stock acquired under any Award, (c) provisions
giving the Company the right to repurchase shares of Common Stock acquired under
any Award in the event the Recipient elects to dispose of such shares, and (d)
provisions to comply with federal, state or foreign securities laws and federal,
state or foreign income or employment tax withholding requirements.
5.8 NO PRIVILEGES OF STOCK OWNERSHIP. Except as otherwise set forth herein,
a Recipient shall have no rights as a stockholder with respect to any shares
issuable or issued in connection with an Award until the date of the exercise of
the Option or Stock Appreciation Right, if applicable, in accordance with the
Award Agreement and this Plan, and the receipt by the Company of all amounts
payable in connection with the purchase or exercise, as applicable, of the
Award, the satisfaction or waiver of all applicable performance goals and
performance by the Recipient of all conditions and obligations applicable to the
Award, in accordance with this Plan and the applicable Award Agreement. Status
as an Eligible Person shall not be construed as a commitment that any Award will
be granted under this Plan to an Eligible Person or to Eligible Persons
generally. No person shall have any right, title or interest in any fund or in
any specific asset (including shares of capital stock) of the Company by reason
of any Award granted hereunder. Neither this Plan (nor any documents related
hereto) nor any action taken pursuant hereto (or thereto) shall be construed to
create a trust of any kind or a fiduciary relationship between the Company and
any Person. To the extent that any Person acquires any right with respect to
Awards hereunder, such right shall be no greater than the right of any unsecured
general creditor of the Company.
5.9 TRANSFERABILITY OF AWARDS.
(a) Except as otherwise provided by this Section 5.9 or by the
Administering Body, no Award under this Plan may be sold, pledged,
assigned, transferred, encumbered, alienated, hypothecated or otherwise
disposed of (whether voluntarily or involuntarily or by operation of law by
judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy)) in any manner other than by will or the
laws of descent and distribution or, subject to the consent of the
Administering Body, pursuant to a DRO, unless and until such Award has been
exercised, if applicable, and the shares of Common Stock underlying such
Award have been issued, and all restrictions applicable to such shares have
lapsed, and no Award or interest or right therein shall be liable for the
debts, contracts, liabilities or contractual obligations of the Recipient
thereof. Any attempted disposition of an Award or any interest therein
shall be null and void and of no
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effect, except to the extent that such disposition is permitted by the
preceding sentence.
(b) Except as otherwise provided by the Administering Body, during the
lifetime of a Recipient, only he or his court appointed guardian may
exercise an Award (or any portion thereof) granted to him under this Plan,
unless it has been transferred in accordance with paragraph (c) of this
Section 5.9 or, with the consent of the Administering Body, pursuant to a
DRO. After the death of a Recipient, any exercisable or vested but unpaid
portion of an Award may, prior to the time when such portion becomes
unexercisable or is terminated or expires under this Plan or the applicable
Award Agreement, be exercised by or paid to the beneficiary most recently
named by such Recipient in a written designation thereof filed with the
Company, to the extent permitted by the Recipient's Award Agreement, or, in
the absence of a validly designated beneficiary, his or her personal
representative or by any person empowered to do so under the deceased
Recipient's will or under the then applicable laws of descent and
distribution. In the event any Award is to be exercised by, or paid to, the
executors, administrators, heirs or distributees of the estate of a
deceased Recipient, or such Recipient's beneficiary, or an incapacitated
Recipient's guardian, or the transferee of such Award, in any case pursuant
to the terms and conditions of this Plan and the applicable Award
Agreement, and in accordance with such terms and conditions as may be
specified from time to time by the Administering Body, the Company shall be
under no obligation to issue shares of Common Stock or make any payment
under such Award unless and until the Administering Body is satisfied that
the person or persons exercising or to receive payment under such Award is
the duly appointed legal representative of the deceased Recipient's estate
or the proper legatee or distributee thereof.
(c) The Administering Body may, in its discretion, permit the transfer
of an Award to, exercise of an Award by, or payment of an Award to, a
person other than the Recipient who received the grant of such Award in
accordance with the Award Agreement and such terms and conditions as the
Administering Body may specify from time to time.
(d) Notwithstanding the foregoing, no Stock Option owned by a Recipient
subject to Section 16 of the Exchange Act may be assigned or transferred in
any manner inconsistent with Rule 16b-3, and Incentive Stock Options (or
other Stock Options subject to transfer restrictions under the IRC) may not
be assigned or transferred if such assignment or transfer would cause such
an Incentive Stock Option to fail to qualify under Section 422 of the IRC
(or any comparable or successor provision) or the regulations thereunder.
5.10 INFORMATION TO RECIPIENTS.
(a) The Administering Body in its sole discretion shall determine what,
if any, financial and other information shall be provided to Recipients and
when such financial and other information shall be provided after giving
consideration to applicable federal, state and foreign laws, rules and
regulations, including without limitation applicable federal, state and
foreign securities laws, rules and regulations.
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(b) The furnishing of financial and other information that is
confidential to the Company shall be subject to the Recipient's agreement
that the Recipient shall maintain the confidentiality of such financial and
other information, shall not disclose such information to third parties,
and shall not use the information for any purpose other than evaluating an
investment in the Company's securities under this Plan. The Administering
Body may impose other restrictions on the access to and use of such
confidential information and may require a Recipient to acknowledge the
Recipient's obligations under this Section 5.10(b) (which acknowledgment
shall not be a condition to the Recipient's obligations under this Section
5.10(b)).
5.11 WITHHOLDING TAXES. Whenever the granting, vesting, exercise or payment
of any Award granted under this Plan, or the transfer of any shares issued upon
exercise of any Award, gives rise to tax or tax withholding liabilities or
obligations, the Administering Body shall have the right, as a condition to the
issuance of any shares of Common Stock under, or other payment of, such Award,
to require the Recipient to remit to the Company an amount sufficient to satisfy
all such federal, state, local and foreign tax requirements, and the Company or
any Affiliated Entity shall, to the extent permitted by applicable law, have the
right to deduct any such taxes from any payment of any kind otherwise due to
such Recipient. The Administering Body may, in the exercise of its discretion,
permit a Recipient to satisfy such tax withholding requirements by (a) delivery
to the Company of Common Stock owned by such Recipient (or by such Recipient and
his or her spouse jointly) and acquired more than six (6) months prior to such
delivery or (b) electing withholding by the Company of a portion of the Common
Stock otherwise issuable in connection with such Recipient's Award (provided,
however, that the amount of any Common Stock so withheld shall not exceed the
amount necessary to satisfy required federal, state, local and foreign
withholding obligations using the minimum statutory rate), to the extent
permitted by applicable law and pursuant to procedures approved by the
Administering Body.
5.12 LEGENDS ON COMMON STOCK CERTIFICATES. Each certificate representing
shares acquired as a result of any Award granted hereunder shall be endorsed
with all legends, if any, required by applicable federal and state securities or
other laws or the Administering Body to be placed on the certificate. The
determination of which legends, if any, shall be placed upon such certificates
shall be made by the Administering Body in its sole discretion and such decision
shall be final and binding.
5.13 EFFECT OF TERMINATION OF EMPLOYMENT ON AWARDS - EMPLOYEES ONLY.
(a) TERMINATION FOR JUST CAUSE. Subject to Section 5.13(c), and except
as otherwise provided in a written agreement (including, without
limitation, any Award Agreement) between the Company and/or an Affiliated
Entity and the Recipient, which may be entered into at any time before or
after termination of employment of the Recipient, in the event of a Just
Cause Dismissal of an Employee Recipient from employment with the Company
or any Affiliated Entity, all of the Recipient's unvested Awards shall be
terminated and become void, and all of the Recipient's unexercised Awards
(whether or not vested) shall
1999 OMNIBUS SECURITIES PLAN (eVENTURES GROUP, INC.) - PAGE 16
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be forfeited, expire and become void, as of the date of such Just Cause
Dismissal.
(b) TERMINATION OTHER THAN FOR JUST CAUSE DISMISSAL. Subject to Section
5.13(c), and except as otherwise provided in a written agreement
(including, without limitation, any Award Agreement) between the Company
and/or an Affiliated Entity and the Recipient, which may be entered into at
any time before or after termination of employment, in the event of an
Employee Recipient's termination of employment with the Company or any
Affiliated Entity for:
(i) any reason other than for Just Cause Dismissal, death,
Permanent Disability or Retirement, the Recipient's unvested and/or
unexercised Awards, whether or not vested, shall expire and become
void as of the earlier of (A) the date such Awards would have expired
in accordance with their terms had the Recipient remained employed and
(B) three (3) months after the date of such termination; or
(ii) death, Permanent Disability or Retirement, the Recipient's
unvested and/or unexercised, whether or not vested, Awards shall
expire and become void as of the earlier of (A) the date such Awards
would have expired in accordance with their terms had the Recipient
remained employed and (B) one (1) year after the date of such
termination; provided, however, that the one-year period provided in
(B) shall be three (3) months for Incentive Stock Options following
termination of employment for Retirement.
(c) ALTERATION OF VESTING AND EXERCISE PERIODS. Notwithstanding
anything to the contrary in Section 5.13(a) or Section 5.13(b), the
Administering Body may in its discretion designate shorter or longer
periods to claim or otherwise exercise Awards following a Recipient's
termination of employment with the Company or any Affiliated Entity;
provided, however, that any shorter periods determined by the Administering
Body shall be effective only if provided for in the Award Agreement that
evidences the Recipient's Award or if such shorter period is agreed to in
writing between the Recipient and the Company. Notwithstanding anything to
the contrary herein, Awards shall be claimed, paid or exercisable by a
Recipient following such Recipient's termination of employment with the
Company or any Affiliated Entity only to the extent that installments
thereof had become exercisable or vested (i.e., in the case of any
Restricted Stock Awards, to the extent restrictions described in Article 7
applicable to such Awards have lapsed) on or prior to the date of such
termination; and provided further that the Administering Body may, in its
discretion, elect to accelerate the vesting or exercisability of, or lapse
of restrictions applicable to, all or any portion of any Awards that had
not become vested or exercisable on or prior to the date of such
termination, in the event of a termination of employment due to the
Recipient's death or Permanent Disability, or, except with respect to any
Award intended to qualify as Performance-Based Compensation, in the event
of Retirement or otherwise. Furthermore, at any time prior to a Recipient's
termination of employment with the Company or any Affiliated Entity, the
Administering Body may, in its discretion, accelerate the vesting or
exercisability, or waive
1999 OMNIBUS SECURITIES PLAN (eVENTURES GROUP, INC.) - PAGE 17
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or, subject to the other provisions of this Plan, amend any and all of the
goals, restrictions or conditions imposed under any Award; provided,
however, no such acceleration, waiver or amendment shall cause any Award
otherwise intended to qualify as Performance-Based Compensation to fail to
so qualify.
5.14 EFFECT OF TERMINATION OF ENGAGEMENT ON AWARDS - NON-EMPLOYEES ONLY.
(a) TERMINATION OF ENGAGEMENT. Subject to Section 5.14(b), and except
as otherwise provided in a written agreement between the Company and/or an
Affiliated Entity and the Recipient, which may be entered into at any time
before or after termination of engagement of the Recipient, in the event of
the termination of any non-Employee Recipient's engagement with the Company
or any Affiliated Entity (including any such Recipient who is a Director,
but not also an Employee, or a Consultant), all of the Recipient's unvested
Awards shall be terminated and become void, and all of the Recipient's
unexercised Awards (whether or not vested) shall be forfeited, expire and
become void as of the earlier of (i) the date such Awards would expire in
accordance with their terms had the Recipient remained engaged by the
Company or such Affiliated Entity and (ii)(A) three (3) months after such
termination as a result of death or Permanent Disability and (B) thirty
(30) days after such termination for any other reason.
(b) ALTERNATION OF VESTING AND EXERCISE PERIODS. Notwithstanding
anything to the contrary in Section 5.14(a), the Administering Body may, in
its discretion, designate shorter or longer periods to claim or otherwise
exercise Awards following a non-Employee Recipient's termination of
engagement with the Company or any Affiliated Entity; provided, however,
that any shorter periods determined by the Administering Body shall be
effective only if provided for in the Award Agreement that evidences the
Recipient's Award or if such shorter period is agreed to in writing by the
Recipient. Notwithstanding anything to the contrary herein, Awards shall be
claimed, paid or exercisable by a Recipient following such Recipient's
termination of engagement with the Company or any Affiliated Entity only to
the extent that the installments thereof had become exercisable or vested
(i.e., in the case of any Restricted Stock Awards, to the extent
restrictions described in Article 7 applicable to such Awards have lapsed)
on or prior to the date of such termination; and provided further that the
Administering Body may, in its discretion, elect to accelerate the vesting
or exercisability of, or lapse of restrictions applicable to, all or any
portion of any Awards that had not become vested or exercisable on or prior
to the date of such termination. Furthermore, at any time prior to a
Recipient's termination of engagement with the Company or any Affiliated
Entity, the Administering Body may, in its discretion, accelerate the
vesting or exercisability, or waive or, subject to the other provisions of
this Plan, amend any and all of the goals, restrictions or conditions
imposed under any Award.
5.15 TRANSFER; LEAVE OF ABSENCE. For purposes of this Plan, the transfer by
a Recipient to the employment or engagement of (i) the Company from an
Affiliated Entity, (ii) from the Company to an Affiliated Entity or (iii) from
one Affiliated Entity to another Affiliated Entity (including,
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with respect to Consultants, the assignment between the Company and an
Affiliated Entity or between two Affiliated Entities, as applicable, of an
agreement pursuant to which such services are rendered) or, with respect solely
to Employees, an approved leave of absence for military service, sickness, or
for any other purpose approved by the Company, shall not be deemed a termination
of employment or engagement of such Recipient, as the case may be; provided,
however, that a change in status of a Recipient from an Employee to a
Consultant, or to a Director who is not an Employee, shall be considered a
termination of such Recipient's employment with the Company or an Affiliated
Entity for purposes of this Plan and such Recipient's Awards, except to the
extent that the Administering Body determines, in its discretion, otherwise with
respect to any Award that is not an Incentive Stock Option. In no event,
however, shall an Award be exercisable after the date such Award would expire in
accordance with its terms had the Recipient remained continuously employed or
engaged in the service of the Company or an Affiliated Entity. Whether a
Recipient's employment or service with the Company or any Affiliated Entity has
terminated, and, if so, whether such termination constituted Just Cause
Dismissal, shall be determined by the Administering Body, in its good faith
discretion, in accordance with this Plan, and any such determination shall be
final, binding and conclusive upon all persons.
5.16 LIMITS ON AWARDS TO CERTAIN ELIGIBLE PERSONS.
(a) LIMITATIONS APPLICABLE TO IRC SECTION 162(M) RECIPIENTS.
Notwithstanding any other provision of this Plan, in order for the
compensation attributable to Awards hereunder to qualify as
Performance-Based Compensation, no one Eligible Person shall be granted any
one or more Awards with respect to more than Five Hundred Thousand
(500,000) shares of Common Stock in any one calendar year. The limitation
set forth in this Section 5.16(a) shall be subject to adjustment as
provided in Section 3.4 and under Article 12, but only to the extent such
adjustment would not affect the status of compensation attributable to
Awards hereunder as Performance-Based Compensation. To the extent required
by Section 162(m) of the IRC, shares of Common Stock subject to Awards
which are canceled shall continue to be counted against such limitation and
if, after the grant of an Award, the price of shares subject to such Award
is reduced and the transaction is treated as a cancellation of the Award
and a grant of a new Award, both the Award deemed to be canceled and the
Award deemed to be granted shall be counted against such limitation.
(b) LIMITATIONS APPLICABLE TO SECTION 16 PERSONS. Notwithstanding any
other provision of this Plan, this Plan, and any Award granted or awarded
to any individual who is then subject to Section 16 of the Exchange Act,
shall be subject to any additional limitations set forth in any applicable
exemptive rule under Section 16 of the Exchange Act (including Rule 16b-3)
that are requirements for the application of such exemptive rule. To the
extent permitted by applicable law, this Plan and Awards granted or awarded
hereunder shall be deemed amended to the extent necessary to conform to
such applicable exemptive rule.
1999 OMNIBUS SECURITIES PLAN (eVENTURES GROUP, INC.) - PAGE 19
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5.17 PERFORMANCE-BASED COMPENSATION. If the amount of compensation an
Eligible Person may receive under any Award is not based solely on an increase
in the value of Common Stock after the date of grant, the Administering Body, in
order to qualify such Awards as Performance-Based Compensation, may condition
the payment, granting, vesting or exercisability or purchase price of such
Awards on the attainment of one or more pre-established, objective performance
goals that are determined over a measurement period or periods established by
the Administering Body and relate to one or more Performance Criteria. The
Administering Body shall establish and administer any such performance goals.
Payment of compensation in respect of any such Award shall not be made unless
and until the Administering Body certifies in writing that the applicable
performance goals and any other material terms of such Award were in fact
satisfied, except as otherwise provided by the Administering Body in accordance
with this Plan and the applicable Award Agreement in the event of termination of
a Recipient's employment or service with the Company or an Affiliated Entity due
to death or Disability or in the event of a Change in Control.
6. STOCK OPTIONS
6.1 NATURE OF STOCK OPTIONS. Subject to the limitations provided otherwise
herein, Stock Options may be Incentive Stock Options or Non-qualified Stock
Options. Each Award Agreement relating to a Stock Option shall state whether
such Option will be treated as an Incentive Stock Option or a Non-qualified
Stock Option.
6.2 OPTION EXERCISE PRICE. The exercise price for each Stock Option shall
be determined by the Administering Body as of the date such Stock Option is
granted and stated in the Award Agreement. The exercise price shall be no less
than the Fair Market Value of the Common Stock subject to the Option on the date
such Option is granted; provided, however, that the Administering Body may, in
its discretion, with the consent of the Recipient in the case of an Incentive
Stock Option, amend the terms of any Stock Option not intended to qualify as
Performance-Based Compensation to provide that the exercise price of the shares
remaining subject to the Stock Option shall be reestablished at a price not less
than 100% of the Fair Market Value of the Common Stock on the effective date of
the amendment.
6.3 OPTION PERIOD AND VESTING. Stock Options granted hereunder shall vest
and may be exercised as determined by the Administering Body and stated in the
Award Agreement, except that exercise of such Stock Options after termination of
the Recipient's employment or engagement shall be subject to Section 5.13 or
5.14, as the case may be. Each Stock Option granted hereunder and all rights or
obligations thereunder shall expire on such date as shall be determined by the
Administering Body, but not later than ten (10) years after the date the Stock
Option is granted and shall be subject to earlier termination as provided herein
or in the Award Agreement. The Administering Body may, in its discretion at any
time and from time to time after the grant of a Stock Option, accelerate vesting
of such Option as a whole or in part by increasing the number of shares then
purchasable, provided that the total number of shares subject to such Stock
Option may not be increased. Except as otherwise provided herein, a Stock Option
shall
1999 OMNIBUS SECURITIES PLAN (eVENTURES GROUP, INC.) - PAGE 20
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become exercisable, as a whole or in part, on the date or dates, or upon
satisfaction of such conditions, specified by the Administering Body and
thereafter shall remain exercisable until the expiration or earlier termination
of the Stock Option.
6.4 SPECIAL PROVISIONS REGARDING INCENTIVE STOCK OPTIONS.
(a) Notwithstanding anything in this Article 6 to the contrary, the
exercise price and vesting period of any Stock Option intended to qualify
as an Incentive Stock Option shall comply with the provisions of Section
422 of the IRC and the regulations thereunder. As of the Effective Date,
such provisions require, among other matters, that (i) the exercise price
must not be less than the Fair Market Value of the underlying stock as of
the date the Incentive Stock Option is granted, and not less than 110% of
the Fair Market Value as of such date in the case of a grant to a
Significant Stockholder; and (ii) that the Incentive Stock Option not be
exercisable after the expiration of five (5) years from the date of grant
in the case of an Incentive Stock Option granted to a Significant
Stockholder.
(b) The aggregate Fair Market Value (determined as of the respective
date or dates of grant) of the Common Stock for which one or more Incentive
Stock Options granted to any Recipient under this Plan (or any other option
plan of the Company or an Affiliated Entity) may for the first time become
exercisable as "incentive stock options" under the IRC during any one
calendar year shall not exceed $100,000.
(c) Any Options granted as Incentive Stock Options pursuant to this
Plan that for any reason fail or cease to qualify as such shall be treated
as Non-qualified Stock Options.
6.5 RELOAD OPTIONS. At the discretion of the Administering Body, Stock
Options granted pursuant to this Plan may include a "reload" feature pursuant to
which a Recipient exercising an Option by the delivery of a number of shares of
matured capital stock in accordance with Section 5.4(c) hereof and the Award
Agreement would automatically be granted an additional Option (with an exercise
price equal to the Fair Market Value of the Common Stock on the date the
additional Option is granted and with the same expiration date as the original
Option being exercised, and with such other terms as the Administering Body may
provide) to purchase that number of shares of Common Stock equal to the number
delivered to exercise the original Option.
6.6 RESTRICTIONS The Administering Body, in its sole and absolute
discretion, may impose such restrictions on the ownership and transferability of
the shares purchasable upon the exercise of an Option as it deems appropriate.
Any such restriction shall be set forth in the respective Award Agreement and
may be referred to on the certificates evidencing such shares. The Recipient
shall give the Company prompt notice of any disposition of shares of Common
Stock acquired by exercise of an Incentive Stock Option within (i) two years
from the date of granting (including the date the Option is modified, extended
or renewed for purposes of Section 424(h) of the IRC) such Option to such
Recipient or (ii) one year after the transfer of such shares to such Recipient.
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7. RESTRICTED STOCK AWARDS
7.1 NATURE OF RESTRICTED STOCK AWARDS. The Administering Body may grant
Restricted Stock Awards to any Eligible Person. A Restricted Stock Award is an
Award entitling the recipient to acquire, at par value or such other purchase
price, if any, determined by the Administering Body (but not less than the par
value thereof unless permitted by applicable state law), shares of Common Stock
subject to such restrictions and conditions as the Administering Body may
determine at the time of grant ("RESTRICTED STOCK"). Conditions may be based on
continuing employment (or other business relationships) with the Company or an
Affiliated Entity and/or, in the case of Restricted Stock Awards intended to be
Performance-Based Compensation, the achievement of pre-established, objective
performance goals that are determined over a measurement period or periods
established by the Administering Body and relate to one or more Performance
Criteria. Any Restricted Stock Award must be accepted by the applicable
Recipient within a period of sixty (60) days (or a shorter period as determined
by the Administering Body at the time of award) after the award date, by
executing the applicable Award Agreement and providing to the Administering Body
or its designee a copy of such executed Award Agreement and payment of the
applicable purchase price, if any, of such shares of Restricted Stock.
7.2 RIGHTS AS STOCKHOLDERS. Subject to Section 7.3, upon delivery of the
shares of the Restricted Stock to a Recipient, or creation of a book entry
evidencing a Recipient's ownership of shares of Restricted Stock, pursuant to
Section 7.5, the Recipient shall have, unless otherwise provided by the
Administering Body, all the rights of a stockholder with respect to said shares,
subject to the restrictions in his or her Award Agreement, including the right
to receive all dividends and other distributions paid or made with respect to
the shares; provided, however, that, in the discretion of the Administering
Body, any extraordinary distributions with respect to the Common Stock shall be
subject to the restrictions set forth in Section 7.3.
7.3 RESTRICTION. All shares of Restricted Stock issued under this Plan
(including any shares received by holders thereof with respect to shares of
Restricted Stock as a result of stock dividends, stock splits or any other form
of recapitalization) shall, in the terms of each individual Award Agreement, be
subject to such restrictions as the Administering Body shall provide, which
restrictions may include, without limitation, restrictions concerning voting
rights and transferability and restrictions based on duration of employment or
engagement with the Company or its Affiliated Entities, Company performance and
individual performance; provided, however, that, except with respect to shares
of Restricted Stock intended to qualify as Performance-Based Compensation, by
action taken after the Restricted Stock is issued, the Administering Body may,
on such terms and conditions as it may determine to be appropriate, remove any
or all of the restrictions imposed by the terms of the Award Agreement.
Restricted Stock may not be sold, transferred, assigned or encumbered until all
restrictions are terminated or expire.
7.4 FORFEITURE OR REPURCHASE OF RESTRICTED STOCK. The Administering Body
shall provide in the terms of each individual Award Agreement for forfeiture and
reversion to the Company of a Recipient's shares of Restricted Stock, or that
the Company shall have a right to repurchase such
1999 OMNIBUS SECURITIES PLAN (eVENTURES GROUP, INC.) - PAGE 22
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shares of Restricted Stock, at a cash price per share equal to the price, if
any, paid by the Recipient for such shares of Restricted Stock, to the extent
such shares are then subject to restrictions under the Award Agreement,
immediately upon any failure to satisfy applicable conditions set forth in the
Award Agreement or upon a termination of employment (with or without cause and
for any reason whatsoever) or, if applicable, upon a termination of engagement
(with or without cause and for any reason whatsoever) between the Recipient and
the Company or any Affiliated Entity, subject, in any case, to Sections 5.13 and
5.14, as applicable.
7.5 CERTIFICATES, ESCROWS. Each Recipient receiving a Restricted Stock
Award shall be issued a stock certificate or certificates evidencing the shares
of Common Stock covered by such Award registered in the name of such Recipient.
The Administering Body may require a Recipient who receives a certificate or
certificates evidencing a Restricted Stock Award to immediately deposit such
certificate or certificates, together with a stock power or other appropriate
instrument of transfer, endorsed in blank by the Recipient, with signatures
guaranteed in accordance with the Exchange Act if required by the Administering
Body, with the Secretary of the Company or an escrow holder as provided in the
immediately following sentence. The Secretary of the Company or such other
escrow holder as the Administering Body may appoint shall retain physical
custody of each certificate representing Restricted Stock until all of the
restrictions imposed under the Award Agreement with respect to the shares
evidenced by such certificate expire or shall have been removed. The foregoing
to the contrary notwithstanding, the Administering Body may, in its discretion,
provide that a Recipient's ownership of Restricted Stock prior to lapse of the
restrictions set forth in the Award Agreement shall, in lieu of certificates, be
evidenced by a "book entry" (i.e., a computerized or manual entry) in the
records of the Company or its designated agent in the name of such Recipient.
Such records of the Company or such agent shall, absent manifest error, be
binding on all Recipients who receive Restricted Stock Awards. The holding of
shares of Restricted Stock by the Company or an escrow holder, in accordance
with this Section 7.5, or the use of book entries to evidence the ownership of
shares of Restricted Stock, in accordance with this Section 7.5, shall not
affect the rights of Recipients as owners of their shares of Restricted Stock,
nor affect the restrictions applicable to such shares under the Award Agreement
or this Plan.
7.6 VESTING OF RESTRICTED STOCK. The Administering Body at the time of
grant shall specify and state in the Award Agreement the date or dates and/or,
in the case of Restricted Stock Awards intended to qualify as Performance-Based
Compensation, attainment of performance goals and other conditions, on which
Restricted Stock shall become vested and free of restrictions applicable
thereto, subject to Section 7.4 and to such further rights of the Company or its
assigns as may be specified in the Award Agreement or other instrument
evidencing the Restricted Stock Award. Upon expiration or termination of the
restrictions applicable to a Recipient's shares of Restricted Stock, pursuant to
the applicable Award Agreement and this Plan, the Company shall, subject to
Sections 5.6, 5.11 and 5.12, then deliver to such Recipient a certificate or
certificates evidencing such shares registered in the name of such Recipient.
7.7 WAIVER, DEFERRAL AND REINVESTMENT OF DIVIDENDS. The Award Agreement or
other written instrument evidencing a Restricted Stock Award may require or
permit the
1999 OMNIBUS SECURITIES PLAN (eVENTURES GROUP, INC.) - PAGE 23
<PAGE> 24
immediate payment, waiver, deferral or investment of dividends paid on the
Restricted Stock.
7.8 SECTION 83(b) ELECTION. If a Recipient of a Restricted Stock Award
makes an election under Section 83(b) of the IRC, or any successor section
thereto, to be taxed with respect to the Restricted Stock as of the date of
transfer of the Restricted Stock rather than as of the date or dates upon which
such Recipient would otherwise be taxable under Section 83(a) of the IRC, such
Recipient shall deliver a copy of such election to the Company immediately after
filing such election with the Internal Revenue Service. Such election shall be
in the sole discretion of any such Recipient. None of the Company or any
Affiliated Entity shall have any liability or responsibility relating to or
arising out of the filing or not filing of any such election or any defects in
its construction.
8. UNRESTRICTED STOCK AWARDS
8.1 GRANT OR SALE OF UNRESTRICTED STOCK.
(a) GRANT OR SALE OF UNRESTRICTED STOCK. The Administering Body may, in
its sole discretion, grant (or sell at a purchase price determined by the
Administering Body) an Unrestricted Stock Award to any Eligible Person,
pursuant to which such individual may receive shares of Common Stock free
of any vesting restrictions ("UNRESTRICTED STOCK") under this Plan.
Unrestricted Stock Awards may be granted or sold as described in the
preceding sentence as a bonus in respect of past services or other valid
consideration, or in lieu of any cash compensation due to such individual.
(b) DEFERRAL OF AWARDS. The Administering Body may, in its discretion,
permit any Recipient who has received shares of Unrestricted Stock under
this Article 8 to elect to defer receipt of up to 100% of such shares of
Unrestricted Stock in accordance with such rules and procedures as may from
time to time be established by the Administering Body for that purpose, and
such election shall be effective on the later of the date one (1) year from
the date of such election or the beginning of the next calendar year, or
such later date as the Administering Body may specify in the Award
Agreement. Any such deferred Unrestricted Stock shall be entitled to
receive Dividend Equivalent Rights settled in shares of Common Stock.
9. PERFORMANCE STOCK AWARDS
9.1 NATURE OF PERFORMANCE STOCK AWARDS. A Performance Stock Award is an
Award entitling the Recipient to acquire shares of Common Stock upon the
attainment of pre-established, objective performance goals based on Performance
Criteria. The Administering Body may make Performance Stock Awards independent
of or in connection with the granting of any other Award under this Plan.
Performance Stock Awards may be granted under this Plan to any Eligible Person.
The Administering Body, in its sole discretion, shall determine whether and to
whom Performance Stock Awards shall be made, the performance goals applicable
under each such Award, the periods during which performance is to be measured,
and all other limitations and conditions applicable to the awarded shares,
which, in any case, shall be stated in the Award
1999 OMNIBUS SECURITIES PLAN (eVENTURES GROUP, INC.) - PAGE 24
<PAGE> 25
Agreement; provided, however, that the Administering Body may rely on the
performance goals, based on Performance Criteria, and other standards applicable
to other performance unit plans of the Company in setting the standards for
Performance Stock Awards under this Plan.
9.2 RIGHTS AS A STOCKHOLDER. A Recipient receiving a Performance Stock
Award shall have the rights of a stockholder only as to shares of Common Stock
actually received by the Recipient upon satisfaction or achievement of the terms
and conditions of such Award and not with respect to shares subject to the Award
but not actually issued to such Recipient. Accordingly, a Recipient shall be
entitled to receive a stock certificate evidencing the acquisition of shares of
Common Stock under a Performance Stock Award only upon satisfaction of all
conditions specified in the Award Agreement evidencing the Performance Stock
Award (or in a performance plan adopted by the Administering Body).
10. DIVIDEND EQUIVALENT RIGHTS; INTEREST EQUIVALENTS
10.1 DIVIDEND EQUIVALENT RIGHTS. A Dividend Equivalent Right is an Award
entitling the Recipient to receive credits based on cash dividends that would be
paid on the shares of Common Stock specified in the Dividend Equivalent Right
(or other Award to which it relates) if such shares were held by the Recipient.
A Dividend Equivalent Right may be granted hereunder to any Eligible Person, as
a component of another Award or as a freestanding Award. The terms and
conditions of Dividend Equivalent Rights shall be specified by the Administering
Body and stated in the Award Agreement. Dividend equivalents credited to the
holder of a Dividend Equivalent Right may be paid currently or may be deemed to
be reinvested in additional shares of Common Stock, which may thereafter accrue
additional equivalents. Any such reinvestment shall be at Fair Market Value on
the date of reinvestment or such other price as may then apply under a dividend
reinvestment plan sponsored by the Company, if any. Dividend Equivalent Rights
may be settled in cash or shares of Common Stock or a combination thereof, in a
single installment or installments. A Dividend Equivalent Right granted as a
component of another Award may provide that such Dividend Equivalent Right shall
be settled upon exercise, settlement, or payment of, or lapse of restrictions
on, such other Award and that such Dividend Equivalent Right shall expire or be
forfeited or annulled under the same conditions as such other Award. A Dividend
Equivalent Right granted as a component of another Award may also contain terms
and conditions different from such other Award.
10.2 INTEREST EQUIVALENTS. Any Award under this Plan that is settled in
whole or in part in cash on a deferred basis may provide in the Award Agreement
for interest equivalents to be credited with respect to such cash payment.
Interest equivalents may be compounded and shall be paid upon such terms and
conditions as may be specified at the time of grant in the Award Agreement.
11. STOCK APPRECIATION RIGHTS
11.1 GRANT OF STOCK APPRECIATION RIGHTS. A Stock Appreciation Right may be
granted to any Eligible Person selected by the Administering Body. A Stock
Appreciation Right
1999 OMNIBUS SECURITIES PLAN (eVENTURES GROUP, INC.) - PAGE 25
<PAGE> 26
may be granted (a) in connection and simultaneously with the grant of a Stock
Option, (b) with respect to previously granted Non-qualified Stock Options, or
(c) independent of a Stock Option. A Stock Appreciation Right shall be subject
to such terms and conditions not inconsistent with this Plan as the
Administering Body shall impose and shall be evidenced by an Award Agreement.
11.2 COUPLED STOCK APPRECIATION RIGHTS.
(a) A Coupled Stock Appreciation Right ("CSAR") shall be related to a
particular Stock Option and shall be exercisable only when and to the
extent the related Stock Option is exercisable.
(b) A CSAR may be granted to the Recipient for no more than the number
of shares subject to the simultaneously or previously granted and
unexercised Stock Option to which it is coupled.
(c) A CSAR shall entitle the Recipient to surrender to the Company
unexercised a portion of the Stock Option to which the CSAR relates (to the
extent then exercisable pursuant to its terms) and to receive from the
Company in exchange therefor an amount determined by multiplying the
difference obtained by subtracting the Stock Option exercise price from the
Fair Market Value of a share of Common Stock on the date of exercise of the
CSAR by the number of shares of Common Stock with respect to which the CSAR
shall have been exercised, subject to any limitations the Administering
Body may impose. An Option with respect to which a Recipient has elected to
exercise a CSAR shall, to the extent of the shares covered by such
exercise, be canceled automatically and surrendered to the Company. Such
Option shall thereafter remain exercisable according to its terms only with
respect to the number of shares of Common Stock as to which it would
otherwise be exercisable, less the number of such shares with respect to
which such CSAR has been so exercised.
11.3 INDEPENDENT STOCK APPRECIATION RIGHTS.
(a) An Independent Stock Appreciation Right ("ISAR") shall be unrelated
to any Stock Option and shall have the terms set by the Administering Body.
An ISAR shall be exercisable in such installments and subject to such
conditions as the Administering Body may determine. An ISAR shall cover
such number of shares of Common Stock as the Administering Body may
determine. The exercise price per share of the Common Stock subject to each
ISAR shall be set by the Administering Body and, together with the other
terms and conditions of the ISAR, shall be set forth in the Award
Agreement.
(b) An ISAR shall entitle the Recipient to exercise all or a specified
portion of the ISAR (to the extent then exercisable pursuant to its terms)
and to receive from the Company an amount determined by multiplying the
difference obtained by subtracting the exercise price per share of the ISAR
from the Fair Market Value of a share of Common Stock on the date of
exercise of the ISAR by the number of shares of Common Stock with
1999 OMNIBUS SECURITIES PLAN (eVENTURES GROUP, INC.) - PAGE 26
<PAGE> 27
respect to which the ISAR shall have been exercised, subject to any
limitations the Administering Body may impose.
11.4 PAYMENT AND LIMITATIONS ON EXERCISE.
(a) Payment of the amounts determined under Section 11.2(c) and 11.3(b)
above shall be in cash, in Common Stock (based on its Fair Market Value as
of the date the Stock Appreciation Right is exercised) or a combination of
both, as determined by the Administering Body. To the extent such payment
is effected in Common Stock it shall be made subject to satisfaction of all
provisions of this Plan pertaining to Stock Options.
(b) Holders of Stock Appreciation Rights may be required to comply with
any timing or other restrictions with respect to the settlement or exercise
of a Stock Appreciation Right, including a window-period limitation, as may
be imposed in the discretion of the Administering Body.
12. REORGANIZATIONS
12.1 CORPORATE TRANSACTIONS NOT INVOLVING A CHANGE IN CONTROL. If the
Company shall consummate any Reorganization not involving a Change in Control in
which holders of shares of Common Stock are entitled to receive in respect of
such shares any securities, cash or other consideration (including without
limitation a different number of shares of Common Stock), each Award outstanding
under this Plan shall thereafter be claimed or exercisable, in accordance with
this Plan, only for the kind and amount of securities, cash and/or other
consideration receivable upon such Reorganization by a holder of the same number
of shares of Common Stock as are subject to that Award immediately prior to such
Reorganization, and any adjustments will be made to the terms of the Award, and
the underlying Award Agreement, in the sole discretion of the Administering Body
as it may deem appropriate to give effect to the Reorganization.
12.2 CORPORATE TRANSACTIONS INVOLVING A CHANGE IN CONTROL. As of the
effective time and date of any Change in Control, this Plan and any then
outstanding Awards (whether or not vested) shall automatically terminate unless
(a) provision is made in writing in connection with such transaction for the
continuance of this Plan and for the assumption of such Awards, or for the
substitution for such Awards of new grants covering the securities of a
successor entity or other party to the transaction resulting in such Change in
Control, or an affiliate thereof, with appropriate adjustments as to the number
and kind of securities and exercise prices, in which event this Plan and such
outstanding Awards shall continue or be replaced, as the case may be, in the
manner and under the terms provided by the Administering Body and/or in any
written agreement relating to such Change in Control transaction; or (b) the
Board otherwise has provided or shall provide in writing for such adjustments as
it deems appropriate in the terms and conditions of the then-outstanding Awards
(whether or not vested), including without limitation (i) accelerating the
vesting or exercisability of outstanding Awards and/or (ii) providing for the
cancellation of Awards and their automatic conversion into the right to receive
the securities, cash and/or other consideration that a holder of the shares
underlying such Awards would have been
1999 OMNIBUS SECURITIES PLAN (eVENTURES GROUP, INC.) - PAGE 27
<PAGE> 28
entitled to receive upon consummation of such Change in Control had such shares
been issued and outstanding immediately prior to the effective date and time of
the Change in Control (net of the appropriate option exercise prices). If,
pursuant to the foregoing provisions of this Section 12.2, this Plan and any
outstanding Awards granted hereunder shall terminate by reason of the occurrence
of a Change in Control without provision for any of the actions described in
clause (a) or (b) hereof, then any Recipient holding outstanding Awards shall
have the right, at such time immediately prior to the consummation of the Change
in Control as the Administering Body shall designate, to convert, claim or
exercise, as applicable, the Recipient's Awards to the full extent not
theretofore converted, claimed or exercised, including any installments which
have not yet become vested or exercisable.
13. DEFINITIONS
Capitalized terms used in this Plan and not otherwise defined shall have
the meanings set forth below:
"ADMINISTERING BODY" shall mean the Board as long as no Stock Plan
Committee has been appointed and is in effect and shall mean the Stock Plan
Committee as long as the Stock Plan Committee is appointed and in effect.
"AFFILIATED ENTITY" shall mean (i) any corporation or limited liability
company, other than the Company, in an unbroken chain of corporations or limited
liability companies ending with the Company if each corporation or limited
liability company owns stock or membership interests (as applicable) possessing
more than fifty percent (50%) of the total combined voting power of all classes
of stock in one of the other corporations or limited liability companies in such
chain; (ii) any corporation, trade or business (including, without limitation, a
partnership or limited liability company) which is more than fifty percent (50%)
controlled (whether by ownership of stock, assets or an equivalent ownership
interest or voting interest) by the Company or another Affiliated Entity; or
(iii) any other entity, approved by the Administering Body as an Affiliated
Entity under the Plan, in which the Company or any other Affiliated Entity has a
material equity interest.
"AWARD" OR "AWARDS," except where referring to a particular category or
grant under this Plan, shall include Incentive Stock Options, Non-qualified
Stock Options, Restricted Stock Awards, Unrestricted Stock Awards, Performance
Stock Awards, Dividend Equivalent Rights and Stock Appreciation Rights.
"AWARD AGREEMENT" means the agreement or confirming memorandum setting
forth the terms and conditions of the Award.
"BOARD" means the Board of Directors of the Company.
"CHANGE IN CONTROL" means the following and shall be deemed to occur if any
of the events specified in clause (a), (b), (c) or (d) occur:
1999 OMNIBUS SECURITIES PLAN (eVENTURES GROUP, INC.) - PAGE 28
<PAGE> 29
(a) Any person, within the meaning of Section 13(d) or 14(d) of the
Exchange Act (other than the Company or any corporation or other such
person of which a majority of its voting power or its voting equity
securities or equity interests is owned, directly or indirectly, by the
Company (a "RELATED ENTITY"), or any employee benefit plan (or a trust
forming a part thereof) maintained by the Company or any Related Entity),
becomes, after the Effective Date, the beneficial owner (within the meaning
of Rule 13d-3 promulgated under the Exchange Act), directly or indirectly,
of fifty percent (50%) or more of the combined voting power of the
Company's then outstanding securities; or
(b) During any period of two (2) consecutive years, individuals, who at
the beginning of such period, constitute the Board and any new Director of
the Company (other than a Director designated by a person who has entered
into an agreement with the Company to effect a transaction described in
clause (a), (c) or (d) of this definition) whose election by the Board or
nomination for election by the Company's stockholders was approved by a
vote of at least two-thirds (2/3) of the Directors of the Company then
still in office who either were Directors of the Company at the beginning
of the two-year period or whose election or nomination for election was
previously so approved, cease for any reason to constitute at least a
majority of the Board;
(c) A merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) more than fifty
percent (50%) of the combined voting power of the voting securities of the
Company or such surviving entity outstanding immediately after such merger
or consolidation; provided, however, that a merger or consolidation
effected to implement a recapitalization of the Company (or similar
transaction) in which no person acquires more than fifty percent (50%) of
the combined voting power of the Company's then outstanding securities
shall not constitute a Change in Control; and provided further a merger or
consolidation in which the Company is the surviving entity (other than as a
wholly owned subsidiary of another entity) and in which the Board of
Directors of the Company or the successor to the Company, after giving
effect to the merger or consolidation, is comprised of a majority of
members who are either (x) Directors of the Company immediately preceding
the merger or consolidation, or (y) appointed to the Board by the Company
(or the Board) as an integral part of such merger or consolidation, shall
not constitute a Change in Control; or
(d) Approval by the stockholders of the Company or any order by a court
of competent jurisdiction of a plan of liquidation of the Company, or the
sale or disposition by the Company of all or substantially all of the
Company's assets other than (i) the sale or disposition of all or
substantially all of the assets of the Company to a person or persons who
beneficially own, directly or indirectly, at least fifty percent (50%) or
more of the combined voting power of the outstanding voting securities of
the Company at the time of
1999 OMNIBUS SECURITIES PLAN (eVENTURES GROUP, INC.) - PAGE 29
<PAGE> 30
the sale; or (ii) pursuant to a dividend in kind or spinoff type
transaction, directly or indirectly, of such assets to the stockholders of
the Company.
(e) Notwithstanding the foregoing, a Change in Control of the type
described in paragraph (b), (c) or (d) shall be deemed to be completed on
the date it occurs, and a Change in Control of the type described in
paragraph (a) shall be deemed to be completed as of the date the entity or
group attaining 50% or greater ownership has elected its representatives to
the Board and/or caused its nominees to become officers of the Company with
the authority to terminate or alter the terms of any Employee's employment.
"COMMON STOCK" means the common stock of the Company, par value $.001 per
share, as constituted on the Effective Date, and as thereafter adjusted as a
result of any one or more events requiring adjustment of outstanding Awards
under Section 3.4 above.
"COMPANY" means eVentures Group, Inc., a Delaware corporation.
"CONSULTANT" means any consultant or advisor if:
(a) the consultant or advisor renders bona fide services to the Company
or any Affiliated Entity;
(b) the services rendered by the consultant or advisor are not in
connection with the offer or sale of securities in a capital-raising
transaction and do not directly or indirectly promote or maintain a market
for the Company's securities; and
(c) the consultant or advisor is a natural person who has contracted
directly with the Company or an Affiliated Entity to render such services.
"CSAR" means a coupled stock appreciation right as defined in Section 11.2.
"DIRECTOR" means any person serving on the Board or the Board of Directors
of an Affiliated Entity irrespective of whether such person is also an Employee
of the Company or an Affiliated Entity.
"DIVIDEND EQUIVALENT RIGHT" shall mean any Award granted pursuant to
Article 10 of this Plan.
"DRO" shall mean a domestic relations order as defined by the IRC or Title
I of ERISA or the rules thereunder.
"EFFECTIVE DATE" means September 22, 1999, which is the date this Plan was
adopted by the Board.
"ELIGIBLE PERSON" shall include key Employees, Directors and Consultants of
the Company or of any Affiliated Entity.
1999 OMNIBUS SECURITIES PLAN (eVENTURES GROUP, INC.) - PAGE 30
<PAGE> 31
"EMPLOYEE" means any officer or other employee (as defined in accordance
with Section 3401(c) of the IRC) of the Company or any Affiliated Entity.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXPIRATION DATE" means the tenth anniversary of the Effective Date.
"FAIR MARKET VALUE" of a share of the Company's capital stock as of a
particular date shall be: (a) if the stock is listed on an established stock
exchange or exchanges (including for this purpose, the NASDAQ National Market),
the closing sale price of the stock quoted for such date as reported in the
transactions index of each such exchange, as published in The Wall Street
Journal and determined by the Administering Body, or, if no sale price was
quoted in any such index for such date, then as of the next preceding date on
which such a sale price was quoted; or (b) if the stock is not then listed on an
exchange or the NASDAQ National Market, the average of the closing bid and asked
prices per share for the stock in the over-the-counter market as quoted on The
NASDAQ Small Cap Market, or, if not so quoted, on the OTC Bulletin Board, on
such date; or (c) if the stock is not then listed on an exchange or quoted in
the over-the-counter market, an amount determined in good faith by the
Administering Body; provided, however, that (i) when appropriate, the
Administering Body, in determining Fair Market Value of capital stock of the
Company, may take into account such other factors as it may deem appropriate
under the circumstances and (ii) if the stock is traded on The NASDAQ Small Cap
Market and both sales prices and bid and asked prices are quoted or available,
the Administering Body may elect to determine Fair Market Value under either
clause (a) or (b) above. Notwithstanding the foregoing, the Fair Market Value of
capital stock for purposes of grants of Incentive Stock Options shall be
determined in compliance with applicable provisions of the IRC.
"INCENTIVE STOCK OPTION" means a Stock Option that qualifies as an
incentive stock option under Section 422 of the IRC, or any successor statute
thereto.
"IRC" means the Internal Revenue Code of 1986, as amended.
"ISAR" means an independent stock appreciation right as defined in Section
11.3.
"JUST CAUSE DISMISSAL" shall mean a termination of a Recipient's employment
for any of the following reasons: (a) the Recipient violates any reasonable rule
or regulation of the Board, the Company's Chief Executive Officer or the
Recipient's superiors that results in material damage to the Company or an
Affiliated Entity or which, after written notice to do so, the Recipient fails
to correct within a reasonable time; (b) any willful misconduct or gross
negligence by the Recipient in the responsibilities assigned to the Recipient;
(c) any willful failure to perform the Recipient's job as required to meet the
Company's or an Affiliated Entity's objectives; (d) any wrongful conduct of a
Recipient which has an adverse impact on the Company or an Affiliated
1999 OMNIBUS SECURITIES PLAN (eVENTURES GROUP, INC.) - PAGE 31
<PAGE> 32
Entity or which constitutes a misappropriation of assets of the Company or an
Affiliated Entity; (e) the Recipient's performing services for any other person
or entity that competes with the Company or an Affiliated Entity while the
Recipient is employed by the Company or an Affiliated Entity, without the prior
written approval of the Chief Executive Officer of the Company or an Affiliated
Entity; or (f) any other conduct that the Administering Body determines
constitutes just cause for dismissal; provided, however, that if a Recipient is
party to an employment agreement with the Company and/or an Affiliated Entity
providing for just cause dismissal (or some comparable notion) of such Recipient
from his or her employment with the Company or an Affiliated Entity, "Just Cause
Dismissal" for purposes of this Plan shall have the same meaning as ascribed
thereto or to such comparable notion in such employment agreement.
"NON-QUALIFIED STOCK OPTION" means a Stock Option that is not an Incentive
Stock Option.
"PARENT CORPORATION" means any parent corporation of the Company as defined
in Section 424(e) of the IRC.
"PERFORMANCE-BASED COMPENSATION" means performance-based compensation as
described in Section 162(m)(4)(C) of the IRC.
"PERFORMANCE CRITERIA" shall mean the following business criteria with
respect to the Company, any Affiliated Entity or any division or operating unit
of any thereof: (a) income or net income, (b) pre-tax income, (c) operating
income or net operating income, (d) cash flow, (e) earnings per share (including
earnings before interest, taxes and amortization), (f) return on equity, (g)
return on invested capital or assets, (h) cost reductions or savings, (i) funds
from operations, (j) appreciation in the fair market value of Common Stock, (k)
earnings before any one or more of the following items: interest, taxes,
depreciation or amortization, (l) book value of Common Stock, (m) total
stockholder return, (n) return on capital, (o) return on assets or net assets,
or (p) operating margin.
"PERFORMANCE STOCK AWARDS" means Awards granted pursuant to Article 9.
"PERMANENT DISABILITY" shall mean that the Recipient becomes physically or
mentally incapacitated or disabled so that the Recipient is unable to perform
substantially the same services as the Recipient performed prior to incurring
such incapacity or disability (the Administering Body, at its option and the
Company's expense, may retain a physician to confirm the existence of such
incapacity or disability, and the determination of such physician shall be
binding upon the Company and the Recipient), and such incapacity or disability
continues for a period of three consecutive months or six months in any 12-month
period or such other period(s) as may be determined by the Administering Body
with respect to any Award, provided that for purposes of determining the period
during which an Incentive Stock Option may be exercised pursuant to Section
5.13(b)(ii) hereof, Permanent Disability shall mean "permanent and total
disability" as defined in Section 22(e) of the IRC.
1999 OMNIBUS SECURITIES PLAN (eVENTURES GROUP, INC.) - PAGE 32
<PAGE> 33
"PLAN" means this 1999 Omnibus Securities Plan of the Company.
"PLAN TERM" means the period during which this Plan remains in effect
(commencing on the Effective Date and ending on the Expiration Date).
"RECIPIENT" means an Eligible Person who has received an Award or Awards
under this Plan or any person who is recognized under this Plan as the successor
in interest to such an Eligible Person with respect to such Eligible Person's
Award.
"REORGANIZATION" means any merger, consolidation or other reorganization.
"RESTRICTED STOCK" shall have the meaning ascribed thereto in Section 7.1.
"RESTRICTED STOCK AWARDS" means any Award granted pursuant to Article 7 of
this Plan.
"RETIREMENT" means normal retirement from employment with the Company or an
Affiliated Entity in accordance with the retirement policies of the Company or
any such Affiliated Entity then in effect, as determined by the Administering
Body.
"RULE 16B-3" means Rule 16b-3 under the Exchange Act, or any successor or
similar rule under the Exchange Act, as the same may be amended from time to
time.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SIGNIFICANT STOCKHOLDER" is an individual who, at the time an Award is
granted to such individual under this Plan, owns more than 10% of the combined
voting power of all classes of stock of the Company or of any Parent Corporation
or Subsidiary Corporation (after application of the attribution rules set forth
in Section 424(d) of the IRC).
"STOCK APPRECIATION RIGHT" means a stock appreciation right granted under
Article 11 of this Plan.
"STOCK OPTION" OR "OPTION" means a right to purchase stock of the Company
granted under Article 6 of this Plan to an Eligible Person.
"STOCK PLAN COMMITTEE" means the committee appointed by the Board to
administer this Plan pursuant to Section 4.1.
"SUBSIDIARY CORPORATION" means any subsidiary corporation of the Company as
defined in Section 424(f) of the IRC.
"UNRESTRICTED STOCK" shall have the meaning ascribed thereto in Section
8.1.
"UNRESTRICTED STOCK AWARD" means any Award granted pursuant to Article 8 of
this Plan.
1999 OMNIBUS SECURITIES PLAN (eVENTURES GROUP, INC.) - PAGE 33
<PAGE> 1
EXHIBIT 21.1
Subsidiaries of eVentures Group, Inc.
<TABLE>
<CAPTION>
State of Names Under Which
Incorporation or Subsidiary Does Percentage Ownership
Name of Subsidiary Organization Business in Subsidiary
- --------------------------------- ---------------- ----------------------- --------------------
<S> <C> <C> <C>
eVentures Holdings, L.L.C. Delaware eVentures Holdings, 100%
L.L.C.
e.Volve Technology Group, Inc. Nevada e.Volve Technology 100%
Group, Inc.; f/k/a
e.Volution, Inc., Orix
Global, Inc. and Orix
Leasing, Inc.
e.Volve Technology Group de Mexico, S.A. de C.V. Mexico e.Volve Technology Group 100%
de Mexico, S.A. de C.V.; f/k/a
Latin Gate de Mexico
S.A. de C.V.
Innovative Calling Technologies LLC Nevada Innovative Calling 50%
Technologies, LLC
AxisTel Communications, Inc. Delaware AxisTel 100%
Communications, Inc.
AxisTel Global Networks, Inc. Delaware AxisTel Global 100%
Networks, Inc.
AxisTel International, Inc. Delaware AxisTel International, 100%
Inc.
AxisTel Media Services, Inc. Delaware AxisTel Media Services, 100%
Inc.
AxisTel Metro, Inc. Delaware AxisTel Metro, Inc. 100%
Latin eVentures, Inc. Delaware Latin eVentures, Inc. 100%
IGS Acquisition Corporation Texas IGS Acquisition 100%
Corporation
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COMPANY'S CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1999 AND THE
STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 6,269,893
<SECURITIES> 0
<RECEIVABLES> 1,574,165
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,429,102
<PP&E> 14,555,967
<DEPRECIATION> 1,675,469
<TOTAL-ASSETS> 58,035,718
<CURRENT-LIABILITIES> 9,819,879
<BONDS> 0
0
0
<COMMON> 917
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 58,035,718
<SALES> 13,986,119
<TOTAL-REVENUES> 13,986,119
<CGS> 13,030,262
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 8,538,776
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 78,831
<INCOME-PRETAX> (7,686,971)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,686,971)
<EPS-BASIC> (0.17)
<EPS-DILUTED> (0.17)
</TABLE>