January 15, 1998
Simmonds Capital Limited
1255 Yonge Street
Suite 1050
Toronto, Ontario
Canada
Attention: MR. DAVID O'KELL
Dear Sirs:
Re: SIMMONDS CAPITAL LIMITED & TRACKPOWER ("SCL")
Further to our letter of intent dated December 2, 1997, the purpose of this
letter is to outline the terms and conditions upon which American Digital
Communications, Inc. a Wyoming corporation ("ADC" or the "Purchaser") has agreed
to purchase certain of the assets of SCL (the "Vendor") and assume certain
liabilities all on the terms and conditions as provided for herein.
1. PURCHASE PRICE
1.1 Subject to the terms and conditions hereof, and based upon the
representations and warranties herein contained, the Vendor agrees to
sell and the Purchaser agrees to purchase on or before January 23, 1998
(the "Closing Date") the assets listed in Schedule 1 hereto ( the
"Purchased Assets") together with the beneficial use of the MMDS assets
(fixed and subscriber equipment and the related license from Industry
Canada) which are to be provided to Purchaser by a lease until such time
as the Purchaser does not require the use of the assets that is after
the Purchaser has converted the MMDS subscribers to the next satellite
service (the "MMDS Lease").
1.2 Subject to the terms and conditions hereof, the aggregate Purchase Price
payable by the Purchaser to the Vendor for the Purchased Assets to be
paid and satisfied as follows:
(a) the Purchaser will issue to the Vendor U.S. $1,000,000 face value
of convertible preferred shares convertible into 1,000,000 shares
of ADC's common stock;
(b) the Purchaser will issue to the Vendor warrants to purchase an
additional 500,000 ADC common shares at an exercise price of U.S.
$2. The warrants will be exercisable in whole or in part until
January 31, 2001.
(c) when the Purchaser's retained earnings position becomes positive,
as determined in accordance with generally accepted accounting
principles consistently applied ("GAAP"), but not before, the
Vendor will receive an amount equal to 10% of the Purchaser's
annual EBITDA (earnings before interest taxes depreciaton and
amortization all as determined in accordance with GAAP) and
payable within 90 days of the Purchaser's year end provided that
such amount shall not exceed an
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aggregate payment of U.S. $1,500,000. It is understood and agreed
that this royalty payout is predicated on the Purchaser receiving
dividend payments from TrackPower International Inc.; and
(d) the Purchaser will assume U.S. $300,000 of existing accounts
payable of the Vendor listed in Schedule 2 and assume the leases
identified in Schedule 1 hereto and in each and every case
indemnify the Vendor in respect thereof.
2. REPRESENTATIONS AND WARRANTIES OF THE VENDOR
By the Vendor's acceptance hereof, the Vendor represents and warrants as
follows and hereby acknowledges and confirms that the Purchaser is
relying on such representations and warranties in connection with the
purchase of the Purchased Assets:
2.1 All of the Purchased Assets are owned by the Vendor as the beneficial
owner thereof and the Vendor has good and marketable title thereto, free
and clear of all mortgages, liens, charges, security interests, adverse
claims, demands and encumbrances whatsoever. The Purchased Assets
together with the beneficial use of the MMDS assets to be provided by
lease constitute all of the assets required by the Purchaser in order to
continue the broadband business of the Vendor, including without
limitation all rights to the trademark "TrackPower", but excluding the
Canadian wireless spectrum business.
2.2 No person, firm or corporation has any agreement or option or any right
or privilege (whether pre-emptive or contractual) capable of becoming an
agreement for the purchase from the Vendor of any of the Purchased
Assets.
2.3 The entering into of this agreement and the consummation of the
transactions contemplated hereby will not result in the violation of the
terms and provisions of any agreement, written or oral, to which the
Vendor may be a party.
2.4 The Vendor is a resident of Canada within the meaning of the Income Tax
Act (Canada).
3. SURVIVAL OF COVENANTS, REPRESENTATIONS AND WARRANTIES.
3.1 The covenants, representations and warranties of the Vendor contained in
this agreement shall survive the closing of the purchase and sale of the
Purchased Assets and, notwithstanding such closing, shall continue in
full force and effect until the first anniversary of the Closing Date.
4. CLOSING ARRANGEMENTS.
4.1 The Closing shall take place on the Closing Date at 10:00 o'clock in the
morning at the offices of the Vendor.
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4.2 The obligation of the Purchaser to close this transaction shall be
conditional upon the following conditions which are for the exclusive
benefit of the Purchaser (but which may be waived by it in writing)
having been satisfied on or before Closing:
(a) the covenants, representations and warranties of the Vendor shall
be true and correct on Closing;
(b) the board of directors of the Purchaser shall have approved the
transaction. It is understood that such approval is subject to
the completion of satisfactory due diligence and financial pro
formas;
(c) all applicable regulatory approvals shall have been received and
there shall be no regulatory, administrative or judicial
proceedings seeking to restrain or prevent the consummation of
the transaction provided for herein;
(d) the Purchaser shall be satisfied with the relationship with The
Ontario Jockey Club;
(e) the Purchaser shall be satisfied that the employees listed in
Schedule 3 will be hired by the Purchaser and retained under a
minimum 12 month employment agreement;
(f) the Vendor shall have indemnified the Purchaser in respect of the
Purchaser's waiver of compliance with the Bulk Sales Act
(Ontario);
(g) the Vendor shall have executed and delivered a transfer and
assignment of the TrackPower trade mark in the form and on the
terms of the draft assignment annexed hereto as Schedule 4 and
the MMDS Lease.
4.3 The obligation of the Vendor to close this transaction shall be
conditional upon the following conditions which are for the exclusive
benefit of the Vendor (but which may be waived by it in writing) having
been satisfied on or before Closing:
(a) the board of directors of the Vendor and its secured creditor
shall have approved the transaction. It is understood that such
approval is subject to the completion of satisfactory due
diligence and financial pro formas;
(b) the board of directors and officers of the Vendor will be as
provided for in Schedule 5;
(c) the Purchaser shall have waived compliance with the provisions of
the Bulk Sales Act (Ontario);
(d) the Vendor shall be satisfied that the employees listed in
Schedule 3 will be hired by the Purchaser and retained under a
minimum 12 month employment
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agreement; and the Vendor will have no further liability with
respect to such employees and furthermore that the Purchaser has
contracted for services of the Vendor's executive who are also
identified in Schedule 3 for the sum of $25,000 per month for a
period of not less than 18 months after Closing; and
(e) the Purchaser has established an employee stock incentive plan
for key employees providing up to 1,100,000 options at a price of
U.S. $0.40 per share with an effective date of September 8, 1997;
and
(f) the Purchaser has agreed to convert the MMDS subscribers at
Purchaser's cost to the new satellite service and indemnify the
Vendor for any future claims or liabilities whatsoever.
5. BOOKS AND RECORDS
5.1 On closing, the Vendor will deliver to the Purchaser all books, records
and documents in its possession or under its control relating to its
broadband asset business including TrackPower.
6. TIME OF THE ESSENCE
6.1 Time shall be of the essence hereof.
7. BENEFIT AND BINDING NATURE OF AGREEMENT
7.1 This agreement shall be governed by and construed in accordance with the
laws of the Province of Ontario and the laws of Canada applicable
therein and shall enure to the benefit of and be binding upon the
respective parties to the agreement and their respective successors and
assigns.
8. ANNOUNCEMENTS.
8.1 Neither party will make any disclosure of this agreement without the
consent of the other party.
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If the foregoing accurately reflects the terms of our agreement would you please
so indicate by dating and signing a copy of this letter and returning it to the
sender.
Yours truly,
AMERICAN DIGITAL COMMUNICATIONS, INC.
Per:_____________________________________________
R. Gene Klawetter, Chief Executive Officer
AGREED this day of January, 1998.
SIMMONDS CAPITAL LIMITED
Per:_______________________________________
John G. Simmonds, Chief Executive Officer