UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT FOR THE
TRANSITION PERIOD FROM _________________ TO _________________
0-7349
Commission file number
eNote.com Inc.
(Exact name of small business issuer as specified in its charter)
Delaware 59-345315
-------- ---------
(State or other jurisdiction of incorporation or (IRS Employer Identification
organization) No.)
185 Allen Brook Lane, Williston, VT 05495
-----------------------------------------
(Address of principal executive offices)
(802) 288-9000
--------------
(Issuer's telephone number)
- - --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes[X] No[ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
As of August 11, 2000, the Issuer had 11,289,481 shares of Common Stock,
$.01 par value, outstanding.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
CONTENTS
Page
PART I. FINANCIAL INFORMATION ----
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 2000 (unaudited) and
December 31, 1999 3
Consolidated Statements of Operations for the
three and six months ended June 30, 2000 and 1999 (unaudited) 4
Consolidated Statements of Cash Flows for the
six months ended June 30, 2000 and 1999 (unaudited) 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis or Plan of Operation 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 23
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.
eNote.com Inc.
Consolidated Balance Sheets
June 30, December 31,
2000 1999
ASSETS (unaudited) (audited)
--------------------------
Current assets
Cash and cash equivalents $462,888 $324,392
Inventories - raw materials 1,379,958 814,773
Prepaid expenses and other current assets 67,820 36,206
--------------------------
Total current assets 1,910,666 1,175,371
Property and equipment, net 831,042 615,541
Intangibles, net 350,293 375,914
Investment in eNote International - a
joint venture, at equity 200,000 ----
Investment in SolutioNet, at equity 1,810 ----
Security deposits 96,457 124,242
--------------------------
Total assets $3,390,268 $2,291,068
==========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $427,964 $660,937
Notes payable-stockholder 7,045 7,045
Convertible debentures 500,000 80,000
Other current liabilities 49,323 50,000
---------------------------
Total current liabilities 984,332 797,982
---------------------------
Stockholders' equity
Convertible preferred stock, $1.00
par value, 5,000,000 shares authorized,
issued and outstanding on June 30, 2000
and December 31, 1999, respectively 5,000,000 5,000,000
Common stock, $0.01 par value, 25,000,000
shares Authorized, 11,289,481 and
10,049,491 issued and Outstanding,
June 30, 2000 and December 31,
1999, respectively 112,895 100,495
Common stock warrants 740,000 740,000
Due from related party (150,000) (150,000)
Unearned compensation (44,852) (109,263)
Additional paid-in capital 5,017,219 497,776
Accumulated deficit (8,269,326) (4,585,922)
---------------------------
Total stockholders' equity 2,405,936 1,493,086
---------------------------
Total liabilities and stockholders' equity $3,390,268 $2,291,068
===========================
The accompanying notes are an integral part of these consolidated financial
statements.
3
eNote.com Inc.
Consolidated Statements of Operations
For the three and six months ended June 30, 2000 and 1999
(Unaudited)
3 Months 3 Months 6 Months 6 Months
Ended June Ended June Ended June Ended June
30, 2000 30, 1999 30, 2000 30,1999
-----------------------------------------------------
Net revenue $---- $---- $---- $----
Operating expenses:
Sales and marketing 516,813 20,204 879,346 72,934
Product development 428,264 210,533 751,991 210,533
General and
administrative
(including $132,377
of stock based
compensation for
the six months ended
June 30, 2000 and
none in 1999) 959,628 348,617 1,541,103 414,894
Depreciation and
amortization 140,426 4,004 231,524 6,368
-------------------------------------------------------
Total operating expenses 2,045,131 583,358 3,403,964 704,729
-------------------------------------------------------
Loss from operations (2,045,131) (583,358) (3,403,964) (704,729)
Minority interest in
SolutioNet 1,810 ---- 1,810 ----
Share of loss in eNote
International - a
joint venture 300,000 ---- 300,000 ----
Interest and other
income, net 27,148 40,397 33,861 40,461
Interest expense (12,500) (41,723) (15,111) (58,325)
-------------------------------------------------------
Net loss $(2,028,673) $(584,684) $(3,383,404) $(722,593)
Preferred stock dividend ---- 740,000 ---- 740,000
-------------------------------------------------------
Net loss applicable to
common shareholders $(2,328,673) $(1,324,684) $(3,683,404) $(1,462,593)
=======================================================
Basic net loss per
common share $(0.21) $(0.13) $(0.35) $(0.17)
Weighted average common
shares outstanding 11,078,800 9,887,977 10,566,989 8,750,309
The accompanying notes are an integral part of these consolidated financial
statements.
4
eNote.com Inc.
Consolidated Statements of Cash Flows
For the six months ended June 30, 2000 and 1999
(Unaudited)
2000 1999
Cash flows from operating activities:
Net loss $(3,683,404) $(722,593)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 231,524 6,368
Stock-based compensation 132,377 ----
Changes in assets and liabilities:
Decrease in accounts receivable ---- 10,274
Increase in inventory (565,185) (6,640)
Increase in prepaid expenses and other
current assets (31,614) (99,760)
Decrease in investment in eNote
International - a joint venture 300,000 ----
Increase in Investment in SolutioNet (1,810) ----
Decrease in security deposits 27,785 ----
Decrease in accounts payable and
accrued expenses (232,973) 208,341
Decrease in other current liabilities (677) ----
------------------------
Net cash used in operating activities (3,823,977) (604,010)
------------------------
Cash flows from investing activities:
Investment in Joint Venture (500,000) ----
Investment in SolutioNet ---- (250,000)
Purchases of intangibles (61,029) (95,762)
Purchases of property and equipment (360,376) (294,740)
------------------------
Net cash used in investing activities (921,405) (640,502)
------------------------
Cash flows from financing activities:
Proceeds from issuance of convertible
debentures 500,000 80,000
Payment of convertible debentures (80,000) (121,036)
Due to bank financing ---- (56,382)
Proceeds from issuance of convertible
preferred stock and common stock
warrants ---- 5,000,000
Proceeds from issuance of common stock
and warrants 4,463,878 ----
------------------------
Net cash provided by financing activities 4,883,878 4,902,582
------------------------
Net Increase in cash and cash equivalents 138,496 3,658,070
Cash and cash equivalents at beginning of
the period 324,392 ----
------------------------
Cash and cash equivalents at end of period $ 462,888 $3,658,070
========================
Supplemental disclosure of noncash financing
activities
Conversion of convertible notes $ ---- $ 400,000
Stock issued to consultants ---- 1,460,000
========================
Preferred stock dividend $ ---- $740,000
========================
The accompanying notes are an integral part of these consolidated financial
statements.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) Basis of Quarterly Presentation:
--------------------------------
The accompanying quarterly financial statements have been prepared in conformity
with generally accepted accounting principles.
The financial statements of eNote.com Inc. (the "Company") included herein have
been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission and, in the opinion of management, reflect
all adjustments which are necessary to present fairly the results for the period
ended June 30, 2000.
Certain financial information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such rules and regulations: however,
management believes that the disclosures are adequate to make the information
presented not misleading. This report should be read in conjunction with the
audited financial statements and footnotes therein included in the Company's
report on Form 10-KSB for the year ended December 31, 1999.
2) Principles of Consolidation:
----------------------------
The accompanying consolidated financial statements include accounts of the
Company and its wholly-owned subsidiaries. Upon consolidation, all significant
intercompany accounts are eliminated. The equity method of accounting is used
for companies and other investments in which the company has significant
influence, generally this represents common stock ownership or partnership
equity of at least 20% and not more than %50.
3) Net Loss per Common Share:
--------------------------
Net loss per common share for the three and six months ended June 30, 2000 and
1999 is based on the weighted average number of shares of Common Stock
outstanding during the periods. Potentially dilutive securities include options,
warrants and convertible preferred stock; however, such securities have not been
included in the calculations of loss per common share as their effect would be
antidilutive. Therefore, diluted net loss per share is not presented.
4) Reclassifications:
------------------
Certain reclassifications have been made to the financial statements for the six
months ended June 30, 1999 to conform with classifications used in 2000.
6
5) Equity Financing:
-----------------
On March 13, 2000 the Company completed a private placement of a one year, 10%
Subordinated Convertible Debenture in the principal amount of $500,000. The
debenture is convertible into shares of Common Stock of the Company at the rate
of $7.00 per share and may be redeemed at any time by the Company by the payment
of all outstanding principal and accrued interest. The proceeds will be used for
general corporate purposes and funding ongoing product development.
In addition, during the first and second quarters of 2000 in connection with a
Regulation S offering, the Company received and accepted subscriptions to
purchase an aggregate of 826,660 shares of its Common Stock at $6.00 per share
(the "Shares"), with warrants attached which allowed for the purchase of 413,330
additional shares at an exercise price of $0.01 per share (the "Warrants"). The
Warrants are immediately exercisable. For the six months ended June 30, 2000 the
Company had received an aggregate of $4,963,878 in connection with such
placement as payment in full for 826,660 of the Shares and the exercise price
for 413,330 of the Warrants which were exercised at $0.01 per share upon
issuance. $500,000 of the proceeds received in connection with the placement was
paid to the Company's financial consultants.
On March 24, 2000 the Company entered into a joint venture agreement with an
investor to create an Australian corporation to distribute, market and sell a
localized version of the TVemail(TM) System in Australia and New Zealand. The
Company will have a 50% equity interest but will hold a majority representing
voting control. The terms of the agreement require a $250,000 investment in such
entity by the Company. The Company will use the equity method of accounting (see
note 2) once the joint venture commences operations.
On May 18, 2000 the Company entered into a joint venture agreement with Sienna
Invest Limited to create a British Virgin Islands corporation to seek strategic
opportunities and enter into business relationships to market and distribute the
TVemail(TM) System throughout parts of Europe, the Middle East and North Africa.
Pursuant to the terms of the joint venture agreement each party contributed
$500,000 in consideration for a 50% ownership interest in the jointly owned
entity. The Company uses the equity method of accounting (see note 2). The
Company's share of loss in eNote International, a joint venture, is an estimate
based on eNote International's operating budget.
Item 2. Management's Discussion and Analysis or Plan of Operation.
Forward-Looking Statements
When used in this Report, press releases or elsewhere by eNote.com Inc.
(the "Company") and its management, the words "believes," "anticipates,"
"intends" and "expects" and similar expressions are intended to identify
forward-looking statements that involve a number of risks and uncertainties.
Additionally, statements contained in this discussion that are not historical
are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Exchange Act,
7
including statements regarding expectations, beliefs, intentions or strategies
regarding the future. The Company intends that all forward-looking statements be
subject to the safe-harbor provisions of the Private Securities Litigation
Reform Act of 1995. These forward-looking statements reflect the Company's views
as of the date they are made with respect to future events and financial
performance, but are subject to many risks and uncertainties, which could cause
the actual results of the Company to differ materially from any future results
expressed or implied by such forward-looking statements. Factors that could
cause actual results to differ materially or adversely include, without
limitation, any inability or delay in the development or manufacture of the
Company's TVemail(TM) System, including the in-home TVemail(TM) terminals (the
"Client Hardware"), the Company's proprietary back-end server systems (the
"Server Systems") and the graphical user interface ("GUI"), as well as the other
risks described in this Report under the caption "Management's Discussion and
Analysis or Plan of Operation--Certain Trends and Uncertainties." The Company
does not undertake to update forward-looking statements.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
OVERVIEW
We are a Delaware corporation that was formerly known as Webcor
Electronics, Inc. ("Webcor"). As a result of a bankruptcy proceeding, as of
March 31, 1999, Webcor had no assets, liabilities, or ongoing operations and had
not engaged in any business activities since February 1990. Webcor had no
operations during its fiscal year ended March 31, 1999.
Webcor acquired Navis Technologies, Ltd., a Vermont corporation ("Navis"),
in a business combination transaction on April 5, 1999, whereby Navis became a
wholly-owned subsidiary of the Company (the "Navis Transaction"). The Navis
Transaction was structured as a reverse takeover, or "RTO." In connection with
the Navis Transaction, the stockholders of Navis exchanged their Navis stock for
newly issued stock of Webcor. Before the Navis Transaction, Webcor had no
assets, liabilities or business operations and as of January 1, 1999, Navis was
exclusively dedicated to the development of the TVemail(TM) System. No
relationship existed between Webcor and Navis prior to the Navis Transaction and
no funds of Webcor were spent to acquire the stock of Navis. Navis had no
revenues in 1999 prior to the Navis Transaction and the Company had no revenue
generating operations in 1999 or in the three or six months ended June 30, 2000.
Since the Navis Transaction, the Company has been solely engaged in the
development of the TVemail(TM) System, including the Client Hardware and the
Server Systems, establishing strategic alliances and preparing for the
anticipated commercial deployment of the TVemail(TM) System starting in the
first quarter of 2001.
To initially fund development activities for the TVemail(TM) System and
provide initial working capital, the Company raised $5 million as of April 6,
1999 from Friedlander International Limited (the "Friedlander Transaction"). The
Company has used this capital to continue its development of the Client
Hardware, to install Server Systems to run the TVemail(TM) System network, to
complete the GUI, to perform marketing studies, to produce the preliminary test
Client Hardware units, to identify and develop potential strategic relationships
and distribution opportunities and to fund legal and other administrative
expenses related to the Navis Transaction and the Friedlander Transaction.
8
RESULTS OF OPERATIONS
Our financial condition and results from operations were dramatically
different between the second quarter ended June 30, 2000 and 1999. The three and
six month periods ended June 30, 1999 reflect the operations of Navis, prior to
and immediately following the Navis Transaction and the Friedlander Transaction.
During the three months ended June 30, 1999, Navis had no revenues. Operating
expenses were $583,358, consisting of sales and marketing expenses of $20,204,
product development expenses of $210,533, general and administrative expenses of
$348,617 and depreciation and amortization of $4,004. Interest expense was
$41,723 resulting in a net loss before preferred stock dividend of $584,684 or
$0.06 per share.
The Company had no revenues in the three months ended June 30, 2000.
Operating expenses increased to $2,045,131 a 251% increase over the comparable
1999 period. Operating expenses consisted of sales and marketing expenses of
$516,813, a 2,458% increase. The increase in sales and marketing expenses during
the current period is a direct result of the increased staff requirements and
related expenses.
Product development expenses increased $428,264, a 103% increase. The
increase in product development during the current period is a result of the
Company's effort to continue development and enhancement of its product. A
significant portion of this increase has resulted from additional staff and
related expenses as well as cost associated with outsourced specialized
progamming.
General and administrative expenses increased $959,628, a 175% increase.
The increase in general and administrative expenses during the current period is
a result of increased staff requirements and related expenses as well as
professional service relating to protection of the Company's intellectual
property.
Share of loss in eNote International, a joint venture, increased to
$300,000 from $0. The Company's prorata share of loss was estimated based
upon eNote International's operating budget.
Depreciation and amortization expenses of $140,426, a 3,407% increase.
This increase during the current period is a result of acquisition of equipment
and acquisition costs.
Interest expense decreased to $12,500, a 70% decrease, resulting in a net
loss of $2,028,673, a 247% increase.
The significant increase in operating expenses reflects the Company's
continuing utilization of the capital provided by the Friedlander Transaction
and the subsequent private placement in the development of the TVemail(TM)
System and to identify and develop potential strategic relationships and
distribution opportunities.
9
We had originally anticipated commencing full-scale commercial deployment
of the TVemail(TM) System in the United States during the second quarter of
2000, however, due to unanticipated technological challenges with the system, we
no longer anticipate introducing the TVemail(TM) System before the first quarter
of 2001. This delay means that it is likely that the Company will not generate
any revenue for the remainder of 2000 through sales related to the TVemail(TM)
System. This schedule is subject to many risks and uncertainties, including
those set forth in this Report under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations - "Certain Trends and
Uncertainties" and the Company's progress towards commercial deployment of the
TVemail(TM) System may be made at a significantly slower rate, through different
avenues, or not at all.
During the year ending December 31, 2000, we expect our product
development efforts to be focused on the final development and production of the
TVemail(TM) device and further product development for subsequent versions of
the TVemail(TM) System and other ancillary products. We expect to spend a
significant amount of capital on product development in 2000, however, there can
be no assurance that unanticipated technical obstacles, lack of funds, changes
in strategy or other factors will not cause actual product development expenses
to differ materially from our expectations.
As of June 30, 2000, we employed 57 full time employees. We anticipate
hiring a significant number of additional employees during the remainder of
2000, which is likely to significantly increase our operating expenses. However,
there can be no assurance that lack of qualified applicants, changes in strategy
or lack of funds will prevent us from hiring additional employees.
We do not anticipate generating any revenue until the TVemail(TM) System
is successfully launched in the United States or internationally through a joint
venture or a partially-owned subsidiary. On March 24, 2000, we entered into a
Joint Venture Agreement with Seafont Pty. Ltd., an Australian corporation, to
create and jointly own an Australian corporation (the "Australian Subsidiary")
to market and distribute a TVemail(TM) System in Australia and New Zealand. The
Company has committed to contributing capital up to $250,000 to the Australian
Subsidiary in consideration for the Company's fifty percent ownership interest.
On May 18, 2000, we entered into a Joint Venture Agreement with Sienna Invest
Limited, a British Virgin Islands corporation, to create and jointly own an
entity to seek strategic opportunities and enter into business relationships to
market and distribute the TVemail(TM) System throughout parts of Europe, the
Middle East and North Africa. The Company has contributed $500,000 of capital to
the entity in consideration for the Company's fifty percent ownership interest.
We plan on pursuing additional international opportunities and strategic
relationships to bring localized versions of the TVemail(TM) System to market
throughout the world's industrialized countries. We may invest additional
capital in other partially or wholly owned foreign operating entities. These
plans are subject to many risks and uncertainties, including those set forth in
this Report under the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Certain Trends and Uncertainties" and the
Company's successful launch in the United States or internationally may be
delayed or not occur at all.
10
The Company plans to purchase approximately $500,000 in computer
equipment, lab equipment and development tools in 2000. In the six months ended
June 30, 2000, we spent $360,376 on property and equipment. These capital
outlays could be substantially greater if the Company decides to handle certain
functions, such as manufacturing, marketing or customer service in-house as
opposed to contracting them out.
Liquidity and Capital Resources
We have funded our business through the issuance of debt and equity. We
raised $5,000,000 through the Friedlander Transaction. On March 13, 2000, we
raised an additional $500,000 through the issuance of a one-year ten percent
subordinated convertible debenture in an offshore transaction to Seafont, Pty.
Ltd., an Australian corporation. This debenture is convertible into shares of
Common Stock at an initial conversion rate equal to one share for each $7 of
principal converted.
Also, during the first and start of the second quarter of 2000, we have
received and accepted subscriptions from various European entities to purchase
in a Regulation S offering an aggregate of 826,660 shares of the Company's
Common Stock (the "Shares") and approximately 413,330 Common Stock Purchase
Warrants with an exercise price of $0.01 per share (the "Warrants"). The
Warrants are immediately exercisable. For the six months ended June 30, 2000 the
Company had received an aggregate of $4,963,878 in connection with such
placement as payment in full for 826,660 of the Shares and the exercise price
for 413,330 of the Warrants which were exercised at $0.01 per share upon
issuance. $500,000 of the proceeds received in connection with the placement was
paid to the Company's financial consultants. The Company anticipates that it
will need to raise significant capital during 2000 to carry out its plan through
additional issuances of debt and equity. However, there can be no assurance that
the Company will raise any additional capital.
As of June 30, 2000, the Company's balance of cash and cash equivalents
was $462,888. The Company believes that its current capital resources are
insufficient to complete the development and finalization of the TVemail(TM)
System and launch the TVemail(TM) System in the United States, which the Company
expects to occur during the first quarter of 2001. In order for the Company to
complete the development and finalization of the TVemail(TM) System, launch the
TVemail(TM) System in the United States, begin ongoing mass production of the
Client Hardware or to initiate sales and marketing efforts relating to the
TVemail(TM) System, the Company will have to raise substantial amounts of
additional capital through public or private debt or equity financing. The
Company is in the process of trying to obtain additional financing. There can be
no assurance that the Company will be able to raise such funds, and, if it
cannot, its business may be materially and adversely affected.
While the Company currently plans to commence deployment of its
TVemail(TM) device and its TVemail(TM) System in the first quarter of 2001,
there can be no assurance that difficulties in product development, network
development, manufacturing or financing, changes in technology or other factors
will not delay the launch date or prevent such launch altogether.
On August 3, 2000 we borrowed $100,000, in consideration for a 14% Note
due December 1, 2000, from Friedlander Capital Management Corp., an entity
controlled by Burton G. Friedlander. Mr. Friedlander exercises voting and
investment control over securities convertible into approximately 41% of our
outstanding Common Stock.
11
Certain Trends and Uncertainties
In addition to the other information contained in this Report on Form
10-QSB for the quarter ending June 30, 2000, the following factors should be
considered carefully.
RISKS RELATING TO THE COMPANY'S NEED FOR ADDITIONAL FINANCIAL RESOURCES
Need for Additional Funds
We believe our existing capital is insufficient to finalize the
development of the Client Hardware, install the Server Systems to run the
TVemail(TM) System network, to complete the GUI, to complete pilot testing and
to initially launch the TVemail(TM) System. We anticipate that we will have to
raise substantial additional capital in order to complete such endeavors and
once such endeavors are completed, to continue mass production of the Client
Hardware and initiate widespread sales and marketing efforts relating to the
TVemail(TM) System service. We currently intend to seek additional funding
through public or private financings, which may include debt or equity
financings. Adequate funds for these purposes, whether obtained through
financial markets or collaborative or other arrangements with corporate partners
or from other sources, may not be available when needed or on terms acceptable
to the Company. Insufficient funds may require us to: delay, scale back or
eliminate some or all of our research and product development programs; license
to third parties our technology to commercialize products or technologies that
the Company would otherwise seek to develop itself; to sell ourselves to a third
party; to cease operations; or to declare bankruptcy.
If we raise additional funds through the issuance of debt securities, the
holders of the debt securities will have a claim to the Company's assets that
will be prior to any claim of the stockholders. Interest on any debt securities
could increase our costs and negatively impact our operating results. If we
raise additional funds through the issuance of preferred stock, the terms of
such preferred stock may provide that the holders of such preferred stock are
entitled to receive dividends and/or distributions upon liquidation prior to the
holders of Common Stock. Furthermore, any such preferred stock may have class
voting rights, conversion features and/or antidilution protections of which the
Common Stock does not have the benefit. If we raise additional funds through the
issuance of Common Stock or securities convertible into or exchangeable for
Common Stock, the percentage ownership of the Company's then-existing
stockholders will decrease. In addition, any such convertible or exchangeable
securities may have rights, preferences and privileges more favorable to the
holders than those of the Common Stock.
12
Subordination of Common Stock to Preferred Stock; Risk of Dilution;
Anti-Dilution Adjustments.
In the event of the liquidation, dissolution or winding up of the Company,
the Common Stock is expressly subordinate to the $5 million preference of the 5
million outstanding shares of Preferred Stock. The conversion rate of the
Preferred Stock is subject to adjustment, among other things, upon issuances of
Common Stock or securities convertible into Common Stock or rights to purchase
Common Stock that have not been expressly approved in writing by a majority in
interest of the holders of Preferred Stock or their elected representatives. As
of June 30, 2000, each share of Preferred Stock was convertible into 1 share of
Common Stock.
Need for and Dependence on Qualified Personnel.
Our success is highly dependent on the hiring and retention of key
personnel and technical staff. The loss of key personnel or the failure to
recruit necessary additional personnel or both could impede the achievement of
development objectives. There is intense competition for qualified personnel in
the areas of the Company's activities, and there can be no assurance that we
will be able to attract and retain the qualified personnel necessary for the
development of our business. Many of our competitors have significantly greater
financial and other resources than we do and may be able to offer more lucrative
compensation packages which include stock options and other stock-based
compensation and higher-profile employment opportunities.
RISKS RELATING TO THE COMPANY'S OPERATIONSAND TECHNOLOGIES
Limited Operating History; Recent Shift in Business Strategy.
Immediately prior to the acquisition of Navis on April 5, 1999, the
Company had no business operations. Navis itself was founded in June 1996 and
until the fourth quarter of 1998 supplied infra-red protocol and advanced input
devices to NC manufacturers and provided contract engineering and consulting
services. However, Navis' revenues from operations never exceeded $703,000 in
any given year. During 1998, Navis shifted its business emphasis to focus
entirely on the development of the TVemail(TM) System service. We have yet to
launch the TVemail(TM) System service commercially or to receive any revenue
from such service. As a result, we have only a limited operating history and
there is little historical information on which to evaluate our business and
prospects. Our revenue, if any, for the foreseeable future is almost entirely
dependent on successfully bringing the TVemail(TM) System service to market and
on the number of customers, if any, who subscribe to the TVemail(TM) System
service after the launch of the service. We continue to be confronted with
unexpected technical challenges that have delayed our anticipated launch date
until the first quarter of 2001. There can be no assurance that we will overcome
these technical challenges, not be delayed by additional unexpected technical
challenges or ever be successful in bringing the TVemail(TM) System service to
market.
Once the basic TVemail(TM) System service is marketed, if ever, we intend
to expand our operations by developing and marketing new or complementary
services or systems. However, there can be no assurance that we will be able to
do so effectively. Although we believe that, in the future, we will be able to
use the TVemail(TM) System service as a platform to provide e-mail related and
other services, there can be no assurances that we will be able to do so.
13
The Company Depends on its Intellectual Property, Which May Be Difficult
and Costly to Protect.
Our intellectual property includes proprietary and confidential
information that is not currently subject to patent, trademark or similar
protection. The Company has filed federal trademark applications to register the
trademarks "TVemail," "eNote.com," "eNote Europe," "eNote Europe.com," "eNote
Australia," "eNote Australia.com," "MyGizmo," "TVGizmo," "NetGizmo," "PCemail,"
"WebATM," "Browserless Internet," "BuyMail," "TVewriter," "EZ Color," "eNote
International.com," "Get Connected.. Simply," "Simply Communicate," and
"TVemail.. The Answering Machine for the Internet," however, the Company may not
be able to secure significant protection for these trademarks. If our
competitors or others adopt product or service names similar to the names listed
above that we anticipate using, it may impede our ability to build brand
identity and customer loyalty. We rely primarily on secrecy to protect
technology, especially where patent protection is not believed to be appropriate
or obtainable. No assurance can be given that others will not independently
develop substantially equivalent proprietary information and techniques or
otherwise gain access to our trade secrets, or that we can effectively protect
our rights to unpatented trade secrets.
The validity, enforceability and scope of protection of certain
proprietary rights in Internet-related businesses are uncertain and still
evolving. If unauthorized third parties are able to copy our service or our
business model or to use our confidential information to develop competing
services, we could lose customers and our business could be negatively impacted.
We may not be able to effectively police unauthorized use of our technology
because such policing is difficult and expensive. In particular, the global
nature of the Internet makes it difficult to control the ultimate destination or
security of software or other data transmitted. Furthermore, the laws of other
countries may not adequately protect our intellectual property.
Our business activities and the TVemail(TM) System service may infringe
upon the proprietary rights of others. In addition, other parties may assert
infringement claims against the Company. Any such claims and any resulting
litigation could subject us to significant liability for damages and could also
result in invalidation of our proprietary rights. We could be required to enter
into costly and burdensome royalty and licensing agreements. These agreements
may not be available on acceptable terms, or may not be available at all. We may
also need to file lawsuits to defend the validity of our intellectual property
rights and trade secrets, or to determine the validity and scope of the
proprietary rights of others. Litigation is expensive and time-consuming and
could divert management's attention away from our business.
Technology Licensed From Third Parties.
We have entered into agreements with, and have licensed certain technology
from, third parties. The Company has relied on scientific, technical, commercial
and other data supplied and disclosed by others in entering into these
agreements and will rely on such data in support of development of certain
14
products. Furthermore, we believe that we will license additional technologies
from third parties in the future. Although we have no reason to believe that
this information contains errors of omission or fact, there can be no assurance
that there are no errors of omission or fact that would materially affect the
commercial viability of these products.
Rapid Technological Change, Customer Demands and Intense Competition.
The e-mail service market is characterized by rapidly changing technology,
customer demands and intense competition. If we cannot keep pace with these
changes, our TVemail(TM) System service could become uncompetitive and its
business could suffer. If we are not successful in developing and marketing
enhancements to the TVemail(TM) System service or new services that respond to
technological change or customer demands, our business may be materially and
adversely effected.
The competitive market for e-mail and online service access may limit
demand or pricing for the TVemail(TM) System. We expect to experience intense
competition from established online service providers such as America Online,
Inc., Prodigy Communications Corporation and Microsoft Corporation's WebTV(TM)
as well as competition from Internet appliance manufactures such as Sony and
Netpliance. Many companies provide e-mail and online service access and other
services, which provide functionality superior to those included in the
TVemail(TM) System. As a result of this competition, demand for the TVemail(TM)
System may suffer, we may be restricted in the service rates we can charge for
the TVemail(TM) System and our business, financial condition and results of
operations may be adversely affected. Many of our competitors have significantly
greater financial, technical, marketing, distribution, customer support and
other resources than we do. Furthermore, many of our competitors have
significantly greater experience, better name recognition, more compelling
content and easier access to consumers, advertisers and online service providers
than we do.
Management of Growth.
Our ability to implement our business plan successfully in a new and
rapidly-evolving market will require effective planning and growth management.
If we cannot manage our anticipated growth effectively, our business and
financial results may suffer. We plan on expanding our existing operations
substantially. Although we anticipate outsourcing manufacturing and procurement
and limited components of marketing and technical services, we may be forced to
expand our manufacturing, sales and marketing and technical support. We expect
that we will need to manage and broaden multiple relationships with customers,
on line providers and other third parties. We also expect that we will need to
expand our financial systems, procedures and controls and will need to augment,
train and manage our workforce, particularly our information technology staff.
As a result, our management and operating systems may be strained by any growth
and the Company may be unable to timely complete necessary improvements to its
operating systems, procedures and controls to support future operations.
15
Capacity Constraints May Impede Revenue Growth and Profitability.
We believe that satisfactory performance, reliability and availability of
our TVemail(TM) System appliances and Server Systems infrastructure will be
critical to the Company's reputation and ability to attract customers and
maintain adequate customer service levels. Any significant or prolonged capacity
constraints could delay or prevent customers from sending or gaining access to
their documents or other data or services. Such constraints could decrease our
ability to acquire and retain customers and prevent us from achieving the
necessary growth in revenue to achieve profitability. If the amount of traffic
increases substantially and we experience capacity constraints, we may need to
spend significant amounts to expand and upgrade our technology and network
infrastructure. Furthermore, we may be unable to predict the rate or timing of
any increases in the use of its services in order to respond in a timely manner.
Systems Failures and Business Interruptions Which Would Harm our Business.
Our success will depend in part on the efficient and reliable operation of
TVemail(TM) System service sufficient to accommodate a large number of
subscribers. We intend to locate our Server Systems at multiple sites with
redundant functions in order to reduce the risks of system failure, however, the
Server Systems are vulnerable to damage from fire, power loss,
telecommunications failures, break-ins and other events, which could lead to:
interruptions or delays in our service; loss of data; or the inability to
accept, transmit and confirm customer documents and data. Our business may be
materially adversely effected if its service is interrupted. Although we intend
to implement network security measures, our systems may be vulnerable to
computer viruses, electronic break-ins, attempts by third parties deliberately
to exceed the capacity of the systems and similar disruptions, any of which
could have a material adverse effect on our business.
RISKS RELATING TO THE INTERNET AND ONLINE COMMERCE
Privacy Concerns May Discourage Customers From Using The Company's Services.
Concerns over the security of online transactions and the privacy of users
may inhibit the growth of the Internet as a means of delivering documents and
data. We may need to incur significant expenses and use significant resources to
protect against the threat of security breaches or to alleviate problems caused
by such breaches. We plan to rely on encryption and authentication technology to
provide secure transmission of confidential information. If our security
measures do not prevent security breaches, we could suffer operating losses,
damage to our reputation, litigation and possible liability. Advances in
computer capabilities, new discoveries in the field of cryptography or other
developments may result in a compromise or breach of our encryption and
authentication technology and could enable an outside party to steal proprietary
information or interrupt its operations.
Government Regulation and Legal Uncertainties Relating to the Internet
Could Harm our Business.
Changes in the regulatory environment could negatively impact our ability
to generate revenues and increase our expenses. The Internet is largely
unregulated and the laws governing the Internet remain unsettled, even in areas
16
where there has been some legislative action. It may take years to determine
whether and how existing laws such as those governing intellectual property,
privacy and taxation apply to the Internet. In addition, because of increasing
popularity and use of the Internet, any number of laws and regulations may be
adopted with respect to the Internet or other online services covering issues
such as: user privacy; security; pricing; content; copyrights; distribution;
taxation; and characteristics and quality of services. Such regulations could
impose additional costs or interdicts on our activities, which could have a
material adverse effect.
If the Internet Infrastructure Fails, Our Business May Suffer.
We cannot be certain that the infrastructure or complementary services
necessary to maintain the Internet as a useful, convenient or secure means of
transferring documents and data will continue to develop. The Internet
infrastructure may not support the demands that growth may place on it, and the
performance and reliability of the Internet may decline, which could have a
material adverse effect on our business. The Company Depends on Third-Party
Providers of Internet and Telecommunications Service.
Our operations depend on third parties for Internet access and
telecommunications. Frequent or prolonged interruptions of these services could
result in significant losses of revenues. These types of occurrences could also
cause users to perceive our products as not functioning properly and therefore
encourage them to use other methods to deliver and receive information. We have
limited control over these third parties and there can be no assurance that we
will be able to maintain relationships with them on acceptable commercial terms.
Nor can there be any assurance that the quality of services that they provide
will remain at the levels needed to enable us to conduct our business
effectively. Each of these third parties has likely experienced outages in the
past, and could experience outages, delays and other difficulties due to system
failures unrelated to the Company's systems.
Costs of Transmitting Documents and Data Could Increase.
The cost of transmitting documents and data over the Internet could
increase, and the Company may not be able to increase its prices to cover such
rising costs. Several telecommunications companies have petitioned the Federal
Communications Commission to regulate Internet and on-line service providers in
a manner similar to long distance telephone carriers and to impose access fees
on such providers. Also, foreign laws and state tax laws and regulations
relating to the provision of services over the Internet are still developing. If
individual states impose taxes on services provided over the Internet, our cost
of providing TVemail(TM) and other services may increase.
17
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings.
Not applicable.
Item 2. Changes in Securities.
During the six months ended June 30, 2000, we have received and accepted
subscriptions for 826,660 shares of Common Stock at a purchase price of $6.00
per share and 413,330 Common Stock Purchase Warrants with an exercise price of
$0.01 per share. For the six months ended June 30, 2000 the Company had received
an aggregate of $4,963,878 in connection with such placement.
The Common Stock and Common Stock Purchase Warrants were issued in transactions
exempt from registration pursuant to Section 4(2) of the Securities Act of 1933,
as amended, and Regulation S promulgated thereunder.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
On June 22, 2000, we held our Annual Meeting of Stockholders. Our Board of
Directors solicited proxies for the matters to be voted on at the meeting. At
the meeting, out of the outstanding shares legally entitled to vote at the
meeting, 10,241,800 shares of Common Stock (92.9%) and 5,000,000 shares of
Preferred Stock (100%) were present in person or by proxy. Two directors were
re-elected to the Company's Board to serve until the 2003 Annual Meeting. A
listing of those directors follows:
Name Votes For Votes Against/Withheld Abstentions
- - ---- --------- ---------------------- -----------
James Bowman 15,084,678 151,922 5,200
Victor Reichenstein 15,084,500 152,100 5,200
A proposal to table the vote on the Amendment to the Company's Certificate of
Incorporation to increase the number of authorized shares of Common and
Preferred Stock until such future time as determined by the Board of Directors
was unanimously passed by all 15,241,800 shares represented at the Meeting.
A proposal to approve the 1999 Non-Employee Directors' Stock Option Plan passed
by a vote of 13,518,305 to 161,128 with 1,562,367 votes abstaining. A proposal
to approve the 2000 Incentive Stock Plan passed by a vote of 13,519,023 to
160,185 with 1,562,592 votes abstaining.
A proposal to ratify the selection of Deloitte & Touche LLP independent
certified public accountants, as auditors of the Company for the year ending
December 31, 2000 was passed by a vote of 15,240,000 to 825 with 975 votes
abstaining.
Item 5. Other Information.
Not applicable.
18
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
EXHIBIT TABLE
Exhibit No. Description
3(a) Amended and Restated Certificate of Incorporation **
3(b) Amended By-laws **
4.1 Certificate of Powers, Designations, Preferences and Rights of
the Convertible Preferred Stock, par value $.01 per share, of
the Company.*
4.2 Common Stock Purchase Warrant dated April 6, 1999
between the Company and Friedlander International
Limited. *
4.3 1-Year 18 Percent Convertible Debenture due May 3, 2000 of
Navis in principal amount of $200,000. **
4.4 1-Year 18 Percent Convertible Debenture due May 3, 2000 of
Navis in principal amount of $250,000. **
4.5 $50,000 Convertible promissory note of Navis, issued
January 8, 1999. **
4.6 1-Year 12 Percent Convertible Debenture due March 23, 2000 of
Navis in principal amount of $100,000. **
4.7 12% Promissory Note of Navis Technologies, Ltd. to John
R. Varsames, dated April 7, 1998 in principal amount of
$50,000, payable on demand. **
4.8 12% Promissory Note of Navis Technologies, Ltd. to John
R. Varsames, dated April 28, 1998 in principal amount
of $18,000, payable on demand. **
4.9 12% Promissory Note of Navis Technologies, Ltd. to John
R. Varsames, dated May 4, 1998 in principal amount of
$7,500, payable on demand. **
4.10 12% Promissory Note of Navis Technologies, Ltd. to John
R. Varsames, dated May 14, 1998 in principal amount of
$28,000, payable on demand. **
19
4.11 12% Promissory Note of Navis Technologies, Ltd. to John
R. Varsames, dated May 28, 1998 in principal amount of
$5,200, payable on demand. **
4.12 12% Promissory Note of Navis Technologies, Ltd. to John
R. Varsames, dated June 11, 1998 in principal amount of
$10,000, payable on demand. **
4.13 12% Promissory Note of Navis Technologies, Ltd. to John
R. Varsames, dated June 25, 1998 in principal amount of
$500, payable on demand. **
4.14 12% Promissory Note of Navis Technologies, Ltd. to John
R. Varsames, dated January 27, 1999 in principal amount
of $6,000, payable on demand. **
4.15 12% Promissory Note of Navis Technologies, Ltd. to John
R. Varsames, dated January 31, 1999 in principal amount
of $56,948, payable on demand. **
4.16 12% Promissory Note of Navis Technologies, Ltd. to John
R. Varsames, dated February 2, 1999 in principal amount
of $5,000, payable on demand. **
4.17 12% Promissory Note of Navis Technologies, Ltd. to John
R. Varsames, dated February 5, 1999 in principal amount
of $5,000, payable on demand. **
4.18 12% Promissory Note of Navis Technologies, Ltd. to John
R. Varsames, dated February 23, 1999 in principal
amount of $5,000, payable on demand. **
4.19 12% Promissory Note of Navis Technologies, Ltd. to John
R. Varsames, dated March 4, 1999 in principal amount of
$20,000, payable on demand. **
4.20 12% Promissory Note of Navis Technologies, Ltd. to John
R. Varsames, dated March 5, 1999 in principal amount of
$1,000, payable on demand. **
4.21 12% Promissory Note of Navis Technologies, Ltd. to John
R. Varsames, dated March 23, 1999 in principal amount
of $5,500, payable on demand.**
20
4.22 12% Convertible Debenture to Lance Murdock due May 3,
2000 in principal amount of $30,000.***
4.23 12% Convertible Debenture to Robert Francis Corvino due
May 3, 2000 in principal amount of $50,000.***
4.24 10% Subordinated Convertible Debenture to Seafont Pty.
Ltd., due March 13, 2001 in principal amount of
$500,000.***
4.25 Form of Common Stock Purchase Warrant for March/April
2000 European Stock Placement.***
10.13 Agreement dated December 30, 1999 between Navinet and
the Company.***
10.14 1999 Non-Employee Directors' Stock Option Plan.***
10.15 Note (Debenture) Purchase Agreement dated March 13,
2000 by and between Seafont Pty. Ltd. and the
Company.***
10.16 Form of Common Stock Purchase Agreement for March/April
2000 European Stock Placement.***
10.17 2000 Stock Incentive Plan.***
10.18 Joint Venture Agreement dated as of March 24, 2000
between Seafont Pty. Ltd and the Company.***
10.19 Service and Private Label Agreement dated as of March 20, 2000
between the Company and CoolEmail.com, Inc.***
10.20 Memorandum of Understanding dated as of March 24, 2000
between the Company and Cesky Telecom a.s.***
10.21 Joint Venture Agreement dated as of May 18, 2000 between Sienna
Invest Limited and the Company.
10.22 14% Note due December 1, 2000 payable to Friedlander
Capital Management Corp. in the principal amount of
$100,000
27 Financial Data Schedule
21
* Previously filed with, and incorporated by reference to, the Company's Current
Report on Form 8-K filed April 20, 1999.
** Previously filed with, and incorporated by reference to, the Company's Form
10-KSB filed September 22, 1999.
*** Previously filed with, and incorporated by reference to, the Company's Form
10-KSB filed April 28, 2000.
(b) Reports on Form 8-K.
Not applicable.
22
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
eNote.com Inc.
------------------------------------------------
(Registrant)
August 14, 2000 /s/ John R. Varsames
------------------------------------------------
John R. Varsames,
President and Chief Executive Officer
(Principal Executive Officer)
August 14, 2000 /s/ Michael T. Grennan
------------------------------------------------
Michael T. Grennan,
Treasurer, Secretary and Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
23
EXHIBIT 10.21
JOINT VENTURE AGREEMENT
This Agreement dated as of May 18th, 200 (the "Agreement"), by and
between Sienna Invest Limited, a company incorporated under the laws of the
British Virgin Islands, having its principle address at Mill Mail, P0 Box 964,
Road Town, Tortola, British Virgin Islands ("Sienna") and eNote.com Inc., a
corporation incorporated under the laws of the State of Delaware, having its
principal office at 185 Allen Brook Lane, Williston, Vermont 05495, USA
("eNote").
WITNESSETH:
WHEREAS, eNote has designed, developed and is marketing in the United
States an Internet appliance including a wireless keyboard and set-top box (the
"Client") to permit users to access via a telephone line and view via television
e-mail and selected Internet web pages ("TVemail(TM)").
WHEREAS, eNote has designed, engineered and developed a system of
software and hardware to implement TVemail(TM). This system is comprised of the
TVemail(TM) appliances, including the wireless keyboard and set-top box, eNote's
proprietary software (including, but not limited to, all Object Code and Source
Code in whatever form), eNote's proprietary client/server architecture and
database (the "Backbone"), together with all new versions, upgrades,
alterations, localizations and other modifications and improvements to the
TVemail(TM) and Backbone and any component thereof, and instructions and
documentation provided as a unit therewith (collectively, the "TVemail(TM)
System").
WHEREAS, Sienna and its Affiliates have strategic connections and
business expertise in the Territory (as defined herein).
WHEREAS, eNote and Sienna (collectively, the "Parties" and each a
"Party") desire to enter into a relationship and this Agreement to create a
corporation, incorporated under the laws of the British Virgin Islands ("eNote
International.com") to seek strategic opportunities and enter into business
relationships to market and distribute the TVemail(TM) System throughout the
Territory.
WHEREAS, eNote International.com shall enter into joint ventures and
create subsidiaries ("Operating Entities") in various jurisdictions throughout
the Territory.
WHEREAS, neither Sienna, eNote International.com nor any Operating
Entities will engage in any business involving TVemail(TM) or an analogous
product outside the Territory.
WHEREAS, eNote International.com shall initially be owned equally by
Sienna and eNote.
WHEREAS, eNote shall provide to each of the Operating Entities a version
of the TVemail(TM) System, localized to operate in the applicable countries
throughout the Territory covered by each respective Operating Entity.
WHEREAS, eNote shall perform all work associated with the TVemail(TM)
System and any localized version thereof and no alterations or modifications
shall be made to the TVemail(TM) System or any component thereof, including, but
not limited to any changes regarding power supply, modem approval or telephony
interface, except at the direction of eNote.
WHEREAS, eNote shall enter into a License, Technical Assistance, Supply
and Distribution Agreement with each Operating Entity to effectuate the
objectives of this Agreement.
WHEREAS, each Party shall contribute an equal amount of capital to eNote
International.com as provided for herein.
WHEREAS, eNote International.com shall distribute its interests in the
various Operating Entities to Sienna and eNote as provided for herein.
WHEREAS, eNote International.com and eNote shall enter into consulting
agreements (the "Consulting Agreements") with eNote Europe.com, an English
corporation, pursuant to which eNote Europe.com shall provide strategic
consulting services to eNote International.com and eNote.
NOW, THEREFORE, the Parties hereby agree as follows:
ARTICLE I
Definitions
The following terms shall, for the purposes of this Agreement, have the
following meanings, except as otherwise expressly provided herein (terms defined
in the singular or the plural include the plural or the singular, as the case
may be):
1.1 "Affiliate" shall mean, as to any Person, any other Person that,
directly or indirectly, controls, is under common control with, or is controlled
by, that Person. For purposes of this definition, "control" (including, with its
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 policies of such Person, whether through the ownership of voting securities
or by contract or otherwise.
1.2 "Agreement" shall mean this Agreement and any Schedules, Exhibits and
Certificates attached to this Agreement.
1.3 "Backbone" shall have the meaning set forth in the whereas clauses to
this Agreement.
1.4 "Board of Directors" shall mean the Board of Directors (or its equivalent)
of eNote International.com.
1.5 "Business" shall have the meaning given to that term in Section
2.1(a).
2
1.6 "Business Day" shall mean any day on which commercial banks are not
authorized or required to close in New York, New York, U.S.A. or London,
England.
1.7 "Closing" shall have the meaning set forth in Section 11.1 hereof.
1.8 "Closing Date" shall mean that date identified in Section 11.1
hereof
1.9 "Competitor" shall mean an entity which is engaged in the
development, design, or distribution of an Internet appliance offering e-mail
and web browsing capabilities using the television as the display device for
such activities.
1.10 "Distributable Cash" shall mean, with respect to any relevant
period, "positive cash flow" (determined by deducting from cash flow from
operating activities the sum of cash used in investing activities and payments
under capital lease obligations, as reflected on a statement of cash flows
prepared in accordance with U.S. generally accepted accounting principles) but
excluding funds from capital contributions or loans and further excluding a
reserve, in an amount reasonably determined by the Board of Directors in its
business judgment to be necessary or appropriate for cash disbursements
including, but not limited to, provision for the payment of all outstanding and
unpaid current obligations of eNote International.com as of such time.
1.11 "Effective Date" shall have the meaning given to that term in
Section 8.1.
1.12 "eNote International.com" shall mean that entity which is to be
formed prior to Closing, which shall be a corporation organized under the laws
of the British Virgin Islands, which shall conduct the Business and which shall
be owned and operated, directly or indirectly, by the Parties in accordance with
this Agreement.
1.13 "eNote's Proprietary Technology" shall mean and include the eNote
brand, the TVemail(TM) System, any component thereof or any of the technology,
software, trade secrets, trademarks, trademark applications, patents, patent
applications, instruction manuals, installation manuals or other intellectual
property.
1.14 "Governmental Body" shall mean any domestic or foreign national,
state or municipal or other local government or multi-national body (including,
but not limited to, the European Union), any subdivision, agency, commission or
authority thereof, or any quasi-governmental or private body exercising any
regulatory authority thereunder.
1.15 "License Agreement" shall have the meaning given to that term in
Section 7.1.
1.16 "Marks" shall have the meaning set forth in Section 7.4 hereof
1.17 "Object Code" shall mean: (i) machine executable programming
instructions, substantially in binary form, which are intended to be directly
executable by an operating system after suitable processing and linking, but
without the intervening steps of compilation or
3
assembly; or (ii) other executable code (e.g., programming instructions written
in procedural or interpretive languages).
1.18 "Person" shall mean an individual, sole proprietorship, corporation,
partnership, limited partnership, limited liability company, joint venture,
trust, unincorporated organization, mutual company, joint stock company, estate,
union, employee organization, bank, trust company, land trust, business trust or
other organization, or a Governmental Body, or their equivalent under the
applicable legal system.
1.19 "Source Code" shall mean the human readable form of Object Code and
related system documentation, including comments, procedural language and
material useful for understanding, implementing and maintaining such
instructions (for example, logic manuals, flow charts and principles of
operation).
1.20 "Territory" shall mean all of the countries listed on Exhibit A.
1.21 "Transfer" shall mean the direct or indirect sale, transfer, pledge,
assignment or other disposition of or mortgage, hypothecation, or other
encumbrance or permitting or suffering of any encumbrance of all or any part of
the equity interests in eNote lntemational.com; provided, however, that the term
"Transfer" shall not include the pledge of all or any part of the equity
interest in eNote lnternational.com held by a Party to secure indebtedness of
such Party owing to a lender so long as such lender agrees and acknowledges in
writing, as part of such pledge, that the interests of such lender are, and
shall at all times be, subject to the terms and conditions of this Agreement,
and that such pledge (and the rights of the lender) is at all times subordinate
to the rights of the other Party pursuant to this Agreement. No lender may
foreclose on a pledge without complying with the provisions of Section 9.3.
1.22 "TVemail(TM)" shall have the meaning set forth in the whereas
clauses to this Agreement.
1.23 "TVemail(TM) System" shall have the meaning set forth in the whereas
clauses to this Agreement.
ARTICLE II
Purpose and Scope of Agreement
2.1 Purpose.
(a) Sienna and eNote jointly undertake through eNote International.com
to: seek out, create and enter into strategic relationships and joint ventures
with local entities throughout the Territory and create Operating Entities to
market and distribute, only within the Territory, an internet appliance product
similar to the TVemail(TM) product which is being offered by eNote to consumers
in the United States (the "Business").
4
(b) The joint business relationship between Sienna and eNote will permit
the parties to leverage the concept and technical innovations of the TVemail(TM)
System and Sienna's expertise and experience within the Territory.
(c) Except as explicitly set forth in this Agreement, neither Sienna nor
eNote (or their respective Affiliates) shall have any obligation to the other to
conduct business exclusively with the other Party, to offer business
opportunities to the other party or to refrain from competition in any manner
whatsoever regardless whether the Parties are jointly engaged in (or may also
engage in) a particular activity at a particular time.
2.2 No Partnership.
Nothing in this Agreement shall be construed as creating between the
Parties a partnership, fiduciary or other similar relationship or a joint
venture except as expressly provided for herein. Nothing in this Agreement shall
create or imply any exclusive relationship or any obligation to inform the other
Party, offer to the other Party (or eNote International.com) or to include the
other Party in any opportunity which may be available to one of the Parties in
the future, regardless of the relationship between such opportunity and the
Business.
2.3 Overall Conduct of Business.
(a) The Business shall be conducted through joint participation by
the Parties in an independent corporate entity, eNote International.com.
(b) Each Party shall hold its interest in eNote International.com either
directly or through one or more Affiliates in accordance with Section 9.2. eNote
shall initially own fifty percent (50%) of the issued and outstanding common
stock of eNote International.com and Sienna shall initially own the other fifty
percent (50%) of the issued and outstanding common stock of eNote
International.com.
(c) Neither Party nor eNote International.com shall have the right to
represent the other Party in negotiations with third parties. Subject to the
prior explicit approval of the represented Party, no Party nor eNote
International.com shall have the right to enter into an agreement with a third
party for the account of the other Party or for their joint account, except as
expressly provided herein. The Party entering such unauthorized agreement or
causing such liability shall hold the other Party harmless for any claims raised
by a third party.
(d) The Business shall not under any circumstances be conducted in any
way outside the geographical limits of the Territory unless otherwise agreed to
explicitly by the Parties in writing.
5
ARTICLE 3
Entity Formation
3.1 Formation and Organizational Documents:
(a) Prior to the Closing Date, Sienna shall cause eNote International.com
to be legally and validly formed under the laws of the British Virgin Islands.
(b) eNote International.com, to the extent legally available, shall have
the name "eNote International.com Corporation," or such other name as shall be
mutually agreed upon by the Parties.
(c) The certificate of incorporation, articles of association, or
memorandum (or other similar constituent documents as are specified by the laws
of its formation) which are to be filed with the appropriate governmental
authority to create eNote lntemational.com shall be delivered by Sienna to eNote
prior to such filing and shall be subject to eNote's approval. No change or
amendment shall be made to such constituent documents without the consent of
both Parties.
(d) Prior to the Closing, Sienna and eNote shall agree on the Bylaws
which shall be adopted by the Parties. No change or amendment shall be made to
such Bylaws without the unanimous consent of both Parties.
3.2 Board of Directors: The Parties, as shareholders of eNote
International.com, shall cause eNote International.com to have five (5)
directors who shall compose the Board of Directors. Each of the Parties shall
have the right to nominate two (2) nominees to the Board of Directors. The
Parties agree to vote their shares of eNote International.com to elect such
nominees. In addition to each of the Party's Nominees, each of the Parties shall
cause an outside Director, satisfactory to each of the Parties and a legal
resident of the British Virgin Islands to be elected to the Board of Directors.
The Parties agree that the initial Directors shall be those persons set forth on
Exhibit B hereto. Any action by the Board of Directors shall require the consent
of four (4) out of the five (5) directors.
3.3 Issuance of Shares. On the Closing Date, and upon each of the Parties
satisfying their respective initial capital contribution obligations as provided
for in this Agreement, eNote and Sienna shall each be entitled to receive fully
paid and nonassessable shares of common stock representing 50% percent of the
issued and outstanding equity interests of eNote International.com.
ARTICLE IV
Capital Contributions
4.1 Capital Contributions by the Parties. On the Closing Date each Party
shall contribute Five Hundred Thousand U.S. Dollars ($500,000) in immediately
available funds to the account of eNote International.com in consideration for
the Common Stock to be issued to each of the Parties pursuant to Section 3.3
hereof.
6
ARTICLE V
Management of the eNote International.com
5.1 Matters Requiring Joint Action as Shareholders. Subject to applicable
law, eNote and Sienna agree that any activities by eNote International.com in
respect of the following matters shall require the consent and approval of each
of eNote and Sienna as shareholders thereof, or, if such a requirement is not
possible, that the Parties adopt a joint position in respect of any such
decision that the Board of Directors shall consider in connection with approving
any action regarding such activity:
(a) approval of any strategic plan;
(b) the adoption, amendment or repeal of any provisions of the charter
documents of eNote International.com;
(c) the issuance, redemption, repurchase or retirement of any securities
of eNote International.com (including any option, warrant or other right to
purchase an interest in eNote International.com, or any securities convertible
or exchangeable into the same);
(d) the sale, transfer or disposal of assets of eNote International.com
in excess of One Hundred Thousand U.S. Dollars ($100,000) per fiscal year
(excluding inventory sold in the ordinary course of business);
(e) any merger or consolidation of eNote International.com with or into
another entity;
(f) the organization of, or the acquisition or disposition of, any
interest in another entity by eNote International.com other than for purposes of
cash management on a short term basis with a recognized money market
institution;
(g) the borrowing of funds in excess of One Hundred Thousand U.S.
Dollars ($100,000) in U.S. Dollars per fiscal year by eNote International.com;
(h) the filing by eNote International.com of a petition for
liquidation, dissolution or seeking protection from creditors of eNote
International.com;
(i) approval of the annual operating budget and Business Plan of eNote
International.com;
(j) any decision involving a declaration of dividends eNote
International.com;
(k) any decision involving the approval of a material agreement between
one of Sienna, eNote or their respective Affiliates and eNote International.com
including but not limited to any guarantee given by Sienna or eNote or their
respective Affiliates on behalf of eNote
International.com;
7
(l) any action outside the scope of the Business;
(m) any action by eNote International.com outside the Territory;
(n) any early repayment of indebtedness by eNote International.com;
(o) knowingly entering into a transaction or arrangement with a
Competitor;
(p) entering into any contract potentially requiring an aggregate of
payments by eNote International.com in excess of One Hundred Thousand U.S.
Dollars ($100,000) during any fiscal year; and
provided that, to the extent that any action requiring the approval of
the Board of Directors is specifically set forth on a line item basis in any
business plan of eNote International.com, such action shall be deemed to have
been approved except as to subparagraphs (o) and (m) above.
5.2 Financial Policies, Accounting, Fiscal Year.
(a) All financial statements prepared with respect to eNote
International.com shall be prepared in U.S. currency and in accordance with the
generally accepted accounting principles in existence in the British Virgin
Islands, consistently applied, provided that eNote International.com shall
provide such financial information to the Parties together with such other
information as each Party reasonably requests; all such information shall be
provided in a format reasonably requested by the Parties such that each Party
may, at the expense of eNote International.com, prepare financial statements for
eNote International.com in accordance with generally accepted accounting
principles in existence in the United States. Such information and financial
statements shall be provided in a time frame allowing the requesting Party to
fulfill all of its financial reporting obligations.
(b) The Board of Directors shall select as eNote International.com's
independent accountants to provide accounting and auditing services to eNote
International.com the same independent accounting firm selected by eNote to
provide eNote with accounting and auditing services. eNote International.com
shall be subject to an annual audit by such accountants.
(c) eNote International.com shall adopt December31 as the end of its
fiscal year.
(d) eNote International.com shall furnish, on a regular basis and as may
be reasonably requested by a Party, such accounting and other information which
a Party reasonably requires to fulfill its reporting and financial planning
objectives and the annual audit report shall be furnished by eNote
International.com to the Parties within sixty (60) days after the end of its
fiscal year and an unaudited statement within thirty (30) days after the end of
each fiscal quarter.
5.3 Dividend Policy. eNote International.com shall distribute
dividends or make other distributions subject to Section 5.1 and the unanimous
approval of the Board of Directors. Notwithstanding the foregoing, eNote
International.com shall distribute any and all securities
8
representing an interest in an Operating Entity to each of the Party's at the
demand of either Party provided such securities are listed on a nationally
recognized securities exchange.
5.4 Constituent Documents of eNote International.com. The articles of
association, articles of incorporation, by-laws, or constituent documents of
eNote International.com shall reflect the provisions set forth in this Article V
and Section 3.2 with such changes as shall be jointly agreed by the Parties and
each of the Parties shall review and approve such constituent documents prior to
the Closing Date.
ARTICLE VI
Joint Participation in Opportunities
6.1 Exclusivity.
(a) Commencing on the date of this Agreement and continuing for so long as
this Agreement is in effect and Sienna and eNote shall each have an equity
interest in eNote International.com, eNote and its Affiliates shall not, within
the Territory, without the express written consent of Sienna, license, supply,
distribute or sell any products or Technology, engage in any activity which is,
or participate or invest in, or provide or facilitate the provision of financing
to, or assist (whether as owner, part-owner, shareholder, member, partner,
director, officer, trustee, employee, agent or consultant, or in any other
capacity) any business, organization or person other than eNote
International.com, or Sienna (or any subsidiary or affiliate of eNote
International.com or Sienna), whose business, activities, products or services
are competitive with any of the business activities, products or services
conducted or offered by Sienna or eNote International.com and their respective
subsidiaries and affiliates... Notwithstanding anything herein to the contrary,
the eNote may make passive investments in any enterprise the shares of which are
publicly traded if such investment constitutes less than one percent (1%) of the
equity of such enterprise.
(b) Commencing on the date of this Agreement and continuing for so long
as this Agreement is in effect and Sienna and eNote shall each have an equity
interest in eNote International.com, Sienna and its Affiliates shall not,
without the express written consent of eNote, engage anywhere in the world in
any activity which is, or participate or invest in, or provide or facilitate the
provision of financing to, or assist (whether as owner, part-owner, shareholder,
member, partner, director, officer, trustee, employee, agent or consultant, or
in any other capacity), any business, organization or person other than eNote
International.com, or eNote (or any subsidiary or affiliate of eNote
International.com or eNote), whose business, activities, products or services
are, competitive with any of the business activities, products or services
conducted or offered by eNote or eNote International.com and their respective
subsidiaries and affiliates with respect to the TVemail(TM) System or any
component thereof. Without implied limitation, the forgoing covenant shall
include hiring or engaging or attempting to hire or engage for or on behalf of
itself or any such competitor any officer or employee of eNote or eNote
International.com or any of its direct and/or indirect subsidiaries and
affiliates, or any former employee of eNote or eNote International.com.
Notwithstanding anything herein to the contrary, Sienna may make passive
investments in any enterprise the shares of which are
9
publicly traded if such investment constitutes less than one percent (1%) of the
equity of such enterprise.
6.2 Other Activities of the Parties. Notwithstanding anything to the
contrary contained herein, Sienna acknowledges and agrees that, nothing in this
Agreement shall limit or restrain eNote's activities anywhere outside of the
Territory.
6.3 Severability. In the event that the restrictions and obligations set
forth in Section 6.1 are invalid for any reason under applicable law, Section
6.1 shall be reformed to the give effect to the Parties intent therein to the
fullest extent permitted by applicable law. The invalidity or reformation of
Section 6.1 shall not affect the remainder of this Agreement.
ARTICLE VII
Techno1ogy/Software/Know-How/Patents/Copyrights/Trademarks
7.1 eNote License Agreement. The Parties agree that eNote will negotiate
and execute, subject to the approval of eNote International.com, a License,
Technical Assistance, Supply and Distribution Agreement with each of the
Operating Entities (the "License Agreements"). The License Agreement shall
include, to the extent necessary, language to protect the rights of eNote in its
property as it relates to TVemail(TM) System under local laws in the country or
countries in which the Operating Entities provide services, as determined by
eNote in its reasonable discretion.
7.2 eNote's Initial Technology Development for the Operating Entities.
eNote shall use its best efforts to provide the same software and hardware
functionality to each Operating Entity as its TVemail(TM) System in the United
States, subject to localization.
7.3 eNote Ongoing Development.
(a) eNote acknowledges the importance to the Business of access by eNote
International.com to ongoing development activities. Accordingly, eNote agrees,
at Sienna's oral or written request, to provide to eNote International.com
regular access to the following:
(i) plans for all current and future products used in the eNote
TVemail(TM) product and support of such product provided by eNote, on an annual
basis.
(ii) functional descriptions, development plans, schedules and
periodic status for products and enhancements thereto under development, as soon
as such materials exist.
(iii) data for products regarding design changes, problem tracking,
correction of errors or bugs and proposals for new products.
(b) eNote agrees to make all reasonable efforts to assure the technical
continuity and compatibility of the TVemail(TM) System and the Business in the
Territory whenever reasonably feasible.
10
(c) All proposed changes and improvements by eNote shall constitute
confidential information of eNote. Sienna acknowledges that eNote shall have the
right to make public announcements relating to current and future products and
all development plans.
(d) For purposes of technology development and assistance, eNote shall
dedicate such time and priority to the requests of each Operating Entity as is
proportional to the business traffic generated by such Operating Entity in
relation to the overall business of eNote and its subsidiaries and affiliates.
(e) eNote International.com will be entitled to have a designee attend
material product development meetings held by eNote and participate therein
provided eNote International.com covers all costs associated with such
attendance.
7.4 Trademarks.
(a) eNote presently owns the trademarks and trade names set forth on
Exhibit C (the "Marks"). Effective as of the Closing Date, eNote hereby grants
eNote International.com a non-exclusive, non-transferable, freely revocable
license to use the Marks, solely in connection with the Business.
(b) eNote shall have control over the defense of any trademark claim,
including appeals, negotiations and the right to effect a settlement or
compromise thereof, provided that: (i) eNote may not partially settle any
trademark claim without the written consent of eNote International.com unless
such settlement releases eNote International.com fully; and (ii) eNote shall
promptly provide eNote International.com with copies of all pleadings or similar
document relating to any trademark claim.
ARTICLE VIII
Term; Termination
8.1 Term.
The term of this Agreement shall commence on the date of execution and
delivery of this Agreement (the "Effective Date"). The Agreement shall expire
upon the earlier of: (i) when terminated by mutual agreement of the Parties;
(ii) when terminated by either Party in writing pursuant to Section 8.2 hereof;
or (iii) when one of the Parties, or their respective Affiliates, no longer
holds any shares of capital stock of eNote International.com.
8.2 Termination.
The Party which is not in breach of this Agreement shall have the right
to terminate this Agreement upon the occurrence of the events set forth below:
(a) The other Party is in material breach of any material term, condition
or covenant of this Agreement and the breaching Party fails to cure such breach
within thirty (30) calendar days after the receipt of written notice of such
breach; or
11
(b) An event of bankruptcy occurs with respect to the other Party. For
purposes of the foregoing, an event of bankruptcy with respect to a Party means
any of the following circumstances (or the substantial equivalent under
applicable law in any other country): (a) the commencement by the Party of a
voluntary case under the United States Bankruptcy Code or an equivalent law as
applicable to such Party in the British Virgin Islands, (b) the commencement
against the Party of an involuntary case under the United States Bankruptcy Code
or an equivalent law as applicable to such Party in the British Virgin Islands
if the case is not vacated with a ninety calendar days, (c) the entry of a final
order by a court of competent jurisdiction finding the Party to be bankrupt or
insolvent, ordering or approving its liquidation, reorganization or any
modification or alteration of the rights of its general creditors or assuming
custody of or appointing a receiver or other custodian for all or a substantial
part of its property and such order shall not be vacated or stayed upon appeal
or otherwise stayed within ninety calendar days or (d) the Party making an
assignment for the benefit of, or entering into a composition with, its
creditors, or appointing or consenting to the appointment of a receiver or other
custodian for all or a substantial part of its property.
(c) Termination under subsection (a) shall be effective upon delivery of
notice of the expiration of the cure period and termination under subsection (b)
will become effective immediately upon written notice of termination at any time
after the occurrence of the event of bankruptcy.
8.3 Effect of Termination. Upon Termination of this Agreement, unless
otherwise agreed to by the Parties, eNote International.com shall pay all of its
liabilities and distribute all of its remaining assets to its shareholders in
accordance with applicable law. Sections 2.2 and 12.1, shall survive termination
of this Agreement.
ARTICLE IX
Transfers
9.1 Limitation on Transfer. Except as expressly permitted in this Article
IX, neither eNote nor Sienna shall, without the prior written approval of the
other Party (which may be withheld in the sole discretion of such Party),
Transfer its interest in eNote International.com or assign its rights or
obligations under this Agreement in any manner whatsoever and any purported
Transfer or assignment in contravention of this Section 9.1 shall be void.
9.2 Permitted Transfers and Assignments.
(a) Notwithstanding Section 9.1, either Party may, at any time upon
compliance with Section 9.2(b), Transfer all or part of its interest in eNote
International.com to an Affiliate of such Party or assign its rights and
obligations under this Agreement to an Affiliate, without the prior written
approval of the other Party. Notwithstanding anything to the contrary contained
in this Agreement, the interests of Sienna and its Affiliates in eNote
International.com shall be held within an entity which is not an Affiliate with
any Competitor.
(b) Any Transfer by a Party of an interest in eNote International.com or
assignment of the rights and obligations as permitted by Section 9.2(a) shall be
effective only upon the
12
execution and delivery by the transferor of an appropriate irrevocable and
unconditional guarantee to continue to be bound by the provisions of this
Agreement and the constituent documents of eNote International.com together with
instruments of assumption under which the Affiliate agrees to be bound by this
Agreement and the constituent documents of eNote International.com. An
assignment or Transfer shall not release the transferor of any of its
obligations hereunder or under any constituent document relating to eNote
International.com.
(c) Notwithstanding anything to the contrary contained in the Agreement,
eNote may Transfer this Agreement and all of its rights and obligations
hereunder to or all of its equity interests in eNote International.com to any
Person acquiring all or substantially all of the business (including the
technology necessary to honor this Agreement) of eNote whether by merger, sale
of assets or otherwise, provided, however, that any such Person agrees in
writing to be bound by the terms and conditions of this Agreement. Upon any such
transfer, eNote shall be released from any further obligation under this
Agreement.
9.3 Right of First Refusal; Tag Along Right
(a) At any time after which a governmental restraint on sale is no longer
enforceable, either Party (the "Seller") intends to sell, assign or transfer all
or a portion of such Party's equity ownership interest in eNote
International.com for cash, the Seller shall, prior to any such transfer, give
written notice (the "Sellers Notice") of such intention to the other Party (the
"Offeree"). The Seller's Notice shall include the name of the proposed
transferee, the proposed purchase price for its equity ownership interest in
eNote International.com (the "Offered Interest"), the terms of payment of such
purchase price and all other matters relating to such sale and shall be
accompanied by a copy of a binding written agreement of the proposed transferee
to purchase the Offered Interest from the Seller. The Seller's Notice shall
constitute a binding offer by the Seller to sell to the Offeree, or to any
Affiliate of the Offeree designated by the Offeree, the Offered Interest at the
monetary price designated in the Seller's Notice and as payable as provided in
Section 9.3(b). Not later than sixty (60) days after receipt of the Seller's
Notice, the Offeree may elect to purchase the Offered Interest by written notice
stating that the Offeree has accepted the offer contained in the Seller's
Notice, which notice shall fix a time, location and date for the closing of such
purchase, which date shall be not less than fifteen (15) nor more than sixty
(60) days after the delivery of such written, or on such other date as may be
mutually agreed by the Parties.
(b) The place for the closing of any purchase and sale described in
Section 9.3(a) shall be the principal office of eNote International.com or at
such other place as the Seller and the Offeree shall agree. At the closing, the
Seller shall accept payment on the terms offered by the proposed transferee
named in the Seller's Notice, provided that the Offeree shall be entitled
substitute cash or other securities of equivalent fair market value in lieu of
any non-monetary consideration offered by the proposed transfer, including,
without limitation, delivery of other securities in exchange for the Offered
Interest proposed to be sold. At the closing, the Seller shall execute and
deliver to the Offeree such documents, records, and other instruments of
transfer, in form and substance reasonably satisfactory to the Offeree and its
counsel, necessary: (i) to evidence the Seller's ownership of the Offered
Interest in eNote International.com; and (ii) effectively to transfer the
Offered Interests to the Offeree, free and clear of any liens, charges or
13
other encumbrances, and the Offeree shall deliver the purchase price for such
Offered Interest, in immediately available funds. The Seller shall deliver or
execute at the closing any documents, records or other instruments of transfer
reasonably requested by the Offeree and necessary to evidence the Offered
Interest or effectively to transfer an Offered Interest.
(c) In lieu of accepting the offer to purchase provided for in Section
9.3(a), the Offeree shall have the option (the "Participation Option") to
participate in the proposed transfer on the same terms offered to the Seller and
the Offeree as contained in the Seller's Notice and the Seller and the Offeree
shall each participate in the proposed transfer pro-rata based on each Party's
proportional ownership interest in eNote International.com. Not later than sixty
(60) days after receipt of the Seller's Notice, the Offeree may exercise the
Participation Option by written notice stating that the Offeree is electing to
participate in the proposed transfer contained in the Seller's Notice
(d) If the Offeree fails to accept the offer contained in the Seller's
Notice or exercise the Participation Option, then the Seller shall be free to
sell all, but not less than all, of the Offered Interest to the designated
transferee at a price and on terms no less favorable to the Seller than
described in the Seller's Notice, provided that such sale is consummated within
ninety (90) days after the giving of the Seller's Notice to the Offeree. As a
condition precedent to the effectiveness of a transfer pursuant to this Section
9.3(d), the proposed transferee(s) shall agree in writing prior to such transfer
to become a party to and bound by the provisions of this Agreement, and shall
thereafter be permitted to transfer such Ownership Interest only in accordance
with this Agreement.
ARTICLE X
Representations and Warranties
10.1 Certain Representations and Warranties of Sienna. Sienna makes the
following representations and warranties for the benefit of eNote and eNote
International.com, each of which shall survive the execution and delivery of
this Agreement:
(a) Organization and Standing. Sienna is a duly organized and validly
existing corporation in good standing under the laws of the British Virgin
Islands.
(b) Corporate Action. Sienna has all necessary corporate power and has
taken all corporate action required to authorize the execution and delivery of
this Agreement and does not require the consent of any third party which has not
been obtained.
10.2 Certain Representations and Warranties of eNote. eNote makes the
following representations and warranties for the benefit of Sienna and eNote
International.com, each of which shall survive the execution and delivery of
this Agreement:
(a) Organization and Standing. eNote is a duly organized and validly
existing corporation in good standing under the laws of Delaware.
14
(b) Corporate Action. eNote has all necessary corporate power and has
taken all corporate action required to authorize the execution and delivery of
this Agreement and does not require the consent of any third party which has not
been obtained.
ARTICLE XI
Closing
11.1 Closing. Provided that the closing conditions set forth in Section
11.3 have been satisfied on such date as agreed upon by the Parties (the
"Closing Date"), the commencement of the Business shall begin (the "Closing").
11.2 Closing Deliveries. On the Closing Date and at the Closing:
(a) eNote and Sienna shall each contribute $500,000 to eNote
International.com in accordance with Section 4.1.
(b) eNote International.com shall issue certificates to each of Sienna
and eNote representing 50% of the issued and outstanding of Common Stock of
eNote International.com.
11.3 Closing Conditions. Prior to the Closing Date eNote
International.com shall be a validly formed corporation under the laws of the
British Virgin Islands in accordance with the terms of this Agreement.
11.4 Survival. Except as explicitly set forth in this Agreement, the
Closing shall not terminate any provision of this Agreement.
ARTICLE XII
Miscellaneous
12.1 Confidential Information.
(a) At all times following the date hereof, each Party shall keep
strictly confidential and not disclose, use, divulge, publish or otherwise
reveal, directly or through another Person, (A) any confidential, non-public
information of the other Party or its Affiliates which was disclosed pursuant to
any License Agreement, or (B) any confidential, non-public information: (i)
relating to the business of the other Party and its Affiliates and obtained as a
result of the preparation and negotiation of this Agreement, the performance by
the Parties of their obligations hereunder, or the joint conduct by the Parties
of activities pursuant to this Agreement; or (ii) relating to the business of
eNote International.com, including, but not limited to, documents and/or
information regarding customers, costs, profits, markets, sales, products,
product development, key personnel, pricing policies, operational methods,
technology, know-how, technical processes, formulae, or plans for future
development of or concerning eNote International.com (collectively,
"Confidential Information"), except as may be necessary for the directors,
employees or agents of its and its Affiliates to perform their respective
obligations under this Agreement or as otherwise required under applicable law,
including, in the case of eNote, the rules and regulations promulgated under the
Securities Exchange Act of 1934
15
provided that neither Party shall make any disclosure required under applicable
law before providing the other Party with a reasonable opportunity to seek a
protective order. Each Party shall cause any Persons receiving information in
accordance with the terms hereof to retain it in confidence. Upon termination of
this Agreement, each Party shall either destroy or return to the other all
memoranda, notes, records, reports and other documents (including all copies
thereof) relating to the Confidential Information of the other Party and eNote
International.com which such Party may then possess or have under its control
(except information owned by eNote International.com which such Party continues
to own after such termination). Notwithstanding the foregoing, the following
shall not constitute Confidential Information: (w) information which was already
otherwise known to the recipient at the time of its receipt in connection with
this Agreement, (x) information which is or becomes freely and generally
available to the public through no wrongful act of the recipient, (y)
information which is rightfully received by the recipient from a third party
legally entitled to disclose such information without breach by the recipient of
this Agreement,or (z) in connection with legal action initiated by a Party to
enforce rights under this Agreement, provided that adequate safeguards (such as
protective orders) are maintained.
12.2 Governing Law/Arbitration.
(a) This Agreement, and the rights and liabilities of the Parties
hereunder, shall be governed by the substantive laws of the State of New York,
to the exclusion of its rules of choice of law. Each of the Parties consents to
personal jurisdiction in New York and waives objection to venue there.
(b) Any controversy or claim arising out of or relating to this Agreement
or its breach shall be settled by binding arbitration in the City of New York at
the American Arbitration Association pursuant to its rules and regulations. The
arbitrator is expressly permitted to award to the prevailing party all
reasonable attorneys' fees and costs, including the arbitrator's fees.
ACKNOWLEDGMENT OF ARBITRATION
EACH OF THE UNDERSIGNED UNDERSTANDS THAT THIS AGREEMENT CONTAINS AN
AGREEMENT TO ARBITRATE. AFTER SIGNING THIS DOCUMENT, EACH PARTY UNDERSTANDS THAT
IT WILL NOT BE ABLE TO BRING A LAWSUIT CONCERNING ANY DISPUTE THAT MAY ARISE
WHICH IS COVERED BY THE ARBITRATION AGREEMENT, UNLESS IT INVOLVES A QUESTION OF
CONSTITUTIONAL OR CIVIL RIGHTS. INSTEAD EACH PARTY AGREES TO SUBMIT ANY SUCH
DISPUTE TO AN IMPARTIAL ARBITRATOR AT THE AMERICAN ARBRITRATION ASSOCIATION.
12.3 Press Release. Except as may be required by law, the execution and
content of this Agreement shall be kept in confidence by the Parties until and
subject to the publication of a press release relating thereto, the content and
timing of which shall be jointly agreed upon.
12.4 Entire Agreement. Except for the agreements specifically referred
to in this Agreement, this Agreement constitutes the entire agreement among the
Parties pertaining to the
16
subject matter hereof and supersedes all prior and contemporaneous agreements,
understandings, negotiations and discussions, whether oral or written, of the
Parties. No amendment, supplement, modification, waiver or termination of this
Agreement shall be implied or be binding unless executed in writing by the Party
to be bound thereby. No waiver of any of the provisions of this Agreement shall
be deemed or shall constitute a waiver of any other provision hereof (whether or
not similar), nor shall waiver constitute a continuing waiver unless otherwise
expressly therein provided.
12.5 Assignment. All of the terms and provisions of this Agreement by or
for the benefit of the Parties shall be binding upon and inure to the benefit of
their successors, and permitted assigns. The rights and obligations provided by
this Agreement may not be assigned, except in accordance with Sections 9.2 and
9.4. Except as expressly provided herein, nothing herein is intended to confer
upon any Person, other than the Parties and their permitted successors, heirs
and permitted assigns as provided herein, any rights or remedies under or by
reason of this Agreement. For purposes of this Section 12.5, Assignment shall be
deemed to include any change of control of Sienna as a result of a merger or a
stock sale which results in the shareholders of Sienna immediately prior to such
merger or stock sale, holding less than 50% of the issued and capital stock of
Sienna immediately after such merger or stock sale.
12.6 Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given
(except as may otherwise be specifically provided herein to the contrary): (i)
if delivered by hand to the Party to whom said notice or other communication
shall have been directed, upon such receipt; (ii) if mailed by certified or
registered mail with postage prepaid, return receipt requested, on the third
business day after mailing; (iii) if transmitted by facsimile, on the date of
transmission, with such transmittal followed by delivery of a confirmation copy
via one of the other methods set out herein or (iv) if mailed via
internationally know overnight courier such as Federal Express on the second
business day after mailing. All notices shall be addressed as set forth below or
to any other address such Party shall notify to the other Party in accordance
with this Section:
(a) If to Sienna to: 16 Rue de Hesse
P.O. Box 5342
1211 Geneva, Switzerland
Facsimile: 4122 311 3309
with a copy to: David S. Abramson, Esq.
12 East 41st Street
New York, NY 10017
(b) If to eNote to: 185 Allen Brook Lane
Williston, VT 05495
Attn: President
Facsimile: 1 802 288 9000
17
with a copy to: H.Kenneth Merritt, Jr., Esq.
Merritt & Merritt
30 Main Street, Suite 330
P.O. Box 5839
Burlington, VT 05402
12.7 Counterparts. This Agreement may be executed and delivered in one or
more counterparts, each of which shall be deemed to be an original, and all of
which when taken together shall constitute one and the same instrument and shall
become effective when copies hereof, bearing the signatures of each of the
Parties, shall have been received by Sienna and eNote.
12.8 Expenses. The Parties agree that, except as otherwise set forth in
this Agreement, eNote International.com shall pay all of the legal and other
fees and expenses relating to its formation, including, without limitation, the
filing of certificates and registration fees. Each Party shall pay all of its
own legal and other fees and expenses incurred in connection with this
Agreement, the transactions contemplated hereby, and the negotiations leading to
the same.
12.9 Further Assurances. Each Party shall perform all other acts and
execute and deliver all other documents as may be necessary or appropriate to
carry out the purposes and intent of this Agreement, as reasonably requested by
the other Party.
12.10 Severability. If any provision of this Agreement shall be held to
be incomplete, illegal, invalid or unenforceable, or if it becomes necessary to
amend the Agreement in order to comply with an administrative or governmental
order, the remaining provisions of the Agreement shall stay in force and the
unenforceable, void or incomplete provision shall be replaced by a valid
provision or amendment reflecting the economic and business objectives of the
original Agreement as best as possible, provided however, that if any
replacement provision or amendment would lead to a change in the fundamental
economic and business terms of this Agreement, each Party shall have the right
to terminate this Agreement in accordance with Section 8.1 of this Agreement.
18
IN WITNESS WHEREOF, the Parties have executed this Joint Venture
Agreement as of the date and year first above written.
SIENNA INVEST LIMITED
By: /s/ Shahrokh Nikkhah
Name: Shahrokh Nikkhah
Title: Director
ENOTE.COM INC.
By: /s/ John Varsames
Name: John Varsames
Title: President & CEO
19
EXHIBIT A
Territory
*Region commonly referred to as Europe. including but not limited to:
Austria Luxembourg
Belgium Monaco
Cyprus Netherlands
Denmark Norway
Finland Portugal
France Spain
Germany Sweden
Greece Switzerland
Iceland Turkey
Ireland United Kingdom
Italy
*Region commonly referred to as Central & Eastern Europe, including but not
limited to:
Albania Poland
Bosnia-Herzegovina Romania
Bulgaria Slovakia
Croatia Slovenia
Czech Republic Yugoslavia
Hungary
*Region commonly referred to as Commonwealth of Independent States, including
but not
limited to:
Armenia Latvia
Azerbaijan Lithuania
Estonia Russia
Belarus Tajikistan
Georgia Turkmenistan
Kazakhstan Ukraine
Kyrgyzstan Uzbekistan
*Region commonly referred to as Middle East and Northern Africa, including
but not limited
to:
Algeria
Bahrain
Brunei
Egypt
Jordan
Morocco
Oman
Qatar
Saudi Arabia
Syria
Tunisia
United Arab Emirates
Kuwait
Yeman
Lebanon
*Notwithstanding anything to the contrary contained herein, eNote shall in no
way be required, or otherwise held in breach or liable for failure, to enter
into any licensing arrangement, perform technical services or enter into any
other transaction contrary to any applicable laws, including without limitation
the federal laws of United States of America.
Furthermore, a joint decision will be made on a country by country basis prior
to contract or deployment.
20
EXHIBIT B
Initial Directors of eNote International.com
John R. Varsames
Michael T. Grennan
George S. Horton Jr.
Shahrokh Nikkhah
21
EXHIBIT C
eNote's Trademarks and Trade Names
1) eNote.com(TM)
2) TVemail(TM)
3) PCemail(TM)
4) WebATM(TM)
5) EZ Color(TM)
6) Browserless Internet(TM)
7) BuyMail(TM)
8) TVewriter(TM)
9) eNote International(TM)
10) eNote International.com(TM)
11) eNote Europe(TM)
12) eNote Europe.com(TM)
13) eNote Australia(TM)
14) eNote Australia.com(TM)
15) AIRMOUSE(R)
16) Twirp(R); rights belong to SolutioNet, Ltd.
17) Get Connected.. Simply(TM)
18) Simply Communicate(TM)
19) TVemail.. The Answering Machine for the Internet(TM)
22
EXHIBIT 10.22
ENOTE.COM INC.
14% NOTE DUE DECEMBER 1, 2000
F-1 Williston, Vermont
$100,000 August 3, 2000
FOR VALUE RECEIVED, ENOTE.COM INC., a Delaware corporation (the
"Company"), hereby promises to pay to the order of FRIEDLANDER CAPITAL
MANAGEMENT CORP. (the "Payee") or its registered assigns, the principal
sum of ONE HUNDRED THOUSAND DOLLARS ($100,000), with the interest from
the date hereof (computed daily on the basis of a 360-day year) on the balance
of the principal remaining unpaid from time to time, accruing at a rate equal to
fourteen percent (14%) per annum, compounded annually. Accrued interest and
principal shall be paid as follows:
(i) On December 1, 2000, (the "Maturity Date") the Company shall pay the
full amount of accrued interest and unpaid principal then
outstanding; and
(ii) Accrued interest shall be due and payable prior to the Maturity Date
on the satisfaction of this Note, as a result of prepayment.
This Note may be prepaid at any time or from time to time.
Principal and interest shall be payable in lawful money of the United
States of America, in immediately available funds, at the principal office of
the Payee or at such other place as the legal holder may designate from time to
time in writing to the Company.
Section 1. Transfer and Exchange. The holder of this Note may, prior to
maturity thereof, surrender such Note at the principal office of the Company for
transfer or exchange. Within a reasonable time after notice to the Company from
such holder of its intention to make such exchange and without expense to such
holder, except for any transfer or similar tax which may be imposed on the
transfer or exchange, the Company shall issue in exchange therefore another Note
or Notes for the same aggregate principal amount as the unpaid principal amount
of the Note so surrendered, having the same maturity and rate of interest,
containing the same provisions and subject to the same terms and conditions as
the Note so surrendered. Each new Note shall be made payable to such person or
persons, or transferees, as the holder of such surrendered Note may designate,
and such transfer or exchange shall be made in such a manner that no gain or
loss of principal or interest shall result therefrom.
Section 2. New Note. Upon receipt of evidence reasonably satisfactory to
the Company of the loss, theft, destruction or mutilation of the Note, the
Company will issue a new Note, of like tenor and amount and dated the date to
which interest has been paid in lieu of such lost, stolen, destroyed or
mutilated Note and in such event the Payee agrees to indemnify and hold harmless
the Company in respect of any such lost, stolen, destroyed or mutilated Note.
Section 3. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of Vermont, without giving effect to such
jurisdiction's principles of conflict of laws.
Section 4. Collection Expenses. No delay or omission on the part of the
holder of this Note in exercising any right hereunder shall operate as a waiver
of such right or of any other right of such holder nor shall any delay, omission
or waiver on any occasion be deemed a bar to or waiver of the same or any other
right on any future occasion. The undersigned and every endorser or guarantor of
this Note, regardless of the time, order or place of signing, waives
presentment, protest and notice of every kind and assets to any one or more
extensions or postponements of the time of payment or any other indulgences, to
any substitutions, exchanges or releases of collateral available to the holder,
if any, and to the additions or releases of any other parties or persons
primarily or secondarily liable. In addition to and not in limitation of the
foregoing, the Company further agrees, subject only to any limitation imposed by
applicable law, to pay all expenses, including reasonable attorneys' fees,
incurred by the holder of this Note in endeavoring to collect any amounts
payable hereunder which are not paid when due.
Section 5. Interest Rate After Default. Any amount not paid when due
hereunder, whether by acceleration or otherwise, shall thereafter bear interest
at an annual rate equal to the greater of (a) 14.5% or (b) the prime rate from
time to time in effect of Citibank, N.A., plus 3.5% on any overdue principal
amount and (to the extent permitted by applicable law) on any overdue interest;
provided however, that in no event shall this Note bear interest at a rate in
excess of that permitted by any applicable usury laws.
Section 6. Guarantee. Performance under the terms of this Note subject
to a personal guarantee as set forth in that certain Guarantee Agreement
dated as of even date herewith by and between the John R. Varsames and the
Payee.
IN WITNESS WHEREOF, the duly authorized agent of ENOTE.COM INC. has
executed this Note as of the 3rd day of August 2000.
ENOTE.COM INC.
By: /s/ John R. Varsames
----------------------------
John R. Varsames, President
[Corporate Seal]
Attest:
By: /s/ Ginny Nye
----------------------------
Secretary