Environmental Systems & Solutions. Inc.
00000 Xxxxx 0000 Xxxx, Xxxxx 0
Xxxxxx, Xxxx 00000
000-000-0000
CONFIDENTIAL
October 16, 1998
Cherokee Minerals and Oil, Inc.
Salt Lake City, Utah
Re: Proposed Reorganization
Gentlemen:
This letter, upon your acceptance, will evidence our mutual intention to
enter into a definitive agreement providing for a reorganization in which all
of the outstanding capital stock of Environmental Systems & Solutions, Inc.
("ESSI"), a Nevada corporation (the target company), will be acquired by
Cherokee Minerals and Oil, Inc. ("Cherokee"), a Nevada corporation (the
acquiring company).
The form of the transaction is contemplated to be an exchange of capital
stock, between the shareholders of ESSI (the "ESSI Shareholders") and Cherokee
in a tax-free reorganization (hereinafter the anticipated transaction is
referred to as the "Reorganization"), subject to the approval of the ESSI
Shareholders.
This letter is also an expression of the intention of ESSI and Xxxxxxxx
to proceed expeditiously to negotiate, draft and execute a definitive
agreement for the Reorganization (hereinafter referred to as the "Agreement").
The Agreement, when executed, will reflect the terms of this letter and such
other terms and conditions as are typical to a transaction of this nature
(which shall include appropriate representations and warranties as to the
business, assets, liabilities, capitalization, material contracts, proprietary
rights, financial condition and other matters relevant to the business and
operations of the parties), and such additional terms and conditions as shall
be mutually agreed upon. The parties to the Agreement shall include Cherokee,
the ESSI Shareholders, and any other party who, in the opinion of Cherokee or
ESSI, is necessary to the transactions.
Cherokee Minerals and Oil, Inc.
October 16, 1998
Page Two
1. Certain Terms of Reorganization Agreement. The material terms and
conditions of the Reorganization to be included in the Agreement are as
follows:
1.1 The Agreement shall provide for the Reorganization, which
shall be consummated on or about November 11, 1998 (the "Closing"). On the
Closing Date, all of the issued and outstanding ESSI capital stock shall be
acquired by Cherokee from the ESSI Shareholders.
1.2 At the Closing, Cherokee shall issue and deliver to the ESSI
Shareholders previously authorized and unissued shares of Cherokee common
stock in an amount equal to 92% of the outstanding shares of the Cherokee
(after giving effect to the closing of the Reorganization), calculated on a
fully diluted basis. In calculating the outstanding shares of ESSI for this
purpose, it will be assumed that outstanding ESSI options, warrants and
convertible securities are exercised immediately prior to the closing, and
that number of shares of Cherokee common stock necessary to account for ESSI
options, warrants and convertible securities will be reserved in lieu of being
issued. At the Closing, Cherokee will substitute options, warrants and
convertible securities to purchase shares of the Cherokee's common stock for
each outstanding option, warrant and other convertible security to acquire
shares of ESSI, each such option or wan-ant to represent the right to purchase
that number of Cherokee shares as if the ESSI option, warrant or convertible
security had been exercised immediately prior to the Reorganization and
exercisable for the same aggregate consideration, and on substantially the
same other terms and conditions, that would apply if all of such ESSI options,
warrant or convertible security had been fully exercised.
1.3 Upon the Closing of the Reorganization, each of the officers,
directors and 10% shareholders of Cherokee shall execute an agreement with
ESSI and Cherokee in which each of such officer, director and 10% shareholder
shall release Cherokee from any and all claims arising as a result of any
prior events (except as permitted by the Agreement) and further covenant and
agree that they will not compete with Cherokee and ESSI for a period of five
(5) years after the Closing In any business engaged in by ESSI as of the
Closing Date including, without limitation, the garbage disposer business.
1.4 Until the Closing, each of Cherokee and ESSI shall continue to
operate its business In the ordinary course and shall not, without the prior
written consent of the other party, do any of the following.
(i) Incur any material obligations or commitments other than
in the ordinary course of business;
Cherokee Minerals and Oil, Inc.
October 16, 1998
Page Three
(ii) Grant any salary increases (other than as required by
existing contracts or consistent with current practices),
unscheduled promotions or enter into any new employment or
benefit contracts;
(iii) Solicit, induce or otherwise engage in discussions or
negotiations relating to or proposed to lead to the
acquisition or Reorganization of sale of substantially all
of the assets or shams of ESSI by or with any party other
than Cherokee;
(iv) Sell or dispose of any material assets or properties,
except in the ordinary course of business or with the prior
consent of the other party hereto; or,
(v) Sell any additional shares of its capital stock or
grant any additional rights or options to acquire its
capital stock, with the except of ESSI's current private
placement offering.
1.5 ESSI shall provide Cherokee, as soon as practicable after the
Closing Date, with audited financial statements required in connection with
the acquisition of a "significant subsidiary" by Cherokee as that term is
defined by rules and regulations promulgated by the Securities and Exchange
Commission and such other information as is required for Cherokee to prepare
and file appropriate documents relating to the Reorganization with the
Securities and Exchange Commission. Such financial statements will include,
among other items, an audited balance sheet of ESSI as of a recent date,
statements of income for each of its last two fiscal years, and related
statements of shareholders equity, statements of cash flows and the
appropriate notes to such financial statements, together with the report of an
independent certified public accounting firm.
1.6 As a condition to the consummation of the Reorganization,
there shall have been no material adverse change in the assets, business or
prospects of either ESSI or Cherokee except as contemplated by the Agreement.
All financial statements provided by the parties to each other pursuant to the
Agreement shall be represented to fairly present the financial condition of
such party at the date of such financial statements and their results of
operations for the periods covered thereby, and shall be prepared in
accordance with generally accepted accounting principles.
Cherokee Minerals and 0i1, Inc.
October 16, 1998
Page Four
1.7 Cherokee and ESSI will exert their best efforts to obtain such
consents or approvals, and to make such filings as in the opinion of their
respective counsel may be necessary or advisable to effect the transactions
contemplated herein. At the request of Cherokee, ESSI shall obtain the
consent of any third party which is necessary for the transfer of any asset,
right or contract of ESSI pertaining to the Reorganization contemplated
herein, if any.
1.8 As a condition to the consummation of the Agreement, Cherokee
and its counsel and ESSI and its counsel must each be satisfied as to the
validity and legality of all aspects of the Reorganization, including all
activities undertaken in relation to the Agreement. Each of the parties to the
Reorganization will pay their own expenses incurred in connection with the
Agreement and all other events required for the Closing.
1.9 The Agreement will provide that any claims or disputes arising
thereunder or as a result of the transactions contemplated therein which
cannot be resolved by the parties will be referred to alternative dispute
resolution by binding arbitration in the State of Utah.
2. Due Diligence. Upon the execution of this letter of intent by the
parties, ESSI and Cherokee, and each of their duly authorized representatives,
will be provided with full access to the projections, financial records and
supervisory management personnel of the other party, which shall include
copies of all material agreements, corporate proceedings, access to the chief
executive officer and chief financial officer, marketing, product development
and manufacturing supervisors, and other records and information which each
party deems of significance in an due diligence investigation of the other
party hereto. The disclosure of any such information shall be subject to the
provisions of Section 3 of this letter agreement.
3. Confidentiality. In connection with the foregoing matters, each party
hereto has or will be furnishing to the other from time to time with oral and
written information as to its proprietary products, marketing strategy and
business plans, significant portions of which each of the parties considers to
be proprietary and confidential information (herein called the "Confidential
Information"). Each party acknowledges that "Confidential Information," as
used herein, does not include any information which (i) was or becomes
generally available to the public other than as a result of an improper
disclosure by the other party hereto, or (ii) was or becomes information
available to the other party on a non-confidential basis from a third party
source that is not bound by a confidentiality obligation to either of the
parties hereto.
Cherokee Minerals and oil, Inc.
October 16, 1998
Page Five
Each party agrees that Confidential Information will be used solely for
the purpose of evaluating the Reorganization, investigating market information
and potential markets, and for Cherokee to pursue due diligence and legal
disclosure requirements in connection with proposed financing activities by
Cherokee, and will not be used in the business or operations of the party to
which such information has been disclosed or used in any other way, directly
or indirectly, that may detrimental to the interests of the party that owns
such Confidential Information. Confidential Information may be disclosed
to representatives of the party receiving the same who need to know such
Confidential Material for the purposes described above, it being understood
that such representatives shall be informed of the confidential nature of the
Confidential Information and shall be directed to treat the Confidential
Information confidentially and as proprietary information of the party that
owns the same. Each party shall notify the other as to the identity of such
representatives. If either party receives a request, including a subpoena
or similar legal inquiry. to disclose any of the Confidential Material, it
shall provide the party that owns such Confidential Information with prompt
notice so that the owner may seek appropriate protective relief.
If the Agreement is not executed or the Closing thereunder shall fail to
occur for any reason, each party shall promptly deliver and return all copies
of Confidential Information to the party which owns the same, and without
retaining any copy, notes or extracts thereof.
Although each party understands that they will endeavor to include in
the Confidential Information all materials which it believes to be relevant
for the purposes of this letter agreement and the Reorganization, each party
further understands that no representation or warranty as to the accuracy or
completeness of the Confidential Information has or will be made except as
provided by separate written agreement.
4. Press Release. Upon your acceptance and approval hereof, each of us
is authorized by the other to issue a press release for the purpose of
publicly announcing the transactions contemplated by this letter. Cherokee and
ESSI each agree to consult with the other as to the form and substance of any
press release or other public disclosure of the matters covered in this
letter, provided that this shall not be deemed to prohibit Cherokee or ESSI
from making any disclosure which its respective counsel deems necessary to
comply with applicable law.
5. Survival of Certain Provisions. The provision of Sections 3, 4 and 5
of this letter agreement are for the benefit of the respective parties hereto,
shall survive any termination of this letter agreement, and shall be governed
by and construed in accordance with the laws of the State of Utah.
Cherokee Minerals and Oil, Inc.
October 16, 1998
Page Six
This letter reflects an expression of our mutual intent only, and shall
not constitute a binding legal obligation for the transactions described
herein (except as expressly set forth in Sections 3, 4 and 5 above) until such
time as the Agreement has been executed and the Reorganization have been
approved by the Board of Directors and shareholders of Cherokee and the Board
of Directors and ESSI Shareholders. It is our desire to move expeditiously
towards the completion of these transactions on the basis of the terms and
conditions contained herein. To help accomplish this goal, if you are in
agreement with the foregoing, would you please indicate your approval of the
contents of this letter by signing the attached copy in the space provided and
returning it to us at your earliest convenience.
The parties acknowledge that they were initially introduced to each
other by, and currently share, two common directors and common outside
corporate counsel who will have an inherent and unavoidable conflict of
interest as to the Reorganization. Each of the parties agrees to engage the
services of their own independent counsel for purposes of advising them in
connection with this letter of intent, the Agreement, the Closing and other
matters relevant to the Reorganization. Each of the parties will require
approval of the Reorganization by a majority or more of their independent
direction; who are not affiliated with the other party.
Very truly yours,
ENVIRONMENTAL SYSTEMS & SOLUTIONS, INC.
By:/S/Xxxxx X. Xxxxx
Xxxxx X. Xxxxx, President and Chief Executive Officer
Accepted and Agreed to this
16th day of October, 1998
CHEROKEE MINERALS AND OILS, INC.
By:/s/Xxx X. Xxxxxxx
Xxx X. Xxxxxxx, President and Chief Executive Officer
