EXHIBIT 2.1
SPECTRUM SCIENCES & SOFTWARE HOLDINGS CORP.
00 Xxxx Xxx., Xxxx Xxxxxx Xxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (850) 244-9560
Xxxxx 00, 0000
Xxxxx Xxxxxx
Xxxxxx Fabricators, LLC
00000 XX XXX 000
Xx. Xxxxx, XX 00000
Dear Xx. Xxxxxx:
This letter is intended to set forth the terms and conditions upon which
Spectrum Sciences & Software Holdings Corp., a Delaware corporation ("Acquiror")
offers to acquire all of the issued and outstanding membership interests of
Inland Fabricators, LLC, a Limited Liability Company organized under the laws of
Louisiana ("IFAB"), or its nominees or assignees, or acquire IFAB by merger with
a subsidiary of Acquiror. Acquiror and IFAB shall collectively be referred to
herein as the "Parties" and each separately as a "Party".
1. BACKGROUND.
IFAB conducts its operations from a leased plant in Reserve, Louisiana.
IFAB specializes in pipe fabrications and ships custom fabricated pipes
throughout the United States. IFAB entered into an agreement with Pipe Works,
Inc./PipeWorks Reserve, Inc. ("PIPE"), pursuant to which IFAB is to complete all
the contracts on the books of PIPE as existed on November 30, 2003, in exchange
for which PIPE will be paid a royalty of 3% of the proceeds from contracts
completed and collected.
IFAB does not own any of its facilities. It leases manufacturing facilities
(the "Plant") in which the operations are conducted from Xxxxxx X. Xxxxxx, Xx.
and Xxxxxxx X. Xxxxxx, Xx. (the "Lessors") under a lease of commercial property
agreement (the "Lease"). PIPE was the original tenant of the Lease, and assigned
it to IFAB on or around December 1, 2003. One of PIPE's subsidiaries, PipeWorks
Reserve, Inc. (f/n/a Highland Fabricators, Inc.) ("PIPE Reserve") owns the
equipment and inventory which is housed in the Plant (the "Manufacturing
Equipment" and "Inventory"). IFAB leased the Manufacturing Equipment from PIPE
under an operating agreement until February 27, 2004.
BizCapital Business & Development Corporation ("BIZCAP") has a perfected
security interest in the Manufacturing Equipment and Inventory. Advantage
Capital Partners ("Advantage") and Union Planters Bank ("Union") also have
security interests in the Manufacturing Equipment and Inventory.
On February 27, 2004, with BIZCAP's consent, IFAB entered into a lease and
purchase agreement with PIPE Reserve to lease the Manufacturing Equipment and
purchase the Inventory. This agreement gives IFAB the option to purchase the
Manufacturing Equipment for $1 at the end of the term. IFAB is currently
negotiating with Advantage to exchange their lien position for equity in IFAB,
and with Union for a three-year payoff on their remaining balance.
2. EXCHANGE OF SECURITIES.
Subject to the conditions set forth herein, Acquiror proposes to acquire
all of the issued and outstanding membership interests of IFAB from it members
(the "Members"), or acquire IFAB by merger with a subsidiary of Acquiror, in
exchange for the Consideration (as defined below) payable in the form of common
stock of the Acquiror (the "Acquiror Common Stock") (such transaction being
sometimes referred to herein as the "Acquisition"). At the time of the
Acquisition, the Acquiror Common Stock will be valued an amount to be determined
and will be specified in the Definitive Agreements. The Acquisition is intended
to be tax free under Section 351 or Section 368 of the Internal Revenue Code of
1986
3. RESTRICTION ON SALE AND ESCROW
The Acquiror Common Stock issued pursuant to the Acquisition will be
"restricted" stock and shall be subject to all applicable re-sale restrictions
specified by federal and state securities laws. The Acquiror Common Stock shall
be placed in escrow with Gottbetter & Partners, LLP (the "Escrow Agent"), and
will be released from escrow in the amounts and from time to time based on the
following formula:
To be released from escrow on January 15, 2005 ("Year 1"):
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Seven hundred and fifty thousand shares plus 0.5 shares for every dollar of
EBITA (earnings before interest, tax, depreciation and amortization) over
$1,500,000;
To be released from escrow on January 15, 2006 ("Year 2"):
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Seven hundred and fifty thousand shares plus 1.0 shares for every dollar of
EBITA (earnings before interest, tax, depreciation and amortization) over
$1,500,000;
To be released from escrow on January 15, 2007 ("Year 3"):
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Seven hundred and fifty thousand shares plus 1.5 shares for every dollar of
EBITA (earnings before interest, tax, depreciation and amortization) over
$1,500,000.
The aggregate number of shares of the Acquiror Common Stock to be released
from escrow on Year 1, Year 2 and Year 3 shall be the consideration (the
"Consideration"). The Consideration shall not be less than 2,250,000 shares, and
shall not be greater than 4,000,000 shares.
FOR EXAMPLE:
To be released from escrow on Year 1:
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If EBITDA for Year 1 equals $1,000,000, then 750,000 shares of Acquiror
Common Stock shall be released from escrow.
or
If EBITDA for Year 1 equals $2,000,000, then 750,000 plus 250,000 shares of
Acquiror Common Stock shall be released from escrow.
To be released from escrow on Year 2:
--------------------------------------------
If EBITDA for Year 2 equals $1,000,000, then 750,000 shares of Acquiror
Common Stock shall be released from escrow.
or
If EBITDA for Year 2 equals $2,000,000, then 750,000 plus 500,000 shares of
Acquiror Common Stock shall be released from escrow.
To be released from escrow on Year 3:
--------------------------------------------
If EBITDA for Year 3 equals $1,000,000, then 750,000 shares of Acquiror
Common Stock is released from escrow.
or
If EBIDA for each of Year 3 equals $2,000,000, then 750,000 plus 750,000
shares of Acquiror Common Stock shall be released from escrow.
4. PIGGYBACK REGISTRATION.
In the event Acquiror files a registration statement with the Securities &
Exchange Commission, excluding registration statements filed on Form S-4 for
acquisitions or on Form S-8 for employees or consultants who render bona fide
services to Acquiror, Acquiror agrees that it shall provide piggyback
registration rights and register the Acquiror Common Stock on behalf of IFAB, if
IFAB so elects. Acquiror agrees to pay all costs associated with registering
the Acquiror Common Stock for resale. IFAB agrees to standard underwriter
cutback rights.
5. SPINOUT OF IFAB.
(a) In the event IFAB's revenues exceed Acquiror's for three (3)
consecutive years, the former majority owners of member interests of IFAB, at
their option, and subject to Acquiror's shareholders' consent, may separate IFAB
from Acquiror via a spin out transaction pursuant to the terms to be specified
in the Definitive Agreements.
(b) Option to Repurchase IFAB. If, during the period commencing on the
closing date of the Acquisition and ending six months after Year 3, the average
of the three (3) lowest closing bid prices per share (appropriately adjusted for
any stock split, dividends or combinations) of the Acquiror's Common Stock
during any consecutive forty (40) trading days is equal to less than $1, then
IFAB shall have the option to repurchase IFAB for one and a half (1 ) times (i)
the Consideration then passed to IFAB, and (ii) any capital invested into IFAB
by the Acquior.
6. CONDITIONS PRECEDENT TO OBLIGATIONS TO PERFORM.
It is understood and agreed by the Parties hereto that this Letter of
Intent does not constitute a binding agreement as to the terms, conditions, and
representations contained herein; that the terms, conditions, and
representations expressed herein, as finally agreed to by the Parties, shall be
included in the Definitive Agreements ("Definitive Agreements") to be executed
at a later date; and that performance of the obligations of the Parties
hereunder is expressly subject to the following conditions:
(a) The performance of due diligence by each Party to be satisfactory
by each Party, its legal counsel, financial Acquirors, accountants, and agents
regarding all matters pertaining to the transaction contemplated hereby;
(b) The execution of the Definitive Agreements between the Parties
satisfactory in form and substance to each Party and to their respective counsel
and Acquirors, and containing such conditions, representations, warranties,
covenants, and indemnities as are usual and customary in the transaction
contemplated by this Letter of Intent;
(c) Execution of employment agreements, each agreement to be in form
and substance satisfactory to each Party and their respective counsel, for those
employees that the Parties may agree are necessary to supervise and operate the
business of IFAB following the Acquisition;
(d) Compliance with all applicable legal and/or regulatory agencies;
(e) Completion of all required actions and approvals by the corporate
and individual shareholders, if any, including the required approval of all
terms and conditions of the proposed Acquisition by the boards of directors of
each Party;
(f) Acquiror shall have a sufficient number of authorized but unissued
and unreserved and/or treasury shares of Acquiror Common Stock available to
consummate the transaction contemplated hereby;
(g) Execution of indemnification agreements, to the extent allowed by
law, whereby IFAB and the Members indemnify the Acquiror from any and all claims
brought against it by PIPE's or its subsidiaries' or third party creditors;
provided, however, that if such claims are brought after the third (3rd)
anniversary of the Definitive Agreements, the indemnification shall be limited
to the value of the Consideration.
(h) Acquiror shall make available $750,000 as a line of credit to IFAB
for working capital at the closing of the Acquisition. The Acquiror will have a
subordinate security interest in all assets at closing and a senior lien on all
assets acquired with the line of credit.
(j) PIPE Reserve assigns the Lease to IFAB, and the Lessors agree to
said assignment.
7. DUE DILIGENCE.
(a) From the date hereof, each Party will make available to the other
Party for review their respective financial statements, books, records,
corporate documents, and other information as the other Party may reasonably
request, and each Party shall have the opportunity to meet with attorneys,
accountants, and key personnel of the other Party to discuss the financial and
business conditions of the respective Party and to make whatever future
independent investigations are deemed necessary and prudent by both Parties.
The Parties agree to cooperate fully, comply with any requests and provide such
materials as the other Party may require in a timely fashion.
(b) Each Party represents and agrees that all confidential and/or
proprietary information which each Party or any of its officers, employees,
agents, consultants, or representatives may possess or may receive in the
future, from the date of execution of this Letter of Intent forward, pertaining
to the financial or any other condition of the other Party, shall not be used
for any purpose or disclosed or made available to any other person or entity
other than the current shareholders or the Boards of Directors, officers,
employees, agents, consultants, or representatives of the Parties, at any time
hereafter without the express prior written consent of the Party to whom the
confidential and/or proprietary information belongs and applies.
(c) Each Party shall make appropriate representations, in the
Definitive Agreements, that it has fully and independently satisfied itself as
to all aspects of the other Party's business, including but not limited to
financial statements, books, and records.
8. CONFIDENTIALITY.
Except as required by law, all information gained by IFAB and its agents
and Acquirors in its due diligence review of Acquiror shall be kept confidential
by IFAB and its agents and Acquirors, except to the extent that such information
is either: (i) now publicly known or hereafter becomes public knowledge other
than by action of IFAB (ii) now known by IFAB independent of any investigations
of Acquiror; or (iii) hereafter is obtained by IFAB from a third party not under
any confidentiality obligation to Acquiror.
9. PRESENT BUSINESS.
Pending the closing of the proposed Acquisition, IFAB agrees that:
(a) It (i) will conduct its business and operations in the ordinary
course and consistent with past practice, (ii) will not increase compensation,
pay any bonuses, or incur any liability or obligation whatsoever other than in
the ordinary course of business consistent with past practice, and (iii) will
use its best efforts to keep its business and operations intact, retain its
present employees so that they will be available after the proposed financial
transaction and maintain its relationships with its customers, vendors and
others with whom it does business so that they will be preserved after the
closing;
(b) IFAB will inform Acquiror promptly upon receipt of knowledge of
the occurrence of any event which could reasonably be expected to result in a
material adverse change in the financial condition, operations, assets,
liabilities or prospects of IFAB.
10. PREPARATION OF DEFINITIVE AGREEMENTS.
The Parties shall instruct their representatives to prepare the Definitive
Agreements as promptly as possible and shall negotiate with each other in good
faith with respect to the Definitive Agreements.
11. REPRESENTATIONS OF ACQUIROR.
(a) Acquiror is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Delaware, and has the authority to
execute this Letter of Intent and to be bound by the terms and conditions hereof
and to enter into and be bound by the terms and conditions as set out in the
Definitive Agreements.
(b) Acquiror has or will obtain, prior to the execution and closing on
the Definitive Agreements, all necessary corporate actions required for the
execution of this Letter of Intent and the Definitive Agreements.
(c) Acquiror represents that it will have good and marketable title to
all of its assets and liabilities set forth in their entirety in its financial
statements and that any liens, mortgages, or other encumbrances, if any, against
said assets and properties will be duly and completely set forth in its
financial statements.
(e) Acquiror is not involved in any pending or threatened litigation
against it, except as it shall identify in writing prior to the execution of the
Definitive Agreements.
12. REPRESENTATIONS OF IFAB.
(a) IFAB is a limited liability corporation duly organized, validly
existing, and in good standing under the laws of Louisiana and has the authority
to execute this Letter of Intent.
(b) Upon execution of the Definitive Agreements, IFAB will have no
liabilities except for those that shall be agreed upon by the Parties and fully
disclosed.
(c) IFAB has taken or will complete, prior to the execution and closing
on the Acquisition, all necessary corporate actions required for the execution
of this Letter of Intent and the Definitive Agreements.
(d) IFAB represents that it will not enter into any other contract or
agreement, other than those entered into in the ordinary course of its business,
with any other entity prior to the execution of the Definitive Agreements.
(e) IFAB represents that it has good and marketable title to all of its
assets.
(f) IFAB represents that it has the requisite rights, where applicable,
to all patents, technologies, copyrights, trademarks, trade secrets, research
materials relating to any intellectual property, and any other proprietary
information, free and clear of any liens or encumbrances, unless otherwise
described herein.
(g) IFAB is not involved in any pending or threatened litigation
against it, except, as it shall identify in writing prior to the execution of
the Definitive Agreements.
13. TERMINATION.
This Letter of Intent may be terminated only by the mutual written consent
of the Parties hereto, and may be extended upon the mutual written consent of
the Parties. If the terms and conditions of this Letter of Intent are not
fulfilled and the Definitive Agreements are not finalized and executed prior to
the expiration of ninety (90) business days from the latest date hereof, or any
extensions of time thereto up to an additional ninety (90) days, as agreed by
all the Parties, this Letter of Intent shall automatically expire and be void
and of no further effect. This Letter of Intent and execution of the proposed
Definitive Agreements referred to herein shall be subject to the terms and
conditions set forth herein.
14. GOVERNING LAWS.
The validity and interpretation of this Letter of Intent shall be governed
by and construed in accordance with the laws of the State of New York. The
Parties to this Letter of Intent agree that any litigation arising out of the
terms of the proposed acquisition set forth herein shall be commenced in the
courts of the State of New York, New York County. All Parties consent to the
jurisdiction and venue of the Federal and state courts of New York County, New
York.
15. AMENDMENT.
This Letter of Intent shall be amended only with the written consent of all
Parties hereto.
16. COUNTERPARTS.
This Letter of Intent may be executed in any number of counterparts, by
original or facsimile signature, and each such counterpart shall be deemed to be
an original instrument, but all such counterparts together shall constitute but
one Letter of Intent.
17. EXPENSES.
Acquiror will make a one-time nonrefundable payment to IFAB in the amount
of $25,000 upon execution of this Letter of Intent. Such monies shall be used
by IFAB's to pay legal, accounting, and technical personnel to perform a due
diligence review of all Acquiror's public filings, financial statements, and
operating facilities. Notwithstanding the proceeding sentence, each of the
Parties, and their respective shareholders, shall bear their own individual
expenses, including but not limited to legal fees, accounting fees and
investment banking fees, in connection with the preparation for the consummation
of the transactions contemplated by this Letter of Intent and the execution of
the Definitive Agreements.
18. NO OTHER AGREEMENTS.
Until the termination of this Letter of Intent, IFAB, nor any of its
respective affiliates or advisors on IFAB's behalf, shall, directly or
indirectly, negotiate or enter into any agreement, commitment, or understanding
with any third party with respect to a merger, a sale, or the management of any
material portion of IFAB's assets or a sale of any membership interests which
renders this Letter of Intent un-performable or null and void, except as
contemplated in this Letter of Intent. In the event that IFAB enters into such
an agreement, commitment or understanding, IFAB shall pay a breakup fee of one
hundred thousand dollars ($100,000) to Acquiror.
19. BINDING EFFECT.
Except as hereinafter set forth, the understandings contained herein (i) do
not constitute a binding agreement between the Parties hereto but merely express
their intentions with respect thereto, and (ii) shall only become binding when
Definitive Agreements are executed and the transactions contemplated hereby have
been approved by each of the Parties in proper corporate form. Notwithstanding
anything herein to the contrary, the provisions set forth in Sections 7(b), 8,
9, 13, 14, 15, 16, 17, 18 and this Section 19 are intended to be, and are
hereby, binding and enforceable obligations of the Parties for the purposes of
this Letter of Intent, the breach of which may give the non-breaching Party, at
its option, the right to terminate this Letter of Intent, subject to the
provisions of this Paragraph.
Very truly yours,
Spectrum Sciences & Software Holdings Corp.
By: /s/ Xxxxxxx Xxx
-----------------
Name: Xxxxxxx Xxx
Title: CEO and President
The foregoing Letter of Intent is accepted, approved, and agreed to by
Xxxxx X. Xxxxxx this 31st day of March 2004.
Inland Fabricators, LLC
By: /s/ Xxxxx X. Xxxxxx
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Xxxxx X. Xxxxxx
Managing Member
