April 23, 1999
Xx. Xxxxx Xxxxxx
Chairman and President
Xxxxxx Snowboards, Inc.
P.O. Box 12606
Salem, OR 97309
RE: Financing Proposal for Xxxxxx Snowboards, Inc. (the "Company")
Gentlemen:
This letter is intended as a memorandum of our understanding
("Memorandum") and is a legal and binding agreement.
1. Capitol Bay Management, Inc. ("CBM") will secure an agreement from
the creditors represented by Xxxxxx & Xxxxxxx P.C. to dismiss the
petition filed in the Bankruptcy Court by April 28, 1999; unless
extended by the aforementioned creditors and the Company. In
addition, such agreement will be submitted to the Bankruptcy Court,
as soon as possible, for the approval of and submission to
creditors for approval. If either such agreement or such approval
is not obtained, this Memorandum shall terminate (unless extended
by the parties) and be of no further force and effect. CBM has
been advised by bankruptcy counsel that an approximate date for
approval by the Bankruptcy Court is June 1, 1999.
Such creditor agreement (as to its terms, including number and
composition of creditors and funding of payments) and the approval
(as to number and composition of creditors approving) by creditors
of the creditor agreement must be satisfactory to the Company. If
not satisfactory, this Memorandum shall terminate and be of no
further force or effect.
The Company shall authorize a committee consisting of two directors
(the "Transaction Committee") to make all decisions contemplated
herein.
2. CBM will negotiate with and attempt to secure agreement of Foothill
Capital to sell to CBM its secured position as lender to the
Company. CBM will use reasonable efforts to secure such agreement
and close such purchase by April 30, 1999 or as soon thereafter as
practical. If CBM does not make reasonable efforts to do so, the
Company may elect to terminate this
Memorandum. It is the intention of CBM upon purchase of the
secured position to release and make available such current assets
as it deems appropriate to the Company as working capital under
that credit line ("Credit Line"). Any proposed modifications to
the Credit Line must be acceptable to the Company.
3. It is the intention of CBM to secure and fund a loan in the
principal amount of $1,000,000 to be secured by the Company's real
estate, with the net proceeds to be available as working capital
("Real Estate Loan"). CBM will use reasonable efforts to fund such
loan by April 30, 1999; provided that if CBM does not fund the Real
Estate Loan by such date, the Company will be allowed to secure
additional financing, and CBM will cooperate with such efforts,
including allowing a lien to be placed on the Companys real
property including, if requested, placing such loan through the CBM
(formerly Foothill) loan facility. The board of directors of the
Company will execute all necessary approvals for the Real Estate
Loan on behalf of the Company as requested by CBM, provided that
such loan and loan documentation are on terms which are reasonable,
customary and acceptable to the Company, and provided further that
no individual director shall become personally liable for such
encumbrance.
4. CBM shall perform such due diligence procedures as it deems
necessary through the closing of the transaction, all expenses of
which shall be borne by the Company, including all legal,
accounting and other related expenses. Such due diligence expenses
shall be reasonable in amount. CBM's initial due diligence will be
completed by April 28, 1999 with CBM updating such due diligence
weekly. CBM shall promptly notify the Company of any adverse
determination by CBM regarding proceeding under this Memorandum; in
which event this Memorandum shall terminate and be of no further
force and effect, except for the Company's obligations to pay due
diligence costs hereunder. Satisfactory completion of such
procedures is a condition precedent to CBM's obligation hereunder.
5. Upon dismissal of the involuntary bankruptcy petition pursuant to
the action in Section 1 (the "Dismissal") and for a period of 12
months thereafter, CBM may elect to convert $500,000 of its secured
loan into 2,000,000 shares of new issue common stock of the Company
(as presently constituted). Such conversion rights shall be
contingent upon CBM performing the agreements described hereunder
and documented by a contract with customary terms and conditions.
From the date hereof until closing or, if earlier, the termination
of this Memorandum, the Company agrees not to issue or agree to
issue any of its securities without prior written consent of CBM.
6. No press release of this transaction shall take place without prior
written approval of CBM and the Company, provided the Company will
release such information, as it deems appropriate, after notice to
CBM, to the public to meet its SEC disclosure obligations,
corporate, bankruptcy, litigation or other disclosure obligations,
or, if the Company determines such information is being
disseminated (i.e., via the creditors) to the public. Except as
otherwise contemplated herein, both parties shall treat this
Memorandum as confidential until all transactions described herein
are finalized.
7. Until entry of the Dismissal, the Company shall not file a petition
under the bankruptcy laws; provided, however, such requirement
shall not apply if any of the actions contemplated in item 1 are
not achieved.
8. CBM shall cause the Company to maintain its directors and officers
liability insurance to remain in full force with no lapse in
coverage, and including coverage for current officers and directors
and, if necessary, advance funds for such purposes. The Company
will enter into an agreement with departing directors to maintain
such coverage.
9. The effectiveness of this Memorandum is subject to approval by the
Transaction Committee by April 26, 1999 of this Memorandum and a
Cash Management Plan approving release of funds under the Credit
Line, terms of proposed real estate financing and other cash needed
based on information from CBM regarding the modified terms of such
Credit Line and funds availability, the expected terms of the Real
Estate Loan and any other projected cash needs not currently funded.
10. This Memorandum shall be subject to approval by the Company's board
of directors. Execution hereof by the President of the Company
shall constitute a binding obligation of the Company subject to
such approval, which shall be effective not later than Monday,
April 26, 1999 at 5:00 p.m. PST.
CAPITOL BAY MANAGEMENT, INC. XXXXXX SNOWBOARDS, INC.
By: /s/ XXXXXXX X. XXXXXXX By: /s/ XXXXX XXXXXX
Name: Xxxxxxx X. Xxxxxxx By: Xxxxx Xxxxxx
Its: President Its: President
