Exhibit 10.1
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Xx. Xxxxxx Xxxxxxxxxx
00 Xxxxxxxx Xxxx
Xxxxx Xxxx, XX 00000
April 3, 2006
CONFIDENTIAL
The Board of Directors
Emerging Gamma Corporation
000 Xxxxxxxx Xxxxxx
0xx Xxxxx
Xxxxxx, XX 00000
Dear Sirs:
This letter agreement amends, restates and supercedes for all purposes that
certain letter agreement dated March 7, 2006.
It is my understanding from recent conversations with Xx. Xxxxx Xxxxxxxx, a
member of your esteemed Board of Directors that Emerging Gamma wishes to enter
the Asian Pharmaceutical marketplace. I and my associates have considered how
this could be accomplished and by whom. Below I have delineated my thinking and
provided the mechanics that will expedite your market entry strategy. We have
drawn on our many years of operating in the Asian Pharma and financial
marketplaces to outline a proven strategy that, if properly executed, should
result in a high revenue growth model.
First, Organize the new management team who collectively will deliver everything
outlined below.
Second, The new management hereinafter collectively will be referred to as "New
Management", will, upon preparation and execution of definitive documents to
implement the plan set forth herein, devote ourselves exclusively to Gamma for
five (5) years.
Third. I have selected a New Management team that currently owns the copyrighted
formulas and product forms to 36 product forms. These products are in the
vitamins and nutritional product category. The new management team currently
owns 2 formulas and 6 product forms in the personal care category. These are
fast growing segment in the large and fast growing Greater China Pharmaceutical
market and will quickly provide a beachhead for Emerging Gamma in this important
market.
Fourth, The New Management team knows key personnel capable of quickly
commercializing these products and managing the sales cycle. In addition we know
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capable people in new product development and product in-licensing. We can also
provide a corporate staff to manage all day-to-day operations and corporate
development.
Fifth, With Emerging Gamma's public company profile we are confident of raising
the needed funds to enable the company to be successful.
Therefore I would like the Board of Directors of Emerging Gamma to kindly
consider the following proposal:
1. Injection of Intellectual Property. The New Management team will as part of
the preparation and execution of definitive documents to implement the plan
set forth herein execute a Technology Transfer Agreement ("Agreement"),
transferring to Emerging Gamma all right, title and ownership of all
material Intellectual Property regarding the new products as well as one
product that one of us is currently selling in China (IceDROPS Hand
Sanitizer). The Intellectual Property shall include, all Product Forms and
Formulas, all Trademarks, Copyrights, Trade Secrets and Know How related to
these products. The Agreement will provide a covenant of clear and free
title to any property transferred by them to Emerging Gamma. The new
products and new management will substantially change the current
characteristic of Emerging Gamma's business profile - which to date has
been static. The intellectual property is currently valued at over $20
million.
2. Personal Commitments. Emerging Gamma will offer to New Management
Employment and Non-compete Contracts, to be mutually agreed upon, pursuant
to which New Management will commit to work exclusively for Emerging Gamma
for five (5) years.
3. Capable Personnel and Know how. We are aware of certain people who are
recognized experts in this area and are currently seeking the "right"
opportunity to join a winning team in this market space. We are certain
that they can be reasonably convinced to join Emerging Gamma.
4. Compensation and Control. For such an undertaking, as proposed, New
Management would seek to own 90% of all outstanding common shares in
Emerging Gamma. In order to accomplish this, Emerging Gamma would issue new
common equity shares to the New Management team. The number of new shares
issued would be in aggregate, 476,100 shares of Emerging Gamma's common
equity. Once they are issued Emerging Gamma will have, in total, 529,000,
fully diluted, shares of common equity outstanding. Once complete the New
Management will own approximately 90% of all outstanding shares and the
current shareholders approximately 10%. Emerging Gamma's Board of Directors
shall resign and a new Board of Directors shall be put forward. New
Management's employment contracts will come into effect immediately. The
Agreement for the transfer of intellectual property shall not provide
consideration to the transferors beyond the shares being issued therefore,
and management salaries shall not exceed what is reasonable for a company
in transition with significant financial requirements to fund growth.
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5. Exercise of Options. Following procedures set by counsel to Emerging Gamma,
coincident with the closing, Emerging Gamma will facilitate the equivalent
of a cashless exercise of the options presently outstanding, such that the
net effect will be that the number of common shares will be increased by
the number of shares subject to option, and the corporation will not have
any net inflow or outflow of cash.
6. Budgeting.
1. Emerging Gamma's legal fees for the undertaking as outlined are not
expected to exceed $25,000. Legal work will likely comprise general
legal services and US Securities and Exchange Commission ("SEC")
filings and compliance. New Management will prepare drafts of all
documents and related SEC filings.
2. At the closing, Emerging Gamma will pay a success fee to Xx. Xxxxxxxx
in the amount of $35,000 cash and 10,000 shares of post 19 for 1 split
common stock. (These shares are not included in the 52,900 current
Emerging Gamma shares shown in Exhibit 2).
3. Other out-of-pocket expenses will be reimbursed on a case-by-case
basis, as requested, as supported by documentation.
7. Capital Raising Plan. Our Plan is as follows:
1. New Management will seek initial investment of up to $3 million during
the initial investment round. New Management will begin to source
private capital in the US, Europe and Asia. New Management has held
preliminary discussion with investment banks in the US to represent
New Management in this or a like endeavor, to their investor base and
to support the equity trading profile, once Emerging Gamma's new
structure is in place. There can be no assurance of a successful
capital raise but new management believes that we have taken the
necessary steps to be successful in the fund raising process.
2. Money received in the round(s) will purchase newly issued shares. The
newly issued shares will be registered with the US Securities and
Exchange Commission. New management will seek the follow-on Direct
investment. If New Management is unable to secure the first round, as
a single event then we may still access the market, with smaller and
more frequent investment rounds.
8. Announcements. All press releases and other announcements relating to the
new business focus will be subject to prior approval by New Management.
9. Consulting, Board of Advisor and Financial Arrangements. New Management
will offer to Xx. Xxxxx Xxxxxxxx and Xx. Xxxxx Xxxxxxx a compensation bonus
of 10,000 shares of post 19 for 1 split common stock (these shares are not
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included in the 52,900 current Emerging Gamma shares shown in Exhibit 2)
each for work previously undertaken, and New Management will offer each Xx.
Xxxxxxxx and Xx. Xxxxxxx separately an opportunity to serve on the
Company's Board of Advisors. Typically the role of Advisor will provide
some amount of monthly or quarterly stipend and a certain number of common
shares.
10. Commitment Fee. Upon the execution of this Letter, New Management will pay
to Emerging Gamma a non-refundable commitment fee of $5,000, which Emerging
Gamma may use in its own discretion. Emerging Gamma intends to pay said
amount to Xx. Xxxxxxxx for due diligence and contracting services provided
by him in this matter.
11. Consequences of Non-Funding. If New Management does not raise at least
$3,000,000 in funding for the company within 8 months of the closing, then,
if Xx. Xxxxxxxx or any other person duly acting as the representative of
Gamma's current shareholders, so requests, the Agreement will be
terminated, the Employment Agreements shall be terminated without severance
pay, and New Management will return to Emerging Gamma the shares that shall
have been issued to New Management and Emerging Gamma will return to New
Management all intellectual property transferred pursuant to the Agreement.
12. Indicative Timing. Based upon this Letter and the terms and conditions
discussed herein, we would expect to be able to achieve the following
timetable.
|_| On or before 3 April 2006 it is anticipated that new management
and Emerging Gamma will agree to the general terms as outlined.
|_| The documents will be executed by April 7, 2006.
|_| In April, we will begin with low intensity investor relations /
public relations campaigns.
|_| Mid to late May 2006, it is anticipated that, based on a
successful funding operation, new management will have raised
investment of US$ 3 million in the US capital markets.
Additionally, new management may choose to seek banking
facilities to leverage accounts receivables and to initiate a
revolving line of credit. New management will begin trading on
the OTC market.
|_| Late May to June, New Management will seek to place the initial
orders for finished product supply and begin to execute its
business plan.
Please sign and date this Letter no later than 3 April 2006, in the space
provided below to confirm our mutual understandings and agreements as set forth
in this Letter and return a sign copy to the undersigned. By signing this
Letter, you are representing that you have the authority to consummate this
transaction.
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This is a binding statement of our intentions, subject to and conditional on (i)
Emerging Gamma's satisfactory completion of due diligence and (ii) preparation
and execution of definitive documents to implement the plan set forth herein. If
this letter is acceptable, please sign a return a copy.
Very truly yours,
For and on Behalf of New Management
___________________________________
Date: April 3, 2006
Accepted and agreed:
Emerging Gamma Corporation
By:____________________________
Xxxxx X. Xxxxxxxx, President
Date: April 3, 2006
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EXHIBIT 1
Indicative Timetable
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Wk1-2 Wk3-4 Wk5 Wk6 Wk7 Wk8 Month 3 Month 4 Month 5 Month 6 Month 7
-------------------- ------- ------- ------- ------- ------ ------- --------- --------- --------- --------- ---------
Sign LOI for X
Combination company
-------------------- ------- ------- ------- ------- ------ ------- --------- --------- --------- --------- ---------
Due Diligence X X
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Market to PE X X
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Draft Agreements X X
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Execute Control X
Doc's Combine
companies
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Close 1st round X
Investment
-------------------- ------- ------- ------- ------- ------ ------- --------- --------- --------- --------- ---------
Close PIPE X
investment round
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Begin trading on X
OTC
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Investor Relations X
Program
-------------------- ------- ------- ------- ------- ------ ------- --------- --------- --------- --------- ---------
File with SEC X
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Print PPM X
-------------------- ------- ------- ------- ------- ------ ------- --------- --------- --------- --------- ---------
Market $ Close on X
PIPE Investment
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File Registration X
Statement
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File with AMEX X
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Road Show to X
Investors
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Reg. Statement
Approved X
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EXHIBIT 2
Indicative Future Capital Structure, Dilution Table
The following table represents New Management's expectation of Emerging Gamma's
capital structure and investor dilution during the first 12 to 18 months of
operations under the new management team. The analysis undertaken is static,
made without market expectations. The following table is indicative, and no
guarantees are made in any regard. Anticipated corporate actions will likely
include the following: Share issuance, share split and follow-on investment.
Effect of Hiring New Management on Emerging Gamma Capitalization
(Indicative)
Based on 10 million Shares
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Valuation
20,000,000
Current EG 52,900 90% 90%
New Management 475,542 10% 10%
EG 52,900 100% 100% 37.85 Per share
Total 528,442
# Shares issued by EG 475,542
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Share Split Valuation
20,000,000
Post Merger outstanding 528,442
Desired + or - 10,000,000
Reverse split differential 9,471,558
Factor (X) 18
Total calculation 9,511,956 2.10 per share
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Each one share outstanding at time of post merger reverse split receives 18
additional shares
**Does not include shares for Investor relations - estimated 500,000
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Initial Investment $ Shares Valutation
Shares outstanding (pre) 9,511,956 23,000,000
Cash raised @$2.00 3,000,000
Shares issued @$2.00 1,500,000
Total outstanding 11,011,956 2.09 per share
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1st Public Round Investment $ Shares Valutation
Shares outstanding (pre) 11,011,956 26,000,000
Cash raised @$2.25 3,000,000
Shares issued @$2.25 1,333,333
Total outstanding 12,345,289 2.11 per share
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Revenue Projections Year-1 Year-2
Revenue 31,662,835 91,287,432
Net income 1,560,237 19,666,572
EPS 0.13 1.59 assumes no new share
issuance (unlikely)
Valuation @ PE 15x 1.90 23.90
Valuation @ PE 20x 2.53 31.86
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Dilution Table Post Merger % Initial Round % 1st round # %
New Management 8,560,760 90% 8,560,760 78% 8,560,760 69%
Old Management 951,196 10% 951,196 9% 951,196 8%
Investors 1,500,000 14% 2,833,333 23%
Total 9,511,956 100% 11,011,956 100% 12,345,289 100%
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EXHIBIT 3
Indicative Use of Proceeds
The following is a table on New Management's anticipated Use of Proceeds based
on a scenario that may include an aggregate raise of US$ 6 million.
US$ 1st Round 2nd Round
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$3,000,000 $3,000,000
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Corporate 250,000 250,000
administration
Inventory 750,000 875,000
Marketing & promotion 1,750,000 1,750,000
Fees / legal 250,000 125,000
Sub-Total $3,000,000 $3,000,000
Total Raised $6,000,000
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