CAVALCADE OF SPORTS MEDIA, INC.
00000 XXX XXXXXX
XXX XXX, XX 00000
May 20, 2002
Xxxxxxx Xxxxxxxx, Executive Manager
ChangeBridge Entertainment, LLC
00 Xxxxxxxx Xxxxxxx
Xxxxxxxxx, Xxx Xxxxxx 00000
Re: Acquisition by Cavalcade of Sports Media, Inc. of
ChangeBridge Entertainment Television under IRC Sec.
358(a)(1)(A)
Dear Xx. Xxxxxxxx:
This is to serve as a formal Letter of Intent ("LOI") and a binding
agreement, until superseded by a more formal Reorganization
Agreement for the acquisition by Cavalcade of Sports Media, Inc.
("Cavalcade") of one hundred percent (100%) of the ownership
interests of ChangeBridge Entertainment Television ("ChangeBridge").
This LOI supersedes all prior discussions, negotiations,
understandings, memoranda and specifically the two draft LOI's sent
to you for review.
I
GENERAL FORM OF TRANSACTION
This transaction is structured such that Cavalcade will acquire
100% of the ownership interests in ChangeBridge by a merger of
ChangeBridge with and into a wholly-owned corporate subsidiary of
Cavalcade to be formed for the purposes of the transaction
("Newco"). The owner(s) of ChangeBridge will receive, in exchange
for their ownership interests in ChangeBridge, shares of the
ChangeBridge Acquisition Series of Convertible Preferred Stock of
Cavalcade. At the end of three (3) years (i.e., upon receipt of
the audited financial statements of Cavalcade and ChangeBridge (as
a separately stated subsidiary), the shares of the Convertible
Preferred Stock will automatically convert into shares of the
Common Stock of Cavalcade on the agreed formula in V below.
II
MERGER
At present, ChangeBridge is a limited liability company organized
under the laws of New Jersey. There is one (1) member: you, owning
an interest of one hundred percent (100%). The limited liability
company will be merged into a corporation, to be newly-formed by
Cavalcade for purposes of the merger. The merger will be tax-free
to you under Section 358(a)(1)(A) - that is, no tax will be payable.
Xxxxxxx Xxxxxxxx, Executive Manager
ChangeBridge Entertainment Television, LLC
May 20, 2002
Page 2
upon the exchange of the ownership interests for the ChangeBridge
Acquisition Series of Convertible Preferred Stock.
III
CHANGEBRIDGE ACQUISITION SERIES
OF CONVERTIBLE PREFERRED STOCK
The ChangeBridge Acquisition Series of Convertible Preferred Stock
will consist of one hundred thousand (100,000) shares. Each share
will have a par value of $.001, a stated capital of $.001 ($10.00),
will be entitled to one (1) vote per share and will vote with the
Common Stock of Cavalcade as a single class, will be entitled to
elect 49.9% of the Board of Directors of Newco, will receive such
dividends as the Board of Directors of Cavalcade shall determine,
but only to be paid from the earned income of Newco and will be
entitled to convert into shares of the Common Stock of Cavalcade on
the basis of the agreed formula set forth in V below.
IV
MANAGEMENT AND FUNDING
A. Management
--------------
You (Xxxxxxx Xxxxxxxx) will receive a Management Agreement from
Cavalcade, giving you exclusive management of Newco (subject only to
certain financial controls). In addition, you will receive an
employment agreement from Newco itself, under which you will be
employed as CEO. Pending managerial buildup of Newco, at the
request of Xxxxx, at ChangeBridge's option and at Xxxxxxxxx's
expense, Cavalcade will supply other officers, who will be replaced
as you bring on executives and officers. The intent is that you,
and your management team, will control the growth and development of
Newco so that the data used for the conversion formula calculations
will be based on your efforts, without interference.
B. Funding
-----------
You and Cavalcade's Management shall prepare a cash flow budget
projection and estimate the amount of funding required. The parties
will endeavor to obtain institutional financing, at least for that
portion of the requirements applicable to the purchase of parts for
installation. For the balance of the funding (or all of the funding
if institutional financing is unavailable, Cavalcade will designate
a second series of convertible preferred stock, similar to the
acquisition series, to be called the "ChangeBridge Funding Series of
Convertible Preferred Stock". The ChangeBridge
Xxxxxxx Xxxxxxxx, Executive Manager
ChangeBridge Entertainment Television, LLC
May 20, 2002
Page 3
Funding Series of Convertible Preferred Stock will have a par value
of $.001 per share, a stated capital of $10.00 per share, will be
entitled to cumulative dividends at the rate of 10% but solely based
upon and derived from the earnings of Newco, will have one vote per
share, and will vote with the Common Stock as a single series. The
series will be automatically convertible into shares of Common Stock
of Cavalcade at the time of the conversion of the ChangeBridge
Acquisition Series.
The conversion rate into Cavalcade Common Stock would be that the
shares of the ChangeBridge Funding Series and all accrued dividends
(at the 10% rate) would be added to the number of issued and
outstanding shares of the ChangeBridge Acquisition Series and the
combined series converted as a single series as provided in V
following.
We would issue up to 200,000 shares of the Funding Series at a price
of $10 per share, to raise gross proceeds of $2,000,000. All of the
net proceeds (gross proceeds less 10% commissions and 3% expense
allowances) would go to Newco, for its own financing purposes.
V
CONVERSION FORMULAS
At the present time, ChangeBridge is a newly-organized business
entity with no revenues, assets, or income. Accordingly, the
parties have agreed that the value of ChangeBridge will be
determined upon receipt of the audited financial statements of
Cavalcade for the fiscal year ended December 31, 2005; i.e., after
three years of operations. During the intervening period, Cavalcade
will have its auditor separately state the audited financial
statements for ChangeBridge. Upon receipt of the audited statements
as of the fiscal year ended December 31, 2005) the net income of
ChangeBridge, after federal and state income taxes, shall be
determined. Such after-tax net income shall be multiplied by the
same price earnings multiple "P/E Multiple" given by the market for
Cavalcade. The result of multiplying the after-tax net income by
the P/E Multiple shall be divided by the average of the Closing bid
and Asked prices of the Cavalcade Common Stock for the twenty (20)
sequential trading days prior to and including the date of the
calculation, which shall be deemed to be the date of the auditor's
report on the financial statements. The result shall be the number
of shares of Common Stock of Cavalcade into which the total number
of shares of both (1) the ChangeBridge Acquisition Series of
Convertible Preferred Stock and (2) the ChangeBridge Funding Series
of Convertible Preferred Stock shall be converted, adding the
Xxxxxxx Xxxxxxxx, Executive Manager
ChangeBridge Entertainment Television, LLC
May 20, 2002
Page 4
shares of each Series together and converting pro rata.
Yours truly, AGREED AND ACCEPTED:
CAVALCADE OF SPORTS MEDIA, INC. CHANGEBRIDGE ENTERTAINMENT
TELEVISION LLC
By: /s/ Xxxxxx Xxxxxx By: /s/ Xxxxxxx Xxxxxxxx
------------------------- -------------------------
Xxxxxx Xxxxxx, President/CEO Xxxxxxx Xxxxxxxx, Exec. Mgr.
Dated: 5/25/02 Dated: 5/25/02
