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March 18, 1998
Via Facsimile
Xx. Xxxxx X. Xxxxxx
Renaissance Capital Group, Inc.
Xx. Xxxxxxx Xxxxx
The Xxxxxx-Xxxxx Co.
c/o Xxxxxxx Xxxxxxx, Esq.
Xxxxx, Xxxxxxxx & Xxxxx
0000 Xxxxx Xxxxxxx Xxxxxxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
c/o Xxxxxxx Xxxxx, Esq.
Xxxxx & Xxxxx
00000 Xxxxx Xxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxxx 00000
Gentlemen:
This letter outlines a proposal by which Next Generation Media Corp.
(the "Buyer") will acquire:
- all of the issued and outstanding shares of Series C Preferred stock (the
"Preferred C Shares") of UNICO, Inc., a Delaware corporation (the
"Company"), and
- all of (1) the promissory notes issued pursuant to the Subordinated Loan
agreement with an outstanding principal balance of $300,000 dated June 30, 1995
among the Company, Cal-Central Marketing Corporation and the Xxxxxx Xxxxx
Fentriss Trust, Xxxxxx Xxxxxxxxxx, Xx., RHOJOAMT Partnership Ltd., CITCAM Stock
Co., Xxxxxxx Xxxxxxx and Goose Creek, (2) the subordinated debentures having an
outstanding principal balance of $460,000 issued pursuant to an Indenture and
placed by The Xxxxxx-Xxxxx Company with various investors and (3) the promissory
note(s) issued to Renaissance Capital pursuant to an interim financing agreement
between with the Company with an aggregate principal balance of $274,000
(collectively, the "Subordinated Debt").
The holders of the Preferred C Shares and the Subordinated Debt are collectively
referred to herein as the "Sellers." The
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proposed acquisition is subject to and encompasses the following terms and
conditions:
1. The effective date of this acquisition (the "Series C/Sub Debt
Purchase") will be as of the date on which Buyer and the Company execute a
definitive agreement providing for the acquisition by Buyer of all of the
outstanding shares of United (the "United Purchase"). The closing will be at
Washington, D.C. at a time selected by the Buyer and the Sellers'
representatives upon execution of the definitive agreement. The Buyer shall
endeavor to effect the closing of the Series C/Sub Debt Purchase and the
execution of the definitive agreement for the United Purchase by March 31, 1998,
but in no case will the closing take place later than May 1, 1998, unless
mutually agreed by the parties.
Buyer will pay $1,350,000 (the "Purchase Price") for the Preferred C Shares
and the Subordinated Debt in the form of (1) $100,000 cash and (2) 250,000
shares of its Callable Cumulative Convertible Preferred stock ("NexGen
Preferred").1/ Each 1 1/2 shares of NexGen Preferred will be accompanied by one
stock purchase warrant that will entitle the holder to purchase one share of the
Buyer's common stock at an exercise price of $0.16, valid for five years from
the date of issue.
The number of warrants to be provided to Sellers will be subject to
adjustment based on the price per share at which the Buyer effects a private
placement or initial public offering of its common stock following the Buyer's
acquisition of United (the "NexGen Placement/Offering"). If the NexGen
Placement/Offering is made at a price up to $3.50 per share, Sellers will
receive a total of 250,000 warrants; if the NexGen Placement/Offering is made at
a price in the range $3.51 - $4.00 per share, Sellers will receive a total of
200,000 warrants; if the NexGen Placement/Offering is made at a price in the
range $4.01 -$4.50 per share, Sellers will receive a total of 185,000 warrants;
and if the NexGen Placement/Offering is made at a price of $4.51 per share or
higher, there will be no adjustment to the warrants issued to Sellers. The Buyer
shall endeavor to ensure that the NexGen Placement/Offering will result in the
receipt of a minimum of $2,000,000 of net proceeds to Buyer. Buyer agrees to use
(1) 35% of the first $1,000,000 and (2) 50%
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1/Buyer will not issue fractional shares and will issue NexGen Preferred shares
to each Seller by rounding up or down to the nearest whole number of shares.
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of any net proceeds in excess of $1,000,000 from the NexGen Placement/Offering
to redeem NexGen Preferred stock. In the event the proceeds of more than one
placement or offering at different prices are used to redeem the NexGen
Preferred Stock, the warrant adjustment contemplated by this paragraph will be
applied on a weighted average basis of the various offering prices in the
placements or offerings, the proceeds of which are used to effect such
redemption. The balance of the net proceeds from the NexGen Placement/Offering
shall be used to provide a capital infusion to Buyer's newly acquired
subsidiary, United, except for payments of obligations of Buyer approved by
Buyer's board of directors after the United Purchase.
2. As part of the transaction, the Sellers represent and warrant to Buyer,
among other things, that the Preferred C Shares and Subordinated Debt they are
selling represent all of the Preferred C Shares or Subordinated Debt of the
Company. In addition, the Sellers shall agree to execute powers of attorney to
provide for the authority of one or more representatives of Sellers to effect
the sale of the Preferred C Shares and the Subordinated Debt to Buyer at the
closing.
3. At the closing, the Sellers shall deliver to Buyer stock certificates
endorsed in blank for all of the Class C Preferred Shares as well as the
promissory notes endorsed to the order of Buyer. Sellers represent and warrant
that they have good title to the Class C Preferred Stock and the promissory
notes, that the Class C Preferred Stock is validly issued, fully paid and
nonassessable, that the Class C Preferred Stock and promissory notes are free
and clear of liens and encumbrances, and that the Sellers can transfer them
without the consent of any third parties. As part of these transactions, Sellers
shall convey to Buyer all right, title and interest in and to any claims or
causes of action they may have against the Company, its affiliates or any member
of its board of directors (the "Unico Board"), in their capacity as Sellers,
creditors or as common shareholders in the Company, from the beginning of time
to the date of these transactions, as a result of any past actions taken or not
taken by the Unico Board or the Unico Board's decision to enter into the United
Purchase. Buyer agrees that it will assert no claims or bring no actions against
the Sellers or any of them as a result of any actions by the Unico Board from
the beginning of time to the date of these transactions, including without
limitation any action or failure to act by the Unico Board with respect to the
acquisition of United by NexGen.
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4. Upon the approval by Unico's Board of the purchase of United by Buyer,
you will not discuss or negotiate with any other corporation, firm or other
person, or entertain or consider any inquiries or proposals relating to the
possible disposition of the Preferred C Shares, the Subordinated Debt or the
business of the Company, including United.
5. The Xxxxxx-Xxxxx Co. shall recommend to and undertake their best efforts
to obtain the approval of all Sellers to the Series C/Sub Debt Purchase. To
facilitate the foregoing approval, the Company will send a copy of this letter
and an outline of the terms of agreement to the other Sellers together with such
other information as may be required by law or determined by the Company to be
necessary in order to obtain the consent of the holder of the Series C Preferred
Stock and the Subordinated Debt. This offer and the closing herein contemplated
is contingent upon Buyer's acquiring one hundred percent (100%) of the Preferred
C Shares and the Subordinated Debt free and clear of all options, liens and
other claims.
6. The closing hereunder is subject, among other things, to the following:
a. Approval by the board of directors of Buyer;
b. Approval by the Board and shareholders of the Company of the
United Purchase;
c. Any necessary approvals required under all loan agreements,
indentures or other debt documents of the Company, including
without limitation with BancFirst;
d. Approval by any necessary governmental authorities; and
e. Receipt of all necessary third party consents.
7. Any and all expenses incurred on behalf of the Sellers in connection
with the Series C/Sub Debt Purchase hereunder, including, but not
limited to, attorney's fees, accounting fees and other services and
expenditures on their behalf, shall be borne by the Sellers and shall not be
paid by or incurred for the account of the Company.
The Series C/Sub Debt Purchase and the United Purchase are further
described in the term sheet attached hereto as Annex A. The terms of agreements
between Xx. Xxxx Xxxx, majority
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shareholder of Buyer, and Xx. Xxxxxx Xxxxxxx, President of United, are described
in the term sheet attached hereto as Annex B.
This letter agreement shall terminate upon the earliest of (a) Wednesday,
March 25, 1998 at 5:00 p.m. if the Unico Board has failed to elect by that time
to enter into the United Purchase; (b) the closing of the Series C/Sub Debt
Purchase and execution of a definitive agreement for the United Purchase and (c)
May 1, 1998, unless the parties hereto otherwise agree in writing. No public
announcement of the matters contemplated herein shall be made by any party
hereto without the prior consent of the other parties hereto.
Very truly yours,
BUYER:
By: /s/ Xxxxx Xxxxxx
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Name: Xxxxx Xxxxxx
Title: President
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AGREED AND ACCEPTED:
Renaissance Capital
By: /s/ Xxxxx Xxxxxx
----------------------
Name: Xxxxx X. Xxxxxx
Title:
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Xxxxxx-Xxxxx Company
By: /s/ Xxxxxxx Xxxxx
----------------------
Name: Xxxxxxx Xxxxx
Title:
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I. ANNEX A
UNICO - NEXT GENERATION MEDIA CORP. TRANSACTION
TERM SHEET
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TRANSACTION: A purchase of the preferred stock and
subordinated debt of UNICO, Inc. ("Unico") with
preferred stock of Next Generation Media Corp.
("NexGen") and cash followed by a merger between United
Marketing Solutions, Inc., formerly known as United
Coupon Corporation ("United"), a subsidiary of Unico,
and a newly formed subsidiary ("MergerCo") of NexGen, in
which MergerCo will be merged into United with United as
the surviving entity. NexGen will acquire 100% of the
securities in United making it a wholly-owned subsidiary
of NexGen.
PROPOSED TERMS
1. SERIES C PREFERRED STOCK AND SUBORDINATED DEBT
Unico's existing subordinated debt and Series C Preferred stock holders
will receive 250,000 shares of NexGen's newly issued Callable Cumulative
Convertible Preferred Stock, par value $0.01 per share ("NexGen Preferred"). The
shares will have a $5.00 per share preference on liquidation or dissolution
after corporation. In addition, NexGen will issue one common stock purchase
warrant for each 1.5 shares of NexGen Preferred with an exercise price of $0.16
per share, valid for five years.2/ The number of warrants issued by NexGen in
conjunction with the NexGen Preferred will be subject to adjustment upon the
completion of private place or initial public offerings of NexGen's common stock
following the acquisition of United (the "NexGen Placement/Offering") based on
the per share price of NexGen common stock in the NexGen Placement/Offering.
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2/This results in the issuance of 166,667 stock purchase warrants to the NexGen
Preferred shareholders.
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The NexGen Preferred will be callable, in whole or in part, at the sole
option of NexGen at any time. Upon a call by NexGen, NexGen Preferred
shareholders will have twenty (20) days to elect to convert their NexGen
Preferred to NexGen common stock or be redeemed. If the NexGen Preferred is
called within the first six months after the closing3/ it will have a redemption
price of $5.00 per share plus all accrued but unpaid dividends up through the
date ten days following the call date. If the NexGen Preferred is called more
than six months after the closing, the redemption price will be $6.00 per share
plus all accrued but unpaid dividends up through the date ten days following the
call date. The NexGen Preferred will pay a cumulative dividend of $.30 per share
per annum for the first six months and $.50 per share per annum thereafter.
Dividends will accrue and not be payable until eighteen months following the
closing. Dividends will become payable provided that the indebtedness to
BancFirst is current, in accordance with the restructuring agreement to be
reached with BancFirst.
The NexGen Preferred will be redeemable, at the sole option of the
holder, five years from their date of issuance at a price of $6.00 per share
plus all accrued but unpaid dividends.
The holders of NexGen Preferred shares will vote on equal terms with
the holders of NexGen common shares with the exception that the NexGen Preferred
shareholders, as a class, will be entitled to elect one member to the NexGen
board of directors (the "NexGen Board"). Additionally, in the event that the
NexGen Preferred shares are not called for redemption, or converted into commons
stock within nine (9) months of the Closing, the holders of the NexGen Preferred
Shares, as a class, will be entitled to elect one additional member to the
NexGen Board and the independent director (hereinafter defined) designated by
the other directors shall be replaced in that event. Approval by the NexGen
Preferred shareholders, as a class, will be necessary for certain extraordinary
transactions, including a sale of substantially all of NexGen's assets, a change
in NexGen's primary line of business, incurrence of more than $5 million of
indebtedness and an acquisition of property
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3/"Closing" means the closing of the merger transaction between MergerCo and
United.
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out of the ordinary course of business in excess of $5 million. NexGen shall
enact a bylaw restricting the number of NexGen Board seats to five, including
the director selected by the NexGen Preferred. Two of the current directors
shall remain on the NexGen Board. One director will be selected by Xx. Xxxxxx
Xxxxxxx. The fifth director shall be an independent director nominated by the
other four directors.
The conversion price for NexGen Preferred will be affected by whether
or not NexGen has filed a preliminary Form S-1 (or other applicable registration
statement form for an initial public offering) with the Securities and Exchange
Commission for an offering of NexGen's common stock (an "IPO") prior to the
expiration of six months after the closing of the proposed transaction.
NexGen Stock Sale Before Six Months
The NexGen Preferred will be convertible into NexGen common stock, at
the holder's option, beginning six months after the closing at a conversion
price which is the lesser of (a) $5.00 and (b) 110% of the price for common
stock issued in a private placement or initial public offering of NexGen
securities ("NexGen Stock Sale"). For example, if the NexGen Stock Sale occurs
at $6.00 per share, the conversion price used will be $5.00 and the 250,000
shares of NexGen Preferred would be convertible into 250,000 shares of NexGen
common stock. If the NexGen Stock Sale occurs at $4.50 per share, the conversion
price would be $4.95 (110%), and the 250,000 shares of NexGen Preferred would be
convertible into approximately 252,525 shares of NexGen common stock.4/
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4/No fractional shares will be issued. Fractional shares of .5 and above will be
rounded up to the nearest whole share; fractional shares below .5 will be
rounded down.
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No NexGen Stock Sale Before Six Months
The NexGen Preferred will be convertible into NexGen common stock at a
conversion price which is the lesser of (a) $4.50 and (b) 110% of the price for
the stock, in the NexGen Stock Sale. For example, if the NexGen Stock Sale
occurs at $5.00 per share of NexGen Common, the conversion price used will be
$4.50 and the 250,000 shares of NexGen Preferred would be convertible into
approximately 300,000 shares of NexGen common stock. If the NexGen Stock Sale
occurs at $3.00 per share, the conversion price would be $3.30 (110%), and the
270,000 shares of NexGen Preferred would be convertible into approximately
409,091 shares of NexGen common stock.
2. COMMON STOCK
Unico will receive 200,000 shares of NexGen common stock in exchange
for all the stock of United. Alternatively, NexGen has agreed to pay cash
consideration equal to Unico for each Unico shareholder that affirmatively
elects, at the time of the Unico shareholder vote concerning the transactions
described herein, to receive a cash dividend from Unico in lieu of NexGen common
stock (the total number of such Unico common shares, the "electing shares"). In
the event that there are any electing shares, (1) the amount of NexGen common
stock paid to Unico will be reduced by the nearest whole number equal to 200,000
multiplied by a fraction, the numerator of which is the number of electing
shares and the denominator of which is the number of issued and outstanding
common shares of Unico and (2) NexGen will also pay Unico in cash $0.10
multiplied by the number of electing shares. The merger and exchange of common
stock will follow appropriate filings by Unico and NexGen with the Securities
Exchange Commission and a shareholder vote by the Unico common shareholders.
NexGen will vote its Unico Series C Preferred in favor of the transaction and
will agree to allow those shares to be retired by Unico for nominal
consideration. NexGen will also agree to allow the cancellation of the Unico
subordinated debt and associated warrants. NexGen will pay additional cash
consideration to the extent necessary to extinguish additional debt of
approximately $150,000 of Unico to the extent that creditors holding such debt
do not consent to the assignment of such debt to NexGen and release of Unico
within ninety (90) days of closing.
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3. NO OTHER SECURITIES
No other securities (i.e., outstanding warrants and options) will be
exchanged by NexGen.
4. MISCELLANEOUS
The acquisition of the Unico subordinated debt and Series C Preferred
shares and the common shares of United by NexGen is contingent upon a
satisfactory restructuring of Unico's debt to BancFirst. The balance of the
proceeds of the any IPO or private placement of NexGen common stock, not used to
redeem NexGen Preferred or to pay obligations of NexGen agreed to by its board
of directors after the merger transaction, will be used to provide a capital
infusion to United. So long as NexGen Preferred shares are outstanding, Xx. Xxxx
Xxxx will not be an officer or director of NexGen.
