Exhibit 99.1
March 15, 2002
SBH Holdings LLC
c/x Xxxxxx Ventures LLC
00 Xxxx Xxxxxxx Xxxxxx, Xxxxx 000
Xxxx, Xxxxxx 00000
Gentlemen:
This letter will confirm the intent of Sunrise Technologies
International, Inc., a Delaware corporation ("Sunrise") to acquire from Aragon
Ventures LLC, a Delaware LLC, and X. Xxxx Xxxxxx, an individual, all of the
membership units of SBH Holdings LLC, a Nevada LLC doing business as
ScienceBased Health ("SBH"), in exchange for preferred stock and a note, as more
particularly described below, all subject to the following terms and conditions.
We are informed that SBH is in the ocular nutraceutical business and has annual
sales of between $5-6 million, with free cash-flow of approximately $50,000 per
month.
SERIES A PREFERRED STOCK
Sunrise will issue 100,000 shares in the aggregate of Series A
convertible preferred stock ("Series A") to Aragon and Xxxxxx, with a $6 million
liquidation preference over common (and pari passu with Series B Preferred to be
issued in anticipated transactions described below), with 25% of the equity
voting rights. The Series A will have the usual protective provisions, plus a
full-ratchet anti-dilution clause lasting for 18 months, the right to convert
into common, commencing twelve (12) months after issuance, registration rights,
and a redemption right (at the $6 million liquidation value, plus 10% accruing
annual dividends, payable in cash or stock, starting in 3 years). Series A
holders will have the right to elect one-half of the directors. The Series A is
convertible into 25% of the fully diluted common-equivalent shares as of the
closing.
THE SBH NOTE
A Secured Promissory Note will be issued by SBH and guaranteed by
Sunrise for $4 million, secured by a first lien on SBH's assets, with interest
at 1% per month, due in 3 years with annual principal payments. The due date of
the Note accelerates if an interest or principal payment is missed or if the
Anesti Management LLC ("Anesti") management contract (as described below) is
materially breached or if Sunrise becomes insolvent, has a bankruptcy filing,
etc.
MANAGEMENT CONTRACT
Sunrise shall enter into a 3-year management contract with Anesti (or
another party approved by Aragon), containing very broad powers to run the
company. The compensation for these services will be in the form of common stock
warrants, at the same price per share as the original issue price of Series B
Preferred (estimated to be $.0625 per share), which shall vest over the 3 years
(with accelerated vesting in the event the management contract is terminated by
Sunrise). The number of warrants shall equal 5% of the fully-diluted
common-equivalent shares as of the closing (without triggering the anti-dilution
provisions of the Series A). The warrants shall be exercisable over 7 years on a
net-exercisable basis and the stock shall have S-3 type registration
rights. An interim management contract should go into effect immediately upon
signing this Letter of Intent to be replaced by a definitive agreement at
closing.
SBH AS A SEPARATE SUBSIDIARY
SBH shall be maintained as a separate subsidiary, managed by Aragon or
its delegate or assignee. There will be protections and prohibitions on
inter-company transfers without Xxxxxx'x permission, but it is contemplated that
SBH will transfer cash either as dividends or inter-company advances, at its
election, to subsidize Sunrise's operating losses in the first 18 months. A
management agreement between Sunrise and Anesti will allow practical control of
Sunrise and SBH. Aragon will remain the manager of SBH, until the note described
below is paid off, under a compensation arrangement which equals 3% of monthly
SBH revenue.
RJW TO EXTEND ITS BRIDGE NOTE
RJW Acquisition, LLC ("RJW") shall extend its bridge loan which is
convertible into six and one-quarter percent (6 1/4%) of the fully-diluted
common-equivalent shares. as of the conversion date. The extension shall be
coterminous with the Silicon Valley Bank extension, with payments of principal
and interest deferred to the end of the term. RJW shall grant an irrevocable
proxy to Aragon to vote any shares it or Xxxxxx Xxxxx owns for one year in favor
of a reverse stock split at a shareholder meeting to be held later.
NEW INVESTORS TO RECEIVE SERIES B PREFERRED STOCK
$2.0 million of new equity financing shall be offered through the sale
of Series B preferred stock. The Series B Preferred issued to the new investors
shall have a 2x liquidation preference, piggyback registration rights, twenty
percent (20%) of the voting rights, the right to elect one board member, and
shall be convertible after twelve (12) months into common stock equaling twenty
percent (20%) of the fully-diluted common-equivalent shares as of the closing..
As with the RJW common stock, an irrevocable proxy will be granted to Aragon.
Any proceeds from the sale of these shares will be escrowed until the closing
(when all of the conditions precedent described below are satisfied). Aragon
shall have the right to waive having Sunrise complete this financing, in which
case the 20% voting rights and convertibility rights will be added to Xxxxxx'x
25% rights.
7% CONVERTIBLE DEBENTURE HOLDERS TO CONVERT INTO SERIES C PREFERRED STOCK
Outstanding 7% Convertible Debentures, due June 2002 (the "Convertible
Debentures"), shall convert into Series C Preferred at 50% of face value. The
Series C will become convertible, at the option of the holder, after three years
into common stock at the purchase price of common on the date of conversion.
Series C will be non-voting stock, will carry no dividend, and, at the election
of Sunrise, will be subject to mandatory redemption after four years at face
value with the redemption price payable in common stock or cash. If not redeemed
in year four, Series C will be redeemed starting in the fifth year ratably each
quarter over the next two years.
UNSECURED CREDITORS SHALL RECEIVE SERIES D PREFERRED STOCK
All unsecured creditors and claimholders (other than the Convertible
Debentures) shall convert into Series D Preferred Stock at 100% of face value of
their verified claims, excluding interest, finance charges and the like. Series
D Preferred will be non-voting and will not carry
dividend rights. The Series D Preferred will be convertible after three years
into common stock at the per share price of common on the date of conversion. If
not converted, Series D preferred will be redeemed starting in the fifth year
ratably each quarter over the next two years.
EXISTING SHAREHOLDERS SHALL RECEIVE 50% OF THE COMPANY
If all of the Preferred Stock converted immediately after the closing of
the transactions, the existing common shareholders would retain 50% of the
Company, subject to dilution for future issuances of equity and an employee
option pool.
CONDITIONS PRECEDENT
The following conditions precedent must be satisfied by March 31, 2002:
1. Silicon Valley Bank must extend its loan until December 31, 2002, subject
only to the Company making its interest payments.
2. RJW must extend its note until December 31, 2002 and execute the
above-described proxy.
3. 97% of the dollar balance of all claims of unsecured creditors (not
including less-than-$1,000 balance creditors) must convert into Series C or
Series D Preferred Stock.
4. Sunrise must enter into an interim management agreement with Xxxxxx.
5. Sunrise must be satisfied with its due diligence investigation of SBH.
(i) Shareholders Meeting
It is contemplated that a shareholder meeting shall be held within the
next 12 months to approve a reverse stock split of the Company's outstanding
shares. This will have the effect of permitting Sunrise to issue more shares to
raise capital.
ESCROW TO BE ESTABLISHED
A reserve of common stock shall be established to provide an offset to
the cost of any uninsured claims or litigation related to events occurring
before the closing, or insurance coverage therefor. This reserve shall be
one-fifth of the currently outstanding shares (equal to 10% of the post-closing
fully-diluted shares outstanding). As one of its duties under the management
agreement, Anesti shall administer this reserve. At the end of three years, any
shares remaining in the escrow account shall be transferred to Sunrise's
treasury for the benefit of all common stockholders.
ADDITIONAL FINANCING
Additional financing is anticipated in the next nine months ($10 to $15
million is being sought).
NON-DISCLOSURE
Except to the extent required by law or stock exchange regulation,
without the prior written consent of the other parties, no party will, and each
will direct its representatives not to, make, directly or indirectly, any public
disclosure of or comment about the discussions regarding a possible transaction
between the parties or any of the terms, conditions or other aspects of the
transactions contemplated by this Letter of Intent. If a party is required by
law or stock exchange regulation to make any such disclosure, it will first
provide to the other party the text of the proposed disclosure, the reasons that
such disclosure is required, and the time and place that the disclosure will be
made.
EXPENSES
All reasonable expenses of legal counsel for these transactions shall be
paid by Sunrise for Sunrise, Aragon, and Xxxxxx and also, subject to their 100%
conversion into Series C Preferred Stock, for the Convertible Debenture holders.
ENTIRE AGREEMENT
The provisions of this Letter of Intent constitute the entire agreement
between the parties and shall supersede all prior oral or written agreements,
understandings, representations and warranties and courses of conduct or
dealings between the parties on the subject matter set forth in this Letter of
Intent. The provisions of this Letter of Intent may only be amended or modified
by writing executed by all of the parties.
GOVERNING LAW
This Letter of Intent will be governed by and construed under the laws
of the State of Delaware, without regard to conflict of laws principles.
TERMINATION
This Letter of Intent will automatically terminate on March 31, 2002,
and may be terminated earlier upon written notice by either party to the other
party unilaterally, for any reason or no reason, with or without cause.
COUNTERPARTS
This Letter of Intent may be executed in one or more counterparts, each
of which will be deemed to be an original and all of which, taken together, will
constitute one and the same agreement.
NO LIABILITY
The paragraphs set forth in the Letter of Intent do not constitute and
will not give rise to any legally binding or enforceable obligation or agreement
on the part of either party to this Letter of Intent. Additionally, no past or
future action, course of conduct or failure to act relating to the proposed
transaction, or relating to the negotiation of, or the failure to negotiate, the
terms of the proposed transaction will give rise to any obligation or other
liability on the part of the parties to this Letter of Intent. If you are in
agreement with the foregoing, please sign below and return one copy of this
Letter of Intent to me.
Sunrise Technologies International, Inc.
By: /s/ X. Xxxx Xxxxxxxx
Its: Chairman
Acknowledged and agreed:
SBH Holdings LLC Anesti Management LLC.
By: /s/ Xxxxx X. Xxxxxx By: /s/ Xxxxx X. Xxxxxxxx
Xxxxxx Ventures LLC, its Manager 21X Corp., its Manager
By: Xxxxx X. Xxxxxx By: Xxxxx X. Xxxxxxxx
Its: General Manager
Its: Vice President
Aragon Ventures LLC
By: /s/ Xxxxx X. Xxxxxx
Its: General Manager
/s/ R. Xxxx Xxxxxx
R. Xxxx Xxxxxx
I, X. Xxxx Xxxxxx, in signing above,
certify that I have been advised to retain
my own advisors (including legal) in
entering into this agreement
