CONFIDENTIAL
Exhibit
99.1
CONFIDENTIAL
Via
Email
October
12, 2006
Kalahari
Limited
c/o
Xxxxx
Xxxxxxxx, CEO
0000
Xxxxxxx Xxxx
Suite
A-2
Atlanta,
GA 30340
NON-BINDING
DEAL
TERMS - REVISED
v.3.3
SUBJECT
TO CONTRACT (save paragraph 11)
Dear
Xx.
Xxxxxxxx, et al,
Proposed
acquisition of Kalahari Limited (“Kalahari”, “Sellers”, or the “Company”) by
Health Sciences Group, Inc. (“HESG” or the “Buyer”).
Following
from our conversations and the information we have received to date, this
letter
serves to confirm the interest of Health Sciences Group, Inc., a Delaware
corporation, or any subsidiary entity thereof, in acquiring the assets (the
“Assets”) and assuming certain of the liabilities of Kalahari Limited, a Georgia
Sub-Chapter S corporation (“Acquisition”) and financing of the same
("Investment").
The
arrangements outlined in this letter are subject to contract and its terms
are
not intended to create any legal or binding obligation except for the provisions
of paragraph 11 which are intended to create legally binding obligations.
Accordingly, any party shall be entitled to terminate negotiations at any
time
and in such event, no party shall have any obligation or liability on any
account whatsoever to the other parties or their advisers except as provided
by
paragraph 11.
Health
Sciences Group, Inc. is a publicly-held company trading on the NASDAQ OTCBB
with
the ticker symbol: HESG. HESG’s overall strategy is to expand the business
globally as a premier health and wellness organization. We see Kalahari and
yourselves as playing a key role in this strategy, bringing shared vision,
complementary product categories, established and growing distribution channels
and operational expertise.
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1.
|
CONSIDERATION
|
The
total
consideration for the Acquisition is entirely based on an “earn-out” basis and
will be determined by the following formula to be paid as follows:
1
CONFIDENTIAL
Stock
Payment (“Earn-out Shares”)
Shares
of
HESG common stock shall be issued to the Sellers based upon the financial
results over a 3-year period post transaction close as follows:
|
(i)
|
For
fiscal year ending on December 31, 2007, shares equivalent to 9x
2007 EBITDA (Earning Before Interest, Taxes, Depreciation and
Amortization) divided by the 20 day VWAP (Volume Weighted Average
Price)
of HESG common stock at year-end;
plus
|
|
(ii)
|
For
fiscal year ending on December 31, 2008, 7x
2008 EBITDA divided by the 20 day VWAP of HESG common stock at
year-end;
plus
|
|
(iii)
|
For
fiscal year ending on December 31, 2009, 5x
2009 EBITDA divided by the 20 day VWAP of HESG common stock at
year-end.
|
If
the projections submitted by Kalahari management are achieved, the value
of the
consideration paid for the Assets could total a minimum of $9.6 million in
aggregate over the 3-year period.
The
consideration will be paid to Sellers post transaction close after a full
financial audit is performed for each of the respective periods.
Registration
of Stock
Earn-out
Shares shall have demand and piggy-back registration rights, the terms of
which
shall be mutually agreed upon. At the time the first traunche of Earn-out
Shares
are earned, these Shares shall be piggy-backed onto a registration statement
which HESG may be preparing to file at the time, else a registration statement
shall be prepared and filed specifically for the Earn-out Shares within 90
days
after they have been earned (as defined in paragraph 1).
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2.
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CAPITAL
INVESTMENT
|
The
Buyer
shall commit to a minimum Investment of $1,000,000
in
working capital to be disbursed to the Company, the maximum of $125,000
to be
used for the extinguishment of certain liabilities at the time
of close
and the
balance of which shall be used for its current operations, including debt
service of outstanding liabilities. Timing of the Investment shall be governed
by the success of the Buyer’s financing efforts which is expected to commence
upon the signing of this term sheet and continuing for the next 30 to 45
days
and up to, and through, the simultaneous Closing of the Acquisition. All
subsequent use of capital for the purpose of debt extinguishment shall be
governed by fiscal prudence and mutually agreed to by the management of the
Buyer and Company.
2
CONFIDENTIAL
Thereafter
and during a period of one (1) year after Closing of the Acquisition, the
Buyer
shall commit an additional investment of $1,000,000
in
working capital (“Additional Investment”) to be disbursed to the Company
according to a mutually agreed upon schedule for use in its operations and
expansion of its business. Any
changes in the amount of the Additional Investment must be mutually agreed
to by
the Sellers.
|
3.
|
BRIDGE
LOANS
|
HESG
shall endeavour to secure bridge financing prior to the close of the
Acquisition. Should HESG be successful in securing capital in advance of
the
Acquisition Close, proceeds may be loaned to Kalahari for the purpose of
maintaining operations (and not for the purpose of extinguishing liabilities)
and shall be credited against the Investment made by HESG at the time of
Acquisition Close. However, should the Acquisition fail to consummate, then
all
proceeds advanced to Kalahari as a loan shall be repaid subject to terms
of
mutually agreed upon note.
Starting
on the date of this letter and through and up to the Acquisition Close, any
proceeds loaned to Kalahari, other than those advanced by HESG, but subject
to
approval by HESG, may be repaid to the respective lenders at the time
Acquisition Close. Loaned amounts shall be credited against the Investment
made
by HESG at the time of Acquisition Close.
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4.
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ASSUMPTION
OF LIABILITIES
|
Xxxxx
will also assume certain of Company's operating liabilities, including vendor
payables as stated on Annex I (attached hereto), net of what is extinguished
at
the time of Closing (the “Continuing Liabilities”). Timing and amounts for
extinguishment of Continuing Liabilities to be mutually agreed to by management
of Buyer and Company.
With
respect to personal assets pledged by Xxx Xxxxx as collateral for the line
of
credit with a principal balance of $149,625
at the
date of this letter, HESG, in conjunction with Xx. Xxxxx and the management
of
the Buyer and the Company, shall replace the collateral with Company assets
or
extinguish the line of credit within 90 days of Closing.
|
5.
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EMPLOYMENT
AGREEMENTS
|
Xxxxx
Xxxxxxxx and Xxxxx Xxxxxxxx shall each enter into an employment agreement
for
executive level roles with the Company for a term of not less than two (2)
years
and receive a reasonable compensation package to include a competitive base
salary with bonuses, benefits and HESG’s stock option grants subject to agreed
upon milestones and financial metrics to include, but not limited to, revenue,
EBITDA, and earnings. Option amounts, vesting periods and strike prices shall
be
subject to key milestones established by mutual agreement and presented in
the
definitive agreement.
3
CONFIDENTIAL
Signing
Bonus
Xxxxx
Xxxxxxxx and Xxxxx Xxxxxxxx shall receive a grant of HESG common stock valued
at
$25,000
each,
registered on the Buyer’s Employee Stock Option Plan and granted at the time of
signing the employment agreement.
|
6.
|
CONSULTING
AGREEMENT
|
Xxx
Xxxxx
shall enter into a consulting agreement with the Buyer, or its subsidiary,
for a
term of three (3) years, cancellable at any time by HESG, or its subsidiary,
with 30 day written notice. Duties and responsibilities shall be mutually
agreed
upon at the time of engagement. Xxx’s compensation under the consulting
agreement shall be not less than $5,000
per
month. Should HESG, or its subsidiary, terminate the Fitch consulting agreement
prior to the end of the term, then Xx. Xxxxx shall receive a continuing payment
of $1,500
per
month for the balance of term.
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7.
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PRINCIPAL
CONDITIONS PRECEDENT
|
The
arrangements outlined in this letter and, insofar as appropriate, the formal
legal agreement to be entered into by the parties will be conditional, inter
alia, on the following:-
|
(a)
|
a
due diligence exercise on the Company being carried out to the
satisfaction of the Buyer, including the Buyer receiving a satisfactory
accountants’ report on the Company and the completion of all such other
reports and investigations by the Buyer’s other professional advisers as
the Buyer may decide upon;
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| (b) |
formal
board approval;
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(c)
|
there
being no material discrepancies in the financial information provided
to
the Buyer to date;
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(d)
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assignment
of one Board seat to Kalahari shareholders on the HESG Board for
a term to
extend through the earn-out period; and
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(e)
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simultaneous
close of a financing of not less than $1 million by Xxxxx, unless
otherwise mutually agreed to by the
Sellers.
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8.
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ACCOUNTANTS
INVESTIGATION
|
The
Sellers will permit the Xxxxx’s accountants, to have access to the books and
records of the Company for the purpose of reviewing and reporting on the
affairs
of the Company. The Sellers will procure that the Buyer and its accountants
and
legal advisers are provided with satisfactory answers to all questions which
they may reasonably raise and given access to or copies of all documents
which
are relevant to their review subject to them having signed an appropriate
confidentiality undertaking.
4
CONFIDENTIAL
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9.
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DOCUMENTATION
AND TIMETABLE
|
The
arrangements referred to in this letter will be included in a formal legal
agreement between, inter alia, the Sellers and the Buyer which will be prepared
by the Buyer’s attorneys, Xxxxxxxxxx & Xxxxx, LLC and will be governed by
Delaware law. It is the intention of the Buyer to complete this transaction
on
or before November 30, 2006.
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10.
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TERMS
OF THE SALE AND PURCHASE
AGREEMENT
|
| (a) |
Seller
Warranties and Indemnities
|
The
agreement will contain all agreed warranties and indemnities from the Sellers
consistent with a transaction of this size and nature concerning, inter alia,
title to all the assets (including, without limitation, intellectual property
and real property) of the Company, preparation and accuracy of the accounts
of
the Company, the conduct of business and taxation affairs, the position and
status as regards their employees, net asset position, etc.
| (b) |
Buyer
Warranties and Indemnities
|
The
agreement will contain all agreed warranties and indemnities from the Buyer
concerning its operations including, without limitation, the accuracy of
the
accounts of its, the conduct of business and taxation affairs, the position
and
status as regards their employees, net asset position, etc.
| (c) |
Non-Competition
Covenants
|
The
agreement will impose restrictive covenants upon the Sellers for a period
of 3
years, which means that they will not be able to invest in or set up a competing
business etc. for such period.
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11.
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EXCLUSIVITY
|
In
consideration of the Buyer incurring the expense of instructing its accountants
and attorneys to commence their investigations and to proceed with negotiations,
the Sellers hereby jointly and severally (and as a separate obligation) the
Company undertake to the Buyer, with the intention that such undertakings
shall
constitute a legal obligation binding on the Sellers, as follows:-
5
CONFIDENTIAL
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(a)
|
To
procure that any negotiations with third parties for
a merger of the Company with or into another entity, the sale or
other
disposal of a majority of the outstanding shares in the
Company
or
of any material part of the business or assets of the Company or
for the
issue of shares in the Company or any member of the Group (any
such event
being referred to as a “Sale” in this paragraph 11), are discontinued
immediately. Expressly
excluded is the Seller’s efforts currently being undertaken to secure
financing for its operations (a “Financing”);
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(b)
|
For
a period from and inclusive of the date on which this letter is
countersigned by the Sellers (the “Agreed Period”) until November 30, 2006
or such earlier date as the Buyer shall notify the Sellers that
it does
not intend to proceed with the Acquisition not to initiate, solicit,
enter
into or take part in any discussions, negotiations or arrangements
for or
anticipating a Sale to or with any entity other than the Buyer
or for all
or any part of the business or assets to be put under joint ownership
or
control or to become subject to any joint venture arrangement,
restriction
pledge or other encumbrance (but excluding a Financing as set forth
above);
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(c)
|
During
the Agreed Period not to make available (or permit to be made available
by
any employee, agent or advisor) any information of any nature whatsoever
to third parties with whom the Sellers or the Company or their
respective
advisers may have previously had discussions or other contact in
relation
to a proposed Sale (but not a
Financing);
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(d)
|
During
the Agreed Period not actively to respond to any proposal or offer
from
any other person relating to a proposed purchase of the Assets
(whether
solicited or unsolicited prior to the Agreed Period) (other than
to reject
the same) or give to any other person any information (not being
information publicly available) about the Company or directly or
indirectly enter into any agreement or arrangement with any other
person
with respect to such a proposal or offer (whether or not such proposal
or
offer would take place during or after the Agreed
Period);
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(e)
|
To
notify the Buyer immediately in writing of any approach (but without
any
obligation to identify the person making the approach) that is
made to the
Sellers (or any of them) with a view to the Sellers entering into
or
continuing with any negotiations of the sort referred to in sub-paragraph
(a) or (b) above;
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|
(f)
|
The
Mutual Non-disclosure Agreement by and between Buyer and Sellers
dated as
of September 5, 2006 shall remain in full force and effect upon
the
execution of this letter pursuant to its
terms;
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6
CONFIDENTIAL
If
there
is a breach by the Sellers of any of the foregoing provisions of this paragraph
11 during the Agreed Period, we shall be entitled to withdraw from our review
by
written notice to the Sellers at the address stated above and if as a result
of
such breach we shall suffer loss we shall be entitled to receive payment
from
you of an amount equal to the fees, commissions and expenses which shall
have
been incurred (including those already incurred at the date hereof) by us
up to
the date on which we become aware of such breach in relation to the review
and
any concurrent negotiations and which we may become liable to pay or reimburse
up to a maximum of $10,000.
In
consideration of the Sellers incurring the expense of instructing their
accountants and solicitors in connection with the Investment, the Buyer hereby
undertakes to the Sellers and the Company with the intention that such
undertakings shall constitute a legal obligation binding on the Buyer
that:
| (g) |
In
the event that the approval of the shareholders of the Buyer is
required
in order for the Buyer to effect the Acquisition and Investment
and such
approval is not obtained within 45 days of signing the agreement
for the
Acquisition and Investment, the Sellers shall be entitled to receive
payment from the Buyer of an amount equal to the fees, commissions
and
expenses (but excluding any personal tax advice or services) which
shall
have been incurred (including those already incurred at the date
hereof)
by them in relation to the Investment and any concurrent negotiations
and
which the Sellers may become liable to pay or reimburse up to a
maximum of
$10,000.
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12.
|
REMEDIES
|
This
agreement shall be governed by and interpreted in accordance with the corporate
laws of Delaware. The parties agree that any dispute arising under this
agreement shall be resolved exclusively by arbitration. Both parties expressly
consent to the exclusive jurisdiction therein. In no event shall either part
be
liable for any incidental or consequential damages.
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13.
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COSTS
|
Save
as
provided in paragraph 11, each party shall bear its own costs of and incidental
to the investigation of the Company and the negotiation and completion of
the
proposed sale and purchase of the Assets, except that Sellers’ legal and
accounting expenses up to a maximum of $40,000
shall be
paid from the Investment at Closing (which amount is in addition to the amount
of payables to be paid at Closing as set forth in Section 2
hereof).
7
CONFIDENTIAL
Please
confirm your agreement to and acceptance of the terms and conditions set
out
above by signing and returning the enclosed copy of this letter.
Regards,
…………………………………….
Xxxxxx
X.
Xxxx, CEO
For
and
on behalf of
Health
Sciences Group, Inc.
8
CONFIDENTIAL
ANNEX
I
9
CONFIDENTIAL
[On
duplicate:]
We
hereby
agree to and accept the terms of your letter to us dated ………………… 2006, a copy of
which is set out above.
SELLERS
|
_______________________
Xxxxx
X. Xxxxxxxx
CEO
_______________________
Xxxxx
Xxxxxxxx
_______________________
Xxxxxx
Xxxxx
|
_______________________
Print name
_______________________
Print name
_______________________
Print
name
|
Date:
……………………2006
10
