Exhibit 10.09
AGREEMENT OF UNDERSTANDING
"THIS AGREEMENT OF UNDERSTANDING" (this "Agreement") made as of the 17th
day of August 1999, by and between Ash Capital, LLC ("Ash Capital") and
RoomSystems, Inc., a Nevada corporation (the "Corporation").
R E C I T A L S :
WHEREAS, pursuant to that certain "Private Placement Memorandum" (the
"Memorandum"), dated May 24, 1999, the Corporation has offered certain of its
Series B Preferred Shares (the "Preferred Shares") for sale, privately; and
WHEREAS, Ash Capital desires to purchase with a small group of investors
(referred to herein sometimes as the "Investment Syndicate") up to one million
(1,000,000) of the Preferred Shares according to the terms and conditions set
forth in the Memorandum (the "Ash Capital Investment"); and
WHEREAS, the Corporation has offered a seat on its Board of Directors to
Xxxx Xxxxxx, an affiliate of Ash Capital and as an inducement to him, the
Corporation has offered certain options to Ash Capital to purchase its common
stock (the "Options"); and
WHEREAS, Ash Capital requires, preparatory to completing the Ash Capital
Investment, that the Corporation memorialize certain covenants outlined in the
Memorandum relating to the future reverse split of the Corporation's common
stock and the protection of the conversion price of the Preferred Shares at the
time the Corporation completes an Initial Public Offering (the "IPO"); and
WHEREAS, the parties intend to set forth herein the terms and conditions
relating to the Ash Capital Investment.
NOW, THEREFORE, in consideration of the monetary consideration herein
recited, the mutual promises herein contained and subject to the fulfillment of
the conditions herein set forth, the parties hereby agree as follows:
1. The Memorandum. The Memorandum sets forth the essential disclosures,
terms, and conditions relating to and describing an investment in the Preferred
Shares. The Corporation has delivered a copy of the Memorandum to Ash Capital
for review; and has delivered attendant thereto a copy of the "Subscription
Agreement" (the "Subscription Agreement"), which must be completed, executed and
delivered to the Corporation, as described in the Memorandum, by all investors
in the Preferred Shares. A copy of the Subscription Agreement is attached hereto
as Exhibit "A." The Corporation has also delivered to Ash Capital a copy of its
financial statements and projections.
2. Reverse Split of the Corporation's Shares of Common Stock. The
Corporation has disclosed to Ash Capital and to all investors in the Preferred
Shares, that it may effect a reverse split of its shares of common stock prior
to the IPO (the "Reverse"). The Memorandum warrants and guarantees that the
Preferred Shares are not subject to the Reverse.
As described in the Memorandum, the Preferred Shares convert into common shares
of the Corporation at the time of the IPO (the "Converted Shares"). The
Converted Shares shall not be subject to the Reverse.
3. Price Protection of the Converted Shares. The Converted Shares shall be
issued at the time of the IPO and shall not be subject to the Reverse. The
Converted Shares shall automatically convert into the Corporation's common
shares at the time of the IPO at the exercise price of the lesser of $3.00 or
fifty percent (50%) of the initial IPO price per share with such other terms as
are specifically set forth on the Certificate of Designation for the Preferred
Shares, a copy of which is attached as Exhibit "B," and which the Corporation
covenants will be filed with the Nevada Secretary of State prior to breaking
escrow pursuant to the Escrow Agreement described hereinafter.
4. Seat on the Corporation's Board of Directors. Upon the completion of the
Ash Capital Investment and the Closing, Ash Capital shall be entitled to one (1)
seat on the Corporation's board of directors (the "Board"). It is anticipated
that Xx. Xxxx Xxxxxx shall be Ash Capital's initial designee to the Board and
shall first be named to the board after the Corporation obtains satisfactory
errors and omissions/director liability insurance and executes the
Indemnification Agreement in the form attached hereto as Exhibit "C." If
approved by the Corporation's shareholders, Xx. Xxxxxx shall serve until such
time as he designates a replacement member to the Board from Ash Capital. The
Corporation shall execute and faithfully perform the Shareholders' Agreement and
Proxy in the form attached hereto as Exhibit "D."
A. Shares and Options. In order to induce Xxxx Xxxxxx to serve on the
Board, the Corporation agrees to deliver to Xxxx Xxxxxx options to purchase
certain of its shares of common stock as follows: ninety-three thousand seven
hundred fifty (93,750) shares of its common stock at the exercise price of $3.60
per share, according to the terms and conditions described in the form set forth
on Exhibit "E-1," attached hereto for the first year of his tenure on the Board:
and seventy-five thousand (75,000) shares of its common stock at the exercise
price of $6.60 per share, according to terms and conditions described in the
form attached hereto as Exhibit "E-2," if Xx. Xxxxxx or his designee serves an
additional year.
5. Ash Capital Investment Formula. The Memorandum describes a maximum
cumulative investment of $4,000.00 (the "Maximum Investment"). The Corporation
has amended the Memorandum to expand the Maximum Investment thereunder to
$8,000.00. The Ash Capital Investment percentage shall be calculated as follows:
The amount actually invested under the Memorandum by Ash Capital divided by
$3.00. This identifies the number of Preferred Shares actually purchased. If the
Maximum Investment is achieved, the percentage of shares held by Ash Capital
pursuant to the Ash Capital Investment shall be multiplied against the total
number of the Corporation's shares (common and preferred) then outstanding. For
example, if the Reverse is ultimately a two-for-one reverse, the total number of
shares outstanding would be approximately 4,138,270 (number of shares of common
and preferred stock outstanding subsequent to the Reverse, as more fully
described on Exhibit "F," attached hereto). This number added to 2,000,000 (the
total number of the Preferred Shares if the Maximum Investment is subscribed)
would equal the total number of shares of the Corporation's common and preferred
stock then outstanding. If the Corporation oversubscribes the Maximum
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Investment, Ash Capital's percentage ownership in the Corporation shall be
reduced accordingly. The percentage ownership held by Ash Capital upon breaking
of escrow shall be not less than the amount shown on Exhibit "F," unless such is
a result solely of over-subscriptions.
6. Consulting Agreement. The Corporation shall execute and faithfully
perform the Consulting Agreement with Providence Management, LLC in the form
attached hereto as Exhibit "G."
7. Escrow Agreement. The Corporation shall execute and faithfully perform
the Escrow Agreement with Ash Capital and U.S. Bank National Association
("Escrow Agent") in the form attached hereto as Exhibit "H." This Agreement and
all Exhibits hereto shall be delivered to the Escrow Agent, to be held and dealt
with by the Escrow Agent as set forth therein. Similar agreements shall be
executed in favor of each member of the Investment Syndicate as described below
in paragraph 9A.
8. Registration Rights Agreement. The Corporation shall execute and
faithfully perform the Registration Rights Agreement with Ash Capital and other
members of the Investment Syndicate as described below in paragraph 9A in the
form attached hereto as Exhibit "I."
9. Closing. It is anticipated that this Agreement and the Subscription
Agreement will be completed and executed prior to August 18, 1999; and the Ash
Capital Investment will be tendered to the escrow described hereinabove as soon
as possible thereafter (the "Closing"). At the time of the execution of this
Agreement including Exhibits and the delivery thereof to the Escrow Agent, such
shall be held and dealt with by the Escrow Agent pursuant to the terms of the
Escrow Agreement.
A. Separate Closing. The parties agree that the Closing for Ash
Capital, relative to the Ash Capital Investment may be earlier than the Closing
for the remaining members of the Investment Syndicate and that all of the terms,
conditions, representations and warranties herein (including Exhibits) shall
apply fully to, and be for the benefit of, such persons and entities, even
though not a party hereto, the parties intending that such persons shall be
third party beneficiaries hereof. Such Investment Syndicate may consist of the
following persons or entities or their affiliates: SKM Investments, LLC, a Utah
limited liability company, Cherokee & Xxxxxx, LLC, Birchbrook, LLC, and any
other entities introduced to the Corporation by Ash Capital or its affiliates.
10. Conduct of the Corporation's Business Pending the Closing: The
Corporation agrees that, pending the Closing, the business of the Corporation
shall be conducted only in the ordinary and usual course and substantially in
accordance with its prior business practices.
11. Miscellaneous Provisions. The following miscellaneous provisions are an
integral part of this Agreement:
A. Survival of Representations and Warranties. The respective
obligations of Purchaser and Seller hereunder and all representations and
warranties made in this Agreement, all Exhibits hereto, the Memorandum and all
certificates and documents delivered pursuant to hereto shall survive the
Closing.
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B. Attorneys' Fees. In the event suit is brought to enforce the
provisions of this Agreement, the prevailing party shall be entitled to
reasonable attorneys' fees and costs incurred in connection therewith.
C. Entire Agreement. This Agreement and the Exhibits hereto constitute
the entire agreement between the parties with respect to the matters covered
herein and supercedes any prior agreements or negotiations with respect to the
same. This Agreement is binding upon, and shall inure to the benefit of, the
parties hereto and their respective successors and assigns.
D. Amendments Only in Writing. This Agreement may not be changed
orally, but only by an agreement in writing signed by the party against whom
enforcement of any waiver, change, modification or discharge is sought.
E. Notices. All notices provided for herein shall be in writing and
shall be given by first class mail, certified or registered, postage prepaid,
addressed to the parties at the addresses shown below or to the Investment
Syndicate at the addresses shown in their respective subscription agreements.
F. Costs. It is agreed that the costs and expenses, including
attorneys' fees, incurred by Ash Capital in conjunction with its due diligence
and closing of this Agreement and the exhibits hereto shall be paid by the
Corporation, regardless of the disposition of funds and documents by the Escrow
Agent, unless Ash elects not to proceed with the investment pursuant to the due
diligence walk-right provisions of paragraph 3d of the Escrow Agreement. The
Corporation shall promptly reimburse Ash Capital upon presentment of its bills
for such expenses, whether or not Ash Capital ever receives from the Escrow
Agent an original of this Agreement signed by the Corporation.
G. Section Headings. The section headings in this Agreement are
inserted for convenience only and shall not be deemed to constitute a part of
this Agreement.
H. Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be deemed one and the same agreement. This
Agreement shall become a binding obligation upon execution and delivery of this
Agreement or counterpart hereof by each of the parties hereto.
I. Governing Law. This Agreement shall be governed by, and construed
and enforced in all respects in accordance with the laws of the State of Utah.
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IN WITNESS WHEREOF, this Agreement has been executed on the day first
written above.
ROOMSYSTEMS, INC.
By: /s/ X. X. Xxxxxxx
---------------------------
Its: CEO
000 Xxxxx 0000 Xxxx
Xx. Xxxxxx, Xxxx 00000
ASH CAPITAL, LLC
by Providence Management, LLC, Manager
By: /s/
---------------------------
Its: MANAGER
0000 X. Xxxxxxxx Xxxxx, Xxxxx X00
Xxxx Xxxx Xxxx, Xxxx 00000
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