EXHIBIT 10.1
[LETTERHEAD]
October 4, 1999
Xx. Xxxxxx Xxxxxxxxxx
Chairman and Chief Executive Officer
Xxxx Electro-Mechanical Industries (1986) LTD
P.O.B. 462
Tel-Hanan 20302, Israel
Dear Xxxxxx,
The following represents a memorandum of understanding between Xxxx
Electro-Mechanical Industries (1986) LTD (Xxxx) and Quadlogic Controls
Corporation (Quadlogic) concerning the following proposed financing arrangement:
NATURE OF FINANCING - Bank Hapoalim (the "Bank") will make available to
Quadlogic Controls Corporation a $1 million line of credit. This line of credit
will be guaranteed by Xxxx and be made available to Quadlogic as follows:
DATE AVAILABLE
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1st increment - $400,000 (See Availability of Financing below)
2nd increment - 200,000 October 31, 1999
3rd increment - 200,000 December 15, 1999
4th increment - 200,000 January 15, 2000
AVAILABILITY OF FINANCING - The 1st $400,000 will be available as soon as the
banking arrangements are made (which is expected to be within one week of the
signing of this memorandum of understanding) and Quadlogic and Xxxxxx
Xxxxxxxxxx, on behalf of Xxxx, sign this memorandum of understanding. The next
three increments will automatically be available on the dates noted above
subject to Quadlogic meeting its monthly operating cash flow targets, discussed
below. Each increment of the Credit Line will be available for a period of 360
days from the date of availability (whether or not drawn or repaid).
As the Bank makes available to Quadlogic each increment of financing, Xxxx will
be granted the warrants associated with each increment described below. If for
any reason, the increment is not made available on the dates indicated above in
"Nature of Financing", then Quadlogic will be under no obligation to issue Xxxx
the warrants associated with such increment.
QUADLOGIC CASH FLOW - If the Company's operating cash flow (defined as net
income plus depreciation less capital expenditures plus lease financing plus
deferred employee pay) does not exceed an average deficit of $100,000 per month
for the monthly periods noted below, the next $200,000 increment will
automatically become available to Quadlogic on the date noted above in "Nature
of Financing". The monthly periods will be as follows:
For the October 31st increment, the monthly cash flow periods will be August
and September.
For the December 15th increment, the monthly cash flow periods will be October
and November.
For the January 15th increment, the monthly cash flow period will be December
1999.
If the Company's operating cash flow fails to meet the above target, then Xxxx
will have no obligation to provide a guarantee for the applicable $200,000
increment or any subsequent increments and it will be Xxxx'x sole decision as to
whether it will guarantee any such additional funds for the Company. Should Xxxx
decide not to guarantee the additional increments of financing, it will not be
entitled to receive the warrants associated with such increment.
COMPENSATION TO GUARANTOR - In return for providing guarantees for the lines of
credit discussed above, Xxxx will receive from Quadlogic 1,210,000 warrants (to
be received as noted below). Each warrant will be convertible into one share of
common stock. At any time, the Company may notify Xxxx that it does not intend
to repay the increment of the line to which the warrants relate, in which event
the Company may force the exercise of a sufficient number of warrants to repay
such increment at $1.25 per share. The terms and conditions of these warrants
are as follows:
For each dollar increment of the line of credit that Quadlogic
receives, Xxxx will receive 1.2 warrants (e.g. for providing the first
line of credit increment of $400,000, Xxxx will receive 480,000
warrants). If Quadlogic subsequently pays down the line of credit the
amount of warrants that Xxxx received will remain in force.
To the extent that there is no amount of money outstanding on the line
of credit at the end of the 360-day period the line of credit is
available, the exercise price of the warrants shall be $1.75. If there
is an outstanding balance at the end of the year, Xxxx will be
required to provide the Company with such amount. The funds Xxxx will
provide to the Company to pay down the line of credit to zero will be
the result of Xxxx exercising part or all of its warrants. Such
warrants will be exercisable into common stock at the price of $1.25
per share to the extent needed to pay off the line. All remaining
warrants will be exercisable at $1.75 per share.
To the extent that Xxxx, at its option, converts any warrants into
common shares prior to the expiration of the term related line of
credit increment, such warrants will be exercisable at $1.75 per
share.
All warrants that Xxxx receives will expire on December 31, 2001.
The number of warrants noted above (1,210,000) that Quadlogic grants to Xxxx
assumes that Quadlogic will grant to a public relations firm, acceptable to Xxxx
and Quadlogic, 200,000 warrants associated with their work on behalf of the
Company. To the extent the number of warrants that Quadlogic grants to the
public relations firm differs from the 200,000 warrant estimate, the number of
warrants Xxxx receives will be adjusted by such difference (i.e. if the public
relations firm receives 150,000 warrants, Xxxx will be entitled to receive a
total of 1,260,000 warrants. If the public relations firm receives 250,000
warrants, Xxxx will be entitled to receive a total of 1,160,000 warrants).
Should the total number of warrants Xxxx is entitled to be adjusted, the
adjusted amount shall be allocated ratably over the four line of credit
increments. The basis of the allocation shall be the ratio of the dollar amount
of each increment to $1,000,000.
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RECEIPT OF WARRANTS - Xxxx shall receive the initial 490,000 warrants
simultaneous with the availability to Quadlogic of the 1st $400,000 increment of
financing. (There is additional 10,000 warrants being granted on the first
increment that is not considered part of the formula.) Xxxx will receive any
subsequent warrants simultaneous with the availability of and the acceptance by
Quadlogic of each of the remaining $200,000 financing increments.
VOTING OF EXERCISED SHARES - Prior to a successful secondary offering, should
Xxxx convert any of the warrants it receives as a result of this transaction
into common stock, Xxxx agrees that it will give to Xxxxx Xxxxxxxxxxxx his proxy
relating to such converted shares. Xxxxx will vote this proxy in the manner he
deems appropriate. The shares issued upon the exercise of the warrants will bear
a legend to that effect. In addition, any other share purchased by Xxxxxx
Xxxxxxxxxx, Xxxx or any of their affiliates (between the date hereof and the
closing of a successful secondary offering) shall be subject to a proxy, but
shall not bear any legend to that effect. This provision will cease simultaneous
with a successful secondary offering of Quadlogic's common stock. For the
purposes of this document, a successful secondary offering of Quadlogic's common
stock shall be the sale to the public of at least 1 million Quadlogic common
shares raising a minimum of $3,000,000 in net equity on terms satisfactory to
the Board of Directors of Quadlogic Controls Corporation.
REGISTERED COMPANY - The Company commits that it will use its best efforts to
become a registered company with the Securities and Exchange commission by
February 28, 2000. If the Company is not a registered company by February 28, it
will use its best efforts to become a registered company as soon as practical
after such date.
BOARD OF DIRECTOR APPROVAL - This memorandum of understanding is subject to
approval by the Quadlogic Controls Corporation Board of Directors and the
miscellaneous provision listed below.
TRANSFERABILITY - These warrants, subject to compliance with applicable federal
and state securities laws, and subject to the transferee entering into the
voting proxy referred to herein, and all rights thereunder are transferable, in
whole or in part, by the holder thereof to persons and entities reasonably
acceptable to the Company in its sole discretion.
MISCELLANEOUS - You agree to return to Quadlogic the 370,371 common shares of
Quadlogic Controls Corporation that you were issued in error. In addition, you
commit to obtaining on a prompt basis all required signatures that Quadlogic has
not yet received relating to the unsigned purchase agreements that were given to
Xxxx Xxxxxxx and Xxxx Xxxx relating to their purchase of Quadlogic common stock.
The Company and Xxxx agree that the release of the first $400,000 of financing
shall not occur until the Board of Directors of Quadlogic has approved this
agreement. Furthermore, the Company and Xxxxxx Xxxxxxxxxx agree that Xxxxxx
Xxxxxxxxxx shall become a member of the board upon Quadlogic's ability to access
the first $400,000 of financing.
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If you are in agreement with the proposed terms noted above, please indicate
your agreement by signing below.
Sincerely,
/s/ Xxxxx Xxxxxxxxxxxx
Xxxxx Xxxxxxxxxxxxx Date: 10/5/99
Chairman of the Board and
Chief Executive Officer
I agree to the above noted terms.
/s/ Xxxxxx Xxxxxxxxxx
Xxxxxx Xxxxxxxxxx Date: 5/10/99
Chairman and Chief Executive Officer
Xxxx Electro-Mechanical Industries (1986) LTD
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