EXHIBIT 10.1
Pollution Research and Control Corp.
0000 Xxxxxxxx Xxx., Xxxxx 000
Xxxxxxx Xxxxx, XX 00000
March 18, 2002
CONFIDENTIAL
Mr. Xxxxxx Sion
0000 Xxxxxx Xxxx Xxxxx
Xxx Xxxxx, Xxxxxx 00000
RE: LETTER OF INTENT
SALE OF STOCK OF DASIBI ENVIRONMENTAL CORP.
Dear Xxxxxx:
Following up on our recent discussions, this letter (this "LETTER OF
INTENT") sets forth our mutual understanding regarding the principal terms on
which you (the "BUYER") propose to purchase (the "TRANSACTION") all of the
issued and outstanding stock of Dasibi Environmental Corp. (the "COMPANY"), a
California corporation and wholly-owned subsidiary of Pollution Research and
Control Corp., a California corporation (the "SELLER"). Based on our
discussions, we are prepared to proceed rapidly to complete the Transaction, and
look forward to working with you to accomplish our mutual objective. The
following paragraphs of this letter (the "BINDING PROVISIONS") are the legally
binding and enforceable agreements of the Seller, the Company and the Buyer.
The parties intend to execute a written acquisition agreement providing for
the Transaction (the "DEFINITIVE PURCHASE AGREEMENT"). In the event that the
Transaction is consummated without the parties executing a Definitive Purchase
Agreement, the Binding Provisions shall govern the terms and conditions of the
Transaction.
1. THE TRANSACTION. The Buyer will purchase all of the issued and
outstanding stock of the Company (the "STOCK") for an aggregate purchase price
of $1,500,000 (the "PURCHASE Price"). The Buyer may assign the right to receive
the Stock to another entity at the Closing. The Purchase Price shall be payable
in the form and subject to the adjustments, each as set forth below:
(a) FORM OF PURCHASE PRICE
All outstanding indebtedness of whatever nature or form owing from the
Seller to Xxx Sion and/or Xxxxxx Sion, including the principal amounts together
with all accrued and unpaid interest, late charges, penalties, and any other
costs or charges arising directly or indirectly from the indebtedness as of the
date of the Closing (as defined herein) (the "Debt") shall be deemed paid in
full and fully and finally discharged as of the Closing. The parties acknowledge
that a disagreement exists with respect to the amount of the Debt and nothing
contained in this Letter
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of Intent shall serve as an acknowledgement, admission or any similar action by
any of the parties with respect to the amount of the Debt.
(b) ADJUSTMENTS TO PURCHASE PRICE: VALUATION
Seller intends to retain an independent valuation analyst to determine a
reasonable valuation (the "VALUATION") of the Company. If the analyst values the
Company at a price in excess of 110% of the Purchase Price, then the parties
hereto shall work cooperatively to revise the terms of the Transaction to
provide additional consideration to Seller to adequately reflect the value of
the Stock as assessed by the analyst.
2. TECHNOLOGY LICENSE AGREEMENTS. Concurrent with the Closing, the Company
and the Seller will enter into one or more licensing agreements (the "TECHNOLOGY
LICENSE Agreements") containing the terms set forth in EXHIBIT A and otherwise
in customary form and substance.
3. CLOSING. If all conditions to the closing of the Transaction (the
"CLOSING") are then satisfied or waived, the Closing shall take place on or
before March 25, 2002, at 5:00 p.m. (Pacific Standard Time) automatically and
without any further action by any party (the "CLOSING DATE"). If all conditions
to the Closing are not then satisfied or waived, either party has the right to
terminate this Letter of Intent.
4. ASSIGNMENT OF ASSETS. Immediately prior to the Closing, the Company
shall assign to the Seller all of the Company's inventory (the "INVENTORY") as
such term is defined by U.S. Generally Accepted Accounting Principles. The
inventory shall be valued by an independent valuation analyst.
5. OPTIONS TO PURCHASE COMMON STOCK OF SELLER. The Buyer hereby
acknowledges that notwithstanding any agreement or document to the contrary, as
of the Closing, the following individuals shall have no rights to purchase the
common stock of the Seller other than the options listed below, and at the
Closing, Seller will deliver to the Buyer an option agreement reflecting each
option listed below and the Buyer will surrender each previously granted option:
NUMBER OF SHARES OPTIONEE STRIKE PRICE EXPIRATION DATE
---------------- ------------ ------------ ---------------
25,000 Xxxxxx Sion $0.25 3/25/05
528,571 Xxxxxx Sion $0.875 3/25/05
For purposes of this Letter of Intent, the options identified in this Paragraph
5 collectively are referred to as, the OPTIONS, and the shares of common stock
underlying the Options collectively are referred to as, the OPTION SHARES.
Notwithstanding any agreement or document to the
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contrary, the Seller has no obligation to register for resale the Option Shares
other than as provided in this Letter of Intent:
(a) PIGGY-BACK REGISTRATION RIGHTS. If (but without any obligation to do
so) the Seller proposes to register any of its common stock under the Securities
Act of 1933, as amended (the "SECURITIES ACT") in connection with the public
offering of such securities solely for cash (other than a registration (i) with
respect to an employee benefit plan, or (ii) solely in connection with a Rule
145 transaction under the Securities Act), the Seller shall give the Buyer at
least ten (10) days written notice of such registration prior to filing a
registration statement to effect any such registration. Upon the written request
of the Buyer given within five (5) days after delivery of such written notice by
the Seller, the Seller shall use its reasonable efforts to cause to be
registered under the Securities Act all of the Option Shares and the Common
Shares (as defined in Paragraph 15), the resale of which is not then exempt from
the registration requirements of the Securities Act pursuant to Rule 144 of the
Securities Act. The Seller shall be obligated to register the Option Shares and
the Common Shares pursuant to this Paragraph 5(a) on one occasion only;
provided, however, that if the registration statement under this Paragraph 5(a)
is on a delayed or continuous basis, the Seller shall not withdraw the
registration statement prior to the sale or other disposition of all the Option
Shares and the Common Shares included by the Buyer under such registration
statement. If any registration under this Paragraph 5(a) is, in whole or in
part, an underwritten public offering of common stock, the number of Option
Shares and Common Shares to be included in such underwriting may be reduced in
whole or in part if and to the extent that the managing underwriter shall be of
the opinion that such inclusion would adversely affect the marketing of the
securities to be sold by the Seller. Notwithstanding the foregoing provisions,
the Seller may withdraw any registration statement referred to in this Paragraph
5(a) without incurring any liability to the Buyer.
(b) S-3 REGISTRATION STATEMENT. If requested by the Buyer and the Buyer
then owns (i) that number of Options which are then exercisable into in excess
of 50% of the Option Shares, and owns in excess of 50% of the Common Shares, or
(ii) in excess of 50% of the Option Shares and in excess of 50% of the Common
Shares, then at such time that the Seller is eligible to file a registration
statement on Form S-3 for the resale of the Option Shares and the Common Shares,
the Seller shall use its reasonable efforts to register the resale of the Option
Shares and the Common Shares and keep such registration effective until all the
Options Shares and Common Shares have been sold or otherwise disposed; provided
however, the Seller shall have no obligation under this Paragraph 5(b) to file a
registration statement: (a) with respect to the Option Shares, if the resale of
the Option Shares is then exempt from the registration requirements of the
Securities Act pursuant to Rule 144 of the Securities Act; and (b) with respect
to the Common Shares, if the resale of the Common Shares is then exempt from the
registration requirements of the Securities Act pursuant to Rule 144 of the
Securities Act.
(c) LOCK-UP. Notwithstanding the registration rights contained in this
Letter of Intent, the Buyer shall not sell or otherwise dispose of any of the
Option Shares or the Common Shares before March 25, 2003. The Buyer acknowledges
that the certificates representing the
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Options, the Option Shares, and the Common Shares will bear restrictive legends
reflecting the terms of this Paragraph 5(c) and the restrictions on transfer
imposed by applicable law.
6. PUBLICITY. Without the prior written consent of Seller, Buyer will not,
and will direct its representatives not to, make, directly or indirectly, any
public comment, statement, or communication with respect to, or otherwise to
disclose or to permit the disclosure of the existence of discussions regarding,
a possible transaction between the parties or any of the terms, conditions, or
other aspects of the Transaction.
7. COVENANTS.
(a) ACTIONS OF COMPANY PRIOR TO CLOSING. Until the earlier of the Closing
or the Termination Date (as defined in paragraph 10), the Company, except as
contemplated by this Letter of Intent, will: (a) carry on its business as
presently conducted and only in the usual and ordinary course; (b) use its
reasonable efforts to preserve its business organization intact; (c) not declare
or pay any dividends or distributions on its capital stock; (d) not make any
changes in its capital structure or issue any shares of its capital stock or
other securities or rights or options to purchase its capital stock or other
securities; (e) not make any payments to its officers, directors or employees
except in the usual and ordinary course of business; and (f) operate, incur
obligations and transfer or dispose of assets only in the ordinary course of
business, consistent with past practices.
(b) ACTIONS OF BUYER PRIOR TO CLOSING. The Buyer shall use its best efforts
to obtain the Qualified Financing (as defined in Paragraph 14(a)) and shall
update the Company regarding the status of the Qualified Financing at least five
(5) days before the Closing Date.
(c) ACTIONS OF BUYER POST CLOSING.
(i) The Buyer agrees to and will cause the officers, directors,
employees and consultants of the Company to fully cooperate and use their best
efforts assist, make available, and provide all such information as the Seller
may require in connection with any obligations of the Seller pursuant to any
local, state, federal or foreign law.
(ii) The Company agrees to timely pay all debt and any other
liabilities of the Seller that exist as of the Closing Date which were incurred
directly or indirectly on behalf of the Company.
8. FEES AND EXPENSES. The Buyer and the Seller each shall be responsible
for their own fees and expenses incurred in the Transaction, including, but not
limited to, any and all attorney fees, investment banker fees, commissions and
accounting fees.
9. CONFIDENTIALITY. Except as and to the extent required by applicable law,
rule, or regulation, each party will not disclose or use, and will direct its
representatives not to disclose or use, for a period ending on the first
anniversary of the date of this Letter of Intent, any
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confidential information with respect to the Company or the Seller, furnished,
or to be furnished, by any party or their respective representatives to any
other party or its representatives at any time or in any manner other than in
connection with its evaluation of the Transaction. For purpose of this
paragraph, "confidential information" means any information about the Company or
the Seller stamped "confidential" or identified in writing as such to the
parties promptly following its disclosure unless (i) such information is already
known to the other party or its representatives or to others not bound by a duty
of confidentiality or such information becomes publicly available through no
fault of such other party or its representatives, (ii) the use of such
information is necessary or appropriate in making any filing or obtaining any
consent or approval required for the consummation of the Transaction, or (iii)
the furnishing or use of such information is required, necessary, or appropriate
in legal proceedings. Upon the request of any party, the other parties will
promptly return to the requesting party or destroy any confidential information
in its possession and certify in writing to the requesting party that it has
done so.
10. TERMINATION. This binding Letter of Intent shall expire on the earliest
to occur of: (i) the written agreement of the Seller and the Buyer or (ii) 5:01
p.m. on March 25, 2002, if the Closing shall not have occurred (the "TERMINATION
DATE"). The Binding Provisions (other than Paragraphs 6, 8 and 9, which will
continue in effect beyond the Termination Date) will automatically terminate on
the Termination Date; provided, however, that the termination of the Binding
Provisions will not affect the liability of a party for breach of any of the
Binding Provisions prior to the termination.
11. REPRESENTATIONS OF BUYER.
(a) ACCREDITED INVESTORS. The Buyer is an "accredited investor" as such
term is defined in Rule 501 of Regulation D promulgated under the Securities
Act. The Buyer is acquiring the Stock for his own account and not with a view to
its distribution with the meaning of Section 2(11) of the Securities Act.
(b) OWNERSHIP OF DEBT; POWER AND AUTHORITY. The Buyer is the sole lawful
owner, beneficially and of record, of the Debt, free and clear of any security
interest, claim, lien, pledge, option, encumbrance or restriction of any kind or
nature. Buyer has not assigned the Debt, in whole or in part, to any other
individual or entity. Buyer has the full power and authority to enter into this
Letter of Intent, and to consummate the transactions contemplated herein.
(c) ASSIGNMENT OF DEBT. All outstanding indebtedness of whatever nature or
form owing from the Seller and/or the Company to Xxxxxxx Xxxxxxxx and/or Xxx
Sion, including the principal amounts together with all accrued and unpaid
interest, late charges, penalties, and any other costs or charges arising
directly or indirectly from the indebtedness as of the date of the Closing has
been assigned to Xxxxxx Sion.
(d) DISCLOSURE OF INFORMATION. The Buyer has received and reviewed all the
information it considers necessary or appropriate for deciding whether to
purchase the Stock. The Buyer further represents that the Buyer is relying
solely on its own expertise and that of its
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consultants, and not on any representation of the Seller or the Company not
expressly contained in this Agreement. The Buyer has had an opportunity to ask
questions and receive answers from Seller and/or the Company regarding the terms
and conditions of the offering of the Stock.
12. RESTRICTED SECURITIES. The Buyer understands that the Stock constitutes
"restricted securities" under the federal securities laws because it is being
acquired from the Seller in a transaction not involving a public offering and
that under such laws the Stock may be resold without registration under the
Securities Act and applicable state securities laws only in certain limited
circumstances. In this regard, the Buyer represents that the Buyer is familiar
with Rule 144, as promulgated under the Securities Act, and understands the
resale limitations imposed thereby and by the Securities Act.
13. CONDITIONS PRECEDENT OF SELLER AND COMPANY. The obligations of the
Seller and the Company to effect the Closing are further subject to the
satisfaction or waiver, on or prior to the Closing Date, of the following
conditions:
(a) The Seller has obtained third party consents to the Transaction from
any person or entity from whom such consent is required to be obtained by the
Seller;
(b) The Transaction complies with all provisions of applicable federal,
state and local law and the rules and regulations of the National Association of
Securities Dealers;
(c) No governmental entity or other party shall have threatened to, or
initiated proceedings to, restrain or prohibit the Transaction or force a
rescission of the Transaction;
(d) No law or order shall have been enacted, entered, issued or promulgated
by any governmental entity that prohibits the consummation of the Transaction;
(e) If the Valuation exceeds 110% of the Purchase Price, the parties have
agreed upon revised terms of the Transaction pursuant to Paragraph 1(b) hereof;
(f) The receipt of releases of all obligations of the Seller arising out of
any debt or other liability owed by the Seller to the Company, by the Seller and
incurred on behalf of the Company, or owed by the Company to any third party to
which the Seller is a guarantor or in any way liable; to the extent the Seller
cannot obtain the release of any such other debt or other liabilities (the
"REMAINING LIABILITIES"), the receipt of the assumption by the Buyer of all
Remaining Liabilities.
(g) The Company shall have assigned the Inventory to the Seller;
(h) The Company shall have executed and delivered to the Seller the
Technology License Agreements;
(i) Buyer shall have delivered to Seller all original promissory notes and
other documents evidencing the Debt; and
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(j) Each representation and warranty set forth herein on behalf the Buyer
must have been accurate and complete as of the date of this Letter of Intent,
and must be accurate and complete as of the Closing Date, as if made on the
Closing Date.
14. CONDITIONS PRECEDENT OF BUYER. The obligations of the Buyer to effect
the Closing are further subject to the satisfaction or waiver, on or prior to
the Closing Date, of the following conditions:
(a) The Buyer shall have entered into an agreement to obtain financing in
an amount not less than $500,000 (the "QUALIFIED FINANCING"); (b) If the
Valuation exceeds 110% of the Purchase Price, the parties have agreed upon
revised terms of the Transaction pursuant to Paragraph 1(b) hereof; and
(c) Each representation and warranty set forth herein on behalf the Seller
and the Company must have been accurate and complete as of the date of this
Letter of Intent, and must be accurate and complete as of the Closing Date, as
if made on the Closing Date.
15. ISSUANCE OF COMMON STOCK. The Seller agrees to instruct its transfer
agent at the Closing to issue, immediately following the Closing, 100,000 shares
of restricted common stock of Seller (the "COMMON SHARES") to the Buyer in
connection with a promissory note by and between the Seller and the Buyer dated
December 22, 2000. The Buyer agrees not to sell or otherwise dispose of the
Common Shares before the earlier to occur of: (i) an effective registration
statement of Seller pursuant to Paragraphs 5(a) or 5(b); or (ii) March 25, 2003.
The Buyer acknowledges that the certificate evidencing the Common Shares will
bear restrictive legends reflecting the terms of this Paragraph 15 and the
restrictions on transfer imposed by applicable law. The Buyer hereby
acknowledges that, notwithstanding any agreement or document to the contrary, no
other securities of the Seller are owed to the Buyer as of the date hereof other
than as provided in this Letter of Intent.
16. INDEMNIFICATION.
(a) The Buyer shall indemnify, save and keep the Seller, its officers,
directors, employees, partners and shareholders (each a "SELLER INDEMNITEE" and
collectively, the "SELLER INDEMNITEES") harmless against and from all
liabilities and damages sustained or incurred by any Seller Indemnitee as a
result of or arising out of or by virtue of (i) any inaccuracy in or breach of
any representation and warranty made by the Buyer to the Seller in this Letter
of Intent; and (ii) the breach by the Buyer, or the failure of the Buyer to
comply with, any covenants or obligations under this Letter of Intent to be
performed by the Buyer.
(b) The Company shall indemnify, save and keep any Seller Indemnitee
harmless against and from all liabilities and damages sustained or incurred by
any Seller Indemnitee as a result of or arising out of or by virtue of any
failure of the Company to obtain any consents required in connection with the
consummation of the Transaction.
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(c) The Seller shall indemnify, save and keep the Buyer harmless against
and from all liabilities and damages sustained or incurred by the Buyer as a
result of or arising out of or by virtue of (i) any inaccuracy in or breach of
any representation and warranty made by the Seller to the Buyer in this Letter
of Intent and (ii) the breach by the Seller, or the failure of the Seller to
comply with, any covenants or obligations under this Letter of Intent to be
performed by the Seller.
(d) The Seller shall indemnify, save and keep the Buyer harmless against
and from all liabilities and damages sustained or incurred by the Buyer as a
result of or arising out of or by virtue of any failure of the Seller to obtain
any consents required in connection with the consummation of the Transaction.
17. ENTIRE AGREEMENT. This Letter of Intent constitutes the entire
agreement between the parties, and supersedes all prior oral or written
agreements, understandings, representations and warranties, and course of
conduct and dealing between the parties on the subject matter hereof. Except as
otherwise provided herein, this Letter of Intent may be amended or modified only
by a writing executed by all of the parties.
18. GOVERNING LAW. The Binding Provisions will be governed by and construed
under the laws of the State of California without regard to the choice of all
law rules that may direct the application of the laws of another jurisdiction.
19. COMPLIANCE WITH CALIFORNIA LAW. If, in the reasonable determination of
Seller's counsel, the Transaction is subject to a vote of the shareholders of
Seller under applicable law, including Section 1001 of the California
Corporations Code, then the parties hereto shall either (i) use their reasonable
best efforts to obtain a vote of the shareholders with respect to the
Transaction as soon as practicable following the date of this Letter of Intent,
or (ii) to restructure the Transaction in a manner that, in the reasonable
determination of counsel to the Seller, does not require a vote of the
shareholders of Seller.
20. EFFECT OF LETTER OF INTENT. Except as expressly provided in the Binding
Provisions (or as expressly provided in any binding written agreement that the
parties may enter into in the future), no past or future action, course of
conduct, or failure to act relating to the Transaction, or relating to the
negotiation of the terms of the Transaction or any Definitive Purchase
Agreement, will give rise to or serve as a basis for any obligation or other
liability on the part of the parties.
21. NOTICE. All notices, requests, demands, claims and other communications
hereunder will be in writing. Any notice, request, demand, claim or other
communication hereunder will be deemed duly given if (and then three business
days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
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If to the Seller:
Xxxxxxx Xxxxxx
0000 Xxxxxxxx Xxxx., Xxxxx 000
Xxxxxxx Xxxxx, XX 00000
Tel: (000) 000-0000
Fax: (000) 000-0000
Copy to (which will not constitute notice):
Akin, Gump, Strauss, Xxxxx & Xxxx, L.L.P.
Attn: Xxxxx Xxxxxx, Esq.
0000 Xxxxxxx Xxxx Xxxx, 00xx Xxxxx
Xxx Xxxxxxx, XX 00000
Tel: (000) 000-0000
Fax: (000) 000-0000
If to the Buyer:
Attn: Xxxxxx Sion
0000 Xxxxx Xxxx Xxxxx
Xxx Xxxxx, Xxxxxx 00000
Tel: (000) 000-0000
Fax: (000) 000-0000
Copy to (which will not constitute notice):
Xxxxxxxx & Xxxxxxxx LLP
Attn: Xxxxx Xxxxxxx
000 Xxxx Xxxxx Xxxxxx
Xxx Xxxxxxx, XX 00000
Tel: (000) 000-0000
Fax: (000) 000-0000
Any party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication will be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other parties
notice in the manner herein set forth.
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If you wish to proceed on the basis outlined above, please execute this
binding Letter of Intent in the space provided below and return it to me by 5:00
p.m., Pacific Daylight Time, on March 19, 2002.
Sincerely yours,
POLLUTION RESEARCH AND CONTROL CORP.
By: /S/ XXXXXXX XXXXXX
---------------------------------
Its: CEO
-----------------------------
ACCEPTED AND AGREED TO THIS
18TH DAY OF MARCH, 2002
By: /S/ XXXXXX SION
----------------------------
Xxxxxx Sion
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EXHIBIT A
MATERIAL TERMS TO BE INCLUDED IN TECHNOLOGY LICENSE AGREEMENTS:
Dasibi Environmental Corp. ("LICENSOR") hereby irrevocably grants to
Pollution Research and Control Corp. ("LICENSEE") and its successors and
assigns, a nonexclusive, sublicensable, transferable, assignable, perpetual
and royalty-free license throughout the universe, but expressly excluding
mainland China, to (1) make, use, develop, practice and otherwise exploit
(collectively, "EXPLOIT" and words of similar import) all products,
inventions, devices, software, methods, processes, formulas or other
technologies owned by Licensor or which Licensor has a license to Exploit
and all intellectual property rights inherent therein or related thereto
(the "PROPERTIES") as of the date hereof, and (2) to manufacture, market,
distribute, sell and license products or services resulting from such
Exploitation of the Properties.
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