Letter of Intent
December 20, 1999
Xxxxxxx.xxx Inc.
00000 Xxxxxxxxxxxxx Xxxx., Xxxxx 000
Xxxxxxx, XX 00000
Attn: Xxxxxx X. Xxxxx
Re: Proposal to Acquire Xxxxxxx.xxx Inc.
Dear Xxxxxx:
The purpose of this letter (this "Letter") is to set forth certain
nonbinding understandings and certain binding agreements among XxxxXxx.xxx Inc.,
a Washington corporation ("Prospective Buyer"), Xxxxxxx.xxx Inc., a Nevada
corporation (the "Company"), and shareholders of the Company who are signatories
to this Letter (the "Key Shareholders"), as of the date shown above (the
"Effective Date"), with respect to the possible acquisition of the Company by
the Prospective Buyer on the terms set forth below.
PART ONE--NONBINDING PROVISIONS
The following numbered paragraphs of this Letter (collectively, the
"Nonbinding Provisions") reflect our mutual understanding of the matters
described in them, but each party acknowledges that the Nonbinding Provisions
are not intended to create or constitute any legally binding obligation among
Prospective Buyer, the Company and the Key Shareholders, and none of Prospective
Buyer, the Company or the Key Shareholders shall have any liability to the other
parties with respect to the Nonbinding Provisions unless and to the extent that
they are embodied in a fully integrated definitive agreement (the "Definitive
Agreement"), and other related documents, which are prepared, authorized,
executed and delivered by and among all parties. If the Definitive Agreement is
not prepared, authorized, executed or delivered for any reason, no party to this
Letter shall have any liability to any other party to this Letter based upon,
arising from, or relating to the Nonbinding Provisions.
1. Basic Transaction
a. Prospective Buyer would acquire the equity of the Company as of the
closing of the proposed transaction. The parties intend that the closing of the
proposed transaction (the "Closing") would occur three business days after the
later to occur of (i) the date the Form S-4 (as defined below) is declared
effective by the Securities and Exchange Commission (the "Commission") and (ii)
the date the shareholders of the Company approve the proposed transaction.
b. The structure and form of the transaction will be mutually agreeable
to the parties, provided that the parties currently intend that the transaction
will qualify for treatment as a tax-free transaction under the Internal Revenue
Code of 1986, as amended.
2. Proposed Purchase Price; Registration of Securities; Assumption of Debt
Based on the information known to Prospective Buyer on the date hereof,
the total consideration for the Company would be $45 million, subject to
adjustment as provided below (the "Purchase Price"). The Purchase Price less the
total amount of the Closing Liabilities (as defined below) would be paid to the
holders of equity securities of the Company (the "Shareholders") at the Closing
through the issuance by Prospective Buyer of shares of Prospective Buyer's
Common Stock valued at the Per Share Stock Price.
For purposes of this Letter, (a) "Per Share Stock Price" shall mean the
lower of (i) $20 or (ii) the average daily closing sales price of Prospective
Buyer's Common Stock as reported on the Nasdaq National Market ("Nasdaq") on
each of the ten trading days immediately prior to the execution of the
Definitive Agreement (the "Ten Day Average Price") and (b) "Closing Liabilities"
shall mean all liabilities, debts or obligations, contingent or otherwise,
existing as of the Closing, the value of which would not exceed the Purchase
Price, including without limitation, all outstanding indebtedness to (1) Astra
Ventures LLC, (2) certain employees of the Company based on change of control
provisions in such employees' respective employment agreements, (3) Alpine
Capital for approximately $1 million, (4) the Company's COO for approximately
$250,000 as an earn-out under an agreement between the Company and such officer,
(5) Momentous Inc. Pension and Trust for approximately $100,000 and (6) various
lessors, lenders and vendors for approximately $100,000 (in the aggregate)
created in connection with the execution of miscellaneous leases and other
agreements; provided, however, that "Closing Liabilities" shall not include, in
each case existing at the Closing, (x) any outstanding indebtedness and accrued
interest under the Bridge Financing (as defined below), (y) any payables or
accrued expenses incurred in the ordinary course of business (provided such
payables and accrued expenses do not exceed in the aggregate $225,000) and (z)
any trade dollar liabilities (noncash/barter). All Closing Liabilities payable
at the Closing, including, but not limited to, (A) $1.35 million to Astra
Ventures LLC, which amount is payable 50% in cash and 50% through the issuance
of shares of Prospective Buyer's Common Stock and (B) $750,000 payable to
certain employees based on change of control provisions in such employees'
respective employment agreements, will be paid by Prospective Buyer at Closing.
The number of shares of Prospective Buyer's Common Stock issued to the
Shareholders in the proposed transaction would be appropriately decreased to
reflect the intrinsic value of any warrants or options assumed by Prospective
Buyer or for which replacement options or warrants with equivalent economic
benefits are issued by Prospective Buyer. At the Closing, Prospective Buyer
would grant warrants to purchase 20,000 shares of Prospective Buyer's Common
Stock in exchange for the cancellation of that certain promissory note issued by
the Company for the benefit of Momentus Inc. Pension and Trust. Such warrants
would have a one year term and an exercise price equal to the closing sales
price of Prospective Buyer's Common Stock as reported on Nasdaq on the trading
day immediately preceding the date of the issuance of such warrants.
In addition, options to purchase 600,000 shares of Prospective Buyer's
Common Stock would be available under Prospective Buyer's stock option plan, or
other arrangement, for the following distribution: (i) 250,000 to Xxxx Xxxxxx
("Meidar") and (ii) the remaining 350,000 to those employees of the Company who
are offered employment and agree to be employed by Prospective Buyer or its
subsidiaries or affiliates after the Closing (collectively, the "Retained
Employees") in amounts mutually acceptable to the Company and Prospective Buyer.
Such options would have an exercise price equal to the lower of (i) $18 or (ii)
90% of the Ten Day Average Price. One-third of such options would vest on the
one-year anniversary of the Closing, with the remaining balance of the options
vesting on a quarterly basis over the remaining two-year period.
The shares of Prospective Buyer's Common Stock issued at the Closing
will be registered under a Registration Statement on Form S-4 (the "Form S-4"),
which the Company and Prospective Buyer intend to file with the Commission by
February 15, 2000. Shares issued upon exercise of options described above that
are granted under Prospective Buyer's stock option plans to Retained Employees
will be included in one of Prospective Buyer's Form S-8 currently on file with
the Commission.
A mutually agreeable treatment of the options and warrants to purchase
shares of the Company's equity securities outstanding immediately prior to the
Closing (i.e., assumption or substitution of substantially equivalent options
for Prospective Buyer's Common Stock) would be determined after Prospective
Buyer has completed its due diligence review of the Company. Such treatment will
be reflected in the Definitive Agreement.
Subject to any preference of the holders of preferred stock of the
Company, the number of shares comprising the Purchase Price, and each component
thereof, would be divided among the Shareholders pro rata in accordance with
their respective ownership of the equity securities of the Company.
3. Due Diligence
Immediately upon execution of this Letter, Prospective Buyer will
commence its due diligence investigation of the prospects, business, assets,
contracts, rights, liabilities and obligations of the Company, including
financial, marketing, employee, legal, regulatory and environmental matters.
4. Proposed Form of Agreement
Prospective Buyer and the Company intend promptly to begin negotiating
to reach a written Definitive Agreement, containing comprehensive
representations, warranties, indemnities, conditions and agreements by the
Company, including, without limitation, representations by the Company regarding
the ownership of the Company's principal assets, including its intellectual
property, and the continuity of any key licensed technologies for a reasonable
period of time. The Definitive Agreement will not include any indemnification
provisions. The execution of the Definitive Agreement by Prospective Buyer and
the Company and their respective obligations to close the transaction shall be
subject to approval by the respective boards of directors of Prospective Buyer
and the Company.
5. Conditions to Proposed Transaction
The parties do not intend to be bound to the Nonbinding Provisions or
any provisions covering the same subject matter until the execution and delivery
of the Definitive Agreement, which, if successfully negotiated, would provide
that the proposed transaction would be subject to customary terms and
conditions, including, but not limited to, the following:
a. receipt of all necessary consents and approvals of governmental
bodies, lenders, lessors and other third parties, including compliance by the
parties with the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act (the "HSR Act"),
if necessary;
b. absence of any material adverse change in the Company's business,
financial condition, prospects, assets or operations since the end of the last
month preceding the date of the Definitive Agreement;
c. absence of pending or threatened litigation regarding the
Definitive Agreement or the transactions to be contemplated thereby;
d. delivery of customary legal opinions, closing certificates and
other documentation;
e. approval of the shareholders of the Company and Prospective Buyer, if
necessary;
f. the compliance of the transaction contemplated herein with any
applicable tax-free reorganization or other tax restriction, which compliance
shall be mutually satisfactory to the parties hereto;and
g. the declaration by the Commission that the Form S-4 containing a
proxy statement/prospectus for the proposed transaction has become effective
under the Securities Act of 1933, as amended.
6. Proposed Noncompetition Agreement
At the Closing, each Retained Employee would enter into Prospective
Buyer's standard noncompetition agreement, containing confidentiality and other
customary provisions, and an agreement that such employee would not compete with
Prospective Buyer or its subsidiaries or affiliates for one year after such
employee's cessation of
employment, for any reason, with Prospective Buyer or its subsidiaries or
affiliates (the "Noncompetition Agreement").
7. Other Agreements
As one of the Company's condition to the Closing, Prospective Buyer
would enter into a two-year employment agreement, containing customary terms and
provisions, with Xxxxxx pursuant to which Xxxxxx would, following the Closing,
be employed as Prospective Buyer's Senior Vice President in charge of
Prospective Buyer's division containing the Company post-transaction. Such
agreement would (i) contain a provision that the options granted to Meidar in
accordance with the provisions of third paragraph of Paragraph 2 above would
automatically and fully vest upon Xxxxxx's termination for "good reason" or
without "cause" (each as defined in such employment agreement) and (ii) be fully
negotiated by the date of the execution of the Definitive Agreement and would
appear as an exhibit to the Definitive Agreement.
At the Closing, Xxxxxx Xxxxx ("White") would not be considered a
Retained Employee and would enter into a two-year consulting agreement,
containing customary terms and provisions, with Prospective Buyer pursuant to
which White would, following the Closing, provide consulting services to
Prospective Buyer on an as-needed basis (the "Consulting Agreement"). Such
agreement would be fully negotiated by the date of the execution of the
Definitive Agreement and would appear as an exhibit to the Definitive Agreement.
As a condition to Closing, Xxxxx would also enter into a Noncompetition
Agreement.
8. Lock-Up Arrangements for Certain Shareholders
At the Closing, White and Xxxxxx would enter into a lock-up agreement
with Prospective Buyer pursuant to which each such Shareholder would agree not
to offer, pledge, sell or otherwise transfer or dispose of, directly or
indirectly, (a) any of the shares of Prospective Buyer's Common Stock received
by such Shareholder in this transaction (the "Merger Shares") during the six
month period following the Closing and (b) more than 50% of the Merger Shares
during the six month period following the period set forth in clause (a) above.
Each lock-up agreement would terminate on the one year anniversary of the
Closing date. All Merger Shares would be available for sale by such Shareholders
after the one year anniversary of the Closing. Notwithstanding the foregoing, at
the Closing, Prospective Buyer would agree to permit White to sell up to
that number of Merger Shares equal to $1 million (priced at the fair market
value thereof) at any time after the Closing.
At the Closing, New Horizons LLC ("New Horizons") would enter into a
lock-up agreement with Prospective Buyer pursuant to which such Shareholder
would agree not to offer, pledge, sell or otherwise transfer or dispose of,
directly or indirectly, more than 10% of New Horizons's Merger Shares in any one
month for the six month period following the Closing. Such lock-up agreement
would terminate six months following the Closing date.
PART TWO--BINDING PROVISIONS
Upon execution by the Company and the Key Shareholders of this Letter
or counterparts thereof, the following lettered paragraphs of this Letter
(collectively, the "Binding Provisions") will constitute the legally binding and
enforceable agreement of Prospective Buyer, the Company and the Key Shareholders
(in consideration of the significant costs to be borne by Prospective Buyer and
the Company in pursuing this proposed transaction and further, in consideration
of their mutual undertakings as to the matters described herein).
A. Nonbinding Provisions Not Enforceable
The Nonbinding Provisions do not create or constitute any legally
binding obligations among Prospective Buyer, the Company and the Key
Shareholders, and none of Prospective Buyer, the Company or the Key Shareholders
shall have any liability to the other parties with respect to the Nonbinding
Provisions unless and to the extent that they are embodied in the Definitive
Agreement, if one is successfully negotiated, executed and delivered by and
among all parties. If the Definitive Agreement is not prepared, authorized,
executed or delivered for any reason, no party to this Letter shall have any
liability to any other party to this Letter based upon, arising from, or
relating to the Nonbinding Provisions.
B. Definitive Agreement; Term of This Letter
Prospective Buyer and its counsel shall be responsible for preparing
the initial draft of the Definitive Agreement. Subject to the final sentence of
Paragraph C of the Binding Provisions, Prospective Buyer and the Company shall
negotiate in good faith to
arrive at a mutually acceptable Definitive Agreement for approval, execution and
delivery on the earliest reasonably practicable date.
The term of this Letter shall begin on the Effective Date and shall
expire upon the earliest of (i) 11:59 p.m., Seattle time, on the date that is 30
days after the Effective Date (i.e., on January 19, 2000), (ii) the execution of
the Definitive Agreement or (iii) such later or earlier date and time as the
Company and Prospective Buyer may agree in writing.
C. Access
The Company shall provide to Prospective Buyer complete access to the
Company's facilities, books and records and shall cause the directors,
employees, accountants, attorneys and other agents and representatives
(collectively, "Representatives") of the Company to cooperate fully with
Prospective Buyer and Prospective Buyer's Representatives in connection with
Prospective Buyer's due diligence investigation of the Company and the Company's
assets, contracts, liabilities, operations, records and other aspects of its
business (as described in Paragraph 3 of the Nonbinding Provisions). Prospective
Buyer shall be under no obligation to continue with its due diligence
investigation or negotiations regarding the Definitive Agreement or to
consummate the transactions contemplated by this Letter if, at any time, the
results of its due diligence investigation are not satisfactory to Prospective
Buyer for any reason in its sole discretion.
D. Exclusive Dealing
During the term of this Letter, the Company shall not, directly or
indirectly, through any Representative or otherwise, solicit, negotiate with or
in any manner encourage, discuss or accept any proposal of any other person
relating to the acquisition of the Company, shares of its capital stock
purchased from the Company, or its assets or business, in whole or in part,
whether through direct purchase, merger, consolidation or other business
combination (other than sales of inventory in the ordinary course of the
Company's business) and whether through disposing, licensing or transferring the
rights to any of the Company's assets to a third party (collectively, an
"Alternative Transaction"); provided, however, that upon receipt of an
unsolicited proposal to effect an Alternative Transaction, the Company may
disclose (i) the existence of this Letter, (ii) the terms of the right of first
refusal set forth in the next paragraph and (iii) the terms of the break-up
provisions set forth in Paragraph E of this Part Two. The Company will
immediately notify Prospective Buyer regarding any contact between the Company
or its Representatives and any other person regarding any proposed Alternative
Transaction or any related inquiry.
In the event that the Company receives a proposal for an Alternative
Transaction (a "Proposal"), the Company will immediately give written notice to
Prospective Buyer setting forth the identity of the proposed party and the price
and terms of the Proposal. Prospective Buyer shall have the right, exercisable
within the five business days following receipt of such notice, to effect the
Alternative Transaction on the same economic terms as those set forth in the
Proposal.
Notwithstanding anything to the contrary contained herein, if
Prospective Buyer terminates the Binding Provisions pursuant to Paragraphs J(iv)
or J(v) of this Part Two, the exclusive dealing provisions of this Paragraph D
shall be terminated and the Company shall, immediately upon such termination, be
permitted to pursue an Alternative Transaction.
E. Break-up Provisions
In the event that (a) the Company breaches Paragraph D of this Part
Two, (b) the Binding Provisions are terminated by Prospective Buyer pursuant to
Paragraph J(ii) of this Part Two or (c) the Binding Provisions are terminated by
the Company pursuant to Paragraph J(iii) and, within 12 months after such breach
or termination, the Company closes an Alternative Transaction, then, immediately
upon such closing, the Company shall pay to Prospective Buyer 20% of the total
consideration (including the assumption of any liabilities of the Company), cash
and noncash (as, when and in such proportion as such consideration is received
by the Shareholders) paid to the Company or its shareholders in the Alternative
Transaction in excess of $45 million.
The Definitive Agreement shall include similar break-up provisions.
Notwithstanding the foregoing, if Prospective Buyer terminates the Binding
Provisions pursuant to Paragraph J(ii) below, the break-up provisions in this
Paragraph E shall only apply if (i) Prospective Buyer was negotiating the
Definitive Agreement in good faith, (ii) the economics and structure of the
transaction in the Definitive Agreement are substantially the same as those
contemplated in this Letter and (iii) Prospective Buyer has signed the
Definitive Agreement in a form mutually agreed to be signed, in good faith, by
Prospective Buyer and the Company.
F. Conduct of Business
Until the Definitive Agreement has been executed and delivered by all
the parties or the Binding Provisions have been terminated pursuant to Paragraph
J of this Part Two, the Company shall conduct its business only in the ordinary
course, and may not engage in any extraordinary transactions without Prospective
Buyer's prior consent, including, without limitation:
(i) not disposing, licensing or transferring rights to any assets
of the Company, except in the ordinary course of business;
(ii) not materially increasing the annual level of compensation
of any employee, and not increasing at all the annual level of
compensation of any person whose compensation from the Company in the
last preceding fiscal year exceeded $100,000, and not granting any
unusual or extraordinary bonuses, benefits or other forms of direct or
indirect compensation to any employee, officer, director or
consultant, except in amounts in keeping with past practices by
formulas or otherwise;
(iii) not increasing, terminating, amending or otherwise
modifying any plan for the benefit of employees;
(iv) not issuing any equity securities or options, warrants,
rights or convertible securities, other than for customary grants of
options to new hires;
(v) not paying any dividends, redeeming any securities, or
otherwise causing assets of the Company to be distributed to any of
its shareholders except by way of compensation to employees who are
also shareholders within the limitations set forth in clause (ii)
above;
(vi) not terminating any employees of the Company that
Prospective Buyer has indicated that it desires to retain subsequent
to the Closing; and
(vii) not borrowing any funds, under existing credit lines or
otherwise, except as reasonably necessary for the ordinary operation
of the Company's business in a manner, and in amounts, in keeping with
historical practices.
G. Disclosure
Except as and to the extent required by law, without the prior written
consent of the other party, neither Prospective Buyer nor the Company shall, and
each shall direct its shareholders or Representatives not to, directly or
indirectly, make any public comment, statement or communication with respect to,
or otherwise disclose or permit the disclosure of the existence of discussions
regarding, a possible transaction among the parties or any of the terms,
conditions or other aspects of the transaction proposed in this Letter;
provided, however, that upon receipt of an unsolicited proposal to effect an
Alternative Transaction, the Company may disclose (i) the existence of this
Letter, (ii) the terms of the right of first refusal set forth in the next
paragraph and (iii) the terms of the break-up provisions set forth in Paragraph
E of this Part Two. If a party is required by law to make any such disclosure,
it must first provide to the other party the content of the proposed disclosure,
the reasons that such disclosure is required by law, and the time and place that
the disclosure will be made.
H. Costs
If the Closing does not occur for any reason, each party shall pay its
own costs and expenses (including any broker's or finder's fees) incurred in
connection with the proposed transaction, including expenses of its
Representatives. If the Closing occurs, Prospective Buyer shall pay all such
reasonable costs and expenses of all parties (other than any broker's or
finder's fees and the costs and expenses of the Key Shareholder's
Representatives in excess of $10,000 in the aggregate, which excess amounts
shall remain the sole responsibility of the Key Shareholders). The Prospective
Buyer and the Company will each pay one-half of the HSR Act filing fee, if
applicable.
I. Consents
Prospective Buyer and the Company shall cooperate with each other and
proceed, as promptly as is reasonably practicable, to prepare and file the
notifications required by the HSR Act, if any, to seek to obtain all necessary
consents and approvals from lenders, landlords and other third parties, to
prepare and file the Form S-4, and to endeavor to comply with all other legal or
contractual requirements for or preconditions to the execution and consummation
of the Definitive Agreement.
J. Termination
The Binding Provisions may be terminated:
(i) by mutual written consent of Prospective Buyer and the
Company;
(ii) upon written notice by (a) the Company to Prospective Buyer
or (b) Prospective Buyer to the Company, if the Definitive Agreement
containing substantially the same terms as those set forth in the
Nonbinding Provisions has not been executed, in the case of clause (a)
above, by Prospective Buyer, or, in the case of clause (b) above, by
the Company, prior to the expiration of the term of this Letter;
(iii) upon prompt written notice by (a) the Company to
Prospective Buyer or (b) Prospective Buyer to the Company, if such
notifying party has decided, prior to the expiration of the term of
this Letter, not to pursue the transaction contemplated hereby on
substantially the same terms as those set forth in the Nonbinding
Provisions;
(iv) by Prospective Buyer, without any penalty to Prospective
Buyer or the Company, in the event that Prospective Buyer's due
diligence (a) uncovers facts concerning the Company's business,
technology or financial condition that are different than those
represented to Prospective Buyer by the Company prior to the execution
of this Letter or (b) discloses any material concerns to Prospective
Buyer regarding the Company;
(v) by Prospective Buyer, without any penalty to Prospective
Buyer or the Company, in the event that Prospective Buyer's board of
directors does not approve the execution of this Letter, the
Definitive Agreement and/or the transactions contemplated hereby;
provided, however, that the termination of the Binding Provisions shall not
affect the liability of a party for breach of any of the Binding Provisions
prior to the termination. Upon termination of the Binding Provisions, the
parties shall have no further obligations hereunder, except as stated in
Paragraphs A, E, G, H, K, L, M and N of these Binding Provisions, which shall
survive any such termination.
K. Entire Agreement; Amendment
The Binding Provisions and that certain Non-Disclosure Agreement, dated
as of December 17, 1999, between the Company and Prospective Buyer, constitute
the entire agreement among the parties, and supersede all prior oral or written
agreements, understandings, representations and warranties, and courses of
conduct and dealing among the parties on the subject matter hereof. Except as
otherwise provided herein, the Binding Provisions may be amended or modified
only by a writing executed by all of the parties.
L. Governing Law; Jurisdiction; Venue
This Letter shall be governed by and construed under the laws of the
state of Washington without regard to principles of conflict of laws. The
parties irrevocably consent to the jurisdiction and venue of the state and
federal courts located in King County, Washington in connection with any action
M. Voting Agreements
Upon execution of this Letter by the Key Shareholders, the Key
Shareholders hereby agree to vote in favor of the adoption and approval of the
Definitive Agreement and all transactions relating thereto or contemplated
thereby at every meeting of the shareholders of the Company at which such
matters are considered and at every adjournment thereof and in connection with
every proposal to take action by written consent with respect thereto. Upon
execution of the Definitive Agreement, the Key Shareholders shall execute voting
agreements/proxies to vote as set forth in the previous sentence and to appoint
Prospective Buyer as their attorney and proxy with respect to such matters.
Notwithstanding anything to the contrary contained herein, the term of the
voting provisions set forth in this Paragraph M shall commence on the date
hereof and terminate upon the earlier to occur of (i) the date of the Closing,
or (ii) the date on which the Definitive Agreement is terminated in accordance
with its terms. Upon such termination, no party shall have any further
obligations or liabilities under this Paragraph M; provided, however, such
termination shall not relieve any party from liability for any breach of the
voting provisions set forth in this Paragraph M prior to such termination.
N. Bridge Financing
Within three business days of the execution of this Letter, Prospective
Buyer will provide a short-term bridge loan to the Company in the amount of $2.0
million (the "Bridge Financing"), which loan would be evidenced by a convertible
promissory note containing customary terms, conditions and negative covenants
(the "Convertible Note").
Both parties agree to use their respective best efforts to close the
transaction contemplated in this Letter as soon as practicable after the date
hereof. If (i) the Binding Provisions are terminated by Prospective Buyer
pursuant to Paragraph J(ii) of this Part Two, (ii) the Binding Provisions are
terminated by the Company pursuant to Paragraphs J(iii), (iii) the Company
accepts a proposal to effect an Alternative Transaction or (iii) the transaction
contemplated in this Letter is not consummated on or before the date designated
for the Closing for any reason other than the Company's closing conditions not
being satisfied on or prior to such date due to any omission or affirmative act
of Prospective Buyer, an event of default shall occur under the Convertible Note
and (a) the outstanding principal and unpaid interest shall automatically
convert into shares of common stock of the Company based on a total
pre-investment valuation (on a fully-diluted basis) of the Company equal to $15
million (i.e., a $2.15 per share conversion price) and (b) Prospective Buyer
shall be entitled to 125% warrant coverage, which warrants would have an
exercise price equal to the per share conversion price of such note. If the
transaction contemplated in this Letter is not consummated on or before the date
designated for the Closing because (i) the Binding Provisions are terminated
pursuant to Paragraph J(i) of this Part Two, (ii) the Binding Provisions are
terminated by the Company pursuant to Paragraph J(ii) of this Part Two, (iii)
the Binding Provisions are terminated by Prospective Buyer pursuant to
Paragraphs J(iii), J(iv) or J(v), or (iv) the Company's closing conditions were
not satisfied on or prior to the date designated for the Closing due to any
omission or affirmative act of Prospective Buyer, an event of default shall
occur under the Convertible Note and (a) the outstanding principal and unpaid
interest shall automatically convert into shares of common stock of the Company
based on a total pre-investment valuation (on a fully-diluted basis) of the
Company equal to $25 million (i.e., a $3.58 per share conversion price) and (b)
Prospective Buyer shall be entitled to 50% warrant coverage, which warrants
would have an exercise price equal to the per share conversion price of such
note.
* * * *
Please sign and date this Letter in the space provided below to
confirmyour understanding of the terms of the Nonbinding Provisions and to
confirm the mutual binding agreements set forth in the Binding Provisions and
return a signed copy to the undersigned.
Very truly yours,
XXXXXXX.XXX INC.
By: /s/ Xxxxxx Xxxxxx
Name: Xxxxxx Xxxxxx
Title: CEO
Acknowledged and agreed as to the Nonbinding and Binding Provisions this 20th
day of December 1999:
XXXXXXX.XXX INC.
By: /s/ Xxxxxx Xxxxx
Name: Xxxxxx Xxxxx
Title: CEO
KEY SHAREHOLDERS
/s/ Xxxxxx X. Xxxxx
Xxxxxx X. Xxxxx
NEW HORIZONS LP
By: /s/ Xxx XxxXxxxxx
Name: Xxx XxxXxxxxx
Title: General Partner
New Horizons LP
