1. Letter of Intent Between Magnum Sports & Entertainment, Inc. and Ford Models,
Inc. dated December 11, 2000
December 11, 2000
Ms. Xxxxx Xxxx
President
Ford Models, Inc.
000 Xxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Dear Katie,
This letter shall serve as a letter of intent between Magnum Sports &
Entertainment, Inc. ("Magnum", or the "Purchaser"), Ford Models, Inc. ("Ford",
or the "Seller"), and the Principal Stockholders of the Seller, as enumerated in
Exhibit A (the "Principal Stockholders"), with respect to a proposed acquisition
(the "Acquisition") by the Purchaser of all of the issued and outstanding
capital stock of Ford.
1. Pursuant to a definitive agreement (the "Acquisition Agreement") to be
entered into among the Purchaser, the Seller, the Principal
Stockholders and possibly a wholly owned subsidiary of the Purchaser,
the Purchaser, either directly or indirectly through a subsidiary of
the Purchaser, will acquire all of the issued and outstanding shares
of capital stock of Ford (the "Ford Shares") through a stock purchase
or exchange, merger or other business combination transaction, the
precise structure and terms of which will be mutually agreed to by the
parties.
2. In consideration of the sale and transfer to the Purchaser of the Ford
Shares, the Purchaser will pay and the stockholders of Ford will
receive on the closing date of the Acquisition (the "Closing Date")
the purchase price (the "Purchase Price") of $22,000,000, payable in
cash. In addition, on the Closing Date, the Purchaser will assume
indebtedness of Ford not to exceed an aggregate of $4,300,000.
3. On the Closing Date, key employees of Ford and other members of
management identified by Xxxxx Xxxx ("Key Personnel"), as enumerated
in Exhibit B, will enter into employment agreements with the
Purchaser, on terms and conditions that are mutually agreed upon. Such
Key Personnel shall participate in an employee stock option or
restricted stock grant plan of Magnum pursuant to which an amount of
shares of Purchaser's Common Stock, $.01 par value per share ("Magnum
Stock") having a market value as of a date to be agreed upon equal to
$3,000,000 shall be granted or issued to such Key Personnel. On the
Closing Date, shares of Magnum Stock or options to purchase Magnum
Stock will be delivered to such Key Personnel, and none of the shares,
options or
shares to be issued upon exercise of the stock options will be
registered for resale under state and federal securities laws. On the
Closing Date, such Key Personnel and the Purchaser will enter into a
Registration Rights Agreement to be negotiated by the parties that
will grant certain registration rights to such Key Personnel. Such Key
Personnel and the Purchaser will enter into a Lock-Up Agreement,
pursuant to which they will agree not to sell, assign, transfer or
otherwise dispose of their Magnum Stock for a period of one year from
the Closing Date.
4. The Purchaser will use its best efforts to nominate Xxxxx Xxxx as a
member of the Purchaser's Board of Directors as soon as practicable
after the Closing Date.
5. If deemed necessary, as soon as practicable after the date hereof, the
Purchaser and the Seller will make all necessary filings required to
be made under the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 0000
(xxx "XXX Xxx") in connection with the consummation of the
transactions contemplated hereby, and the parties shall cooperate in
making any such filings promptly.
6. Immediately after the date hereof, the parties shall negotiate in good
faith to enter into an Acquisition Agreement, drafted by the
Purchaser's counsel. If deemed necessary, the Purchaser will begin
preparation of a proxy statement with respect to the Acquisition to be
filed with the Securities and Exchange Commission. The Acquisition
Agreement shall contain provisions in accordance with the foregoing,
together with representations, warranties, covenants, indemnification
provisions, provisions concerning treatment of employees and closing
conditions customary to such an agreement and other terms and
provisions as may be mutually agreed to. If deemed necessary, the
Purchaser agrees to hold a meeting of its stockholders to be held as
soon as practicable to approve matters relating to the Acquisition.
7. The execution of the Acquisition Agreement shall be conditioned upon,
among other things, obtaining the approval of the Board of Directors
of the Purchaser and obtaining the necessary financing commitments.
The consummation of the transactions contemplated by the Acquisition
Agreement shall be conditioned upon, among other things, obtaining the
requisite approval of the stockholders of the Purchaser, if deemed
necessary, and other customary closing conditions.
8. During the Non-Negotiation Period as defined in Paragraph 11 below,
the Purchaser shall conduct appropriate and normal legal, business and
financial due diligence investigations of the Seller's business. The
Seller shall make available to representatives of the Purchaser all
books, records and financial statements, including but not limited to,
all corporate documents, joint venture documentation, model management
agreements, model manager agreements, consulting agreements, trademark
filings, financial statements, regulatory filings, customer lists,
pending litigation, marketing studies, product information, material
agreements and technology for examination. The Seller will identify
all Xxxxxxxxx Stockholders and Claimants to the Purchaser. The Seller
will identify all key employees and disclose all relevant terms of
existing employment agreements to the Purchaser. Xxxxx Xxxx shall
review any requests for meetings
between the Purchaser and employees of Ford, and no such meetings or
other contact between the Purchaser and any such employees shall occur
without Xxxxx Xxxx'x express consent, which consent shall not be
unreasonably withheld.
9. Each of the Purchaser and the Seller agrees that the Non-Disclosure
Agreement dated October 16, 2000 between the Purchaser and the Seller
shall continue to remain in full force and effect and the Purchaser
and the Seller and the Principal Stockholders shall continue to be
bound by the terms thereof except where the terms of such agreement is
inconsistent with the terms hereof, in which case the terms hereof
shall control.
10. The Principal Stockholders will bear their own and the Seller's
expenses in connection with the completion of the transactions
contemplated herein, including all legal fees associated with
negotiations and settlements with Xxxxxxxxx Stockholders and
Claimants, as defined below. The Purchaser will bear its own costs and
expenses (including filing fees), in connection with the Acquisition.
11. In order to induce the Purchaser to expend the out-of-pocket expenses
necessary for the investigations referred to in Paragraph 8 above, the
Seller and each of the Principal Stockholders agree that for a 180 day
period from the date hereof, including any mutually agreed extensions
of this 180 day period (the "Non- Negotiation Period"), none of the
Seller, its officers, the Principal Stockholders, directors or
employees, nor any investment banker, attorney or accountant or other
representative retained by the Seller or the Principal Stockholders,
shall solicit, or encourage the solicitation of, or enter into,
negotiations of any type, directly or indirectly, or enter into a
letter of intent or purchase agreement, merger agreement or other
similar agreement with any person, firm or corporation other than the
Purchaser, with respect to a merger, consolidation, business
combination, sale of all or substantially all of the capital stock or
assets of the Seller or its subsidiaries (each, a "Sale Transaction").
12. The Purchaser understands that Ford is engaged in certain discussions
with individuals who are members of the group of stockholders known as
the "Xxxxxxxxx Stockholders" (each, a "Xxxxxxxxx Stockholder")
regarding questions relating to the number of Ford Shares, if any,
held by such Xxxxxxxxx Stockholders. The Purchaser also understands
that certain other individuals who may have been involved with
transfers of Ford Shares to and from Xxxxxxxxx Stockholders may claim
an interest in Ford Shares (the "Claimants") and that Ford has taken
the position that such individuals do not have valid claims to Ford
Shares. In reliance on the ongoing discussions with the Purchaser
during the Non-Negotiation Period, Ford intends to continue its
discussions with Xxxxxxxxx Stockholders regarding the possible
settlement of claims they may have with respect to Ford Shares and may
be required to engage in discussions or other action with Claimants
regarding their claimed interest in Ford Shares. Ford estimates that
the cost of settling claims by Xxxxxxxxx Stockholders and any
Claimants and purchasing or redeeming the Ford Shares involved in any
claims made by such individuals (collectively, the "Xxxxxxxxx
Payments") is likely to be $1,260,000 (the "Specified Amount"). In
order to induce Ford and the Principal
Stockholders to enter into this Letter of Intent and to grant the
Purchaser the Non-Negotiation Period described in Paragraph 11 above,
the Purchaser hereby agrees that if the Purchaser fails to acquire
Ford on the terms described in Paragraphs 1,2,3 and 6 hereto for any
reason whatsoever (other than a "Purchaser Termination Cause" as
defined below) by the end of the sixth month following the date of
this Letter of Intent(such period from the date hereof to the end of
the sixth month following the date hereof being referred to as the
"Eligible Period"), the Purchaser shall pay Ford an amount equal to
any and all Xxxxxxxxx Payments made by Ford at any time from December
7, 2000 (including a Xxxxxxxxx Payment made by Ford for $175,000 on
December 7, 2000, which is the only Xxxxxxxxx Payment made by Ford as
of the date herein) through the end of the twelfth month following the
date of this Letter of Intent, provided that the aggregate of all such
payments made by the Purchaser hereunder shall not exceed the
Specified Amount. The Purchaser shall have no obligation to pay any
amount to Ford under this Paragraph if Purchaser would have acquired
Ford on the terms described in Paragraphs 1, 2, 3 and 6 hereto during
the Eligible Period but for the occurrence of one or more of the
following: (i) the Seller or any of the Principal Stockholders fail to
perform in any material respects their respective obligations under
the Acquisition Agreement, (ii) the representations and warranties of
the Seller or any of the Principal Stockholders as set forth in the
Acquisition Agreement are untrue in any material respect when and as
made, (iii) there shall have occurred a material adverse change in the
financial condition, results of operation, or business of the Seller
and its subsidiaries taken as a whole (without regard for the
existence or termination of negotiations with the Purchaser and
without regard to any existing claims or litigation involving
Xxxxxxxxx Stockholders or Claimants), (iv) the Seller or the Principal
Stockholders refuse to enter into the Acquisition Agreement (but only
if such Acquisition Agreement contains (x) the terms described in
Paragraphs 1, 2, 3 and 6 hereto and (y) such other terms and
conditions that are consistent in all material respects with the terms
of this Letter of Intent), or (v) the Purchaser shall have obtained
the financing necessary to pay the Purchase Price during the Eligible
Period and the Seller or Principal Stockholders shall not enter into
the Acquisition Agreement or close the Acquisition as set forth herein
(each of (i), (ii), (iii), (iv) and (v) above, a "Purchaser
Termination Cause"). The failure of the Purchaser to obtain financing
for the proposed acquisition for any reason whatsoever shall not
excuse the Purchaser from its obligations under this Paragraph, and
shall not be deemed a Purchaser Termination Cause.
13. The Purchaser agrees to secure its obligations under the preceding
Paragraph by depositing on the date hereof with an escrow agent
reasonably acceptable to the Purchaser and Ford (the "Escrow Agent"),
either cash, or a letter of credit in form and substance reasonably
acceptable to the Purchaser and the Seller from a bank or financial
institution reasonably acceptable to the Purchaser and the Seller (the
"Letter of Credit"), in an amount equal to $630,000, which amount
represents one half of the total Specified Amount that the Purchaser
may be required to pay Ford under the terms of the preceding
Paragraph, into an escrow account (the "Escrow Account"), pursuant to
the "Escrow Agreement" to be executed no later than the date of the
initial deposit to the Escrow Account. The
Purchaser furthermore agrees to deposit on the date that the
Acquisition Agreement is executed, or if earlier, the 120th day from
the date hereof, either cash or a Letter of Credit, in an amount equal
to an additional $630,000, which amount also represents one half of
the total Specified Amount that the Purchaser may be required to pay
Ford under the terms of the preceding Paragraph, into the Escrow
Account. If cash shall be deposited into the Escrow Account, the
Escrow Account shall be interest bearing, and the interest earned in
the Escrow Account shall belong to the Purchaser. Amounts deposited in
the Escrow Account shall be disbursed to Ford upon written request of
Ford and the Purchaser, which request shall certify the following
matters: (i) that Ford is entitled to receive such amounts pursuant to
the Letter of Intent, (ii) that a Purchaser Termination Clause has not
occurred, (iii) that the amounts requested represent Xxxxxxxxx
Payments or reimbursement for Xxxxxxxxx Payments made by Ford, (iv)
that Ford obtained or will obtain upon such payment a suitable general
and customary release from the Xxxxxxxxx Stockholder or Claimant being
paid such amount, (v) that any Ford Shares obtained by Ford in
connection with such payments will be canceled, and (vi) the names of
such Xxxxxxxxx Stockholder or Claimant and the number of Ford Shares
involved in such payment. Ford and the Principal Stockholders hereby
agree that the aggregate of all cash withdrawn by Ford from the Escrow
Account and draws made on the Letter of Credit by Ford (the "Advance")
to make Xxxxxxxxx Payments shall reduce the Purchase Price payable in
cash in the Acquisition to Ford and the stockholders of Ford on the
Closing Date on a dollar-for-dollar basis. Under no circumstances will
an Advance occur prior to the date of the Acquisition Agreement, or if
earlier, the 120th day from the date hereof. Ford and the Principal
Stockholders hereby agree that in the event that a Purchaser
Termination Cause occurs, the Advance, together with any interest
earned thereon, shall be returned to the Purchaser, within seven days
of the occurrence of such Purchaser Termination Cause. In the event
that there are funds remaining in the Escrow Account as of the date
which is twelve months following the date of this Letter of Intent
(other than funds being held because of a dispute regarding the party
entitled to receive such amounts, which amounts shall be paid to the
party finally determined to be entitled to receive such funds), such
funds will be automatically disbursed to the Purchaser without any
further action by any party hereto.
14. The Seller and the Principal Stockholders jointly and severally shall
indemnify the Purchaser, its subsidiaries and affiliates and any of
the Purchaser's or its subsidiaries or affiliates' respective
officers, directors, employees, and agents and hold them harmless from
and against any and all damages, losses, deficiencies, actions,
judgments, costs, expenses, debts, liabilities and obligations
(including reasonable attorneys' and accountants' fees) (collectively,
"Claims") of or against Purchaser, its subsidiaries and affiliates and
any of the Purchaser's or its subsidiaries or affiliates' respective
officers, directors, employees, and agents resulting from or arising
out of any settlement or any other matter involving any Xxxxxxxxx
Stockholder or Claimant for all legal claims that may be brought
against the Purchaser by a Xxxxxxxxx Stockholder or Claimant.
15. In the event that the Purchaser pays any amounts as an Advance to the
Seller pursuant to Paragraph 13, the Seller and Principal
Stockholders agree that the repayment of such amounts to the Purchaser
will be a contractual obligation of the Seller and Principal
Stockholders in the event that the Seller and Principal Stockholders
enter into and consummate a Sale Transaction with a third party other
than the Purchaser at any time within two years after the expiration
of the Non-Negotiation Period (including any mutually agreed upon
extensions) at a price that indicates a third party valuation of 100%
of the Ford Shares or the Ford business as an entirety (taken together
with its subsidiaries) of $15,000,000 or greater.
16. The parties agree to hold the terms and conditions hereof, in strict
confidence, and not make any disclosure with respect thereto, publicly
or privately, other than is jointly agreed to by the parties or as
required by applicable law or stock exchange rules or regulations. If
a public statement by the Purchaser or the Seller is determined to be
required by law or stock exchange rules or regulations, the Seller or
the Purchaser, respectively, shall have the right to review and
comment on such statement prior to its release to the extent
practicable.
17. This Letter of Intent does not create any legally binding obligations,
except as stated in Paragraphs 9, 10, 11, 12, 13, 14, 15, 16, 17, 18
and 19 hereof. The purpose of this letter of intent is solely to state
a proposal by the Purchaser to acquire the Seller's business and which
proposal shall be used as a basis to negotiate and enter into a
definitive Acquisition Agreement on or prior to 90 days from the date
hereof. If a definitive Acquisition Agreement is not executed on or
prior to 90 days from the date hereof, this letter shall be of no
further force or effect and the Seller and the Purchaser shall not
have any liability to each other except for a breach of the provisions
of Paragraphs 9, 10, 11, 12, 13, 14, 15, 16, 17, 18 and 19 hereof.
Each of the parties hereto hereby represents and warrants that it is
free to enter into this Letter of Intent and to consummate the
Acquisition or any part thereof and that none of them has induced the
other to breach any agreements or understandings with, or obligations
to, any third party in respect of the Acquisition or any other part
thereof. Each of the parties hereto hereby further represents and
warrants that, other than by virtue of this Letter of Intent: (a) it
is not under any obligation with respect to the Acquisition or any
part thereof; (b) no offer, commitment, undertaking, estoppel,
agreement or obligation of any nature whatsoever relating to the
Acquisition or any part thereof exists or may be implied in fact, law,
or equity, and (c) the execution and delivery by such party of this
Letter of Intent and the consummation of the Acquisition or any part
thereof will not violate the rights of any third party or give rise to
any right or liability on the part of such party based upon, or
arising out of, or in respect of a violation of, or interference with,
the rights of any such third party.
18. This Letter of Intent shall be governed by and construed in accordance
with the laws of the State of New York, applicable to agreements made
and to be performed entirely within such State.
19. This Letter of Intent contains the entire agreement among the parties
hereto with respect to the Acquisition and supersedes all prior
agreements, written or oral, with respect thereto, except for the
Non-Disclosure Agreement referred to in Paragraph 9 hereof, which
shall remain in full force and effect to the extent contemplated by
Paragraph 9 hereof. This Letter of Intent may be amended, superseded,
cancelled, renewed or extended, and the terms hereto may be waived,
only by a written agreement signed by each of the parties hereto.
20. This Letter of Intent shall be effective on the later of (i) the date
that the Purchaser receives approval from its Board of Directors and
(ii) the date that the Principal Stockholders have signed the Letter
of Intent ("Effective Date"). All references to the date of this
Letter of Intent herein will reflect such Effective Date.
Please acknowledge your agreement to the foregoing proposal in the space
provided below in order that negotiations may continue on the basis of the terms
and conditions set forth above.
Very truly yours,
Magnum Sports & Entertainment, Inc.
By: /s/Xxxxxx X. Gutkowksi
-----------------------
Name: Xxxxxx X. Xxxxxxxxx
Title: Chief Executive Officer
ACCEPTED AND AGREED TO ON BEHALF OF SELLER:
By: /s/ Xxxxx Xxxx
--------------
Name: Xxxxx Xxxx
Title: Chief Executive Officer
PRINCIPAL STOCKHOLDERS
By: /s/ Xxxxx Xxxx
--------------
Name: Xxxxx Xxxx
By: /s/ Xxxx Xxxx
-------------
Name: Xxxx Xxxx
By: /s/ Xxxxx Xxxx
--------------
Name: Xxxxx Xxxx
By: /s/ Xxxxxx Xxxx
---------------
Name: Xxxxxx Xxxx
By: /s/ Xxxxx Xxxx Craft
--------------------
Name: Xxxxx Xxxx Craft
By: /s/ Xxxxx Xxxx Xxxxxxxx
-----------------------
Name: Xxxxx Xxxx Xxxxxxxx
By: /s/ Xxxx Xxxxx
--------------
Name: Xxxx Xxxxx
By: /s/ Xxxx Xxxxxx
---------------
Name: Xxxx Xxxxxx
Exhibit A
PRINCIPAL STOCKHOLDERS OF THE SELLER
Xxxxx Xxxx
Xxxx Xxxx
Xxxxx Xxxx
Xxxxxx Xxxx
Xxxxx Xxxx Craft
Xxxxx Xxxx Xxxxxxxx
Xxxx Xxxxx
Xxxx Maiden
Exhibit B
KEY PERSONNEL OF THE SELLER
Xxxxxx X. Xxxx, Xx.
Xxxxxx X. Xxxx, Xx.
Xxxxxx X. Xxxx
Xxxx Xxxxxx
Xxxxx Xxxxx
Xxxx Xxxxx
Xxxx Xxxxxxxx
Xxxxx Xxxxxx
Xxx Xxxxxxxx
Xxxxx Xxxx
