MEMORANDUM OF UNDERSTANDING
This Memorandum of Understanding ("MOU") is entered into this __ day of August
2004
BY AND BETWEEN:
(1) Southern Gas Company, a limited liability company incorporated
under the laws of the Russian Federation (INN: 6164207982,
Certificate of registration of legal person, series 61 No.
003266599), having its registered office at 344082,
Rostov-on-Don, 30 B. Sadovaya Street, Russia,
hereinafter referred to as "SOUTHERN GAS",
(2) The "Southern Gas Equity Owners" who have executed this MOU on
the signature page hereof;
AND:
(3) American United Global, Inc., a company incorporated under the
laws of the United States, State of Delaware, having its
registered office at 00000 X.X. 000xx Xxxxx, Xxxxxxxx, Xxxxxxxxxx
00000, Xxxxxx Xxxxxx,
hereinafter referred to as "AUGI",
SOUTHERN GAS, the Southern Gas Equity Owners and AUGI are hereinafter referred
to as the Party or collectively as the "Parties".
BACKGROUND
A. SOUTHERN GAS is a company that, through its subsidiaries and divisions,
currently owns (a) approximately 17% of DonGasDolycha, a company that extracts
natural gas (the "Extraction Company"), (b) 100% of a company that supplies
equipment to natural gas extraction and pipeline companies (the "Equipment
Company"), and (c) 100% of a company that operates a pipeline of approximately
3.5 miles from Rostov to the Ukraine (the "Pipeline Company").
B. SOUTHERN GAS intends to purchase the remaining 83% equity interest in
Extraction Company.
C. AUGI is a publicly traded United States corporation, whose shares of common
stock, $.01 par value per share (the "AUGI Common Stock") trades on the
Over-the-Counter pink sheets under the symbol "AUGBPK".
D. SOUTHERN GAS and the Southern Gas Equity Owners are interested in selling
100% of the share capital, members interest or other equity (the "Southern Gas
Group Equity") of SOUTHERN GAS and its Extraction Company, Equipment Company and
Pipeline Company (collectively referred to herein as the "Southern Gas Group")
to AUGI, all upon the terms and subject to the conditions hereinafter set forth.
E. AUGI agrees in principle to purchase the Southern Gas Equity, all upon the
terms and subject to the conditions as hereinafter set forth;
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F. The Parties wish to enter into this MOU setting out the principal points of
understanding on which the Parties have already reached an agreement.
Article 1 - Purchase and Sale of Southern Gas Equity; the AUGI Shares
1.1 Sale and Transfer of Southern Gas Equity. On the "Closing Date" (as defined
herein) and subject to the terms and conditions of the "Final Agreement"
(as defined herein), a newly formed subsidiary or affiliated limited
liability company or related entity to be wholly-owned by AUGI (the
"BUYER") shall purchase, and the Southern Gas Equity Owners and/or SOUTHERN
GAS shall directly sell and transfer, and shall cause the other members of
the Southern Gas Group to sell and transfer, to the BUYER, all of the
Southern Group Equity. As used in this MOU and in the Final Agreement, the
sale to the BUYER of the Southern Group Equity shall entitle the Buyer to
own 100% of all of the tangible and intangible assets, wherever located,
that are used in connection with the operation of the businesses of the
Extraction Company, the Pipeline Company and the Equipment Company
(collectively, the "Southern Gas Business"). Such assets shall include, as
at the Closing Date:
(a) all trade names, trademarks, copyrights, letters patent, patent
applications and other intellectual property relating to the Southern
Gas Business (collectively, "Intellectual Property");
(b) all leases, certificates, governmental approvals, registrations,
permits, register of rights, contracts, agreements, licenses, sales
agreements, purchase orders and other documentation and other legal
rights relating to the Southern Gas Business (the "Contract Rights and
Permits");
(c) all machinery and equipment, gas leases, real estate (owned or leased)
and improvements (collectively, "Fixed Assets")
(d) all tools, molds, dyes, spare parts, material handling equipment, and
other related items of personal property; and certain scheduled office
equipment, including furniture and computers (the "Personal
Property");
(e) all computer programs, software, customer and vendor lists, billing
and materials records and other written and computer data and
information related to the Southern Gas Business, including, without
limitation, the economic resource and planning systems and computer
systems (collectively, "Business Data");
(f) all inventories of raw materials, work in progress and finished goods
relating to the Southern Gas Business (the "Stock");
(g) all minereal rights, and all rights to approximately 17.5 billion
cubic meters of proven gas reserves and thirteen income producing gas
xxxxx (the "Gas and Mineral Reserves");
(h) all royalties, rents, accounts receivable from customers of the
Southern Gas Business and all other rights to receive payment in
connection with products or services sold by the Southern Gas Business
(the "Receivables"); and
(i) the commerce stream and goodwill of the Southern Gas Business as a
going concern ("Goodwill").
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1.2 Estimated Southern Gas Group Financial Information. On the Closing Date, it
is estimated that the Southern Gas Group will have net tangible assets of
approximately (U.S.) $10.5 million and no indebtedness for money borrowed.
1.3 Consideration.
In sole consideration for its acquisition of the Southern Gas Group Equity
and the Southern Gas Business, on the Closing Date, the owners of the
Southern Gas Group Equity (the "Southern Gas Equity Owners") shall receive
an aggregate of 32.773 million shares of AUGI Common Stock (the "AUGI
Shares"). The AUGI Shares to be issued on the Closing Date shall, when
issued, represent 70% of the "Fully-Diluted AUGI Common Stock." The term
"Fully-Diluted AUGI Common Stock" means sum of (a) all of the shares of
AUGI Common Stock to be issued and outstanding on the Closing Date, plus
(b) all additional shares of AUGI Common Stock that are issuable upon
conversion of any outstanding convertible AUGI securities or upon exercise
of all outstanding AUGI stock options, warrants or other rights to purchase
AUGI Common Stock. Accordingly, there shall be not more than 14.0 million
shares of Fully-Diluted AUGI Common Stock issued or issuable on the Closing
Date immediately prior to the issuance of the 32.773 million AUGI Shares to
the Southern Gas Equity Owners.
Article 2 - Final Agreement; Closing
2.1. Final Agreement. By no later than October 15, 2004 the Parties shall have
negotiated in good faith and entered into a definitive securities purchase
agreement for the purchase of the Southern Gas Group Equity by AUGI and the
Buyer and the issuance of the AUGI Shares to the Southern Gas Equity
Owners, which agreement shall incorporate the terms and conditions set
forth in this MOU and such other terms and conditions as the Parties shall
mutually agree (the "Final Agreement").
2.2. Closing Date. The Parties shall use their collective best efforts to meet
the conditions to closing and proceed to completion of the transactions
contemplated by the Final Agreement by a date (the "Closing Date") shall be
not later than December 31, 2004.
2.3. Representations and Warranties. In the Final Agreement, each of SOUTHERN
GAS and AUGI will make representations and warranties that are customary
for transactions of this type. The Southern Gas Equity Owners, on behalf of
SOUTHERN GAS, and Xxxxxx X. Xxxxx, on behalf of AUGI, shall also confirm
the accuracy of the representations and warranties of SOUTHERN GAS and
AUGI, respectively, set forth in the Final Agreement.
Article 3 - Due Diligence Investigations
3.1 AUGI Due Diligence. In connection with the proposed transaction, SOUTHERN
GAS shall give full and complete access during normal business hours to
AUGI, and those persons authorised by it, to the premises, operations and
properties of SOUTHERN GAS and the Southern Gas Group and all such
Intellectual Property, Contract Rights, Business Data, Gas Reserves
information, financial statements, work papers, financial records, title
deeds, books, Receivables, Stock records and extracts thereof relating to
the Southern Gas Business, as AUGI reasonable deems necessary in order to
conduct a thorough business, financial and legal due diligence
investigation of the Southern Gas Business in order for AUGI to proceed to
Closing.
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3.2 Southern Gas Due Diligence. Similarly, AUGI shall give full and complete
access during normal business hours to SOUTHERN GAS, and those persons
authorised by it, to the premises, operations and properties of AUGI and
all financial statements, work papers, financial records, title deeds,
books, and extracts thereof relating to the operations and financial
condition of AUGI, as the Southern Gas Equity Owners reasonable deems
necessary in order to conduct a thorough business, financial and legal due
diligence investigation of AUGI in order for the Southern Gas Equity Owners
to proceed to Closing.
Article 4 - Conditions to Closing
Consummation of the transactions contemplated by this MOU and the Final
Agreement (the "Transaction") will be subject to the is subject to the following
conditions to Closing (the "Closing Conditions"):
(a) AUGI Stockholder Approval. The Transaction shall have been approved by the
holders of a majority of the outstanding voting AUGI Common Stock.
(b) Equity Dividends to Existing AUGI Stockholders. The dividend and
distribution to the stockholders of AUGI prior to the Closing Date (the
"Existing AUGI Stockholders") of all of the capital stock of Western Power
& Equipment Corp., Infomedics Corporation and Sponge Tech Corp. that is or
will be owned by AUGI immediately prior to the Closing Date. Accordingly,
except for its ownership of the Southern Gas Group Equity, at the Closing
of the Transaction, AUGI will have no other equity investments in any other
business.
(c) UPS Contingent Liability. The receipt of either (i) a legal opinion in form
and content satisfactory to the Southern Gas Equity Owners or their legal
counsel to the effect that the approximately $2.5 million obligation to
United Parcel Service ("UPS"), currently carried as a contingent liability
on the books of AUGI, is no long a contingency as the same is barred by the
applicable statute of limitations, or (ii) a written agreement or general
release from UPS releasing AUGI from such liability (the "UPS Release"), or
(iii) in the absence of such legal opinion or UPS Release, an
indemnification to AUGI against any such liability to UPS by Xxxxxx X.
Xxxxx or another source deemed creditworthy by SOUTHERN GAS;
(d) E-Global Contingent Liability. With respect to the contingent liability of
approximately $2.5 million currently carried on the financial statements of
AUGI that may be owed to third parties that leased equipment to a former
AUGI subsidiary that was previously sold by AUGI to E-Global (the "E-Global
Liability"), at the Closing, either (i) Xxxxxx X. Xxxxx, or another source
deemed creditworthy by SOUTHERN GAS shall indemnify defend and hold
harmless, AUGI and its operating subsidiaries from any costs, expense or
other liability that may be incurred in connection with the E-Global
Liability, or (ii) AUGI and the Southern Gas Equity Owners shall receive a
satisfactory legal opinion, to the effect that the E-Global Liability no
longer represents a legal liability of AUGI.
(e) AUGI Bridge Notes. Prior to the Closing Date, AUGI will either (i) arrange
to sell to a person deemed creditworthy by SOUTHERN GAS, the approximately
$1.7 million note of New York Medical, Inc. owed to AUGI and which is
overdue, in consideration for which such person shall indemnify, defend and
hold harmless AUGI from and against any and all liabilities and obligations
owed to the persons who purchased an aggregate of $1.5 million of AUGI
bridge notes (the "AUGI Bridge Notes") that are now overdue and in default;
or (ii) the holders of such AUGI Bridge Notes shall agree to cancel such
AUGI Bridge Notes in exchange for shares of AUGI Common Stock (the "Bridge
Note Exchange"); which additional share issuances shall only dilute the
equity of the current AUGI stockholders, and not adversely affect the
Southern Gas Equity Owners' receipt of AUGI Shares representing 70% of the
Fully-Diluted AUGI Common Stock. In substance, as at the Closing Date of
the Transaction, AUGI shall have no further liability or obligations in
respect of such AUGI Bridge Notes, or shall be indemnified from any such
obligations in a manner satisfactory to SOUTHERN GAS and the Southern Gas
Equity Owners.
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(f) Aggregate AUGI Liabilities. On the Closing Date, the aggregate amount of
all indebtedness and other liabilities of AUGI and any of its subsidiaries
that are not indemnified against (in a manner satisfactory to SOUTHERN GAS
and the Southern Gas Equity Owners) shall not exceed $100,000 in the
aggregate, inclusive of any obligations of AUGI to Xxxxxx Xxxx disclosed in
existing AUGI public filings.
(g) Confirmation of Conditions and Collateral to Secure Indemnities. On or
before the Closing Date, SOUTHERN GAS and the Southern Gas Equity Owners
shall:
(i) have received a satisfactory legal opinion from counsel to AUGI as to
the matters set forth in (1) Section 4(a), (2) Section 4(b), (3)
absent the UPS Release or a satisfactory indemnification, Section 4(c)
above, and (4) absent a satisfactory indemnification, Section 4(d)
above; and
(ii) in the absence of a UPS Release, a Bridge Note Exchange, or
satisfactory legal opinions, the Southern Gas Equity Owners will
receive from Xxxxxx X. Xxxxx or other persons independent collateral
to secure their indemnification obligations to AUGI, all in form and
content deemed satisfactory to the Southern Gas Equity Owners.
(h) Audited Financial Statements. On or before the Closing Date, SOUTHERN GAS
and the other members of the Southern Gas Group shall provide AUGI with
audited financial statements (balance sheets, statements of income, and
statements of cash flows and members or shareholders' equity) as at each of
December 31, 2003 and December 31, 2002, and for the two fiscal years then
ended (the "Audited Financial Statements"). On or before the Closing Date,
SOUTHERN GAS and the other members of the Southern Gas Group shall provide
AUGI with additional Audited Financial Statements as at September 30, 2004
and for the nine months then ended. All Audited Financial Statements shall
have been audited in accordance with United States generally accepted
accounting principles and comply with Regulation S-X under the Securities
Act of 1933, as amended. SOUTHERN GAS shall retain, at its expense, a "big
four" international firm of accountants (Ernst & Young,
PricewaterhouseCoopers, Deloitte & Touche, KPMG Peat Marwick, or
equivalent) to audit such Audited Financial Statements.
(i) Satisfactory Due Diligence. SOUTHERN GAS shall have satisfied the conditon
set forth in Section 5(g) above, and AUGI shall have concluded a
satisfactory Due Diligence investigation of the Southern Gas Group and the
Southern Gas Business, their assets, properties, financial condition and
prospects. Conversely, AUGI shall have satisfied the conditions set forth
in Sections 5(a) through 5(f) above and SOUTHERN GAS shall have otherwise
concluded a satisfactory Due Diligence investigation of AUGI, its assets,
properties and financial condition.
(j) Final Agreement. On or prior to October 15, 2004 the Parties shall have
duly executed and delivered the Final Agreement. In case the Final
Agreement is not executed by October 15, 2004, this MOU will terminate and
Parties will have no obligations towards each other except those mentioned
in Article 14.
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Article 5 - Covenants and Agreements
5.1 Operation of Southern Gas Business. Following the execution of this MOU and
until the Closing Date, SOUTHERN GAS shall:
(a) use all reasonable efforts that the SOUTHERN GAS Business will be
conducted in the usual and ordinary course of business so as to
maintain it as a going concern;
(b) except for the contemplated acquisition of additional equity in the
Extraction Company and other arms' length transactions that are
designed to enhance the value of the SOUTHERN GAS BUSINESS (all of
which will be disclosed to and discussed with AUGI and its
representatives prior to consummation), use all reasonable efforts to
ensure that SOUTHERN GAS will refrain from acquiring, disposing of or
encumbering any material assets or entering into any significant long
term obligation of any nature whatsoever with respect to the Southern
Gas Business;
(c) fully cooperate (and shall cause its affiliates, employees and agents
to cooperate in good faith) with AUGI with a view to permitting the
latter to prepare itself in optimal conditions to continue the
Southern Gas Business.
5.2 Board of Directors. The Board of Directors of AUGI and its consolidated
subsidiaries, including the Southern Gas Group, shall consist of seven
persons; (a) three of whom shall be designated by SOUTHERN GAS; (b) three
of whom shall be designated by AUGI; and (c) one of whom shall be a person
who shall be mutually agree upon by SOUTHERN GAS and AUGI; provided, that
such seventh director and one of the three AUGI designees shall be deemed
to be "independent" directors within the meaning of the Sarbanes Oxley Act
of 2002. It is contemplated that Messrs. Xxxxxx and Xxxxxxx will be
included in the designees of SOUTHERN GAS on such boards of directors. Each
of The Xxxxx Family Irrevocable Stock Trust, Vertex Capital Corporation,
other principal AUGI stockholders, and the Southern Gas Equity Owners shall
enter into a voting agreement at the Closing, under which such persons
shall agree for a period of not less than three (3) years following the
Closing to vote their shares of AUGI Common Stock for such seven person
board of directors, consisting of three SOUTHERN GAS designees, three AUGI
designees, and one mutually acceptable additional director.
5.3 Management. The existing management of the Southern Gas Group shall
continue to be responsible for the day-to-day operations of the Southern
Gas Business in Rostov and elsewhere. Representative of AUGI shall continue
to be responsible for all public filings, public announcements, financial
reporting and the day-to-day operation of a publicly traded company in the
United States. The principal executive officers of AUGI and its Southern
Gas Group subsidiaries shall be as mutually agreed upon by the Parties and
included in the Final Agreement. Appropriate employment and non-competition
agreements will also be entered into for both the Russian and United States
management teams.
5.4 Post Closing Financing. In order to fund both the internal and external
growth of the Southern Gas Business, promptly following the Closing Date,
AUGI and its Southern Gas Group subsidiaries shall undertake to raise debt
and/or equity financing of between (U.S.) $10.0 million to $25.0 million;
all upon such terms and conditions as shall be acceptable to the AUGI board
of directors and stockholders. AUGI and its current management and
affiliates will use their collective best efforts to consummate such
post-closing financing on commercially competitive terms.
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5.5 Southern Gas Business Plan. In order to facilitate such Post-Closing
Financing as well as the preparation and filing of other disclosure
documents that AUGI shall be required to file with the United States
Securities and Exchange Commission, on or before October 15, 2004, SOUTHERN
GAS shall provide AUGI with a three year business plan containing therein
(a) a full description of the Southern Gas Business, as currently operated
and proposed to be operated by the Extraction Company, the Pipeline Company
and the Equipment Company, (b) descriptions and biographies of management,
(c) historical and projected financial statements, and (d) such other
information as AUGI shall request in writing (the "Southern Gas Business
Plan").
5.6 Listing on National Securities Exchange. Promptly following the Closing of
the Transaction, AUGI shall apply to list its AUGI Common Stock for trading
on any one of the NASD OTC-Bulletin Board, the American Stock Exchange or
the NASDAQ Stock Exchange.
Article 6 - Facilitation of Transition
SOUTHERN GAS covenants and undertakes to make all reasonable efforts upon due
consultation with AUGI (both internally and in contacts with customers,
suppliers or other relevant parties) to ensure that the activities continue in
the normal course of business and without interruption, both prior to and for a
reasonable period of time after closing, and that AUGI or the BUYER will obtain
the full benefit of the activities and shall execute such documents and take
such other steps (or procure other parties to do so) as are necessary or
appropriate for such smooth transition.
Article 7 - Exclusivity
The Parties agree that AUGI shall have the exclusive right to enter into
negotiations with SOUTHERN GAS and the Southern Gas Equity Owners with regard to
the Transaction contemplated hereby. Accordingly, from the date of this MOU and
until October 15, 2004, neither SOUTHERN GAS nor the Southern Gas Equity Owners
will negotiate with, enter into, or offer the opportunity to enter into, any
sale, lease or other arrangement with any person, firm or corporation (other
than AUGI or the BUYER) that could reasonably be expected to frustrate the
proposed Transaction with AUGI or the BUYER. If a Final Agreement shall not be
executed by October 15, 2004, AUGI's exclusive right to negotiate the Final
Agreement and the proposed Transaction shall terminate. SOUTHERN GAS and the
Southern Gas Equity Owners each agree that it and they shall actively pursue in
good faith all reasonable efforts to prepare all necessary disclosure schedules
to and execute such Final Agreement by October 15, 2004; provided, that counsel
to AUGI shall submit to legal counsel to SOUTHERN GAS the initial draft of the
Final Agreement by not later than September 1, 2004.
Article 8 -Expiration
The agreements of the Parties contained in this MOU shall terminate and cease to
have any effect as of October 15, 2004, unless, on or before such date, the
Final Agreement shall have been duly executed by the Parties, or this Agreement
shall have been extended by mutual agreement of the Parties. In the event of
such termination, the Parties shall have no obligations towards each other,
except for the undertakings as set forth under Article 9, 11 and 12 below.
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Article 9 - Confidentiality
9.1. The Parties shall keep the existence and the contents of this MOU strictly
confidential, except for legally required disclosure or information duties.
The Parties agree that they will not copy or distribute any part of this
MOU or disclose any of its contents to any party, other than their
employees, legal representatives and other advisors in connection with the
Transaction contemplated herein, without the express written consent of the
other Party, and then only on condition that such advisers adhere to the
same duties of confidentiality.
9.2. Press releases and public information shall be worked out in due time and
in accordance with applicable United States and Russian legislation and
regulations and approved by both SOUTHERN GAS and AUGI, such approval not
to be unreasonably withheld or delayed.
Article 10 - Costs
The Parties shall each bear their own fees and expenses incurred in connection
with the contemplated Transaction.
Article 11 - Governing law
This MOU shall be governed and construed in accordance with the laws of the
Russian Federation; provided, that all matters involving AUGI securities shall
be governed by United States securities laws and the laws of the State of
Delaware, United States.
Article 12 - Choice of forum
Any disputes arising in connection with this Agreement or the Final Agreement
shall be submitted exclusively to final and binding arbitration in accordance
with the then prevailing Rules of Arbitration of the International Chamber of
Commerce. Any such arbitration shall be held in London, England.
Article 13 - Non compete clause
The Final Agreement shall provide that neither SOUTHERN GAS nor any of its
affiliates shall commence, directly or indirectly, any activity that competes
with the Southern Gas Business for a period of three (3) years after Closing.
Article 14 - Non-binding agreement
For the avoidance of doubt, with the exception of the provisions contained in
Articles 7, 8, 9, 10, 11 and 12 above, neither this MOU nor the terms and
conditions set forth in this MOU are intended to represent a legal and binding
obligation of any of the Parties hereto. For the avoidance of doubt, except as
set forth in said Articles 7, 8, 9, 10, 11 and 12, the legal rights and
obligations of the parties shall arise only pursuant to the terms and conditions
of the Final Agreement, as, if and when the same shall be duly executed by AUGI,
SOUTHERN GAS, the Southern Gas Equity Owners and the BUYER.
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IN WITNESS WHEREOF, the Parties hereto have executed this MOU on the day and
year first written above, in two original copies, each Party acknowledging
receipt of the same.
SOUTHERN GAS COMPANY
(INN:6164207982, Certificate of registration of legal person, series 61 No.
003266599)
By:_____________________________
Name: _______________________,
Title: ______________________
AMERICAN UNITED GLOBAL, INC.
By:____________________________________
Name: Xxxxxx X. Xxxxx,
Title: President and Chief Executive Officer
SOUTHERN GAS EQUITY OWNERS:
____________________________________
____________________________________
____________________________________
___________________________________
