EXHIBIT 10.1
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
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December 20, 1999
Page 2
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,
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(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 Liad
Meidar ("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.
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December 20, 1999
Page 4
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
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December 20, 1999
Page 5
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
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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 Meidar pursuant to which Meidar 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 Meidar'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, White would also enter into a
Noncompetition Agreement.
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December 20, 1999
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8. LOCK-UP ARRANGEMENTS FOR CERTAIN SHAREHOLDERS
At the Closing, White and Meidar 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
Xxxxxxx.xxx Inc.
December 20, 1999
Page 8
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 (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.
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December 20, 1999
Page 9
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
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December 20, 1999
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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;
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(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
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December 20, 1999
Page 12
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
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December 20, 1999
Page 13
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
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December 20, 1999
Page 14
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
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December 20, 1999
Page 15
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
---------------------------
Xxxxxxx.xxx Inc.
December 20, 1999
Page 16
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
--------------------------------
