AEI ENVIRONMENTAL INC.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
April 23, 2002
PERSONAL & CONFIDENTIAL
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▇▇. ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
c/o Canal Capital Corp.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Re: CS LIVESTOCK COMMISSIONS CO. LLC AND CS AUCTION PRODUCTION CO. LLC
(COLLECTIVELY, THE "COMPANY")
Dear ▇▇. ▇▇▇▇▇▇▇:
The purpose of this letter is to set forth our mutual understanding in
connection with the proposed acquisition of the limited liability company
interests of the Company (the "Interests") by Canal Capital Corporation (the
"Buyer"):
1. THE COMPANY. The Company is headquartered in Hinsdale, Illinois and is
wholly owned by AEI Environmental, Inc. (the "Seller"). The Company provides
business services to producers of beef and dairy cattle.
2. PURCHASE OF INTERESTS. The Buyer proposes to acquire the Interests, free and
clear of all liens, claims and encumbrances. The parties anticipate that the
closing shall occur on or before June 15, 2002.
3. PURCHASE PRICE. The purchase price to be paid by the Buyer for the Interests
shall consist of (a) One Million Two Hundred Thousand Dollars ($1,200,000)
payable in cash at closing from the proceeds of the Private Placement
(hereinafter defined), (b) shares of a series of preferred stock of the
Buyer (the "Preferred Stock") having the principal terms described below,
and (c) shares of common stock, par value $.01 per share (the "Common
Stock"), of the Buyer representing seventy percent of the outstanding Common
Stock of the Buyer at closing on a fully diluted basis.
AEI Environmental, Inc.
April 23, 2002
Page 2
4. THE PREFERRED STOCK. The Preferred Stock shall (a) provide for
non-cumulative dividends at the rate of 5.5% per annum (the "Dividend
Rate"); provided that dividends shall be paid and if not paid accrue at the
Dividend Rate during each fiscal quarter that the Buyer satisfies certain
financial thresholds as set forth in a business plan of the Buyer mutually
acceptable to Buyer and Seller, (b) contain a liquidation preference with
respect to all of the Buyer's assets other than the Livestock Operations (as
defined below) in an aggregate amount equal to $12,142,857 plus all accrued
and unpaid dividends, (c) be automatically redeemable in cash in the event
of a public offering of the Buyer's securities which results in net proceeds
to the Buyer in excess of $10 million (a "Qualified Public Offering"), sale,
merger, or consolidation of the Buyer; provided that in the event of a
Qualified Public Offering the amount to be redeemed shall equal forty
percent (40%) of the net offering proceeds, (d) be convertible into Common
Stock at a price of $3.00 per share of Common Stock and (e) grant to the
holders of the Preferred Stock voting rights representing in the aggregate a
majority of the voting rights of all equity of the Buyer. The Preferred
Stock shall have such other or different terms and provisions as Seller
shall require and shall be reasonably acceptable to Buyer. Thirty percent
(30%) of the Preferred Stock shall be issued to the holders of ▇▇▇▇▇'s
preferred equity immediately prior to the closing and seventy percent of the
Preferred Stock shall be issued to Seller.
5. CONCURRENT TRANSACTIONS. Concurrent with the closing of the sale of the
Interests to the Buyer, Buyer and the Seller shall effect the following
transactions: (a) Buyer shall distribute to the owners of its preferred
and/or common equity all of the Buyer's assets with the exception of the
Buyer's livestock operations and the Buyer's real property utilized in its
livestock operations (collectively, the "Livestock Operations"), (b) Buyer
shall satisfy in full, redeem or exchange all of Buyer's preferred equity,
indebtedness and other liabilities (including, without limitation, any
liabilities arising out of or relating to any pension plans of Buyer)
outstanding immediately prior to the closing with the exception of the
Buyer's trade payables incurred in the ordinary course of business in
connection with the Livestock Operations, (c) Seller shall arrange a private
placement of not less than $2.5 million of preferred and/or common equity of
Buyer on terms to be determined by Seller in its sole discretion (the
"Private Placement"), (d) Buyer shall enter into an agreement with the
holders of Buyer's Common Stock immediately prior to the closing (the
"Existing Stockholders") whereby (i) the Existing Stockholders will be paid
an amount equal to Buyer's free cash flow (to be determined in a manner
acceptable to Buyer and Seller) attributable to the Livestock Operations
after closing and (ii) in consideration of the retention of the Livestock
Operations by the Buyer, the Buyer will issue to the Existing Stockholders
or their agent a promissory note having a principal amount and other terms
and provisions agreeable to Buyer and Seller; provided that the sole remedy
of the Existing Stockholders in the event of Buyer's failure to pay any
amount due and payable under such promissory note will be to foreclose upon
the Livestock Operations, (e) the Buyer shall enter into an agreement with
the Existing Stockholders providing anti-dilution protection so that as the
result of the conversion of the Preferred Stock and the issuance of Common
Stock in connection with the Private Placement (including the issuance of
Common Stock pursuant to the conversion, exercise or exchange of any
securities sold in the Private Placement), the Common Stock and
Preferred Stock owned by the Existing Stockholders at closing shall not
represent less than twenty percent (20%) of the Buyer's Common Stock and
Preferred Stock, respectively. Each of the transactions described in this
paragraph 5 shall be a condition to the parties obligation to close the
purchase and sale of the Interests and the purchase and sale of the
Interests shall be a condition to the parties obligations to consummate
each of the transactions described in this paragraph 5.
6. DEFINITIVE PURCHASE AGREEMENT. Closing of the transactions shall be subject
to the execution and delivery of a definitive Purchase Agreement (the
"Agreement") between the Buyer and the Seller. The Agreement will contain
such representations and warranties, covenants, terms and conditions as are
customary and appropriate for a transaction of this type including, without
limitation, the parties' obligations to close being conditioned on obtaining
any required shareholder and board of director or other governing body
consents and completion of due diligence.
7. NON-COMPETITION AGREEMENT. In connection with the closing of the sale of the
Interests and other transactions described herein, the Buyer and each of
▇▇▇▇▇ ▇▇▇▇▇▇▇ and the other members of senior management of the Buyer prior
to the closing shall enter into non-competition agreements prohibiting such
persons from engaging in any livestock or similar businesses competitive
with the business of the Buyer.
8. CONFIDENTIALITY. The Buyer shall at all times maintain the confidentiality
of all confidential and/or proprietary information of the Company and will
not disclose such information, or use it for any purpose other than its
evaluation of the proposed transaction, without the prior consent of the
Seller, or as otherwise required by law. Notwithstanding the foregoing,
following execution of this letter, the Buyer may disclose such information
to its professional advisors in the course of negotiating the proposed
transactions, but only if the Seller has agreed in writing to such
disclosure.
9. EXPENSES. The Seller and the Buyer shall each be responsible for their own
respective legal, due diligence, accounting and/or financing fees or
expenses.
10. EXCLUSIVITY PERIOD. In connection with the proposed transactions, you
understand that the Seller will require a brief period of cooperation to
complete its due diligence investigation. Accordingly, the Buyer, and its
agents, agree to negotiate exclusively with the Seller with respect to any
transactions relating to the Buyer of the kind described in this letter
during the period ending on June 30, 2002 (the "Exclusivity Period"). During
the Exclusivity Period, the Buyer and Seller shall use their commercially
reasonable best efforts to negotiate and execute a definitive Agreement, in
form and substance satisfactory to the respective parties and their
attorneys.
11. AMENDMENT ASSIGNMENT. This Letter of Intent may not be amended except by an
agreement in writing, signed by all parties. This Letter of Intent shall not
be assigned by the Buyer or the Seller without the written consent of all
parties.
12. GOVERNING LAW. This Letter of Intent shall be governed by, and construed in
accordance with the laws of the State of New York.
13. BINDING PROVISIONS. Only the provisions of paragraphs 8 through 13 shall
constitute the legally binding and enforceable obligations of the parties
hereto.
If you agree to the foregoing, please so signify by executing the enclosed
copy of this letter in the space provided and delivering it to us.
Very truly yours,
AEI Environmental, Inc.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Director
AGREED TO AND ACCEPTED:
On this 26 day of April 2002
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Canal Capital Corporation
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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Name:
Title:
