Exhibit 10.1
BAYTREE CAPITAL ASSOCIATES, LLC
MERCHANT BANKERS
THE XXXXX BUILDING AT
00 XXXX XXXXXX
XXX XXXX, XXX XXXX 10005
212/509-1700 - 212/363-4231
July 14, 1999
Aladdin Systems, Inc.
000 Xxxxxxxxxx Xxxxx
Xxxxxxxxxxx, Xxxxxxxxxx 00000
Attn: Xx. Xxxxxxxxx Xxxx
President
Dear Xx. Xxxx:
The purpose of this letter agreement (this "Agreement") is to memorialize
the understanding between Baytree Capital Associates, LLC ("Baytree") and
Aladdin Systems Inc. ("Aladdin") with respect to the investment by Xxxxxxx and
others of $1 million into Aladdin or any corporation or other entity formed by
or affiliated with Aladdin (together with Xxxxxxx, the "Company") which
participates in, or which was formed for the purpose of effecting a Transaction
(as hereinafter defined). In the context of this Agreement, "Transaction" shall
mean, whether effected in one transaction or a series of transactions, any
merger, consolidation, reorganization, recapitalization or other business
combination pursuant to which the business of Aladdin is combined with that of
another entity (the "Merger Candidate"), whether or not Aladdin is the surviving
entity in such business combination.
1. Services. Pursuant to the terms and conditions set forth in this
Agreement, Xxxxxxx will assist Xxxxxxx in negotiating and effecting a
Transaction. In this regard, Xxxxxxx will, on behalf of Xxxxxxx:
(a) use its best efforts to identify a Merger Candidate which is a
public company with no material liabilities and at least $1.00 of positive
working capital, having a trading symbol on the Nasdaq Electronic Bulletin
Board;
(b) advise Xxxxxxx as to the structure and form of the Transaction;
(c) assist Xxxxxxx in obtaining appropriate information and
performing its due diligence regarding the merger Candidate; and
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(d) counsel Xxxxxxx with respect to, and assist in the negotiations
with, the Merger Candidate regarding the Transaction in a fashion customary with
transactions of this nature.
Any obligations pursuant to the Paragraph 1 shall survive the
termination or expiration of this Agreement.
2. The Investment
(a) Baytree or other entities identified by Baytree or the Company
shall invest (the "Investment") $1 million in the Company. The investment will
be completed through a limited offering and will be completed contemporaneously
with consummation of the Transaction. The Investment will be subject to
Xxxxxxx's successful and satisfactory completion in Xxxxxxx's sole and absolute
discretion of its due diligence prior to the funding of the Investment, such
shall include, but not be limited to, a review and analysis of Aladdin's
financial status, business plans and any pending or potential litigation. The
placement of the Common Stock will rely on Rule 504 of Regulation D ("Regulation
D") promulgated under the U.S. Securities Act of 1933, as amended the "Act"),
and shall thereby be exempt from the registration requirements of the Act,
provided, however, that should Rule 504 of Regulation D be changed so that the
exemption from registration for stock so issued under this Agreements altered
then no further Investment as contemplated in this Agreement will occur unless
and until the parties to this Agreement enter into a separate and distinct
agreement to continue with a financing wherein the terms of said financing shall
be specifically described. In connection with their purchase of the Common stock
in the Investment, the purchasers (which may include Baytree) will receive one
(1) share of the Common Stock of the Company for every one ($1 US) dollar so
invested.
Xxxxxxx shall not be deemed an agent of the Company nor an agent of
Aladdin for any purpose. Any proceeds shall be paid, less the legal fees
reimbursement (each as defined in Paragraph 4 below), to the Company at a
closing held with respect to the sale of the Common Stock (the "Closing")
against delivery of certificates representing the securities sold. The Company
agrees that for a period of twelve (12) months from the Closing, it will not,
directly or indirectly, without Baytree's prior written consent, seek to arrange
or place any equity or convertible security financing which contains any
floating conversion price or ratio or other type of reset provision or which are
sold a greater than a 10% discount to the then current market price, except is
such financing is an underwritten public offering or non-convertible debt.
Additionally, the Company agrees that upon Closing, the Company shall grant
Baytree a right of first refusal for a period of eighteen (18) months from the
Closing with respect to any sale of securities by the Company except if the sale
is either pursuant to an underwritten public offering or is non-convertible debt
and except for the issuance of securities upon the exercise of currently
outstanding warrants which shall be as set forth in Section 4. Such right does
not apply to the issuance of securities upon the exercise of options (whether
currently outstanding or granted following the Closing, provided that the total
number of options which the Company may authorize during such term (including
the options currently outstanding) shall not exceed 2.2 million shares and
provided further that any options issued following the Closing shall have an
exercise price equal to or greater than the market price on the date of grant.
Baytree shall have ten (10) business days following receipt of written notice
from the Company setting forth the terms of any proposed financing to be
conducted by it (a "Notice"), to exercise the right of first refusal by agreeing
to provide financing on the same or better economic terms as presented to the
Company. In the event Xxxxxxx fails to exercise this right to provide such
financing, the Company
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shall be free to sell such securities in the manner, amount and for the prices
and terms set forth in the Notice without liability to Baytree, subject to
Xxxxxxx's right of consent for a period of twelve (12) months as set forth
above. Not withstanding the foregoing, in the event that a Closing is not
consummated, as contemplated herein, the Company shall have no obligation to
Baytree under this paragraph.
3. Compensation: Expenses. It shall be the Company's obligation to bear
all of its expenses in connection with the Transaction and the financing, which
expenses shall include, but are not limited to the following: printing a
duplication costs, postage and mailing expenses with respect to the transmission
of offering materials, registrar and transfer agent fees, accounting fees and
issue and transfer taxes, if any; provided that Aladdin shall not be liable for
such expense if the Investment does not occur through no fault of Aladdin.
Further, Xxxxxxx will cause the Company to pay to Baytree a non-accountable
expense allowance at closing of Ten Thousand ($10,000.00 US) Dollars with
respect to the Transaction and the Investment; and, Xxxxxxx will cause the
Company to pay the fees and reasonable disbursements of the Merger Candidate's
legal counsel incurred in connection with the Transaction (not to exceed
$35,000.00). Such expenses shall be paid at Closing. As total compensation for
its role in the Transaction, Baytree or its nominee shall receive $20,000 in
cash and 50,000 shares of common stock of the Company at Closing.
4. Structure of Merger Candidate.
It is contemplated by the parties that the capitalization of Merger
Candidate will be structured such that following the consummation of the
Transaction 650,000 shares of common stock will be held by the former holders of
the Merger Candidate, 1,000,000 shares of common stock will be held by Baytree
and the other new investors, and an aggregate of 8,350,000 shares of common
stock will either be issued to the holders of Aladdin stock or reserved for
issuance to the holders of Aladdin warrants or options.
5. Representations, Warranties, and Covenants.
(a) Aladdin represents and warrants and shall cause the Company to
so represent and warrant that this Agreement has been duly authorized, executed
and delivered by the Company and constitutes a valid and binding agreement of
the Company enforceable against the Company in accordance with it terms. The
Company further represents and warrants that consummation of the transactions
contemplated herein will not conflict with or result in a breach of any of the
terms, provisions or conditions of any written agreement to which it is a party.
(b) Xxxxxxx has not done, and shall cause the Company not to do anything
that may be considered a direct selling effort in the United States or which
could reasonably be expected to result in general preconditioning of the United
States Market for the Securities of the Company. Subject to the requirements of
law, the Company shall not make any public announcement of the Investment
without the prior written consent of Baytree and in any event, shall make no
such disclosure which could be deemed to be a general solicitation or directed
selling effort within the meaning of Regulation D under the Act.
(c) Baytree covenants that it will comply with all Rules and Regulations
applicable to Regulation D, all federal and state securities laws and
regulations and all rules promulgated by the
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NASD with regard to the Investment. Further, Baytree represents and warrants
that this Agreement has been duly authorized, executed and delivered by it and
constitutes its valid and binding agreement enforceable against it in accordance
with its terms. Baytree further represents and warrants that consummation of the
transactions contemplated herein will not conflict with or result in a breach of
any of the terms, provisions or conditions of any written agreement to which it
is a party.
(x) Xxxxxxx represents, warrants, and covenants that at the time of the
Transaction contemplated herein there shall be no liens, encumbrances or
security interest in any assets of Aladdin (or any subsidiaries or affiliates)
(except for existing liens and security interests), said unencumbered assets
shall include but not be limited to the intellectual or proprietary property of
Aladdin which property shall include but not be limited to, any and all
copyrights issued to, titled to, or claimed by Xxxxxxx.
6. Term. Xxxxxxx agrees to attempt to fulfill its obligations under this
Agreement with 60 days of the date hereof. If the Transaction and the Investment
are not consummated within such time period, Aladdin may terminate this
Agreement and shall have no further obligation to Baytree.
7. Indemnification. Xxxxxxx agrees to indemnify and to cause the Company
to indemnify the purchasers who participate in the Investment in a form
substantially as set forth in Annex A, attached hereto, which provisions will be
incorporated into the purchase agreement relating to the Investment.
8. Information. Xxxxxxx recognizes and confirms that in performing its
obligations under this Agreement, Xxxxxxx and other persons who participate in
the Investment will be using and relying on date, material, and other
information (the "Information") or ("Offering Materials") furnished by Xxxxxxx
and the Merger Candidate or their respective employees and representatives. In
connection with Xxxxxxx's activities on Xxxxxxx's behalf, Xxxxxxx will cooperate
with Xxxxxxx and will furnish Baytree with all information concerning Xxxxxxx,
the Transaction and, to the extent available to Aladdin, the Merger Candidate,
which Xxxxxxx deems appropriate and will provide Xxxxxxx with access to
Xxxxxxx's officers, directors, employees, independent accountants and legal
counsel for the purpose of performing Xxxxxxx's obligations pursuant to this
agreement. To the extent that Xxxxxxx has access to the officers, directors,
employees, independent accountants and legal counsel of the Merger Candidate, it
will provide such access to Baytree for the purpose of performing Baytree's
obligations pursuant to this Agreement. Xxxxxxx hereby agrees and represents
that all Information (a) furnished directly by Xxxxxxx to Baytree pursuant to
this Agreement, and (b) contained in any filing by Xxxxxxx with any court or
governmental or regulatory agency, commission or instrumentality (each, and
"Agency") shall, at all times during the period of the engagement of Baytree
hereunder, be accurate and complete in all material respects and that, if the
Information provided by Xxxxxxx becomes materially inaccurate, incomplete or
misleading during the term of Xxxxxxx's engagement hereunder, the Company shall
so advise Xxxxxxx in writing. Accordingly, Xxxxxxx assumes no responsibility for
the accuracy and completeness of the Information. In rendering its services
hereunder, Xxxxxxx will be using and relying upon the Information without
independent verification thereof or independent evaluation of any of the assets
or liabilities of Aladdin or the Merger Candidate. All information that is not
publicly available will be confidential and proprietary information belonging to
Xxxxxxx and Xxxxxxx shall have not interest of any kind in such information by
virtue of the Agreement. No information shall be revealed, or used
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(except in the performance of Xxxxxxx's duties under this Agreement) by Xxxxxxx
unless compelled as determined in good faith by counsel to Xxxxxxx and with
reasonable notice given to Xxxxxxx.
9. Disclosure. Xxxxxxx agrees that, except as compelled by law, rule or
regulation or as necessary to its attorneys, accountants and other similar
advisors, it will not disclose and will cause the Company not to disclose the
services or advice to be provided by Xxxxxxx under this Agreement publicly or to
any third party without the prior written approval of Xxxxxxx.
10. Severability. If any provision of this Agreement shall be held or made
invalid by a statute, rule, regulation, decision of a tribunal or otherwise, the
remainder of this Agreement shall not be affected thereby and, to this extent,
the provisions of this Agreement shall be deemed to be severable.
11. Authorization. Xxxxxxx and Xxxxxxx represent and warrant that each has
all requisite power and authority, and all necessary authorizations, to enter
into and carry out the terms and provisions of this Agreement.
12. Successors. This Agreement and all rights, liabilities and obligations
hereunder shall be binding upon and inure to the benefit of each party's
successors but may not be assigned without the prior written approval of the
other party. Any such approval shall not be reasonably withheld.
13. Headings. The descriptive headings of the Paragraphs of this Agreement
are inserted for convenience only, do not constitute a part of this Agreement
and shall not affect in any way the meaning or interpretation of this Agreement.
14. No Brokers. Xxxxxxx represents and warrants to Xxxxxxx that other than
as disclosed in writing, there are no brokers, representatives or other persons
which have an interest in or claim for compensation due to Baytree from any
transaction contemplated herein.
15. Notices. Any notice or other communication to be given to Xxxxxxx
hereunder may be given by delivering the same in writing to the address set
forth above, and any notice or other communication to be given to Baytree may be
given by delivering the same to Baytree Capital Associates, LLC, 00 xxxx Xxxxxx,
Xxx Xxxx, Xxx Xxxx 00000, Attention: Xxxxxxx Xxxxxxx, Principal, or in each
case, such other address of which a party shall have received notice. Any notice
or other communication hereunder shall be deemed given three days after deposit
in the mail if mailed by certified mail, return receipt requested, or on the day
after deposit with an overnight courier service for next day delivery, or on the
date personally delivered.
Please confirm that the foregoing correctly sets forth our agreement by
signing the enclosed letters in the space provided and returning them to us for
execution, whereupon we will send you a fully executed original letter which
shall constitute a binding agreement as of the date first above written.
Very truly yours,
BAYTREE CAPITAL ASSOCIATES, LLC
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By: /s/ Xxxxxxx Xxxxxxx
Xxxxxxx Xxxxxxx, Principal
Agreed to and accepted as of the above date
ALADDIN CORPORATION
By: /s/Xxxxxxxx Xxxx
Xxxxxxxx Xxxx, President
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