Dancor, Inc.
00000 Xxxxx 0000 Xxxx, Xxxxx 0
Xxxxxx, Xxxx 00000
000-000-0000
CONFIDENTIAL
December 14, 1998
A.X.R. Development Corporation, Inc.
Salt Lake City, Utah
Re: Proposed Reorganization
Gentlemen:
This letter, upon your acceptance, will evidence our mutual intention
to enter into a definitive agreement providing for a reorganization in which
all of the outstanding capital stock of Dancor, Inc. ("DANCOR"), a Delaware
corporation (the target company), will be acquired by A.X.R. Development
Corporation, Inc. ("AXR"), a Nevada corporation (the acquiring company).
The form of the transaction is contemplated to be an exchange of
capital stock, between the Stockholders of DANCOR (the "DANCOR Stockholders")
and AXR in a tax-free reorganization (hereinafter the anticipated transaction
is referred to as the "Reorganization"), subject to the approval of the DANCOR
Stockholders.
This letter is also an expression of the intention of DANCOR and AXR
to proceed expeditiously to negotiate, draft, and execute a definitive
agreement for the Reorganization (hereinafter referred to as the "Agreement").
The Agreement, when executed, will reflect the terms of this letter and such
other terms and conditions as are typical to a transaction of this nature
(which shall include appropriate representations and warranties as to the
business, assets, liabilities, capitalization, material contracts, proprietary
rights, financial condition and other matters relevant to the business and
operations of the parties), and such additional terms and conditions as shall
be mutually agreed upon. The parties to the Agreement shall include AXR, the
DANCOR Stockholders, and any other party who, in the opinion of AXR or DANCOR,
is necessary to the transactions.
1. Certain Terms of Reorganization Agreement. The material terms
and conditions of the Reorganization to be included in the Agreement are as
follows:
1.1 The Agreement shall provide for the Reorganization, which
shall be consummated on or about February 1, 1999 (the "Closing"). On the
Closing Date, all of the issued and outstanding DANCOR capital stock shall be
acquired by AXR from the DANCOR Stockholders.
1.2 At the Closing, AXR shall issue and deliver to the DANCOR
Stockholders previously authorized and unissued shares of AXR common stock in
an amount equal to 95% of the outstanding shares of the AXR (after giving
effect to the closing of the Reorganization), calculated on a fully diluted
basis. In calculating the outstanding shares of DANCOR for this purpose, it
will be assumed that outstanding DANCOR options, warrants and convertible
securities are exercised immediately prior to the closing, and that number of
shares of AXR common stock necessary to account for DANCOR options, warrants
and convertible securities will be reserved in lieu of being issued. At the
Closing, AXR will substitute options, warrants and convertible securities to
purchase shares of the AXR's common stock for each outstanding option, warrant
and other convertible security to acquire shares of DANCOR, each such option
or warrant to represent the right to purchase that number of AXR shares as if
the DANCOR option, warrant or convertible security had been exercised
immediately prior to the Reorganization and exercisable for the same aggregate
consideration, and on substantially the same other terms and conditions, that
would apply if all of such DANCOR options, warrant or convertible security had
been fully exercised.
1.3 At the time of Closing, AXR shall have 1,000,000 pre-
Reorganization outstanding shares, or approximately 5% of the outstanding
shares of the reorganized company, to consist of approximately 565,217 shares
held by current shareholders after a reverse split effected December 11, 1998,
250,000 shares to be issued pursuant to an S-8 Registration Statement before
the Reorganization (150,000 of which will be issued only on and subject to the
closing of the Reorganization), and 184,783 restricted shares also to be
issued before the Reorganization.
1.4 Upon the Closing of the Reorganization, each of the
officers, directors and 10% shareholders of AXR shall execute an agreement
with XXXXXX and AXR in which each of such officer, director and 10%
shareholder shall release AXR from any and all claims arising as a result of
any prior events (except as permitted by the Agreement) and further covenant
and agree that they will not compete with AXR and DANCOR for a period of five
(5) years after the Closing in any business engaged in by DANCOR as of the
Closing Date including, without limitation, the coating business.
1.5 Until the Closing, each of AXR and DANCOR shall continue to
operate its business in the ordinary course and shall not, without the prior
written consent of the other party, do any of the following:
(i) Incur any material obligations or commitments
other than in the ordinary course of business;
(ii) Grant any salary increases (other than as
required by existing contracts or consistent
with current practices), unscheduled promotions
or enter into any new employment or benefit
contracts;
(iii) Solicit, induce or otherwise engage in
discussions or negotiations relating to or
proposed to lead to the acquisition or
Reorganization of sale of substantially all of
the assets or shares of DANCOR by or with any
party other than AXR;
(iv) Sell or dispose of any material assets or
properties, except in the ordinary course of
business or with the prior consent of the other
party hereto; or,
(v) Sell any additional shares of its capital stock
or grant any additional rights or options to
acquire its capital stock, with the except of
DANCOR's current private placement offering.
1.6 DANCOR shall provide AXR, as soon as practicable after the
Closing Date, with audited financial statements required in connection with
the acquisition of a "significant subsidiary" by AXR as that term is defined
by rules and regulations promulgated by the Securities and Exchange Commission
and such other information as is required for AXR to prepare and file
appropriate documents relating to the Reorganization with the Securities and
Exchange Commission. Such financial statements will include, among other
items, an audited balance sheet of DANCOR as of a recent date, statements of
income for each of its last two fiscal years, and related statements of
shareholder's equity, statements of cash flows and the appropriate notes to
such financial statements, together with the report of an independent
certified public accounting firm.
1.7 As a condition to the consummation of the Reorganization,
there shall have been no material adverse change in the assets, business or
prospects of either DANCOR or AXR except as contemplated by the Agreement.
All financial statements provided by the parties to each other pursuant to the
Agreement shall be represented to fairly present the financial condition of
such party at the date of such financial statements and their results of
operations for the periods covered thereby, and shall be prepared in
accordance with generally accepted accounting principles.
1.8 AXR and XXXXXX will exert their best efforts to obtain such
consents or approvals, and to make such filings as in the opinion of their
respective counsel may be necessary or advisable to effect the transactions
contemplated herein. At the request of AXR, XXXXXX shall obtain the consent of
any third party which is necessary for the transfer of any asset, right or
contract of DANCOR pertaining to the Reorganization contemplated herein, if
any.
1.9 As a condition to the consummation of the Agreement, AXR
and its counsel and DANCOR and its counsel must each be satisfied as to the
validity and legality of all aspects of the Reorganization, including all
activities undertaken in relation to the Agreement. Each of the parties to the
Reorganization will pay their own expenses incurred in connection with the
Agreement and all other events required for the Closing.
1.10 The Agreement will provide that any claims or disputes
arising thereunder or as a result of the transactions contemplated therein
which cannot be resolved by the parties will be referred to alternative
dispute resolution by binding arbitration in the State of Utah.
2. Due Diligence. Upon the execution of this letter of intent by
the parties, XXXXXX and AXR, and each of their duly authorized
representatives, will be provided with full access to the projections,
financial records and supervisory management personnel of the other party,
which shall include copies of all material agreements, corporate proceedings,
access to the chief executive officer and chief financial officer, marketing,
product development and manufacturing supervisors, and other records and
information which each party deems of significance in an due diligence
investigation of the other party hereto. The disclosure of any such
information shall be subject to the provisions of Section 3 of this letter
agreement.
3. Confidentiality. In connection with the foregoing matters, each
party hereto has or will be furnishing to the other from time to time with
oral and written information as to its proprietary products, marketing
strategy and business plans, significant portions of which each of the parties
considers to be proprietary and confidential information (herein called the
"Confidential Information"). Each party acknowledges that "Confidential
Information," as used herein, does not include any information which (i) was
or becomes generally available to the public other than as a result of an
improper disclosure by the other party hereto, or (ii) was or becomes
information available to the other party on a non-confidential basis from a
third party source that is not bound by a confidentiality obligation to either
of the parties hereto.
Each party agrees that Confidential Information will be used
solely for the purpose of evaluating the Reorganization, investigating market
information and potential markets, and for AXR to pursue due diligence and
legal disclosure requirements in connection with proposed financing activities
by AXR, and will not be used in the business or operations of the party to
which such information has been disclosed or used in any other way, directly
or indirectly, that may detrimental to the interests of the party that owns
such Confidential Information. Confidential Information may be disclosed to
representatives of the party receiving the same who need to know such
Confidential Material for the purposes described above, it being understood
that such representatives shall be informed of the confidential nature of the
Confidential Information and shall be directed to treat the Confidential
Information confidentially and as proprietary information of the party that
owns the same. Each party shall notify the other as to the identity of such
representatives. If either party receives a request, including a subpoena or
similar legal inquiry, to disclose any of the Confidential Material, it shall
provide the party that owns such Confidential Information with prompt notice
so that the owner may seek appropriate protective relief.
If the Agreement is not executed or the Closing thereunder shall fail
to occur for any reason, each party shall promptly deliver and return all
copies of Confidential Information to the party which owns the same, and
without retaining any copy, notes or extracts thereof.
Although each party understands that they will endeavor to include in
the Confidential Information all materials which it believes to be relevant
for the purposes of this letter agreement and the Reorganization, each party
further understands that no representation or warranty as to the accuracy or
completeness of the Confidential Information has or will be made except as
provided by separate written agreement.
4. Press Release. Upon your acceptance and approval hereof, each of
us is authorized by the other to issue a press release for the purpose of
publicly announcing the transactions contemplated by this letter. AXR and
XXXXXX each agree to consult with the other as to the form and substance of
any press release or other public disclosure of the matters covered in this
letter, provided that this shall not be deemed to prohibit AXR or DANCOR from
making any disclosure which its respective counsel deems necessary to comply
with applicable law.
5. Survival of Certain Provisions. The provision of Sections 3, 4
and 5 of this letter agreement are for the benefit of the respective parties
hereto, shall survive any termination of this letter agreement, and shall be
governed by and construed in accordance with the laws of the State of Utah.
This letter reflects an expression of our mutual intent only, and
shall not constitute a binding legal obligation for the transactions described
herein (except as expressly set forth in Sections 3, 4 and 5 above) until such
time as the Agreement has been executed and the Reorganization has been
approved by the Board of Directors and shareholders of AXR and the Board of
Directors and Stockholders. It is our desire to move expeditiously towards the
completion of these transactions on the basis of the terms and conditions
contained herein. To help accomplish this goal, if you are in agreement with
the foregoing, would you please indicate your approval of the contents of this
letter by signing the attached copy in the space provided and returning it to
us at your earliest convenience.
The parties acknowledge that they were initially introduced to each
other by, and currently share, two common directors and common outside
corporate counsel who will have an inherent and unavoidable conflict of
interest as to the Reorganization. Each of the parties agrees to engage the
services of their own independent counsel for purposes of advising them in
connection with this letter of intent, the Agreement, the Closing and other
matters relevant to the Reorganization. Each of the parties will require
approval of the Reorganization by a majority or more of their independent
directors who are not affiliated with the other party.
Very truly yours,
DANCOR, INC.
By:/S/Xxxxxx X. Xxxxx
Xxxxxx X. Xxxxx,
Chairman of the Board of Directors
Accepted and Agreed to this
10th day of December 1998
A.X.R. DEVELOPMENT CORPORATION, INC.
By:/S/Xxxxx X. Xxxxxxx
Xxxxx X. Xxxxxxx,
President and Chief Executive Officer
