EXHIBIT 10.1
INTERNET SPORTS NETWORK, INC.
000 Xxxxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxxx, X.X. V6B2Z6
Canada
April 30, 1998
Digital Data Networks, Inc.
0000 Xxxxx Xxxxxx, Xxxxx 000
Xxxxxx, Xxxxx 00000
Gentlemen:
The purpose of this letter is to set forth our mutual intentions with
respect to a proposed transaction in which Internet Sports Network, Inc., a
Nevada corporation ("ISN"), shall merge with and into Digital Data Networks,
Inc., a Washington corporation ("DDN"). In the alternative, the parties may
determine that DDN shall purchase the outstanding ISN common stock for the
Merger Consideration (as defined below). For purposes hereof, either such form
of the transaction is hereinafter referred to as the "Merger" and the
corporation that survives the Merger is hereinafter referred to as the
"Surviving Corporation."
1. Principal Terms and Conditions. We propose that the principal
terms of the Merger would include, without limitation, the following:
a. Merger Consideration. DDN currently has outstanding 2,314,597
shares of common stock, no par value per share ("DDN Common Stock"), warrants to
purchase 1,840,000 shares of DDN Common Stock and options to purchase 675,000
shares of DDN Common Stock. ISN currently has outstanding approximately
5,000,000 shares of common stock, $.001 par value per share ("ISN Common
Stock"). ISN and DDN shall enter into an agreement and plan of reorganization
(the "Merger Agreement"). The Merger Agreement shall provide that shares of DDN
Common Stock shall be issued to the shareholders of ISN in exchange for each
share of ISN Common Stock (the aggregate number of shares of DDN Common Stock
issued to be referred to as the "Merger Consideration"), such that following the
Merger the outstanding common stock of the Surviving Corporation shall be held
approximately 24% by the shareholders of DDN and approximately 76% by the
shareholders of ISN (on a fully-diluted basis, excluding the DDN warrants).
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b. Tax Treatment of Merger. The Merger is intended to be
consummated in a manner such that it qualifies as a tax-free reorganization
under the Internal Revenue Code of 1986, as amended.
c. Merger Agreement. The Merger Agreement shall include such
representations and warranties and indemnities as may be mutually agreed to by
the parties hereto and as are customarily set forth in agreements of this nature
and subject. The Merger Agreement shall include covenants that DDN will use its
good faith efforts to (i) obtain the requisite shareholder consent to the Merger
and all related transactions, (ii) dissolve its subsidiaries on terms and
conditions satisfactory to ISN, and (iii) collect the outstanding accounts
receivable of DDN (in the amount of $1,400,000), with the proceeds of such
collections to remain with the Surviving Corporation (subject to expenditures in
the ordinary course of business consistent with past practice). It is the
intention of the parties hereto that the Merger Agreement shall be negotiated,
executed and delivered on or before 60 days following the date hereof, and that
the closing of the proposed transactions shall occur on a date (the "Closing
Date") as promptly as practicable thereafter.
d. Closing Conditions. From December 31, 1997 until the Closing
Date, (i) there shall have been no material adverse change in the condition
(financial or otherwise), business prospects, properties, net worth or results
or operations of DDN or ISN; (ii) the businesses of DDN and ISN shall have been
conducted in the ordinary course consistent with part practice; (iii) DDN shall
have no less than $500,000 of cash at the Closing; (iv) ISN shall have completed
one or more private placements (collectively, the "ISN Private Placement") of
shares of ISN Common Stock or other ISN securities with aggregate gross proceeds
to ISN of $1,200,000; (v) prior to the later of (A) the date of completion of
the ISN Private Placement and (B) the date of execution of the Merger Agreement,
DDN shall have invested $100,000 in ISN in exchange for shares of ISN Common
Stock or other ISN securities on substantially similar terms as the ISN Private
Placement; and (vi) DDN Common Stock shall be listed on the Nasdaq Smallcap
Market. The purchasers of ISN securities in the ISN Private Placement (the
"Purchasers") shall, within 120 days of the Merger, have the ability to demand
registration under the Securities Act of 1933, as amended, of the DDN Common
Stock received in exchange for, or issuable upon exercise or conversion of, the
ISN securities acquired in the ISN Private Placement, so long as such
registration and sale does not cause the Merger no longer to qualify as a
tax-free reorganization under the Internal Revewnue Code of 1986, as amended.
e. Board of Directors. The number of directors on the Board of
Directors of the Surviving Corporation (the "Board") shall be fixed at five. ISN
shall have the ability to nominate three directors to serve on the Board, one of
which nominees shall be Xxxxxxx Xxxx, and DDN shall have the ability to nominate
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two directors to serve on the Board, such nominees to be Xxxxxx Xxxxxx and
Xxxxxx Xxxxx. Both ISN and DDN shall take reasonable steps to assure that such
nominees are duly elected and qualified to serve on the Board for at least three
years.
2. Due Diligence Review. Commencing with the execution of this
letter, representatives of and attorneys and auditors for each of DDN and ISN
shall conduct a due diligence review of the business activities of the other
company, including all management matters, all financial, accounting and
business records, all contracts and other legal documents (the "Due Diligence
Review"). DDN and ISN each shall cooperate fully in respect of the Due Diligence
Review. Each company shall provide the other company with all financial
information reasonably requested by such company including, without limitation,
financial statements required by the rules and regulations promulgated under the
Securities Act of 1933, as amended.
3. Exclusive Dealing Rights. In order to induce the parties hereto
to commit the resources, to forego other potential business opportunities and to
incur legal, accounting and incidental expenses necessary to properly evaluate
the Merger, the parties hereby agree not to negotiate with third parties
regarding any merger, consolidation, acquisition or sale of assets (other than
in the ordinary course of business) or other business combination or similar
transaction (each such transaction, an "Alternative Transaction"), which
exclusive negotiating rights shall expire 60 days following the date hereof (the
"Exclusivity Period"). In connection with the foregoing, each party shall, from
and after the date hereof and through the Exclusivity Period, refrain from
taking any actions intended to encourage discussions or negotiations, and from
participating in discussions or providing information regarding its business,
with any person or entity other than a party to this letter agreement regarding
the Merger or an Alterative Transaction.
4. Confidentiality. All information furnished to any party hereto
(a "receiving party") in connection with the Due Diligence Review that is
identified in writing by the other party hereto (a "providing party") as being
confidential shall be held by the receiving party as proprietary information of
the providing party (the "Proprietary Information"). Proprietary Information
shall not include, however, information that (i) becomes generally available to
the public other than as a result of a disclosure by the receiving party or its
directors, officers, employees or agents (the "Receiving Party Group"), in
breach hereof, (ii) becomes available to the Receiving Party Group on a
non-confidential basis from a source other than the providing party or its
directors, officers, employees or agents, provided that such source is not known
by the Receiving Party Group to be bound by a confidentiality agreement with or
other obligation of secrecy to the providing party, (iii) is currently known to
the receiving party, provided that such source is not known by the Receiving
Party Group to be bound by a confidentiality agreement with or other obligation
of secrecy to the providing party, or (iv) is required to be disclosed by any
court of competent jurisdiction or by subpoena or by any law, rule, regulation
or other administrative or legal process or requirement.
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5. Public Announcements. Unless required by applicable law or
required or requested by regulatory authority, neither party hereto shall issue
any report, statement or press release to the public, the trade or the press or
any other third party relating to this letter, the Merger Agreement or the
transactions contemplated hereby, except as mutually agreed by the parties.
Copies of any such reports, statements or press releases, including any
announcements or disclosures mandated by law or regulatory authorities, shall be
delivered to the other parties hereto prior to their releases.
6. Expenses. Each party hereto shall bear its own expenses in
respect of this letter, the Merger Agreement and the transactions contemplated
hereby and thereby, whether or not such transactions are consummated.
7. Regulatory Approvals. The closing of the transactions
contemplated by the Merger Agreement shall be conditioned upon, among other
things, the receipt of all requisite regulatory approvals, and DDN and ISN shall
cooperate in obtaining such approvals.
8. Governing Law; Consent to Jurisdiction. The parties agree that
this letter and respective rights and duties and obligations hereunder shall be
governed and construed in accordance with the laws of the State of New York
without giving effect to the principles of conflicts of law thereof. Each of the
parties hereto hereby irrevocably submits to the non-exclusive jurisdiction of
any New York state court or Federal court sitting in the State of New York over
any action or proceeding arising out of or relating to this letter, the Merger
Agreement and the transactions contemplated hereby and thereby and each of the
parties hereto hereby irrevocably agrees that all claims in respect of such
action or proceeding may be heard and determined in such New York state or
Federal court. Each of the parties hereto hereby irrevocably waives, to the
fullest extent legally possible, the defense of an inconvenient forum to the
maintenance of such action or proceeding.
9. Binding Effect. Except for the provisions set forth in Section
2 (Due Diligence Review), Section 3 (Exclusive Dealing Rights), Section 4
(Confidentiality), Section 5 (Public Announcements), Section 6 (Expenses),
Section 8 (Governing Law; Consent to Jurisdiction) and this Section 9 (Binding
Effect), this letter does not constitute or create and shall not be deemed to
constitute or create any legally binding or enforceable obligations on the part
of any party to this letter. Such obligations shall be created solely by the
execution and delivery of the Merger Agreement containing such terms and
conditions of the Merger as may be agreed upon by the parties and then only in
accordance with the terms and conditions of the Merger Agreement.
10. Prior Agreements. The arrangements contained in this letter
supersede all prior agreements relating to the subject matter hereof.
11. Counterparts. This letter may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which when
taken together shall constitute one and the same instrument.
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If the foregoing terms and conditions are acceptable to you, please so
indicate by signing this letter and returning it to the attention of ISN.
Very truly yours,
INTERNET SPORT NETWORK, INC.
By: /s/ Xxxxxxx Xxxxx
--------------------
Name: Xxxxxxx Xxxxx
Title: President
Agreed to and Accepted:
DIGITAL DATA NETWORKS, INC.
By: /s/ Xxxxxx X. Xxxxx
----------------------
Name: Xxxxxx X. Xxxxx
Title: President
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