EXHIBIT 99.2
TERM SHEET
This Term Sheet sets forth the principal terms of the proposed
acquisition of Online Transaction Technologies, Inc. (the "XXX") by Vsource,
Inc. ("VSRC") based on XXX information provided to VSRC on or prior to the date
hereof. This document is not intended to be a binding agreement between VSRC
and the XXX with respect to the subject matter hereof, except for the paragraphs
regarding confidentiality, pre-closing conduct and expiration. A binding
agreement will not occur unless and until all necessary due diligence has been
completed to VSRC's satisfaction and the parties have entered into a definitive
agreement of merger (the "Definitive Agreement"). Until execution and delivery
of the Definitive Agreement, both parties shall have the absolute right to
terminate all negotiations for any reason without liability therefor, except as
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provided below.
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The terms and conditions described in this Term Sheet, including its existence,
shall be confidential information and shall not be disclosed to any third party
other than each party's financial and legal advisors on an as-needed basis;
provided, however, that VSRC may disclose this Term Sheet to the extent it is
advised by counsel that it should do so in order to avoid violation of federal
securities laws.
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Parties: VSRC, XXX and certain selling shareholders.
Structure: XXX will merge with a newly formed acquisition
subsidiary of VSRC in a tax-free reorganization under
Section 368(a) of the Internal Revenue Code (the
"Acquisition").
Aggregate Purchase The aggregate purchase price paid to the shareholders
Price: of XXX at Closing will total $7,000,000, which shall be
payable solely in VSRC common stock (the "Equity
Consideration"). The VSRC common stock will be valued
based upon the average closing price for each of the
trading days during the 30 calendar-day period prior to
the date of Closing. A condition to closing by XXX is
that such average price not exceed 175% of the closing
price of VSRC common stock on the date immediately
preceding the date this Term Sheet is signed. The XXX
shareholders will be given piggyback registration
rights subordinate to those of the Series 2-A Preferred
stockholders and be subject to a standard underwriters'
lockup of up to six months.
Purchase Price The Definitive Agreement will include an adjustment to
Adjustments: the purchase price based on reductions or increases in
certain assets, increases or decreases in liabilities,
changes in net book value, the excess value of option
grants to retained employees over the current value of
incentive packages currently in place for such
employees and other factors to be agreed in the
Definitive Agreements based on due diligence.
Exhibit 99.2
Page 1
Pre-Closing Conduct: From the date of this letter of intent until the
Closing, XXX will not terminate any key employees,
enter into any transaction or agreement or take any
action out of the ordinary course of business,
including any transaction or commitment greater than
$20,000, or declare, pay or make any dividends or
distributions to its shareholders. All options,
warrants and other rights to acquire shares of XXX
stock shall be terminated prior to Closing. In addition
to the foregoing, from the date of the Definitive
Agreement until the Closing, XXX will continue to
operate its business in the ordinary course. If XXX
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violates any provision of this clause and VSRC
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determines not to go forward with the Acquisition as a
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result, XXX will, on demand of VSRC, pay all expenses
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of VSRC, including the time of VSRC employees, related
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to the proposed Acquisition.
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For a period from the date of this term sheet to the
earlier of October 31, 2000, or the date on which VSRC
notifies XXX in writing that it is no longer interested
in proceeding with the acquisition of XXX on the terms
set forth in this Term Sheet (which notice VSRC shall
immediately provide to XXX upon making such
determination), neither XXX nor any of its management
shareholders will directly or indirectly solicit or
respond to any solicitations or engage in any
negotiations or enter into any agreement with any other
party regarding a similar transaction or any other
transaction involving the sale of all or substantially
all of the assets or stock of XXX or any merger or
other consolidation with any other party (a "Sales
Transaction"). If XXX or any management shareholder of
XXX becomes aware of any inquiry or request by another
person or entity with respect to a Sales Transaction,
it wil promptly notify VSRC, fully disclosing (i) the
nature and terms of the inquiry or request and (ii) the
identity of the requestor.
Retention of Key The Closing shall be conditioned upon Xxxxx X. Xxxxxx
Employees and Labor and Xxxxxxx Xxxxxxx (the "Key Employees")entering into
Issues: mutually acceptable employment agreements, to be
negotiated separately with the surviving company. Such
terms will include for each employee appointment as an
officer, a salary of 125,000 per year, a 1/31/2001 year
end bonus of $50,000 paid within 30 days of Closing, a
minimum of one year severance if terminated without
cause, options to purchase up to 100,000 shares of VSRC
common stock at 6.41 per share vesting over 24 months
(immediately upon change of control).
Non-Compete: Key Employees will enter into non-disparagement,
non-compete and non- solicitation and invention
assignment agreements with VSRC. The period of
non-competition and non-solicitation will extend for
two years after the closing.
Dissenters Cannot exceed two percent of all shareholders.
Exhibit 99.2
Page 2
Representations and The Definitive Agreement shall contain customary and
Warranties: appropriate representations and warranties of XXX and
its shareholders, and any additional representations
and warranties that are appropriate based on due
diligence or other developments. Representations and
warranties shall survive for one year after Closing.
Indemnity: For a period of six months following the date of
closing, XXX and the shareholders of XXX will defend,
indemnify and hold harmless VSRC, its officers,
directors, agents, advisers, affiliates, subsidiaries
and employees from any and all claims, losses, actions,
expenses, etc. arising from any breach of
representations and warranties or covenants of XXX and
its management shareholders, subject to a hard floor or
basket of $200,000. VSRC's sole recourse for
indemnification will be to the VSRC stock placed in
escrow as provided below and to the VSRC stock issued
to XXX management shareholders in the acquisition,
valued in each case at the acquisition price. XXX
shareholders will have the right to substitute cash in
lieu of stock.
Escrow: To secure the shareholders' indemnification obligation,
25% of the Equity Consideration will be held in Escrow
for six months. The amount held in Escrow is not VSRC's
sole and exclusive recourse against the management
shareholders for indemnity claims.
Conditions: Standard conditions, including, without limitation,
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obtaining material third party consents (including
relevant corporate authorizations and Xxxx-Xxxxx Xxxxxx
clearance, if required); completion of business,
financial, technology and legal due diligence without
having learned any material negative information
regarding XXX; negotiation and execution of mutually
acceptable Definitive Agreements; absence of any
pending or threatened litigation or violation of law
with respect to the Acquisition; material accuracy of
representations and warranties and material compliance
with all covenants and other agreements; no material
adverse change; shareholder approval; execution of key
employee agreements; and other customary conditions,
including legal opinions of counsel to XXX and of
counsel to VSRC (with respect to the Equity
Consideration).
Termination Events: Mutual agreement; conditions not satisfied so as to
permit closing within 45 days after signing Definitive
Agreement; material breach of representations,
warranties or covenants; material adverse change.
Confirmatory Due XXX will allow VSRC and its representatives full access
Diligence: to XXX'x facilities and books and records. This may
include, among other things, reviews by outside
professionals with respect to accounting and legal
matters. Such review may include the requirement of an
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audited balance sheet prior to Closing.
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Exhibit 99.2
Page 3
No Adverse Changes: XXX will represent that as of the Closing Date no
material adverse events, outside of those specifically
described in XXX'x representations and warranties in
the Definitive Agreement, have occurred since the date
of the most recent historical financial information
provided to VSRC by XXX. For all purposes of this Term
Sheet, material adverse events shall not include
adverse changes in general or industry conditions.
Expenses: VSRC and the shareholders of XXX will each bear their
respective own costs in connection with the
Acquisition. If the Acquisition is consummated, VSRC
will pay up to $50,000 of XXX'x expenses; if it is not,
XXX will bear all of its own expenses.
Governing Law: The internal laws of the State of California shall
govern this term sheet and the definitive documents.
Counterparts: This term sheet may be executed in any number of
counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto
were upon the same instrument.
Expiration This term sheet will expire at 5 p.m. (California time)
on October 4, 2000 if not accepted by XXX prior to such
time.
In witness whereof XXX and VSRC have signed this Term Sheet as of
the 4th day of October, 2000.
VSOURCE, INC. ONLINE TRANSACTION TECHNOLOGIES, INC.
By:______________________________ By:__________________________________
Xxxxxx X. XxXxxxxxx Xxxxx Xxxxxx
Chief Executive Officer Chief Executive Officer
Exhibit 99.2
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