Exhibit 99.1
AUTOSKILL, INC.
c/o Xxxxxxx Xxxxx
0000 Xxxxxxxxx Xxxxxxxx
Xxxx Xxxxxx, Xxx Xxxx 00000
August 10, 1998
Heuristic Development Group
0000 Xxxxxxxxxxxx Xxxxx, Xxxxx 000
Xxxxxxxxx Xxxxx, Xxxxxxxxxx 00000
Attn: Xx. Xxxxxxx Xxxx
Re: BINDING LETTER OF INTENT
Gentlemen:
This will confirm our agreement (the "Agreement") concerning the
proposed merger of Autoskill Inc., a California corporation ("Autoskill"),
with Heuristic Development Group ("HDG") and a wholly-owned subsidiary of HDG
(the merger, together with the other transactions described herein, the
"Transaction"). This letter contains all material matters upon which
agreement must be reached in order for the Transaction to be consummated.
The terms of our Agreement are as follows:
1. The definitive agreement and plan of merger (the "Merger
Agreement") shall provide for a tax-free exchange, to the extent obtainable,
in which all of the issued and outstanding shares of common stock of
Autoskill shall be exchanged for as follows:
(a) $2.2 million (including $1.2 million to repay debt due from
Autoskill to certain of its existing shareholders), $50,000 of
which shall be paid by HDG to Autoskill upon execution of this
Agreement and $50,000 of which shall be paid on the earlier of 30
days from the date hereof or the execution of the Merger
Agreement and such payments shall be subject to paragraph 10
hereof;
Heuristic Development Group
August 10, 1998
Page 2
(b) 500,000 shares of Common Stock of HDG which shall be freely
tradeable subject to a six month lock-up;
(c) $1.5 million of Convertible Preferred Stock of HDG. The terms of
the Convertible Preferred Stock shall be as follows: $750,000 of
Series A Convertible Preferred Stock ("Series A Stock") and
$750,000 of Series B Convertible Preferred Stock ("Series B
Stock," and collectively with the Series A Stock, the "Preferred
Stock"). Except as indicated, both series of Preferred Stock
will be identical, and will have the following terms, rights and
preferences, together with such other rights and preferences as
are customary for similar securities.
(i) Numbers of shares: 7,500 shares of Series A stock and
7,500 shares of Series B Stock.
(ii) Liquidation Preference: $100 per share, plus all accrued
and unpaid dividends.
(iii) Ranking: senior to Common Stock.
(iv) Dividends: 9% per year, payable quarterly in cash. No
dividends may be paid on Common Stock so long as there
are any arrearages on the payment of dividends on the
Preferred Stock.
(v) Conversion:
(A) Each share of Series A Stock will be convertible, at
the option of the holder or holders, in whole or in
part and at any time prior to redemption, into 100
shares of Common Stock, subject to appropriate
adjustment in the event of stock splits, stock
dividends, recapitalizations and similar corporate
events, provided that holders of Series A Stock who
became affiliates of HDG will agree not to convert
such shares without the consent of HDG, except upon
the (x) sale to persons who are not affiliates of
HDG either prior to or after such sale, or
(y) merger or tender offer involving HDG to the
extent necessary to enable the Series
Heuristic Development Group
August 10, 1998
Page 3
A Stock to participate therein on the same terms as
common stockholders.
(B) Commencing on the fifth anniversary of issuance,
each share of Series B Stock will be convertible, at
the option of the holder or the holders, in whole or
in part and at any time prior to redemption, into
100 shares of Common Stock, subject to appropriate
adjustment in the event of stock splits, stock
dividends, recapitalizations and similar corporate
events. The Series B Stock is not convertible prior
to the fifth anniversary of issuance.
(vi) Redemption:
(A) Mandatory redemption: none.
(B) Optional Redemption
(vii) The Series A Stock is not subject to optional redemption
without the approval of the holder of the Series A Stock
proposed to be redeemed.
(viii) The Company may, at its option, at any time on thirty
(30) days prior written notice, redeem all or any portion
of the Series B Stock at the following redemption
amounts:
(1) First year of issuance - 130% of liquidation
preference;
(2) Second year of issuance - 125% of liquidation
preference;
(3) Third year of issuance - $120% of liquidation
preference;
(4) Fourth year of issuance - $115% of liquidation
preference;
(5) Fifth year of issuance - 110% of liquidation
preference;
(6) Sixth year of issuance and thereafter - 100% of
liquidation preference.
Heuristic Development Group
August 10, 1998
Page 4
(ix) Standard anti-dilution protection.
(x) Voting: No voting rights, except as provided by law or
in the event of material corporate transactions, which
require the vote of the common stockholders.
(d) $2,750,000 of Series C Convertible Preferred Stock ("Series C")
which shall have the following terms and conditions:
(i) Number of shares: 275,000 of Series C.
(ii) Liquidation Preference: $10.00 per share, superior to
all common shares and equal with the Preferred Stock, and
also the right to participate as a common stockholder on
a conversion basis of 10 shares of Common Stock for every
one of Series C in any liquidation.
(iii) Ranking: Senior to Common Stock and equal with the
Preferred Stock.
(iv) Dividends: Shall receive dividends same as holders of the
Common Stock as if converted on a 10 shares of Common
Stock for every 1 share of Series C.
(v) Conversion:
(A) Upon sale to persons who are not affiliates of HDG
either prior to or after such date, one share of
Series C Stock shall automatically convert into 10
shares of Common Stock.
(B) In the event of a merger or tender-offer involving
the issuance of consideration to holders of Common
Stock then one share of Series C shall automatically
convert into 10 shares of Common Stock immediately
prior to the closing of any merger or tender-offer
so that a holder of the Series C shall receive the
same consideration as a holder of Common Stock.
Heuristic Development Group
August 10, 1998
Page 5
(vi) Lock-Up: The holders of Series C shall not be
transferrable for 6 months.
(vii) Redemption: None.
(viii) Standard anti-dilution protection.
(ix) Voting: No voting rights, except as provided by law or in
the event of material corporate transactions, which
require the vote of the common stockholders.
(e) Registration Rights: Pursuant to the Transaction, HDG shall
register all of the shares of Common Stock, issued in the
Transaction, or underlying the Preferred Stock and Series C
issued in the Transaction. In addition, all holders of the
Common Stock, the Preferred Stock and the Series C shall have the
right to a total of 3 demand registrations (on Form S-3
immediately after closing and on form S-1 beginning 6 months
after closing), provided that demand is made by a holder of 25%
of the aggregate shares of Common Stock issued or underlying the
Preferred Stock and Series C issued in the Transaction, and
unlimited piggyback rights. Such registration rights shall be on
customary terms and conditions and shall expire 3 years after the
closing with respect to non-affiliates and no limitation with
respect to affiliates.
(f) HDG or a subsidiary shall assume all liabilities of Autoskill.
(g) In addition, the shareholders of Autoskill shall have the right
to put to HDG certain shares of HDG Common Stock, or shares of
Common Stock underlying the Preferred Stock or the Series C,
acquired in the merger as follows:
(i) If at the end of fiscal year 1999, HDG has a closing
price equal to or greater than $2.50 based on the
trailing five trading day average as reported by the
Nasdaq and a cash balance of $2.2 million, excluding the
proceeds of subsequent financings and interim borrowings,
then the shareholders of Autoskill have the right to sell
to HDG an aggregate of 400,000 shares of HDG Common
Stock,
Heuristic Development Group
August 10, 1998
Page 6
including HDG Common Stock issuable on conversion of the
then convertible Preferred Stock or Series C (assuming
resale to a non-affiliate), at $1.75 per share,
exercisable, if at all, within 10 business days after HDG
publicly posts its earnings for such fiscal year.
(ii) If at the end of fiscal year 2000, HDG has a closing
price equal to or greater than $3.50 based on the
trailing five trading day average as reported by the
Nasdaq and a cash balance of $3.5 million, excluding the
proceeds of subsequent financings and interim borrowings
then the shareholders of Autoskill have the right to sell
to HDG an aggregate of 400,000 shares of HDG Common
Stock, including HDG Common Stock issuable on conversion
of the then convertible Preferred Stock or Series C
(assuming resale to a non-affiliate), at $2.50 per share,
exercisable, if at all, within 10 business days after HDG
publicly posts its earnings for such fiscal year.
(h) HDG and Autoskill, respectively, acknowledge that its current
capitalization is set forth on Schedules A and B hereto,
respectively, and that neither shall alter such capitalization
without the consent of the other.
(i) the By-laws of the Company shall be amended so that no action of
the Company requiring Board consent shall be taken unless at
least one Group B director, as defined below, votes with the
majority of the directors in favor of such action.
2. The shareholders of Autoskill and certain shareholders of HDG shall
enter into a Stockholders Agreement (the "Stockholders Agreement") which will
contain, among other things, the following provisions:
(a) For a period of five (5) years commencing upon the execution of
the Stockholders Agreement, the Stockholders will agree to use
their best efforts to secure the nomination of the nominees
designated in subparagraph (b) below and will agree to vote all
shares of HDG Common Stock owned by them for the election of such
nominees as directors of HDG; and
Heuristic Development Group
August 10, 1998
Page 7
(b) Xxxxxxx Xxxx, Xxxxxxxx Xxxxxxx, Xxxxx Xxxxxxxxx (who are
presently directors of HDG (the "Group A Directors"), Xxxxxxx
Xxxxx and a fifth director, to be determined by Xxxxxxx Xxxxx
(the "Group B Directors"), shall become the sole Directors of
HDG. In the event any of the Group A Directors or Group B
Directors, as applicable, ceases to serve as a director, the
remaining directors of that group shall nominate a successor,
which shall be acceptable to the other group.
3. Consummation of the Transaction shall be subject to the following:
(a) Execution and delivery on or before September 15, 1998, or such
other date as is mutually agreed to by the parties hereto, of
formal documentation of the Transaction, including, without
limitation, the Merger Agreement containing customary
representations, warranties, indemnities, covenants and
agreements, and providing for all other customary certificates,
documents, instruments, and opinions of counsel, which each of us
hereby agrees to negotiate in good faith.
(b) Maintaining the continued listing of the HDG Common Stock on the
Nasdaq SmallCap through closing of the Transaction and a
reasonable expectation that it will continue to be listed
thereafter.
(c) Obtaining all necessary governmental and regulatory approvals,
including the declaring effective of the Registration
Statement/Proxy with respect to the Transaction by the Securities
and Exchange Commission.
(d) Obtaining the approval of the Transaction by the stockholders of
HDG and Autoskill.
(e) Satisfaction by Autoskill, and its respective representatives, of
all financial and business due diligence.
(f) The fulfillment of such other conditions to closing as are
customary for transactions of this nature.
(g) The parties shall use their best efforts to have a proxy
statement filed on or before October 15, 1998 with the closing of
the Transaction on or before December 30, 1998.
Heuristic Development Group
August 10, 1998
Page 8
(h) Obtaining of a fairness opinion for HDG with respect to the
Transaction.
(i) Satisfaction by HDG of legal due diligence.
4. Following your signature hereon, the parties will cause their
respective officers, employees, attorneys, agents, investment bankers,
actuaries, accountants and other representatives working on the Transaction to
cooperate with each other with respect to the Transaction until the Transaction
is consummated or negotiations with respect thereto are terminated.
5. Following your signature, until the Transaction is consummated or
negotiations with respect thereto are terminated, each of the parties hereto,
and their respective subsidiaries, will afford to the officers, employees,
attorneys, agents, investment bankers, actuaries, accountants, and other
representatives of the other working on the Transaction, free and full access to
their respective offices, properties, books and records, will permit them to
make extracts from and copies of such books and records, and will from time to
time furnish the other with such additional financial and operating data and
other information as to its financial condition, results of operations,
businesses, properties, assets, liabilities or future prospects as they from
time to time may request. Each party hereto will each cause its independent
certified public accountants to make available to their respective independent
certified public accountant, the work papers relating to any audit of their
financial statements in the last five years.
6. Each party shall insure that information exchanged pursuant to this
letter agreement shall be treated as STRICTLY CONFIDENTIAL and that all such
confidential information which such party or any of its respective officers,
directors, employees, attorneys, agents, investment bankers or accountants may
now possess or may hereafter create or obtain relating to the financial
condition, results of operations, businesses, properties, assets, liabilities or
future prospects of the other party, any affiliate of the other party, or any
customer or supplier of such other party or any such affiliate shall not be
published, disclosed or made accessible by any of them to any other person or
entity at any time or used by any of them, in each case without the prior
written consent of the other party; provided, however, that the restrictions of
this sentence shall not apply (a) as may otherwise be required by law, (b) as
may be necessary or appropriate in connection with the enforcement of this
letter, (c) to the extent such information was in the public domain when
received or thereafter enters the public domain other than because of disclosure
by the other party, or (d) was lawfully in the possession of the party receiving
the information prior to such disclosure. Each party shall, and shall cause all
of such other persons and entities who received confidential data from time to
time to deliver to the other party all
Heuristic Development Group
August 10, 1998
Page 9
tangible evidence of such confidential information to which the restrictions
of the foregoing sentence apply at such time as negotiations with respect to
the Transaction are terminated. The obligations of the parties under this
paragraph shall remain in effect for the term of this letter and for a period
of two (2) years following the termination of this letter.
7. The parties agree for a period of one (1) year from the date hereof
not to hire any current employee of the other party without the prior consent
of the party that is the current employer of such employee.
8. Neither the terms of this letter nor the terms of the Agreement or
of any other document required to be executed in order to consummate the
Transaction, nor any termination of negotiations relating to the Transaction,
shall be publicly disseminated by either party, either by oral or written
disclosure, without the prior written approval of the other party, which
approval shall not be unreasonably withheld, or if any such approval is so
withheld, unless such disclosure is required to be made under applicable law.
9. Until the earlier of September 16, 1998 or the execution of a
Merger Agreement, HDG and Autoskill agree that they shall not permit any of
their respective stockholders, officers, directors, employees, agents, or
representatives (including, without limitation, its attorneys and
accountants) to, directly or indirectly, initiate, solicit, or encourage
(including by way of furnishing non-public information concerning the
business of each company) discussions, inquiries, or proposals, or
participate in any negotiation or discussion for the purpose or with the
intention of leading to any proposal concerning, or enter into any letters of
intent or definitive agreements for, the sale of the business, the stock of
either company, or substantially all of the assets of either company, or any
merger involving either company or any subsidiary thereof, except as
contemplated herein.
10. In the event that the Transaction does not close because of a
failure of HDG to effectuate the Transaction for any reason other than breach
by Autoskill and Autoskill has otherwise proceeded in good faith, then HDG
shall pay Autoskill $100,000, which shall include all sums paid pursuant to
Section 1(a) and include Autoskill's expenses. In the event that the
Transaction does not close by reason of Autoskill's breach or because
Autoskill has decided to pursue another transaction and HDG has otherwise
proceeded in good faith, then Autoskill shall refund to HDG all sums paid
pursuant to Section 1(a) and pay HDG the additional sum of $100,000, which
shall include HDG's expenses. The parties shall not be liable for any other
consequential, direct, incidental or indirect damages.
Heuristic Development Group
August 10, 1998
Page 10
11. It is understood that this is a binding letter of intent and while
the parties hereto agree in principle to the contents hereof and agree to
proceed in good faith to work out the details of the Transaction, neither of
them shall have any legal obligation to the other as a result of this letter,
other than those obligations contained in this paragraph and paragraphs, 6,
7, 8, 9 and 10. This letter may not be assigned by either of the parties
hereto. Neither party shall be responsible for any of the other's expenses
in connection with the negotiations, documents, or transactions contemplated
hereby, except as set forth in paragraph 10.
12. This letter shall immediately terminate on the earlier of September
16, 1998 or the execution of the Merger Agreement, except that paragraphs 6,
7, 10 and 11 shall survive termination.
If this letter accurately reflects our understanding, please so indicate
by signing the original and duplicate of this letter, and returning a fully
executed copy to me, so that we can promptly commence work on the formal
documents relating to the Transaction.
Very truly yours,
AUTOSKILL, INC.
By: /s/ Xxxxxxx Xxxxx
-----------------------------------
Name: Xxxxxxx Xxxxx
Agreed to and Accepted this
day of August, 1998
----
Heuristic Development Group
By: /s/ Xxxxxxx X. Xxxx
-----------------------------
Name: Xxxxxxx X. Xxxx
Title: President
