EXHIBIT 10.1
LETTER OF INTENT
BETWEEN:
XIN NET CORP.
000-000 Xxxx Xxxxxx Xx.
Xxxxxxxxx, XX
XXXXXX X0X 0X0 (HEREIN AFTER "XIN NET")
AND
PROTECTSERVE PACIFIC LTD.
0000, Xxxxx Insurance Group Xxxxxxxx
000 Xxx Xxxxx Xxxx Xxxxxxx
XXXX XXXX (HEREIN AFTER "PSP")
WHEREAS XIN NET is a company incorporated in the State of Florida, USA, engaged
in the business of Internet-related services provision in China through a joint
venture with a Chinese partner;
AND WHEREAS PSP is a Hong Kong incorporated company and an innovative developer
and provider of State-of-the-Art Web-based Surveillance Monitoring & Control,
Data Acquisition, Internet Services and Wireless Communication Systems.
THEREFORE, after friendly discussions, XIN NET and PSP mutually agree to the
following:
- XIN NET will acquire 100% of PSP.
- XIN NET will grant restricted common shares (to a maximum of 19.66%), and
stock purchase options to PSP. The exact number of shares and/or stock
purchase options granted will be determined according to a formula to be
agreed on by both parties, but based on the performance of PSP. The formula
will be geared towards a PSP net (after tax) profit threshold of HKD 13
million, calculated according to US GAAP, for the 12-month operating period
ending on June 30, 2002.
- PSP will be granted representation on XIN NET Board of Directors as thus: PSP
will nominate three (3) directors to be added to the existing XIN NET four
(4)-person Board of Directors after the signing of a formal purchase
agreement. PSP will provide the names of these three (3) directors before
August 3, 2001 to be added to the list of directors of Xin Net nominated for
election at the Company's Annual General Meeting planned in September 2001.
PSP is further entitled to nominate two (2) additional directors if it
-1-
achieves the above-mentioned HKD 13 million net (after tax) income threshold
by June 30, 2002.
- XIN NET will contribute cash of approximately USD 800,000 or RMB equivalent
towards the acquisition, expansion and management of the PSP business. Cash
contributions to expand the PSP business will be made on a "as required"
basis. Capital expenditure will commence once a budget is approved by both
parties. Any cash contributions made by Xin Net prior to the signature of a
formal purchase agreement will be in the form of secured loans made by Xin
Net to PSP.
- PSP will report to XIN NET its operating cash flow position on a bi-weekly
basis. Furthermore, any contract or capital expenditure commitment exceeding
USD 50,000 will need XIN NET approval.
The above agreement is subject to:
- XIN NET Board of Directors being satisfied with the results of its due
diligence on PSP. The due diligence will comprise, but will not be limited
to: an audited financial statement for the period February 1, 2001 to June
30, 2001; a review of the forecast for the period July 2001-June 2002; and a
review of PSP franchise and license agreements with XxxxxxxXxxxx.xxx (USA).
The relevant documents are to be provided by PSP by August 3, 2001. XIN NET
must complete its due diligence by August 9, 2001.
- a formal purchase agreement of which the above agreement forms the basis,
being signed by both parties before September 8, 2001.
- XIN NET distributing as dividend to its current shareholders its existing
Internet-related business (Internet access provision "ISP" services, domain
name registration services, web design & web hosting services, and e-commerce
solutions and other value-added services). Any proceeds from Xin Net Stock
Purchase Options and/or Warrants which are exercised after the date of
signature of a formal purchase agreement will not be distributed as part of
that dividend, but will be retained as funds for expanding PSP business
and/or working capital for PSP business.
Signed this 31st day of July, 2001.
ON BEHALF OF XIN NET CORP. ON BEHALF OF PROTECTSERVE PACIFIC LTD.
/s/Xxxx Xxxx /s/Xxxxxx Xxxx
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Xxxx Xxxx, President Xxxxxx Xxxx, President & CEO
-2-
FORMULA FOR DETERMINING NUMBER OF
XIN NET CORP. SHARES AND STOCK PURCHASE OPTIONS TO BE GRANTED
TO PROTECTSERVE PACIFIC LTD.
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PSP NET (AFTER TAX) INCOME (US GAAP) NUMBER OF SHARES AND/OR
FOR 12-MONTH PERIOD ENDED 06/30/2002 STOCK OPTIONS GRANTED
------------------------------------------------------ -------------------------------------------------------
LOSS OR ZERO Nil(1)
HKD 1-2,000,000 1-2,000,000 Shares(1) Pro-rated
HKD 2,000,001-3,000,000 2,000,001-4,200,000 Shares(1) Pro-rated
HKD 3,000,001-11,000,000 4,200,000 Shares Granted
Plus 0-16,000,000 Stock Options(2) Pro-rated
HKD 11,000,001- 13,000,000 4,200,000 Shares Granted
Plus 18,031,800 Stock Options(2) Granted
HKD 13,000,001 or more 4,200,000 Shares Granted
Plus 18,031,800 Stock Options(2) Granted
Plus Additional(3) Stock Options to PSP management
and employees according to Xin Net Stock Option Plan
------------------------------------------------------ -------------------------------------------------------
(1) Xin Net Corp. will issue 4,200,000 restricted common shares to
ProtectServe Pacific Ltd. after the signing of the formal purchase
agreement and after Xin Net Corp. Annual General Meeting planned in
September 2001. The difference between the number of shares issued and
the actual number of shares granted to PSP will be bought back by Xin
Net Corp., on demand, at the rate of USD 0.001 per share.
(2) Stock Purchase Options will be priced at USD 0.001 per option; expiry
date will be five (5) years after date of grant.
(3) Amount, price and expiry date of additional options are to be
determined by the Board of Directors in accordance with Company Stock
Option Plan.
Signed this 31st Day of July, 2001.
ON BEHALF OF XIN NET CORP. ON BEHALF OF PROTECTSERVE PACIFIC LTD.
/s/Xxxx Xxxx /s/Xxxxxx Xxxx
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Xxxx Xxxx, President Xxxxxx Xxxx, President & CEO
