July 13, 1995
Messrs: ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇
▇▇▇▇▇▇ Manufacturing Corporation
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
LETTER OF INTENT
Gentlemen:
The purpose of this letter is to express our serious
willingness and intent to pursue a plan of acquisition or merger
by and between Messrs. ▇▇▇▇▇▇▇ ▇▇▇▇▇ and ▇▇▇ ▇▇▇, (hereinafter
referred to a "Brown/▇▇▇") who own 100% of the issued and
outstanding stock of ▇▇▇▇▇▇ Manufacturing Co. (hereinafter
referred to as "▇▇▇▇▇▇") and Electric & Gas Technology, Inc.
(ELGT).
▇▇▇▇▇▇ has delivered to ELGT certain purchase orders
supported by bank Letter of Credit, lists of proposals to several
International customers and unaudited financial statements of
▇▇▇▇▇▇, all of which are attached hereto as Exhibit "A".
Based on verification and confirmation by ELGT of said
information to the satisfaction of ELGT, the following would be
basic highlights of an agreement by and between the parties
hereto:
1. ELGT would establish a new corporate subsidiary or
affiliate to be named ▇▇▇▇▇▇ Industrial International, Inc.
(CII), or similar name) into which we would transfer
approximately $2 million of ELGT preferred convertible stock.
The common stock is presently trading on the NASDAQ National
Market System and valued at approximately $3.00 per share.
2. The preferred stock would have a priority par value of
$20.00 per share and would be convertible at the option of CII
into common stock of ELGT valued at $8.00 per share based on one
share of preferred for 2.5 shares of ELGT common.
3. CII would issue to ELGT a total of two million shares
(2,000,000) of CII in exchange for said preferred stock of ELGT
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based on a tax free exchange of stock.
Messrs: Brown
▇▇▇
Page 2.
4. CII would then immediately issue to Brown/▇▇▇:
A. A total of 500,000 shares of CII in a tax free
exchange for 100% of the stock of ▇▇▇▇▇▇ transferred to CII,
which ELGT understands is presently pledged to Allied Products,
Inc.
B. In addition Brown/▇▇▇ would be issued an option to
acquire 100% of the $2 million ELGT convertible preferred stock
or up to an additional 30% of ▇▇▇▇▇▇ stock based on formula where
said shares would be issued based on future earnings of ▇▇▇▇▇▇
and attached hereto as Exhibit "B".
C. thus CIT would have a beginning certified net
worth of $ 2 million with 2.5 million shares outstanding. The
balance shares of ▇▇▇▇▇▇ would then be consolidated with CII.
5. ELGT would then supply financial corporate guarantees
for the purpose of obtaining loans and financial funding for
completing production and inventory purchased for the existing
orders on the books of ▇▇▇▇▇▇.
6. In addition ELGT could establish a legal and proper tax
shelter to minimize income taxes for ▇▇▇▇▇▇ from its future
earnings.
7. The then existing management of ▇▇▇▇▇▇ would remain as
officers and ELGT would supply a designated CFO following
completion of the transaction. A mutually agreed employment or
consulting arrangement is to be made with ▇▇▇▇▇ and ▇▇▇.
8. Messrs. Brown and ▇▇▇ are presently owed $650,000 by
▇▇▇▇▇▇. ELGT will cause ▇▇▇▇▇▇ to execute a promissory note in
the amount of $200,000 to Gateway Bank with proceeds paid to
Brown and ▇▇▇ and to issue to Brown and ▇▇▇ $450,000 of a $20.00
par value ELGT redeemable preferred stock convertible into ELGT
common at $5.00 per share all in accordance with S.E.C. rules.
Upon signing of this Letter of Intent the following would be
activated:
1. ELGT would cause Gateway National Bank to lend $300,000 to
▇▇▇▇▇▇ secured by the Polar contract and release of the existing
collateral.
2. ELGT will additionally cause Gateway National Bank to lend
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$200,000 to ▇▇▇▇▇▇ which will be a portion of the $650,000 owed
by ▇▇▇▇▇▇ to ▇▇▇▇▇ and ▇▇▇ with proceeds of said loan to be paid
to ▇▇▇▇▇ and ▇▇▇.
Messrs: Brown
▇▇▇
Page 3.
3. ELGT would authorize its accountants to engage on a "high
spot" audit to verify the financial condition of ▇▇▇▇▇▇ which
could be completed in a period of perhaps seven business days.
4. ELGT would send its representative to visit the ▇▇▇▇▇ (or
Houston or North Dakota) plants to review production operations.
5. ELGT would immediately pursue financing by offering its
financial guarantee to ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ for $2.8 million and for
SBA and XM bank loans from Gateway National Bank.
6. ELGT will meet with a ▇▇▇▇▇▇ representative to analyze
existing accounts payable in order to make contact with key
suppliers to help workout certain past due payables.
7. ELGT would authorize its attorneys to prepare a definitive
agreement following receipt of a satisfactory accounting report
from the high spot audit. However, prior to execution of the
definitive agreement, ELGT is willing to initiate and cause
financing for ▇▇▇▇▇▇ with the understanding that the definitive
agreement will be signed as soon as possible but during August of
1995. In the event for any reason whatsoever a final agreement
is not executed then ▇▇▇▇▇ and ▇▇▇ will be required to replace or
repay said ELGT/Gateway financing on mutually agreed basis.
Electric & Gas Technology, Inc.
/s/ ▇. ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇. ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
Chairman of the Board and President
The above is approved and agreed to this 12th day of July, 1995.
▇▇▇▇▇▇ Manufacturing Corporation
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇
/s/ ▇▇▇ ▇▇▇
▇▇▇ ▇▇▇
SMZ:mp
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CC: ▇▇▇ ▇▇▇▇▇▇
AMENDMENT TO LETTER OF INTENT
Amendment to Letter of Intent, dated July 13, 1995, by and
between Electric & Gas Technology, Inc. ("ELGT") and ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇ and ▇▇▇ ▇. ▇▇▇, ("▇▇▇▇▇ and ▇▇▇").
The purpose of thus amendment is to supplement and amend
certain terms and provisions of the above-referenced Letter of
Intent in the following fashion:
1. ELGT will make available immediately to ▇▇▇▇▇▇
Manufacturing Corporation ("▇▇▇▇▇▇") One Hundred Thousand and
No/00 Dollars ($100,000) which ▇▇▇▇▇▇ will then pay to Brown and
▇▇▇ as a reduction of the balance of the Three Hundred Fifty
Thousand and No/00 Dollars ($350,000) owed to them jointly.
2. ELGT will immediately establish a line of credit for
▇▇▇▇▇▇ in the amount of Four Hundred Thousand and N0/100 Dollars
($400,000) to utilize for working capital.
3. ELGT will assume absolute control of the business
operations, bank accounts, etc. of ▇▇▇▇▇▇.
4. ▇▇▇▇▇▇ will be required to utilize sixty percent (60%)
of accounts receivable, contract down payments, and all
unincumbered cash flow into ▇▇▇▇▇▇ other than the Four Hundred
Thousand and No/100 Dollar ($400,000) referred to above, to repay
monies still owed Brown and ▇▇▇ in the amount of Two Hundred
Fifty Thousand and No/100 Dollars ($250,000).
5. The parties agree that the original Letter of Intent
shall be extended until December 31, 1995 and ELGT will use its
best efforts to implement the terms of such Letter of Intent and
will enter into a definitive purchase and sale agreement prior to
that date. During the extension period, the parties will use
their best efforts to enter into the necessary agreements with
Allied Products Corporation, Texas Central Bank and Totisa, in
order that the financing and business plan of the Company may be
stabilized.
6. ▇▇▇ and ▇▇▇▇▇ agree to transfer their stock ownership
(pledged to Allied) in ▇▇▇▇▇▇ Eighty-Five percent (85%) to ▇▇.
▇▇▇▇▇▇ ▇▇▇▇▇▇ and Fifteen percent (15%) to Mr. ▇▇▇ ▇▇▇▇▇▇, which
stocks shall be held during the term of the extension, in trust
for ▇▇▇▇▇ and ▇▇▇, and shall be returned to ▇▇▇ and Brown if the
Purchase and Sale Agreement is not finalized during the term of
the Letter of Intent. This portion of the agreement may be
mutually extended for financing purposes by written agreement by
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and among the parties.
7. It is the intention of ELGT to receive bids from
▇▇▇▇▇▇▇▇ International and others for turn key production of
▇▇▇▇▇▇ Rigs and ELGT is authorized to negotiate equity positions
with ▇▇▇▇▇▇▇▇
and/or with its President. Mr. ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇, however, such
negotiations will in no way ▇▇▇▇▇▇ ▇▇▇▇▇ and ▇▇▇ of the ultimate
20 percent ownership unless otherwise agreed in writing. The
parties agree that prior to contacting any potential equity
investors in the Company they will notify the other party prior
to such contact. ▇▇▇ and ▇▇▇▇▇ agreed that they will, if
necessary, make available to ELGT one percent (1%) of their
additional thirty percent options, if necessary, in order to
close a mutually satisfactory transaction with a potential
investor.
8. Ms. ▇▇▇▇▇▇▇ ▇▇▇▇▇ will be retained on a consulting
contract at the rate of $1600.000 per month during the Letter of
Intent term.
9. ELGT agrees to cause ▇▇▇▇▇▇ to pay ▇▇▇▇▇ and ▇▇▇'▇
reasonable travel expenses in relation to ▇▇▇▇▇▇'▇ business.
10. ▇▇▇ and ▇▇▇▇▇ will remain employees of the Company,
however, their compensation will be deferred until such time as a
definitive agreement is entered into by and between the parties,
however, they will remain on Company insurance, etc.
All other terms and conditions of the original Letter of
Intent dated July 13, 1995 shall remain in full force and effect.
Executed this 22nd day of September, 1995.
ELECTRIC & GAS TECHNOLOGY, INC.
By: /s/ ▇. ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇. ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Chairman and President
/s/ ▇▇▇ ▇▇▇
▇▇▇ ▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
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