EXHIBIT B
December 3, 1999
Mr. Xxxxx Xxxxxx
President and CEO
recordLab Corp.
0000 XX Xxxxxxxxx Xx. Ste. 000
Xxxxxxxx, XX 00000
Dear Xxxxx:
This letter sets forth the general terms on which managed funds and
affiliates of The Argentum Group ("Argentum") including Argentum Capital
Partners II, L.P. (the "Investors"), intend to purchase certain securities (the
"Securities") of recordLab Corp. f/k/a Midisoft Corp. (the "Company") with a
total face value equal to $6,000,000 (the "Investment"), on the following
general terms, conditions and qualifications. The Company and the Investors may
mutually agree to increase the amount of the Investment to up to $10,000,000.
1. The Investors shall purchase (the "Purchase") and the Company shall issue
and sell 6,000 shares (or a proportionately greater number if the amount
of the Investment is greater than $6,000,000) of Class A Convertible
Preferred Stock (the "Class A Preferred Stock") and detachable warrants to
purchase 600,000 (or a proportionately greater number if the amount of the
Investment is greater than $6,000,000) shares of Common Stock (the
"Warrants"), which shall have the terms set forth in EXHIBIT A attached
hereto.
2. The Investment shall be for a total of $6,000,000, payable in cash to the
Company upon the closing of the purchase of the Class A Preferred Stock
and Warrants (the "Closing").
3. Closing. The Closing is expected to occur on or about January 31, 2000.
Due diligence shall be completed by January 15, 2000.
4. Use of Proceeds. The Company shall use the net proceeds from the
Investment for sales and marketing, web site development, software
development, and working capital and general corporate purposes.
5. Conditions to Closing. The Closing shall be subject to the following
conditions, any of which may be waived by the Investors at their sole
discretion:
Mr. Xxxxx Xxxxxx
recordLab Corp.
December 3, 1999
Page 2
(a) receipt of all information reasonably requested by the Investors and
the satisfactory completion by the Investors and their accountants,
attorneys and other representatives of a due diligence review of the
Company covering its business, including all operational, financial,
intellectual property, strategic relationships, SEC, and other
areas;
(b) a copy of the Company's then current business plan reasonably
estimating revenues of not less than $10.8 million and an operating
loss of not greater than $7.3 million for the fiscal year ended
December 31, 2000, shall have been received by and reviewed to the
satisfaction of the Investors. The Company shall represent in the
Definitive Documents that the estimates contained in the business
plan have been prepared in good faith and represent the Company's
reasonable best estimate of the matters set forth therein as of the
date of the Closing; provided, however, that the Company makes no
representation or warranty that any of the goals or projections of
the business plan will be achieved;
(c) receipt of Board approval and any shareholder approvals necessary to
consummate the Investment;
(d) the investment committees of each of the investing funds shall have
approved the investment;
(e) key employees (to be determined by the Company and acceptable to
Argentum) shall have entered into employment/non-compete agreements
with the Company that are acceptable to the Investors and all
employees shall have entered into confidentiality/intellectual
property agreements with the Company that are acceptable to the
Investors;
(f) the negotiation and execution of definitive documents, including a
Stock Purchase Agreement, the Certificate of Designation setting
forth the terms of the Class A Preferred Stock, the Registration
Rights Agreement, and the Shareholders' Agreement (together, the
"Definitive Documents"), each in form and substance satisfactory to
the Investors and the Company; and
(g) the absence of any material adverse change in the business,
operations, financial condition, or prospects of the Company.
6. Reasonable Access. The Company shall provide the Investors and their
accountants, attorneys and other representatives having a need to know:
(i) reasonable access during normal business hours to its offices,
facilities, properties and business records; and (ii) such financial and
operating data and other information as reasonably requested by the
Investors.
7. Costs and Expenses. The Company shall be responsible for and shall bear
all expenses directly and necessarily incurred in connection with the
proposed financing if the transaction contemplated hereby is completed (or
is not completed as a result of bad faith on the part of the Company),
including, but not limited to all legal fees and out-of-pocket expenses of
the Investors' counsel (up to a maximum of $50,000) and the Investors'
out-of-pocket expenses
Mr. Xxxxx Xxxxxx
recordLab Corp.
December 3, 1999
Page 3
(up to a maximum of $10,000) (together, the "Costs and Expenses"). The
Costs and Expenses shall be payable by the Company at the Closing, or, if
the sale of the Securities contemplated by this letter is not consummated,
as a result of bad faith on the part of the Company, the Costs and
Expenses shall be payable by the Company within ninety (90) days of the
termination of this letter or the discussions of the proposed Investment.
8. Option to Invest. At any time during the period ending on the later of (i)
January 31, 2000 or (ii) 5 days after receipt of shareholder approval of
the Investment, if necessary (the "Option Period"), at the sole option of
the Investors and upon notice to the Company, the Investors shall have the
right to purchase, and the Company shall have the obligation to sell,
6,000 shares of Class A Preferred Stock with an aggregate purchase price
of $6,000,000 with Warrants to purchase 600,000 shares of Common Stock.
Any such investment in the Class A Preferred Stock with Warrants shall be
on the terms and conditions set forth herein and in the attached Exhibit A
or on other terms and conditions no less favorable to the Investors than
such terms and conditions as provided herein and in the attached Exhibit
A. Without limiting the foregoing, at the sole option of the Investors and
upon notice to the Company, the Investors shall have the right to purchase
during the Option Period, in lieu of the Investment, and the Company shall
have the obligation to sell, equity securities of the Company (or
securities having equity features) purchased or negotiated to be purchased
by any other party during the Option Period on the same terms and price
per unit or share as such other party, with an aggregate purchase price of
up to $6,000,000 as Argentum shall elect.
9. Indemnification. If, for any reason whatsoever, the sale of any of the
Securities contemplated by this letter is not consummated, The Argentum
Group and its officers, employees, directors and affiliates
("Indemnities") shall not be liable or responsible for any expense of the
Company, for any charges, claims or damages of any kind or nature
whatsoever arising out of this letter or the proposed financing or failure
to proceed therewith or otherwise, and the Company ("Indemnitors") shall
upon demand, indemnify The Argentum Group and its officers, employees,
directors, and affiliates against any and all claims, losses or damages
arising out of any such events, except as stated above, and reimburse such
indemnified parties immediately upon request for all costs incurred by
such indemnified party.
10. Representations. The Company represents (i) that initiation and/or
consummation of the financing contemplated herein will not conflict with
or result in a breach of any of the terms, provisions or conditions of any
agreements, written or otherwise, to which the Company is a party, (ii)
that there are no claims for services in the nature of a broker's,
finder's, or placement fee with respect to the proposed financing other
than a consulting fee payable to X.X. Capital, Inc. and the negotiated
agency fee payable to Daiwa Securities America Inc., which fee shall not
exceed cash equal to 3.5% of the amount of the Investment and warrants
equal to 1.5% of the amount of the Investment, and (iii) that the
Investment will not require shareholder approval.
11. Governing Law. This letter of intent and any claim related directly or
indirectly hereto shall be governed by and construed in accordance with
the laws of the State of New York, without regard to the conflict of laws
or principles thereof.
Mr. Xxxxx Xxxxxx
recordLab Corp.
December 3, 1999
Page 4
This letter shall serve as an indication of our mutual intentions in
connection with the proposed financings stated herein and shall not bind either
party, except with respect to the undertakings set forth to in paragraphs 6, 7,
8, 9, 10, and 11. The Company and the Investors specifically agree that the
obligations established in paragraphs 7, 8, 9, 10, and 11 will survive any
mutual termination of this letter or the discussions of the proposed Investment,
whether or not a purchase and sale of any of the Securities is completed not to
exceed nine months from the date the Company executes this letter. Please affix
your signature in the place designated and by doing so, you will confirm that
the foregoing correctly sets forth our understanding.
Very truly yours,
THE ARGENTUM GROUP,
By: /s/ Xxxxxxx X. Xxxxxxxxxxx
------------------------------
Xxxxxx X. Xxxxxxxxxxx
President of a General Partner
Accepted and Agreed, this 8th day of December 1999
By: recordLab Corp.
/s/ Xxxxx Xxxxxx
Xxxxx Xxxxxx
President and CEO
EXHIBIT A
recordLab Corp.
Terms of the Class A Preferred Stock
Amount: 6,000 shares of Class A Convertible Preferred Stock (the
"Class A Preferred Stock"), each at $1,000 per share,
for a total purchase price of $6,000,000 (which share
and purchase price amounts may be increased to up to
$10,000,000 by the mutual agreement of the Company and
the Investors, at an initial fully-diluted pre-deal
valuation of the Company of $56.6 million, provided that
in no event will the conversion price per share of
Common Stock be greater than $2.50.
Dividends: None.
Liquidation Preference: In the event of a merger, sale (of substantially all
stock or assets) or liquidation of the Company, the
holders of the Class A Preferred Stock shall receive in
preference to the holders of the Company's Common Stock
and other preferred stock of the Company, an amount (the
"Liquidation Preference") equal to the greater of (i)
$1,000 per share of Class A Preferred Stock plus any
dividends declared but not paid or (ii) the amount the
holders of Class A Preferred Stock would have received
had they converted the Class A Preferred Stock into
common Stock immediately prior to the liquidation event.
Rank: Senior in every respect to all current and future issues
of capital stock and preferred stock. Without the
approval of at least two-thirds of the Class A Preferred
Stock, the Company may not issue any shares of capital
stock or preferred stock that is senior or equal in any
respect to the Class A Preferred Stock.
Conversion Rate/Price: Subject to anti-dilution and other adjustments, and
prior to any Redemption, each one share of Class A
Preferred Stock shall be convertible, at the option of
the holder, at any time into shares of Common Stock at a
Conversion Price per share of Common Stock calculated
based on a fully-diluted pre-deal valuation of the
Company of $56.6 million, provided that in no event will
the conversion price per share of Common Stock be
greater than $2.50.
Mandatory Conversion: The Class A Preferred Stock shall be automatically
converted into Common Stock at the then effective
Conversion Rate/Price upon the earlier to occur of
(i) the completion of an underwritten public offering
of the Company's shares of Common Stock which
results in gross proceeds to the Company of at
least $25 million and is offered at a price per
share equal to at least 350% of the Conversion
Price then in effect (a "Qualified Offering"), and
prior to or simultaneous with such Qualified
Offering the shares of Common Stock to be issued
upon the conversion of the Class A Preferred Stock
have been registered under the Securities Act and
may be freely sold by the holders of such shares
under the Securities Act or, if not so registered,
all such shares of Common Stock must be eligible
to be sold by the holders pursuant to Rule 144(k)
promulgated under the Securities Act or
(ii) the Company's Common Stock (A) trades above 350%
of the then-effective
A-1
Conversion Price for sixty (60) consecutive
trading days on any nationally recognized stock
exchange or NASDAQ and (B) the average weekly
trading volume of the Company's Common Stock
during such period is equal to or greater than
1,000,000 shares of Common Stock, with such period
occurring after the shares of Common Stock to be
issued upon the conversion of the Class A
Preferred Stock have been registered under the
Securities Act and may be freely sold by the
holders of such shares under the Securities Act
or, if not so registered, all such shares of
Common Stock must be eligible to be sold by the
holders pursuant to Rule 144(k) promulgated under
the Securities Act.
Voting Rights: Holders of the Class A Preferred Stock shall vote
separately as a class on all matters which impact the
rights, value or ranking of the Class A Preferred Stock;
otherwise they shall vote together with the common
holders on an as-converted basis. An affirmative vote of
the Class A Preferred Stock (or the approval of the
Class A Preferred Stock Director) shall be required in
connection with certain fundamental changes in the
Company's business, ownership or capital structure (such
as mergers, acquisitions).
Board of Directors: The holders of the Class A Preferred Stock, voting
separately as a class, shall be entitled to elect one
(1) member to the Company's Board of Directors out of a
maximum of seven (7) directors and to have Board
visitation rights. The Board shall establish an Audit
Committee and a Compensation Committee, both of which
shall consist entirely of independent directors and
shall include the Class A Preferred Stock director.
Dilution Protection: Full ratchet protection shall be applied to the
Conversion Price if the Company issues or sells shares
of Common Stock or securities convertible/exercisable
into Common Stock and the issue price or
conversion/exercise price is less than the
then-effective Conversion Price or the then-effective
trading market value of the Common Stock . Dilution
protection shall not apply to shares of Common Stock
issued upon the exercise of options and warrants
outstanding as of the Closing or to be granted to
employees or consultants under the Company's Stock
Option Plans with an exercise price not less than fair
market value or to guarantors (unaffiliated with the
Company) of the Company's line of credit.
Registration Rights: The Investors shall have two (2) Demand Registration
Rights exercisable beginning one (1) year after the
Closing and unlimited Piggyback Rights subject to
underwriters cutbacks, all at the Company's expense.
Representations Usual and customary for a transaction of this nature.
and Warranties:
Preemptive Rights: In the event that the Company offers any of its equity
securities or securities convertible/exercisable into
Common Stock while shares of the Class A Preferred Stock
are outstanding (an "Equity Offering"), the Investors
shall have the right to purchase a number of securities
in such Equity Offering (at the price and on the terms
applicable to such Equity Offering), so as to maintain
their then existing ownership interest in the Company,
assuming that all of the shares of Class A Preferred
Stock then outstanding were converted into Common Stock
immediately prior to the consummation of such Equity
Offering. These Pre-Emptive Rights shall not apply to
the issuance of any shares of Common Stock pursuant to a
Qualified
A-2
Offering or to bona-fide Employee Stock Option Plans of
the Company.
Shareholders' Usual and customary for a financing of this nature,
Agreement: including tag-along rights, preemptive rights as set
forth herein, and restrictions on the sale of shares by
management and significant shareholders (such
restrictions and "significant shareholders" to be
defined and such restructions to be acceptable to
management and significant shareholders) before the
shares of Common Stock to be issued upon the conversion
of the Class A Preferred Stock have been registered
under the Securities Act and may be freely sold by the
holders of such shares under the Securities Act or, if
not so registered, all such shares of Common Stock are
eligible to be sold by the holders pursuant to Rule
144(k) promulgated under the Securities Act.
Covenants: (i) The Company shall provide usual and customary
negative covenants for a financing of this nature,
including: so long as the Class A Preferred Stock
remains outstanding, without the approval of the
holders of a two-thirds majority of the shares of
the Class A Preferred Stock then outstanding, the
Company shall not: (A) issue any shares of
Preferred Stock that are pari-passu or senior to
the Class A Preferred Stock; (B) pay any Common
Stock dividends or make any distribution with
respect to the Common Stock; (C) incur any
indebtedness with equity features or in excess of
$3,000,000 (except indebtedness [without equity
features] incurred with a bank or other commercial
lending institution in the ordinary course of
business); (D) acquire or dispose of any assets
with a value in excess of $1,000,000, except in
the ordinary course of business; (E) offer itself
for sale or enter into a merger where the Company
is not the surviving entity; (F) enter into any
transaction with related parties; or (G) change
its primary business;
(ii) The Company shall provide usual and customary
information covenants; and
(iii) The Company shall covenant (A) that it shall seek
to list its share of Common Stock on NASDAQ within
six (6) months of the Closing and (B) it shall
take all steps necessary to amend its Articles of
Incorporation to increase the authorized shares of
Common Stock from 25,000,000 to 50,000,000 within
three (3) months of the Closing.
SBA Matters: Prior to the closing and on an ongoing basis, the
Company will use reasonable efforts to complete any
forms and provide any information required by the Small
Business Administration in connection with the financing
provided by Argentum Capital Partners II, L.P.
A-3
Terms of the Warrants
Warrants: Warrants to purchase 600,000 shares of Common Stock of
the Company, or a proportionately greater number of
shares if the amount of the Investment is greater than
$6,000,000.
Exercise Price: An amount equal to the initial Conversion Price of the
Class A Preferred plus $0.50 per share, subject to
anti-dilution protection and ordinary adjustments.
Expiration: Five (5) years.
Voting Rights: None until exercised.
Anti-dilution Full ratchet applied to both the exercise price and
Protection: number of warrant shares.
Registration Rights: Shares of Common Stock issuable upon exercise of the
Warrants will participate in the unlimited piggyback
registration rights held by the Class A Preferred Stock.
Other Features: Cashless exercise at the option of the holders.
#####
A-4
January 13, 2000*
Mr. Xxxxx Xxxxxx
President and CEO
recordLab Corp.
0000 XX Xxxxxxxxx Xx. Ste. 000
Xxxxxxxx, XX 00000
Dear Xxxxx:
This letter will serve to amend the letter of intent entered into between
The Argentum Group and recordLab Corp. dated December 3, 1999 and accepted on
December 8, 1999, as follows:
(i) Clause (i) of the first sentence of paragraph 8 ("Option to Invest")
is amended to replace January 31, 2000 with February 18, 2000; and
(ii) The second sentence of paragraph 3 ("Closing") is amended to replace
January 15, 2000 with February 18, 2000.
Please affix your signature in the place designated and by doing so, you
will confirm that the foregoing correctly sets forth our understanding.
Very truly yours,
THE ARGENTUM GROUP,
By: Xxxxxx X. Xxxxxxxxxxx
------------------------------
Xxxxxx X. Xxxxxxxxxxx
President of a General Partner
Accepted and Agreed, this 18th* day of January 2000
By: recordLab Corp.
/s/ Xxxxx Xxxxxx
------------------------------
Xxxxx Xxxxxx
President and CEO
* Handwritten amendments initialled January 27, 2000
Argentum
--------------------------------------------------------------------------------
February 1, 2000
Mr. Xxxxx Xxxxxx
President
XxxxxxXxx.xxx
0000 XX Xxxxxxxxx Xxxx, Xxxxx 000
Xxxxxxxx, XX 00000
Dear Xxxxx:
This letter will serve to definitively set the terms of the Investor's
option to invest and will also amend the letter of intent entered into between
The Argentum Group and recordLab Corp., dated December 3, 1999 and accepted on
December 8, 1999, as previously amended by our letter finally acknowledged on
January 27, 2000, as follows:
The first option to invest set forth in paragraph 8 is amended to be (i)
an option to purchase (and an obligation to sell) on or before February 18, 2000
(or, if later, 5 days after receipt of shareholder approval if necessary) for an
amount between $4 million and $6 million (as the Investors shall elect) a pro
rated number of shares of Class A Preferred Stock and a pro rated number of
Warrants on the terms referenced in that paragraph, as amended below, and (ii)
if that option is exercised for $4 million or more but less than $6 million, an
additional option to purchase (and an obligation to sell) on or before February
28, 2000 (or, if later, 5 days after receipt of shareholder approval if
necessary), the balance of such shares and Warrants up to an aggregate of $6
million.
The terms of the Investment contemplated in the letter of intent and,
therefore, the terms of the options referenced above, are modified to reflect
(a) a conversion price of $2 per share, rather than $2.50 per share (thus, an
investment of $6 million would purchase preferred stock initially convertible
into 3 million shares of Common Stock), (b) an aggregate maximum number of
shares (corresponding to a $6 million investment) to be purchasable on exercise
of Warrants of 750,000 rather than 600,000, and (c) an exercise price of $4 per
option-share rather than $3.
Please affix your signature in the place designated and by doing so, you
will confirm that the foregoing correctly sets forth our understanding.
Sincerely,
/s/ Xxxxxx X. Xxxxxxxxxxx
Xxxxxx X. Xxxxxxxxxxx
Accepted and Agreed:
XxxxxxXxx.xxx
/s/ Xxxxx Xxxxxx
-----------------------
Xxxxx Xxxxxx, President
February 1, 2000
----------------
Date
