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Exhibit 10.3 -- Letter of Intent for the Purchase of Betelgeuse Productions, LLC
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Exhibit 10.3
SELECT MEDIA COMMUNICATIONS, INC.
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
(000) 000-0000
(000) 000-0000 (Fax)
September 11, 2000
Xxxx Xxxxxxxx
Xxx Xxxxxxxx
Betelgeuse Productions
00 X. 00xx Xxxxxx, Xxxxxxxxx
Xxx Xxxx, XX 00000
Re: PROPOSED ACQUISITION OF BETELGEUSE BY SELECT
MEDIA COMMUNICATIONS, INC.
Dear Xxxx and Xxx:
This letter will confirm the agreement of Select Media Communications,
Inc. ("Select Media") to acquire substantially all of the assets and liabilities
of Betelgeuse Productions, LLC., a Delaware Limited Liability Company (the
"Company"). This supercedes all prior agreements or understandings, including
without limitation that certain letter of intent dated February, 2000 and that
certain Deal Memorandum dated July 26, 2000. The agreement is made pursuant to
the following terms (the "Transaction"):
1. Transaction
The principal terms of the Transaction are as follows:
a. Pursuant to the prior letter of intent, Select Media has paid
the Company $25,000. This amount shall be non-refundable, but
shall be credited against the payment referred to in paragraph
1.f. below.
b. Select Media shall acquire at Closing substantially all of the
assets and liabilities of the Company, including without
limitation, the Company goodwill and the name Betelgeuse.
c. The Asset Purchase and Sale Agreement reflecting the terms and
conditions of the tranaction as set forth in this letter
("Final Agreement") shall be signed within 15 days of the date
of this letter of intent. The parties have already circulated
and commented upon several drafts of the Final Agreement.
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d. Upon the signing of the Final Agreement, Select Media shall
pay the Company an aggregate of $200,000 in cash, which shall
be credited against the payment referred to in paragraph 1.f.
below. Commencing 30 days following the signing of the Final
Agreement, Select Media shall pay the Company an additional
$100,000, for 3 subsequent months for a total of $500,000,
which also shall be credited against the payment referred to
in paragraph 1.f. below. In the event Select Media is unable
to compete the transaction in accordance wit this paragraph
1.d. or with paragraph 1.e. below because it does not have the
funds available, the monies paid by Select Media shall be
retained by the Company.
e. Closing of the Transaction shall take place on or before six
months from the completion by Select Media of its review of
the financial condition of the Company ("Due Diligence").
Select Media shall complete its Due Diligence within 45 days
of the Company's providing to Select Media all of its
financial records for the years ended June 30, 1999 and 2000,
including without imitation, a list of assets and liabilities,
trial balances and balance sheets and income statements. For
purposes of this letter of intent, the Company's records
includes all of the records of Betelgeuse Productions, Inc. a
New York Corporation.
f. In exchange for the transfer of all the assets and liabilities
as described in the Final Agreement of the Company and at
Closing, Select Media shall pay the Company $10 million in
cash,, $1 million of which will be placed in escrow with
Xxxxxxx Xxxxx & Xxxxx, P.C. To be delivered to the Company on
the first anniversary of the Closing Date.
g. Select Media's payment obligations as set forth in
subparagraph 1.f. above shall be adjusted at Closing as
follows:
(1) If the Company's Earnings Before Interest, Taxes,
Depreciation and Amortization ("EBITDA") for its
fiscal year ended June 30, 2000 is less than $1.2
million (without taking into account any reserve for
the DeFilippe claim), Select Media shall have the
option of terminating the transaction without penalty
and obtaining a return of all of the amounts advanced
by the Company (other than the $25,000 paid pursuant
to paragraph 1.a. which is non-refundable) and the
Company shall pay Select Media $100,000 to reimburse
it for the expenses incurred in connection with the
transaction.
(2) The $9 million payable at Closing payment shall be
reduced on a dollar for dollar basis to the extent
that the Company's receivables do not exceed the
total of the Company's payables including without a
limitation, the outstanding amount due on the
Company's credit lines, by $100,000 or
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more. Any adjustment shall be made based on
information as of the fiscal year ended June 30,
2000.
h. On or before the Closing Date, Xxxx Xxxxxxxx will execute and
deliver an Employment Agreement substantially in the form
attached hereto except for the deletion of 4.6 relating to
payment of a signing bonus and except that agreement will
provide for a five year incentive option for the purchase of
$1,000,000 shares of Select Media common stock at an exercise
price of $1.00 per share, which option will vest 33 1/3% on
each of the first, second and third anniversary of the signing
of the Final Agreement. None of these shares may be sold prior
to the second anniversary of the Closing Date.
i. On or before the Closing Date, Xxx Xxxxxxxx will execute an
deliver a Consulting and Non-Compete Agreement substantially
in the form attached hereto except that such agreement shall
be for a 3 year period and other matters discussed by the
parties and except that agreement will provide for a five year
incentive option for the purchase of 1,000,000 shares of
Selection Media common stock at an exercise price of $1.00 per
share, which option will vest 33 1/3% of each of the first,
second and third anniversary of the signing of the Final
Agreement. None of these shares may be sold prior to the
second anniversary of the Closing Date.
j. Xxxx Xxxxxxxx will get a seat on the Board of Directors of
Selection Media. Xxx Xxxxxxxx shall get a seat on the Board of
Directors so long as any of his personal guaranties for the
Company's credit lines or equipment leases remain outstanding.
By the Closing Date, the Board of Directors is expected to
consist of 12-15 members.
k. Select Media shall have the personal guaranties of Xxxxxxxx
and Xxxxxxxx for the Atlantic Bank line of credit removed
within one year from the date of Closing. In conjunction with
this, Select Media at Closing will have a positive net working
capital of not less than $1,400,000 represented in part by
cash and marketable securities in at least that amount.
Commencing 30 days after the Closing and on the first day of
each month thereafter, Select Media will pay or cause to be
paid $120,000 per month to pay down the amounts due under the
Atlantic Bank line of credit., which funds will be provided
available from cash flow and/or the $1.4 million in working
capital if cash flow is insufficient. Any amounts advanced
under the Atlantic Bank line of credit shall be used only for
the normal operations of the Betelgeuse Division and for no
other purpose.
l. On or before Closing, Select Media will have paid all
outstanding taxes and legal fees scheduled to be paid pursuant
to prior bankruptcy proceedings as set forth in Selection
Media's Annual Report on Form 10-K SB for the period ended
December 31, 1999.
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2. Access to Information and Due Diligence
In addition to the information the Company is required to supply Select
Media pursuant to paragraph 1.e. above, and upon reasonable notice to Company,
Company shall (i) give us and our authorized representatives reasonable access
during normal business hours to its offices, plants and other facilities and to
the books and records of it and any of its subsidiaries, (ii) permit us to make
such reasonable inspections during normal business hours as we may reasonably
request, and (iii) cause its officers or agents to furnish us with such
financial and operating data and other information with respect to the business
and properties of Company and its subsidiaries as we may from time to time
reasonably request.
3. Confidentiality of Discussions
The parties will make every effort to keep confidential the fact that
we are discussing the Transaction until the Final Agreement has been signed.
Neither party will disclose information about the proposed Transaction or our
discussions, except that the parties may disclose the information to their
respective directors, officers, employees, counsel and advisors on a need-to-
know basis for the purpose of completing the Transaction, each of whom will be
instructed to maintain confidentiality. Prior to the execution of the Final
Agreement relating to the Transactions, neither party will make a public
announcement of the Transaction unless it has been advised by its counsel that
such announcement is legally required and a copy of the proposed announcement
has been supplied to the other party at least 24 hours prior to the
announcement.
4. Payment of Fees and Reimbursement of Expenses
Each party will bear its own fees and expenses in the Transaction,
except to the extent set forth in paragraph 1.g.(1) above.
5. No Shopping or Solicitation
Neither Company nor any of its officers, directors, agents,
shareholders, affiliates, or persons acting on behalf of the Company or any such
person will, directly or indirectly, (i) solicit, engage in discussions or
negotiate with any person (whether such discussion or negotiations are initiated
by Company, any of the foregoing persons, or otherwise) or take any other action
intended or designed to facilitate the efforts of any person other than you or
your representatives relating to any possible alternative agreement to the
Transaction (with any such efforts by any such person to be referred to as
"Alternative Transaction"), (ii) provide information to any person with respect
to Company relating to a possible Alternative Transaction, or (iii) make or
authorize any statement recommendation, or solicitation in support of or
approving any Alternative Transaction. This provision shall expire upon the
mutual termination of this letter of intent or in the event that closing does
not occur as contemplated under Section 1.e. hereof.
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6. Binding Agreements
This letter sets forth the terms of our agreement subject only to the
execution of the Final Agreement, which the parties will act in good faith to
finalize.
7. Miscellaneous
If this letter correctly sets forth the terms of our agreement in
principle regarding the Transaction, please do so acknowledge by countersigning
and returning a copy of the letter, whereupon each of us shall be bound by the
terms and conditions of this letter. This letter may be signed in counterparts,
all of which together shall constitute the original.
Sincerely yours,
SELECT MEDIA COMMUNICATIONS, INC.
By: /s/ XXXXX XXXXXXXXX
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Name: Xxxxx Xxxxxxxxx
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Title: Chairman
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The foregoing letter of intent reflects our Understanding concerning the
Transaction referred to therein and by our execution and delivery of the
acknowledgment below, the undersigned agrees to be bound by the terms an
conditions set forth in such letter.
BETELGEUSE PRODUCTIONS, LLC
By: /s/ XXXX XXXXXXXX
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Name: Xxxx Xxxxxxxx
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Title: Managing Member
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