Exhibit 1
OrthoStrategies, Inc.
31 The Birches
▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
September 14, 2000
▇▇. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Chairman
The ▇▇▇▇▇▇ Biomechanics Group, Inc.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Dear ▇▇▇▇▇:
This letter sets forth our preliminary understanding with respect to a
proposed acquisition of The ▇▇▇▇▇▇ Biomechanics Group, Inc., a New York
corporation ("▇▇▇▇▇▇"), which is engaged in the design, manufacture and
marketing of foot and gait-related biomechanical products (the "BUSINESS"), by
OrthoStrategies Acquisition Corp., a New York corporation (the "PURCHASER"), a
wholly-owned corporate subsidiary of OrthoStrategies, Inc., a New York
corporation ("OSI").
1. Plan of Merger
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(a) As soon as reasonably possible, but targeted for no later than
December 1, 2000, the Purchaser, OSI and ▇▇▇▇▇▇ shall, subject to the terms and
conditions of this letter, enter into a merger agreement (the "Merger
Agreement"), which shall provide for the long-form "cash-out" merger of ▇▇▇▇▇▇
with and into the Purchaser, such that the Purchaser is the surviving
corporation (the "Merger"); provided however, that prior to execution to the
Merger Agreement, Purchaser may determine that the merger shall be of Purchaser
into ▇▇▇▇▇▇. Purchaser shall change its name to "▇▇▇▇▇▇" upon the effective time
of the Merger. Pursuant to the Merger Agreement, OSI shall make available an
aggregate of $4,594,067, subject to adjustment pursuant to Section 1(b) below
(the "Aggregate Purchase Price"), to cover the Purchase Price, as defined below,
of all outstanding shares of ▇▇▇▇▇▇'▇ common stock (the "Shares"). The Purchase
Price of each outstanding Share shall be One Dollar and Seventy-Five Cents
($1.75), subject to adjustment pursuant to Section 1(b) below, which ▇▇▇▇▇▇
shall pay to the holders thereof out of the Aggregate Purchase Price. In
addition, OSI shall make available an aggregate of no more than $125,000,
subject to adjustment pursuant to Section 1(b) below (the "Aggregate Option
Payment") to cover the spread on all current outstanding options for ▇▇▇▇▇▇
Common Stock set forth on Schedule B hereto (the excess, if any, of the Purchase
Price over the exercise prices thereof).
(b) Adjustment to Purchase Price. The Aggregate Purchase Price and the
Aggregate Option Payment are based on the assumption that the net worth of
▇▇▇▇▇▇ on the closing of the Merger shall be $2,522,500 (the "Target Net Worth")
and that the Net Working Capital (as defined below) of ▇▇▇▇▇▇ on the closing of
the Merger shall be $1,917,500 ("Target Net Working Capital"). "Net Working
Capital" of ▇▇▇▇▇▇ for purposes of this Agreement is defined as the excess of
the inventory, accounts receivable and cash of ▇▇▇▇▇▇ over the trade accounts
payable and accrued expenses (accrued payroll, accrued payroll taxes and current
liabilities) of ▇▇▇▇▇▇. Net Worth and Net Working Capital of ▇▇▇▇▇▇ shall be
determined in accordance with GAAP consistently applied. For purposes of this
Agreement, Closing Net Worth and Closing Net Working Capital shall be determined
before deducting ▇▇▇▇▇▇'▇ legal, accounting, printing, transfer agent and other
transaction costs relating to the Merger ("▇▇▇▇▇▇ Transaction Costs"); provided
however, that in the event that the ▇▇▇▇▇▇ Transaction Costs exceed $200,000,
then the Closing Net Worth and Closing Net Working Capital as otherwise
calculated will be reduced by One Hundred (100%) Percent of the excess of ▇▇▇▇▇▇
Transaction Costs over $200,000, and further provided, that in the event the
▇▇▇▇▇▇ Transaction Costs are less than $200,000, then the Closing Net Worth and
Closing Net Working Capital as otherwise calculated will be increased by One
Hundred (100%) Percent of the excess of $200,000 over the ▇▇▇▇▇▇ Transaction
Costs. ▇▇▇▇▇▇ estimates the ▇▇▇▇▇▇ Transaction Costs to be approximately
$200,000. For purposes of this Agreement, Closing Net Worth and Closing Net
Working Capital shall be determined before deducting Asset Purchase Taxes (as
defined in Section 2(d)(viii) below), provided however, that in the event that
the Asset Purchase Taxes exceed $260,000, then the Closing Net Worth and Closing
Net Working Capital as otherwise calculated, will be reduced by One Hundred
(100%) Percent of the excess of Asset Purchase Taxes over $260,000. The actual
Net Worth of ▇▇▇▇▇▇ on the Closing of the Merger as finally determined is
referred to as the "Closing Net Worth" and the actual Net Working Capital of
▇▇▇▇▇▇ on the Closing of the Merger as finally determined is referred to as the
"Closing Net Working Capital."
(i) In the event the Closing Net Worth is at least equal to the
Target Net Worth and the Closing Net Working Capital is at least equal to the
Target Net Working Capital, and further, the Closing Net Worth exceeds the
Target Net Worth by more than $75,000 (i.e. the Closing Net Worth is greater
than $2,597,500), and/or in the Closing Net Working Capital exceeds the Target
Net Working Capital by more than $75,000 (i.e. the Closing Net Working Capital
is greater than $1,992,500), then the Aggregate Purchase Price will be increased
by the greater of (A) fifty (50%) percent of the excess of Closing Net Worth
over $2,597,500, or (B) fifty (50%) percent of the excess of Closing Net Working
Capital over $1,992,500.
(ii) In the event that the Target Net Worth exceeds the Closing
Net Worth by more than $75,000 (i.e. the Closing Net Worth is less than
$2,447,500), and/or the Target Net Working Capital exceeds the Closing Net
Working Capital by more than $75,000 (i.e. the Closing Net Working Capital is
less than $1,842,500), then the Aggregate Purchase Price will be reduced by the
greater of (A) One Hundred (100%) Percent of the excess of $2,447,500 over
Closing Net Worth, or (B) One Hundred (100%) Percent of the excess of $1,842,500
over the Closing Net Working Capital.
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(iii) The net adjustment to the Aggregate Purchase Price will be
calculated as the sum of the increases, if any, pursuant to clause 1(b)(i)
above, less the sum of the decreases, if any, pursuant to clause 1(b)(ii) above.
The Aggregate Purchase Price as so adjusted shall be referred to as the
"Adjusted Aggregate Purchase Price". The Purchase Price of each outstanding
Share shall then be adjusted to correspond to the Adjusted Aggregate Purchase
Price (the "Adjusted Purchase Price"), and the Aggregate Option Payment shall be
adjusted to reflect the excess, if any, of the Adjusted Purchase Price over the
exercise prices of the options set forth on Schedule B (the "Adjusted Aggregate
Option Payment"). The Adjusted Purchase Price shall not exceed a maximum of
$1.81 per Share, and the Adjusted Purchase Price under which the parties are
required to close the Merger shall not be less than $1.73 per Share.
(iv) In the event that the Closing Net Worth is equal to the
Target Net Worth and the Closing Net Working Capital is equal to the Target Net
Working Capital, then Messrs. ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇▇ (senior executives
of ▇▇▇▇▇▇) will be paid an initial bonus of $10,000, $15,000 and $10,000
respectively. In the event that the initial bonus conditions have been achieved,
and Closing Net Worth exceeds Target Net Worth and Closing Net Working Capital
exceeds Target Net Working Capital, all as finally determined pursuant to
Section 1(b)(vi) below, then each of Messrs. ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇▇ will
be paid an additional bonus equal to the lesser of (A) 10% of the excess of
Closing Net Worth over Target Net Worth, or (B) 10% of the excess of Closing Net
Working Capital over Target Net Working Capital, up to a maximum additional
bonus of $10,000 per person. The initial bonus and additional bonus, if earned,
shall be paid to such individuals only if they are employed by ▇▇▇▇▇▇ for the
90-day period following the Closing of the Merger (or have been terminated by
▇▇▇▇▇▇ without cause during such period) and will be paid 120 days after the
Closing of the Merger, subject to withholding taxes. The foregoing bonuses shall
not be taken into account in determining Closing Net Worth or Closing Net
Working Capital.
(v) Within fifteen (15) days after the calendar month and
immediately prior to the date of the ▇▇▇▇▇▇ Shareholder's meeting at which the
Merger shall be submitted for approval, an executive officer of ▇▇▇▇▇▇ shall
prepare and deliver to Purchaser and Purchaser's accountants an estimated
calculation of ▇▇▇▇▇▇'▇ Net Worth, Net Working Capital and ▇▇▇▇▇▇ Transaction
Costs as at the Closing of the Merger based on the ▇▇▇▇▇▇'▇ financial
information as at such calendar month end ("Estimated Closing Net Worth",
"Estimated Closing Net Working Capital" and "Estimated Transaction Costs").
Purchaser's accountants shall, prior to the Closing, verify the Estimated
Closing Net Worth, Estimated Closing Net Working Capital and Estimated
Transaction Costs and Purchaser shall determine, jointly with ▇▇▇▇▇▇,
adjustments thereto; in the event that Purchaser and ▇▇▇▇▇▇ cannot agree on this
determination, the dispute shall be referred to an independent firm of certified
public accountants in the same manner as Section 1(b)(vi) below. The Estimated
Net Worth, Estimated Net Working Capital and Estimated Transaction Costs shall
be utilized to calculate the Estimated Aggregate Purchase Price, Estimated
Purchase Price, and Estimated Aggregate Option Payment in the same manner as the
Adjusted Aggregate Purchase Price, Adjusted Purchase Price and Adjusted
Aggregate Option Payment in Sections 1(b)(i), (ii) and (iii) above;
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(vi) In the event that the Estimated Purchase Price is at least
One Dollar and Seventy Three Cents ($1.73) per Share (the AFloor Price), then at
the Closing the Floor Price shall be paid to the holders of the Shares. As soon
as practicable, but within 60 days after the Closing, ▇▇▇▇▇▇'▇ accountants shall
make a final determination of the Closing Net Worth, Closing Net Working Capital
and actual ▇▇▇▇▇▇ Transaction Costs by conducting an audit, review or
verification (the extent of which shall be determined by Purchaser) of ▇▇▇▇▇▇'▇
Net Worth, Net Working Capital and ▇▇▇▇▇▇ Transaction Costs as of the Closing
Date, all in accordance with Section 1(b) above. The Adjusted Aggregate Purchase
Price, Adjusted Purchase Price, and Adjusted Aggregate Option Payment shall be
determined from such Closing Net Worth, Closing Net Working Capital and actual
▇▇▇▇▇▇ Transaction Costs in accordance with Sections 1(b)(i), (ii) and (iii)
above. ▇▇▇▇▇▇'▇ accountants shall submit their report of such calculations
("Closing Report") to a representative of the ▇▇▇▇▇▇ Shareholders (the "▇▇▇▇▇▇
Representative") and to Purchaser and Purchaser's accountants for review. Each
of Purchaser's and ▇▇▇▇▇▇'▇ accountants and ▇▇▇▇▇▇ (or its successor) shall
cooperate by providing access to financial information and work papers for
purposes of the Closing Report and review thereof. Within 20 days after
submission of the Closing Report, Purchaser shall deliver in writing to the
▇▇▇▇▇▇ Representative and ▇▇▇▇▇▇'▇ accountants any objection to the Closing
Report, and Purchaser, Purchaser's accountants, the ▇▇▇▇▇▇ Representative and
▇▇▇▇▇▇'▇ accountants shall attempt in good faith to resolve any such dispute,
within a further 10 day period. If such parties are unable to resolve the
dispute within such period, the dispute shall be referred to an independent firm
of certified public accountants mutually agreed by Purchaser and the ▇▇▇▇▇▇
Representative, whose decision shall be made as promptly as practicable and
shall be final and binding on Purchaser, ▇▇▇▇▇▇, the ▇▇▇▇▇▇ Representative and
the ▇▇▇▇▇▇ shareholders. Within five business days after the final determination
of the Adjusted Aggregate Purchase Price, Adjusted Purchase Price and actual
▇▇▇▇▇▇ Transaction Costs in accordance with this Section 1(b)(vi), Purchaser
shall pay to the holders of the Shares the excess, if any, of the Adjusted
Purchase Price over the Floor Price, provided, however, that notwithstanding any
other provision of this agreement, the Adjusted Purchase Price shall be capped
at, and Purchaser shall not be required to pay more than, One Dollar and Eighty
One Cents ($1.81) per Share (the "Maximum Price"). A corresponding procedure
will be utilized whereby Purchaser will pay to the holders of options a Floor
Aggregate Option Payment at the Closing based on the Floor Price and, within
five business days after the final determination of the Adjusted Purchase Price
pursuant to this Section 1(b)(vi), will pay to the holders of options the
excess, if any, of the Adjusted Aggregate Option Payment over the Floor
Aggregate Option Payment; provided, however, that the Adjusted Purchase Price
utilized in computing the Adjusted Aggregate Option Payment shall not exceed the
Maximum Price. If in fact, no payments were paid to the holders of the Shares at
the time the Adjusted Purchase Price has been finally determined, then if the
Closing has occurred, the Purchaser shall pay to the holders of the Shares the
Aggregate Purchase Price.
(vii) In the event that the Estimated Purchase Price is less than
the Floor Price, then either Purchaser or ▇▇▇▇▇▇ may determine not to proceed
with the Closing of the Merger, by sending written notice to the other party to
such effect; provided however, than the Purchaser shall have the right to elect,
by written notice (but shall be under no obligation to do so), to pay the Floor
Price, and if Purchaser shall so elect, then ▇▇▇▇▇▇ shall NOT have the right to
abandon the Merger, the Adjusted Purchase Price shall be deemed to be the Floor
Price, and
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the Floor Price shall be paid at the Closing to the holders of the Shares.
In the event that the Merger is abandoned by either Purchaser or ▇▇▇▇▇▇ by
reason of the Estimated Purchase Price being less than the Floor Price, then
▇▇▇▇▇▇ shall be required to pay all reasonable expenses of Purchaser and OSI
relating to the Merger and related transactions (up to a maximum reimbursement
of $75,000).
(c) The Merger Agreement shall provide that:
(i) Subject to its fiduciary duties, the Board of Directors of
▇▇▇▇▇▇ shall agree to recommend approval of the Merger to the shareholders;
(ii) The closing is conditioned on holders of no more than Six
(6%) Percent of ▇▇▇▇▇▇ Shares perfecting appraisal rights under 623 and 910 of
the New York Business Corporation Law;
(iii) ▇▇▇▇▇▇ and Purchaser shall cooperate in the preparation,
filing and prosecution of all new corporate and securities documentation,
including those relating to proxy and merger transaction rules;
(iv) ▇▇▇▇▇▇ shall have obtained a fairness opinion from a
reputable investment banker chosen by ▇▇▇▇▇▇ and reasonably acceptable to OSI;
(v) ▇▇▇▇▇▇ shall have no more than 2,625,181 shares of common
stock outstanding on the closing of the Merger (subject to exercise of existing
options set forth on Schedule B), and, at such time, ▇▇▇▇▇▇ shall have no
options or warrants for common stock outstanding, except as set forth on
Schedule B hereto. In the event that any existing options set forth on Schedule
B are exercised prior to the Closing of the Merger, the number of outstanding
Shares and the Aggregate Purchase Price will increase and the Aggregate Option
Payment will decrease, but the Purchase Price per Share shall not increase, and
the option exercise prices paid to ▇▇▇▇▇▇ shall be excluded from the
computations of Net Worth and Net Working Capital under this Agreement.
(vi) There shall be a "standstill provision" similar in scope to
Section 3(c) of this letter which shall apply until the outside termination date
to be set forth in the Merger Agreement, which date shall be at least 60 days
after the execution of the Merger Agreement. If, notwithstanding the
requirements of the "standstill provision," the Board of Directors of ▇▇▇▇▇▇ is
required to entertain and recommend acceptance of a competing offer for the
Shares at a higher price per Share than the anticipated Adjusted Purchase Price,
and as a result the Merger is not consumated, or ▇▇▇▇▇▇ for any other reason
fails to consummate the Merger in breach of the Merger Agreement, then ▇▇▇▇▇▇
shall be required to (i) pay all reasonable expenses of Purchaser and OSI
relating to the Merger and related transactions and (ii) pay Purchaser a
break-up fee of $50,000, provided however, that if the sole reason that the
Merger is not consummated is that the Estimated Purchase Price is less than the
Floor Price, then the break up fee shall not apply and ▇▇▇▇▇▇'▇ obligation to
reimburse expenses of the Purchaser and OSI relating to the Merger and related
transactions shall be limited to a maximum reimbursement of $75,000.
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(vii) In the event that Purchaser or OSI fails to consumate the
Merger in breach of the Merger Agreement, then Purchaser shall pay ▇▇▇▇▇▇ a
breakup fee of $100,000, which amount shall be personally guaranteed by ▇▇▇▇▇▇
▇. ▇▇▇▇▇▇.
(d) Each of the shareholders set forth on Schedule A hereto (the
"CONTROLLING SHAREHOLDERS"), owning the number of Shares set forth on Schedule
A, (A) shall agree to sell their Shares in the Merger and enter into a voting
agreement to approve the Merger and (B) shall agree to sell their Shares to
Purchaser at the Adjusted Purchase Price (but not below the Floor Price, and
Purchaser shall not be required to pay more than the Maximum Price)
notwithstanding the termination of the Merger pursuant to Section 1(c)(vi) below
due to recommendation by the ▇▇▇▇▇▇ Board of a higher competing offer or
pursuant to Section 3(e) below (provided however, that if the existence of the
rights set forth in this clause (B) require compliance with going private rules,
the excess cost of doing so will be excluded from ▇▇▇▇▇▇ Transaction Costs and
all determinations of Net Worth and Net Working Capital).
(e) Promptly following execution of the definitive Merger Agreement,
▇▇▇▇▇▇ shall prepare and file a notice of shareholders' meeting and proxy
statement to approve the Merger pursuant to the terms of the Merger Agreement
and all parties hereto shall cooperate in the preparation, filing and
prosecution of all corporate and securities documentation relating to the
transactions contemplated herein.
2. Additional Provisions of the Agreement
--------------------------------------
The terms and conditions of the Merger are to be contained in the
Merger Agreement, which will be satisfactory in all respects, in form and
substance, to the parties and their counsel. It is anticipated that the Merger
Agreement will, among other things:
(a) Contain all representations, warranties and indemnities usual and
customary in transactions of this nature, including, without limitation, as to
the ▇▇▇▇▇▇'▇ financial statements, tax liabilities, products, trademarks and
licenses, compliance with agreements and applicable law, pending and threatened
litigation, and lack of environmental, pension, union, products or other
undisclosed liabilities.
(b) Contain all covenants usual and customary in transactions of this
nature, including, without limitation, as to the conduct of ▇▇▇▇▇▇'▇ business
between the date of the Merger Agreement and the closing of the Merger, which
shall require that ▇▇▇▇▇▇ conduct its business only in the ordinary course and
limit its capital expenditures, hiring, compensation, contracts, leases, and
other commitments to those budgeted in the Schedules to the Merger Agreement.
(c) Contain a covenant that ▇▇▇▇▇▇ shall prepare and deliver to OSI
quarterly and monthly consolidated and consolidating financial statements
(without footnotes) from the date of the Merger Agreement to and including the
month end prior to the closing of the Merger, including balance sheet, statement
of operations, and statement of cash flows (collectively, the "Financial
Statements").
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(d) Provide that the consummation of the Merger shall be conditioned
upon:
(i) Each party having complied with all requisite corporate
procedures, including approval by the Board of Directors and shareholders of
▇▇▇▇▇▇ and each party having filed with, and received all necessary clearances,
of corporate and securities documentation with the SEC including proxy and
merger transaction rules;
(ii) Completion to the satisfaction of OSI, its accountants,
Kofler, Levenstein, Romanatto & Co., PC, and its counsel, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇
LLP, prior to mailing of the definitive proxy statement relating to the Merger
to the ▇▇▇▇▇▇ shareholders, of further investigation and due diligence review of
the financial and tax condition, business affairs, assets and liabilities of the
▇▇▇▇▇▇, with OSI having received appropriate disclosure of documents, agreements
and information pertaining to ▇▇▇▇▇▇;
(iii) No material adverse change having occurred in the financial
condition, business affairs or assets of ▇▇▇▇▇▇ (not disclosed in the Merger
Agreement or Schedules thereto or financial statements included in the Schedules
thereto) and no previously undisclosed material liabilities or commitments of
▇▇▇▇▇▇ having been discovered. Without limiting the foregoing, ▇▇▇▇▇▇ shall have
no adverse environmental liabilities or conditions at its facilities, no
contribution, withdrawal or termination liabilities with respect to pension
plan, (except for an unfunded pension liability in an amount not exceeding $
45,000, which amount is included as a liability for Net Worth calculations under
this Agreement), no union contracts and except as disclosed in the Schedules to
the Merger Agreement, no material litigation or claims. ▇▇▇▇▇▇ shall have
carried on its business in the ordinary course and in the same manner as
previously conducted and shall have maintained intact its business organization
and employment force;
(iv) All necessary consents, agreements and governmental
approvals having been obtained to Purchaser's acquisition of ▇▇▇▇▇▇ in the
Merger including necessary consents from landlords, lessors, licensors and
licensees of ▇▇▇▇▇▇;
(v) No material adverse changes having occurred in governmental
regulation of and reimbursement rules for the Business and/or the products sold
in connection with the Business;
(vi) If the Aggregate Purchase Price would require
▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act ("HSR") clearance, the HSR pre-merger notification waiting
period shall have expired or have been terminated early and no challenge,
proceeding, claim or delay with respect to the Merger shall have been imposed by
the Federal Trade Commission, Department of Justice or any other governmental
agency. In accordance with FTC rules, each party shall prepare and file its own
separate pre-merger notification and pay for the filing fees (if any) relating
to its filing; the parties shall cooperate so that the filings are consistent;
(vii) No severance, "golden parachute" or other similar payments
to ▇▇▇▇▇▇ personnel shall be required as a result of the Merger. Key personnel
of ▇▇▇▇▇▇, to be
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mutually identified by ▇▇▇▇▇▇ and OSI, shall have entered into employment,
non-competition, confidentiality and proprietary rights agreements with ▇▇▇▇▇▇
effective on the Merger;
(viii) OSI and Purchaser, as the surviving corporation, having no
liability for taxes of ▇▇▇▇▇▇ (other than a maximum of $260,000) resulting
specifically from the transactions contemplated by the Merger (the "Asset
Purchase Taxes"); and
(ix) Purchaser's accountants having the opportunity to verify the
Estimated Closing Net Worth, Estimated Closing Net Working Capital, and
Estimated Transaction Costs.
(e) If the Purchaser or ▇▇▇▇▇▇ terminates the Merger Agreement because
▇▇▇▇▇▇ has failed to obtain shareholder approval of the Merger, or, because more
than Six (6%) Percent of ▇▇▇▇▇▇'▇ Shares have perfected appraisal rights, then
▇▇▇▇▇▇ shall indemnify OSI and the Purchaser for all of their expenses in
connection with the Merger, preparation of the Merger Agreement and any other
transactions contemplated by this Letter of Intent (up to a maximum
reimbursement of $100,000); provided however, that if within one hundred and
twenty (120) days after the date of the ▇▇▇▇▇▇ shareholder's meeting at which
the Merger was submitted for approval, OSI, Purchaser, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ or any
entity affiliated with ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ shall have acquired at least 51% of the
outstanding Shares, as well as control of the election of the Board of Directors
of ▇▇▇▇▇▇, then Purchaser shall return to ▇▇▇▇▇▇ any such reimbursement ▇▇▇▇▇▇
had actually made.
(f) At the time of execution of the definitive Merger Agreement,
Purchaser shall have obtained commitments for equity financing, or a combination
of equity and debt financing, at least equal to the sum of the Aggregate
Purchase Price, Aggregate Option Payment and Purchaser's estimated transaction
expenses; the equity component of such commitment shall be at least $1,000,000;
and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ shall personally provide a significant portion of such
equity commitment.
3. Certain Binding Provisions
--------------------------
(a) Confidentiality. In the course of the discussions and negotiations
each party (on its own or through its agents) may disclose to the other certain
proprietary, confidential or other non-public information (collectively, the
"INFORMATION") relating to its respective business, the proprietary,
confidential and non-public nature of which information both parties desire to
maintain. Except as herein set forth, neither party shall (a) reveal or make
known to any person, firm, corporation or entity or (b) utilize in its own
business or (c) make any other usage of, any Information hereafter disclosed to
it by the other (on its own or through its agents) in connection with the
discussions and negotiations above mentioned. A party's obligations with respect
to any item of Information disclosed to it shall terminate if that item of
Information becomes disclosed in published literature or otherwise becomes
generally available to the public; provided, however, that such public
disclosure did not result, directly or indirectly, from any act, omission or
fault of such party with respect to that item of Information. Further, this
paragraph 3(a) shall not apply to any item of Information which at the time of
disclosure was already
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generally available to the public or which, prior to the July 26, 2000, was
already in the possession of the party intending to utilize the item of
Information and was not acquired by such party, directly or indirectly, from the
disclosing party pursuant to this letter, or is required to be disclosed under
court order, subpoena or other legal process or disclosure required pursuant to
applicable law. Both parties agree that the Information either has received or
may receive from the other has been and will be used by the receiving party
solely for the limited purpose of its investigation and evaluation of the other
party in connection with the potential Merger.
Notwithstanding this Section 3(a), ▇▇▇▇▇▇ acknowledges that in
connection with OSI's Merger financing, disclosures of Information regarding
▇▇▇▇▇▇ must be made to lenders, underwriters, significant debt and equity
holders, financial advisors and their representatives as well as to governmental
agencies under federal and state securities laws and in connection with offering
materials for such financing, and consent to the same; provided that any such
disclosure is accompanied by a copy of the confidentiality agreement previously
entered into between OSI and ▇▇▇▇▇▇ in connection with the discussions
concerning the transaction contemplated herein (which confidentiality agreement
shall continue to survive the signing of this letter).
(b) Publicity. Due to the confidential nature of this transaction no
party shall make any announcement or disclosure regarding the transaction
without the prior consent of the others, unless and except as required by
applicable law. Notwithstanding this ▇▇▇▇▇▇▇ ▇, ▇▇▇ acknowledges and agrees that
▇▇▇▇▇▇ may be required to disclose in a public announcement and to file with the
Securities and Exchange Commission the terms and conditions of this Letter of
Intent and of the Merger Agreement and otherwise make proper disclosure under
federal and state securities laws, and consents to the same, subject to timely
review by and consultation with OSI. Upon the execution of this letter, ▇▇▇▇▇▇
and OSI shall issue a mutually approved press release.
(c) Non-Solicitation. Neither ▇▇▇▇▇▇, nor any officer or director of
▇▇▇▇▇▇, nor any related party shall, directly or indirectly, make, solicit or
encourage proposals or bids, or subject to their fiduciary duties, hold
discussions or negotiations or furnish information regarding the acquisition of
an interest in ▇▇▇▇▇▇ or any of its assets or capital stock or any merger,
consolidation, reorganization or recapitalization involving ▇▇▇▇▇▇, from, with
or to any person or entity, whether or not affiliated with ▇▇▇▇▇▇, until the
occurrence of the Outside Termination Date (as defined below). ▇▇▇▇▇▇ represents
and warrants that it has terminated all discussions with third parties regarding
any such business combination involving ▇▇▇▇▇▇ and that ▇▇▇▇▇▇ is free to enter
into this Letter of Intent with OSI. The "Outside Termination Date" shall be
deemed to occur on the expiration of 60 days from the date of this letter.
(d) Access to Information. Subject to the confidentiality requirements
of Sections 3(a) and 3(b), ▇▇▇▇▇▇ shall provide to OSI and its representatives
full access, upon reasonable prior notice during business hours, and in such
manner as does not interfere with the conduct of ▇▇▇▇▇▇'▇ business, to the
facilities, assets and all books and records, contracts and other relevant
information pertaining to ▇▇▇▇▇▇ and its businesses, and to the personnel of the
▇▇▇▇▇▇ and the accountants of ▇▇▇▇▇▇.
9
(e) Maintenance of Business. ▇▇▇▇▇▇ will operate its business in the
ordinary course and in the same manner as previously conducted, and shall make
no material changes therein or transactions outside the ordinary course of
business, and immediately advise OSI of any adverse operating results or other
material events;
(f) Transaction Expenses. Except as set forth in clauses 1(b)(vii),
1(c)(vi), 1(c)(vii), and 3(e), whether or not the transaction closes, each party
shall bear all of its own expenses relating to the transaction, including but
not limited to legal and accounting expenses.
4. It is expressly understood that this letter is merely an expression of
intent and neither party hereto shall have any obligation to the other (except
as set forth in Section 3 hereof), until such time as, and as provided in a
definitive Merger Agreement, agreeable both as to form and substance to each
party, has been executed and delivered. This letter shall not create rights or
confer any benefit on third parties. This letter shall supersede and replace all
discussions, term sheets, proposals and letters between the parties with respect
to the acquisition of ▇▇▇▇▇▇ by OSI. Neither OSI, nor Purchaser, nor ▇▇▇▇▇▇ may
assign any rights or obligations under this letter.
In the event that the Outside Termination Date occurs, and a
definitive Merger Agreement has not been entered into, then either ▇▇▇▇▇▇ or OSI
may terminate this Letter of Intent on written notice, and upon such
termination, OSI, Purchaser and their affiliates, on the one hand, and ▇▇▇▇▇▇
and its affiliates, on the other hand, shall have no further obligations to each
other (except that Sections 3(a), 3(b) and 3(f) hereof shall survive the
termination of this agreement).
If the foregoing correctly sets forth our understanding with respect
to the subject matter hereof, please so indicate by executing and returning to
the undersigned the enclosed copy of this letter, following which our counsel
will proceed to draft the Merger Agreement.
Very truly yours,
ORTHOSTRATEGIES, INC.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇
President
ACCEPTED AND AGREED:
THE ▇▇▇▇▇▇ BIOMECHANICS GROUP, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Chairman of the Board
10
Schedule A
Controlling Shareholders and Shares Owned by Them
-------------------------------------------------
Per Proxy
Shares Owned Director Shares Total
▇▇▇ ▇▇▇▇▇▇ 730,353 (1) 7,000 737,353 (1)
▇▇▇▇▇ ▇▇▇▇▇ 66,333 7,000 73,333
▇▇. ▇▇▇▇▇▇▇ 224,867 224,867
▇▇▇ ▇▇▇▇▇▇ 20,000 20,000
▇▇▇ ▇▇▇▇▇▇▇▇ 44,500 7,000 51,500
▇▇▇▇▇▇ ▇▇▇▇▇ 248,553 248,553
---------- ---------- ----------
1,334,606 21,000 1,355,606
---------- ---------- ----------
Notes:
(1) Also includes 40,000 Shares recently acquired via option exercise.
(2) Directors shares reflect 12,000 shares issued to Directors for Fy 2000
services and 9,000 authorized to be issued for Fy 2001 services.
(3) A good faith effort will be made to also include other Shareholders who
had been brought into ▇▇▇▇▇▇ by ▇▇▇ ▇▇▇▇▇▇.
Schedule B
Outstanding Options and Warrants
--------------------------------
Grant Number Exercise Expiration
Date of Shares Price Date
------- --------- -------- ----------
▇▇▇ ▇▇▇▇▇▇ 10/02/97 25,000 1.875 10/02/02
11/30/98 20,000 1.125 11/30/08
▇▇▇▇▇ ▇▇▇▇▇ 11/30/98 75,000 1.125 11/30/08
▇▇▇ ▇▇▇▇▇▇▇▇ 11/30/98 5,000 1.125 11/30/08
▇▇▇ ▇▇▇▇▇▇ 11/30/98 75,000 1.125 11/30/08
05/18/99 25,000 1.5 05/18/09
▇▇▇ ▇▇▇▇▇▇▇▇ 06/14/99 25,000 1.5 06/14/09
▇▇▇▇▇ ▇▇▇▇▇▇▇ 07/03/00 5,000 1.56 07/03/10
▇▇▇ ▇▇▇▇▇▇▇▇ 10/01/99 20,000 2 10/01/09
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ 06/19/96 3,000 2.1875 06/19/01
06/19/96 3,000 2.1875 06/19/02
▇▇▇▇▇ ▇▇▇▇▇▇ 01/02/97 1,000 1.5625 01/02/02
02/03/97 1,000 1.9375 02/03/02
03/03/97 12,500 1.75 03/03/02
04/01/97 5,500 1.625 04/01/02
TOTAL OPTIONS OUTSTANDING: 301,000
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