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EXHIBIT 10.5
November 17, 2000
U.S. Interactive, Inc. Noteholder
Re: Binding Letter of Intent for Note Modification.
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Dear Sir or Madam:
In connection with closing under that certain Agreement and Plan of
Merger, dated February 1, 2000 (the "Merger Agreement"), by and among U.S.
Interactive, Inc. ("USIT"), First Acquisition Co. (now U.S. Interactive Corp.
(Delaware)), Soft Plus, Inc. ("Soft Plus") and each of you, USIT executed and
delivered to Mohan Uttarwar as the Soft Plus Shareholder Agent (the "Agent") its
non-negotiable, non-assignable promissory note, dated March 8, 2000, in the
original principal amount of $80 million (the "Original Note").
We have been negotiating with the Agent to restructure the Original
Note and are prepared to enter into this Agreement to modify the Original Note
in accordance with the Term Sheet attached hereto and incorporated herein by
this reference, which Term Sheet sets forth all the material terms and
conditions for modifying the Original Note that will be included in definitive
agreements among the parties as promptly as possible following the date hereof.
If the parties are unable to negotiate, execute and deliver such
definitive documents for some unanticipated reason, then the terms and
conditions set forth in the Term Sheet shall control and any dispute between the
parties (including any immaterial term not set forth in the Term Sheet) shall be
resolved by binding arbitration in such locale as the parties may agree, and if
the parties cannot agree, then in the City of St. Louis, MO. The arbitration
shall be pursuant to the Commercial Arbitration Rules of the American
Arbitration Association.
No rights created by this letter agreement may be assigned and no
duties created by this letter agreement may be delegated by a party without the
prior written consent of the other party. One or more waivers of any term or
condition shall not be construed as a waiver of any subsequent breach of the
same term or condition. This letter agreement may be executed in any number of
counterparts, all of which shall be considered one and the same instrument and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties. This letter agreement shall be
subject to and shall be construed under the laws of Delaware.
Subject to approval by the Board of Directors of USIT, intending to be
legally bound, we have executed this letter, which sets forth the material terms
and conditions to modify the Original Note, including the terms and conditions
set forth in the Term Sheet attached hereto and incorporated herein by this
reference. If you are in agreement with the foregoing terms, the terms and
conditions set forth in the Term Sheet attached hereto and incorporated herein
by this reference, then please sign this letter below where you name appears,
which will constitute our agreement with respect to the subject matter of this
letter. Thank you.
U.S. INTERACTIVE, INC.
By: /s/ William C. Jennings
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William C. Jennings
Title: Chief Executive Officer
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Acknowledged and agreed to,
intending to be legally bound,
this November 6, 2000.
/s/ Mohan Uttarwar
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Signature
Mohan Uttarwar
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Print name
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U.S. INTERACTIVE, INC.
$80,000,000 Restructured Note
Term Sheet
U.S. Interactive, Inc. (the "Company") issued a Note in the principal
amount of $80,000,000 that is scheduled to mature on March 8, 2001 (the
"Original Note"). Certain holders of the Original Note and the Company are
proposing to agree to restructure the Original Note in accordance with the basic
terms set forth herein. Reference herein the "holders of the Original Note"
shall mean former shareholders of Soft Plus with the beneficial percentage
interest in the Original Note in the percentages set forth on the schedule
attached hereto. Those holders of the Original Note who consent (the "Consenting
Holders") to the restructuring of the Original Note will each receive a new note
(the "Restructured Note") with substantially the same terms set forth herein.
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1. Term: The term of the Restructured Notes shall be that the
maturity date is March 8, 2008.
2. Principal: The aggregate principal amount of the Restructured Notes
shall be equal to the sum of the proportionate interest of
the Consenting Holders in the Original Note but not less
than $72,000,000. If a Consenting Holder converts a portion
of its Restructured Note prior to maturity as provided
below, the principal amount due to such Consenting Holder at
maturity shall be reduced accordingly.
3. Interest: The interest on the Restructured Notes shall be 6.20% per
annum. The interest accrues but does not compound for the
term of the Restructured Notes. Interest accrued as of the
restructured date shall remain accrued interest, and shall
be satisfied as provided below.
4. Cash Pre-Payments: The Company has the option of making payments due on
interest and principal in cash at any time during the term
of the Restructured Notes; provided that any such payment
shall be made with sufficient prior notice to the Consenting
Holders so that such Consenting Holders will have adequate
opportunity to convert all or a portion of their
Restructured Notes as provided below. Cash pre-payments
shall be applied first to accrued interest and then to
principal.
5. No set-off for Pending Claims: If pending litigation against the Company relating to (i)
the suit brought by former shareholders of Soft Plus, (ii)
First Albany and (iii) German tax liability is resolved or
settled resulting in any payments by the Company, such
payments shall NOT reduce the principal amount of the
Restructured Notes nor the allocable portion of the
corresponding accrued interest.
6. Payments at Maturity: On March 8, 2008, the Consenting Holders shall receive that
number of fully registered shares of common stock of the
Company provided for in paragraph 7, reduced by any prior
partial conversion or as otherwise provided herein, in full
satisfaction of principal of and accrued interest on the
Restructured Notes.
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7. Conversion Price: The Conversion Price upon the conversion of the Restructured
Notes shall be equal to 24,000,000 shares of common stock of
the Company multiplied by a fraction, the numerator of which
is the principal amount portion of the Restructured Note
being converted and the denominator of which is $80,000,000.
8. Subordination: The Restructured Notes shall be subordinated to all present
and future Company bank and institutional debt (whether or
not secured or designated as senior debt) as well as notes
or other payment obligations of the Company to landlords of
the Company in connection with termination or default under
the Company's current lease obligation to such landlord.
In bankruptcy, the Consenting Holders shall have a claim payable
for the full amount of principal of the Restructured Notes and
accrued interest thereon.
9. Conversion:
(A) Optional Conversion by the On the restructure date, each Consenting Holder shall
Consenting Holders at have the right to convert in whole or in part such
Restructure Date: Consenting Holder's pro rata share of the Restructured
Notes into shares of common stock of the Company. Any
conversion shall include the accrued interest on the principal
so converted.
(B) Optional Conversion by the Beginning one year from the restructuring date, each
Consenting Holders after Consenting Holder, individually, shall have the right
Restructure Date: at any time and from time to time to convert all or a
portion of its pro rata share of the Restructured Notes into
shares of common stock of the Company. Any conversion shall
include the accrued interest on the principal so converted.
The Restructured Notes will contain customary provisions so
that the conversion mechanics are not administratively
burdensome on the Company.
(C) Optional Conversion by the In any calendar year, the Company shall have the right
Company: to convert up to $20 million in principal amount of
the Restructured Notes
(and corresponding accrued interest thereon), pro rata among
the Consenting Holders, into fully registered shares of common
stock of the Company if the price of the Company's common stock
is at least $3.00 per share for not less than ten consecutive
trading days. Any conversion shall satisfy the accrued interest
on the principal so converted.
10. Anti-dilution: The number of shares issuable upon conversion or maturity of
the Restructured Notes shall be subject to adjustment
pursuant to standard anti-dilution provisions customarily
available to holders of convertible or exchangeable
securities. Sales of stock by the Company for more than
$3.33 per share shall not give rise to any anti-dilution
rights.
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11. Board Representation: Until at least 51% of the aggregate principal amount of the
Restructured Notes have been converted as provided for
herein, the Directors shall agree to nominate and recommend
for appointment to the Board three (3) designees selected by
51% of then outstanding aggregate principal amount of the
Restructured Notes; provided, that Mr. Mohan Uttarwar will
be deemed one of such individuals so long as he is a
director on the Board.
The Company shall use it commercially reasonable best efforts to
secure the agreement of its principal shareholders to vote their
shares of Company common stock in favor of the designees selected
by the majority of the then outstanding aggregate principal amount
of the Restructured Notes as provided in the immediately preceding
sentence.
12. Fees and Expenses: The Company shall pay the actual and reasonable fees and
expenses of the Consenting Holders in connection with the
restructuring of the Original Note, including attorneys'
fees, in an amount not exceeding $40,000.
13. Section 453A Payments: On an annual basis the Company shall pay to each Consenting
Holder holding greater than $5 million principal amount of
the Restructured Note an amount equal the interest due on
the deferred tax on the gain represented by such
Restructured Note. Other than the initial payments for 2000
under this paragraph 13, such payments will NOT be deemed to
be a pre-payment of principal of or corresponding accrued
interest on Restructured Notes.
14. Transferability: Without the prior consent of the Company the Restructured
Notes shall not be transferable by a Consenting Holder other
than (a) to an "accredited investor," as such term is
defined in Rule 501(a) of Regulation D under the Securities
Act of 1933, as amended, that is not a competitor of the
Company or (b) for bona fide estate purposes to or for the
benefit the immediate family members of the Consenting
Holder.
15. Registration of Shares: The Company shall register on and file with the Securities
and Exchange Commission a registration statement to register
the shares of common stock of the Company to be issued to
Consenting Holders as of the restructure date as a result of
conversion in accordance with paragraph 9(A) above.
In addition, so long as Restructured Notes are outstanding, once
each calendar year the Company shall register on and file with the
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Securities and Exchange Commission a registration statement to
register the shares of common stock of the Company issuable to
Consenting Holders who convert Restructured Notes in accordance
with paragraph 9(B) above on or before March 15 of each year
during the term of the Restructured Notes if, and only if,
Consenting Holders have converted shares of common stock of the
Company with a market value as of the April 1 of such year
exceeding $5.0 million.
Shares subject to the foregoing registrations are referred to
herein as "Registrable Shares." A share of common stock shall
cease to be a Registrable Share when (i) a registration statement
covering such share has been declared effective by the SEC and
such share has been disposed of by a Consenting Holder pursuant to
such effective registration statement, (ii) such share is held by
the Company or one of its subsidiaries or otherwise ceases to be
outstanding, or (iii) such share may be sold pursuant to Rule 144
of the SEC, if applicable.
In addition to the foregoing, holders of Registrable Shares shall
be entitled to "piggyback registration rights" in connection with
any firmly underwritten public offering following the first
anniversary of the restructuring date, subject to customary
underwriter "cutback" and other underwriting requirements.
16. Conditions to Closing: (A) Approval by the stockholders of the Company of the
authorization of shares of common stock to be issued to the
Consenting Holders upon conversion or at maturity.
(B) The consent to the restructuring of the Original Note from the
holders of the Original Note representing at least 90% of the
principal amount of the Original Note.
(C) The registration statement registering the common stock of the
Company to be issued to the Consenting Holders upon conversion at
the restructure date shall have been declared effective by the
Securities and Exchange Commission.
(D) The Company shall have performed or complied with all
agreements or covenants required by the agreement evidencing the
Restructured Notes.
(E) The Board shall elect Mr. Mohan Uttarwar as the Chief
Executive Officer of the Company effective no later than the
restructuring date, subject to termination without cause only upon
the affirmative vote of 2/3rds of the Board of Directors then in
office.
(F) The Company receives a "fairness opinion" from Deutsche Banc
Alex. Brown.
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(G) Holders of registration rights with respect to outstanding
shares of common stock of the Company consent to the contemplated
stock registration hereunder.
(H) If the foregoing conditions to closing have not been satisfied
or waived by the parties prior to March 8, 2001, of if the Company
files for bankruptcy prior to such date, then the binding letter
of intent to which this Term Sheet is attached shall terminate as
of such filing or as of midnight on March 7, 2001, and shall
thereupon become null, void and of no further force and effect.
17. Other Provisions: Release of the Indemnity under the Merger Agreement, the
Escrow Shares and Lock-up and Market-out Letter Agreements,
as referenced in prior discussions to the restructuring of
the Original Note.
18. Cooperation: The parties agree to execute and deliver such further
documents and instruments and to do such other acts and
things as any other party, as the case may be, may
reasonably request in order to effectuate the transactions
contemplated hereby, including obtaining the consent of the
holders of the Original Note to the restructuring of the
Original Note.
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