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EXHIBIT 99.1
[Letterhead of Bingo.com, Inc.]
December 15, 2000
The Lottery Channel, Inc.
Suite 2300, 425 Walnut Street
Cincinnati, Ohio
45202
Attn: Roger W. Ach, II
President
Dear Roger:
Bingo.com, Inc., a Florida corporation ("Bingo"), is pleased to present
this letter of intent pursuant to which Bingo will acquire The Lottery Channel,
Inc., a Delaware corporation ("Lottery"; the "Transaction"). This letter
reflects in general our current understanding and of course, except as expressly
set forth herein, is not intended to be a binding agreement between us. There
shall be no obligations whatsoever based on such things as parol evidence,
extended negotiations, "handshakes," oral understandings, or courses of conduct
(including reliance and changes of position).
The purpose of this letter is to set forth those points upon which we
have agreed in principle and to confirm our joint intentions with respect to the
Transaction.
1. Acquisition of Lottery. Subject to the satisfactory completion of due
diligence by both Bingo and Lottery, and the execution of definitive agreements,
Bingo will acquire the business and substantially all of the assets, tangible
and intangible, of Lottery. The parties currently contemplate that the
Transaction will be structured as a reverse triangular merger pursuant to which
a wholly-owned subsidiary of Bingo will merge with and into Lottery, and Lottery
will become a wholly-owned subsidiary of Bingo. However, Lottery and Bingo agree
that the structure for the acquisition of Lottery by Bingo will be determined by
mutual consent and agreement of Bingo and Lottery. Bingo and Lottery will
negotiate to determine an acquisition structure which is acceptable to both
parties.
2. Purchase Price. Bingo will acquire Lottery in exchange for the
issuance and grant by Bingo of the following consideration:
a. Issuance of Shares of Common Stock. On the closing date of the
Transaction (the "Closing Date"), Bingo will issue to the shareholders of
Lottery on the Closing Date (the "Lottery Shareholders") an aggregate of
approximately 14.5 million shares of the common stock of Bingo (the "Common
Stock"). Notwithstanding the foregoing, if immediately following the closing of
the Transaction (the "Closing") the aggregate percentage ownership of
outstanding shares of Common Stock of Bingo owned by the Lottery Shareholders is
less than 58% (which amount represents the target percentage ownership of Bingo
by the Lottery Shareholders immediately following the Closing), then Bingo will
issue to the Lottery Shareholders that additional number of shares of Common
Stock of Bingo to increase the percentage ownership of the Lottery Shareholders
to 58%. The total number of shares of Common Stock issued to the Lottery
Shareholders pursuant to this paragraph 2.a. shall be referred to as the
"Purchase
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Shares Amount." The shares of Common Stock of Bingo to be issued to the Lottery
Shareholders pursuant to this paragraph 2.a. shall be distributed to each
Lottery Shareholder on a pro rata basis according to that Lottery Shareholder's
percentage ownership of shares of common stock of Lottery ("Lottery
Shareholder's Percentage Ownership").
b. Grant of Warrants to Purchase Shares of Common Stock. On the
Closing Date, Bingo will grant to the Lottery Shareholders warrants to purchase
shares of Common Stock of Bingo. Each Lottery Shareholder will be entitled to
elect to receive warrants to purchase Common Stock of Bingo under Option #1 or
Option #2 set forth below (a combination of both options will not be allowed):
i. Option #1. A Lottery Shareholder may elect to receive
warrants to purchase that number of shares of Common Stock of Bingo which
results from multiplying that Lottery Shareholder's Percentage Ownership and the
Purchase Shares Amount, and then dividing the product of such amounts by two.
The exercise price for the warrants will be $2.00 per share. The warrants will
be exercisable immediately upon grant, and the warrants will have a three (3)
year term beginning on the date of grant.
ii. Option #2. A Lottery Shareholder may elect to receive
warrants to purchase that number of shares of Common Stock of Bingo which
results from multiplying that Lottery Shareholder's Percentage Ownership and the
Purchase Shares Amount. The exercise price for the warrants will be $2.00 per
share. The warrants will not be exercisable until the Revenue Date (as defined
below), and the warrants will have a three (3) year term beginning on the date
of grant. The term "Revenue Date" shall mean the day immediately following the
date that the combined Bingo/Lottery entity realizes gross sales on a cumulative
basis of One Hundred Thousand Dollars ($100,000) generated by its sales of
lottery tickets on the internet to third parties not related to Bingo, Lottery
or any of their shareholders, officers, directors, employees or affiliates.
3. Registration Rights. Those Lottery Shareholders who are not affiliates
(within the meaning of Rule 144 promulgated under the Securities Act of 1933, as
amended) of Lottery immediately prior to the Closing shall have the right to
require that Bingo register with the Securities and Exchange Commission and
applicable state securities authorities, the shares of Common Stock of Bingo
issued to them in the Transaction or which may be acquired by them upon the
exercise of the above-described warrants (the "Registration Rights").
Immediately following the completion of the Merger, Bingo will file a
registration statement covering all of the newly issued shares and share
equivalents. Bingo shall not be required to register more than 14,286,726 shares
of Common Stock (which represents 7,143,363 shares of Common Stock proposed to
be issued to, and 7,143,363 shares subject to warrants proposed to be granted
to, the Lottery Shareholders who are not affiliates of Lottery) in connection
with the Registration Rights.
4. Adjustments to Lottery Balance Sheet. Lottery has informed Bingo that
as of the date of this letter, Lottery owes certain of its employees
approximately $2.4 million for accrued but unpaid salaries. Prior to the Closing
Date, Lottery intends to enter into an agreement specifying a schedule on which
such $2.4 million of accrued salaries will be repaid to such employees on terms
to be mutually agreed to by Lottery, Bingo and such employees.
Lottery has informed Bingo that at the date of closing, its balance sheet
will reflect cash assets of $3.8 million.
5. Bingo, Inc. Recognizing that Bingo and Lottery each is a party to a
URL acquisition agreement with Bingo, Inc., an Anguilla corporation ("Bingo
Anguilla"), it shall be a condition to closing
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this transaction that Bingo, Lottery and Bingo Anguilla shall have entered into
a single mutually acceptable agreement which replaces and supercedes the
existing agreements in their entirety.
6. Management. Following the Closing, the Board of Directors of the
combined entity shall have a majority of directors designated by, or acceptable
to, the Lottery Shareholders. Roger W. Ach, II shall be the Chairman of the
Board and Chief Executive Officer and Shane Murphy shall be President of the
combined company, and its corporate headquarters shall be located at the site of
Lottery's current corporate headquarters.
7. Due Diligence. Each of Bingo and Lottery will provide the other, and
their respective accountants, lawyers and other representatives, full access to
its properties, business, customers, suppliers, books and accounting records
upon the reasonable request of the reviewing party. Either Bingo or Lottery may
terminate discussions with respect to the Transaction at any time if it is not
reasonably satisfied with the results of its due diligence review.
8. Confidential Information. Bingo and Lottery each agree to hold the
confidential and proprietary information and trade secrets obtained from the
other in confidence and not to use or disclose such confidential and proprietary
information and trade secrets to third parties without the consent of the other
party, except that each of parties may disclose such information to their
respective employees and agents who need to know such information for the
purposes of evaluating the Transaction. If the Transaction is not consummated,
Bingo and Lottery agree to promptly return to the rightful owner all tangible
information and documents delivered pursuant to this letter and destroy all
compilations, studies of other documents prepared by or for the recipient's use
which reflect the information so delivered without retaining copies thereof. The
parties agree that the provisions contained in this paragraph shall survive the
termination of this letter or other indication by the parties hereto of their
intention not to proceed with the Transaction.
9. Exclusivity. For a period of sixty days after the date of execution of
this letter by Bingo and Lottery, each party hereto agrees that it will not, nor
will it permit any of its respective representatives to, directly or indirectly,
solicit, initiate, or encourage any inquiries or proposals from, discuss or
negotiate with, or provide any information to, any third persons or parties
relating to (i) any transaction involving the sale of Lottery or Bingo, or (ii)
any transaction the completion of which would likely make the Transaction
impractical or impossible to complete.
10. Public Announcements. Bingo and Lottery acknowledge that Bingo will
be required and Lottery desires to publicly announce the execution of this
letter. Prior to the release of any such announcement, each party agrees to
provide to the other party a draft of its proposed announcement; provided,
however, that neither party will be required to make any changes to its proposed
announcement.
11. Indemnification. Each of Bingo and Lottery agrees to indemnify and
hold harmless the other from any and all claims, liabilities, damages, actions,
causes of action, demands, costs and expenses of every kind or nature,
including, without limitation, reasonable attorneys' fees and court costs and
fees and costs of any appeals, arising out of, relating to or resulting from the
assertion of any obligation to pay or the payment of any broker or finder's fees
or other commissions in connection with the transactions contemplated by this
letter.
12. Definitive Documents; Execution and Closing Dates. Bingo and Lottery
agree to work as quickly as possible in connection with the due diligence
process, and toward completing definitive documentation regard the Transaction.
The parties intend that such definitive documentation shall be negotiated and
executed no later than January 31, 2001. Those documents will contain the
above-described terms, together with such further appropriate terms and
conditions as the parties and their respective
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counsel may mutually determine. The parties intend that the closing of the
contemplated transactions shall be held on or prior to February 28, 2001.
13. Expenses. Each party shall be responsible for the payment of its own
expenses in connection with the Transaction, including all expenses associated
with the negotiation and preparation of the definitive agreements.
14. Operation in the Ordinary Course. From the date of execution of this
letter through the closing of the Transaction, each of Bingo and Lottery agrees
to operate its respective business only in the ordinary course, consistent with
past practice.
15. Nature of Obligations. This letter constitutes an expression of our
understandings relating to the Transaction and does not contain all matters upon
which agreement must be reached. A Transaction will result only from the
execution of definitive agreements, subject to the terms and conditions
expressed therein. This letter is not intended to be legally binding upon the
parties hereto except to the extent of the provisions of the second sentence of
paragraph 4 and paragraphs 8, 9, 10, 11, 13 and 15 hereof are meant to be
binding obligations.
If the foregoing accurately sets forth your understanding concerning this
matter, please acknowledge your concurrence by signing the enclosed copy of this
letter in the space indicated below. I look forward to the successful completion
of the Transaction.
Sincerely,
BINGO.COM, INC.
/s/ Shane Murphy
By: Shane Murphy, President
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Accepted and agreed:
THE LOTTERY CHANNEL, INC.
By: /s/ Roger W. Ach, II
Its: President
Date: December 15, 2000
