EXHIBIT 10.27
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February 3, 2000
CDKnet, Inc.
250 West 57th St., Suite 1101
New York, NY 10019
Gentlemen:
This letter will set forth certain terms and conditions of the
agreement in principle between Young & Rubicam Inc. ("Y&R") and CDKNet, Inc.
("Company"), relating to the proposed alliance between Y&R and Company (the
"Transaction") pursuant to the terms described in Annex A attached to this
letter (which shall be non-binding upon the parties, except as specifically set
forth herein).
We and our legal advisors are prepared to move forward immediately to
draft the definitive documentation for the Transaction as promptly as possible.
1. Terms: The Transaction would be consummated on the terms and
subject to the conditions set forth in Annex A attached hereto.
2. Definitive Agreements, Confirmatory Due Diligence. Our proposal
is subject to completion of both parties' confirmatory due
diligence and the good faith negotiation and execution of
definitive documentation, satisfactory to Company and Y&R,
containing customary representations, warranties, covenants and
conditions for agreements of such type, including, without
limitation, any necessary consents required by either party
(which will be identified in the definitive documentation). As
it relates to a potential investment by Y&R, we believe such
confirmatory due diligence would primarily include financial,
accounting and tax due diligence, legal due diligence and
business due diligence. As it relates to all other matters
discussed in Annex A, due diligence activities are limited to
previous discussions and activities, and no further
confirmatory due diligence activities will take place.
3. Confidentiality. No public disclosure of this letter agreement
or the proposed Transaction shall be made except upon the
mutual agreement of Y&R and Company or as required by
applicable law. If either party determines it is legally
obligated to make such disclosure, the text of any such
disclosure shall be mutually agreed by the parties prior to
public disclosure, but in no event shall be unreasonably
delayed or withheld by the non-disclosure party.
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4. Enforceability; Termination. This letter agreement is not
intended to constitute a binding and enforceable contract
(except for the provisions set forth in paragraph 3 and this
paragraph 4, which are intended to be binding obligations of
the parties hereto and shall survive any termination of this
letter agreement), except that, effective immediately, both
parties will begin working with each other according to the
terms reflected in Annex A, with the full intent of creating a
binding contract in accordance with those terms as soon as
possible. The other provisions of this letter agreement
constitute merely a statement of our current mutual intentions
with respect to the Transaction and do not contain all of the
matters upon which agreement must be reached in order for
either (x) party to be legally obligated to consummate the
Transaction or (y) the Transaction to be consummated. To the
extent intended to be binding, this letter agreement shall be
governed by and construed in accordance with the laws of the
State of New York. This letter agreement may be executed in one
or more counterparts each of which shall constitute but one and
the same letter agreement. Each of Company and Y&R shall bear
its own expenses in connection with the Transaction
contemplated by this letter agreement. Paragraph 3 and this
paragraph 4 constitute the entire agreement between Company and
Y&R with respect to the matters contemplated by this letter
agreement and no prior negotiation, understanding, arrangement
or course of dealing or performance shall be of any effect.
If the foregoing is in accordance with your understanding, please sign,
date and return a copy hereof to facsimile number 212-210-5454, attention Mark
T. McEnroe, whereupon this letter shall constitute (x) a binding agreement with
respect to the matters set forth in paragraphs 3 and 4 above, and (y) a
non-binding agreement as to the remainder of the matters set forth herein and in
Annex A hereto.
Very truly yours,
Young & Rubicam Inc.
By:
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NAME:
TITLE:
Agreed to this day of February 2000
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CDKNet, Inc.
By:
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NAME:
TITLE:
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ANNEX A
Strictly Confidential
PROPOSED TERMS FOR AN INVESTMENT IN
VALUEFLASH. COM, INC. BY Y&R INC.
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INVESTMENT TARGET: Up to 10% of the total capitalization of ValueFlash.com Inc.
("VF"), to be held in founders Common Stock.
INVESTOR Y&R Inc. ("Y&R"); however, relationship to be managed through
WCJ.
AMOUNT PAYABLE: Cash at closing based on a pre-money valuation of $50
million for founder's Common Stock. In consideration for the
opportunity to invest in founder's Common Stock, Y&R agrees to
present revenue opportunities to the JV at defined below
targeted to be $15 million over the first two years of the JV,
with $5 million targeted to be presented during the first
twelve months, and $10 million targeted to be presented during
the second twelve months of the JV. To the extent that such
target revenues are achieved by Y&R, then Y&R will receive
additional equity in the form of warrants, as follows:
o Y&R will receive warrants to purchase up to an additional
5% of VP ownership at a price of $2 per share. The
percent of ownership which Y&R will earn the right to
purchase at $2 per share, up to an additional 5%, will be
in proportion to the percentage of the targeted revenue
achieved during the first twelve months of JV operation.
Such warrants vest as revenues are recognized.
o Y&R will receive warrants to purchase up to an additional
5% of VF ownership at a fair market value price to be
determined on April 1, 2001. The percent of ownership
which Y&R will earn the right to purchase at this price
per share, up to an additional 5%, will be in proportion
to the percentage of the targeted revenue achieved during
the second twelve months of JV operations. Such warrants
vest as revenues are recognized.
o In the event of an IPO during the first 24 months of
operations, VF, at their sole discretion, may elect to
vest any unvested warrants referenced above based on
anticipated achievement of targeted revenue. In this
case, the price of the warrants otherwise to be determine
on April 1, 2001, will be the IOP offering price.
JOINT VENTURE Y&R and VF form a joint venture partnership (the "JV"). The JV
is a shell entity created (a) for accounting purposes, to
capture the
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revenue opportunities identified and delivered by Y&R to VF and
(b) as a communications tool to describe the new working
relationship. In the absence of creating a legal entity, Y&R
will subcontract to VF in such a way that the same economic
effect is achieved as would be in the JV structure.
JOINT VENTURE
OWNERSHIP Y&R owns 51% of the JV; VF owns 49% of the JV.
JV OPERATIONS (1) The JV will report 100% of the revenue delivered by Y&R to
VF from existing Y&R clients; or from revenue opportunities
identified and cultivated by Y&R from new clients
(collectively, the "Venture Revenues"). Venture Revenues
include all revenue-generating activities related to the Vflash
product, including advertising revenue from banner ads, hosting
fees, e-commerce commissions, revenues/commissions from link
functionality, and revenues related to set-up and production of
the client's Vflash module. Revenues generated by Y&R related
to VF services (e.g., consulting, campaign design and
management, etc.) which are serviced by Y&R employees will be
recognized within Y&R, and will not be reported by the JV.
(2) After the first 24 months of a particular client
engagement, all recurring revenues (e.g., hosting fees and
other such revenue streams where Y&R no longer plays an active
role) will be reported 100% directly to VF, and will not pass
through the JV structure.
(3) The JV will report the payment of a license fee to VF in
consideration for the services provided by VF to the Y&R
client. Such license fee will be determined on a
project-by-project basis; however, it is understood and agreed
by Y&R and VF that the target license fee for each project is
equal to 80% of revenues, and further understood that such
license fee will not exceed 90%, nor fall below 70%. To the
extent Y&R overachieves the targeted revenue amounts in any 12
month period, the license fee related to any revenues in excess
of the targeted amount will be 70%.
(4) The target EBIT margin for the JV is 20%, and Y&R and VF
agree to make best efforts to work on a mix of projects to
deliver the target EBIT margin as measured on a calendar
quarterly basis.
(5) [Tax status TBD] Y&R and VF will split the post-EBIT profit
in accordance with the JV ownership percentages.
JV
RESPONSIBILITIES (1) Y&R will control the client relationships for all
JV clients.
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(2) VF will elect whether or not to participate in each project
brought to the JV by Y&R. If VF elects not to participate, a
mutually-agreed revenue amount will be assigned to that
opportunity, and applied against the Y&R revenue target.
(3) When Y&R offers a project and VF elects to participate, the
parties will agree on a scope of work for that project, a price
to be quoted to the client and a license fee to be reported
from the JV to VF in consideration for services provided by VF
on that project. In the absence of an agreement to the
contrary, the license fee to VF will be 80% of the revenues
reported by the JV related to the project.
(4) Y&R is responsible for delivering the revenues to the JV
driven by the price set jointly by Y&R and VF AND AGREED TO BY
THE LCIENT. Any shortfalls from the client, for whatever
reason, must be cured by Y&R.
(5) Y&R is responsible for the collection of payment from the
client, and for the payment of the license fee to VF. Y&R bears
the full client credit risk.
(6) VF is responsible for delivering the services contemplated
in the scope of work, with reasonable quality in a reasonable
timeframe, in consideration of the JV license fee. VF will bare
sole responsibility for the cost of delivering those services,
except to the extent that Y&R agrees to an increase in the
license fee based on a change in client requirements or other
changes ins cope, or a mutually agreed upon change in the
client deliverable, or other cost overruns which VF identifies
and Y&R agrees to fund.
NON-EXCLUSIVITY (1) Y&R will elect to identify and deliver projects to VF at
Y&R's sole discretion. Y&R may elect to employ the services of
other companies with capabilities similar to VF.
(2) VF will elect to accept projects identified and delivered
by Y&R at VF's sole discretion. VF may elect to accept projects
from other companies with capabilities similar to Y&R.
Y&R SHAREHOLDER'S
RIGHTS For as long as Y&R holds it's investment in VF, Y&R will, at a
minimum, have observer status on the VF Board of Directors, and
be entitled to receive all communications, including financial
reviews, given to Board Members.
In the event of an IPO by VF, Y&R will have on-demand
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registration rights, either beginning 180 days subsequent to
the IPO closing date, or beginning earlier if such earlier
rights are granted to other shareholders.
For the duration of the JV, Y&R will have the right to use the
VF product and hosting for internal use and client
demonstrations at no charge; any production costs related to
particular applications would be chargeable to Y&R by VF at
standard rates.
DURATION OF JV As noted previously, there is no obligation for either Y&R or
VF to work together on projects through the JV. In the absence
of other events, the JV will last in perpetuity, but for a
minimum of two years from the date of this agreement.
REPS, WARRANTIES
& COVENANTS Customary representations, warranties, covenants, indemnities
and closing conditions for investment transactions.
CONDITIONS No further conditions need to be met for the operational
aspects of this agreement to be enforced. Satisfactory due
diligence, Y&R and VF Board approval and documentation
satisfactory to both parties will be required related to an
investment by Y&R in VF.
CLOSING The operating terms of this agreement are in effect
immediately. The investment decision and related closing will
take place as soon as possible.
TRANSACTION
EXPENSES Each party to bear its own costs and expenses in connection
with the proposed transaction.
BINDING NATURE Any investment decision is subject to financial and legal due
diligence. All other operating aspects of this agreement are
hereby considered binding by both parties, to be documented by
a binding legal contact as soon as possible.
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