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EXHIBIT 10.1
Irutil Co., Inc.
international rural utilities
Brigadoon House, P.O. Box EE17736, Nassau, Bahamas
Telephone (242) 364-4073 Facsimile (242) 364-4072
WWW.IRUTIL.COM
Via Courier
March 28, 2000
Valeriano B. Infante, Regional Manager, Philippines
ESI E&C Co., Inc.
#12A Veterans Village
Quezon City
Manila
Philippines 1103
Re: Letter of Intent to Purchase of Stock of a Rural Electric
Co-operatives - Cotelco ("Corporation")
Dear Mr. Infante:
Over the past several months, IRUtil Co., Inc., a Corporation
located at Standard House, Nassau, Bahamas ("IRUtil") (the
"Buyer") has worked in good faith with you and key members of the
top management team of ESI E&C Co., Inc., a Corporation located
at Brigadoon House, Nassau, Bahamas (the "Seller"), to submit an
offer to acquire ninety percent of the outstanding shares of the
Corporation.
This offer reflects our most recent discussion and our analysis
of the materials presented to us. It is intended to provide a
fair value so that the board of directors of the Corporation may
recommend this offer to the holders of the Corporation's stock
(said holders of common stock shall hereinafter be referred to as
the "Shareholders").
The purpose of this Letter of Intent is to outline the manner in
which the Buyer proposes to acquire from the Seller Ninety
Percent (90%) of the outstanding shares of the Common Stock
("Stock") of the Corporation. The parties recognize that the
transaction will require further documentation, due diligence and
approvals, including the preparation and approval of a formal
agreement setting forth the terms and conditions of the proposed
purchase ("Purchase Agreement"). Nevertheless, they execute this
letter to evidence their intention to proceed in mutual good
faith to complete work required to negotiate terms of a Purchase
Agreement that are consistent with this letter.
The proposed terms and conditions include, but are not limited
to, the following:
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Sale of Stock:
Buyer will purchase Ninety Percent (90%) of the outstanding
shares of the Corporation from Seller. This offer assumes that
the Seller's Shareholders own all of the outstanding common stock
of the Corporation and that there are no classes or series of
stock in the Corporation, nor any options, warrants, or other
rights to acquire Stock or any equity in the Corporation, other
than the Stock. It further assumes that all shareholder loans to
the Corporations will be retired at the close of this
transaction.
Purchase Price:
$14,000,000.00 (US currency) to be allocated among the
Shareholders of the Seller per their mutual agreement. Further,
Seller agrees to repay all existing Shareholder loans at the time
of the close of this transaction. The purchase price will be for
the Stock of the Corporation. It is understood by both parties
that the final purchase price to be paid shall be determined in
accordance with the methodology outlined below.
Adjustments:
This offer is based upon the "Audited Financial Statements"
with which we have been presented. It assumes that these
statements accurately depict the performance of the Corporation
for the accounting periods shown and that more detailed Financial
Statements are required. Further, it assumes that there are no
adjustments that will carry over into the ensuing fiscal periods,
which will impact the earnings and cash flow performance of the
Corporation for the next fiscal year.
(a) The cash purchase price will be adjusted ("Adjustment")
(up or down) to reflect the amount by which the "Pro Forma Market
Value" (as hereinafter defined) of the Company immediately
preceding the Closing of the purchase contemplated herein
("Closing Date") is greater or less than the Market Value as of
December 31, 1998. For purposes of the foregoing, Market Value
shall be determined in part by reference to the Corporation's
"Audited Financial Statements" dated December 31, 1998.
"Pro Forma Market Value" shall mean the Market Value of the
Corporation as of immediately before the Closing (and not giving
effect to the transactions to occur at Closing), adjusted for the
following:
* Current Assets shall be adjusted as follows:
?? Short Term Investments shall be valued at the market
price of the investment at the close of the New York
Stock exchange on the 10th business day preceding the
closing of the purchase of the Seller by the Buyer;
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?? Shall be reduced by Accounts Receivable (Travel
Advances)
?? Shall be reduced by Accounts Receivable (Employees).
* Fixed assets shall be adjusted as follows:
?? The interest of the company in any real property assets
from time to time shall be valued at book value, less
accumulated depreciation;
* Other Assets shall be adjusted as follows:
?? Short Tenn Investments shall be valued at the market
price of the investment at the close of the New York
Stock exchange on the 1 10th business day preceding the
closing of the purchase of the Seller by the Buyer;
?? AFC Not to Compete shall be fully amortized;
?? WGH Deferred compensation shall be fully amortized;
?? Reduced by Petroleum club Membership;
?? Reduced by Miscellaneous Deposits.
?? Goodwill shall be fully amortized;
* Liabilities shall be adjusted as follows:
?? Shall be increased by unrecorded liabilities.
* Retained Earnings shall be adjusted as follows:
?? The amount of any dividends or bonuses or any other
pre-tax distributions of profits declared and paid, or
promised to be paid, not reflected in the financial
statements we have in hand, for the accounting periods
ending December 31, 1998, and December 31, 1999 shall
be deducted.
Market Value as of December 31, 1998 and Pro Forma Market
Value and the Adjustment shall be determined (the
"Determination") in accordance with generally accepted accounting
principles applied on a basis consistent with those used in
connection with the Corporation's prior fiscal year financial
statements. The Determination shall be made by a the Buyer. The
Determination shall final and binding upon the parties hereto
unless within 15 days after receipt of the Determination report
either party objects ("Objector") in writing, specifying the
basis for such objection ("Dispute"). If the parties are unable
to resolve the Dispute within 15 days following receipt of the
notice of the Dispute, the Dispute will be submitted to the law
firm of Graham, Thompson Co., Shirley St. Victoria Ave. P.O.
Box N-272, Nassau, Bahamas ("Arbitrator"), whose decision as to
the Dispute will be final and binding ("Final Determination").
If the Final Determination results in a change in the
Adjustment equal to or less than $100,000, then the Objector
shall pay all of the fees and expenses of the Arbitrator. If the
Final Determination results in a change in the Adjustment greater
than $100,000, the Seller and the Buyer agree to share all of the
fees and expenses of the Arbitrator on an equal basis.
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(b) If an Adjustment is made to the purchase price in the
manner described above increasing the purchase price, the Buyer
shall deliver the additional amount within 30 days of the date
that such amount is finally determined. In the event that such
amount is not paid when due: (i) such amount shall begin bearing
interest at the rate of 1% per month; and (ii) the Buyer will
severally, on a pro rata basis, pay the costs of the Seller in
collecting such increase, including but not limited to counsel
fees and expenses. If an adjustment is made to the purchase price
in the manner described above decreasing the purchase price, the
Seller shall cause the appropriate amount to be paid to the Buyer
within 30 days of the date that such amount is finally
determined.
Closing:
The parties shall execute the Purchase Agreement and Close
the transactions contemplated herein on or before December 31,
1999, subject to the extension contemplated by the section
entitled "Exclusivity" herein.
Purchase Agreement:
The transaction will be subject to the negotiation and
execution of a definitive Purchase Agreement with terms
satisfactory to Seller and Buyer. The Purchase Agreement will
contain representations, warranties, covenants, conditions, and
indemnification provisions customary in transactions of this size
and type.
Access:
To permit Buyer to conduct its due diligence investigation,
as long as this Letter of Intent remains in effect, Seller will
cause the Corporation to permit the Buyer and its agents to have
reasonable access to the premises in which the Corporation
conducts its business and to all of its books, records, and
personnel files and will cause the Company to furnish to Buyer
such financial data, operating data, and other information as
Buyer shall reasonably request. The Buyer agrees to retain all
information so obtained from Seller or the Company on a
confidential basis. Upon the termination of this Letter of Intent
for any reason, Buyer shall return promptly to Seller all printed
information received by Buyer from Seller or the Corporation in
connection with the proposed transaction.
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Indemnification:
The Seller shall severally, on a Pro Rata Basis (hereinafter
defined), indemnify the Buyer with respect to any final
determination of a net tax liability of the Corporation for the
fiscal year immediately prior to the Closing; provided, however,
that the indemnification obligations of each Seller with respect
to any tax liability of the Corporation shall be determined pro
rata, on the basis of such Seller's percentage ownership
interest of the Corporation immediately prior to the Closing in
relation to other members of the Seller's group ("Pro Rata
Basis"); provided, further, that under no circumstances shall
such indemnification obligations exceed the purchase price.
Ordinary Course of Business:
The parties agree that the Corporation will be operated
from the date hereof through the Closing Date in the ordinary
course of its business, consistent with past practices. Without
limiting the foregoing, there shall be no change in accounting
policies applied on a consistent basis and no accruals for
payment of investment bankers or counsel fees with respect to the
transaction for the Buyer or the Seller. There shall not be any
change or restrictions placed on the payment of ordinary course
payments through the Closing Date. There shall not be any change
in the method by which bonuses or other payments are made to
officers and directors of the Corporation.
Exclusivity:
The parties agree to use their best efforts to enter into
the Purchase Agreement not later than December 31, 1999
("Exclusivity Period"). The Buyer shall have the right to request
the consent of the Seller to a thirty (30) day extension, and
such consent shall not be unreasonably withheld. The parties
agree that during such period the Buyer shall have the exclusive
right to negotiate with the Seller (and each member thereof) for
the purchase of the shares of the Corporation, and during such
period each member of the Seller agrees not to directly or
through intermediaries solicit, entertain or otherwise discuss
with any person any offers to purchase all or any portion of the
Shares or all or any portion of the assets of the Corporation or
its subsidiaries.
Covenant Not to Compete:
In the Purchase Agreement, Seller, individually or as a
group, will agree that it will not, directly or indirectly,
through a subsidiary or otherwise, compete with the Seller in its
business for a period of Two (2) years after the Closing Date.
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News Release:
Neither Seller nor Buyer will issue or approve a news
release or other announcement concerning the transaction without
the prior approval of the other(s) as to the contents of the
announcement and its release, which approval will not be
unreasonably withheld.
Contingencies:
This offer is contingent upon: (i) the completion by the
Buyer, to its satisfaction, of due diligence on the Corporation,
its markets, prospects and potential; (ii) satisfactory
completion of legal due diligence, including review of material
contracts and due diligence with respect to evaluation of
potential liabilities related to the Seller's business and tax
matters; (iii) receipt of all required approvals, consents and
authorizations of state and federal regulatory authorities; (iv)
receipt of all required consents of third parties; (v) the
occurrence of no material adverse change in the business or
prospects of the Corporation and its subsidiaries; and (vi) the
completion of satisfactory legal documentation including adequate
indemnification and representations.
None of the parties hereto shall be under any obligation to
any other party (except for the Exclusivity provisions) until a
definitive Purchase Agreement is executed.
This Letter of Intent may be executed in several
counterparts and all so executed shall constitute one letter
binding on all the parties hereto even though all the parties are
not signatories to the original or the same counterpart.
If the foregoing is acceptable to you, kindly execute a copy
of this letter in the place set forth below and return it by
courier to IRUtil Co., Inc., Standard House, Nassau, The Bahamas.
Very truly yours, ACCEPTED AND AGREED TO:
David E. Atkinson, President Valeriano B. Infante, RM,
Philippines
IRUtil Co., Inc. ESI E&C Co., Inc.
