TERM SHEET FOR REVISED TRANSACTION
NOVEMBER 10, 2000
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The following is an outline of the terms of a proposed transaction between
OrthoStrategies, Inc. (or a subsidiary thereof) ("OSI") and The Langer
Biomechanics Group, Inc. ("Langer" or the "Company"):
1. OrthoStrategies (OSI) and related investors tender offer for Langer
shares:
(A) One Dollar and Fifty Two and one-half Cents ($1.525) per
share.
(B) Offer for up to Seventy-Five Percent (75%) of the
outstanding shares of Langer.
(C) Minimum Required Tender - Fifty-One (51%) Percent of
outstanding shares.
(D) Assumes total outstanding shares does not exceed 2,613,181.
(E) Assumes the only outstanding options are as set
forth on Exhibit B.
(i) with respect to options held by the management
group - Messrs. Granat, Ardia, Altholtz and Gorney:
All in the money options will be retired on the Closing
Date of the tender by the Company's payment of the
excess of $1.525 over the exercise price. All
out of the money options will be cancelled on such
date.
(ii) All other holders of existing options may retain
them.
2. Acquisition Agreement:
(A) Langer would support and recommend the tender (subject
to the Langer Board's fiduciary duties). Langer would agree
to certain operating restrictions during the interim period until the
tender was completed (except with the approval of OSI). Langer Board
to approve and recommend (subject to their fiduciary duties) all
transactions referred to herein.
(B) Documents referred to in Paragraphs 2,3,4 and 5 would be
executed at same time as Acquisition Agreement; this is
targeted for as early as possible in November, 2000. The Acquisition
Agreement would contain a Net Worth Target ($2,200,000) and a Net
Working Capital Target ($1,700,000). When Langer October 27 financials
are available, certified by the CFO of Langer (targeted for as early
as
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possible in November, 2000), a comparison would be made to
determine if the targets were achieved. If the targets are achieved
and the Acquisition Agreements had been signed, OSI would have to
proceed with the tender offer in accordance with Paragraph 1 above. If
the targets were not met, OSI could decline to proceed with the tender
offer, or at its option, proceed with the tender offer. OSI could
also, in its discretion, elect to proceed with the tender offer
prior to availability of the October 27 financials. Once the
tender offer was sent out to the public, there would be no further
Net Worth or Net Working Capital closing condition.
(C) Acquisition Agreement would contain reps, warranties
and covenants (similar to merger agreement) but, as with merger
agreement, these would generally be closing conditions, rather than
obligations which survive the closing of the tender offer.
(D) Assuming the Acquisition Agreements are signed, and the Net
Worth and Net Working Capital targets are met with the October
27 financials, both OSI and Langer will proceed as rapidly as possible
to commence and conclude the tender offer.
3. Supervision of Langer operations during interim periods:
(A) Although the intention is to move as rapidly as
possible after the signing of the Acquisition Agreement to
commencement of the tender, if there is any interim period from the
signing of the Acquisition Agreement until commencement of the tender,
Andrew H. Meyers and Steve Ardia, the Chairman of Langer, will
coordinate so as to provide Mr. Meyers with data and information on
Langer's operations.
(B) Simultaneously with the commencement of the tender,
Mr. Meyers will become Acting President and CEO of Langer, with full
CEO powers to operate Langer, subject only to the Board of Directors.
(C) Andrew H. Meyers would be appointed as an "Observer" to
the Board on the commencement of the tender offer, with the right to
attend and participate in all meetings and receive all notices and
reports, but not to vote, and would be excluded from deliberations
specific to the transactions with OSI or Andrew H. Meyers.
(D) During the period Andrew H. Meyers is acting President
and CEO, he will not receive a salary but will receive
reimbursement of approved expenses.
(E) CEO appointment effective during the interim period
from commencement of tender offer until the tender is completed or
abandoned.
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(F) Board to approve employment/compensation arrangements for
Andrew H. Meyers and Steven Goldstein to be effective on Closing Date,
with compensation packages approximating current executive
compensation arrangements.
4. The Shareholder Group set forth on Exhibit A agrees:
(A) to lockup their shares until abandonment of tender.
(B) to tender their shares to OSI in the tender offer.
(C) to sell their shares to at same $1.525 price to OSI even
if tender is superceded by competing offer.
(D) Ken Granat, Tom Altholtz and Steve Ardia would agree to
resign from the Board upon completion of tender. Andrew H. Meyers and
three other designees of OSI will be appointed to the Langer Board
effective on completion of tender.
(E) Following completion of the tender, Langer will continue
to maintain Director's and Officer's liability insurance comparable
to that currently in effect.
5. To enable OSI to increase the capital of Langer, Langer grants OSI the
option to purchase up to 1,400,000 shares. The option term is one hundred eighty
(180) days after the Closing Date. The option exercise price per share will vary
depending on when after the Closing Date the option is exercised:
0-90 days $1.525
91-120 days $1.550
121-150 days $1.575
151-180 days $1.600
The tender offer statement and related disclosure documents may disclose that:
the option may or may not be exercised; Langer may need additional financing and
subject to then current Board approval, such financing may be provided by OSI or
related investors upon other terms, including funding provided by convertible
notes, preferred stock or other methods; and the sales prices, conversion prices
or exercise prices of such securities may be lower or higher than the option
exercise price or then current market prices.
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6. Coverage of Expenses:
(A) In the event the tender offer closes, OSI and Langer
shall each bear their own transaction expenses. It is estimated that
Langer's expenses shall be $125,000.
(B) In the event that Langer fails to meet Net Worth/Net
Working Capital Targets and OSI declines to proceed, Langer to pay
OSI's reasonable expenses up to a maximum of $75,000; if OSI proceeds
with tender, this obligation (B) would no longer apply.
(C) In the event that OSI has met all closing conditions
and Langer breaches acquisition or related agreements and therefor
OSI declines to proceed, Langer to pay OSI's reasonable expenses.
(D) In the event the tender offer by OSI is not completed
due to a higher competing offer, Langer to pay OSI's reasonable
expenses.
(E) In the event Langer has met all closing conditions and OSI
breaches the acquisition or related agreements, OSI will pay
Langer's reasonable expenses up to a maximum of $100,000, which shall
be personally guaranteed by Andrew H. Meyers.
7. Certain Compensation Programs.
(A) The bonus program for Messrs. Gorney, Spinelli and Archibald
as set forth in Section 1(b)(iv) of the LOI will continue to apply if
the tender offer closes, but with the original Target Net Worth and
Target Net Working Capital in the LOI.
(B) It is contemplated that Langer will have a pool of up to
$25,000 for purposes of compensating certain directors for their
active role in negotiating the acquisition contemplated hereby.
8. Certain Binding Provisions.
(A) Neither Langer, nor any officer or director of Langer, 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
Langer or any of its assets or capital stock or any merger, consolidation,
reorganization, recapitalization or tender offer involving Langer, from, with or
to any person or entity, whether or not affiliated with Langer, until the
occurrence of the Outside Termination Date (as defined below). The "OUTSIDE
TERMINATION DATE" shall be deemed to occur on 11:59 p.m., EST, December 1, 2000.
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In the event that the Outside Termination Date occurs, and a
definitive Acquisition Agreement has not been entered into, then either Langer
or OSI may terminate their obligations under Paragraphs 8(A) and 8(B) on written
notice, and upon such termination, OSI, Purchaser and their affiliates, on the
one hand, and Langer and its affiliates, on the other hand, shall have no
further obligations to each other (except that Paragraphs 8(C), and 8(D) shall
survive the termination of this agreement).
(B) Access to Information. Subject to the confidentiality requirements
of Paragraphs 8(C) and 8(D), Langer 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 Langer's business, to the
facilities, assets and all books and records, contracts and other relevant
information pertaining to Langer and its businesses, and to the personnel of the
Langer and the accountants of Langer.
(C) Confidentiality. Section 3(a) of the Letter of Intent dated
September 14, 2000 shall remain in effect and is incorporated by reference
herein.
(D) 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 Paragraph 8(D), OSI acknowledges and agrees
that Langer may be required to disclose in a public announcement and to file
with the Securities and Exchange Commission the terms and conditions of this
term sheet and of the Acquisition 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,
Langer and OSI shall issue a mutually approved press release.
9. Effect of Term Sheet.
It is expressly understood that this term sheet is merely an
expression of intent and neither party hereto shall have any obligation to the
other (except as set forth in Paragraph 8 hereof which shall be binding
obligations of the parties hereto), until such time as, and as provided in a
definitive Acquisition Agreement, agreeable both as to form and substance to
each party, has been executed and delivered. This term sheet shall not create
rights or confer any benefit on third parties. This term sheet shall supersede
and replace all discussions, term sheets, proposals and letters between the
parties with respect to the acquisition of Langer by OSI, including, without
limitation, the Letter of Intent dated September 14, 2000 (other than Section
3(a) thereof). Neither OSI, nor Purchaser, nor Langer may assign any rights or
obligations under this term sheet.
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ACCEPTED AND AGREED:
THE LANGER BIOMECHANICS GROUP, INC.
By: /s/ Stephen V. Ardia
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Stephen V. Ardia
Chairman of the Board
ORTHOSTRATEGIES, INC.
By: /s/ Andrew H. Meyers
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Andrew H. Meyers
President
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Schedule A
Certain Shareholders and Shares Owned by Them
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PER PROXY DIRECTOR
SHARES OWNED SHARES TOTAL
---------------- ------------- ----------
Ken Granat 730,353 (1) 7,000 737,353(1)
Steve Ardia 66,333 7,000 73,333
Dr. Justin Wernick 224,867 224,867
Dan Gorney 20,000 20,000
Tom Altholtz 44,500 7,000 51,500
Donald Cecil 248,553 248,553
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1,334,606 21,000 1,355,606
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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 Langer by Ken Granat.
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Schedule B
Outstanding Options and Warrants
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Grant Number Exercise Expiration
Date of Shares Price Date
---------- ----------- ---------- -----------
Ken Granat 10/02/97 25,000 1.875 10/02/02
11/30/98 20,000 1.125 11/30/08
Steve Ardia 11/30/98 75,000 1.125 11/30/08
Tom Altholtz 11/30/98 5,000 1.125 11/30/08
Dan Gorney 11/30/98 75,000 1.125 11/30/08
05/18/99 25,000 1.5 05/18/09
Tom Archbold 06/14/99 25,000 1.5 06/14/09
Steve Kamalic 07/03/00 5,000 1.56 07/03/10
Ron Spinelli 10/01/99 20,000 2 10/01/09
Barbara Pirrone 06/19/96 3,000 2.1875 06/19/01
06/19/96 3,000 2.1875 06/19/02
Steve Berman 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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