SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
RecordLab Corporation
(f/k/a Midisoft Corporation)
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(Name of Issuer)
Common Stock, no par value per share
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(Title of Class of Securities)
597413-10-3
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(CUSIP Number)
Walter H. Barandiaran
405 Lexington Avenue, 54th floor, New York, New York 10174
Telephone: (212) 949-6262
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(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications)
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February 1, 2000
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(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Section 240.13d-1(e), 240.13d-1(f) or 240.13d- 1(g), check
the following box |_|.
NOTE: Schedules filed in paper format shall include a signed original and five
copies of the schedule, including all exhibits. See Rule 240.13d-7 for other
parties to whom copies are sent.
* The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required in the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934, as amended (the "Act") or otherwise subject to the liabilities of that
section of the Act but shall be subject to all other provisions of the Act
(however, see the Notes).
Page 1 of 11 Pages
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CUSIP N0.: 597413-10-3 Page 2 of 11 Pages
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1) NAME OF REPORTING PERSON
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (entities only)
The Argentum Group
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2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) |_|
(b) |X|
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3) SEC Use Only
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4) SOURCE OF FUNDS WC
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5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS
REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) |_|
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6) CITIZENSHIP OR PLACE OF ORGANIZATION Delaware
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NUMBER OF 7) SOLE VOTING POWER 3,750,000*
SHARES -----------------------------------------------------
BENEFICIALLY 8) SHARED VOTING POWER 0
OWNED BY -----------------------------------------------------
EACH 9) SOLE DISPOSITIVE POWER 3,750,000*
REPORTING -----------------------------------------------------
PERSON WITH 10) SHARED DISPOSITIVE POWER 0
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11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH
REPORTING PERSON 3,750,000*
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12) CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11)
EXCLUDES CERTAIN SHARES |_|
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13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 18.6%*
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14) TYPE OF REPORTING PERSON PN
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* Beneficial ownership of 3,750,000 shares of common stock reported hereunder is
being reported solely as a result of an Option granted pursuant to the Letter of
Intent described in Item 4 hereof. The Argentum Group expressly disclaims
beneficial ownership of such shares. See Item 5 hereof.
<PAGE>
CUSIP NO.: 597413-10-3 Page 3 of 11 Pages
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1) NAME OF REPORTING PERSON
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (entities only)
Argentum Capital Partners II, L.P.
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2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) |_|
(b) |X|
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3) SEC Use Only
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4) SOURCE OF FUNDS WC
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5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS
REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) |_|
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6) CITIZENSHIP OR PLACE OF ORGANIZATION Delaware
- --------------------------------------------------------------------------------
NUMBER OF 7) SOLE VOTING POWER 3,750,000*
SHARES -----------------------------------------------------
BENEFICIALLY 8) SHARED VOTING POWER 0
OWNED BY -----------------------------------------------------
EACH 9) SOLE DISPOSITIVE POWER 3,750,000*
REPORTING -----------------------------------------------------
PERSON WITH 10) SHARED DISPOSITIVE POWER 0
- --------------------------------------------------------------------------------
11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH
REPORTING PERSON 3,750,000*
- --------------------------------------------------------------------------------
12) CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES |_|
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13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 18.6%*
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14) TYPE OF REPORTING PERSON PN
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* Beneficial ownership of 3,750,000 shares of common stock reported hereunder is
being reported solely as a result of an Option granted pursuant to the Letter of
Intent described in Item 4 hereof. Argentum Capital Partners II, L.P. expressly
disclaims beneficial ownership of such shares. See Item 5 hereof.
<PAGE>
ITEM 1. SECURITY AND ISSUER
This Schedule 13D relates to the beneficial ownership of the common
stock, no par value per share (the "Common Stock"), of recordLab Corporation
(f/k/a Midisoft Corporation), a Washington corporation (the "Issuer"). The
principal executive offices of the Issuer are located at 1605 NW Sammamish Road,
Suite 205, Issaquah, Washington 98027.
ITEM 2. IDENTITY AND BACKGROUND
This Schedule 13D is filed on behalf of The Argentum Group, a
Delaware general partnership ("AG"), and Argentum Capital Partners II, L.P., a
Delaware limited partnership ("ACP II"). (AG and ACP II are together referred to
herein as the "Filing Parties").
The general partner of ACP II is Argentum Partners II, LLC, a
Delaware limited liability company ("AP II"). Argentum Investments, LLC, a
Delaware limited liability company ("AI"), is the managing member of AP II. Each
of Walter H. Barandiaran ("Barandiaran") and Daniel Raynor ("Raynor") is a
managing member of AI. The general partners of AG are Walter H. Barandiaran,
Inc., a Delaware corporation ("WHB"), Daniel Raynor, Inc., a Delaware
corporation ("DR"), and Argentum Partners LP, a Delaware limited partnership
("AP"). Barandiaran is the sole stockholder of WHB. Raynor is the sole
stockholder of DR. Each of WHB and DR is a general partner of AP. Barandiaran is
the sole executive officer and director of WHB. Raynor is the sole executive
officer and director of DR. Barandiaran is a citizen of Peru. Raynor is a United
States citizen. (AP II, AI, WHB, DR, AP, Barandiaran and Raynor are collectively
referred to as the "Related Parties").
The Filing Parties and the Related Parties maintain their principal
offices at 405 Lexington Avenue, 54th floor, New York, New York 10174. The
principal business of each of the Filing Parties and Related Parties is venture
capital and private equity investment. ACP II is a registered small business
investment corporation.
None of the Filing Parties, and, to the best of the Filing Parties'
knowledge, none of the Related Parties has, during the last five years, been (i)
convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors), or (ii) been a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and, as a result of such
proceeding, was or is subject to a judgment, decree or final order enjoining
future violations of, or
Page 4 of 11 Pages
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prohibiting or mandating activities subject to, federal or state securities laws
or finding any violation with respect to such laws.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
If the Option (as defined in Item 4 below) were exercised, it is
expected that all of the funds to be invested by either of the Filing Parties in
the Issuer would be obtained from capital contributions made by their respective
partners, and/or, in the case of ACP II, which is a registered Small Business
Investment Corporation, from funds loaned to or invested in ACP II by or on
behalf of the Small Business Administration to finance qualifying investments
made by ACP II generally.
ITEM 4. PURPOSE OF TRANSACTION
AG and the Issuer have executed a Letter of Intent (the "Letter of
Intent"), amended as of January 27, 2000, and February 1, 2000, relating to the
proposed investment (the "Investment") by the Filing Parties and/or their
managed funds and affiliates of 6,000 shares of Class A Convertible Preferred
Stock ("Preferred Stock") of the Issuer and warrants ("Warrants" and together
with the Preferred Stock, the "Securities") to purchase 750,000 shares of Common
Stock of the Issuer (at an exercise price of $4.00 per share) for an aggregate
purchase price of $6,000,000, subject to decrease and to increase as set forth
therein.
Pursuant to the Letter of Intent, the Issuer granted to the Filing
Parties an option (the "Option") to purchase from 4,000 to 6,000 shares of
Preferred Stock and from 500,000 to 750,000 Warrants for an aggregate purchase
price for such Preferred Stock and Warrants of from $4 million to $6 million at
any time ending on the later to occur of February 18, 2000 or five days after
approval of the Investment by the Issuer's stockholders, if required; provided,
that if the Option is initially exercised for $4 million or more but less than
$6 million, the Filing Parties shall have the additional option to purchase the
balance of such shares of Preferred Stock and Warrants up to an aggregate of $6
million at any time ending on the later to occur of February 28, 2000 or five
days after approval of the Investment by the Issuer's stockholders, if required.
If the Filing Parties were to exercise the Option, the Warrants would be
exercisable at any time thereafter for a period of five years, and the Preferred
Stock would be convertible (initially at a conversion price of $2 per share), at
the holder's option, at any time prior to any redemption thereof and,
mandatorily, upon certain specified events.
Page 5 of 11 Pages
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The Filing Parties intend to hold any Securities that they may
purchase pursuant to the Option for investment. One or more of the Filing
Parties or Related Parties may, in the future, acquire or dispose of additional
Securities, but do not presently intend to do so. This intention may change
depending upon market conditions or other circumstances.
Except as described below, none of the Filing Parties or Related
Parties has any present plans or proposals that relate to or would result in
transactions of the kind described in paragraphs (a) through (j) of Item 4 of
Rule 13D-101 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). In the future, however, each of the Filing Parties and Related
Parties reserves the right to adopt such plans or proposals, subject to
applicable regulatory requirements, if any.
The Letter of Intent sets forth certain terms and conditions of the
Preferred Stock and Warrants, and provides the Filing Parties with certain
rights, as holders of the Preferred Stock and Warrants, that may, upon exercise
of the Option, relate to certain of the matters described in paragraphs (a)
through (j) of Item 4 of Rule 13D-101 under the Exchange Act. The exercise of
the Option would effect a material change in the Issuer's capitalization and a
corresponding change in the Issuer's charter. Set forth below is a summary of
certain provisions of the Letter of Intent that may relate to one or more of
such matters. The following summary is qualified in entirety by reference to the
full text of Exhibit A to the Letter of Intent, which Letter of Intent is
attached as an Exhibit to this Schedule 13D, and which is incorporated into this
Item in entirety by this reference.
(i) In the event of a merger, sale (of substantially all stock
or assets) or liquidation of the Issuer, the holders of the Preferred Stock will
receive in preference to the holders of the Common Stock and other preferred
stock of the Issuer the Liquidation Preference specified therein.
(ii) The holders of the Preferred Stock will vote separately
as a class on all matters which affect the rights, value or ranking of the
Preferred Stock; otherwise they will vote together with the holders of the
Common Stock on an as-converted basis. The affirmative vote of the Preferred
Stock (or the approval of the Director elected by the holders of the Preferred
Stock) will be required in connection with certain fundamental changes in the
Issuer's business, ownership or capital structure (such as mergers and
acquisitions).
Page 6 of 11 Pages
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(iii) The holders of the Preferred Stock, voting separately as
a class, are entitled to elect one member of the Issuer's Board of Directors out
of a maximum of seven directors, and would thus effect a change in the Board of
Directors of the Issuer at such time. The Issuer's Board is required to
establish an Audit Committee and a Compensation Committee, each consisting
entirely of independent directors and including the director elected by the
Preferred Stock.
(iv) "Full ratchet" protection will, subject to certain
exceptions, be applied to the Conversion Price (as defined) of the Preferred
Stock if the Issuer issues or sells shares of Common Stock or securities
convertible/exercisable into Common Stock and the issue price or
conversion/exercise price is less than the then effective Conversion Price or
trading market value of the Common Stock. "Full ratchet" protection will also be
applied to both the exercise price and number of shares underlying the Warrants.
(v) In the event that the Company offers any of its equity
securities or securities convertible or exercisable into Common Stock while
shares of the Preferred Stock are outstanding, the Filing Parties will have
certain preemptive rights set forth therein. The Filing Parties will also be
afforded, among other things, tag-along rights and registration rights. Certain
restrictions on the sale of shares by management and significant shareholders of
the Issuer will be imposed.
(vi) Negative covenants will include provisions, that without
the approval of the holders of two-thirds of the Preferred Stock then
outstanding, the Issuer may not, among other things, (a)issue any shares of
preferred stock that are pari passu or senior to the Preferred Stock, (b) pay
any dividends or distributions with respect to the Common Stock, (c) incur any
indebtedness with equity features or in excess of $3,000,000 (except
indebtedness without equity features incurred with a bank or other commercial
lender in the ordinary course of business), (d) acquire or dispose of any assets
with a value in excess of $1,000,000, except in the ordinary course of business,
(e) offer itself for sale or enter into a merger where the Company is not the
surviving entity, (f) enter into any transaction with related parties or (g)
change its primary business.
(vii) The Company will agree to seek to list the Common Stock
on Nasdaq within six months after Closing, and take all necessary steps to amend
its Articles of Incorporation to increase its authorized shares of Common Stock
from 25,000,000 to 50,000,000 within three months after Closing.
Page 7 of 11 Pages
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ITEM 5. INTEREST IN SECURITIES OF THE ISSUER
(a) (i) As of the date of this Schedule, each of the Filing Parties
may be deemed, upon exercise of the Option, to beneficially own the number of
Securities of the Issuer described below:
1. ACP II may be deemed to be the beneficial owner of
from 4,000 to 6,000 shares of Issuer's Preferred Stock, which, upon exercise of
the Option, would be convertible into 2,000,000 to 3,000,000 shares of Issuer's
Common Stock, subject to certain anti-dilution protections, and Warrants to
purchase 500,000 to 750,000 shares of Issuer's Common Stock, subject to certain
anti-dilution protections. By virtue thereof, and subject to the assumptions
described below, ACP II may be deemed to beneficially own up to a total of
3,750,000 shares, or 18.6%, of Issuer's Common Stock.
2. AG may be deemed to be the beneficial owner of 4,000
to 6,000 shares of Issuer's Preferred Stock, which, upon exercise of the Option,
would be convertible into 2,000,000 to 3,000,000 shares of Issuer's Common
Stock, subject to certain anti-dilution protections, and Warrants to purchase
500,000 to 750,000 shares of Issuer's Common Stock, subject to certain
anti-dilution protections. By virtue thereof, and subject to the assumptions
described below, ACP II may be deemed to beneficially own up to a total of
3,750,000 shares, or 18.6%, of Issuer's Common Stock.
The above percentages are computed assuming the exercise of the
Option in full, the exercise of all Warrants acquired thereby and the conversion
of all Preferred Stock acquired thereby by the Filing Parties but no exercise of
warrants or options or conversion of any convertible security by any other
person.
(ii) As of the date of this Schedule, each of the other
persons named in Item 2 other than the Filing Parties may be deemed to
beneficially own the number of Securities of the Issuer described below:
1. By reason of its status as general partner of ACP II,
AP II may be deemed to be the indirect beneficial owner of the shares of Common
Stock beneficially owned by ACP II. By reason of its status as managing member
of AP II, AI may be deemed to be the indirect beneficial owner of the shares of
Common Stock beneficially owned by ACP II. By reason of their respective status
as managing members of AI, each of
Page 8 of 11 Pages
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Barandiaran and Raynor may also be deemed to be the indirect beneficial owner of
the shares owned by ACP II.
2. By reason of their status as general partners of AG,
WHB, DR and AP may be deemed to be the indirect beneficial owners of the shares
of Common Stock beneficially owned by AG. By reason of their status as general
partners of AP, each of WHB and DR may be deemed to be the indirect beneficial
owner of the shares of Common Stock beneficially owned by AG. By reason of his
status as sole stockholder, officer and director of WHB, Barandiaran may be
deemed to be indirect beneficial owner of the shares of Common Stock
beneficially owned by AG. By reason of his status as sole stockholder, officer
and director of DR, Raynor may be deemed to be indirect beneficial owner of the
shares of Common Stock beneficially owned by AG.
(iii) Each of the Filing Parties disclaims beneficial
ownership of all shares of Issuer's Common Stock and Preferred Stock and the
Warrants described herein. The Filing Parties understand that each of the
Related Parties disclaims beneficial ownership of all shares of Issuer's Common
Stock and Preferred Stock and the Warrants described herein.
Each of the Filing Parties disclaims the existence of a "group"
among any or all of them and further disclaims the existence of a "group" among
any or all of them and any or all of the Related Parties, in each case within
the meaning of Section 13(d)(3) of the Exchange Act.
(b) (i) ACP II would have sole voting and dispositive power with
respect to the 3,750,000 shares of Common Stock it may be deemed to beneficially
own. By reason of its status as general partner of ACP II, AP II may be deemed
to share the power to vote and dispose of the shares of Common Stock
beneficially owned by ACP II. By reason of its status as managing member of AP
II, AI may be deemed to share the power to vote and dispose of the shares of
Common Stock beneficially owned by ACP II. By reason of their respective status
as managing members of AI, each of Barandiaran and Raynor may also be deemed to
share the power to vote and dispose of the shares owned by ACP II.
(ii) AG would have sole voting and dispositive power with
respect to the 3,750,000 shares of Common Stock it may be deemed to beneficially
own. By reason of their status as general partners of AG, WHB, DR, and AP may be
deemed to share the power to vote and dispose of the shares of Common Stock
beneficially owned by AG. By reason of his status as sole stockholder, officer
and director of WHB, Barandiaran may be deemed to share the power to vote and
dispose of the shares of
Page 9 of 11 Pages
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Common Stock beneficially owned by AG. By reason of his status as sole
stockholder, officer and director of DR, Raynor may be deemed to share the power
to vote and dispose of the shares of Common Stock beneficially owned by AG.
(c) None.
(d) Not applicable.
(e) Not applicable.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIP WITH RESPECT TO
SECURITIES OF THE ISSUER
Pursuant to the Letter of Intent, the Filing Parties have certain
rights to require registration of the shares of Common Stock issuable upon
conversion of the Preferred Stock subject to the Option. Such rights pertain to
two "demand registrations" of Common Stock and unlimited "piggyback"
registration rights, subject to underwriters cutbacks, at the Issuer's expense.
In addition, the Letter of Intent provides that the shares of Common Stock
issuable upon exercise of the Warrants will have the right to participate in any
"piggyback" registration of the shares of Common Stock underlying the Preferred
Stock. The Letter of Intent makes reference to certain finder's fees that
pertain to the contemplated Investment.
As summarized in Item 4 above, Exhibit A to the Letter of Intent
sets forth certain other terms and conditions of the Preferred Stock and
Warrants that are intended to provide the Filing Parties with certain rights and
protections, as holders of the Preferred Stock and Warrants, with respect, among
other things, to the transfer and voting of the Securities. The summary thereof
set forth in Item 5 is incorporated in this Item 6 by this reference, and such
summary is qualified in entirety by reference to the full text of the Letter of
Intent and Exhibit A thereto, which Letter of Intent is attached as an Exhibit
to this Schedule 13D, and which is incorporated into this Item in entirety by
this reference.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS
Exhibit A. Agreement with respect to joint filing of Schedule 13D
dated January 28, 2000.
Exhibit B. Letter of Intent between the Issuer and the Filing
Parties, as amended.
Page 10 of 11 Pages
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Signature
After reasonable inquiry and to the best of my knowledge and belief,
I certify that the information set forth in this statement is true, complete and
correct.
Dated: February 3, 2000
THE ARGENTUM GROUP
By: WALTER H. BARANDIARAN, INC.,
a General Partner
By: /s/ Walter H. Barandiaran
-------------------------------------
Walter H. Barandiaran,
President
ARGENTUM CAPITAL PARTNERS II, L.P.
By: ARGENTUM PARTNERS II, LLC,
General Partner
By: ARGENTUM INVESTMENTS LLC,
Managing Member
By: /s/ Walter H. Barandiaran
-------------------------------------
Walter H. Barandiaran,
Managing Member
Page 11 of 11 Pages
EXHIBIT A
AGREEMENT
The undersigned agree as follows:
1. Each of them is individually eligible to use the Schedule 13D to which
this Agreement is attached, and such Schedule 13D is filed on behalf of each of
them;
2. Each of them is responsible for the timely filing of such Schedule 13D
and any amendments thereto, and for the completeness and accuracy of the
information concerning such person contained therein; but none of them is
responsible for the completeness or accuracy of the information concerning the
other persons making the filing, unless such person knows or has reason to
believe that such information is inaccurate;
3. Such Schedule 13D identifies each such person, contains the required
information with regard to such person and indicates that it is filed on behalf
of all such persons; and
4. The execution and delivery of this Agreement does and shall not
constitute an admission by the undersigned that they constitute a "group" for
the purposes of Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended, and the undersigned hereby disclaim such status.
Dated: January 28, 2000
THE ARGENTUM GROUP
By: WALTER H. BARANDIARAN, INC.,
a General Partner
By: /s/ Walter H. Barandiaran
-------------------------------------
Walter H. Barandiaran,
President
ARGENTUM CAPITAL PARTNERS II, L.P.
By: ARGENTUM PARTNERS II, LLC,
General Partner
By: ARGENTUM INVESTMENTS LLC,
Managing Member
By: /s/ Walter H. Barandiaran
-------------------------------------
Walter H. Barandiaran,
Managing Member
EXHIBIT B
December 3, 1999
Mr. Larry Foster
President and CEO
recordLab Corp.
1605 NW Sammamish Rd. Ste. 205
Issaquah, WA 98027
Dear Larry:
This letter sets forth the general terms on which managed funds and
affiliates of The Argentum Group ("Argentum") including Argentum Capital
Partners II, L.P. (the "Investors"), intend to purchase certain securities (the
"Securities") of recordLab Corp. f/k/a Midisoft Corp. (the "Company") with a
total face value equal to $6,000,000 (the "Investment"), on the following
general terms, conditions and qualifications. The Company and the Investors may
mutually agree to increase the amount of the Investment to up to $10,000,000.
1. The Investors shall purchase (the "Purchase") and the Company shall issue
and sell 6,000 shares (or a proportionately greater number if the amount
of the Investment is greater than $6,000,000) of Class A Convertible
Preferred Stock (the "Class A Preferred Stock") and detachable warrants to
purchase 600,000 (or a proportionately greater number if the amount of the
Investment is greater than $6,000,000) shares of Common Stock (the
"Warrants"), which shall have the terms set forth in EXHIBIT A attached
hereto.
2. The Investment shall be for a total of $6,000,000, payable in cash to the
Company upon the closing of the purchase of the Class A Preferred Stock
and Warrants (the "Closing").
3. Closing. The Closing is expected to occur on or about January 31, 2000.
Due diligence shall be completed by January 15, 2000.
4. Use of Proceeds. The Company shall use the net proceeds from the
Investment for sales and marketing, web site development, software
development, and working capital and general corporate purposes.
5. Conditions to Closing. The Closing shall be subject to the following
conditions, any of which may be waived by the Investors at their sole
discretion:
<PAGE>
Mr. Larry Foster
recordLab Corp.
December 3, 1999
Page 2
(a) receipt of all information reasonably requested by the Investors and
the satisfactory completion by the Investors and their accountants,
attorneys and other representatives of a due diligence review of the
Company covering its business, including all operational, financial,
intellectual property, strategic relationships, SEC, and other
areas;
(b) a copy of the Company's then current business plan reasonably
estimating revenues of not less than $10.8 million and an operating
loss of not greater than $7.3 million for the fiscal year ended
December 31, 2000, shall have been received by and reviewed to the
satisfaction of the Investors. The Company shall represent in the
Definitive Documents that the estimates contained in the business
plan have been prepared in good faith and represent the Company's
reasonable best estimate of the matters set forth therein as of the
date of the Closing; provided, however, that the Company makes no
representation or warranty that any of the goals or projections of
the business plan will be achieved;
(c) receipt of Board approval and any shareholder approvals necessary to
consummate the Investment;
(d) the investment committees of each of the investing funds shall have
approved the investment;
(e) key employees (to be determined by the Company and acceptable to
Argentum) shall have entered into employment/non-compete agreements
with the Company that are acceptable to the Investors and all
employees shall have entered into confidentiality/intellectual
property agreements with the Company that are acceptable to the
Investors;
(f) the negotiation and execution of definitive documents, including a
Stock Purchase Agreement, the Certificate of Designation setting
forth the terms of the Class A Preferred Stock, the Registration
Rights Agreement, and the Shareholders' Agreement (together, the
"Definitive Documents"), each in form and substance satisfactory to
the Investors and the Company; and
(g) the absence of any material adverse change in the business,
operations, financial condition, or prospects of the Company.
6. Reasonable Access. The Company shall provide the Investors and their
accountants, attorneys and other representatives having a need to know:
(i) reasonable access during normal business hours to its offices,
facilities, properties and business records; and (ii) such financial and
operating data and other information as reasonably requested by the
Investors.
7. Costs and Expenses. The Company shall be responsible for and shall bear
all expenses directly and necessarily incurred in connection with the
proposed financing if the transaction contemplated hereby is completed (or
is not completed as a result of bad faith on the part of the Company),
including, but not limited to all legal fees and out-of-pocket expenses of
the Investors' counsel (up to a maximum of $50,000) and the Investors'
out-of-pocket expenses
<PAGE>
Mr. Larry Foster
recordLab Corp.
December 3, 1999
Page 3
(up to a maximum of $10,000) (together, the "Costs and Expenses"). The
Costs and Expenses shall be payable by the Company at the Closing, or, if
the sale of the Securities contemplated by this letter is not consummated,
as a result of bad faith on the part of the Company, the Costs and
Expenses shall be payable by the Company within ninety (90) days of the
termination of this letter or the discussions of the proposed Investment.
8. Option to Invest. At any time during the period ending on the later of (i)
January 31, 2000 or (ii) 5 days after receipt of shareholder approval of
the Investment, if necessary (the "Option Period"), at the sole option of
the Investors and upon notice to the Company, the Investors shall have the
right to purchase, and the Company shall have the obligation to sell,
6,000 shares of Class A Preferred Stock with an aggregate purchase price
of $6,000,000 with Warrants to purchase 600,000 shares of Common Stock.
Any such investment in the Class A Preferred Stock with Warrants shall be
on the terms and conditions set forth herein and in the attached Exhibit A
or on other terms and conditions no less favorable to the Investors than
such terms and conditions as provided herein and in the attached Exhibit
A. Without limiting the foregoing, at the sole option of the Investors and
upon notice to the Company, the Investors shall have the right to purchase
during the Option Period, in lieu of the Investment, and the Company shall
have the obligation to sell, equity securities of the Company (or
securities having equity features) purchased or negotiated to be purchased
by any other party during the Option Period on the same terms and price
per unit or share as such other party, with an aggregate purchase price of
up to $6,000,000 as Argentum shall elect.
9. Indemnification. If, for any reason whatsoever, the sale of any of the
Securities contemplated by this letter is not consummated, The Argentum
Group and its officers, employees, directors and affiliates
("Indemnities") shall not be liable or responsible for any expense of the
Company, for any charges, claims or damages of any kind or nature
whatsoever arising out of this letter or the proposed financing or failure
to proceed therewith or otherwise, and the Company ("Indemnitors") shall
upon demand, indemnify The Argentum Group and its officers, employees,
directors, and affiliates against any and all claims, losses or damages
arising out of any such events, except as stated above, and reimburse such
indemnified parties immediately upon request for all costs incurred by
such indemnified party.
10. Representations. The Company represents (i) that initiation and/or
consummation of the financing contemplated herein will not conflict with
or result in a breach of any of the terms, provisions or conditions of any
agreements, written or otherwise, to which the Company is a party, (ii)
that there are no claims for services in the nature of a broker's,
finder's, or placement fee with respect to the proposed financing other
than a consulting fee payable to J.E. Capital, Inc. and the negotiated
agency fee payable to Daiwa Securities America Inc., which fee shall not
exceed cash equal to 3.5% of the amount of the Investment and warrants
equal to 1.5% of the amount of the Investment, and (iii) that the
Investment will not require shareholder approval.
11. Governing Law. This letter of intent and any claim related directly or
indirectly hereto shall be governed by and construed in accordance with
the laws of the State of New York, without regard to the conflict of laws
or principles thereof.
<PAGE>
Mr. Larry Foster
recordLab Corp.
December 3, 1999
Page 4
This letter shall serve as an indication of our mutual intentions in
connection with the proposed financings stated herein and shall not bind either
party, except with respect to the undertakings set forth to in paragraphs 6, 7,
8, 9, 10, and 11. The Company and the Investors specifically agree that the
obligations established in paragraphs 7, 8, 9, 10, and 11 will survive any
mutual termination of this letter or the discussions of the proposed Investment,
whether or not a purchase and sale of any of the Securities is completed not to
exceed nine months from the date the Company executes this letter. Please affix
your signature in the place designated and by doing so, you will confirm that
the foregoing correctly sets forth our understanding.
Very truly yours,
THE ARGENTUM GROUP,
By: /s/ Walther H. Barandiaran
------------------------------
Walter H. Barandiaran
President of a General Partner
Accepted and Agreed, this 8th day of December 1999
By: recordLab Corp.
/s/ Larry Foster
Larry Foster
President and CEO
<PAGE>
EXHIBIT A
recordLab Corp.
Terms of the Class A Preferred Stock
Amount: 6,000 shares of Class A Convertible Preferred Stock (the
"Class A Preferred Stock"), each at $1,000 per share,
for a total purchase price of $6,000,000 (which share
and purchase price amounts may be increased to up to
$10,000,000 by the mutual agreement of the Company and
the Investors, at an initial fully-diluted pre-deal
valuation of the Company of $56.6 million, provided that
in no event will the conversion price per share of
Common Stock be greater than $2.50.
Dividends: None.
Liquidation Preference: In the event of a merger, sale (of substantially all
stock or assets) or liquidation of the Company, the
holders of the Class A Preferred Stock shall receive in
preference to the holders of the Company's Common Stock
and other preferred stock of the Company, an amount (the
"Liquidation Preference") equal to the greater of (i)
$1,000 per share of Class A Preferred Stock plus any
dividends declared but not paid or (ii) the amount the
holders of Class A Preferred Stock would have received
had they converted the Class A Preferred Stock into
common Stock immediately prior to the liquidation event.
Rank: Senior in every respect to all current and future issues
of capital stock and preferred stock. Without the
approval of at least two-thirds of the Class A Preferred
Stock, the Company may not issue any shares of capital
stock or preferred stock that is senior or equal in any
respect to the Class A Preferred Stock.
Conversion Rate/Price: Subject to anti-dilution and other adjustments, and
prior to any Redemption, each one share of Class A
Preferred Stock shall be convertible, at the option of
the holder, at any time into shares of Common Stock at a
Conversion Price per share of Common Stock calculated
based on a fully-diluted pre-deal valuation of the
Company of $56.6 million, provided that in no event will
the conversion price per share of Common Stock be
greater than $2.50.
Mandatory Conversion: The Class A Preferred Stock shall be automatically
converted into Common Stock at the then effective
Conversion Rate/Price upon the earlier to occur of
(i) the completion of an underwritten public offering
of the Company's shares of Common Stock which
results in gross proceeds to the Company of at
least $25 million and is offered at a price per
share equal to at least 350% of the Conversion
Price then in effect (a "Qualified Offering"), and
prior to or simultaneous with such Qualified
Offering the shares of Common Stock to be issued
upon the conversion of the Class A Preferred Stock
have been registered under the Securities Act and
may be freely sold by the holders of such shares
under the Securities Act or, if not so registered,
all such shares of Common Stock must be eligible
to be sold by the holders pursuant to Rule 144(k)
promulgated under the Securities Act or
(ii) the Company's Common Stock (A) trades above 350%
of the then-effective
A-1
<PAGE>
Conversion Price for sixty (60) consecutive
trading days on any nationally recognized stock
exchange or NASDAQ and (B) the average weekly
trading volume of the Company's Common Stock
during such period is equal to or greater than
1,000,000 shares of Common Stock, with such period
occurring after the shares of Common Stock to be
issued upon the conversion of the Class A
Preferred Stock have been registered under the
Securities Act and may be freely sold by the
holders of such shares under the Securities Act
or, if not so registered, all such shares of
Common Stock must be eligible to be sold by the
holders pursuant to Rule 144(k) promulgated under
the Securities Act.
Voting Rights: Holders of the Class A Preferred Stock shall vote
separately as a class on all matters which impact the
rights, value or ranking of the Class A Preferred Stock;
otherwise they shall vote together with the common
holders on an as-converted basis. An affirmative vote of
the Class A Preferred Stock (or the approval of the
Class A Preferred Stock Director) shall be required in
connection with certain fundamental changes in the
Company's business, ownership or capital structure (such
as mergers, acquisitions).
Board of Directors: The holders of the Class A Preferred Stock, voting
separately as a class, shall be entitled to elect one
(1) member to the Company's Board of Directors out of a
maximum of seven (7) directors and to have Board
visitation rights. The Board shall establish an Audit
Committee and a Compensation Committee, both of which
shall consist entirely of independent directors and
shall include the Class A Preferred Stock director.
Dilution Protection: Full ratchet protection shall be applied to the
Conversion Price if the Company issues or sells shares
of Common Stock or securities convertible/exercisable
into Common Stock and the issue price or
conversion/exercise price is less than the
then-effective Conversion Price or the then-effective
trading market value of the Common Stock . Dilution
protection shall not apply to shares of Common Stock
issued upon the exercise of options and warrants
outstanding as of the Closing or to be granted to
employees or consultants under the Company's Stock
Option Plans with an exercise price not less than fair
market value or to guarantors (unaffiliated with the
Company) of the Company's line of credit.
Registration Rights: The Investors shall have two (2) Demand Registration
Rights exercisable beginning one (1) year after the
Closing and unlimited Piggyback Rights subject to
underwriters cutbacks, all at the Company's expense.
Representations Usual and customary for a transaction of this nature.
and Warranties:
Preemptive Rights: In the event that the Company offers any of its equity
securities or securities convertible/exercisable into
Common Stock while shares of the Class A Preferred Stock
are outstanding (an "Equity Offering"), the Investors
shall have the right to purchase a number of securities
in such Equity Offering (at the price and on the terms
applicable to such Equity Offering), so as to maintain
their then existing ownership interest in the Company,
assuming that all of the shares of Class A Preferred
Stock then outstanding were converted into Common Stock
immediately prior to the consummation of such Equity
Offering. These Pre-Emptive Rights shall not apply to
the issuance of any shares of Common Stock pursuant to a
Qualified
A-2
<PAGE>
Offering or to bona-fide Employee Stock Option Plans of
the Company.
Shareholders' Usual and customary for a financing of this nature,
Agreement: including tag-along rights, preemptive rights as set
forth herein, and restrictions on the sale of shares by
management and significant shareholders (such
restrictions and "significant shareholders" to be
defined and such restructions to be acceptable to
management and significant shareholders) before the
shares of Common Stock to be issued upon the conversion
of the Class A Preferred Stock have been registered
under the Securities Act and may be freely sold by the
holders of such shares under the Securities Act or, if
not so registered, all such shares of Common Stock are
eligible to be sold by the holders pursuant to Rule
144(k) promulgated under the Securities Act.
Covenants: (i) The Company shall provide usual and customary
negative covenants for a financing of this nature,
including: so long as the Class A Preferred Stock
remains outstanding, without the approval of the
holders of a two-thirds majority of the shares of
the Class A Preferred Stock then outstanding, the
Company shall not: (A) issue any shares of
Preferred Stock that are pari-passu or senior to
the Class A Preferred Stock; (B) pay any Common
Stock dividends or make any distribution with
respect to the Common Stock; (C) incur any
indebtedness with equity features or in excess of
$3,000,000 (except indebtedness [without equity
features] incurred with a bank or other commercial
lending institution in the ordinary course of
business); (D) acquire or dispose of any assets
with a value in excess of $1,000,000, except in
the ordinary course of business; (E) offer itself
for sale or enter into a merger where the Company
is not the surviving entity; (F) enter into any
transaction with related parties; or (G) change
its primary business;
(ii) The Company shall provide usual and customary
information covenants; and
(iii) The Company shall covenant (A) that it shall seek
to list its share of Common Stock on NASDAQ within
six (6) months of the Closing and (B) it shall
take all steps necessary to amend its Articles of
Incorporation to increase the authorized shares of
Common Stock from 25,000,000 to 50,000,000 within
three (3) months of the Closing.
SBA Matters: Prior to the closing and on an ongoing basis, the
Company will use reasonable efforts to complete any
forms and provide any information required by the Small
Business Administration in connection with the financing
provided by Argentum Capital Partners II, L.P.
A-3
<PAGE>
Terms of the Warrants
Warrants: Warrants to purchase 600,000 shares of Common Stock of
the Company, or a proportionately greater number of
shares if the amount of the Investment is greater than
$6,000,000.
Exercise Price: An amount equal to the initial Conversion Price of the
Class A Preferred plus $0.50 per share, subject to
anti-dilution protection and ordinary adjustments.
Expiration: Five (5) years.
Voting Rights: None until exercised.
Anti-dilution Full ratchet applied to both the exercise price and
Protection: number of warrant shares.
Registration Rights: Shares of Common Stock issuable upon exercise of the
Warrants will participate in the unlimited piggyback
registration rights held by the Class A Preferred Stock.
Other Features: Cashless exercise at the option of the holders.
#####
A-4
<PAGE>
January 13, 2000*
Mr. Larry Foster
President and CEO
recordLab Corp.
1605 NW Sammamish Rd. Ste. 205
Issaquah, WA 98027
Dear Larry:
This letter will serve to amend the letter of intent entered into between
The Argentum Group and recordLab Corp. dated December 3, 1999 and accepted on
December 8, 1999, as follows:
(i) Clause (i) of the first sentence of paragraph 8 ("Option to Invest")
is amended to replace January 31, 2000 with February 18, 2000; and
(ii) The second sentence of paragraph 3 ("Closing") is amended to replace
January 15, 2000 with February 18, 2000.
Please affix your signature in the place designated and by doing so, you
will confirm that the foregoing correctly sets forth our understanding.
Very truly yours,
THE ARGENTUM GROUP,
By: Walter H. Barandiaran
------------------------------
Walter H. Barandiaran
President of a General Partner
Accepted and Agreed, this 18th* day of January 2000
By: recordLab Corp.
/s/ Larry Foster
------------------------------
Larry Foster
President and CEO
* Handwritten amendments initialled January 27, 2000
<PAGE>
Argentum
- --------------------------------------------------------------------------------
February 1, 2000
Mr. Larry Foster
President
RecordLab.com
1605 NW Sammamish Road, Suite 205
Issaquah, WA 98027
Dear Larry:
This letter will serve to definitively set the terms of the Investor's
option to invest and will also amend the letter of intent entered into between
The Argentum Group and recordLab Corp., dated December 3, 1999 and accepted on
December 8, 1999, as previously amended by our letter finally acknowledged on
January 27, 2000, as follows:
The first option to invest set forth in paragraph 8 is amended to be (i)
an option to purchase (and an obligation to sell) on or before February 18, 2000
(or, if later, 5 days after receipt of shareholder approval if necessary) for an
amount between $4 million and $6 million (as the Investors shall elect) a pro
rated number of shares of Class A Preferred Stock and a pro rated number of
Warrants on the terms referenced in that paragraph, as amended below, and (ii)
if that option is exercised for $4 million or more but less than $6 million, an
additional option to purchase (and an obligation to sell) on or before February
28, 2000 (or, if later, 5 days after receipt of shareholder approval if
necessary), the balance of such shares and Warrants up to an aggregate of $6
million.
The terms of the Investment contemplated in the letter of intent and,
therefore, the terms of the options referenced above, are modified to reflect
(a) a conversion price of $2 per share, rather than $2.50 per share (thus, an
investment of $6 million would purchase preferred stock initially convertible
into 3 million shares of Common Stock), (b) an aggregate maximum number of
shares (corresponding to a $6 million investment) to be purchasable on exercise
of Warrants of 750,000 rather than 600,000, and (c) an exercise price of $4 per
option-share rather than $3.
Please affix your signature in the place designated and by doing so, you
will confirm that the foregoing correctly sets forth our understanding.
Sincerely,
/s/ Walter H. Barandiaran
Walter H. Barandiaran
Accepted and Agreed:
RecordLab.com
/s/ Larry Foster
- -----------------------
Larry Foster, President
February 1, 2000
- ----------------
Date
