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EXHIBIT 2.7
Discount Rx, Inc.
12505 Starkey Road, Suite A
Largo, FL 33773
September 13, 2000
Penner & Welsch, Inc.
10016 River Road
St. Rose, LA 70087
Gentlemen:
On behalf of Discount Rx, Inc. ("DRx"), we are pleased to provide you with
the following proposal relating to our acquisition of Penner & Welsch, Inc.
("P&W"). We are prepared to work with P&W on an exclusive basis to formulate a
bankruptcy reorganization plan (the "Plan") to purchase P&W's assets and/or
equity, without its liabilities (the "Acquisition"), to obtain the best possible
payment to P&W's creditors, while keeping P&W's customers and to the extent
possible, its employees, in continuous service. We also agree to work with you
to finalize the necessary arrangements and documentation and to execute
definitive transaction documents based on the terms, and within the time frame,
set forth below.
The following paragraphs reflect our understanding of the matters described
therein, but do not constitute a complete statement of, or a legally binding or
enforceable agreement or commitment on the part of either DRx or P&W, except as
specifically contemplated below.
The principal terms of our proposal are as follows:
1. Consideration. The purchase price will be as follows:
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a. DRx will cause its parent company, DrugMax.com, Inc., to issue
such number of shares of its common stock, $.001 par value per
share (the "Common Stock") to P&W as set forth below. The number
of shares of Common Stock to be delivered to P&W on the Closing
Date shall be calculated by dividing $750,000 by the five-day
average closing price of the Common Stock during the five trading
days preceding the Closing Date.
b. The shares of Common Stock will not be registered under the
Securities Act of 1933, as amended (the "Securities Act"), or any
state securities laws on the grounds that the issuance of the
Common Stock is exempt from registration pursuant to Section 4(2)
of the Securities Act under the Securities Act. Accordingly, P&W
agrees that it will not transfer such shares of Common Stock
unless it is in compliance with all applicable securities laws
and agrees to enter into a one year lock-up agreement.
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c. P&W will be required to make various standard representations
with regard to its investment in the Common Stock in the
definitive agreement.
2. Management Agreement. As soon as possible after the bankruptcy of P&W is
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filed, P&W shall move the Bankruptcy Court for approval to retain DRx as
its manager and agent to manage P&W's day-to-day business affairs during
the pendency of the bankruptcy case. The terms and conditions of such
management agreement (the "Management Agreement") shall be acceptable to
DRx, in its sole discretion, and shall be substantially in the form of the
Management Agreement attached hereto as Exhibit A.
3. Debtor-in-Possession Financing.
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a. Upon interim approval of the Management Agreement and of the
following financing facility by the Bankruptcy Court, DRx agrees
to provide P&W with debtor-in-possession financing upon terms to
be mutually agreed upon between the parties (the "DIP Financing
Facility"). DRx shall not be required to provide any inventory
pursuant to the DIP Financing Facility until the same is approved
by the Banrkuptcy Court. The DIP Financing Facility shall be on
such terms and conditions as are acceptable to DRx, in its sole
discretion.
b. All sums payable to DRx pursuant to the DIP Financing Facility
shall become immediately due and payable upon the earlier to
occur of the following:
i. Confirmation of a competing plan in the P&W bankruptcy
case;
ii. Acceptance by P&W of a competing offer for the assets;
iii. Proposal by P&W of a plan that contemplates a sale to
another party;
iv. Termination of the Management Agreement, provided that
if the Management Agreement is terminated without
default on the part of P&W, P&W will have thirty (30)
days in which to repay the sums due to DRx;
v. Conversion of the P&W bankruptcy to a case under
Chapter 7 of the United States Bankruptcy Code; or
vi. Appointment of a trustee or of an examiner with
expanded power in the P&W bankruptcy case;
vii. Any event of default pursuant to the terms of the loan
documents;
viii. An uncured event of default under any cash collateral
order or under any forbearance agreement approved by
the bankruptcy court;
ix. Upon the filing of a Plan by any party other than P&W,
the Manger or the Manager's affiliates;
x. Any uncured event of default by P&W under it's lease
with Greg John's Real Estate, LLC ("Realty") or a
default by Realty under its mortgage or forbearance or
related agreement with Hibernia National Bank with
respect to the property identified on Exhibit B
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attached hereto;
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xi. The incurring of indebtedness by P&W outside the
ordinary course of business or without the consent the
Company hereunder; or
xii. The dismissal of the P&W bankruptcy case for any
reason, without the written consent of the Company
hereunder.
c. In order to secure the advances to be made under the DIP
Financing Facility, P&W will grant DRx a security interest in and
to all of P&W's assets, including, without limitation, inventory,
accounts receivable, customer accounts and lists, trademarks,
patents, copyrights and other intellectual property rights,
leases, and Realty shall grant DRx a security interest in its
immovable property including all furniture, fixtures and
equipment situated thereon and all rents, revenues and profits
therefrom, and all property incorporated into the immovable
property described on Exhibit "B" hereto, which security
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interests shall be junior only to properly perfected, pre-
existing, pre-petition security interests in favor of Hibernia
National Bank. In addition to being secured the obligations of
P&W to DRx under the DIP Financing Facility shall have the
highest priority as expenses of administration pursuant to the
provisions of sections 503(b), 507(a)(1) and 364(c)(2) and (3) of
the United States Bankruptcy Code, and in any event shall be
given administrative expense priority, and no expenses of
administration of the bankruptcy case shall be granted a status
pari passu or higher or greater than that of DRx.
d. It shall be a condition to DRx's obligations to provide the DIP
Financing Facility and to enter into the Management Agreement
that (a) the Debtor, as debtor-in-possession, for itself, its
estate, its successors (including, but not limited to a Chapter 7
trustee, Chapter 11 trustee, an examiner, or receiver) and
assigns and any parties claiming by or through them and the
Official Committee of Unsecured Creditors, and all entities
claiming by or through any of them, be barred forever from
questioning or contesting the existence, validity, priority,
perfection, extent and enforceability of any of DRx's post-
petition claims or security interests and (b) the Debtor, as
debtor-in-possession, for itself, its estates, its successors
(including, but not limited to a Chapter 7 trustee, Chapter 11
trustee, an examiner, or receiver) and assigns and any parties
claiming by or through them and the Official Committee of
Unsecured Creditors be barred forever from asserting any claim or
cause of action against DRx now existing under applicable state
or federal law and whether arising pre or post petition. It shall
be a further condition to the Dip Financing Facility that all
security interests and liens granted by P&W to DRx be duly
perfected and enforceable and that the collateral related to same
not be subject to any setoff, recoupment, reclamation, defense,
claim, counterclaim or any other defense or objection of any
type, kind or nature whatsoever, other than as may be exercised
or asserted by Hibernia National Bank, and not be subject to
avoidance pursuant to applicable state and federal laws.
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4. Mutual Cooperation. As soon as reasonably practicable after the
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commencement of P&W's bankruptcy case, P&W shall pursue diligently
Bankruptcy Court approval of the Management Agreement, the DIP Financing
Facility and a Plan incorporating the Acquisition agreement, all as set
forth hereinabove. P&W and DRx shall cooperate and take any and all steps
reasonably necessary and/or appropriate in order to obtain Bankruptcy Court
approval of the foregoing. P&W shall not set off claims or demands upon DRx
during the bankruptcy case or following confirmation, but instead P&W shall
work cooperatively with DRx including but not limited to the service upon
DRx and it's counsel of all pleadings filed in the P&W bankruptcy case by
any party in interest, and P&W shall act in defense of DRx to the fullest
extent allowed by law with respect to all contractual agreements set forth
herein or as may arise and be executed in the future.
5. Structure. The parties will use their best efforts to structure the
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acquisition in the form of a tax deferred statutory merger (the "Merger")
under Section 368 of the Internal revenue code, or any other structure
reasonably requested by DRx, and to preserve all Net Operating Losses for
the benefit of DRx. The Company agrees that the purchaser may either be DRx
or an affiliate of DRx. The Acquisition shall be free and clear of any and
all liabilities, liens, claims, interests, and encumberances, except those
specifically identified and approved in writing by DRx.
6. Definitive Documents. Our offer is made subject to the execution of
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definitive documentation. The definitive documents will contain such
representations, warranties, covenants and other agreements on behalf of
P&W and its stockholders as are satisfactory to both parties in their sole
discretion, and the Closing will be subject to customary conditions,
including:
(a) the parties coming to agreement on the definitive documents;
(b) obtaining of necessary consents or approvals of government
bodies, lenders, lessors or other third parties, including any
applicable bankruptcy court approval by final order;
(c) satisfactory completion of DRx's and P&W's due diligence
investigation;
(d) delivery of customary legal opinions, closing certificates and
other documentation;
(e) the approval of the Merger by the requisite number of
stockholders of P&W as required by law; and
(f) employees of P&W entering into mutually satisfactory employment,
noncompetition and confidentiality agreements and arrangements
with DRx.
7. Conditions. The closing of the Acquisition shall occur as soon as
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practicably but in no event earlier than the first date upon which all of
the following conditions are fulfilled.
a. The Bankruptcy Court in the P&W bankruptcy proceeding renders a final,
non-appealable judgment confirming a Plan providing for the
Acquisition;
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b. All agreements and arrangements with third parties necessary to ensure
a transparent transition of P&W's customers to DRx have been executed.
8. Binding Provisions. Upon the execution of counterparts of this Letter by
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you, the following lettered paragraphs will constitute a legally binding
and enforceable agreement of DRx and P&W, in recognition of the significant
costs to be borne by DRx and P&W in pursuing this transaction and of their
mutual undertakings as to the matters described therein.
a. Access and Due Diligence. Each party will afford the other's
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employees, auditors, legal counsel and other authorized
representatives all reasonable opportunity and access during normal
business hours to inspect, investigate and audit the assets,
liabilities, contracts, operations and business of the other. This
letter is contingent upon such due diligence as the parties deem
necessary, appropriate or required. The parties will proceed as
quickly as possible to complete the necessary reviews. In the event
any party is not satisfied with any element of such due diligence,
such party may notify the other party in writing and this Letter will
terminate.
b. Consents. DRx and P&W will cooperate with one another and proceed, as
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promptly as is reasonably practicable, to seek to obtain all necessary
consents and approvals from all required third parties, and to
endeavor to comply with all other legal or contractual requirements
for or preconditions to the execution and consummation of the
definitive documents.
c. Closing. The parties agree to use their best efforts to close the
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Acquisition Agreement as quickly as commercially reasonable, but in no
event shall the Closing occur later than April 30, 2001 ("the Closing
Deadline") without the prior written consent of DRx. Should the
Acquisition Agreement fail to Close on or prior to the Closing
Deadline as may be extended from time to time, all obligations of DRx
hereunder shall cease and DRx shall have no further obligations
hereunder whatsoever, including any obligation to provide DIP
Financing, all DIP Financing shall mature and be due and payable,
without demand or notice, the same being waived, on the day following
the Closing Deadline.
d. Termination of Letter. If definitive acquisition documents are not
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signed on or before April 30, 2001, either party hereto may terminate
this Letter, and thereafter this Letter shall have no force and effect
and the parties shall have no further obligations hereunder.
e. Miscellaneous. This agreement shall be governed by and construed in
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accordance with the laws of the State of Louisiana without regard to
the conflict of laws
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provisions thereof and may be amended, modified or waived only by a
separate writing executed by each of the parties hereto.
f. Entire Agreement. This Letter of Intent contains the entire
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understanding between the parties hereto and supersedes any prior
understandings and agreements between them respecting the subject
matter hereof.
By signing below, you represent that P&W's Board of Directors has approved
the execution of this Letter, and that you agree to work together with us
exclusively until the Expiration Date (or such later date as the parties may
mutually agree) to reach definitive documents, subject to the terms and
conditions set forth in this letter. During this period, we expect both parties
to devote substantial time and resources to providing and analyzing any
information reasonably required by the other, and to finalizing documentation.
Our proposal will terminate at 5:00 (Eastern time) on September 15, 2000, if
you have not countersigned and returned a copy of this letter to us. Except as
set froth in paragraph 8 of this Letter, there is no binding agreement between
P&W and DRx.
We and our counsel are prepared to move forward immediately to finalize the
definitive terms of the transactions referred to hereinabove, and we look
forward to working with you to complete such a transaction as promptly as
possible. If you have any questions about our offer, please do not hesitate to
call me at (727) 533-0431. You may also contact our counsel, Julio C. Esquivel,
at Shumaker, Loop & Kendrick, LLP at (813) 227-2325.
Very truly yours,
Discount Rx, Inc.
By:
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Jugal Taneja, Chairman of the Board
Acknowledged and agreed to:
Penner & Welsch, Inc.
By:
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Gregory M. Johns, President
Dated: September ____, 2000
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JOINDER
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DrugMax.com, Inc., a Nevada corporation, hereby joins in this Letter of
Intent for the limited purpose of agreeing to the issuance of shares pursuant to
the provisions of Section 1.
DRUGMAX.COM, INC.
By:________________________
Jugal Taneja
Chairman of the Board
