March 6, 2000
Excellular Incorporated
Covault Corporation
c/o Larry Bailey, Esq.
Preston Gates & Ellis
701 5th Avenue, Suite 5000
Seattle, Washington 98104-7016
Gentlemen:
This letter, when executed by Excellular Incorporated ("EXCELLULAR") and
Covault Corporation ("COVAULT", and collectively with Excellular, the
"COMPANIES"), will evidence (i) our mutual intent, as set forth in Section I of
this letter, with respect to the (a) proposed acquisition by PalmWorks, Inc., or
a wholly owned subsidiary of PalmWorks (individually or collectively,
"PALMWORKS"), of all of the capital stock of PDA Data, a corporation, to be
formed in Nevada by the Companies ("PDA DATA"); and (b) the entry of certain
service agreements between the Companies, PDA Data and PalmWorks (collectively,
the "TRANSACTIONS"); and (ii) certain binding agreements, as set forth in
Section II of this letter, relating to the proposed Transactions.
The matters set forth in Section I of this letter constitute an expression
of our mutual intent only and are contingent on the negotiation, execution and
delivery of definitive agreements (the "DEFINITIVE AGREEMENTS") between
PalmWorks and the Companies. This letter does not create any obligations of
PalmWorks or the Companies with respect to those matters set forth in Section I
hereof. However, the matters set forth in Section II of this letter constitute
binding agreements between PalmWorks and the Companies.
SECTION I.
PROPOSED ACQUISITION
1. DEFINITIVE AGREEMENTS. The Companies and PalmWorks will use their best
efforts to execute and deliver the Definitive Agreements with respect to the
Transactions on or before March 31, 2000. Pursuant to the terms and conditions
of the Definitive Agreements:
(a) The Companies will create PDA Data, a Nevada corporation, as their
wholly owned subsidiary, and will capitalize PDA Data with the following
(collectively, the "INITIAL ASSETS").
(i) $100,000;
March 6, 2000
Page 7
(ii) A non-exclusive license to use Covault's Revenue Billing System
software (the "SOFTWARE"), at no cost, pursuant to the underlying licensing
Agreement between PDA Data and Covault (the "LICENSING AGREEMENT").
(iii) A copy of the Covault's internet website (the "WEBSITE") and
non-exclusive license to modify the site for PalmWorks needs.
(iv) A maximum of 500 hours of customization of the Software and
Website, including but not limited to design, development and administrative
work provided by Covault. Such 500 hours of customization will be completed
within three (3) months after agreement of design specifications provided that:
(a) Additional customization performed by Covault must be
approved in writing in advance by PDA Data, and such additional customization
will be billed to and paid by PDA Data at the rate of $250.00 per hour.
(b) Additional customization performed by outside contractors
will be paid directly by PDA Data and subject to such terms and conditions as
negotiated by PDA Data.
(v) A service agreement with Excellular (the "SERVICES AGREEMENT")
pursuant to which Excellular will provide PDA Data with the following:
(a) The right to "co-locate" its internet servers and computers
in a space not to exceed fifty (50) square feet within the premises currently
owned or leased by Excellular (the "PREMISES"). PDA Data shall pay the cost of
moving and setting up said servers and computers on the Premises or at any
future location of Excellular and all telecommunication charges related to said
servers and computers.
(b) Use of its staff during regular business hours including, but
not limited to, customer service personnel for up to 100 hours per month of
customer sales, service and technical support via Excellular's phone system with
the option of purchasing additional customer support at an agreed upon rate. In
the event PDA Data establishes 800 toll-free lines for service and support, the
cost of same shall be paid by PDA Data.
(c) Assistance in setting up the administration, acquisition and
resale of wholesale CDPD data time purchased from CDPD data providers;
(vi) PDA Data will provide billing and collection services to
PalmWorks; and
(vii) PDA Data will pay Excellular $1.00 per month for each PalmWorks
customer account serviced (for billing and associated customer accounting
purposes) by PDA Data.
March 6, 2000
Page 3
The Services Agreement will have an initial term of three (3) years
from the Closing Date (defined below) and will automatically be renewed for
additional one year periods if neither party provides written notice of intent
to terminate the Services Agreement at least 180 days prior to the third
anniversary, or subsequent anniversaries, of the Closing Date. That Ron Curtin
of Excellular will assume the position of Chief Operating Officer of PDA Data
for the term of the Services Agreement. That Darin Lang of Covault will assume
the position of Chief Technology Officer of PDA Data for the term of the
Services Agreement.
(b) On the Closing Date, the owners of PDA Data stock will transfer, convey
and assign all of the issued and outstanding shares of the capital stock of PDA
Data to PalmWorks in exchange for 400,000 shares of the common stock of
PalmWorks (the "COMPANY SHARES"). The Company Shares will be issued pursuant to
Rule 144 and will be subject to the rules and regulations of the Securities and
Exchange Commission and will have piggyback registration rights relative to
other shares of PalmWorks. The Definitive Agreements will also include customary
covenants requiring PalmWorks to make and keep public information available, as
those terms are defined in Rule 144 and file with the Securities and Exchange
Commission in a timely manner all reports and other documents required under the
Securities Act of 1933 and the Exchange Act of 1934.
(c) On the Closing Date, PDA Data will (i) own all of the Initial Assets
free and clear of all liens, claims and encumbrances; and (ii) have no debts,
obligations or liabilities to any person or entity, including the Companies.
Upon consummation of the Transactions, PalmWorks will acquire good and
marketable title to the capital stock of PDA Data free and clear of all
mortgages, liens, security interests and other encumbrances, and the Companies
will acquire title to the Excellular Shares free and clear of all mortgages,
liens, security interests and other encumbrances other than securities law
restrictions. The Transactions will close on or before March 31, 2000 (the
"CLOSING DATE").
2. INDEMNIFICATION. The Companies will indemnify PDA Data and PalmWorks
from and against any and all claims, demands, actions, and causes of action
involving indebtedness, liabilities, or obligations of the Companies, existing
at anytime whatsoever and of PDA Data existing as of the Closing Date, and from
any claims relating to the rights of PDA Data and PalmWorks to use the Software.
3. REPRESENTATIONS AND WARRANTIES. PalmWorks and the Companies will each
make representations and warranties, indemnities and covenants in the Definitive
Agreement that are typical for transactions of similar size and complexity.
4. CERTAIN CONDITIONS. It is recognized that the proposed Transactions will
be subject to certain conditions, including (i) the conditions set forth in
paragraphs (a) through (c), inclusive, which are conditions to the obligations
of all parties; and (ii) the conditions set forth in paragraphs (d) through (f),
inclusive, which are conditions to the obligations of PalmWorks.
March 6, 2000
Page 4
(a) BOARD AND SHAREHOLDER APPROVAL. The proposed Transactions shall have
been approved by the Boards of Directors of PalmWorks and of the Companies.
(b) GOVERNMENTAL AND THIRD PARTY APPROVALS. Favorable orders, consents and
approvals in the form required to consummate the proposed Transactions,
including but not limited to those required under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, shall have been received (if required) from
necessary governmental agencies and third parties.
(c) ABSENCE OF LITIGATION. At the Closing Date there shall not be (i) any
effective injunction, writ, or temporary restraining order or any other order of
any nature issued by a court or governmental agency of competent jurisdiction
directing that the proposed Transactions not be consummated; or (ii) any action,
suit, or proceeding pending or threatened by or before any court or governmental
body in which it is or may be sought to prohibit, substantially delay, or
rescind the proposed Transactions, or to limit in any way PalmWorks' right to
control PDA Data or any aspect of its business, or to obtain an award of damages
in connection with the Transactions.
(d) ADVERSE CHANGES. There will have been no changes after January 1, 2000
in the businesses of the Companies or the Software which, in the sole judgment
of PalmWorks, are in their total effect, materially adverse to the terms and
conditions of this transaction.
(e) DUE DILIGENCE. The due diligence conducted by PalmWorks and its legal
counsel in connection with the proposed Transactions will not have caused
PalmWorks to become aware of any facts relating to the business, liabilities,
financial condition, opportunities, results of operations, or affairs of the
Companies or the Software which, in the sole judgment of PalmWorks, make it
inadvisable for PalmWorks to proceed with the proposed Transactions.
(f) NON-COMPETITION AGREEMENT. PalmWorks recognizes that the shareholders
and officers of PDA Data are engaged in other businesses, including Covault
Corporation, Snydeo Systems, Inc., and Excellular Incorporated, which may
compete with its current or future business opportunities. Said PDA Data
shareholders and officers, and PalmWorks will have entered into a
non-competition agreement satisfactory to PalmWorks in its sole judgment
pursuant to which each of their shareholders and officers will agree that,
without the prior written consent of PalmWorks, they will not, for a period of
five (5) years after the Closing Date use the information or products developed
in connection with this agreement in competition with consumer handheld wireless
data business being conducted by PalmWorks or PDA Data.
5. CONTINUING OPERATIONS. Prior to the consummation of the proposed
Transactions, the Companies will conduct their businesses with respect to the
Software in a prudent, businesslike manner, use their best efforts to preserve
the goodwill of all persons dealing with respect to the Software for PalmWorks,
cooperate fully with PalmWorks so as to arrange for the transfer of PDA Data to
PalmWorks in an orderly fashion, take all actions and make all filings which are
March 6, 2000
Page 5
reasonably necessary to lawfully transfer PDA Data to PalmWorks, and take all
reasonable actions to obtain consents to assign and transfer PDA Data to
PalmWorks.
SECTION II.
BINDING AGREEMENTS
1. NECESSARY INFORMATION. Upon request by PalmWorks, the Companies will
promptly furnish all information regarding the Companies and the Software which,
in the reasonable judgment of PalmWorks, is necessary to enable PalmWorks to
conduct its due diligence relating to the proposed Transactions. Each of the
parties hereto shall furnish to the other all information concerning such party
(including financial statements and statistical information) required for
inclusion in any application or statement to be filed or made by the other party
with or to any governmental agency or third party in connection with the
proposed Transactions.
2. CONFIDENTIALITY. The Companies and PalmWorks will each maintain the
confidentiality of, and will not disclose to any third party (other than to
their respective employees, accountants, attorneys and other consultants
providing services with respect to the proposed Transactions) (i) any
proprietary or confidential information of any nature whatsoever provided by any
party hereto (collectively, the "CONFIDENTIAL INFORMATION"); or (ii) the
existence of their negotiations or the terms or potential terms of any
negotiations or potential Transactions without the other party's prior written
consent. Any party may, however, disclose any Confidential Information to the
extent (i) such information is, or becomes part of, the public domain other than
by reason of disclosure by the receiving party; (ii) such information is or
becomes available from a third party source with the right to disclose such
information; and/or (iii) disclosure of such information is required by
applicable law.
Each of the parties acknowledge and agree that (i) the covenants set forth
in this Section II.2 are essential elements of the Transactions and that such
covenants are reasonable and necessary to protect the legitimate interests of
the parties hereto; (ii) no party hereto will have any adequate remedy at law if
another party violates the terms hereof or fails to perform any of its
obligations hereunder; and (iii) the non-violating party shall have the right to
obtain preliminary and permanent injunctive relief from any court of competent
jurisdiction to restrain any breach or threatened breach of, or to otherwise
specifically enforce any such covenant or any other obligations of the violating
party under this Agreement, as well as to obtain damages and an equitable
accounting of all earnings, profits and other benefits arising from such
violation, which rights shall be cumulative and in addition to any other rights
or remedies to which the non-violating party may be entitled. The violating
party further agrees to pay any costs, including attorneys' fees, incurred by
the non-violating party in enforcing this provision as awarded by a court of
competent jurisdiction.
3. PUBLIC ANNOUNCEMENTS. Neither the parties nor any of their respective
officers, directors, employees or agents shall disclose to any third party or
publicly announce the proposed Transactions until that time to which the parties
March 6, 2000
Page 6
agree in the Definitive Agreements or such other time as the parties otherwise
agree to make such disclosure or announcement, unless otherwise required by law
or the rules of any stock exchange on which the shares of PalmWorks trade. The
Companies acknowledge that PalmWorks is authorized to issue a press release
regarding the agreements contained herein following the execution of this letter
by the Companies and PalmWorks. Any public announcement concerning the proposed
Transactions shall be approved in advance by both parties.
4. EXPENSES. Except as otherwise provided in this letter, PalmWorks and the
Companies shall each pay its own fees and expenses incurred in connection with
the proposed Transactions. PalmWorks and the Companies will split the costs of
any filings required to obtain governmental approval of the proposed
Transactions.
5. EXCLUSIVE NEGOTIATIONS. From the date hereof through the Closing Date,
the Companies will not, and will use reasonable efforts to insure that their
respective parent, subsidiaries, affiliates or representatives do not, directly
or indirectly, solicit any offer from, initiate or engage in any discussions or
negotiations with, or provide any information to, any corporation, limited
liability company, partnership, person, or other entity or group (other than
PalmWorks and its subsidiaries, affiliates and representatives) concerning any
possible proposal regarding a sale of capital stock of PDA Data or a merger,
consolidation, liquidation, business combination, sale of assets, or other
similar transaction involving PDA Data or the sale or licensing of the Software
to any competitor. In addition, the Companies will not, and will use reasonable
efforts to insure that their respective parent, subsidiaries, affiliates or
representatives do not, engage in any communications whatsoever, directly or
indirectly, with any party that initiates discussions regarding a potential
transaction of the character described in the preceding sentence except for
communications that are wholly unrelated to such a potential transaction or to
notify such party that the Companies will not engage in any communications at
such time. The Companies shall promptly advise PalmWorks orally and in writing
of any inquiry or proposal by a third party regarding such a transaction.
6. NO BREAKUP FEE. Neither the Companies nor PalmWorks will be subject to
any "breakup" fee.
7. BROKERS. None of the parties hereto has employed a broker, nor for any
reason will any of them subject another to the payment of a brokerage
commission, in connection with the proposed Transactions. PalmWorks may retain
an investment banker in connection with the proposed Transactions, in which
event PalmWorks will be responsible for the payment of its fees and expenses.
8. NONBINDING NATURE OF SECTION I. It is understood by the parties hereto
that Section I of this letter merely constitutes a statement of the mutual
intentions of the parties with respect to the proposed Transactions and does not
contain all matters upon which agreement must be reached in order for the
proposed Transactions to be consummated. A binding commitment with respect to
March 6, 2000
Page 7
the proposed Transactions will result only from execution and delivery of the
Definitive Agreements. The provisions of Section II of this letter, however, are
agreed to be fully binding on the parties hereto upon the execution of this
letter, unless and until such provisions are superseded by the Definitive
Agreements.
9. TERMINATION. Except for the respective obligations of the parties under
paragraphs 2, 3, 4 and 7 of this Section II (and without prejudice to the
nonbinding nature of Section I hereof), this letter shall terminate and be of no
further force or effect on the Closing Date if a Definitive Agreement has not
been executed by that date.
10. GOVERNING LAW. This letter of intent, and the Definitive Agreement, and
each document related thereto if such is entered into, shall be governed by
Texas law.
If the foregoing correctly sets forth the understanding between us with
respect to the proposed Transactions outlined herein, please sign two copies of
this letter in the space provided below and return one executed copy to the
undersigned. This letter shall be withdrawn and shall be of no further force or
effect if not executed by the Companies and returned to PalmWorks by 5:00 p.m.
Central Standard Time on March 8, 2000.
Very truly yours,
PALMWORKS, INC.
ACCEPTED AND AGREED TO: By: /s/ James T. Voss
-------------------------------------
this 8th day of March, 2000
EXCELLULAR INCORPORATED
By: /s/ Jack E. Nichols
-----------------------------------------
Name: Jack E. Nichols
---------------------------------------
Title: President
--------------------------------------
COVAULT Corporation
-------------------------------------
By: /s/ Jack E. Nichols
-----------------------------------------
Name: Jack E. Nichols
---------------------------------------
Title:
--------------------------------------