UPGRADE INTERNATIONAL CORPORATION
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December 11, 2000
Mr. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
President
Rockster, Inc.
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▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Re: Rockster, Inc. ("Rockster")
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Dear ▇▇. ▇▇▇▇▇▇▇▇▇:
This letter sets forth the general terms and conditions of a binding
agreement ("Letter Agreement") by and between Upgrade International Corporation,
a Washington corporation ("UPGRADE") and Rockster, Inc., a California
corporation ("Rockster"), with respect to the purchase from Rockster by UPGRADE
of fifty-seven percent (57%) of the outstanding common stock of Rockster (the
"Acquisition"). Specifically, we have agreed as follows:
1. Ownership. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ is presently the majority shareholder of
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Rockster (the "Shareholder") and the authorized capital stock of Rockster is
presently 10,000,000 shares, no par value (the "Shares"). Other than as set
forth on Schedule A hereto, there are no outstanding options, warrants or rights
to purchase the Shares. Other than as disclosed on Schedule A hereto, the
Shareholder is not aware of any agreements or commitments with respect to the
disposition of any of the Shares or any proxy, voting trust or other agreement
relating to the voting of the Shares.
2. Acquisition Consideration. In the Acquisition, UPGRADE agrees to
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purchase directly from Rockster that number of shares that will result in an
ownership interest of fifty-seven percent (57%) of the outstanding common stock
of Rockster for an aggregate purchase price of Five Million Dollars
($5,000,000), in a series of stock purchases to be completed as set forth in
Schedule B hereto, which Schedule is incorporated herein by this reference. The
shares intended to be acquired as herein provided shall be issued by Rockster,
in proportion to the actual monies received in each instance, upon receipt of
such monies as set forth in Schedule B in such number as shall be equal to the
quotient of the actual monies delivered to Rockster divided by $5,000,000.
3. Closing. The closing ("Closing") of the transactions contemplated by
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this Letter Agreement will occur on January 31, 2001 (the "Closing Date") or
such other date as is mutually agreed to by UPGRADE, Rockster and the
Shareholder.
UPGRADE INTERNATIONAL CORPORATION
Mr. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
December 7, 2000
Page 2
4. Operating Budget. Attached hereto is a preliminary operating budget
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of Rockster as of_______, 2000. Rockster shall submit a final operating budget
(the "Budget") to UPGRADE as soon as it is available, and UPGRADE's approval of
the Budget will be a condition to closing the transactions outlined in this
Letter Agreement.
5. Covenants. Between the date of this Letter Agreement and the
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Closing Date (or the earlier termination of this Letter Agreement), Rockster
will continue to conduct its respective operations only in the ordinary and
usual course, consistent with past practices and will notify UPGRADE of any
material adverse developments. Specifically and without limitation, Rockster
will not, without the prior written consent of UPGRADE, declare or pay any
dividend or distribution on its capital stock; issue or commit to using any
additional shares of capital stock or other securities, incur additional debt in
excess of $25,000, materially increase any compensation of any officer, director
or related party thereto; sell, pledge or dispose of any assets except in the
ordinary course of business; or make any significant decisions affecting
operations, such as, but not limited to, decisions relating to settlement of
signaficant claims, capital expenditures and wage increases. Rockster will use
its best efforts to preserve and keep intact the business organization, keep
available the services of key employees and preserve the good will of the
customers, suppliers, creditors or others having business relationships with
Rockster.
6. Access to Information. UPGRADE and its authorized representatives
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will, upon reasonable request and during normal business hours, have full access
to the properties, assets, management, books and records of Rockster. Rockster
will authorize its accountants to cooperate with UPGRADE and its representatives
as they may reasonably request, including review of work papers. If the
examination of the books and records identifies any matter that has or may have
a material adverse effect on the financial condition of Rockster, UPGRADE may
terminate this Letter Agreement without further obligation.
7. Securities - Trading. Rockster hereby agrees that between the date
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of this Letter Agreement and the Closing Date (or the earlier termination of
this Letter Agreement), Rockster will refrain, and will use its best efforts to
cause Rockster's and Rockster's officers, directors, shareholders and affiliates
to refrain, from any securities trading activities with respect to the
securities of UPGRADE.
8. Corporate Approval. Rockster represents and warrants that this
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Letter approval will receive concurrent approval form its Board of Directors.
9. Definitive Agreement. The parties acknowledge that the
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transactions contemplated by this Letter Agreement will be reflected in a more
detailed stock purchase agreement and related documents (the "Definitive
Agreement"). The parties agree to negotiate in good faith to establish mutually
UPGRADE INTERNATIONAL CORPORATION
Mr. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
December 7, 2000
Page 3
acceptable terms and provisions of the Definitive Agreement which are not
inconsistent with the terms of this Letter Agreement.
10. Representations and Warranties. The Definitive Agreement will
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contain representations, warranties, covenants and indemnifications of the type
generally found in transactions of this type, including representations and
warranties of each of Rockster and the Shareholder with respect to, among other
matters, corporate authority and capitalization, accuracy of financial
statements, contracts and the absence of defaults thereunder, title to and
condition of assets, absence of undisclosed liabilities, compliance with laws,
payment of taxes, employee benefits, litigation and claims, and required
approvals. The Definitive Agreement will also have a covenant to the effect that
UPGRADE will be given a seat on the Rockster Board of Directors once the
Definitive Agreement is consummated.
11. Conditions to Closing. The Definitive Agreement will include the
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following conditions precedent to the obligations of the parties: (i) obtaining
any necessary consents and approvals of governmental agencies and regulatory
boards; (ii) the absence of pending litigation regarding the transactions
contemplated hereby; (iii) the absence of any major changes in business,
properties, financial condition or prospects of Rockster from the date of this
Letter Agreement. In addition, UPGRADE shall be satisfied with the results of
its due diligence investigation of Rockster and shall have approved the Budget.
12. Confidentiality. It is understood and agreed any non-public
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information received by any party hereto as a result of discussions and
investigations, by this Letter Agreement or otherwise received prior to the
Closing Date, will be kept confidential by the recipient and will be used only
for the purposes of evaluating the transaction contemplated herein. The parties
may make disclosure information available to attorneys, accountants and
advisors, provided such parties agree to be bound by the terms of this
paragraph. In the event this Letter Agreement is terminated, any non-public
information received by any party shall be returned to the party providing such
information.
13. Exclusive Dealing. From the date of acceptance of this Letter
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Agreement until the execution of the Definitive Agreement (or the earlier
termination of this Letter Agreement), the Shareholder and Rockster will not,
nor will any of them permit any officers, directors, employees, or other
advisors or representatives to (i) solicit, initiate, or encourage submission of
any proposal to purchase capital stock (including the Shares), or any of
Rockster's assets; (ii) enter into any agreement with respect to any such
proposal; or (iii) participate in any discussions or negotiations regarding or
furnishing any information to any person with respect to taking any other
actions to facilitate inquiries for the making of any proposal that may be
reasonably expected to lead to any such proposal.
14. Consents. Promptly following execution of this Letter Agreement,
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the parties will cooperate with one another to proceed as promptly as is
UPGRADE INTERNATIONAL CORPORATION
Mr. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
December 7, 2000
Page 4
reasonably practical to seek and obtain all necessary consents and approvals and
to endeavor to comply with all other legal and other requirements and
preconditions to the execution of the Definitive Agreement and the consummation
of the transactions contemplated hereby.
15. Public Disclosure. Prior to the Closing Date, none of the parties
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will make any public release of information regarding any matters contemplated
herein, except for mutually agreed upon press releases issued by UPGRADE after
each of (i) the execution of this Letter Agreement, (ii) the execution of the
Definitive Agreement; (iii) the Closing Date, and (iv) as otherwise required by
law.
16. Fees and Expenses. The parties agree that each will bear and pay
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all costs and expenses incurred by them in this transaction and all
investigations and proceedings in connection therewith including, without
limitation, fees and expenses with respect to legal counsel, accountants and
investment advisors.
17. Termination: Survival. This Letter Agreement shall expire
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automatically upon the earlier to occur of (i) the execution and delivery by the
parties of the Definitive Agreement; or (ii) January 15, 2001. It is understood
and agreed that the provisions of Sections 12, 16 and 18 hereof will survive any
termination or expiration of this Letter Agreement.
18. Governing Law. This Letter Agreement and the Definitive Agreement
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will be governed by and construed in accordance with the laws of the State of
California.
19. Post-Closing Matters: Public Offering. Following the closing of the
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Definitive Agreement, it is acknowledged and agreed that the day-to-day
operations of Rockster shall continue to be conducted by the current officers
and employees of Rockster, and Rockster shall be responsible for the continuing
development of its technology and for the execution of its business plan;
subject, however, to such periodic reports to UPGRADE as are agreed upon by
Rockster and UPGRADE. UPGRADE, Rockster and the Shareholder contemplate
preparing and entering into a Shareholder's Agreement setting forth the officers
and directors of Rockster, requiring supermajority voting on material matters
affecting the business of Rockster (e.g., issuance of additional capital stock,
purchase and sale of all or substantially all of the assets of Rockster, persons
serving as the executive officers and directors of Rockster, etc.). UPGRADE,
Rockster and the Shareholder further contemplate that, assuming Rockster is
successful in executing its business plan as outlined in the Budget, UPGRADE
will participate with Rockster in making a public offering of Rockster's common
stock within twelve (12) months of the closing of the Definitive Agreement, it
being currently contemplated that such offering would involve the issuance of
approximately one million (1,000,000) Rockster common shares at an offering
price of Twenty-Five Dollars ($25.00) per share. It is understood and agreed,
however, that any public offering of Rockster shall be subject to prevailing
market conditions, the ability to retain an underwriter to conduct a firm
UPGRADE INTERNATIONAL CORPORATION
Mr. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
December 7, 2000
Page 5
commitment underwriting on terms and conditions acceptable to Rockster and
UPGRADE, and UPGRADE's agreement with respect to the level of dilution in its
Rockster stock ownership interest resulting from the public offering.
If the foregoing accurately sets forth all of the mutual terms of our
legally binding agreement, please so indicate by duly executing each of the
copies of this Letter Agreement and returning two (2) fully executed copies.
Upon execution by all the parties, this Letter Agreement will represent the
binding statement of the agreement by and between UPGRADE and Rockster.
Very truly yours,
UPGRADE INTERNATIONAL CORPORATION
By:
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▇▇▇▇▇▇ ▇▇▇▇▇, President
ACCEPTED AND AGREES TO THIS
_____DAY OF DECEMBER, 2000
ROCKSTER, INC.
By:
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▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, President
