EXHIBIT 10.28
UPGRADE INTERNATIONAL CORPORATION
0000 Xxxxxx Xxxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxxxxx 00000
March 6,2001
President
Rockster Records, Inc.
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000
Re: Rockster Records, Inc
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This letter sets forth the general terms and conditions of a binding
agreement ("Letter Agreement") by and among Upgrade International Corporation, a
Washington corporation ("UPGRADE"), Rockster Records, Inc., a Delaware
corporation ("Rockster"), and the shareholders of Rockster Records with respect
to the purchase by UPGRADE of common stock of Rockster (the "Acquisition").
Specifically, we have agreed as follows:
1. Ownership. The Shareholders are the owners of record of all of the
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issued and outstanding capital stock of Rockster, consisting of 10,000 shares
[$.001 par value/no par] (collectively, the "Shares"). Other than as set forth
on Schedule A hereto, there are no outstanding options, warrants or rights to
purchase the Shares. There are no 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 ten percent (10%) of the outstanding common stock of
Rockster for an aggregate purchase price of Two Million Dollars ($2,000,000)
payable as follows: (a) One Hundred Sixty Thousand Dollars ($160,000) within
three business days upon execution hereof (the "Initial Deposit"); (b) One
Hundred Eighty Thousand Dollars ($180,000) on or before March 31, 2001 (the
"Second Deposit", and together with the Initial Deposit, the "Deposit"); and (c)
the balance on or before April 30, 2001, or such other date as may be mutually
agreed to by the parties hereto and set forth in the Definitive Agreement (as
hereinafter defined). Notwithstanding anything to the contrary contained in this
Letter Agreement, in the event the parties hereto are unable to enter into the
Definitive Agreement or consummate the Closing (as hereinafter defined),
Rockster shall return the Deposit to UPGRADE(upon securing other financing).
UPGRADE INTERNATIONAL. CORPORATION
MARCH 6, 2001
Page 2
3. Closing. The closing ("Closing") of the transactions contemplated
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by this Letter Agreement will occur on March 31, 2001 (the "Closing Date") or
such other date as is mutually agreed to by UPGRADE, Rockster, and the
Shareholders.
4. Operating Budget. Attached hereto is a preliminary operating budget
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of Rockster as of February 1, 2001. Rockster shall submit a final operating
budget (the "Budget") to UPGRADE as soon as it is available, and UPGRADE's
approval (not to be unreasonably withheld) 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 Closing
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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, 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 significant claims, capital expenditures and
wage increases. Rockster and the Shareholder will use their respective 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 and the Shareholders hereby agree
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that between the date of this Letter Agreement and the Closing Date (or the
earlier termination of this Letter Agreement or the Definitive Agreement),
Rockster and the Shareholders will refrain, and will use their respective 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 Agreement has been approved by its Board of Directors.
UPGRADE INTERNATIONAL CORPORATION
MARCH 6, 2001
Page 3
9. Definitive Agreement. The parties acknowledge that the transactions
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contemplated by this Letter Agreement xxxx be reflected in a more detailed stock
purchase agreement (the "Definitive Agreement"). The parties agree to negotiate
in good faith to establish mutually acceptable terms and provisions of the
Definitive Agreement which are not inconsistent with the terms of this Letter
Agreement and attachments re budgets and memo of understanding re intercompany
Transactions.
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 Shareholders 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 one 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. 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, or as otherwise required by law or court order. In the event this
Letter Agreement is terminated, any non-public information received by any party
shall be returned to he 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 Shareholders 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;
UPGRADE INTERNATIONAL CORPORATION
MARCH 6, 2001
Page 4
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
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; and (ii) April 30, 2001. It is
understood and agreed that the provisions of the last sentence of Section 2
hereof and the provisions of Sections 12, 16 and 18 hereof will survive any
termination or expiration of this Letter Agreement. If this Letter Agreement
terminates without the parties entering into a Definitive Agreement, then
subject to the preceding sentence, neither party shall have any further
obligation to the other party with respect to the subject matter hereof.
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
Washington.
19. Post-Closing Matters; Additional Financings.
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(a) Following the closing of the 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 execution of its business plan;
subject, however to such periodic reports to UPGRADE as are mutually agreed
upon by Rockster and UPGRADE.
UPGRADE INTERNATIONAL CORPORATION
MARCH 6, 2001
Page 5
(b) UPGRADE will have a right of first refusal on any additional
financings required to be completed at a per share cost not to exceed the
then current market value of Rockster shares. If Rockster and Upgrade fail
to agree on the market value of Rockster shares, Upgrade and Rockster will
agree upon and retain the services of an independent, third-party
accounting firm to determine the value of the Rockster shares.
(c) In the event of stock splits, reclassifications, etc., or in the
event that equity securities, securities convertible into equity or options
to purchase equity securities of Rockster are issued after the Closing
other than shares issued in connection with an additional financing or
capital raise, Rockster shall issue to UPGRADE additional shares of capital
stock of Rockster in such amount so as to maintain UPGRADE's ownership
interest of ten percent (10 ) of the outstanding common stock of Rockster.
20. This Agreement and the attachments constitutes the entire agreement
between the parties pertaining to the subject matter contained in it and
supersedes all prior and contemporaneous agreements, representations and
understandings of the parties. No supplement, modification or amendment of this
Agreement shall be binding unless executed, in writing, by all the parties.
21. The parties hereto shall execute such further documents,
instruments and agreements and do or perform such further acts or things, as
shall be necessary or appropriate or reasonably requested by any party hereto,
to effect all of the purposes and provisions of this Agreement.
22. Any dispute, controversy or claim arising out of or relating to the
enforcement, interpretation or alleged breach of this agreement, shall be
submitted to and resolved by binding arbitration in Los Angeles, California
before one neutral arbitrator appointed in accordance with the Commercial
Arbitration Rules of the American Arbitration Association, and judgment upon the
award rendered by the arbitrator may be entered in and enforceable, by any court
having jurisdiction.
UPGRADE INTERNATIONAL CORPORATION
MARCH 6, 2001
Page 6
If the foregoing accurately sets forth mill of the mutual terms of our
legally binding agreememt, pleasee so Indicate by duly executing each of the
copies of this Letter Agreement and retuning two (2) fully executed copies. Upon
execution by all the parties, this Letter Agreement will represent the binding
statement of the agreement by and among UPGRADE, Rockster, and the Shareholders.
Very truly yours,
UPGRADE INTERNATIONAL CORPORATION
By:
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Accepted and Agreed to this
_____Day of March, 2001
ROCKSTER RECORDS, INC.
By:
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President
ROCKSTAR SHAREHOLDERS:
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Rockstar, Inc., a California corporation
