September 07, 2000
Xx. Xxxxx Xxxxxxx
President,
Card & More, Inc.
Card & More, LP
Plastikkartenvertrieb GmbH
Challenge Card Design Plastikkarten, GmBH
0000 Xxxxxxxxxx Xxxxxx xxx. 000
Xxx Xxxxxxxxx, XX 00000
VIA FAX: 000-000-0000
Dear Xx. Xxxxxxx:
The purpose of this letter of intent ("Letter") is to set forth certain
nonbinding understandings and certain binding agreements between Upgrade
International Corporation, a Washington Corporation ("UPGD"), and the Cards &
More group ("GROUP"), with respect to an acquisition transaction (the
"Acquisition") to be accomplished as set forth below.
The numbered paragraphs below constitute a general guide to the material
terms of the Acquisition, but they do not constitute a definitive agreement and
they shall not be enforceable unless and until the parties reach and execute a
definitive agreement regarding the Acquisition.
1. Transaction Structure. The parties contemplate that UPGD shall form a
----------------------
wholly-owned subsidiary ("Newco"), that GROUP shall merge with and into. Owners
of equity interests in GROUP shall receive cash consideration for 60% of the
issued and outstanding equity interests in the GROUP, as more fully described
below. The parties contemplate that the Acquisition shall qualify as a tax-free
reorganization under the Internal Revenue Code of 1986, as amended.
2. Due Diligence. UPGD shall have a reasonable period of time, not to
--------------
exceed 30 days, after execution of the definitive agreement regarding the
Acquisition, within which it shall finish its due diligence investigation of the
GROUP. UPGD shall have the right to terminate the agreement if, at the
conclusion of such period of time, it is not reasonably satisfied with the
results of its investigation. During the period prior to Closing, each party
shall permit the other reasonable access to its books, records, facilities and
personnel.
3. Purchase Price. Subject to paragraph 5, below, the "Purchase Price"
--------------
shall be $12,000,000 for 60% of the GROUP payable in cash.
4. Financial Condition. There shall be no decrease in GROUP's non current
--------------------
assets, other than in connection with normal and recurring depreciation and
amortization. At Closing, GROUP's liabilities, which shall include any GROUP
obligations to pay money (whether in connection with debt or equity securities),
shall be no more than $100,000.
5. Filings and Approvals. UPGD and GROUP shall cooperate to prepare and
-----------------------
cause to be filed a registration statement with the SEC in connection with this
acquisition. UPGD and GROUP shall further cooperate to prepare all other filings
required to effect the transaction.
Each party shall bear its own costs in connection with these filings and
approvals.
6. Exclusivity; Acquisition Proposals and Break-up Fee. The definitive
-------------------------------------------------------
documentation of the Acquisition shall include customary provisions regarding
the obligation of GROUP and its insiders not to solicit or encourage any
competing acquisition proposal, with appropriate flexibility left to GROUP's
Board of Directors to enable it to perform its fiduciary duty to its
shareholders, the violation of which shall result in GROUP paying UPGD a
break-up fee of two percent (2%) of the transaction value.
7. Other Terms. The definitive documentation of the Acquisition shall
------------
include such other terms and conditions, including representations, warranties
and covenants, customary for transactions of this type. Additionally, the
definitive agreement will include five year (5) employment contracts for the
current management of the GROUP.
The following lettered paragraphs constitute the legally binding and
enforceable of agreement of UPGD and GROUP (in recognition of the significant
costs to be borne by UPGD and GROUP in pursuing the execution of a definitive
agreement regarding the Acquisition),
A. Between the signing of this letter of intent and up to 30 days
thereafter, the GROUP will not solicit or encourage any competing acquisition
proposal front any person other than UPGD, nor will GROUP, or any of its
stockholders, through any officer, director, agent, or otherwise, (1) solicit or
initiate, directly or indirectly, or encourage submission of inquiries,
proposals, or offers from any potential buyer (other than UPGD) relating to the
disposition of the assets or securities of GROUP, or any part thereof (other
than sales in the ordinary course) or (2) subject to fiduciary obligations under
applicable law as advised in writing by counsel, participate in any discussions
or negotiations regarding, or furnish to any person any information with respect
to, the disposition of assets or any securities of GROUP or any part thereof
during the pendency of negotiations between UPGD and GROUP, and neither UPGD nor
GROUP will unilaterally terminate these negotiations during the term of this
Letter without cause.
Page 2 of 4
B. For violation of the preceding paragraph A by GROUP or any of its
stockholders, through any officer, director, agent, or otherwise, GROUP shall
pay UPGD a break-up fee of 2% of the value of the transaction.
C. GROUP shall conduct its business in the ordinary course consistent
with prior practices. GROUP will not make or become obligated to make any
capital expenditures or enter or become obligated to enter into any material
contracts outside of the ordinary course of business consistent with GROUP's
prior practice without GROUP's prior written approval or engage in any other
transaction outside the ordinary course of business consistent with GROUP's
prior practice. GROUP will not make any payment or distribution with respect to
its share capital, whether by way of management fee, redemption, dividend,
bonus, pay increase or otherwise. The definitive agreement shall contain other
mutually acceptable limits on GROUP's conduct of business during the period
prior to Closing.
D. Subject to the terms set forth in paragraph G below respecting
confidentiality and certain other matters, each party will afford the other's
employees, auditors, legal counsel, and other authorized representatives all
reasonable opportunity and access during normal business hours to inspect,
investigate, and audit their respective businesses. Such inspection,
investigation and audit shall be conducted m a reasonable manner during regular
business hours.
E. UPGD and GROUP will negotiate in good faith and use their best
efforts to arrive at a mutually acceptable definitive agreement for approval,
execution, and delivery on earliest reasonably practicable date. UPGD and GROUP
will thereupon use their best efforts to effect the Closing and to proceed with
the transactions contemplated by the definitive agreement as promptly as is
reasonably practicable.
F. Each of the undersigned represents and warrants that he has all
necessary authority to execute this Letter and create a binding obligation
enforceable according to its terms against the party on whose behalf he signs.
G. Each party agrees to treat all nonpublic information concerning the
other furnished, or to be furnished, by or on behalf of the other (collectively,
the "Information") in accordance with the provisions of this paragraph, and to
take, or abstain from taking, other actions set forth herein, Each party shall
use the Information of the other solely for the purpose of evaluating the
Acquisition, and it will be kept confidential by such party on a need to know
basis; provided that (i) any of such Information may be disclosed to such
party's officers, directors, employees, representatives, agents, and advisors
who need to know such Information for the purpose of evaluating the Acquisition,
(ii) any disclosure of such Information may be made to which the other consents
in writing and (iii) such Information may be disclosed if so required by law. If
the Acquisition is not consummated each party will return to the other all
material containing or reflecting the Information and will not retain any
copies, extracts, or other reproductions thereof. The provisions of this
paragraph G shall survive the termination of this Letter.
Page 3 of 4
X. Before executing the definitive agreement, neither Buyer nor Seller
Shall make any public release of information regarding the matters contemplated
Herein except as mutually agreed or as required by law,
I. Each party shall bear its own costs in connection with all matters
relating to the negotiation and execution of this Letter and the definitive
agreement. However, in the event that the parties enter into a definitive
agreement and the acquisition is not completed as a result of Upgrade failing to
fund the acquisition, Upgrade will reimburse up to $100,000 of legal fees
incurred by the GROUP.
J. Except with respect to the enforcement of paragraphs A, B and G, if
the definitive agreement is not signed on or before Oct 7, 2000, either party
(if not in material breach of any of the binding provisions of this Letter) may
terminate this Letter and thereafter this Letter shall have no force and effect
and the parties shall have no further obligations hereunder.
Please sign and date this Letter in the space provided below to confirm our
mutual understandings and agreements as set forth in this Letter and return a
signed copy to the undersigned. This letter may be signed in counterparts by
facsimile, all of which taken together shall be considered a single executed
original document. If we do not receive a signed copy of this letter on or
before Sept 08, 2000, we will assume you have no further interest in pursuing
this matter.
Very truly yours,
UPGRADE INTERNATIONAL CORPORATION
/s/ Xxxxxx Xxxxx
By Xxxxxx Xxxxx
Its President
Acknowledged and agreed to:
Cards & More, Inc.
By Xxxxx Xxxxxxx ----------------
Its President Date
Page 4 of 4
H. Before executing the definitive agreement, neither Buyer nor Seller
shall make any public release of information regarding the matters contemplated
herein except as mutually agreed or as required by law,
I. Each party shall bear its own costs in connection with all matters
relating to the negotiation and execution of this Letter and the definitive
agreement. However, in the event that the parties enter into a definitive
agreement and the acquisition is not completed as a result of Upgrade failing to
fund the acquisition, Upgrade will reimburse up to $100,000 of legal fees
incurred by the GROUP.
J. Except with respect to the enforcement of paragraphs A, B and G, if
the definitive agreement is not signed on or before Oct 7, 2000, either party
(if not in material breach of any of the binding provisions of this Letter) may
terminate this Letter and thereafter this Letter shall have no force and effect
and the parties shall have no further obligations hereunder.
Please sign and date this Letter in the space provided below to confirm our
mutual understandings and agreements as set forth in this Letter and return a
signed copy to the undersigned. This letter may be signed in counterparts by
facsimile, all of which taken together shall be considered a single executed
original document. If we do not receive a signed copy of this letter on or
before Sept 08, 2000, we will assume you have no further interest in pursuing
this matter.
Very truly yours,
UPGRADE INTERNATIONAL CORPORATION
/s/ Xxxxxx Xxxxx
By Xxxxxx Xxxxx
Its President
Acknowledged and agreed to:
Cards & More, Inc.
/s/ Xxxxx Xxxxxxx
By Xxxxx Xxxxxxx Sept. 07, 2000
--------------------
Its President Date
Page 4 of 4
