UPGRADE INTERNATIONAL CORP.
1411 Fourth Avenue, Suite 629
Seattle, Washington 98101
April 11, 2000
National CacheCard Company
1034 S. Brentwood Blvd., Suite 1900
St. Louis, MO 63117-1219
Attention: William Corrington
RE: LETTER OF INTENT
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Dear Mr. Corrington:
The following represents an outline of our proposal regarding an
acquisition by Upgrade International Corp. ("Upgrade"), of certain of the assets
of National CacheCard Company, a Missouri corporation ("NCC"). NCC has
developed, owns and produces certain smart card application software for use by
colleges, universities, and government agencies ("Software"). Upgrade desires
to acquire this Software from NCC, together with related hardware and equipment
utilized in manufacturing and producing such Software.
This letter of understanding ("Letter of Intent") sets forth the agreement
of the parties to proceed promptly and in good faith to complete the terms of,
and to execute, deliver and perform an Asset Purchase and Sale Agreement (the
"Definitive Agreement"). This Letter of Intent shall expire on June 10, 2000 or
until the parties enter into the Definitive Agreement, whichever occurs first,
with an outside anticipated closing date of the transaction no later than thirty
(30) days from the date of execution of the Definitive Agreement. At the
request of Upgrade, an extension of thirty (30) days will be granted as to the
expiration date of this Letter of Intent should any extension be necessary.
The transaction will be structured as follows:
1. Acquisition of Assets. Upgrade will purchase from NCC those assets
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listed on EXHIBIT A hereto. Said asset purchase shall include, but not be
limited to, computer software (in object and source code form), programs,
script, programming code, plans, data and databases, licenses, patents,
trademarks and other intellectual property rights, and the names "National
CacheCard Company" and "NCC SmartCard.com."
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National CacheCard Company
April 11, 2000
Page 2
2. Excluded Assets. Specifically excluded from this purchase and sale
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of assets is the hardware/software product named the UCA-USPS 3000 ("UCA").
This product was developed by NCC for the United States Postal Service (USPS)
pursuant to USPS Contract Award #012590-97-P-2017, and is now owned by USPS.
The UCA accepts smart cards and credit/debit cards as payment for postal
products and services, and is furnished by USPS to manufacturers of its
self-service equipment. The UCA product includes a license for the NCC source
code as well as modifications to the source code designed specifically for USPS.
USPS has the right to provide a copy of the NCC source code to any licensed
contractor for the purpose of enhancing or modifying the UCA, but the UCA may be
used only to provide sales of USPS products and services, and may not be resold
to any other users or entities.
NCC, however, retains ownership of the COTS source code software
(including any modified COTS source code software) which is incorporated in the
UCA, and NCC has the right to continue to use such software in any of its other
products requiring debit/credit functionality outside of the USPS. To the
extent not precluded by its agreement with USPS, NCC's rights to the COTS source
code software and any modifications thereof are included in the assets being
sold to Upgrade pursuant to Section 1 above.
3. Purchase Price. The purchase price for the assets shall be Two
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Hundred Thousand Dollars ($200,000), plus warrants for 70,000 shares of stock,
to be paid as follows:
3.1 An earnest money deposit in the amount of Twenty-Five Thousand
Dollars ($25,000) shall be paid to NCC upon acceptance and execution of this
Letter of Intent. Said earnest money deposit will be applied and credited
toward payment of the purchase price at closing. If closing of the transaction
contemplated by this Letter of Intent does not take place for any reason, said
earnest money deposit shall be refunded to Upgrade.
3.2 The sum of One Hundred Seventy-Five Thousand Dollars
($175,000), representing the balance of the cash purchase price, shall be paid
to NCC as follows: The sum of Seventy-Five Thousand Dollars ($75,000) shall be
paid to NCC at closing. The remaining One Hundred Thousand Dollars ($100,000)
shall be placed in escrow with an escrow agent mutually acceptable to the
parties, for a period of six (6) months following the closing date (the "Escrow
Funds"). The Escrow Funds shall be used to satisfy any indemnification
obligation of NCC and/or its shareholders for any claims, liabilities,
obligations, losses, damages, debts and expenses asserted against or incurred by
Upgrade resulting from any misrepresentation, breach of warranty or
nonfulfillment of any covenant or agreement made in the Definitive Agreement by
NCC and/or its shareholders, or arising out of or relating to the operation of
NCC's business or its ownership of the purchased assets prior to the closing.
Upon expiration of the six-month escrow period, any remaining Escrow Funds shall
be released and paid to seller.
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National CacheCard Company
April 11, 2000
Page 3
3.3 NCC shall be granted options for 10,000 shares of common stock
of Upgrade, the exercise price and period of which shall be agreed upon by the
parties in the Definitive Agreement.
3.4 NCC shall be granted options for 30,000 shares of common stock
of EforNet Corporation (a subsidiary of Upgrade), the exercise price and period
of which shall be agreed upon by the parties in the Definitive Agreement.
3.5 NCC shall be granted options for 30,000 shares of common stock
of Centurion Technologies, Inc. (a subsidiary of Upgrade), the exercise price
and period of which shall be agreed upon by the parties in the Definitive
Agreement.
4. No Assumption of Liabilities. Upgrade will not assume any
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liabilities or obligations of NCC. NCC shall have and convey to Upgrade good
and marketable title to all of the purchased assets, free and clear of all
liens, claims, charges and encumbrances.
5. Conditions Precedent. As conditions precedent to the aforesaid
----------------------
purchase by Upgrade, the following events must first have occurred or be
satisfied:
5.1 Consent of Board of Directors and Shareholders. The Board of
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Directors and, if required, the shareholders of NCC, shall have unanimously
approved and agreed to the sale of NCC's assets to Upgrade. In addition, NCC
and its shareholders, as part of the Definitive Agreement, shall have agreed to
indemnify and hold Upgrade harmless from and against any and all claims,
liabilities, obligations, losses, damages, debts and expenses resulting from any
misrepresentation, breach of warranty or nonfulfillment of any covenant or
agreement made in the Definitive Agreement, or arising out of or relating to the
operation of NCC's business or its ownership of the purchased assets prior to
the closing.
5.2 Due Diligence Review. Upgrade shall have had the opportunity
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to conduct and complete its due diligence investigation and review of NCC, its
business, assets, liabilities, properties, and financial condition, including
without limitation, a review of the financial statements, books and records,
customers, suppliers, stock records, technology, patents and other intellectual
property rights, and the results of such investigation and review shall be
satisfactory to Upgrade in its sole discretion.
5.3 Employment and Non-Competition Agreements. William
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Corrington, Eric Swanson, Mike Walton and two additional computer programmers or
technical personnel [TO BE IDENTIFIED] currently employed or retained by NCC
each shall have entered into employment or consulting agreements with Upgrade
for a term of not less than one (1) year following the closing date. Each such
employee or consultant will be employed at Upgrade's offices in St. Louis,
Missouri, and if required, will have agreed to relocate to St. Louis, Missouri,
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National CacheCard Company
April 11, 2000
Page 4
for the duration of his or her employment with Upgrade. The employment or
consulting agreement with each such individual shall contain a non-competition
covenant prohibiting him/her from engaging in any similar or competing business
for a period of two years following his/her termination of employment with
Upgrade.
6. Due Diligence. Throughout the term of this Letter of Intent, each
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party agrees to honor reasonable requests by the other party for information,
documents and data that bears upon the substance of the Definitive Agreement.
The parties agree to use this information in the context of these negotiations
only, and to preserve the confidentiality of all materials provided by the other
party. Each of the parties shall forthwith conduct such further due diligence
examination of the other as it deems appropriate. During the term of this
Letter of Intent, each party may in a reasonable manner carry out such
investigations and due diligence as to the other party, at all times subject to
the confidentiality provisions in section 8 below and elsewhere in this Letter
of Intent. In that regard, you agree that Upgrade or its agents shall have full
and complete access to the books, records, financial statements and other
documents, articles of incorporation, by-laws, minutes of the Board of Directors
and its committees, investment agreements, material contracts, stock transfer
books, and such other documents and materials pertaining to NCC and any of its
assets or operations as Upgrade, its legal counsel and accountants, may deem
reasonable or necessary to conduct an adequate due diligence investigation of
NCC prior to entering into the Definitive Agreement. Notwithstanding the
foregoing, each party agrees that it will not make inquiries of or conduct
investigations or due diligence with any third party, including regulatory
agencies, without the express written permission of the other subject party.
Such due diligence shall be conducted within sixty (60) days from the date of
execution of this Letter of Intent.
7. Good Faith Representation. This letter is intended to set forth the
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basic terms and conditions of the parties with respect to the matters discussed.
However, the parties agree that they shall promptly hereafter take all steps
necessary to have their respective legal counsel draft the final documentation
necessary to effectuate their agreements. To the extent that any material issue
is not resolved herein, the parties agree to promptly and in good faith resolve
the same. The parties agree that their legal counsel should draft the necessary
documentation in the manner customary for such transactions. Notwithstanding
the lack of final documentation at this time, the parties agree to proceed at
all possible speed to satisfy any condition precedent to the completion of the
intended transaction to all extents possible.
8. Confidentiality. The parties understand that it is possible that
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certain of the conditions precedent may fail and that the intended transactions
may not be completed, notwithstanding each party's good faith best efforts.
Therefore, the parties agree that any information obtained from any other party
pursuant to the negotiations leading to this agreement or hereafter until
closing shall be deemed by each to be confidential trade and business secrets of
each, and each party hereby warrants that it shall not disclose the same to any
other person without the express prior written consent of the party from whom
the information was obtained.
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National CacheCard Company
April 11, 2000
Page 5
9. Definitive Agreement. The Definitive Agreement will be structured
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as an Asset Purchase and Sale Agreement, and shall include customary covenants,
conditions, representations and warranties made as of the date of execution and
as of the date of closing.
10. Lock-Up. As a condition of this Letter of Intent and in
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consideration of the effort and expense to be incurred by Upgrade in connection
with the due diligence review and the proposed transaction, NCC agrees that for
the period commencing on the date this Letter of Intent is accepted and ending
on the date this Letter of Intent expires, it will not in any way seek, on its
own behalf or on behalf of any of the officers, directors, shareholders and/or
creditors of NCC, to approach or involve other individuals or entities in this
asset purchase transaction except in cooperation and concert with the
undersigned. NCC further covenants and agrees that during said lock-up period,
it will not: (a) discuss, entertain, consider, solicit or initiate any proposal
(including any prior offer or solicitation) that contemplates the sale of the
corporation or any of its stock or assets; or (b) negotiate or execute any
contract, agreement or undertaking with any third party or entity which
contemplates or provides for, either directly or indirectly, the sale of the
corporation, its assets, facilities or technology; or (c) take any action which
would materially alter the capitalization of the corporation, the nature or
extent of its assets, or otherwise render impossible the consummation of the
transactions contemplated by this Letter of Intent.
11. Conduct of Business. Until the closing or the termination of this
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Letter of Intent, NCC will conduct its business and operations in a manner
consistent with past practices and will not engage in transactions outside the
ordinary course of business. In addition, NCC agrees that until the closing or
the termination of this Letter of Intent, there shall be no change in the
capital structure of the corporation, the corporation shall not declare, set
aside, pay or otherwise distribute to any equity or debt interest holder any
cash or stock or any other distribution in respect of the ownership of the
corporation, nor shall the corporation, directly or indirectly, redeem, purchase
or otherwise acquire any capital stock or other equity interest in any entity or
other business without the prior written consent of Upgrade.
12. Expenses. Upgrade and NCC will each be solely responsible for
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paying the fees and expenses for their respective legal counsel, advisors, and
accountants.
13. Binding Nature. Upon your approval and acceptance hereof, this
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Letter of Intent shall constitute a binding agreement subject, however, to
satisfaction of the conditions precedent set forth in Section 5 above.
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National CacheCard Company
April 11, 2000
Page 6
If you accept and agree to this Letter of Intent, please sign and date a
copy of this letter and return it in confidence to the attention of the
undersigned at the offices of Upgrade as noted above.
Very truly yours,
Upgrade Corporation
______________________________________
By:___________________________________
Its:__________________________________
Approved and accepted on April _____, 2000.
NATIONAL CACHECARD COMPANY
______________________________________
By:___________________________________
Its:__________________________________
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National CacheCard Company
April 11, 2000
Page 7
EXHIBIT A
ASSETS TO BE ACQUIRED
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General Intangibles:
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Names: NCC SmartCard.com, LLC.
National CacheCard Company
Trademarks: Instacache (a registered trademark)
Patents: None
Copyrights: NCC source code on CD ROM #1 and #2 comprising all software
owned by NCC supporting the NCC epurse system.
Equipment: Various smart card readers and demonstration vending and card
---------- loading equipment used to demonstrate the functionality of the
epurse system. (The equipment is not available for resale
and will be set up in the St. Louis office.)
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