Exhibit 10.9
AGREEMENT AND PLAN OF REORGANIZATION
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THIS AGREEMENT AND PLAN OF REORGANIZATION is entered into effective as of
May 4, 2000, by and among TSET, Inc., a Nevada corporation ("TSET");
XxxxXxxxx.Xxx, an Oregon corporation ("EdgeAudio"); XXXX Enterprises, Inc., an
Oregon corporation ("XXXX"); Xxxxxx Xxxxxxxx, an individual; J. Xxxxx Xxxxx, an
individual; Xxxx Xxxxxxxxx, an individual; and Eterna Internacional, S.A. de
C.V., a corporation organized and existing under the laws of the Republic of
Mexico ("Eterna") (XXXX, Xxxxxx X. Xxxxxxxx, J. Xxxxx Xxxxx, Xxxx X. Xxxxxxxxx,
and Eterna are hereinafter collectively referred to as the "Stockholders").
RECITALS
WHEREAS, on April 18, 2000, TSET and EdgeAudio entered into a Letter of
Intent for the purpose of, among other things, setting forth the main terms
pursuant to which TSET would acquire all of the shares of EdgeAudio, and other
elements of the relationship among the parties;
WHEREAS, the Stockholders are the record owners of all of the issued and
outstanding shares of capital stock of EdgeAudio; and
WHEREAS, the Stockholders wish to assign, and TSET wishes to acquire, all
of the issued and outstanding capital stock of EdgeAudio, par value $0.1 per
share, upon the terms and subject to the conditions set forth herein solely in
exchange for voting stock of TSET in a transaction intended to qualify as a
reorganization within the meaning of IRC Sec. 368(a)(1)(B) as amended.
NOW, THEREFORE, for and in consideration of the premises and mutual
covenants, promises, representations, and warranties set forth herein and for
other good and valuable consideration, the sufficiency, delivery, and receipt of
which are hereby acknowledged, the parties hereto adopted this plan of
reorganization and agree as follows:
AGREEMENT
1. EXCHANGE OF SHARES. Upon the terms and subject to the conditions set
forth herein, the Stockholders each agree to assign to TSET, and TSET
agrees to acquire from each of the Stockholders in exchange solely for
TSET voting common stock, par value $0.001 per share ("TSET Shares"),
all of the EdgeAudio shares owned by each Stockholder, which are
hereby represented and warranted by each Stockholder as of the date of
this Agreement to consist of the following (collectively, the
"EdgeAudio Shares"):
NAME NO. OF EDGEAUDIO SHARES OWNED
---- -----------------------------
XXXX Enterprises, Inc. 55,000
Eterna Internacional, S.A. de C.V. 25,000
Xxxxxx X. Xxxxxxxx 10,000
J. Xxxxx Xxxxx 5,000
Xxxx X. Xxxxxxxxx 5,000
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Total 100,000
The EdgeAudio Shares shall be assigned to and acquired by TSET free
and clear of any and all liens, claims, encumbrances, sureties,
restrictions of any kind whatsoever on their free transferability
(other than applicable securities law restrictions), options, or
rights of any third parties, including preemptive rights or claims of
any nature whatsoever as well as any and all rights attaching thereto.
2. VALUATION. Pursuant to negotiations, TSET and EdgeAudio have
established an agreed-in-principle aggregate earn-out valuation for
EdgeAudio of $6,750,000 (the "Aggregate Valuation"), with an agreed
initial valuation for EdgeAudio of $3,000,000 (the "Initial
Valuation").
3. INITIAL EXCHANGE OF SHARES. (a) Each of the Stockholders shall assign,
transfer, and convey to TSET all of the EdgeAudio Shares owned by them
(as indicated in Section 1 hereof) in exchange initially for 1,298,701
TSET Shares, to be allocated among the Stockholders as follows:
XXXX Enterprises, Inc. 714,286 TSET Shares
Eterna Internacional, S.A. de C.V. 324,675 TSET Shares
Xxxxxx X. Xxxxxxxx 129,870 TSET Shares
J. Xxxxx Xxxxx 64,935 TSET Shares
Xxxx X. Xxxxxxxxx 64,935 TSET Shares
The TSET Shares set forth in this Section 2 shall constitute the sole
compensation of the Stockholders for the EdgeAudio Shares owned by
each of them.
(b) Simultaneously with the execution and delivery of this Agreement
by the parties:
(i) each of the Stockholders shall deliver to TSET,
certificates representing all of the EdgeAudio Shares
owned by them, accompanied by appropriate stock powers
endorsed in blank, and shall cause the EdgeAudio Shares to
be registered in the name of TSET on EdgeAudio's share
registry and perform any and all other actions required by
applicable law to evidence TSET's ownership of the
EdgeAudio Shares; and
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(ii) TSET shall deliver to each of the Stockholders
certificates representing the number of TSET Shares to be
acquired by them, shall cause the TSET Shares to be
registered in the names of each of the Stockholders on
TSET's share registry and cause the transfer agent to
provide documentation thereof to the Stockholders, and
perform any and all other actions required by applicable
law to evidence ownership of the TSET Shares by each
Stockholder.
Immediately following the exchange of shares contemplated in this
Subsection (b), TSET shall own 100% of EdgeAudio's issued and
outstanding capital stock and EdgeAudio shall be a wholly owned
subsidiary of TSET.
(c) The Stockholders understand and acknowledge that the TSET Shares
to be received by them pursuant to the Initial Valuation and the
Earnout Valuation shall be subject to, and the Stockholders each
hereby agree to at all times observe and comply with, the
conditions, limitations, and restrictions noted on the
certificates representing the TSET Shares, in addition to any
other restrictions set forth in applicable federal and state
securities laws. The following conditions, limitations, and
restrictions noted on the certificates shall be limited to the
following:
(i) Investment stock. Restriction on transfer. The shares
represented by this certificate have been acquired for
investment and may not be sold or transferred unless the
same are registered under the Securities Act of 1933, or
the company receives an opinion from counsel satisfactory
to it that such registration is not required for sale or
transfer or that the shares have been legally sold in
brokered transactions pursuant to rule 144 of the rules
and regulations of the Securities and Exchange Commission
promulgated under the Securities Act of 1933.
(d) Any taxes, levies, or other charges assessed against, or in
connection with acquisition of, the TSET Shares by each
Stockholder pursuant to this Agreement shall be for the account
of, and shall be born solely by, each such Stockholder.
(e) Any compensation for finder's fee payable by EdgeAudio or any of
the Stockholders to any person relating to the transactions
contemplated by this Agreement shall be paid out of the TSET
Shares to be received by them, the parties agreeing that TSET
shall have no financial or other responsibility whatsoever for
payment of any such compensation. TSET shall be responsible for
paying any finder's fee payable to any finder or broker initially
contacted by TSET.
4. EARN-OUT AND ISSUANCE OF ADDITIONAL TSET SHARES. (a) An additional
$3,750,000 worth of TSET Shares (the "Earn-out Shares"), representing
the difference between the Aggregate Valuation and the Initial
Valuation, (hereinafter referred to as the "Earn-out Valuation"),
shall in the future be issued to the Stockholders in five equal
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installments, each equal to 20% of the Earn-out Valuation (i.e.,
$750,000 of Earn-out Shares per installment), if and as EdgeAudio
achieves five forecasted cumulative gross revenue milestones (the
"Revenue Milestones") over the 5-year period next following the date
of this Agreement (the "Earn-out Period"), which Revenue Milestones
are hereby established and agreed to by the parties as follows:
Cumulative Gross Revenue
Earned Since the Date of This Agreement
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Revenue Milestone 1 $1,764,271.00
Revenue Milestone 2 $5,539,538.00
Revenue Milestone 3 $10,285,024.00
Revenue Milestone 4 $15,793,368.00
Revenue Milestone 5 $22,187,203.00
thus constituting aggregate forecasted revenue of $22,187,203.00 to be
earned on or before the end of the Earn-out Period. The Earn-out
Shares shall be issued to the Stockholders as soon as practicable
following TSET's receipt of written certification signed by
EdgeAudio's chief financial officer that EdgeAudio has achieved the
particular Revenue Milestone in question, such certification to be
dated as of the date EdgeAudio first achieves the Revenue Milestone in
question (the "Certification"). The Earn-out Shares shall be allocated
among the Stockholders on a pro rata basis in proportion to their
ownership of the EdgeAudio Shares as set forth in Section 1. If
EdgeAudio fails to achieve any given Revenue Milestone, no Earn-out
Shares shall be issued with respect thereto. No Earn-out Shares shall
be issued with respect to any Revenue Milestone until EdgeAudio is
able to issue a Certification to TSET. The number of Earn-out Shares
to be issued in connection with achievement of any Revenue Milestone
shall be calculated as follows:
(EAV)(0.20)/ACP, where
EAV = Earn-out Valuation, and
ACP = the average closing price for the TSET Shares for
the 5 trading days immediately preceding the date of the
Certification.
(b) In the event shares of EdgeAudio are sold during the Earn-out
Period in connection with an initial public offering (an "IPO")
of EdgeAudio stock that demonstrates that the market value
immediately before the IPO, upon which market value the IPO is
based, equals or exceeds the Aggregate Valuation, EdgeAudio shall
be presumed on the date of the IPO to have reached all Revenue
Milestones not previously reached, and the Stockholders shall be
entitled to receive all the Earn-out Shares they would have been
entitled to receive if EdgeAudio would have actually reached all
the Revenue Milestones on or before the date of the IPO.
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(c) As mentioned in the Recitals, the transaction contemplated by
this Agreement is intended to qualify as a reorganization under
IRC Section 368(a)(1)(B) as amended. Accordingly, in the event
TSET (1) enters into an agreement to merge into another company
in a transaction where TSET is not the surviving corporation, (2)
enters into an agreement to otherwise be absorbed into or
acquired by another company, or (3) is involved in or is the
subject of a transaction in which TSET ceases to be a publicly
traded company (hereafter referred to as a "Privatization"),
EdgeAudio shall be presumed immediately prior to the
Privatization to have reached all Revenue Milestones not
previously reached, and TSET shall prior to the Privatization
issue to the Stockholders all the Earn-out Shares they would have
been entitled to receive if EdgeAudio would have actually reached
all the Revenue Milestones on or before the date of the
Privatization.
(d) Except as otherwise provided above, TSET shall issue each
installment of Earn-out Shares to the Stockholders within ninety
days after EdgeAudio reaches each Revenue Milestone.
(e) Neither the right to receive Earn-out Shares nor any interest
therein shall be assignable by any Stockholder except by will or
operation of law, and no Stockholder shall have any voting
rights, rights to receive dividends or other distributions
thereon, or any other rights of a Stockholder of TSET with
respect to any Earn-out Shares until they are issued to the
Stockholder.
(f) The Stockholders and TSET agree that some of the Earn-out Shares
issued to Stockholders shall be in payment of interest at the
rate required under Treas. Reg. Section 1.483-1, for the number
of months between the closing and the delivery of the Earn-out
Shares in accordance with Treas. Reg. Section1.483-1, on the fair
market value of the total number of Earn-out Shares issued to
Stockholders. TSET shall issue separate certificates for the
portion of the Earn-out Shares that constitutes interest.
(g) If after the date hereof and prior to the issuance of the initial
or Earn-out Shares to be issued to Stockholders pursuant to
Sections 3 and 4, the outstanding shares of TSET common stock
are, without the receipt of new consideration by TSET, increased,
decreased, changed into, or exchanged for a different number or
kind of shares or securities of TSET through reorganization,
reclassification, stock dividend, stock split, reverse stock
split, or similar change in TSET's capitalization, TSET shall
issue and deliver to the Stockholders in addition to or in lieu
of the TSET Shares specified in Sections 3 and 4, voting stock of
TSET in equitably adjusted amounts. In the event of any such
change in TSET's capitalization, all references to TSET Shares
herein shall refer to the number of TSET Shares as thus adjusted.
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(h) No fractional shares of TSET stock shall be issued to any
Stockholder hereunder, and any fractional share to which any
Stockholder would otherwise be entitled shall be rounded up to
the nearest whole share.
5. MANAGEMENT. (a) Following TSET's acquisition of the EdgeAudio Shares,
EdgeAudio's board of directors shall be comprised of the following
individuals:
Xxxxxxxx X. Xxxxxxxxx
Xxxxxx X. Xxxxxxxx
J. Xxxxx Xxxxx
Xxxxx Xxxx Xxxxxxxx
Xxxxxxx X. Xxxxxx (representing TSET)
Except as provided below, such directors shall serve in accordance with
EdgeAudio's bylaws and applicable law. Xxxxxxxx X. Xxxxxxxxx, Xxxxxx X.
Xxxxxxxx, and J. Xxxxx Xxxxx shall serve as directors until the earlier of (1)
death or resignation, (2) the issuance of all the Earn-out Shares, (3) the
expiration of the Earn-out Period, or (4) removal for "Cause". Cause shall mean
(1) an act of fraud, embezzlement, or theft constituting a felony; (2) an act or
omission detrimental to EdgeAudio's interests involving intentional misconduct
or a knowing violation of law; or (3) an act of dishonest conduct that seriously
undermines such director's integrity. If Xxxxxxxx X. Xxxxxxxxx, Xxxxxx X.
Xxxxxxxx, or J. Xxxxx Xxxxx ceases to be a director before the earlier of the
date all the Earn-out Shares have been issued or the date the Earn-out Period
expires, the resulting vacancy on the board shall be filled by an individual
appointed by the remaining member or members of such group. Until the earlier of
the date all the Earn-out Shares have been issued or the date the Earn-out
Period expires, EdgeAudio's board of directors shall continue to consist of not
more than 5 members. Xxxxxxx X. Xxxxxx shall serve as Chairman of the Board.
6. THE CORPORATE BUSINESS. The parties understand and acknowledge that
the "Corporate Business" of EdgeAudio is the development,
manufacturing, marketing, and selling via the Internet stereo speakers
and accessories, owning or licensing all intellectual property rights
related thereto, and such other activities as may enhance the value
and name recognition of "EdgeAudio", all with a view to advancing
EdgeAudio's best interests and maximizing EdgeAudio's profitability
and success for the benefit of TSET. TSET intends that the Corporate
Business be conducted by EdgeAudio in substantially the same manner as
conducted prior to TSET's acquisition of the EdgeAudio Shares.
7. WORKING CAPITAL. TSET shall provide and make available to EdgeAudio
working capital in the aggregate amount of up to $400,000 (the
"Funding") during the period following the date of this Agreement
until December 31, 2001 (the "Funding Period"). To the extent
required, TSET may use its own shares in order to arrange for,
procure, and ensure availability of the Funding; provided, however,
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that TSET's obligation to provide the Funding shall not be construed
as or constitute any assumption of any obligation regarding any
indebtedness, operating expenses, or other financial liabilities of
EdgeAudio or the Stockholders. Provision of the Funding shall
constitute the sole financial obligation of TSET to EdgeAudio;
provided, however, that TSET may elect, but is not obligated, to
provide to EdgeAudio additional funding in addition to the Funding in
appropriate cases to be determined by TSET in its sole and absolute
discretion. Within 60 days of the execution and delivery of this
Agreement, EdgeAudio's board of directors shall establish an operating
budget, including provision for, among other things, the prudent
expenditure and conservation of funds for working capital over the
Funding Period while achieving the overall goals of the Corporate
Business. In the event working capital in excess of the Funding is
required in connection with any acceleration of EdgeAudio's business
plan, the Stockholders may, collectively or in any combination,
subject to TSET's prior written consent which shall not be
unreasonably withheld), participate in the provision thereof, subject
to terms and conditions therefor to be agreed at that time.
8. OPTIONS AND OTHER PROGRAMS. TSET intends to adopt for itself, and
intends that EdgeAudio adopt stock option, incentive, profit-sharing,
savings, and other similar programs (collectively, the "Programs" as
soon as practicable after the date hereof. The terms and conditions of
participation, contribution, matching, vesting, and other elements of
the Programs shall be established by the respective boards of
directors of TSET and EdgeAudio. EdgeAudio's directors and executive
management (collectively, "management") shall be entitled to
participate in Programs to be adopted by TSET, subject to such
conditions and restrictions imposed upon such participation by TSET's
board of directors. As an additional inducement to management and to
ensure participation by management in the potential future success of
EdgeAudio, TSET, as sole stockholder of EdgeAudio, hereby agrees to
reserve up to 20% of EdgeAudio's authorized capital stock to be used
in Programs to be adopted by EdgeAudio's board of directors and
consents to the full participation of management therein, subject to
the terms for such participation to be established by EdgeAudio's
board of directors; provided, however, that the final terms and
conditions of the Programs adopted by EdgeAudio's board of directors
shall be subject to TSET's prior written consent (which shall not be
unreasonably withheld).
9. MANUFACTURING FACILITIES. Upon request by EdgeAudio's board of
directors, TSET agrees to exert its good faith best efforts to assist
EdgeAudio in ensuring, whether by contract or otherwise, that
manufacturing facilities sufficient for the conduct of the Corporate
Business will continue to be available to EdgeAudio.
10. FUTURE EVENTS. (a) At an appropriate and mutually agreed time in the
future, TSET intends to give due and good faith consideration to
effecting a transaction pursuant to which EdgeAudio may become a
publicly-owned entity (the "Reconstitutive Decision"). In the event of
any Reconstitutive Decision, TSET (or its nominees) shall be entitled
to retain (or share with such nominees) not less than a nondilutable
30% ownership interest in EdgeAudio.
(b) In the event that before the earlier of the date all the Earn-out
Shares have been issued, the date the Earn-out Period expires, or
the date of an IPO of EdgeAudio stock, TSET proposes to sell part
or all of EdgeAudio's stock (other than in an IPO) to a bona fide
third party who is willing to purchase such stock, TSET must
first offer to sell the stock to the Stockholders, at the same
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price and on the same terms of the proposed transfer. The offer
shall be made by giving the Stockholders written notice of the
proposed transfer (the "Proposed Transfer Notice") stating (1)
that TSET intends to transfer part or all the stock, and (2) the
terms of the proposed transfer, including the name and address of
the proposed transferee, the transfer price, and the terms of
payment.
(c) For 30 days after the Stockholders receive a Proposed Transfer
Notice, the Stockholders shall have the option to purchase all of
the offered stock. If the Stockholders elect to purchase the
offered stock the option shall be exercised upon the Stockholders
giving written notice to TSET during the option period, which
notice shall demonstrate that the Stockholders have obtained
financing or a commitment for financing sufficient to fund the
purchase. In the event the Stockholders are unable to agree on
how many shares of stock each Stockholder shall purchase, each
Stockholder shall have the right to purchase the offered shares
in proportion to the respective number of EdgeAudio Shares set
forth opposite such Stockholder's name in Section 1.
(d) Following exercise of the option, the parties shall close the
purchase no later than 60 days after the Stockholders receive a
Proposed Transfer Notice.
(e) If the option to purchase is not exercised by the Stockholders,
TSET may complete the transfer, but only in strict accordance
with the terms previously offered by the transferee stated to the
Stockholders as required under Section 10(b).
11. REPRESENTATIONS AND WARRANTIES OF EDGEAUDIO AND THE STOCKHOLDERS.
EdgeAudio and each of the Stockholders, jointly and severally, hereby
represent and warrant to TSET as follows:
(a) CORPORATE ORGANIZATION. EdgeAudio is a corporation duly
organized, validly existing, and in good standing under the laws
of the State of Oregon and has all requisite power,
authorizations, consents, and approvals necessary to own or lease
its assets and carry on the Corporate Business as currently being
conducted, and to consummate the transactions contemplated
herein. EdgeAudio is duly licensed or qualified and in good
standing in all jurisdictions in which the character of the
properties owned or leased by it or the nature of the Corporate
Business requires it to be so licensed or qualified. Complete and
correct copies of all constitutive documents of EdgeAudio are
attached hereto as Exhibit 11(a-1) and made a part hereof for all
purposes. EdgeAudio's minute books or other similar records
contain a complete and accurate record of all meetings and other
corporate actions of its stockholders and board of directors (and
any committees thereof), complete and correct copies of which are
attached hereto as Exhibit 11(a-2) and made a part hereof for all
purposes.
(b) NO DEFAULTS OR BREACHES. Except as disclosed in Exhibit 11(b)
attached hereto and made a part hereof for all purposes, neither
the execution of this Agreement nor the performance of its
obligations hereunder does or will:
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(i) conflict with or violate any provision of EdgeAudio's
constitutive documents;
(ii) violate, conflict with, or result in the breach or
termination of, or constitute a default, event of default
(or an event which with notice, lapse of time, or both,
would constitute a default or event of default), under the
terms of any
(A) contracts, agreements, commitments, or other binding
undertakings, whether or not reduced to writing
(collectively, "Contracts"), or
(B) permits, authorizations, approvals, registrations,
or licenses granted by or obtained from any
governmental, administrative, or regulatory
authority (collectively, "Permits"),
to which EdgeAudio or any of the Stockholders is a party or by
which EdgeAudio or any of the Stockholders or any of their
respective or collective securities, properties, or businesses
are bound;
(iii) to their knowledge constitute a violation by EdgeAudio or
any of the Stockholders of any
(A) laws, rules, or regulations of any governmental,
administrative, or regulatory authority
(collectively, "Laws"), or
(B) judgments, orders, rulings, or awards of any court,
arbitrator, or other judicial authority or any
governmental, administrative, or regulatory
authority (collectively, "Judgments"), or
(iv) result in the creation of any lien, claim, or encumbrance
(collectively, "Liens") upon EdgeAudio or any of its
assets or properties, the EdgeAudio Shares, or any of the
Stockholders.
(c) ACTIONS AND PROCEEDINGS. Except as disclosed in Exhibit 11(c-1)
attached hereto and made a part hereof for all purposes, there
are no actions, suits, claims, or legal, administrative,
arbitration, or other alternative dispute resolution proceedings
or investigations (collectively, "Proceedings") (whether or not
the defense thereof or liability with respect thereto is covered
by policies of insurance) pending or, to the best knowledge of
EdgeAudio and any of the Stockholders, threatened, to which
EdgeAudio or any of the Stockholders is or would be a party
including, without limitation, any Proceeding which could
reasonably be expected to restrain, prevent, or prohibit
EdgeAudio or any of the Stockholders from consummating the
transactions contemplated herein, or to obtain damages or other
relief in connection with, this Agreement or any of the
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transactions contemplated herein. Except as disclosed in Exhibit
11(c-2) attached hereto and made a part hereof for all purposes,
there is no Judgment outstanding against EdgeAudio. Except as
disclosed in Exhibit 11(c-3) attached hereto and made a part
hereof for all purposed, each Stockholder severally represents
and warrants there is no Judgment outstanding against such
Stockholder. Any breach of the representation and warranty set
forth in the preceding sentence shall result in liability only to
the Stockholder who breached such representation and warranty.
(d) NO BROKERS OR FINDERS. Except as disclosed in Exhibit 11(d)
attached hereto and made a part hereof for all purposes, no
negotiations relating to this Agreement and the transactions
contemplated herein have been carried on with the intervention or
assistance of any party acting in behalf of EdgeAudio or any of
the Stockholders in such a manner as to give rise to any shall
claim against EdgeAudio or any of the Stockholders, individually
or collectively, for any broker's or finder's fee or similar
compensation (whether payable in cash, EdgeAudio Shares, any
interest in EdgeAudio, or otherwise) in connection therewith. No
basis exists whatsoever for any such broker's or finder's fee or
similar compensation to be payable by TSET.
(e) AUTHORITY. EdgeAudio has all necessary corporate power and
authority, and each of the Stockholders have the power, legal
capacity, and authority, to execute and deliver this Agreement
and perform all of its or his obligations hereunder; and the
execution, delivery, and performance by EdgeAudio and each of the
Stockholders of this Agreement has been duly authorized by all
necessary corporate action on its part or is within the authority
of the person executing and delivering the same, and is within
the authority of each of the Stockholders. This Agreement
constitutes the legal, valid, and binding obligations of
EdgeAudio and each of the Stockholders, enforceable against any
and all of them in accordance with the terms hereof, except as
may be limited by applicable bankruptcy, insolvency,
reorganization, or other similar laws affecting creditors' rights
and general principles of equity.
(f) TAXES AND TAX RETURNS. Except as disclosed in Exhibit 11(f-1)
attached hereto and made a part hereof for all purposes:
(i) EdgeAudio has filed all tax returns and reports of all
Taxes (as hereinafter defined) required to be filed by it
and has timely given and delivered all Tax notices,
accounts, and information required to be given by it with
respect to Taxes for which EdgeAudio may be liable. All
information provided in such returns, reports, notices,
accounts, and information was, when filed or given,
complete and accurate. All Taxes required to be paid by
EdgeAudio that were due and payable prior to the date of
this Agreement have been paid in full, except for such
Taxes as are being contested in good faith by appropriate
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proceedings and for which adequate reserves are being
maintained. Adequate provision in accordance with
generally accepted accounting principles consistently
applied have been made in EdgeAudio's financial statements
for the payment of all Taxes for which EdgeAudio may be
liable for the periods covered thereby that were not yet
due and payable as of the date hereof, regardless of
whether the liability for such Taxes is disputed;
(ii) There are no pending or, to the best knowledge of
EdgeAudio and each Stockholder, threatened, audits or
investigations relating to any Taxes for which EdgeAudio
may become directly or indirectly liable. No deficiencies
for any Taxes have been proposed, asserted, or assessed
against EdgeAudio and no state of facts exists or has
existed that would constitute grounds for the assessment
of a Tax liability against EdgeAudio. There are no
agreements in effect to extend the period of limitations
for the assessment or collection of any Taxes for which
EdgeAudio may become liable and no requests for any such
agreements are pending;
(iii) Except as disclosed in Exhibit 11(f-2) attached hereto and
made a part hereof for all purposes, EdgeAudio has
withheld from its employees and timely paid to the
appropriate authority proper and accurate amounts for all
periods through the date hereof in compliance with all Tax
withholding provisions of all applicable federal, state,
and local laws;
(iv) All copies of all returns and reports of all Taxes filed
by EdgeAudio on or prior to the date of this Agreement,
provided or made available to TSET by EdgeAudio, are to
the best knowledge of EdgeAudio and each Stockholder,
complete and accurate; and
(v) EdgeAudio has neither elected nor otherwise been granted
any preferential tax treatment or made any sort of
commitment vis-a-vis any Tax authorities, whether in
connection with a reorganization or otherwise.
As used in this Subsection (f), the terms "Tax" and "Taxes" shall mean (A)
all taxes, assessments, levies, imposts, duties, fees, withholdings, or
other similar mandatory charges, including, without limitation, income
taxes, franchise taxes, transfer taxes or fees, sales taxes, excise taxes,
ad valorem taxes, withholding taxes, minimum taxes, estimated taxes, and
social charges or contributions; and (B) any interest, penalties, or
additions to tax imposed on a Tax described in clause (A) above, imposed by
any national, regional, local, or foreign government or subdivision or
agency thereof.
(g) CONSENTS. Except as disclosed in Exhibit 11(g) attached hereto
and made a part hereof for all purposes, no authorizations,
approvals, or consents of, and no filings or registrations with,
any governmental agency or authority are necessary for the
execution, delivery, and performance by EdgeAudio and each of the
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Stockholders of this Agreement or for the validity or
enforceability hereof.
(h) SUFFICIENCY OF INFORMATION. No material statement, information,
or exhibit disclosed or otherwise furnished to TSET by EdgeAudio
or any of the Stockholders in writing in connection with the
negotiations among the parties or any representations upon which
TSET may have relied, contains any material misstatement of fact
or omits to state a material fact or any fact necessary to make
the statement made not misleading.
(i) COMPLIANCE WITH LAW. EdgeAudio and each of the Stockholders shall
at all times hereunder comply with all conditions, restrictions,
and limitations applicable to the TSET Shares and the provisions
of all federal and state securities laws applicable to the
ownership and transfer thereof.
(j) COMPENSATION MATTERS. Except as disclosed in Exhibit 11(j)
attached hereto and made a part hereof for all purposes, no oral
or written compensation arrangement or agreement exists, and no
shares or units (or warrants or options to acquire the same), or
revenue interests, or royalties have been granted, orally or in
writing, or are owned by, EdgeAudio's board of directors,
employees, any Stockholder, or any third party.
(k) INTELLECTUAL PROPERTY. (i) Exhibit 11(k-1) attached hereto and
made a part hereof for all purposes sets forth an accurate and
complete list of the following:
(A) all registered or unregistered trademarks, trademark
applications, servicemarks, servicemark
applications, assumed names, trade names, trade
dress, and brand label names used or held by
EdgeAudio in connection with the Corporate Business
(collectively, "Trademarks"), indicating for each
Trademark whether it is owned or licensed from a
third party and whether the Trademark is licensed to
any third party; and
(B) all patents registered or applied for by EdgeAudio
or licensed from a third party, indicating for each
such patent whether it is owned or licensed from a
third party and whether such patent is licensed to
any third pay,
(ii) The Trademarks and patents listed in Exhibit
11(k1) have been duly registered or filed with
Page 12
the appropriate trademark and patent authority
for each of the jurisdictions indicated in
Exhibit 11(k-1), and such registrations have
been properly maintained and renewed in
accordance with all applicable legal
requirements.
(iii) There are no adverse claims or demands of any
person pertaining to any of the Trademarks or
patents listed in Exhibit 11(k-1) and, to the
best knowledge of EdgeAudio and each
Stockholder, there is no valid basis for any
such claim.
(iv) Except as disclosed in Exhibit 11(k-1), to the
best knowledge of EdgeAudio and each
Stockholder, EdgeAudio has the sole and
exclusive right to use the Trademarks,
patents, copyrights (and applications
therefor), technology, know-how, processes,
and trade secrets (collectively, and including
the Trademarks, the "Intellectual Property
Rights") required for or incidental to the
conduct of the Corporate Business, in the
jurisdictions in which the Corporate Business
has been or will be conducted or where
EdgeAudio's products are distributed, and the
consummation of the transactions contemplated
in this Agreement will not alter or impair any
such rights.
(v) Except as disclosed in Exhibit 11(k-2)
attached hereto and made a part hereof for all
purposes, neither EdgeAudio nor any of the
Stockholders are aware of any infringements or
illicit uses of the Intellectual Property
Rights used or held by EdgeAudio in connection
with the conduct of the Corporate Business.
(l) OWNERSHIP OF THE EDGEAUDIO SHARES. Except as disclosed in Exhibit
11(1) attached hereto and made a part hereof for all purposes,
each Stockholder holds full legal title to, and is duly
registered as the owner of, the EdgeAudio Shares to be
transferred by such Stockholder pursuant to this Agreement, free
and clear of any and all Liens.
Page 13
(m) SUBSIDIARIES. Exhibit 11(m-1), attached hereto and made a part
hereof for all purposes, sets forth an accurate and complete list
of each company, partnership, or other business entity of which
10% or more of the outstanding share capital or other equity
interests is owned, directly or indirectly, by EdgeAudio (in any
case, a "Subsidiary"), indicating the jurisdiction of
incorporation, capital structure, and the nature and level of
ownership in such Subsidiary and any other stockholder thereof.
Each Subsidiary is a corporation duly organized, validly
existing, and in good standing in all jurisdictions in which the
character of the properties owned or leased by it or the nature
of its business requires it to be so licensed or qualified.
Complete and correct copies of all constitutive documents of each
Subsidiary are attached hereto as Exhibit 11(m-2). The minute
books or other similar records of each Subsidiary contain an
accurate and complete record of all meetings and other corporate
actions of its stockholders and board of directors (and any
committees thereof).
(n) TITLE TO PROPERTY; CONDITION; SUFFICIENCY. (i) EdgeAudio has:
(A) with respect to all real estate owned by it, good
and marketable fee simple title, and
(B) with respect to all real estate which is leased by
it, valid and subsisting leasehold estates, in each
instance free and clear of any and all Liens other
than "Permitted Encumbrances" (as hereinafter
defined), and
(C) with respect to all of the other assets owned by it,
good title free and clear of any and all Liens,
other than Permitted Encumbrances.
As used in this Subsection (n), the term "Permitted Encumbrances"
shall mean any Liens that are immaterial, individually and in the
aggregate, to the assets to which they relate and do not
interfere with the full use and enjoyment of such assets.
(ii) The properties and other assets owned or leased by
EdgeAudio constitute all properties and other assets
necessary for the conduct of the Corporate Business.
(o) FINANCIAL STATEMENTS. (i) Complete and correct copies of the
internally prepared balance sheet of EdgeAudio as of May 1, 2000
is attached hereto as Exhibit 11(o-1) and made a part hereof for
all purposes. Such statement is collectively referred to as the
"Financial Statement".
(ii) To the best knowledge of EdgeAudio and each Stockholder,
the Financial Statement gives a true and accurate account
of the assets and liabilities of EdgeAudio as of the date
Page 14
thereof. Except as otherwise disclosed in Exhibit 11(o-1),
to the best knowledge of EdgeAudio and each Stockholder,
the Financial Statement has been prepared in accordance
with generally accepted accounting principles.
(iii) As of May 1, 2000, to the best knowledge of EdgeAudio and
each Stockholder, EdgeAudio had no liabilities or
obligations of any nature, whether known or unknown,
accrued, absolute, contingent, or otherwise, and whether
due or to become due (collectively, "Liabilities") which
were either (A) required by generally accepted accounting
principles to be reflected in the Financial Statement or
(B) individually or in the aggregate material to
EdgeAudio's financial condition and that, in either case,
were not reflected or expressly reserved against in the
Financial Statement or specifically disclosed or provided
for in the notes thereto. Except as set forth on Exhibit
11(o-2), since May 1, 2000, EdgeAudio has not incurred any
Liability except Liabilities that (X) were incurred in the
usual and ordinary course of business consistent with past
practice and (Y) are not, individually or in the
aggregate, material to EdgeAudio's financial condition.
(iv) Since May 1, 2000, EdgeAudio has conducted the Corporate
Business only in the ordinary and usual course in
substantially the same manner as theretofore conducted,
has not undergone or suffered any change in its condition
(financial or otherwise), income, properties, Liabilities,
operations, or prospects which has been, in any individual
case or in the aggregate, materially adverse to EdgeAudio,
and has not taken any of the following actions:
(A) Amended any of its constitutive documents;
(B) acquired by merger, consolidation, purchase of
stock or assets or otherwise, any corporation,
partnership, association, or other business
organization or division thereof;
(C) altered its outstanding capital stock or equity
interests or declared, set aside, made, or paid
any dividends or other distributions in respect of
its capital stock or equity interests (in cash or
otherwise), or purchased or redeemed any shares of
its capital stock or equity interests;
Page 15
(D) issued or sold (or agreed to issue or sell) any of
its capital stock or equity interests or any
options, warrants, or other rights to purchase any
such stock or interests or securities convertible
into or exchangeable for such stock or interests;
(E) incurred, other than in the ordinary course of
business consistent with past practice, any
indebtedness for borrowed money (including through
the issuance of debt securities) or varied the
terms of any existing indebtedness or guaranty or
otherwise become liable for any Liabilities to any
third party, except as set forth on Exhibit
11(o-2);
(F) mortgaged, pledged, or subjected to any Lien any
of its properties other than in the ordinary
course of business consistent with past practice;
(G) discharged or satisfied any material Lien or paid
or satisfied any material obligation or Liability
(fixed or contingent) or compromised, settled, or
otherwise adjusted any material claim or
litigation;
(H) acquired or disposed of any substantial assets or
rights, other than in the ordinary course of
business or entered into any contract whose term
exceeds one year or is unlimited and which may not
be terminated by EdgeAudio on less than three
months' notice without payment of any penalty;
(I) made any changes in its accounting procedures or
practices;
(J) granted to any director, officer, consultant, or
employee any increase or modification of
compensation or benefits, or any severance or
termination pay, or made any loan to or entered
into any employment agreement or arrangement with
any such person;
(K) adopted, entered into, amended in any material
respect, announced any intention to adopt or
terminate, any policies, procedures, employee
benefit plans, programs, or arrangements of
general applicability; or
(L) entered into any oral or written commitments or
understandings to take any of the foregoing
actions.
Page 16
(p) OUTSTANDING COMMITMENTS. (i) Exhibit 11(p) attached hereto and
made a part hereof for all purposes contains an accurate list of
all Contracts (but excluding orders placed in the ordinary course
of business consistent with past practice by EdgeAudio's
customers or suppliers) to which EdgeAudio is a party or by which
any of its assets or operations are bound or affected and which:
(A) involve the obligation (including contingent
obligations) by or to EdgeAudio to pay amounts of
$2,500.00 or more,
(B) are Contracts whose term exceeds one year or is
unlimited (with the exception of labor agreements)
and which may not be terminated by EdgeAudio on less
than three months' notice without payment of any
penalty or premium,
(C) are Contracts under whose terms EdgeAudio is bound
to refrain from carrying out or to restrict certain
activities, or to refrain from competing with any
third party,
(D) are Contracts with any Stockholder, director,
officer, or employee of EdgeAudio, or any relative
or affiliate of any such person, or
(E) were not entered into in the ordinary course of
EdgeAudio's business.
(ii) All Contracts listed in Exhibit 11(p) are valid, binding,
and enforceable by EdgeAudio in accordance with their
respective terms and EdgeAudio is not in default under any
of such Contracts. No other party to any of such Contracts
is in default thereunder nor does there exist any event or
condition, which upon giving of notice or the lapse of
time or both, would (A) constitute a default or event of
default thereunder, or (B) entitle any other party thereto
to terminate such Contract.
(iii) To the best knowledge of EdgeAudio and each Stockholder,
none of the Contracts to which EdgeAudio is a party or a
beneficiary violates any provision of any applicable Law
or Judgment. All Contracts between EdgeAudio, on the one
hand, and its suppliers, customers, distributors, agents,
or licensees on the other hand, have been concluded under
normal market conditions, without any preferential
Page 17
conditions or exceptional discounts, in accordance with
normal commercial practice.
(q) EMPLOYMENT MATTERS. (i) Exhibit 1l(q-1) attached hereto and made
a part hereof for all purposes sets forth all of the collective
rules applicable to EdgeAudio's employees (the "Collective
Rules") including, without limitation, applicable collective
bargaining agreements and company agreements; any exceptional
agreements concluded with employee representatives; the
remuneration system, including premiums, bonuses, commissions,
and advantages in kind; profit-sharing, incentive, and company
savings plans; retirement or health insurance plans pursuant to
which employees are entitled to receive advantages in addition to
those provided for by law or applicable collective bargaining
agreements; and any regional, local, or individual company or
establishment practices which provide for advantages which exceed
those provided for by law or applicable collective bargaining
agreements.
(v) Exhibit 11(q-2) attached hereto and made a part hereof for
all purposes sets forth all consulting, employment,
severance, termination, or compensation Contracts of
EdgeAudio with any Stockholder or former stockholder or
with any current director, officer, consultant, or with
any individual employee or manager pursuant to which such
employee or manager receives benefits which exceed those
provided for by law or the applicable Collective Rules
including, without limitation, increased severance pay,
extended notice periods, advantages in kind, or pensions
(the "Employment Agreements"). None of the Employment
Agreements provides for payments measured by the value of
any equity security of or interest in EdgeAudio or in
connection with any change in control of EdgeAudio and no
amount will become due to any Stockholder, employee,
consultant, officer, or director of EdgeAudio under the
Collective Rules or any Employment Agreement solely as a
result of the transactions contemplated in this Agreement.
(vi) Exhibit 11(q-3) attached hereto and made a part hereof for
all purposes sets forth all obligations of EdgeAudio to
employee representative organizations which exceed those
provided for by law or in the applicable Collective Rules.
(vii) To the best knowledge of EdgeAudio and each Stockholder,
EdgeAudio is now and has in the past been in compliance
with all provisions of applicable labor and social
security laws, the Collective Rules, and the Employment
Agreements and all payments due thereunder from EdgeAudio
have been made when due and all amounts properly accrued
Page 18
as Liabilities of EdgeAudio which have not been paid have
been properly recorded on EdgeAudio's books.
(viii) Since inception, there have occurred no strikes, slow
downs, work stoppages, or other similar labor actions by
any group of EdgeAudio's employees. Except as set forth in
Exhibit 11(q-3), no Proceeding arising out of any labor
grievance under any Law, the Collective Rules, or any
Employment Agreement is pending or, to the best knowledge
of EdgeAudio and each Stockholder, threatened.
(ix) EdgeAudio has not made any commitment to any public
agency, labor organization, employees' representatives, or
any other party, relating to the numbers of EdgeAudio's
employees or to future collective dismissals.
(r) ENVIRONMENTAL, HEALTH, AND SAFETY. (i) To the best knowledge of
EdgeAudio and each Stockholder, EdgeAudio has obtained and been
in compliance with all terms and conditions of any and all
Permits which are required under, and has complied with all other
limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules, and timetables which are
contained in, all Laws and Judgments relating to public health
and safety, worker health and safety, and pollution or protection
of the environment, including Laws relating to emissions,
discharges, releases or threatened releases of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic
materials or wastes into ambient air, surface water, ground
water, or lands, or otherwise relating to the testing,
characterization, classification, manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or
handling of pollutants, contaminants, or chemical, industrial;
hazardous, or toxic materials or wastes. To the best knowledge of
EdgeAudio and each Stockholder, all such Permits are valid and in
full force and effect for the conduct of the Corporate Business
as presently conducted, and where applicable, timely renewal
applications have been submitted for all such Permits. To the
best knowledge of EdgeAudio and each Stockholder, no Proceeding
has been filed or commenced against EdgeAudio alleging any
failure to comply with any such Laws, Judgments, or Permits.
(ii) To the best knowledge of EdgeAudio and each Stockholder,
EdgeAudio has no Liability (and there is no past or
present fact, status, condition, activity, occurrence,
action, or failure to act related to the past or present
operations, properties, or facilities of EdgeAudio that
forms or reasonably could form the basis for the
imposition of any Liability):
Page 19
(A) under any Law relating to protection of human health
or safety or concerning employee or worker health
and safety or relating generally to the environment,
(B) for damage to any site, location, natural resources,
or body of water (surface or subsurface) or for
failure to report or clean up any discharges of any
substances, or
(C) for any illness of or personal injury to any of its
employees or any third party.
(s) INSURANCE. Exhibit 11(s) attached hereto and made a part hereof
for all purposes sets forth a complete list and brief description
(specifying the insurer, the coverage and policy number or
covering note number with respect to binders) of all policies,
binders, or Contracts to which EdgeAudio is a party or by which
any of its assets are covered, of property, fire, liability,
product liability, workmen's compensation, vehicular, crime,
fiduciary, builders' risk, title, and other insurance or
Contracts in the nature of insurance (collectively, the
"Insurance Contracts"). To the best knowledge of EdgeAudio and
each Stockholder, the Insurance Contracts listed in Exhibit 11(s)
are in full force and effect in accordance with their respective
terms and will remain in full force and effect hereafter.
EdgeAudio has not received any notice that it is in default with
respect to any provision of any Insurance Contract, or failed to
give any notice or present any claim thereunder in due and timely
fashion or as required by any such Insurance Contract so as to
jeopardize full recovery thereunder.
(t) COMPLIANCE WITH LEGAL REQUIREMENTS. (i) To the best knowledge of
EdgeAudio and each Stockholder, EdgeAudio is currently
conducting, and has in the past conducted, its business in
compliance with all applicable Laws, Judgments, and Permits.
(ii) To the best knowledge of EdgeAudio and each Stockholder,
EdgeAudio possesses, and upon consummation of the
transactions contemplated in this Agreement will continue
to possess all Permits necessary to conduct the Corporate
Business as currently being conducted and all such Permits
are and will remain in full force and effect. No
Proceeding to modify, suspend, terminate, or otherwise
limit any such Permit is pending or, to the best knowledge
of EdgeAudio and each Stockholder, threatened.
(iii) Neither EdgeAudio nor any Stockholder has received any
notice in any form (including any citations, notices of
violations, complaints, consent orders, or inspection
reports) which would indicate that such party was not at
Page 20
the time of such notice or is not currently in compliance
with all such applicable Laws, Judgments, and Permits.
(u) CAPITALIZATION. Exhibit 11(u-1) attached hereto and made a part
hereof for all purposes sets forth EdgeAudio's capitalization and
list of Stockholders (showing the name, mailing address, and
number of EdgeAudio Shares owned by each such Stockholder) as of
the date hereof. All of the Stockholders have the sole right to
own the EdgeAudio Shares shown on Exhibit 11(u-1). No other
person has any right or expectancy to own any EdgeAudio Shares,
whether through option, purchase, grant, or other means by which
any right or expectancy of ownership could arise or become vested
in any such person.
(v) TAX FREE REORGANIZATION REPRESENTATIONS. (i) There is no plan or
intention by the Stockholders of EdgeAudio to sell, exchange, or
otherwise dispose of a number of TSET Shares received in the
transaction that would reduce the EdgeAudio Stockholders'
ownership of TSET stock to a number of shares having a value, as
of the date of the transaction, of less than 50 percent of the
value of all of the formerly outstanding stock of EdgeAudio as of
the same date. Shares of EdgeAudio stock and shares of TSET stock
held by EdgeAudio shareholders and otherwise sold, redeemed, or
disposed of prior or subsequent to the transaction will be
considered in making this representation.
(ii) EdgeAudio has no plan or intention to issue additional
shares of its stock that would result in TSET losing
control of EdgeAudio within the meaning of Section 368(c)
of the Internal Revenue Code.
(iii) At the time of the transaction, EdgeAudio will not have
outstanding any warrants, options, convertible securities,
or any other type of right pursuant to which any person
could acquire stock in EdgeAudio that, if exercised or
converted, would affect TSET's acquisition or retention of
control of EdgeAudio, as defined in Section 368(c) of the
Internal Revenue Code.
(iv) Neither EdgeAudio nor any Stockholder is an investment
company as defined in Section 368(a)(2)(F)(iii) and (iv)
of the Internal Revenue Code.
(v) None of the Stockholders shall exercise their dissenter's
rights in connection with the transaction.
(vi) On the date of the transaction, the fair market value of
the assets of EdgeAudio will exceed the sum of its
liabilities plus the liabilities, if any, to which the
assets are subject.
Page 21
(vii) The fair market value of the TSET Shares received by each
EdgeAudio Stockholder will be approximately equal to the
fair market value of the EdgeAudio Shares surrendered in
the exchange.
(viii) Following the transaction, EdgeAudio will continue its
historic business or use a significant portion of its
historic business assets in a business.
(ix) None of the compensation received by any Stockholder
employees of EdgeAudio will be separate consideration for,
or allocable to, any of their EdgeAudio Shares; none of
the TSET Shares received by any Stockholder employees will
be separate consideration for, or allocable to, any
employment agreement; and the compensation paid to any
Stockholder employees will be for services actually
rendered and will be commensurate with amounts paid to
third parties bargaining at arm's-length for similar
services.
The representations and warranties contained in this Section 11 shall
survive the execution and delivery of this Agreement for a period of one
year.
12. REPRESENTATIONS AND WARRANTIES OF TSET. TSET hereby covenants,
represents and warrants to EdgeAudio and the Stockholders as follows:
(a) CORPORATE ORGANIZATION. TSET is a corporation duly organized,
validly existing, and in good standing under the laws of the
State of Nevada and has all requisite power, authorizations,
consents, and approvals necessary to own its assets and carry on
its business as now being conducted, and to consummate the
transactions contemplated herein.
(b) NO DEFAULTS OR BREACHES. Neither the execution of this Agreement
nor the performance of its obligations hereunder does or will
conflict with or violate any provision of TSET's articles of
incorporation or bylaws; violate, conflict with, or result in the
breach or termination of, or constitute a default, event of
default (or any event which with notice, lapse of time, or both,
would constitute a default or event of default), under the terms
of any material agreement to which TSET is a party or by which
TSET or its securities, properties, or businesses are bound; or
constitute a violation by TSET of any laws or judgments (other
than any violation, conflict, breach, or default that would not
prevent TSET from consummating the transactions contemplated
herein or otherwise performing its obligations thereunder).
(c) ACTIONS AND PROCEEDINGS. There are no actions, suits,
proceedings, or governmental investigations or inquiries pending
or, to the knowledge of TSET, threatened against TSET or its
Page 22
properties, assets, operations, or businesses (whether or not the
defense thereof or liability with respect thereto is covered by
policies of insurance) that might reasonably be expected to
delay, prevent, or hinder the consummation of the transactions
contemplated herein.
(d) AUTHORITY. TSET has all necessary corporate power and authority
to execute, deliver, and perform its obligations hereunder; and
the execution, delivery, and performance by TSET of this
Agreement has been duly authorized by all necessary corporate
action on its part or is within the authority of the person
executing and delivering the same. This Agreement constitutes the
legal, valid, and binding obligations of TSET, enforceable
against it in accordance with the terms hereof, except as may be
limited by applicable bankruptcy, insolvency, reorganization, or
other similar laws affecting creditors' rights, and general
principles of equity.
(e) CONSENTS. Except as set forth in Exhibit 12(e) TSET is not
required to submit any notice, report, or other filing with any
governmental or regulatory authority in connection with the
execution and delivery by TSET of this Agreement and the
consummation of the transactions contemplated by this Agreement
and (2) no consent, approval, or authorization of any
governmental or regulatory authority is required to be obtained
by TSET or any affiliate in connection with TSET's execution,
delivery, and performance of this Agreement and the consummation
of the transactions contemplated by this Agreement.
(f) INVESTMENT INTENT. TSET is acquiring the EdgeAudio Shares for its
own account with the present intention of holding such securities
for purposes of investment, and TSET has no intention of selling
such securities in a public distribution in violation of the
United States securities laws or any applicable state securities
laws. During the course of the negotiation of this Agreement,
TSET has reviewed all information provided to it by EdgeAudio and
has had the opportunity to ask questions of and receive answers
from representatives of EdgeAudio concerning EdgeAudio, the
securities offered and transferred hereby, and the transactions
contemplated herein, and to obtain certain additional information
requested by TSET.
(g) UNREGISTERED SHARES. TSET understands that the EdgeAudio Shares
to be acquired have not been registered under the Securities Act
of 1933 as amended (the "Securities Act"), by reason of a
specific exemption from the registration provisions of the
Securities Act which depends upon, among other things, the bona
fide nature of the investment intent as expressed herein.
(h) LEGEND ON SHARE CERTIFICATES. TSET understands that the
certificates for the Shares will bear the following legend:
INTRASTATE OFFERING EXEMPTION: "The shares represented by this
Page 23
certificate have not been registered under the Securities Act of
1933. No offer, sale, transfer, pledge or other disposition of
the shares may be effected in the absence of an effective
registration statement under the Securities Act of 1933 and
applicable state securities laws or an opinion of counsel
acceptable to the corporation that such registration is not
required."
(i) NO BROKERS OR FINDERS. There are no claims for brokerage
commissions, finders' fees, or similar compensation in connection
with the transactions contemplated herein based on any
arrangement or agreement entered into by TSET and binding upon
the Stockholders.
(j) TAX FREE REORGANIZATION REPRESENTATIONS. (i) TSET has no plan or
intention to liquidate EdgeAudio; to merge EdgeAudio into another
corporation; to cause EdgeAudio to sell or otherwise dispose of
any of its assets, except for dispositions made in the ordinary
course of business; or to sell or otherwise dispose of any of the
EdgeAudio stock acquired in the transaction, except for transfers
described in Section 368(a)(2)(c) of the Internal Revenue Code.
(ii) TSET has no plan or intention to reacquire any of its
stock issued in the transaction.
(iii) No liabilities of EdgeAudio or the EdgeAudio Stockholders
will be assumed by TSET.
(iv) TSET does not own, directly or indirectly, nor has it
owned during the past five years, directly or indirectly,
any stock of EdgeAudio.
(v) TSET is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Internal Revenue Code.
(vi) The fair market value of the TSET stock received by each
EdgeAudio Stockholder will be approximately equal to the
fair market value of the EdgeAudio stock surrendered in
the exchange.
(vii) Following the transaction, EdgeAudio will continue its
historic business or use a significant portion of its
historic business assets in a business.
(viii) None of the compensation received by any Stockholder
employees of EdgeAudio will be separate consideration for,
or allocable to, any of their shares of EdgeAudio stock;
none of the shares of TSET stock received by any
Stockholder-employees will be separate consideration for,
or allocable to, any employment agreement; and the
Page 24
compensation paid to any Stockholder-employees will be for
services actually rendered and will be commensurate with
amounts paid to third parties bargaining at arm's length
for similar services.
(k) PROJECTIONS AND FORECASTS. EdgeAudio has provided certain
projections and forecasts (collectively the "Forecasts") of its
possible future performance to TSET. TSET hereby acknowledges
that the Forecasts are speculative in nature, are based on
various assumptions that may or not come true, and are not
intended to guarantee in any way the future performance of
EdgeAudio. Notwithstanding any other provisions of this
Agreement, neither EdgeAudio nor the Shareholders are making any
representations or warranties regarding the Forecasts, and TSET
agrees that it has not relied on and shall not be entitled to
rely on the Forecasts for any purpose.
(1) COMPLIANCE WITH PUBLIC INFORMATION REQUIREMENTS OF RULE 144. TSET
hereby covenants that at all times following the closing, it
shall comply with all public information requirements of SEC Rule
144 that are necessary for the Stockholders to sell their TSET
Shares in compliance with Rule 144.
The representations and warranties contained in paragraphs (a) through (j)
of this Section 12 shall survive the execution and delivery of this
Agreement for a period of one year. The representations and warranties
contained in paragraph (k) and the covenants contained in paragraph (l) of
this Section 12 shall survive the closing indefinitely.
13. DISTRIBUTION OF PROFITS. The parties agree that, as the sole
stockholder of EdgeAudio, TSET shall be entitled on a regular basis to
distribution of all profits resulting from the conduct of the
Corporate Business to the extent they exceed the reasonable cash needs
of EdgeAudio. The directors of EdgeAudio agree to vote in favor of
such distributions (to the extent permitted by law) as requested from
time to time by TSET. TSET hereby covenants that it shall, in
connection with any request for such distribution, ensure that
sufficient cash remains allocated to EdgeAudio to provide for
reasonable operating and working capital needs for the continuation
and advancement of the Corporate Business, funding of Programs
relating to profit-sharing or other benefit plans according to the
terms thereof, plus reasonable reserves for contingencies or
extraordinary items. Until the earlier of the date all the Earn-out
Shares have been issued or the date the Earn-out Period expires, the
EdgeAudio board of directors (after consultation with TSET) shall have
authority to determine the amount of EdgeAudio's cash reserves
necessary for contingencies or extraordinary items. EdgeAudio's board
will not unreasonably deny TSET's request for distributions.
14. DISPUTE RESOLUTION. All disputes, controversies, claims, and defenses
arising out of, relating to, or involving this Agreement, whether
Page 25
involving theories of tort, contract, or violation of statutory laws
("Claims") are subject to the following provisions:
(a) In the event of any default or dispute between, breach by, or
other controversy involving, the parties hereto regarding the
subject matter of this Agreement (in any case, a "Dispute"), the
parties shall exert their respective good faith best efforts to
amicably resolve and settle the same. Toward this end, the
parties shall consult and negotiate with each other in good faith
to reach a just and equitable solution reasonably satisfactory to
them. In the event the Dispute cannot be amicably resolved and
settled through good faith negotiations, the parties agree to
resolve the dispute in accordance with the following provisions.
(b) Except as to actions, suits, or proceedings commenced or
maintained by persons not parties hereto, the parties agree to
have any Claim be determined by binding arbitration. Unless the
parties otherwise agree in writing, the arbitration shall be
conducted in Portland, Oregon before a single arbitrator and in
accordance with the commercial arbitration rules of the
Arbitration Service of Portland. If the parties are unable to
agree on an arbitrator within 14 days of an election to
arbitrate, the arbitrator shall be appointed in accordance with
the procedures set forth in ORS 36.320. The arbitrator shall
issue an award within 30 days of conclusion of the hearing. The
award of the arbitrator shall be final, binding and not subject
to appeal. Judgment on any arbitration award may be entered in
any court with jurisdiction.
(c) If a party submits any Claim to arbitration, any provisional
remedy issued prior thereto may remain in effect until such time
as an arbitrator is selected or appointed and has assumed to
determine the Claim. Thereafter the arbitrator may issue,
continue, or terminate provisional relief or may permit a party
to pursue provisional relief in court.
(d) All actions or suits by a party for provisional remedies shall be
brought and maintained in Portland, Oregon. Each party consents
to personal jurisdiction in Oregon and waives any right to seek a
change of venue.
(e) The prevailing party in a judicial action, suit or arbitration
proceeding shall be awarded all reasonable costs, attorneys' fees
and expenses incurred in connection with the proceeding and on
any appeal except that the costs and fees of the arbitrator shall
be shared equally.
(f) The arbitrator shall not award or require the payment of, and the
parties shall not seek, incidental, consequential, or punitive
damages except in cases of bad faith breach of this Agreement,
gross negligence, willful misconduct, or fraud. The parties shall
not seek to delay or prevent the implementation of any decision
of the arbitrator.
Page 26
(g) The parties acknowledge that, except as set forth above, their
agreement to resolve Claims through arbitration constitutes a
waiver of their right to resolve Claims in any court, and that in
arbitration proceedings the parties may not be entitled to all of
the rights that would otherwise be available to them in court
proceedings.
15. INDEMNIFICATION. (a) From and after the date of this Agreement,
EdgeAudio and each Stockholder, jointly and severally agree to pay and
to indemnify fully, hold harmless, and defend TSET and its directors,
officers, employees, agents, representatives, attorneys, successors,
and assigns from and against any and all Liabilities, damages,
penalties, Judgments, assessments, losses, fines, charges, costs, and
expenses (including, but not limited to, reasonable attorney's fees
and the costs and expenses of litigating any claims) (collectively,
"Damages" incurred by any of them arising out of, relating to, or
based upon:
(i) any inaccuracy or breach of any representation or warranty
of EdgeAudio or any Stockholder set forth in Section 11
hereof or elsewhere herein; and
(ii) any breach of any covenant or agreement of EdgeAudio or
any Stockholder contained in this Agreement.
TSET's right to be indemnified hereunder shall not be limited or
affected by any investigation conducted or notice or knowledge
obtained by or on behalf of TSET.
(b) From and after the date of this Agreement, TSET agrees to pay and
to indemnify fully, hold harmless, and defend each Stockholder
and its directors, officers, employees, agents, representatives,
attorneys, successors, and assigns from and against any and all
Damages incurred by any of them arising out of, relating to, or
based upon:
(i) any inaccuracy or breach of any representation or warranty
of TSET set forth in Section 12 hereof or elsewhere
herein; and
(ii) any breach of any covenant or agreement of TSET contained
in this Agreement.
A Stockholder's right to be indemnified hereunder shall not be limited or
affected by any investigation conducted or notice or knowledge obtained by
or on behalf of any Stockholder.
(c) In the event that (A) any claim, demand, or Proceeding is
asserted or instituted by any party other than the parties hereto
and their affiliates which could give rise to Damages for which
an indemnified party intends to seek indemnification hereunder (a
"Third Party Claim"), or (B) an indemnified party intends to make
a claim to be indemnified hereunder which does not involve a
Third Party Claim (a "Direct Claim"), the indemnified party shall
promptly, within 21 days of the date on which it first becomes
aware of the existence of a Third Party Claim or a Direct Claim,
send written notice to the indemnifying party or parties
specifying the nature of such Third Party Claim or Direct Claim
Page 27
and the amount thereof (or a good faith estimate of such amount,
which estimate shall not be conclusive of any final amount
thereof) (a "Claim Notice"); provided, however, that failure to
provide a Claim Notice shall not constitute any waiver or
relinquishment of the indemnified party's rights to
indemnification hereunder.
(d) In the event of a Third Party Claim, the indemnified party may
participate, at its own expense, in the defense thereof with
legal counsel of its own choice reasonably acceptable to the
indemnifying party or parties. Unless the indemnifying party or
parties shall have agreed in writing that any and all Damages to
the indemnified party are fully covered by the indemnities
provided herein, no Third Party Claim may be settled without the
indemnified party or parties' prior written consent.
(e) In the event of a Direct Claim, unless the indemnifying party
notifies the indemnified party within 30 days after receipt of a
Claim Notice that they dispute such Direct Claim, the amount of
such Direct Claim shall be conclusively deemed a liability of the
indemnifying party or parties and shall be paid to the
indemnified party or parties no later than 10 days following
lapse of such 30-day period.
16. GENERAL PROVISIONS. (a) INTEGRATION AND AMENDMENT. This Agreement
constitutes the entire agreement between and among the parties with
respect to the subject matter hereof and supersedes all prior
agreements and understandings with respect thereto. No other
agreement, whether oral or written, shall be used to modify or
contradict the provisions hereof unless the same is in writing, signed
by the parties, and states that it is intended to amend the provisions
of this Agreement.
(b) COUNTERPARTS. This Agreement may be executed in multiple
counterparts (and by facsimile signature, to be followed by
manual signature as soon as practicable), each of which shall be
deemed an original, and all of which shall be deemed to
constitute a single agreement, document, instrument, or
certificate, as the case may be.
(c) BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the heirs, successors, and permitted assigns of
the parties hereto.
(d) WAIVER. No failure by any party to this Agreement to exercise, no
delay in exercising, and no course of dealing with respect to,
any right, power, or privilege hereunder or any other document,
instrument, or certificate relating hereto, shall operate as a
waiver or any relinquishment for the future thereof; and no
single or partial exercise of any right, power, or privilege
hereunder or any other document, instrument, or certificate
relating hereto shall preclude any other or future exercise
thereof or the exercise of any other right, power, or privilege.
Page 28
(e) SEVERABILITY. If any provision (or portion thereof) of this
Agreement is adjudged illegal or unenforceable by a court of
competent jurisdiction, the remaining provisions shall
nevertheless continue in full force and effect. In any such case,
the provision deemed illegal or unenforceable shall be remade or
interpreted by the parties in a manner that such provision shall
be enforceable to preserve, to the maximum extent possible, the
original intention and meaning thereof.
(f) NOTICES. All notices or other communications given or made
hereunder shall be in writing and may be delivered personally, by
express, registered, or certified mail (return receipt
requested), by special courier, or by facsimile transmission (to
be followed by delivery of a written original notice in the most
expeditious manner possible, as aforesaid), all postage, fees,
and charges prepaid, to TSET, EdgeAudio, or any of the
Stockholders, as the case may be, to the following addresses
(which may be changed by the parties from time to time upon
written notice given as aforesaid):
TO TSET: 000 Xxxxx Xxxxx Xxxxxx, XXX 000
Xxxx Xxxxxx, XX 00000
Tel: 000.000.0000
Fax: 000.000.0000
Attn: Xxxxxxx X. Xxxxxx
Chairman and Chief
Executive Officer
TO EDGEAUDIO: 00000 X.X. Xxxxxx Xxxx, Xxxxx X
Xxxx Xxxxxx, XX 00000
Tel: 000.000.0000
Fax: 000.000.0000
Email: xxx@xxxxxxxxx.xxx
Attn: Xxxxxxxx X. Xxxxxxxxx
Page 29
TO XXXX ENTERPRISES, INC.:
00000 X.X. Xxxxxx Xxxx, Xxxxx X
Xxxx Xxxxxx, XX 00000
Tel: 000.000.0000
Fax: 000.000.0000
Email: xxx@xxxxxxxxx.xxx
Attn: Xxxxxxxx X. Xxxxxxxxx
TO XXXXXX X. XXXXXXXX:
0000 Xxxxxxxxx Xxxxx
Xxxx Xxxxxx, xx 00000
Tel: 000.000.0000
Fax: 000.000.0000
Email: XXXXXXXXX@XXXXXXXXX.XXX
TO J. XXXXX XXXXX: 0000 Xxxxxxx Xxxxxx
Xxxx Xxxxxx, XX 00000
Tel: 000.000.0000
Fax: 000.000.0000
Email: XXXXXX@XXXXXXXXX.XXX
TO XXXX X. XXXXXXXXX: 0000 Xxxxx
Xxxxx, XX 00000
Tel: 000.000.0000
Fax: 000.000.0000
Email: XXXXXXXXXX@XXXXXXXXX.XXX
TO ETERNA INTERNACIONAL, S.A. DE C.V.:
Xxxxxxx Xxxxx Xxxxxx #0000-0
Xxxxxxx Xxxxxx Xxxxxxx
Xxxxxxxx, Xxxx Xxxxxxxxxx, Xxxxxx
Tel: 000.00.00.00.0000
Fax: 000.00.00.00.0000
Notices hereunder shall be deemed given when delivered in person,
upon confirmation of successful transmission when sent by telex
or facsimile, or five days after being mailed by express,
registered, or certified mail (return receipt requested), postage
prepaid.
Page 30
(g) COSTS, EXPENSES, AND TAXES. Each party shall bear its own costs,
expenses, and taxes incurred or associated with the transactions
contemplated in this Agreement.
(h) GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Oregon, exclusive of
its conflicts of laws principles.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
effective as of the date first written above.
TSET, Inc.
By: /s/ Xxxxxxx X. Xxxxxx
-------------------------------------
Xxxxxxx X. Xxxxxx
Chairman and Chief Executive Officer
XxxxXxxxx.Xxx, Inc.
By: /s/ Xxxxxxxx X. Xxxxxxxxx
-------------------------------------
Xxxxxxxx X. Xxxxxxxxx
Chief Executive Officer
XXXX Enterprises, Inc.
By: /s/ Xxxxxxxx X. Xxxxxxxxx
--------------------------------------
Xxxxxxxx X. Xxxxxxxxx
President
/s/ Xxxxxx X. Xxxxxxxx
-------------------------------------
Xxxxxx X. Xxxxxxxx, individually
/s/ J. Xxxxx Xxxxx
-------------------------------------
J. Xxxxx Xxxxx, individually
-------------------------------------
Xxxx X. Xxxxxxxxx, individually
Page 31
Eterna Internacional, S.A. de C.V.
By:
--------------------------------------
Xxxxx Xxxx Xxxxxxxx
President
Page 32
---------------------------------------
Xxxxxx X. Xxxxxxxx, individually
---------------------------------------
J. Xxxxx Xxxxx, individually
---------------------------------------
Xxxx X. Xxxxxxxxx, individually
Eterna Internacional, S.A. de C.V.
By: /s/ Xxxxx Xxxx Xxxxxxxx
--------------------------------------
Xxxxx Xxxx Xxxxxxxx
President
Page 33
---------------------------------------
Xxxxxx X. Xxxxxxxx, individually
---------------------------------------
J. Xxxxx Xxxxx, individually
/s/ Xxxx X. Xxxxxxxxx
---------------------------------------
Xxxx X. Xxxxxxxxx, individually
Eterna Internacional, S.A. de C.V.
By:
---------------------------------------
Xxxxx Xxxx Xxxxxxxx
President
Page 34