Exhibit 6.1
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ACQUISITION AGREEMENT
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THIS ACQUISITION AGREEMENT is entered into effective as of March 13, 2000,
by and among TSET, Inc., a Nevada corporation ("TSET"); High Voltage Integrated,
LLC, a Washington limited liability company ("HVI"); Xxxxxx Xxxxxxxx, an
individual; Igor Krichtafovitch, an individual; Xxxxxx X. Xxxxxxxx XX, an
individual; and Xxxx Xxxxxxx, an individual (Xxxxxx Xxxxxxxx, Xxxx
Krichtafovitch, Xxxxxx X. Xxxxxxxx XX, and Xxxx Xxxxxxx are hereinafter
collectively referred to as the "Principals").
WHEREAS, HVI and the Principals have developed and own certain patents
pending and all other related intellectual property rights relating to a certain
high voltage technology innovation known as the "electron wind generator"
(including any and all improvements and derivatives, the "Technology");
WHEREAS, on December 27, 1999, TSET, HVI, and the Principals 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 a new
corporation into which would be transferred the Intellectual Property Rights (as
defined in Exhibit 2B attached hereto and made a part hereof for all purposes)
and the Technology, and other elements of the relationship of the parties;
WHEREAS, TSET, HVI, and the Principals desire to pursue the business
purposes described in Section 1A hereof (all such activities described in such
Section 1A hereof are hereinafter collectively referred to as the "Corporate
Business");
WHEREAS, TSET is willing and able, among other things, to provide and
assist in the provision of working capital necessary to the furtherance of the
Corporate Business, and HVI and the Principals are willing, among other things,
to contribute the Intellectual Property Rights and the Technology and continue
to exert their best efforts in conducting the Corporate Business; and
WHEREAS, the parties hereto desire to conduct the Corporate Business in the
form and through the instrumentality of a new corporation to be known as "Kronos
Technologies, Inc." ("Kronos"), as described herein.
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 agree as follows:
1. Formation of Business Entity. As soon as practicable following the
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execution and delivery of this Agreement by the parties, TSET shall, at its own
expense, cause to occur all steps necessary for the incorporation of Kronos
under the laws of the State of Nevada. Kronos' authorized capital shall consist
of 100,000,000 shares of common stock, par value $0.001 per share (the "Kronos
Shares"). Following incorporation, all costs, expenses, fees, taxes, licenses,
and other charges of maintaining corporate existence, good standing, foreign
qualifications, operations, and conduct of the Corporate Business shall be for
the account of, and shall be borne by, Kronos. The Principals shall retain the
discretion whether to continue the corporate existence of HVI and their
respective ownership interests therein; provided, however, that if the corporate
existence of HVI is terminated, the Principals, as the owners thereof, shall
bear continuing responsibility for the truth and accuracy of all of HVI's
representations, warranties, and fulfillment of all of HVI's undertakings set
forth herein.
1A. Statement of the Corporate Business. The parties agree that the
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Corporate Business of Kronos shall be, among other things:
(a) to own the Intellectual Property Rights and the Technology, and
all improvements thereto and derivatives thereof;
(b) to diligently and aggressively apply the Intellectual Property
Rights and the Technology for the further advancement, development, improvement,
enhancement, deployment, maximization of value, and exploitation thereof in
global markets by, among other things, developing prototypes and production-
model devices embodying the Intellectual Property Rights and the Technology for
the Initial Applications and making the same available to commercial and other
markets globally, and to conduct all such activities with a view to generating
profits;
(c) to take such reasonable and prudent steps as may be necessary and
advisable to:
(i) ensure good faith best efforts are taken to protect,
preserve, enhance, expand, and defend the Intellectual Property Rights and the
Technology by, among other things, establishing appropriate confidentiality and
security arrangements for protecting Kronos's non-public, proprietary
information and trade secrets;
(ii) aggressively monitor developments in the field of the
Intellectual Property Rights and the Technology and employ good faith best
efforts in policing against and preventing infringements or illicit uses
thereof, and enforcing Kronos' rights relating thereto including, without
limitation, the initiation of legal proceedings with respect thereto;
(d) expand the scope and application of the Intellectual Property
Rights and the Technology, through diligently conducting the Corporate Business,
continuing research and development activities for enhancing, improving, and
creating derivative manifestations thereof, diligently pursuing such patent
applications as are already filed, and seeking additional patents and other
legal protections for the Initial Applications (and any and all improvements
thereto and derivatives thereof); and
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(e) to establish programs, procedures, and mechanisms whereby the
Principals will benefit economically and have appropriate incentives to
diligently and properly conduct the Corporate Business and seek at all times to
advance Kronos' best interests, and maximize Kronos' profitability and success
for the benefit of TSET; and
(f) to pursue such other activities as Kronos' board of directors may
direct or establish.
2. Transfer of Intellectual Property Rights. Immediately following the
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incorporation of Kronos, HVI and the Principals shall execute and deliver to
Kronos any and all necessary and appropriate documents, instruments, and
certificates of assignment, transfer, and conveyance described in Exhibit 2A
attached hereto and made a part hereof for all purposes (collectively, the
"Transfer Documents") relating to the Intellectual Property Rights (as described
in Exhibit 2B attached hereto and made a part hereof for all purposes), such
that all right, title, and interest in and to the Intellectual Property Rights
shall be vested in Kronos for all purposes, free and clear of any and all liens,
claims, encumbrances, and charges thereon. Any Intellectual Property Rights
arising out of future developments, improvements, derivatives, or devices
embodying or including the Intellectual Property Rights or the Technology, and
any patents or other similar legal protections and ownership rights relating
thereto, shall be the property of Kronos.
3. Initial Issuance of the Kronos Shares. Immediately following the
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transfer of the Intellectual Property Rights to Kronos as described in Section 2
hereof, Kronos' board of directors shall approve, authorize, and cause to be
issued to HVI and the Principals their respective pro rata number of Kronos
Shares as follows:
HVI -0- shares
Xxxxxx Xxxxxxxx 450,000shares
Igor Krichtafovitch 1,125,000 shares
Xxxxxx X. Xxxxxxxx, XX 450,000 shares
Xxxx Xxxxxxx 225,000 shares
Upon issuance, the Kronos Shares shall be deemed fully paid and non-assessable.
4. Exchange of Shares. (a) Immediately following the transfer of the
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Intellectual Property Rights to Kronos and the issuance of the Kronos Shares to
HVI and the Principals, and in exchange for all of the Kronos Shares owned by
each of them, TSET shall deliver to HVI and each of the Principals certificates
representing "investment" shares of TSET's common stock, par value $0.001 per
share (the "TSET Shares"), with HVI and each Principal and the finders
identified below with an asterisk by their names (collectively, the "Finders")
receiving the following allocation of the TSET Shares:
HVI -0- shares
To be held in Escrow 250,000 shares
In Trust 360,000 shares
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Xxxxxx Xxxxxxxx 288,000 shares
Igor Krichtafovitch 720,000 shares
Xxxxxx X. Xxxxxxxx, XX 288,000 shares
Xxxx Xxxxxxx 144,000 shares
F. Xxxxxx XxXxxxxx* 180,000 shares
Xxxxx Xxxxxxx* 20,000 shares
The aggregate number of TSET Shares to be issued to HVI and the Principals
pursuant to this Section 4 shall be 2,250,000 shares (the "Aggregate Shares"),
calculated as shown in Exhibit 4 attached hereto and made a part hereof for all
purposes, as sole compensation for the Kronos Shares. HVI and the Principals
understand and acknowledge that the TSET Shares shall be subject to, and HVI and
the Principals agree to at all times observe and comply with any and all
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. Any taxes, levies, or other charges assessed
against, or in connection with the acquisiton of, the TSET Shares pursuant to
this Subsection (a) shall be for the account of, and shall be borne solely by,
HVI and the Principals.
(b) Any compensation or finder's fee payable by HVI or the Principals
(or any of them) to any person (including, without limitation, the Finders)
relating to the transactions contemplated by this Agreement shall be paid out of
the Aggregate Shares, the parties agreeing that TSET shall have no financial or
other responsibility whatsoever for payment of any such compensation.
(c) The TSET Shares received by the Finders do not constitute any
ownership interest in Kronos.
5. Management. (a) Kronos' initial board of directors, to be appointed
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by the Principals in connection with the incorporation of Kronos, shall be
comprised of the following individuals:
Xxxxxx Xxxxxxxx
Igor Krichtafovitch
Xxxxxx X. Xxxxxxxx, XX
Xxxx Xxxxxxx
Xxxxxxx X. Xxxxxx (serving as chairman of the board of directors
and representing TSET)
Such directors shall serve in accordance with Kronos' bylaws and applicable law.
(b) Kronos' initial officer and executive management shall be
comprised as follows:
Xxxx Xxxxxxx - Chief Executive Officer and President
Igor Krichtafovitch - Vice President
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Xxxxxx Xxxxxxxx - Secretary
Xxxxxx X. Xxxxxxxx, XX - Treasurer
(c) The parties agree that the primary responsibility for Kronos'
day-to-day management, business development, finances and the administration
thereof, budgets (capital, research and development, operations, and others),
and the conduct of the Corporate Business, shall belong to Kronos' board of
directors, but with such consultations and determinations as are consistent with
TSET's ownership of Kronos and subject to the obligations described in Section
15 hereof. In carrying out such responsibilities and conducting all elements of
the Corporate Business, Kronos' board of directors shall at all times conduct
themselves according to the highest fiduciary standards of good faith and sound
business judgment, exerting their individual and collective best efforts to
exploit and maximize the value of the Intellectual Property Rights and the
Technology, seeking to advance the best interests of Kronos, complying with all
laws, rules, and regulations applicable to the Corporate Business, and keeping
available to Kronos the services of Kronos' directors, officers, and key
employees. The Corporate Business shall be conducted by Kronos' board of
directors in the regular and ordinary course in substantially the manner
heretofore conducted by the Principals in and through HVI. The Principals,
individually and collectively, shall dedicate necessary time attention and
efforts to the conduct of the Corporate Business, except as may be otherwise
permitted under Section 6(c) and (d) hereof.
(d) Without limiting the scope of responsibilities described in this
Section 5 or elsewhere herein, or as may be provided in Kronos' articles of
incorporation, bylaws, or under applicable law, Kronos shall ensure that long-
term employment agreements are entered into with its key employees and that
"key-person" insurance is obtained upon commercially reasonable terms as soon as
practicable following the execution and delivery of this Agreement by the
parties, with all costs, premiums, and other associated expenses to be borne by
Kronos.
(e) Wherever in this Agreement reference is made to actions to be
taken by Kronos necessary to implement the transactions and matters contemplated
herein or in the Transfer Documents, the parties agree that they shall vote
their respective Kronos Shares, or cause their representative on Kronos' board
of directors to act, so that all such actions are expeditiously and fully taken.
(f) The parties acknowledge that they are unable to anticipate and
provide herein for every situation and contingency which may arise during the
conduct of the Corporate Business. Accordingly, the parties agree that
principles of good faith and fair dealing will govern their conduct at all times
and that best efforts will be exerted to amicably and expeditiously resolve any
dispute arising hereafter, all with a view to seeking to advance Kronos' best
interests and to maximize the economic value of the Intellectual Property Rights
and the Technology.
6. Initial Applications. (a) As a statement of corporate policy which
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shall govern all elements of the relationship of the parties hereunder and the
conduct of the Corporate
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Business, the parties intend that all development, advancement, maximization of
value, and exploitation of the Intellectual Property Rights and the Technology
shall occur and be conducted through the instrumentality of Kronos pursuant to
this Agreement; and
(b) The parties agree that Kronos' primary initial efforts and
funding shall focus upon the further development and exploitation of the
hospital/medical clinic, automotive, medical equipment, residential/business,
and hotel applications of the Technology (collectively, and including any and
all improvements thereto and derivatives thereof, the "Initial Applications"),
and to engage in such business development activities as are necessary and
proper to establish markets, licenses, sales, and other activities and
arrangements for the realization of maximum economic return thereon.
7. Future Applications. In keeping with the corporate policy described in
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Section 6(a) hereof, the parties intend that potential military applications of
the Intellectual Property Rights and the Technology be conducted through Kronos;
provided, however, that TSET understands and acknowledges that a contract
containing a no-shop provision (the "Military Contract") currently exists
between HVI and Bath Iron Works/General Dynamics Corporation ("BIW/GD"),
covering certain dimensions of the Technology as specified in Exhibit 7 attached
hereto and made a part hereof for all purposes. TSET shall place 250,000 TSET
shares in an escrow account (the "Escrow Shares") for distribution to a trust to
be established by the Principals (as referenced in Section 4 hereof) (the
"Trust") for the purpose of receiving issuance the Escrow Shares in the event
the no-shop provision of the Military Contract is adjusted, waived, or
renegotiated in such a manner that enables such military applications to be
conducted through Kronos. HVI believes in good faith that the Military Contract
can be contributed to Kronos within 60 days of the date of this Agreement.
Should such contribution not occur within such 60-day period, the Escrow Shares
may, at TSET's sole option, be returned to TSET, or TSET may, at its sole
option, extend the time period for the Military Contract to be contributed to
Kronos, with the Escrow Shares to remain in such escrow account until released
to the Trust pursuant to the renegotiation of the Military Contract to enable
the Military Contract and all such military applications to be contributed, and
the contribution thereof, to Kronos. All parties agree that the release of the
Escrow Shares to the Trust shall be the sole compensation for the renegotiation
and contribution of the Military Contract and all other military applications of
the Intellectual Property Rights and the Technology, with the allocation of the
Escrow Shares to the Trust to be specified by HVI and the Principals at the time
of the release thereof pursuant to this Section 7.
8. Contributions by TSET. (a)(i) TSET shall assist and support Kronos'
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capital-raising efforts and shall provide and make available to Kronos working
capital in the aggregate amount of $500,000.00 (the "Initial Funding") over the
six-month period next following the execution and delivery of this Agreement and
the Transfer Documents (the "Funding Period"). To the extent required, TSET
shall use its own shares in order to arrange for, procure, and ensure
availability of the Initial Funding; provided, however, that TSET's obligation
to provide the Initial Funding shall not be construed as or constitute any
assumption of any obligation regarding any indebtedness, operating expenses, or
other financial liabilities of HVI or any of the Principals, other than those
potential liabilities
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identified in Exhibit 8A. Provision of the Initial Funding shall be the sole
financial obligation owed by TSET to Kronos; provided, however, that TSET may
elect, but is not obligated, to provide to Kronos funding in addition to the
Initial Funding in appropriate cases to be determined by TSET in its sole and
absolute discretion. Within 10 days of the execution and delivery of this
Agreement and the Transfer Documents, Kronos' board of directors shall establish
an operating budget, including provision for, among other things, the prudent
expenditure and conservation of funds for working capital, the development of
working prototype devices embodying the Technology to enable demonstration
thereof in, and the perfection and policing of the Intellectual Property Rights,
all with a view to the efficient and profitable conduct of the Corporate
Business.
(ii) The parties agree that the Initial Funding shall be released by
TSET to Kronos pursuant to schedule attached as Exhibit 8B and made a part of
this Agreement for all purposes. Should TSET fail to release funds pursuant to
Exhibit 8B, TSET shall be in default of this Agreement and Section 8(b)(i) of
this Agreement shall apply.
(iii) In addition to providing the Initial Funding, TSET shall also
assist Kronos in arranging manufacturing for devices embodying the Technology,
as well as assistance and support in business development and marketing
activities as may be requested by Kronos from time to time.
(b) The parties acknowledge that TSET's undertaking to provide the
Initial Funding is a significant inducement to HVI and the Principals to enter
into the Transfer Documents and consummate the transactions contemplated herein
and therein, and that on or before the lapse of the Funding Period TSET shall
have provided to Kronos the entire amount of the Initial Funding in the amounts
and at the times specified in Exhibit 8B. In the event TSET provides less than
all of any installment of the Initial Funding pursuant to Exhibit 8B within 5
business days of the due date therefor, Kronos shall provide immediate written
notice to TSET that an event of default has occurred hereunder (the "Default
Notice"). If TSET fails to provide the unpaid portion of such installment to
Kronos within 15 days of TSET's receipt of the Default Notice (the "Cure
Period"), the number of Kronos Shares owned by TSET shall be reduced to reflect
the proportionate value of the Initial Funding provided by TSET to Kronos, with
the number of the Kronos Shares deducted from TSET's holding to be transferred
to and distributed among HVI and the Principals on a pro rata basis (the "Share
Adjustment"). The Share Adjustment shall occur within 10 days following lapse
of the Cure Period if TSET fails during the Cure Period to provide the unpaid
portion of the Initial Funding installment in question. If TSET fails to
provide four consecutive installments of the Initial Funding pursuant to
Schedule 8B prior to the lapse of the Cure Period for the final of such four
installments, this Agreement and the Transfer Documents shall be terminated and
deemed null and void and the Intellectual Property Rights shall be assigned,
transferred, and conveyed by Kronos to HVI and the Principals, as they may
direct in writing to TSET.
(c) If TSET fails to provide any Initial Funding (or any installment
thereof) as described in Subsection (b) above, the sole remedy of HVI and the
Principals shall be the
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Share Adjustment, or the termination of this Agreement and the Transfer
Documents and assignment, transfer, and conveyance to HVI and the Principals of
the Intellectual Property Rights, as the case may be, all as described in
Subsection (b) above.
No party shall have any liability to the other for monetary damages of any
description whatsoever including, without limitation, incidental, consequential,
or punitive damages.
9. Options and Other Programs. HVI and the Principals understand and
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acknowledge that, as of the date hereof, neither TSET nor Kronos has adopted any
stock option, incentive, profit-sharing, savings, or other similar programs
(collectively, the "Programs"), but that adoption of the Programs as soon as
practicable after the date hereof is an objective of both TSET and Kronos. 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 Kronos. The Principals shall be entitled to participate
in Programs adopted by TSET, subject to any conditions or restrictions imposed
on such participation by TSET's board of directors. As an additional inducement
to the Principals and to ensure participation by the Principals in the future
success of Kronos, TSET, as sole stockholder of Kronos, hereby agrees to reserve
20% of Kronos' authorized capital stock to be used in Programs to be adopted by
Kronos' board of directors and consents to the full participation of the
Principals therein, subject to the terms for such participation established by
Kronos' board of directors; provided, however, that the final terms of the
Programs adopted by Kronos' board of directors shall be subject to TSET's prior
written consent, which consent shall not be unreasonably withheld, conditioned,
or delayed.
10. Future Events. TSET, HVI, and the Principals intend that, at an
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appropriate and mutually agreed time in the future, due and good faith
consideration be given to effecting a transaction pursuant to which Kronos may
become a publicy-owned entity (the "Reconstitutive Decision"); provided,
however, that the parties' decision to retain Kronos as a wholly- or majority-
owned subsidiary of TSET or effect a transaction pursuant to which Kronos'
ownership materially changes but it remains privately held shall not be deemed a
breach of this Section 10. Notwithstanding the foregoing, the parties agree
that a Reconstitutive Decision shall not occur earlier than twenty four months
following the date of this Agreement. In the event of any Reconstitutive
Decision, TSET (or its nominees) shall retain not less than a non-dilutible 20%
ownership interest therein for a period of two years and no single shareholder
shall hold any greater percentage than TSET for a period of two years.
11. Employment Agreements. TSET and Principals agree to cause Kronos to
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enter into employment agreements with the Principals in a form substantially
similar to the Employment Agreement attached to this Agreement as Exhibit 11,
the parties understanding that the final terms and conditions thereof shall be
the result of negotiations between Kronos and each of the Principals; provided,
however, that Kronos shall not execute any such employment agreement without
TSET's prior written consent, which consent shall not be unreasonably withheld,
conditioned, or delayed.
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12. Representations and Warranties of HVI and the Principals. HVI and
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each of the Principals, jointly and severally, hereby represent and warrant to
TSET as follows:
(a) HVI is duly organized, validly existing, and in good standing
under the laws of the State of Washington 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 and in the Transfer Documents.
(b) Except as disclosed in Exhibit 12(b) attached hereto and made a
part hereof for all purposes, neither the execution of this Agreement or the
Transfer Documents nor the performance of its obligations hereunder and
thereunder does or will conflict with or violate any provision of HVI's
constituent documents; 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 material agreement to which HVI or any of the
Principals is a party or by which HVI or any the Principals or any of their
respective or collective securities, properties, or businesses are bound;
constitute a violation by HVI or any of the Principals of any laws or judgments
(other than any violation, conflict, breach, or default that would not prevent
HVI or any of the Principals from consummating the transactions contemplated
herein and in the Transfer Documents or otherwise performing its or their
individual or collective obligations thereunder); or result in the creation of
any lien, claim, or encumbrance upon HVI, any of the Principals, the
Intellectual Property Rights, or the Technology.
(c) Except as disclosed in Exhibit 12(c) attached hereto and made a
part hereof for all purposes, there are no legal or arbitral 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 HVI and any of
the Principals, threatened, against HVI or any of the Principals which could
reasonably be expected to prevent HVI or any of the Principals from consummating
the transactions contemplated herein or in the Transfer Documents.
(d) Except as disclosed in Exhibit 12(d) attached hereto and made a
part hereof for all purposes, all negotiations relating to this Agreement and
the Transfer Documents and the transactions contemplated herein and therein have
been carried on without the intervention of any party acting in behalf of HVI or
any of the Principals in such manner as to give rise to any valid claim against
HVI or any of the Principals, individually or collectively, for any broker's or
finder's fee or similar compensation (whether payable in cash, Kronos Shares,
interest in HVI or the Outside Business, or otherwise) in connection therewith.
(e) HVI has all necessary corporate power and authority, and each of
the Principals have the power, legal capacity, and authority, to execute,
deliver, and perform its and their respective obligations hereunder and under
the Transfer Documents; and the execution, delivery, and performance by HVI and
each of the Principals of this Agreement and the Transfer Documents to which HVI
is a party has been duly authorized by all necessary corporate action on its
part or is within the authority of the person executing and
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delivering the same, and is within the authority of each of the Principals. This
Agreement and the Transfer Documents to which HVI and the Principals are a party
constitute the legal, valid, and binding obligations of each of them,
enforceable against any and all of them in accordance with the terms thereof,
except as may be limited by applicable bankruptcy, insolvency, reorganization,
or other similar laws affecting creditors' rights and general principles of
equity.
(f) Except as disclosed in Exhibit 12(f) attached hereto and made a
part hereof for all purposes, HVI and the Principals have filed all tax returns
and all other tax documentation that are required to be filed by any of them,
and have paid all taxes due pursuant to such returns or pursuant to any
assessment received by any of them, except for such taxes as are being contested
in good faith by appropriate proceedings and for which adequate reserves are
being maintained.
(g) Except as disclosed in Exhibit 12(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 HVI and each of the
Principals of this Agreement and each of the Transfer Documents to which they
are a party or for the validity or enforceability thereof.
(h) No material statement, information, or exhibit disclosed or
otherwise furnished to TSET by HVI or any of the Principals 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) HVI and each of the Principals 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) 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, HVI's advisory board members.
(k) Except as disclosed in Exhibit 12(k) attached hereto and made a
part hereof for all purposes:
(i) HVI and the Principals own full right, title, and interest
in and to the Intellectual Property Rights that are being assigned, transferred,
and conveyed to Kronos pursuant to this Agreement and the Transfer Documents,
free and clear of any and all liens, claims, encumbrances, and charges, and no
licenses or other superior claims, rights, or entitlements exist or have been
granted or suffered to exist by HVI and the Principals in favor of any other
person with respect thereto; and
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(ii) HVI and the Principals are unaware of any
infringements or illicit uses of the Intellectual Property Rights or the
Technology by any person.
13. Battelle. TSET hereby acknowledges and agrees that HVI has disclosed
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to TSET, and that TSET fully understands, the circumstances of HVI's dispute
with Battelle Memorial Institute ("Battelle") concerning Battelle's unauthorized
disclosures to third parties related to HVI's proprietary technology and know-
how, at least part of which includes in the Intellectual Property Rights and the
Technology. HVI hereby represents to TSET that Battelle has made an offer to
settle the dispute, which offer is unacceptable to HVI. HVI further represents
that HVI and Battelle are, as of this date hereof, engaged in good faith
negotiations concerning the terms and conditions of a settlement acceptable to
HVI. Based on the foregoing and other factors, including correspondence and
other materials requested from and supplied to HVI by Battelle, HVI believes in
good faith that HVI's position in the dispute is strong and that HVI will be
able to settle its differences with Battelle without resorting to formal legal
proceedings. Accordingly, TSET agrees that its sole remedy and recourse, in the
event that Battelle makes any claim in formal legal proceedings or otherwise, or
with respect to any of HVI's representations and warranties herein, shall be
against HVI directly and not to any Principal.
14. Representations and Warranties of TSET. TSET hereby represents and
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warrants to HVI and each of the Principals as follows:
(a) TSET is 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 and in the Transfer Documents.
(b) Neither the execution of this Agreement or the Transfer
Documents nor the performance of its obligations hereunder and thereunder 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 an 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 and in the Transfer Documents
or otherwise performing its obligations thereunder).
(c) There is no proceeding (whether or not the defense thereof or
liability with respect thereto is covered by policies of insurance) pending or,
to TSET's best knowledge, threatened, against TSET which could reasonably be
expected to prevent TSET from consummating the transactions contemplated herein
or in the Transfer Documents.
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(d) TSET has all necessary corporate power and authority to
execute, deliver, and perform its obligations hereunder and under the Transfer
Documents; and the execution, delivery, and performance by TSET of this
Agreement and the Transfer Documents to which it is a party has been duly
authorized by all necessary corporate action on its part or is within the
authority of the person execution and delivering the same. This Agreement and
the Transfer Documents to which TSET is a party constitute the legal, valid, and
binding obligations of TSET, enforceable against it in accordance with the terms
thereof, except as may be limited by applicable bankruptcy, insolvency,
reorganization, or other similar laws affecting creditors' rights and general
principles of equity.
15. Par Stock Purchase. TSET shall have the right (the "Share Purchase
-------------------
Right") to purchase any and all authorized but unissued shares of Kronos'
capital stock (the "Unissued Shares") at a per share purchase price equal to the
par value thereof ($0.001 par value per share); provided, however, that the
Share Purchase Right shall not apply to the shares of Kronos' capital stock
reserved for issuance in connection with Programs to be adopted by Kronos as
contemplated in Section 9 hereof. TSET shall be entitled to exercise the Share
Purchase Right at any time it feels its interests would be served by so doing,
upon not less than 5 days' prior written notice to Kronos (the "Exercise
Notice"), without the need to obtain any further consent from HVI, the
Principals, or Kronos, or to provide any further justification therefor. Upon
receipt of the Exercise Notice, Kronos shall not offer, solicit any offer to
buy, sell, assign, transfer, or convey any of the Unissued Shares without TSET's
prior written consent, which consent may be withheld in the sole and absolute
discretion thereof. The Principals, in their capacities as directors of Kronos,
agree to take all actions requested by TSET in order to give effect to this
Section 14 in the event TSET elects to purchase the Unissued Shares pursuant
hereto. TSET shall pay the purchase price for that number of the Unissued
Shares to be acquired pursuant to exercise of the Share Purchase Right within 30
days of the date of the Exercise Notice. Upon confirmed receipt of the purchase
price therefor, Kronos' board of directors shall cause certificates representing
that number of Unissued Shares purchased by TSET pursuant to the Share Purchase
Right to be issued and delivered to TSET in such denominations as TSET may
request. TSET shall be entitled to immediately exercise the Share Purchase
Right if any transaction contemplated by Kronos may involve the sale,
assignment, or transfer of more than 50% of Kronos' authorized capital to any
person not owned or controlled by TSET. TSET and the Principals shall cause
Kronos' board of directors to ratify this Section 14, such that no further
action thereof shall be required relating to the issuance of the Unissued Shares
to TSET, other than instructions issued by TSET to any executive officer of
Kronos pursuant to the Exercise Notice. The Share Purchase Rights shall survive
any recapitalization of Kronos and shall apply to any additional shares of
Kronos' capital stock which may be newly authorized pursuant to any future
amendment of Kronos' articles of incorporation or which may remain unsold
following any transactions with prospective investors or strategic business or
financial partners of Kronos involving such newly-issued shares.
15. Books, Records, and Audit Rights. (a) The Principals, in their
---------------------------------
capacities as directors and executive officers of Kronos, shall cause Kronos to
keep complete, accurate, and secure original physical and electronic books and
records of all financial, business, legal,
Page 12
and other transactions. Financial books and records shall be made, kept, and
maintained on a calendar year basis in accordance with generally accepted
accounting principles applied on a consistent, uniform, and non-discriminatory
basis and applicable to the Corporate Business.
(b) The books and records of Kronos, together with all documents and
other information pertaining to Kronos' business, shall be kept at Kronos'
principal place of business, and shall at all reasonable times (and for a period
of 3 years following any termination of this Agreement and the Transfer
Documents) be available for physical inspection, examination, and audit and may
be copied and excerpts may be taken therefrom, by any duly authorized
representative of TSET. TSET shall at all times be entitled to, among other
things, exercise TSET's audit rights, verify any information provided to TSET by
Kronos pursuant to this Section 15 or otherwise, and monitor Kronos' compliance
with its obligations.
(c) At all times (and for a period of 3 years following any
termination of this Agreement and the Transfer Documents), TSET shall have the
right, at its own expense, to audit Kronos' books and records. Kronos shall
make such books and records available for physical inspection, review, and audit
during normal business hours and upon 48 hours' prior written notice from TSET,
to any authorized representative, certified public accountant, or legal counsel
designated by TSET.
(d) Kronos's board of directors shall do the following, at Kronos'
expense:
(i) deliver to TSET on or before March 15 of each year cause an
annual report containing an audited balance sheet and profit and loss and cash
flow statements to be prepared by Kronos' auditors; and
(ii) deliver to TSET on or before the fifteenth day following
the end of each calendar month, cause to be prepared on a monthly basis an
unaudited balance sheet and unaudited profit and loss and cash flow statements
for the month and cumulatively for the calendar year to date (to be certified by
Kronos' president and chief financial officer as being true and correct to the
best of their knowledge).
16. Distribution of Profits. The parties agree that, as the sole
------------------------
stockholder of Kronos, all profits resulting from the conduct of the Corporate
Business shall belong to TSET, and that TSET shall be entitled to distribution
thereof from Kronos on a regular basis. The Principals, in their capacity as
directors of Kronos, agree to vote in favor of such distributions 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 Kronos to provide for three months operating and working capital
needs for the continuation and advancement of the Corporate Business, funding of
Programs relating to profit-sharing or other benefits plans in favor of the
Principals according to the terms thereof, plus reasonable reserves for
contingencies or extraordinary items. In connection with any request by TSET
for a cash distribution, TSET and Kronos' board of directors shall consult to
determine Kronos' reasonable cash needs, as provided above.
Page 13
17. Indemnification. (a)HVI shall indemnify, defend, and hold harmless
----------------
TSET and Kronos from and against any and all third party claims of patent,
intellectual property, or proprietary rights infringement (and including any and
all damages, losses, fines, penalties, royalties, costs and expenses arising out
of or associated therewith, including reasonable attorney's fees, hereinafter
collectively referred to as "losses") which may be asserted against TSET or
Kronos on the grounds that the Intellectual Property Rights, the Technology, or
any device or other manifestation thereof, infringe upon such third party's
rights, provided that such claim arises out of any event, fact or circumstance
occurring prior to the transfer of the Intellectual Property Rights to Kronos.
HVI shall not enter into any settlement or compromise of any such claim or
action without TSET's prior written consent. TSET and Kronos shall be entitled
to participate in or conduct the defense of any such claims, with the cost
thereof to be for the account of HVI and HVI and shall pay to TSET and Kronos,
as the case may be, the amount of any losses and reimburse the expense of any
defense undertaken by TSET or Kronos within 10 days after receipt of written
notice therefor. Any claims arising after the transfer of the Intellectual
Property Rights to Kronos shall be the sole responsibility of Kronos and TSET.
(b) Anything in this Agreement to the contrary notwithstanding, TSET
hereby acknowledges and agrees that the Principals are parties to this Agreement
for the purpose of, among other things, assigning the Intellectual Property
Rights and the Technology to Kronos and effecting the exchange of stock
described in this Agreement, and that TSET's sole remedy and recourse, in the
event of any breach of any representation, warranty or covenant by HVI set forth
herein, shall be to HVI directly and not to any Principal.
(c) TSET and HVI shall indemnify, defend and hold harmless each other
from and against any and all third party losses arising from any breach
hereunder or in the event any representation or warranty made by either of them
herein is untrue or misleading in any material respect and, as a result thereof,
either TSET or HVI, as the case may be, suffers a loss. The Principals shall
have the indemnification obligation described in this Section 17 to the extent
of any breach by them of any of their obligations hereunder including, without
limitation, those obligations described in Section 5 hereof, or in the event any
representation or warranty made by them is untrue or misleading in any material
respect and, as a result thereof, a loss is suffered by TSET; provided, however,
that only the individual Principal that has committed a breach of this Agreement
or has made an untrue or misleading representation or warranty to TSET shall
have the indemnification obligation described in this Section 17.
18. Arbitration. (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 or the Transfer Documents (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 and understanding their
mutual best interests 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 submit the Dispute
to arbitration rather than litigation.
Page 14
(b) All arbitration proceedings instituted by the parties hereunder
shall take place in Clackamas County, Oregon and shall be governed by the rules
of the American Arbitration Association (the "AAA") applicable to contracts of
this type. If the parties to the Dispute cannot agree on the appointment of an
arbitrator, the parties agree that the AAA shall appoint an independent
arbitrator, whose decision shall be final and binding upon the parties and not
subject to appeal to any court or government agency or authority, and shall be
enforceable in any court of competent jurisdiction; provided, however, that 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 or the Transfer Documents, gross negligence, or
willful misconduct. The parties shall not seek to delay or prevent the
implementation of any decision of the arbitrator. The prevailing party in any
arbitration brought hereunder shall be entitled to recover reasonable attorney's
fees and related costs and expenses of the arbitration.
(c) The parties each acknowledge that their agreement to resolve
Disputes through arbitration constitutes a waiver of their right to resolve
Disputes 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.
19. General Provisions.
-------------------
(a) Integration and Amendment. This Agreement and the Transfer
--------------------------
Documents constitute the entire agreement between the parties with respect to
the subject matter hereof and supercedes all prior agreements and understandings
with respect hereto and thereto. No other agreement, whether oral or written,
shall be used to modify or contradict the provisions hereof or of any
Transaction Document unless the same is in writing, signed by the parties, and
states that it is intended to amend the provisions of this Agreement or any
Transaction Document.
(b) Counterparts. This Agreement and the Transfer Documents may be
-------------
executed in multiple counterparts (and by facsimile signature, to be followed by
manual signature), 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 and the Transfer Documents shall
---------------
be binding upon and inure to the benefit of the heirs, successors, and permitted
assigns of the parties hereto; provided, however, that HVI and the Principals
shall not assign any of their respective rights or delegate any of their
respective responsibilities without the prior written consent of Kronos and
TSET, which consent may be withheld in the sole and absolute discretion thereof.
(d) Waiver. No failure by any party to this Agreement or any
-------
Transfer Document 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
Page 15
or partial exercise of any right, power, or privilege hereunder or any other
document, instrument, or certificate relating hereto shall preclude any other or
further exercise thereof or the exercise of any other right, power, or
privilege.
(e) Severability. If any provision (or portion thereof) of this
-------------
Agreement or any Transfer Document 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 or under any Transfer Document 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, Kronos, HVI, or
any of the Principals, 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 111
-------- Xxxx Xxxxxx, XX 00000
Tel: 000.000.0000
Fax: 000.000.0000 and
503.293.7233
Attn: Xxxxxxx X. Xxxxxx
Chairman and Chief Executive
Officer
To HVI: 00000 X.X. 00xx Xxxxxx
------ Xxxxxxxx, XX 00000
Tel: 000.000.0000
Fax: 000.000.0000
To Xxxxxx Xxxxxxxx: 00000 X.X. 00xx Xxxxxx
------------------- Xxxxxxxx, XX 00000
Tel: 000.000.0000
Fax: 000.000.0000
To Xxxxxx X. Xxxxxxxx XX: 00000 X.X. 00xx Xxxxxx
------------------------- Xxxxxxxx, XX 00000
Tel: 000.000.0000
Fax: 000.000.0000
Page 16
To Dr. Igor Krichtafovitch: 000 X.X. 000xx Xxxxxx
--------------------------- Xxxxxxx, XX 00000
Tel: 000.000.0000
Fax: 000.000.0000
To Xxxx Xxxxxxx: 0000 Xxxxx 000 Xxxx
---------------- Xxxxx, XX 00000
Tel: 000.000.0000
Fax: 000.000.0000
Notices hereunder shall be deemed given when delivered in person, upon
confirmation of successful transmission when sent by telex or facsimile (to be
followed by delivery by express or regular mail), or 5 days after being mailed
by express, registered, or certified mail (return receipt requested), postage
prepaid.
(g) Headings. The headings in this Agreement are solely for
---------
convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.
(h) Costs, Expenses, and Taxes. Each party shall bear its own costs,
---------------------------
expenses, and taxes incurred or associated with the transactions contemplated
herein and in the Transfer Documents.
(i) 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.
[SIGNATURES APPEAR ON NEXT PAGE]
Page 17
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
effective as of the date first written above.
TSET, Inc.
By:____________________________________
Xxxxxxx X. Xxxxxx
Chairman and Chief Executive Officer
HIGH VOLTAGE INTEGRATED, LLC
By:____________________________________
Name:_______________________________
Authorized Signatory
_______________________________________
Xxxxxx Xxxxxxxx, individually
_______________________________________
Igor Krichtafovitch, individually
_______________________________________
Xxxxxx X. Xxxxxxxx XX, individually
_______________________________________
Xxxx Xxxxxxx, individually
Page 18
LIST OF EXHIBITS
Exhibit 2A -- Description of Transfer Documents
Exhibit 2B -- Intellectual Property Rights
Exhibit 4 -- Calculation of the Aggregate Shares
Exhibit 7 -- Future Applications
Exhibit 8A -- Schedule of Potential Liabilities
Exhibit 8B -- Schedule of Initial Funding Payments
Exhibit 11 -- Form of Employment Agreement
Exhibit 12(b) -- Defaults and Breaches
Exhibit 12(c) -- Litigation
Exhibit 12(d) -- Finders and Brokers
Exhibit 12(f) -- Taxes
Exhibit 12(g) -- Consents and Approvals
Exhibit 12(k) -- Encumbrances, Liens, or Superior Claims upon the
Intellectual Property Rights and the Technology;
Infringements
Page 19
