Exhibit 10.7
CONFIDENTIAL LETTER OF INTENT
The purpose of this Letter of Intent, dated effective as of April 18,
2000, is to set forth the main terms upon which TSET, Inc., a Nevada corporation
("TSET"), may acquire 100% of the shares of capital stock of XxxxXxxxx.xxx,
Inc., an Oregon corporation ("Edge"). Edge is in the business of, among other
things, researching, developing, designing, manufacturing, marketing, and
selling via the Internet stereo speakers and accessories, and owning or
licensing all intellectual property rights related thereto (collectively, the
"Speaker Business"). TSET and Xxxx intend to enter into negotiations and prepare
definitive agreements (collectively, the "Definitive Agreements") relating to
such acquisition as soon as practicable after the date hereof, based upon the
main terms summarized herein, which Definitive Agreements are intended to set
forth the rights, obligations, undertakings, and liabilities of the parties
thereto. The parties stated intent to proceed expeditiously to complete and sign
this Letter of Intent and the Definitive Agreements is believed in good faith to
be in their mutual and respective best interests and they look forward to
working together to accomplish their goals.
Based upon the foregoing, the main terms of the proposed transaction
between TSET and Edge may be summarized as follows:
A. ACQUISITION OF EDGE. The parties intend that TSET acquire 100%
of the capital stock of Edge, with Edge to thereby become a
wholly-owned subsidiary of TSET, in exchange for that number
of "investment" shares of TSET's common stock, par value
$0.001 per share (the "TSET Shares") as are determined by
reference to an agreed-in-principle aggregate earn-out
valuation for the Speaker Business of $6,750,000 (the
"Aggregate Valuation"), divided by the close price for the
TSET Shares as of the date of this Letter of Intent (the
"Share Price"); provided, however, that in the event the
Definitive Agreements have not been executed by the parties
within 10 days of the date of this Letter of Intent, the Share
Price shall be the close price for the TSET Shares on the date
the Definitive Agreements are signed and delivered (the
"Closing Date").
B. INITIAL ALLOCATION OF SHARES AND EARN-OUT. The parties intend
that, as soon as practicable after the Closing Date, TSET
deliver to Edge's shareholders, that number of TSET Shares as
are determined according to the formula set forth in paragraph
A above, for an initial valuation for the Speaker Business of
$3,000,000. The parties intend that additional TSET Shares
relating to the remaining $3,750,000 of the Aggregate
Valuation (the "Earn-out Valuation") may be earned in equal
annual installments over the 5-year period next following the
Closing Date (i.e., at the rate of 20% of the Earn-out
Valuation each year), assuming Edge achieves its forecasted
revenue milestones as contained in the financial forecast
provided to TSET at the signing of this Letter of Intent for
the year in question (collectively, the "Annual Milestones").
If Edge achieves the Annual Milestones earlier than the lapse
of the year to which each Annual Milestone applies, the
additional TSET Shares may be issued at that time. The number
of such additional TSET Shares shall be calculated according
to the close price for the TSET Shares on the date such Annual
Milestone is achieved. If Xxxx's board of directors approves a
change of plan to emphasize business growth instead of
maximization of short-term earnings, the Annual Milestones
mentioned in this paragraph B may be adjusted in conformity to
a new financial model approved by Xxxx's board.
C. MANAGEMENT. The parties intend that Xxxx's existing executive
management have strategic decision-making and day-to-day
management responsibility and operational control over the
Speaker Business and finances, with such management to at all
times seek in good faith to advance the best business
interests of Edge and the further development and widespread
exploitation of the Speaker Business. The parties intend that
TSET designate at least one director to Xxxx's board of
directors. The parties intend that Xxxx's management dedicate
sufficient of their time, attention, and efforts to pursue the
Speaker Business prudently, efficiently, and diligently in
substantially the same manner heretofore conducted by them,
and conduct themselves according to principles of good faith,
sound business judgment, and other high standards of fiduciary
care.
D. WORKING CAPITAL. The parties intend that TSET provide up to an
aggregate of $400,000 in working capital to Edge, which may be
drawn against by Edge from time to time from the Closing Date
until December 31, 2000, thus constituting the complete
financial obligation of TSET to Edge (except as TSET may
otherwise agree in the future). The parties intend that if
working capital in excess of the foregoing amount be required
in connection with any acceleration of Edge's business plan or
otherwise, members of Edge's management may, subject to TSET's
prior written consent, participate in the provision thereof,
subject to terms therefor to be agreed at that time.
E. OPTIONS. As inducement and incentive to Edge's management, the
parties intend that Edge adopt and implement stock option and
other management incentive programs (collectively, the
"Programs") in the near future, with terms and conditions
relating to participation therein to be established by Xxxx's
board of directors (such terms and conditions being subject to
TSET's prior written approval before any adoption and
implementation thereof). The parties intend that up to 20% of
Edge's capital stock be reserved for use in connection with
the Programs. As additional inducement to Xxxx's management,
the parties intend that Xxxx's management participate in
Programs proposed to be adopted and implemented in the future
by TSET, subject to terms and conditions of such participation
as established by XXXX's board of directors.
F. MANUFACTURING FACILITIES. The parties intend that, upon
request by Xxxx's management, TSET exert good faith best
efforts to assist in ensuring, whether by contract or
otherwise, that manufacturing facilities necessary for the
conduct of the Speaker Business will continue to be available
to Edge.
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G. FUTURE EVENTS. The parties intend that TSET and Edge give
consideration to a potential spin-off of Edge into its own
publicly-owned entity (through reverse merger or other
appropriate mechanism) or an initial public offering of Edge's
capital stock, at a mutually agreed time in the future. The
parties intend that TSET and its designees will retain not
less than 30% ownership in Edge's publicly-owned successor, or
in Edge in the event of an initial public offering, as the
case may be.
H. PRESS RELEASE. The parties intend to collaborate on the
content of an appropriate press release regarding the
transactions contemplated herein, to be at such time as may be
determined by TSET in its sole and absolute discretion.
I. UNDERTAKING OF GOOD FAITH. Realizing that they are unable to
anticipate and provide for every contingency which may arise
during the course of negotiations regarding the Definitive
Agreements and their business relationship, the parties intend
that principles of commercial good faith will govern and that
they will at all times seek to advance the best interests of
Edge, maximize the economic value of the Speaker Business, and
amicably resolve any disputes which may arise among them.
J. PURPOSE OF THIS LETTER OF INTENT. This Letter of Intent is
intended by the parties as a statement of their interests and
mutual intent to complete the Definitive Agreements in a form
reflective of the business and financial items for the
purposes contemplated herein, and shall not of itself be
deemed to grant or constitute any binding, enforceable, or
exclusive rights or obligations of the parties hereto, in or
to any TSET Shares, or any right, obligation, offer, or
commitment of any of the parties to enter into the Definitive
Agreements. The parties intend that all rights, obligations,
or commitments to proceed with any transaction or relationship
be contained only in the Definitive Agreements executed and
delivered by them. The parties do not intend that any of them
be bound to each other by this Letter of Intent for damages,
expenses, failure to finally agree upon the terms and
conditions of the Definitive Agreements, or in any other way.
The parties intend that the Definitive Agreements regarding
the transactions outlined in this Letter of Intent be prepared
and signed by them, all acting in good faith, as soon as
practicable after the date hereof. The parties intend that the
Definitive Agreements contain customary terms, conditions,
representations, and warranties including, among other things,
disclosures by Edge regarding the status of the Speaker
Business, ownership of or access to all intellectual property
rights necessary for the continued conduct of the Speaker
Business, consents of third parties, and so forth. The parties
intend that each of them will bear their respective costs and
expenses associated with this Letter of Intent and completion
of the Definitive Agreements, and that any taxes or other
levies assessed in connection with any transaction
contemplated herein or in the Definitive Agreements be borne
and paid solely by the party against which they are assessed.
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K. DISTRIBUTION OF PROFITS. The parties intend that, as the sole
stockholder of Edge, all profits resulting from the conduct of
the Speaker Business shall belong to TSET and that TSET shall
be entitled to distribution thereof from Edge on a regular
basis. The parties intend that those persons serving as
members of Xxxx's board of directors vote in favor of such
distributions as may be requested from time to time by XXXX.
The parties intend, in connection with any such request for
distribution, that TSET ensure that sufficient cash remains
allocated to Edge to provide for three months' operating and
working capital needs, to be applied to the continuation and
advancement of the Speaker Business, funding of Programs and
other benefits plans in favor of Xxxx's management according
to the terms thereof, plus reasonable reserves for
contingencies or extraordinary items. The parties intend, in
connection with any such request for distribution, that TSET
and Xxxx's board of directors consult to determine Edge's
reasonable cash needs, as provided above.
L. FINDERS. Neither TSET nor Edge has utilized the services of
any finder, directly or indirectly, in connection with any
introduction, negotiation, or other proceeding related to this
Letter of Intent or the transactions contemplated herein or in
the Definitive Agreements. Any finder's or broker's fees or
other compensation payable by Edge to any person in connection
with the transactions contemplated herein and in the
Definitive Agreements shall be paid out of the TSET Shares to
be received by Xxxx, any such compensation being for the sole
account of, and payable solely by, Xxxx.
M. PRIORITY OF THIS LETTER OF INTENT. The parties intend that
this Letter of Intent supersede any and all prior
communications, understandings, statements of intent, and
agreements between them with respect to the subject matter
hereof.
The parties' execution in the space provided below shall evidence their
acceptance of the terms of this Letter of Intent and that they intend to proceed
as outlined herein.
TSET, Inc.
By: /s/ Xxxxxxx X. Xxxxxx
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Xxxxxxx X. Xxxxxx
Chairman and Chief Executive Officer
XxxxXxxxx.xxx, Inc.
By: /s/ Xxxxxxxx X. Xxxxxxxxx
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Xxxxxxxx X. Xxxxxxxxx
Chief Executive Officer
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