-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Jk33WDBmXb+PZDLvNfREyLc7b9WeBt1wfJzxOnmQDo1iQfNJENmr+cKti0ohVQw6 dQShLhB7DYr7kahAS/M2XA== 0000898432-01-500249.txt : 20021122 0000898432-01-500249.hdr.sgml : 20021122 20010807160342 ACCESSION NUMBER: 0000898432-01-500249 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 57 FILED AS OF DATE: 20010807 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TSET INC CENTRAL INDEX KEY: 0001108248 IRS NUMBER: 870440410 STATE OF INCORPORATION: NV FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-67028 FILM NUMBER: 01699962 BUSINESS ADDRESS: STREET 1: 333 S STATE ST STREET 2: PMB111 CITY: LAKE OSWEGO STATE: OR ZIP: 97034 BUSINESS PHONE: 5035981900 MAIL ADDRESS: STREET 1: 333 S STATE ST STREET 2: PMB 111 CITY: LAKE OSWEGO STATE: OR ZIP: 97034 S-1 1 t117010.txt
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 7, 2001 REGISTRATION NO. ____________ ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------------- TSET, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) NEVADA 6799 87-0440410 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.) incorporation or organization) Classification Code Number) 333 SOUTH STATE STREET, PMB 111 LAKE OSWEGO, OR 97034 TELEPHONE (503) 598-1900 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) COPIES TO: Jeffrey D. Wilson, Esq. Clayton E. Parker, Esq. Chairman and Chief Executive Officer Ronald S. Haligman, Esq. TSET, Inc. Kirkpatrick & Lockhart LLP 333 South State Street, PMB 111 201 South Biscayne Boulevard Lake Oswego, OR 97034 Suite 2000 Telephone No.: (503) 598-1900 Miami, FL 33131 Telecopier No.: (503) 968-2337 Telephone No.: (305) 539-3300 Telecopier No.: (305) 358-7095 (Name, address, including zip code, and telephone number, including area code, of agent for service) Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, please check the following box. /X/ If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / /
CALCULATION OF REGISTRATION FEE ==================================================================================================================================== Proposed Maximum Proposed Title of Each Class of Amount To Be Offering Price Maximum Aggregate Amount of Securities To Be Registered Registered Per Share (1) Offering Price (1) Registration Fee - ------------------------------------------------------------------------------------------------------------------------------------ Common Stock, par value $0.001 per share 6,852,500 shares $0.585 $4,008,712.50 $1,002.17 - ------------------------------------------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c) under the Securities Act of 1933. For the purposes of this table, we have used the average of the closing bid and asked prices as of August 2, 2001. ------------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. Subject to Completion, Dated August 7, 2001 The information in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any state where the offer or sales is not permitted. PROSPECTUS TSET, INC. 6,852,500 SHARES COMMON STOCK This prospectus relates to the sale of up to 6,852,500 shares of our common stock that may be offered for sale or otherwise transferred from time to time by one or more of the selling stockholders identified in this prospectus. We are registering 5,640,000 shares of our common stock that may be sold by Fusion Capital Fund II, LLC. 1,212,500 shares of our common stock are being offered hereby by selling stockholders other than Fusion Capital. The prices at which such stockholders may sell the shares will be determined by the prevailing market price for the shares or in negotiated transactions. We will not receive proceeds from the sale of our shares by the selling stockholders. Our common stock is quoted on the Nasdaq Over-The-Counter Bulletin Board under the symbol "TSET." On July 16, 2001, the average of the bid and asked sale prices for the common stock as reported on the Nasdaq National Market was $0.59 per share. ------------------- Investing in the common stock involves certain risks. See "Risk Factors" beginning on page 5 for a discussion of these risks. Fusion Capital is an "underwriter" within the meaning of the Securities Act of 1933, as amended. Any other selling shareholder may be deemed to be an "underwriter" within the meaning of the Securities Act of 1933, as amended. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. ------------------- THE DATE OF THIS PROSPECTUS IS _____________, 2001 TABLE OF CONTENTS PAGE ---- PROSPECTUS SUMMARY............................................................2 FORWARD-LOOKING STATEMENTS....................................................4 RISK FACTORS..................................................................5 MARKET FOR OUR COMMON STOCK...................................................9 COMPARATIVE STOCK PERFORMANCE................................................10 SELECTED CONSOLIDATED FINANCIAL INFORMATION..................................11 SUPPLEMENTARY FINANCIAL INFORMATION..........................................12 USE OF PROCEEDS..............................................................13 DIVIDEND POLICY..............................................................13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................................................................14 BUSINESS.....................................................................17 LEGAL PROCEEDINGS............................................................20 MANAGEMENT...................................................................22 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...............................30 THE FUSION CAPITAL TRANSACTION...............................................32 PRINCIPAL SHAREHOLDERS.......................................................35 SELLING STOCKHOLDERS.........................................................36 PLAN OF DISTRIBUTION.........................................................38 SHARES ELIGIBLE FOR RESALE...................................................40 DESCRIPTION OF CAPITAL STOCK.................................................41 EXPERTS......................................................................42 LEGAL MATTERS................................................................42 AVAILABLE INFORMATION........................................................43 INDEX TO FINANCIAL STATEMENTS...............................................F-1 - -------------------------------------------------------------------------------- We are a reporting company and have distributed to our stockholders annual reports containing audited financial statements. Our annual report on Form 10-K for the fiscal year ended June 30, 2000 was filed with the Securities and Exchange Commission on October 24, 2000 and our most recent Form 10-Q for the quarter ended March 31, 2001 was filed with the Securities and Exchange Commission on May 21, 2001. You should rely only on the information contained in this document or to which we have referred you. We have not authorized anyone to provide you with information that is different. This document may only be used where the sale of these securities is legal. The information contained in this document may only be accurate on the date hereof. - -------------------------------------------------------------------------------- i PROSPECTUS SUMMARY CORPORATE INFORMATION We are a Nevada corporation having principal executive offices located at 14523 Westlake Drive, Lake Oswego, Oregon 97034. Our telephone number is 503.598.1900. The address of our website is www.tset-net.com. Information on our website is not part of this prospectus. We have been seeking select business opportunities globally among a wide range of prospects. Over the past two years, we made several investments, including Kronos Air Technologies, Inc. and EdgeAudio.com, Inc. After further evaluation of these investments, we believe our investment in and the full development of Kronos Air Technologies and the Kronos(TM) technology represents the single biggest opportunity for us. As a result, we have prioritized our management and financial resources to capitalize on this investment opportunity. A more detailed explanation of Kronos Air Technologies and the current status of EdgeAudio and the other investments made by us are discussed below. BUSINESS We have reorganized our company to prioritize and focus management and financial resources on Kronos Air Technologies and the Kronos(TM) technology. This reorganization has resulted in the decision to no longer pursue other investment opportunities previously identified. We sold our investment in Atomic Soccer USA, Ltd. in April 2001; decided not to pursue further investments in Cancer Detection International LLC, Electric Management Units, and Cancer Treatment Centers, Inc. in July 2001; and terminated by mutual consent a contract to distribute Computerized Thermal Imaging, Inc. equipment in August 2000. Through our wholly-owned subsidiary, Kronos Air Technologies, we are focused on the development and commercialization of an air movement and purification technology known as Kronos(TM). The technology combines state-of-the-art high voltage electronics and electrodes into an efficient but simple electrical device. As a result of this combined technology, a Kronos(TM) based device can move and clean air without any moving parts. The device is versatile, energy and cost efficient, and exhibits multiple design attributes, which creates a broad range of applications. The Kronos(TM) proprietary technology involves the application of high voltage management across paired electrical grids to create an ion exchange which moves and purifies air. Kronos(TM) technology has numerous, valuable characteristics. It moves air and gases at high velocities while removing odors, smoke, and particulates, as well as killing pathogens, including bacteria. The technology is cost effective and is more energy efficient than current alternative fan and filter technologies. Kronos(TM) technology has multiple U.S. and International patents pending. The energy efficiency and air purification attributes of the Kronos(TM) technology have been tested by the U.S. government and multi-national companies, including the Department of Energy, the Department of Defense, Battelle, General Dynamics, and Intel. The Kronos(TM) technology combines the benefits of silent air movement, air cleaning, odor removal, limited ozone generation, and static control (as a Kronos(TM) device can produce either positive or negative ions or both, if necessary). Because the Kronos(TM) air movement system is a silent, non-turbulent, and energy efficient air movement and cleaning system, we believe that it is ideal for air circulation, cleaning and odor removal in all types of buildings as well as compact, sealed environments such as airplanes, submarines and cleanrooms. Additionally, because it has no moving parts or fans, a Kronos(TM) device can instantly block or reverse the flow of air between adjacent areas for safety in hazardous or extreme circumstances. We believe that the benefits of the Kronos(TM) technology include the following: QUIET OPERATION: Embodied in a non-turbulent, non-vibrating device - virtually silent. DURABILITY: No moving or degradable parts. 2 ADAPTABILITY: Scalable in shape, size and capacity and adaptable to existing infrastructure, hardware and HVAC systems or can be used as a standalone device. Operates under both extreme high and low temperatures; inertialess with instantaneous air movement and is capable of deployment in a wide range of applications. EFFICIENCY: Energy efficient, up to 10 times the cubic feet per minute per watt of a conventional fan at the same velocity and size. PURIFICATION: Lethal towards a wide range of bacteria and spores and can remove particulate matter from the air (e.g., smoke, pollen). ANTI-STATIC: Ions from the corona discharge neutralize electrostaticly charged particles in the ambient air (e.g., use in cleanrooms). VALUE: Built with readily available, existing electronics and hardware making the Kronos(TM) device cost effective to manufacture. EdgeAudio designs and sells audiophile quality home theater speaker systems at a mass market price. Sales of the speaker systems and accessories are made directly to consumers over the Internet from EdgeAudio's web site, as well as through Amazon.com and eCost.com. Because of the prioritization of resources on Kronos Air Technologies, we are investing only limited corporate management and financial resources in EdgeAudio at this time. OUR COMMON STOCK Our common stock trades on the Over-the-Counter Bulletin Board under the symbol "TSET." THE OFFERING On June 19, 2001 we entered into a common stock purchase agreement with Fusion Capital Fund II, LLC, pursuant to which Fusion Capital has agreed to purchase, on each trading day during the term of the agreement, $12,500 of our common stock up to an aggregate, under certain conditions, of $10 million. Fusion Capital, a selling stockholder under this prospectus, is offering for sale up to 5,000,000 shares of our common stock. Other selling stockholders intend to sell up to 1,212,500 shares of our common stock purchased in private offerings. As of July 16, 2001, there were 35,226,255 shares outstanding, including the 640,000 shares that we have issued to Fusion Capital as compensation for its purchase commitment, but excluding the 5,000,000 shares offered by Fusion Capital pursuant to this prospectus. The number of shares offered by this prospectus represents 19.5% of the total common stock outstanding as of July 16, 2001. The number of shares ultimately offered for sale by Fusion Capital is dependent upon the number of shares purchased by Fusion Capital. This number may be affected by other factors more fully described under the heading "The Fusion Capital Transaction." 3 FORWARD-LOOKING STATEMENTS Information included or incorporated by reference in this prospectus may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. This information may involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from the future results, performance, or achievements expressed or implied by any forward-looking statements. Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words "may," "will," "should," "expect," "anticipate," "estimate," "believe," "intend," or "project" or the negative of these words or other variations on these words or comparable terminology. This prospectus contains forward-looking statements, including statements regarding, among other things, (a) our projected sales and profitability, (b) our growth strategies, (c) anticipated trends in our industry, (d) our future financing plans, (e) our anticipated needs for working capital and ability to comply with any covenants associated therewith, and (f) the benefits related to our acquisition and ownership of Kronos Air Technologies, Inc. and EdgeAudio, Inc. These statements may be found under "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business," as well as in this prospectus generally. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, the risks outlined under "Risk Factors" and matters described in this prospectus generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this filing will in fact occur. In addition to the information expressly required to be included in this filing, we will provide such further material information, if any, as may be necessary to make the required statements, in light of the circumstances under which they are made, not misleading. 4 RISK FACTORS You should carefully consider the risks described below before purchasing our common stock. Our most significant risks and uncertainties are described below; however, they are not the only risks we face. If any of the following risks actually occur, our business, financial condition, or results or operations could be materially adversely affected, the trading of our common stock could decline, and you may lose all or part of your investment therein. You should acquire shares of our common stock only if you can afford to lose your entire investment. RISKS RELATED TO OUR BUSINESS WE HAVE A LIMITED OPERATING HISTORY We have only recently begun implementing our plan to prioritize and concentrate our management and financial resources to fully capitalize on our investment in Kronos Air Technologies and have yet to establish any history of obtaining profitable operations. We anticipate continuation of operating losses until such time as Kronos Air Technologies generates revenues in excess of its operational needs. We have not previously declared or paid any cash dividends and intend, for the foreseeable future, to reinvest earnings for enhancing our business; accordingly, we do not plan to pay any cash dividends in the near future. WE HAVE SIGNIFICANT HISTORICAL FINANCIAL LOSSES AND WE EXPECT TO CONTINUE TO INCUR LOSSES We have incurred annual operating losses of $2,857,659, $351,674 and $17,832, respectively, during the past three years of operations. As a result, at June 30, 2000 we had an accumulated deficit of $3,300,179. Our revenues have not been sufficient to sustain our operations. We have incurred net losses from continuing operations of $2,500,253 and $351,674 for the fiscal years ending June 30, 2000 and 1999 and net losses from continuing operations of $2,866,726 for the nine months ended, March 31, 2001. We believe that our profitability will require the successful commercialization of our Kronos(TM) technologies. No assurances can be given that we will ever be profitable. Our independent auditors have added an explanatory paragraph to their audit opinion issued in connection with the financial statements for the year ended June 30, 2000 relative to our ability to continue as a going concern. Our ability to obtain additional funding will determine our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty. WE WILL REQUIRE ADDITIONAL FINANCING TO SUSTAIN OUR OPERATIONS At June 30, 2000 we had a working capital deficit of $1,734,618. The independent auditor's report for the year ended June 30, 2000, includes an explanatory paragraph to their audit opinion stating that our recurring losses from operations and working capital deficiency raise substantial doubt about our ability to continue as a going concern. We have an operating cash flow deficit of $16,832 in 1998, an operating cash flow deficit of $10,524 in 1999 and for the year ended June 30, 2000, an operating cash flow deficit of $765,629. We do not have sufficient financial resources to fund our operations or those of our subsidiaries. Therefore, we need additional funds to continue these operations. Our agreement with Fusion Capital could provide us with sufficient funding to sustain our operations for up to 40 months once this registration statement is declared effective. The extent we rely on Fusion Capital as a source of funding will depend on a number of factors including, the prevailing market price of our common stock and the extent to which we are able to secure working capital from other sources, such as through the sale of our Kronos(TM) air movement and purification systems. If obtaining sufficient financing from Fusion Capital were to prove prohibitively expensive and if we are unable to commercialize and sell the products or technologies of our subsidiaries, we will need to secure another source of funding in order to satisfy our working capital needs. Should the financing we require to sustain our working capital needs be unavailable or prohibitively expensive when we require it, the consequences would be a material adverse effect on our business, operating results, financial condition and prospects. Even if we are able to access $10,000,000 under the common stock purchase agreement with Fusion Capital, we may still need additional capital to fully implement our business, operating and development plans. In addition, our issuance of shares of common stock to Fusion Capital under the common stock purchase agreement will result in dilution to existing stockholders. We only have the right to receive $12,500 per trading day under the agreement with Fusion Capital unless our stock price equals or exceeds $3.00, in which case the daily amount may be increased. Since we will have initially registered 5,000,000 5 shares for sale by Fusion Capital pursuant to this prospectus, the selling price of our common stock to Fusion Capital will have to average at least $2.00 per share for us to receive the maximum proceeds of $10,000,000 without registering additional shares of common stock. THE MARKET PRICE OF OUR COMMON STOCK IS HIGHLY VOLATILE The market price of our common stock has been and is expected to continue to be highly volatile. Factors, including announcements of technological innovations by us or other companies, regulatory matters, new or existing products or procedures, concerns about our financial position, operating results, litigation, government regulation, developments or disputes relating to agreements, patents or proprietary rights, may have a significant impact on the market price of our stock. In addition, potential dilutive effects of future sales of shares of common stock by stockholders, including Fusion Capital, pursuant to this prospectus and subsequent sale of common stock by the holders of warrants and options could have an adverse effect on the prices of our securities. OUR COMMON STOCK MAY BE DEEMED TO BE "PENNY STOCK" Our common stock may be deemed to be "penny stock" as that term is defined in Rule 3a51-1 promulgated under the Securities Exchange Act of 1934. Penny stocks are stocks: o With a price of less than $5.00 per share; o That are not traded on a "recognized" national exchange; o Whose prices are not quoted on the Nasdaq automated quotation system (Nasdaq listed stock must still have a price of not less than $5.00 per share); or o In issuers with net tangible assets less than $2.0 million (if the issuer has been in continuous operation for at least three years) or $5.0 million (if in continuous operation for less than three years), or with average revenues of less than $6.0 million for the last three years. Broker/dealers dealing in penny stocks are required to provide potential investors with a document disclosing the risks of penny stocks. Moreover, broker/dealers are required to determine whether an investment in a penny stock is a suitable investment for a prospective investor. These requirements may reduce the potential market for our common stock by reducing the number of potential investors. This may make it more difficult for investors in our common stock to resell shares to third parties or to otherwise dispose of them. This could cause our stock price to decline. RELIANCE ON MANAGEMENT AND KRONOS AIR TECHNOLOGIES RESEARCH PERSONNEL We rely principally upon the services of our Board of Directors, senior executive management, and certain key employees, including the Kronos Air Technologies research team, the loss of whose services could have a material adverse effect upon our business and prospects. We are in the process of identifying suitable candidates for certain other senior management positions deemed essential to the future successful development of Kronos Air Technologies and the Kronos(TM) technology. Competition for appropriately qualified personnel is intense. Our ability to attract and retain highly qualified senior management and technical research and development personnel are believed to be an important element of our future success. Our failure to attract and retain such personnel may, among other things, limit the rate at which we can expand operations and achieve profitability. There can be no assurance that we will be able to attract and retain senior management and key employees having competency in those substantive areas deemed important to the successful implementation of our plans to fully capitalize on our investment in Kronos Air Technologies and the Kronos(TM) technology, and the inability to do so or any difficulties encountered by management in establishing effective working relationships among them may adversely affect our business and prospects. Currently, we do not carry key person life insurance for any of our directors, executive management, or key employees. WE MAY NOT BE ABLE TO SUCCESSFULLY OBTAIN NEW PATENTS, OR OPERATE WITHOUT INFRINGING UPON THE PROPRIETARY RIGHTS OF OTHER PARTIES Our success will depend in part on our ability to obtain and maintain patent protection for our products, preserve our trade secrets, and operate without infringing upon the proprietary rights of other parties. Because of the substantial length of time and expense associated with bringing new products through development to the marketplace, we believe there is considerable 6 importance on obtaining and maintaining patent and trade secret protection for new technologies, products and processes. In addition, the laws of certain countries may not protect our intellectual property. Legal standards relating to the scope of claims and the validity of patents in the technology field are uncertain and evolving. There can be no assurance that patent applications to which we hold ownership or license rights will result in the issuance of patents, that any patents issued or licensed to us will not be challenged and held to be invalid, or that any such patents will provide commercially significant protection to our technology, products and processes. In addition, there can be no assurance that others will not independently develop substantially equivalent proprietary information not covered by patents to which we have rights or obtain access to our know-how or that others will not be issued patents which may prevent the sale of one or more of our products, or require licensing and the payment of significant fees or royalties by us to third parties in order to enable us to conduct our business. Defense and prosecution of patent claims can be expensive and time consuming, regardless of whether the outcome is favorable to us, and can result in the diversion of substantial financial, management, and other resources. An adverse outcome could subject us to significant liability to third parties, require us to obtain licenses from third parties, or require us to cease any related research and development activities or product sales. No assurance can be given that any licenses required under any such third-party patents or proprietary rights would be made available on commercially reasonable terms, if at all. In addition, due to our working capital shortage, there can be no assurance that we will be able to continue our existing patent applications. OUR COMMON STOCK HAS BEEN RELATIVELY THINLY TRADED AND WE CANNOT PREDICT THE EXTENT TO WHICH A TRADING MARKET WILL DEVELOP Before this offering, our common stock has traded on the Over-the-Counter Bulletin Board. Our common stock is thinly traded compared to larger, more widely known companies in our industry. Thinly traded common stock can be more volatile than common stock trading in an active public market. We cannot predict the extent to which an active public market for the common stock will develop or be sustained after this offering. FUTURE SALES BY OUR STOCKHOLDERS MAY ADVERSELY AFFECT OUR STOCK PRICE AND OUR ABILITY TO RAISE FUNDS IN NEW STOCK OFFERINGS Sales of our common stock in the public market following this offering could lower the market price of our common stock. Sales may also make it more difficult for us to sell equity securities or equity-related securities in the future at a time and price that our management deems acceptable or at all. Of the 35,226,255 shares of common stock outstanding as of July 16, 2001 (assuming no exercise of options), 25,053,165 shares are, or will be, freely tradable without restriction, unless held by our "affiliates." The remaining 10,173,090 shares of common stock are "restricted securities" and may be resold in the public market only if registered or pursuant to an exemption from registration. Some of these shares may be resold under Rule 144. Immediately following the effective date of this prospectus, including the shares to be issued to Fusion Capital, 30,053,165 shares of common stock will be freely tradeable without restriction, unless held by our "affiliates." As of July 16, 2001, 1,237,514 shares are held by affiliates of our company, and may only be sold pursuant to Rule 144. RISKS RELATED TO THIS OFFERING THE SALE OF OUR COMMON STOCK TO FUSION CAPITAL MAY CAUSE DILUTION AND THE SALE OF THE SHARES OF COMMON STOCK ACQUIRED BY FUSION CAPITAL COULD CAUSE THE PRICE OF OUR COMMON STOCK TO DECLINE The purchase price for the common stock to be issued to Fusion Capital pursuant to the common stock purchase agreement will fluctuate based on the closing price of our common stock. See "The Fusion Capital Transaction" for a detailed description of the purchase price and the relation of the purchase price to the percentage of the outstanding shares of our common stock issuable to Fusion Capital pursuant to the common stock purchase agreement. All shares registered in this offering will be freely tradable. Fusion Capital may sell none, some or all of the shares of common stock purchased from us at any time. We expect that the shares registered in this offering will be sold over a period of up to 40 months from the date of this prospectus. Depending upon market liquidity at the time, a sale of shares under this offering at any given time could cause the trading price of our common stock to decline. The sale of a substantial number of shares of our common stock under this offering, or anticipation of such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect sales. If Fusion Capital purchased the full amount of shares purchasable under the common stock purchase agreement on the date of this prospectus, and assuming a purchase price per share of $0.59 (the closing sale price of the common stock on July 16, 2001), Fusion Capital would have been able to purchase 16,949,153 shares of our common stock under the common stock purchase agreement. Assuming Fusion Capital's purchase under the common stock purchase agreement of a total of 16,949,153 shares of common stock on the date of this prospectus, those shares, along with the 640,000 shares issued as a commitment fee, would 7 represent 32.5% of our then outstanding common stock. This would result in significant dilution to the ownership interests of other holders of our common stock. Such dilution could be more significant if the trading price of our common stock is lower than the current trading price of our stock at the time Fusion Capital purchases shares of our common stock under the common stock purchase agreement, as a lower trading price would cause more shares of our common stock to be issuable to Fusion Capital. Assuming a drop in the trading price of our common stock to $0.50, and a corresponding decrease in the purchase price under the common stock purchase agreement, 20,000,000 shares of common stock would be issuable to Fusion Capital under the common stock purchase agreement. This would represent more than 36% of the then outstanding common stock. See page 33 for a table that shows the number of shares issuable and potential dilution based on varying market prices. Since we have initially registered 5,000,000 shares in this offering for Fusion Capital to purchase under the common stock purchase agreement, our stock price will need to equal or exceed $2.00 per share for us to receive the maximum proceeds of $10 million under the common stock purchase agreement. Assuming a purchase price of $0.59 per share (the closing sale price of the common stock on July 16, 2001) and the purchase by Fusion Capital of the full amount of shares purchasable under the common stock purchase agreement, proceeds to us would only be $2,950,000 unless we choose to issue more than 5,000,000 shares, which we have the right, but not the obligation, to do. THE EXISTENCE OF THE COMMON STOCK PURCHASE AGREEMENT WITH FUSION CAPITAL TO PURCHASE SHARES OF OUR COMMON STOCK COULD CAUSE DOWNWARD PRESSURE ON THE MARKET PRICE OF OUR COMMON STOCK Both the actual dilution and the potential for dilution resulting from sales of our common stock to Fusion Capital could cause holders to elect to sell their shares of our common stock, which could cause the trading price of our common stock to decrease. In addition, prospective investors anticipating the downward pressure on the price of our common stock due to the shares available for sale by Fusion Capital could refrain from purchases or effect sales in anticipation of a decline of the market price. THE SELLING STOCKHOLDERS INTEND TO SELL THEIR SHARES OF COMMON STOCK IN THE MARKET, WHICH SALES MAY CAUSE OUR STOCK PRICE TO DECLINE The selling stockholders intend to sell in the public market the shares of common stock being registered in this offering. That means that up to 6,852,500 shares of common stock, the number of shares being registered in this offering, may be sold. Such sales may cause our stock price to decline. 8 MARKET FOR OUR COMMON STOCK Our common stock trades on the Over-the-Counter Bulletin Board under the trading symbol "TSET." Our high and low bid prices by quarter during fiscal 2001, 2000, and 1999 are presented as follows: FISCAL YEAR 2001 HIGH LOW ---- --- First Quarter (July 2000 to September 2000) $3.31 $1.15 Second Quarter (October 2000 to December 2000) $2.04 $1.15 Third Quarter (January 2001 to March 2001) $1.65 $1.06 Fourth Quarter (April 2001 to June 2001) $1.21 $0.58 FISCAL YEAR 2000 HIGH LOW ---- --- First Quarter (July 1999 to September 1999) $0.875 $0.437 Second Quarter (October 1999 to December 1999) $2.625 $0.750 Third Quarter (January 2000 to March 2000) $6.750 $1.187 Fourth Quarter (April 2000 to June 2000) $3.370 $2.063 FISCAL YEAR 1999 HIGH LOW ---- --- First Quarter (July 1998 to September 1998) N/A N/A Second Quarter (October 1998 to December 1998) $1.562 $0.625 Third Quarter (January 1999 to March 1999) $1.000 $0.250 Fourth Quarter (April 1999 to June 1999) $1.000 $0.437 On July 16, 2001 the closing price of our common stock as reported on the Over-the-Counter Bulletin Board was $0.59 per share. On July 16, 2001, we had approximately 1,000 beneficial stockholders of our common stock and 35,226,255 shares of our common stock were issued and outstanding. 9 COMPARATIVE STOCK PERFORMANCE The following table compares the performance of our common stock against the Russell 2000 and the Nasdaq Non-Financial Index for the period commencing on June 17, 1999 and ending on June 30, 2001. The table assumes that $100 was invested on June 17, 1999 and that dividends were reinvested. COMPARISON OF CUMULATIVE TOTAL RETURN AMONG TSET, INC., THE RUSSELL 2000 AND THE NASDAQ NON-FINANCIAL INDEX JUNE 17, JUNE 30, ----------- ------------------------------- 1999 1999 2000 2001 ----------- ------------------------------- TSET, Inc. $100 $91.67 $350.00 $96.00 Russell 2000 $100 $103.35 $118.15 $118.92 Nasdaq Non-Financial Index $100 $105.74 $163.61 $83.37 [GRAPH] 10 SELECTED CONSOLIDATED FINANCIAL INFORMATION The following summary statement of operations and summary balance sheet data is derived from our audited consolidated financial statements as well as the most recent unaudited quarterly consolidated financial statements and should be read in conjunction with the unaudited consolidated financial statements as of March 31, 2001 and the audited consolidated financial statements as of June 30, 2000, 1999 and 1998 and the Notes thereto included elsewhere in this filing. We were basically inactive in 1997 and 1996, therefore, the selected consolidated financial information is not included for the years ended June 30, 1997 and 1996.
FOR THE NINE MONTHS ENDED MARCH 31, FOR THE YEAR ENDED JUNE 30, 2001 (UNAUDITED) 2000 1999 1998 ----------- --------- ---------- ---------- STATEMENT OF OPERATIONS DATA: Sales $ 592,570 $ 13,182 $ -- $ -- Cost of sales 304,488 7,820 -- -- Gross profit 288,082 5,362 -- -- Total operating expenses 3,282,966 2,508,513 351,946 17,978 Interest expense (8,279) -- -- -- Net loss from continuing operations (2,866,726) (2,500,253) (351,674) (17,832) Loss from discontinued operations (450,772) (357,406) -- -- Loss from sale of discontinued operations (2,510,000) -- -- -- Net loss (5,827,499) (2,857,659) (351,674) (17,832) Net loss per share-basic and diluted: From continuing operations (0.09) (0.10) (0.01) (0.00) From discontinued operations (0.09) (0.01) -- -- MARCH 31 JUNE 30, 2001 (UNAUDITED) 2000 1999 1998 ----------- --------- ---------- ---------- BALANCE SHEET DATA: Cash $ 114,393 $102,949 $ 536 $ 3,763 Accounts Receivable, net 113,436 130,654 -- -- Inventory 784,596 623,991 -- -- Total Property & Equipment 280,905 165,696 -- -- Intangibles, net 5,004,670 8,142,609 -- -- Total Assets 6,243,825 9,151,275 3,036 7,263 Total Current Liabilities 2,933,653 2,628,717 79,841 42,396 Total Liabilities 2,933,653 2,805,059 79,841 42,396 Minority interest 568,617 -- -- -- Stockholders' Equity (Deficit) 2,741,555 6,346,216 (76,805) (35,133)
11 SUPPLEMENTARY FINANCIAL INFORMATION Certain quarterly financial information regarding our Company is set forth below.(1) NET INCOME (LOSS) FISCAL YEAR ENDED NET INCOME PER SHARE (BASIC JUNE 30, 2001 NET SALES GROSS PROFIT (LOSS) AND DILUTED) - ----------------- --------- ------------ ---------- ----------------- First Quarter $ 22,900 $ 11,180 $(893,482) $(0.03) Second Quarter 345,235 165,823 (1,369,441) (0.04) Third Quarter 224,345 111,079 (3,564,576) (0.11) NET INCOME (LOSS) FISCAL YEAR ENDED NET INCOME PER SHARE (BASIC JUNE 30, 2000 NET SALES GROSS PROFIT (LOSS) AND DILUTED) - ----------------- --------- ------------ ---------- ----------------- First Quarter $-- $-- $(48,841) $(0.00) Second Quarter -- -- (48,679) (0.00) Third Quarter -- -- (675,185) (0.02) Fourth Quarter 13,182 5,362 (2,084,954) (0.09) (1) Our Company was inactive from the time that we discontinued operations in 1996 until the time we were reactivated in mid-1999 and from inception through June 30, 2000 we had no significant revenues from operations. Therefore, the quarterly financial information for the year ended June 30, 1999 is not disclosed. 12 USE OF PROCEEDS This prospectus relates to shares of our common stock that may be offered and sold from time to time by selling stockholders. We will receive no proceeds from the sale of shares of common stock in this offering. However, we may receive the proceeds from the sale of common stock to Fusion Capital under the common stock purchase agreement. DIVIDEND POLICY We have not declared or paid dividends on our common stock during fiscal 1999 and fiscal 2000, and do not plan to declare or pay dividends on our common stock during fiscal 2001 or 2002. Our dividend practices are determined by our Board of Directors and may be changed from time to time. We will base any issuance of dividends upon our earnings (if any), financial condition, capital requirements, acquisition strategies, and other factors considered important by our Board of Directors. Nevada law and our Articles of Incorporation do not require our Board of Directors to declare dividends on our common stock. We expect to retain any earnings generated by our operations for the development and expansion of our business and do not anticipate paying any dividends to our stockholders for the foreseeable future. 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL We had been seeking select business opportunities globally among a wide range of prospects. Over the past two years, we made several investments, including Kronos Air Technologies and EdgeAudio. After further evaluation of these investments, we believe our investment in and the full development of Kronos Air Technologies and the Kronos(TM) technology represents the single biggest opportunity for us. As a result, we have prioritized our management and financial resources to fully capitalize on this investment opportunity. A more detailed explanation of Kronos Air Technologies and the current status of EdgeAudio and the other investments made by us are discussed below. We have reorganized our company to prioritize and focus management and financial resources on Kronos Air Technologies and the Kronos(TM) technology. This reorganization has resulted in the decision to no longer pursue other investment opportunities previously identified. We sold our investment in Atomic Soccer USA, Ltd. in April 2001; decided not to pursue investments in Cancer Detection International LLC, Electric Management Units, and Cancer Treatment Centers, Inc. in July 2001; and terminated by mutual consent of both parties a contract to distribute Computerized Thermal Imaging, Inc. equipment in August 2000. Our Company has also decided to invest limited corporate management and financial resources to EdgeAudio. Accordingly, our Company is in the process of determining whether its investment in EdgeAudio is impaired. At March 31, 2001, our Company's investment in EdgeAudio was $2,739,283 which included $2,359,250 of goodwill. The results of this analysis could have a material impact on our Company's financial position and results of operations. RESULTS OF OPERATIONS This discussion summarizes the significant factors affecting our consolidated operating results and financial condition during the quarter ended March 31, 2001 and should be read in conjunction with our consolidated financial statements and notes thereto included in this report as well as those included in our Form 10-K for the year ended June 30, 2000 and the Form 10-Q for each of the three quarters in the period ending March 31, 2001. The discussion herein with respect to the consolidated statements of operations does not contain comparable information with the same periods in the prior year and no analysis of the same is being given herein since it is not properly susceptible to narrative comparison by virtue of the facts that (a) as indicated in Item 1 of Form 10-K, we were basically inactive from the time that we discontinued operations in 1996 until the time that we reactivated operations in mid-1999 and (b) from inception through June 30, 2000 we had no significant revenues from operations. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED MARCH 31, 2001 (UNAUDITED) REVENUE AND COST OF SALES. Revenues are generated through sales of home theater speaker systems and accessories at EdgeAudio, Inc. and Kronos(TM) devices at Kronos Air Technologies, Inc. Sales for the nine months ended March 31, 2001 were $592,570 while cost of sales were $304,488 resulting in a gross profit of $288,082 and a gross margin of 48.6%. There were no sales or cost of sales for the nine months ended March 31, 2000. OPERATING EXPENSES. Operating expenses for the nine months ended March 31, 2001 amounted to $3,282,966 of which compensation and benefits were 38%, marketing was 8%, research and development (other than compensation and benefits) was 4%, professional services were 17%, intangibles amortization was 13% and other general and administrative expenses accounted for 19%. Operating expenses for the nine months ended March 31, 2001 amounted to $695,687 of which compensation and benefits were 95%, intangibles amortization was 3% and other general and administrative expenses accounted for 2%. CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 2001 (UNAUDITED) Our total assets at March 31, 2001 were $6,243,825 compared with $9,151,275 at June 30, 2000, a decline of $2,907,450 mainly due to the loss on disposal of a discontinued operation which was recorded in the quarter ended March 31, 2001. Total assets at March 31, 2001 were comprised of $784,596 of inventory, $2,419,668 of patents/intellectual property, and $2,585,002 of goodwill accounting for approximately 13%, 39% and 41%, respectively. Total current assets at March 31, 2001 and June 30, 2000 amounted to $1,042,195 and $894,099, respectively, while total current liabilities for those same periods amounted to $2,933,653 and $2,628,717, respectively, creating a working capital deficit of $1,891,458 and $1,734,618 at each respective period end. This working capital deficit is mainly attributable to Atomic Soccer USA, Ltd. current notes payable incurred to finance operating deficits during its development stage and early operating stage and accrued stock and other compensation. Total 14 liabilities as at March 31, 2001 and June 30, 2000 were $2,933,653 and $2,805,059, respectively, representing an increase of $128,594 or 4.6%. Shareholders equity as at March 31, 2001 and June 30, 2000 was $2,741,555 and $6,346,216, respectively, representing a decrease of $(3,604,661) or (56.8)%. The decrease in shareholders equity is principally the result of incurring a $2,866,726 loss from operations and a $2,960,722 loss from discontinued operations for the nine months ended March 31, 2001. In addition, equity increased during the nine month period ended March 31, 2001 through the sale and issuance of $2,222,837 of common stock. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 2000 (AUDITED) REVENUE AND COST OF SALES. Sales for the year ended June 30, 2000, mainly from EdgeAudio, were $13,182 while cost of sales were $7,820 resulting in a gross margin for the year of $5,362. There were no sales or cost of sales for the years ended June 30, 1999 and 1998. OPERATING EXPENSES. Operating expenses amounted to $2,508,513 for the year ended June 30, 2000 of which compensation and benefits accounted for $1,413,146 or 56%, in-process research and development for Kronos(TM) devices accounted for $633,229 or approximately 25%, and intangibles amortization expense accounted for $139,634 or approximately 6% and other accounted for $322,504 or 13%. Primarily as a result of the above, the net loss from continuing operations for the year ended June 30, 2000 was $2,500,253, and the loss from discontinued operations was $357,406 for a net loss of $2,857,659, thereby increasing our accumulated deficit to $3,300,179 at June 30, 2000. Operating expenses for the year ended June 30, 1999 were $351,946 of which compensation and benefits accounted for $342,150 or 48%. Operating expenses for the year ended June 30, 1998 were minimal. CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 2000 (AUDITED) Our total assets at year ended June 30, 2000 were $9,151,275, of which $623,991 was inventory, $2,623,191 patents/intellectual property, and $5,519,418 goodwill accounting for approximately 7%, 29% and 60% thereof. Total current assets amounted to $894,099 while total current liabilities amounted to $2,628,717 thereby creating a working deficit of $1,734,618. This working capital deficit is mainly attributable to Atomic Soccer USA, Ltd. current notes payable incurred to finance operating deficits during its development stage and early operating stage. Total liabilities as at June 30, 2000 amounted to $2,805,059 and shareholders equity was $6,346,216. Total assets at June 30, 1999 were $3,038 and total liabilities were $79,841. LIQUIDITY AND CAPITAL RESOURCES Historically we have relied principally on the sale of common stock and government grants to finance our operations. Going forward, we plan to rely on the proceeds from a Small Business Innovation Research contract with the United States Navy and other government contracts and grants, and cash flow generated from the sale of Kronos TM devices. We have also entered into a common stock purchase agreement with Fusion Capital under which we have the right, subject to certain conditions, to draw down approximately $12,500 per day from the sale of common stock to Fusion Capital. In addition, in May 2001, Kronos Air Technologies signed a Small Business Innovation Research contract. This contract is sponsored by the United States Navy and is potentially worth up to $837,000 in product development and testing support for Kronos Air Technologies. The first phase of the contract is worth up to $87,000 in funding for manufacturing and testing a prototype device for air movement and ventilation onboard naval vessels over the next six months. If awarded to Kronos Air Technologies, the second phase of the contract would be worth up to $750,000 in additional funding. At March 31, 2001, we had a working capital deficit of $1,891,458, which represented a decline of $156,840 (or 9%) from net working capital at June 30, 2000. The current ratio improved slightly from .34 to 1 at June 30, 2000 to .36 to 1 at March 31, 2001. Net cash flow used on operating activities was $533,484 for the quarter ended March 31, 2001 and $2,480,982 for the nine months ended March 31, 2001. We were able to satisfy our cash requirements for the nine months ended March 31, 2001 though the issuance and sale of our common stock. On June 19, 2001, we entered into a common stock purchase agreement with Fusion Capital. Pursuant to the common stock purchase agreement, Fusion Capital has agreed to purchase on each trading day during the term of the agreement, $12,500 of our common stock or an aggregate of $10.0 million. The $10.0 million of our common stock is to be purchased over a 40-month period, subject to a six-month extension or earlier termination at our sole discretion and subject to certain events. The purchase price of the shares of common stock will be equal to a price based upon the future market price of our common stock without any fixed discount to the then-current market price. We plan to draw down as much as $3.0 million annually from Fusion Capital which management believes should more than offset our operating cash flow deficits. However, there can be no assurance 15 of how much cash we will receive, if any, under the common stock purchase agreement with Fusion Capital. GOING CONCERN OPINION Our independent auditors have added an explanatory paragraph to their audit opinion issued in connection with the 2000 financial statements which states that we do not have significant cash or other material assets to cover our operating costs and to allow us to continue as a going concern. Our ability to obtain additional funding will determine our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty. We can make no assurance that we will be able to successfully transition from research and development to manufacturing and selling commercial products on a broad basis. While attempting to make this transition, we will be subject to all the risks inherent in a growing venture, including, but not limited to, the need to develop and manufacture reliable and effective products, develop marketing expertise and expand our sales force and our presence on the Internet. 16 BUSINESS OUR COMPANY We are a Nevada corporation having principal executive offices located in Lake Oswego, Oregon. We had been seeking select business opportunities globally among a wide range of prospects. Over the past two years, we made several investments, including Kronos Air Technologies, Inc. and EdgeAudio, Inc. After further evaluation of these investments, we believe our investment in and the full development of Kronos Air Technologies and the Kronos(TM) technology represents the single biggest opportunity for us. As a result, we are focusing substantially all of our management and financial resources to develop and market the Kronos(TM) technology. A more detailed explanation of Kronos Air Technologies and the current status of EdgeAudio and the other investments made by us are discussed below. The segment reporting of our business is disclosed in our audited consolidated financial statements. REORGANIZATION We have reorganized our company to prioritize and focus management and financial resources on Kronos Air Technologies and the Kronos(TM) technology. This reorganization has resulted in the decision to no longer pursue other investment opportunities previously identified. We sold our investment in Atomic Soccer USA, Ltd. in April 2001; decided not to pursue investments in Cancer Detection International LLC, Electric Management Units, and Cancer Treatment Centers, Inc. in July 2001; and terminated by mutual consent of both parties a contract to distribute Computerized Thermal Imaging, Inc. equipment in August 2000. CORPORATE HISTORY TSET (formerly known as Technology Selection, Inc.) was originally incorporated under the laws of the State of Utah on September 17, 1980 as Penguin Petroleum, Inc. Penguin Petroleum Inc.'s stockholders approved a name change on October 6, 1982 to Petroleum Corporation of America, Inc. On December 29, 1996, stockholders approved a reorganization whereby they exchanged their stock on a one-for-one basis with Technology Selection, Inc., a Nevada corporation. Technology Selection, Inc.'s shares began trading on the Over-the-Counter Bulletin Board on August 28, 1996 under the symbol "TSET." On November 19, 1998, Technology Selection, Inc. changed its name to TSET, Inc. We have confined most of our activities to classifying market and commercial targets, investigating potential investment and acquisition opportunities, and capitalizing on our investment in Kronos Air Technologies, and have not, to date, generated significant operating revenues. We have never been party to any bankruptcy, receivership, or similar proceedings and, other than noted above, have not been party to any material reclassification, merger, consolidation, or purchase or sale of significant assets not in the ordinary course of our business. KRONOS AIR TECHNOLOGIES, INC. On March 13, 2000, we signed agreements for the acquisition of all of the issued and outstanding shares of Kronos Air Technologies, Inc. We acquired all of the issued and outstanding shares of Kronos Air Technologies' capital stock in exchange for shares of our common stock. Kronos Air Technologies is focused on the development and commercialization of an air movement and purification technology known as Kronos(TM) which is more fully described below. TECHNOLOGY DESCRIPTION AND BENEFITS The Kronos(TM) technology operates through the application of high voltage management across paired electrical grids that creates an ion exchange which moves air and gases at high velocities while removing odors, smoke, and particulates, as well as killing pathogens, including bacteria. We believe the technology is cost effective and is more energy efficient than current alternative fan and filter technologies. Kronos(TM) technology has multiple U.S. and International patents pending. The Kronos(TM) device is comprised of state-of-the-art high voltage electronics and electrodes on a single printed circuit board attached to one or more sets of corona and target electrodes housed in a self contained casing. The device can be flexible in size, shape and capacity and can be used in embedded electronic devices, standalone room devices, and integrated HVAC and industrial applications. The Kronos(TM) device has no moving parts or degrading elements and is composed of cost effective, commercially available components. 17 The Kronos(TM) technology combines the benefits of silent air movement, air cleaning, odor removal, limited ozone generation, and static control (as a Kronos(TM) device can produce either positive or negative ions or both, if necessary). Because the Kronos(TM) air movement system is a silent, non-turbulent, and energy efficient air movement and cleaning system, we believe that it is ideal for air circulation, cleaning and odor removal in all types of buildings as well as compact, sealed environments such as airplanes, submarines and cleanrooms. Additionally, because it has no moving parts or fans, a Kronos(TM) device can instantly block or reverse the flow of air between adjacent areas for safety in hazardous or extreme circumstances. We believe that the benefits of the Kronos(TM) technology include the following: QUIET OPERATION: Embodied in a non-turbulent, non-vibrating device - virtually silent. DURABILITY: No moving or degradable parts. ADAPTABILITY: Scalable in shape, size and capacity and adaptable to existing infrastructure, hardware and HVAC systems or can be used as a standalone device. Operates under both extreme high and low temperatures; inertialess with instantaneous air movement and is capable of deployment in a wide range of applications. EFFICIENCY: Energy efficient, up to 10 times the cubic feet per minute per watt of a conventional fan at the same velocity and size. PURIFICATION: Lethal towards a wide range of bacteria and spores and can remove particulate matter from the air (e.g., smoke, pollen). ANTI-STATIC: Ions from the corona discharge neutralize electrostaticly charged particles in the ambient air (e.g., use in cleanrooms). VALUE: Built with readily available, existing electronics and hardware making the Kronos(TM) device cost effective to manufacture. RECENT DEVELOPMENTS UNDERWRITERS LABORATORIES APPROVAL. In June 2001, Kronos Air Technologies obtained Underwriters Laboratories, Inc.'s approval for the Kronos(TM) device's core electronics. The electronic module is the key component of Kronos Air Technologies' proprietary technology and is used in all Kronos(TM) based products. Underwriters Laboratories' approval of the electronics should shorten the Underwriters Laboratories' approval process for all future Kronos Air Technologies air movement and purification products. Final Underwriters Laboratories' approval for each Kronos(TM) based device (based on using the current core electronics) will depend on meeting mechanical and material standards for each device. This final Underwriters Laboratories' effort will focus primarily on safety standards applied to the casing for the device and materials used in final design. LOCKHEED MARTIN AND GENERAL DYNAMICS CONTRACTS. In the fourth quarter 2001, Kronos Air Technologies began to generate revenue for the first time in the military marketplace with the sale of Kronos(TM) devices to Lockheed Martin and the delivery of its first commercialized Kronos(TM) devices to Bath Iron Works, a division of General Dynamics. The Bath Iron Works' air movement and purification devices will be used in the crew quarters of the USS WINSTON CHURCHILL (DDG-81). Bath Iron Works and Kronos Air Technologies have also teamed with Electric Boat, another subsidiary of General Dynamics, and General Dynamics Advance Technology Systems Group to examine advanced demonstration opportunities onboard other United States naval vessels. These demonstrations are being made through the Office of Naval Research. SMALL BUSINESS INNOVATION RESEARCH CONTRACT AWARDED. In May 2001, Kronos Air Technologies was awarded a Small Business Innovation Research contract. This contract is sponsored by the United States Navy and is potentially worth up to $837,000 in product development and testing support for Kronos. The first phase of the contract is worth up to $87,000 in funding for manufacturing and testing a prototype device for air movement and ventilation onboard naval vessels. If awarded to Kronos Air Technologies, the second phase of the contract would be worth up to $750,000 in additional funding. The Kronos(TM) devices manufactured under this contract will be embedded in an existing HVAC systems to move air more efficiently than the current fan based technology. This contract is an 18 extension of the commercialization effort by Kronos Air Technologies in the specialized military marketplace. STAND-ALONE PROTOTYPE COMPLETED In April 2001, Kronos Air Technologies completed development of a prototype room-based air purification device and is now moving rapidly toward commercialization of the Kronos(TM) technology outside of military applications. BUSINESS STRATEGY Kronos Air Technologies' business development strategy is to sell and license the Kronos(TM) technology to six distinct market segments: (1) air movement and purification (health care, hospitality, residential and commercial facilities); (2) air purification for unique spaces (cleanrooms, automotive, cruise ships and airplanes); (3) specialized military (naval vessels, closed vehicles and environmental devices); (4) embedded cooling and cleaning (electronic devices and medical equipment); (5) industrial scrubbing (produce storage and diesel and other emissions), and (6) hazardous gas destruction (incineration and chemical facilities). AIR MOVEMENT AND PURIFICATION. Indoor air pollution, including "sick building syndrome" and "building related illness," is caused by inadequate ventilation, chemical contaminants from indoor and outdoor sources and biological contaminants. The addressable air movement and purification segment is made up of four principal applications: (1) health care, (2) hospitality (3) residential and (4) commercial. To begin to address these principal applications, Kronos Air Technologies has met with over 100 nursing homes, assisted living facilities and hospitals. Kronos Air Technologies is developing a Kronos(TM) device that will address the specific air quality issues, including odors, found in most nursing home and assisted living facilities. Kronos Air Technologies is also targeting a major global hospitality provider to develop a Kronos(TM) device that will be used to reduce second hand cigarette smoke in hotel rooms, gaming halls and other hospitality facilities. AIR PURIFICATION FOR UNIQUE SPACES. Electronics, high-tech, semiconductor, pharmaceutical, aerospace, medical and many other producers depend on cleanroom technology. As products such as electronic devices become smaller, the chance of contamination in manufacturing becomes higher. For pharmaceutical companies, clean, safe and contaminant-free products are imperative to manufacturing and distributing a viable product. Other potential unique applications for the Kronos(TM) technology include contained spaces such as aircraft, cruise ships and other transportation modes that require people to breathe contaminated, re-circulated air for extended periods. Kronos Air Technologies is also evaluating the effectiveness of the KronosTM technology on reducing diesel emissions. SPECIALIZED MILITARY. Kronos Air Technologies has been working extensively with General Dynamics on commercializing specific military applications of the Kronos(TM) technology. To date, Kronos Air Technologies has developed and shipped miniature Kronos(TM) based devices for retrofitting the sailors' bunk fans on United States Naval ships and a larger embedded device for retrofitting fans in the ductwork of United States Naval ships. In addition, Kronos Air Technologies was awarded a Small Business Innovation Research contract. This contract is sponsored by the United States Navy and is potentially worth up to $837,000 in funding for product development and testing. The Kronos(TM) devices manufactured under this contract will be embedded in existing HVAC systems to move air more efficiently than the current fan based technology. OTHER MARKET SEGMENTS. The technology demonstrated in the Small Business Innovation Research contract has direct applications to other commercial market segments that Kronos Air Technologies is pursuing, including industrial ventilation for building HVAC systems, embedded cooling for electronic equipment and hazardous gas scrubber systems. CORPORATE RESTRUCTURING AND RELATED ACTIVITIES We have reorganized in order to prioritize and focus management and financial resources on Kronos Air Technologies and the Kronos(TM) technology. This reorganization has resulted in the decision to no longer pursue other investment opportunities previously identified. 19 ACQUISITION AND SALE OF ATOMIC SOCCER USA, LTD. Pursuant to a Letter Agreement dated as of April 11, 2001, we transferred ownership of 100% of the issued and outstanding shares of common stock of Atomic Soccer to a new ownership group comprised primarily of Atomic Soccer's current and former management. We determined that continued financial and other support of Atomic Soccer was not consistent with our long-term strategic plan of concentrating and consolidating financial and management resources on Kronos Air Technologies. OTHER INVESTMENTS. Our reorganization has resulted in our decision to no longer pursue other investment opportunities previously identified. We decided not to pursue further investments in Cancer Detection International LLC, Electric Management Units, and Cancer Treatment Centers, Inc. in July 2001, and terminated by mutual consent a contract to distribute Computerized Thermal Imaging, Inc. equipment in August 2000. HIRED THE EAGLE ROCK GROUP, LLC On July 2, 2001, we signed an agreement to utilize the strategic planning and business plan execution services of The Eagle Rock Group, LLC. The Eagle Rock Group will work with the Kronos Air Technologies team to fully develop and capitalize on the Kronos(TM) technology. We believe that The Eagle Rock Group can assist us in unlocking the potential value of the Kronos(TM) technology. We believe that The Eagle Rock Group's multi-disciplined approach, which uses seasoned business executives and leverages relationships and networks, can accelerate the Kronos(TM) opportunity versus the timing and development if we were to continue on a go-it-alone strategy or if we were to work and coordinate with the myriad of groups necessary to duplicate The Eagle Rock Group team. Specifically, we initially envision The Eagle Rock Group working to augment and enhance our efforts in the following areas (i) capital raising and allocation, (ii) strategic partner introduction and evaluation, (iii) distribution channel development, (iv) product focus and brand development, (v) human resource placement, and (vi) capital market introduction and awareness. Pursuant to the agreement that we entered into with The Eagle Rock Group, we issued to The Eagle Rock Group a ten-year warrant granting them the right to purchase 1,400,000 shares of our common stock at an exercise price of $0.68 per share. The shares underlying the warrant have piggy-back and demand registration rights, as well as subscription rights in the event that we issue any rights to all of our stockholders to subscribe for shares of our common stock. In addition, the warrant contains redemption rights in the event that we enter into a transaction that results in a change of control of our company. LEGAL PROCEEDINGS On February 2, 2001, we initiated, together with Kronos Air Technologies, legal proceedings in Clackamas County, Oregon against W. Alan Thompson, Ingrid T. Fuhriman, and Robert L. Fuhriman II, each of whom were formerly executive officers and members of the Board of Directors of Kronos Air Technologies. This suit alleges, among other things, breach of fiduciary duties and breach of contract by these individuals, and seeks, among other things, an order from the court referring the dispute to arbitration in accordance with the terms of these individuals' respective employment agreements, which were terminated by us on January 30, 2001, and other appropriate equitable relief. On January 13, 2000, we initiated legal proceedings in Clackamas County, Oregon against Foster & Price Ltd., an Isle of Man corporation, seeking, among other things, a judicial declaration that a certain term sheet signed by us and Foster & Price was lawfully terminated by us due to Foster & Price's failure to perform certain terms thereunder and was therefore null and void, and that we and Foster & Price had no further contractual obligations between ourselves. Foster & Price claimed entitlement to the issuance of 10,000,000 shares of our common stock, notwithstanding its alleged nonperformance of certain important obligations under the term sheet. On July 7, 2001, we entered into a mutual release and settlement agreement with Foster & Price and Alex D. Saenz, pursuant to which our company, Foster & Price and Mr. Saenz mutually and fully released each other from all related claims and counterclaims and agreed to the dismissal of the litigation initiated by us against Foster & Price on January 13, 2000. The settlement agreement does not contain any admission of liability or fault by any party. The parties also agreed, among other things, to not institute any future litigation relating to the term sheet of the previous relationship. As settlement consideration, we have agreed to deliver to Foster & Price and Mr. Saenz, collectively, a total of 375,000 shares of our common stock. Such shares are included for registration in this prospectus; however, Foster & Price and Mr. Saenz have agreed that, following such registration, in no case shall they sell on any given trading day more than 5,000 shares, or more than 12,500 shares in any consecutive five-day trading period, or more than 50,000 shares in any 30-day consecutive trading period. Foster & Price and Mr. Saenz have agreed to certain confidential provisions and to indemnify us against claims arising out 20 of any dispute between Foster & Price and Mr. Saenz relating to any allocation of shares between them as well as claims brought by persons who are not parties to the settlement agreement. DESCRIPTION OF OUR PROPERTIES Our principal executive office is located at 14523 Westlake Drive, Lake Oswego, Oregon in approximately 1,000 square feet of leased space. This lease is a month-to-month lease at a monthly rate of $2,039. The offices of Kronos Air Technologies are located at 8549/8551 154th Avenue NE, Redmond, Washington 98052. Kronos Air Technologies is committed through June 30, 2003 to annual lease payments on operating leases for 4,000 square feet of office/research lab premises of $47,028 per year. The offices of EdgeAudio are located at 15615 74th Avenue, Suite 100, Tigard, Oregon 97224. EdgeAudio is committed through June 30, 2003 to office/warehouse premises of $13,800 per year. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE During fiscal 2000, we changed our independent accountants from Randy Simpson, C.P.A., P.C. to Grant Thornton LLP. There were no disagreements with Randy Simpson, C.P.A., P.C. on any accounting principles or practices, financial statement disclosure, or auditing scope or procedures. 21 MANAGEMENT Our directors and executive officers and their ages as of the date of this prospectus are as follows: NAME AGE POSITION - ---- --- -------- Jeffrey D. Wilson 46 Chairman of the Board of Directors and Chief Executive Officer Charles D. Strang 79 Director Richard F. Tusing 44 Director Daniel R. Dwight 41 Director Richard A. Papworth 42 Director; Chief Financial Officer, Secretary, and Treasurer Erik W. Black 31 Director; Executive Vice President James P. McDermott 39 Director JEFFREY D. WILSON, 46, was appointed Chairman of the Board of Directors and Chief Executive Officer of TSET in April 1999. Mr. Wilson has had extensive international transactions experience in Asia, Europe, Latin America, Africa, and the U.S., having represented clients in a wide range of joint venture, corporate finance, public and private securities, regulatory, asset acquisition, licensing, investment, technology, mergers and acquisitions, leveraged buy-out, and other transactions, and has assisted clients in gaining access to foreign markets and in government lobbying activities. Mr. Wilson has also served as Chairman of the Board of Directors of Kronos Air Technologies and Atomic Soccer since March 2000; Mr. Wilson resigned as Chairman of Atomic Soccer in November 2000. From 1992-1999, Mr. Wilson maintained a private international consulting practice for select clients and engaged in entrepreneurial ventures. From 1990-1992, he served as international legal advisor for GGS Co., Ltd., a Tokyo-based Japanese investment company (and including its Hong Kong, Australian, Canadian, and U.S. affiliates), having primary responsibility for its international projects. From 1982-1990, he engaged in the private practice of law. Mr. Wilson received a B.A. from Brigham Young University in 1979 and a J.D. from the University of Kansas in 1982, where he was also associate editor of the KANSAS LAW REVIEW and President of the International Law Society. Mr. Wilson speaks Japanese fluently. CHARLES D. STRANG, 79, has served as a Director of TSET since September 2000 and as a Director of Kronos Air Technologies since January 2001. Mr. Strang was named National Commissioner of NASCAR (National Association for Stock Car Racing) in 1998 and continues to serve in that capacity. In 1989 Mr. Strang received President Bush's American Vocation Success Award; in 1992 was elected to the Hall of Fame of the National Marine Manufacturers Association; in 1990 was awarded the Medal of Honor of the Union for International Motorboating; and is a life member of the Society of Automotive Engineers. He also currently serves as a Director of the American Power Boat Association (the U.S. governing body for powerboat racing) and Senior Vice-President of the Union for International Motorboating (the world governing body for powerboat racing, with approximately 60 member nations). He joined Outboard Marine Corporation as Director of Marine Engineering in 1966, and retired as Chief Executive Officer in 1990 and as Chairman in 1993 after a more than 40-year career in the marine industry. Mr. Strang's accomplishments during this period include the invention of the modern-day stern-drive (inboard/outboard) power system, the evolution of high horsepower outboard motors, dozens of patents in the field of engine design, marine propulsion devices, and powerboats, and the movement of the marine industry to vertically integrate engine manufacturers with boat builders; these efforts have accelerated the consolidation of the marine industry and the trend to "packaged" boat and motor marketing. Under his leadership, Outboard Marine Corporation was transformed into a vertically-integrated producer of complete, factory-rigged and -powered boats; his engineering and management leadership has had a lasting, substantial influence on the marine industry. Mr. Strang graduated with a degree in mechanical engineering from Polytechnic University in 1943 and worked for several years in the aerospace industry (including research and testing projects on aircraft engines) and served on the mechanical engineering staff of Massachusetts Institute of Technology. He spent 13 years with Kiekhaefer Corporation (manufacturer of Mercury outboard motors), rising from Director of Research to Executive Vice-President, and was also proprietor of U.S. Executives, Inc., a management consulting firm, and Hydro-Mechanical Development, an engineering firm. 22 RICHARD F. TUSING, 44, has served as a Director of TSET since October 2000 and as a Director of Kronos Air Technologies since January 2001. Mr. Tusing has had extensive experience in developing new enterprises, negotiating the licensing of intellectual property rights, and managing technical and financial organizations, and has more than 20 years of business development, operations, and consulting experience in the technology and telecommunications industries. He has spent four years in executive management with several emerging technology companies, 14 years in various managerial and executive positions with MCI Communications Corporation, and three additional years in managerial consulting. While acting as an independent management consultant from 1996 to the present, Mr. Tusing's experience with emerging technology companies includes serving as Chief Executive Officer and Chief Technology Officer for Avalon Media Group (a turnkey advertising services company); primary responsibility for technology planning, licensing, and strategic technology architecture relationships for ICU, Inc. (a mobile video conferencing company); and Executive Vice-President, Chief Technology Officer, and Director of Entertainment Made Convenient (Emc3) International, Inc. (a video and data downloading services company). Through his private consultancy, Mr. Tusing provides, among other things, managerial, financial planning, technical, and strategic planning services. From 1982-1996, Mr. Tusing held multiple managerial and executive positions with MCI Communications Corporation. From 1994-1996, he served as MCI's Director of Strategy and Technology, managing MCI's emerging technologies division (having primary responsibility for evaluating, licensing, investing in, and acquiring third-party technologies deemed of strategic importance to MCI), and also oversaw the development of several early-stage and venture-backed software and hardware companies; in this capacity, Mr. Tusing managed more than 100 scientists and engineers developing state-of-the-art technologies. From 1992-1994, Mr. Tusing founded MCI Metro, MCI's entree into the local telephone services business and, as MCI Metro's Managing Director, managed telecommunications operations, developed financial and ordering systems, and led efforts in designing its marketing campaigns. From 1990-1992, he served as Director of Finance and Business Development for MCI's western region, overseeing $1,000,000,000 in annual revenue and a $90,000,000 operating budget. From 1982-1990, Mr. Tusing held other management and leadership positions within MCI, including service as MCI's Pacific Division's Regional Financial Controller, Manager of MCI's Western Region's Information Technology Division, and led MCI's National Corporate Financial Systems Development Organization. Mr. Tusing received B.S. degrees in business management and psychology from the University of Maryland in 1979. DANIEL R. DWIGHT, 41, has served as a Director of TSET since November 2000, and as a Director and Chief Executive Officer of Kronos Air Technologies since January 2001. He has extensive experience in private equity and operations in a wide variety of high growth and core industrial businesses. Mr. Dwight is currently an independent management consultant who provides business development, strategic consulting, financial planning, merchant banking, and operational execution services to a wide range of clients. Prior to starting his consulting practice, Mr. Dwight spent 17 years with General Electric including 10 years of operations, manufacturing, and business development experience with GE's industrial businesses, and seven years of international investment and private equity experience with GE Capital. He has had responsibility for over a $1 billion in merger and acquisition and private equity transactions at GE. Most recently, Mr. Dwight initiated GE Capital's entry in the Asia private equity market. Between 1995 and 1999, the Asian equity portfolio grew to include consolidations, leveraged buyouts, growth capital and minority investments in diverse industries, including information technology, telecommunications services, consumer products, services and distribution, and contract manufacturing. Mr. Dwight led deal teams with responsibility for the execution of transactions, monitoring of portfolio companies and realization of investments. Since 1982, Mr. Dwight has held other leadership positions domestically and internationally with GE Capital, as well as senior positions with GE Corporate Business Development (1989-1992) and GE Corporate Audit Staff (1984-1987). His responsibilities included identifying, analyzing and implementing reorganizations, restructurings, consolidating acquisitions, and divestitures of GE businesses. He also had responsibility for the development of new business ventures and commercialization of new technologies strategic to GE's industrial businesses. Mr. Dwight holds an MBA in Finance and Marketing with Honors from the University of Chicago in 1989 and a B.S. in Accounting with Honors from the University of Vermont in 1982. RICHARD A. PAPWORTH, 42, has served as a Director of TSET since June 2001, was appointed Chief Financial Officer of TSET in May 2000, and has served as a Director, Chief Financial Officer, and Treasurer of Kronos Air Technologies since January 2001, and as Assistant Secretary of Kronos Air Technologies since December 2000. Mr. Papworth has had diverse finance, tax, and accounting experience in a range of industries, including real estate development/construction, software development, publishing, distribution, financial institutions, and investment companies. From 1997-2000, he was Vice-President and Controller of the U.S. and European operations of Wilshire Financial Services Group, a Portland, Oregon-based publicly held specialty loan servicing and investment company with more than $2 billion under management. In this capacity, Mr. Papworth was responsible for accounting and control system, financial reporting and analysis, and business decision support for the worldwide organization. From 1996-97, he was Chief Financial Officer of First Bank of Beverly Hills, a $550 million banking subsidiary of WFSG. From 1995-96, Mr. Papworth was Treasurer for Maintenance Warehouse America Corporation in which capacity he successfully negotiated more than $50 million of real estate and working capital financing, and was responsible for management of Maintenance Warehouse America Corporation's insurance program and tax compliance. From 23 1994-95, he maintained a private management and finance consulting practice for select clients. From 1989-94, Mr. Papworth worked for Morrison Homes, the U.S. home building division of U.K.-based George Wimpey Plc., during which period he held various positions including Chief Financial Officer, Treasurer, and Assistant Treasurer. From 1985-89, he engaged in tax consulting with Deloitte and Touche, a Big Five accounting firm. He received a B.S. in accounting (with minors in business, economics, and Spanish) and a Macc (Masters of Accountancy) with emphasis in tax law, from Brigham Young University in 1984. Mr. Papworth became licensed as a certified public accountant in the State of California in 1987. Mr. Papworth speaks Spanish fluently. ERIK W. BLACK, 31, has served as a Director of TSET since June 2001, was appointed Executive Vice-President - Business Development of TSET in May 2000, and also served as Chairman of the Board of Directors of Atomic Soccer from November 2000 until the sale of Atomic Soccer in April 2001. Before joining TSET, Mr. Black served from 1997-2000 as a business and corporate strategy consultant to the office of the Chairman on Funding Selection, Inc., an investment banking and mergers and acquisitions company. He also developed, launched, and managed GI Bill Express.com LLP from February 1999 until its acquisition by Military.com in April 2000. Mr. Black has also worked as an e-business associate consultant for IBM Global Services in Phoenix, Arizona, from March 1999 until April 2000. In addition, Mr. Black was the sole proprietor of E.B. Web Designs, an Internet development services and consulting company founded in 1998. Mr. Black worked as the communications coordinator for the Synthetic Organic Chemical Manufacturers Association in Washington, D.C. from 1996-97 and as an associate consultant for Robert Charles Lesser & Co., a real estate consulting firm, from 1995-96. He received an M.B.A. and a Masters of Information Management degrees from Arizona State University in 2000 (where he received the ASU MBA Kiplinger Foundation Prize for outstanding scholarship, service, and contribution, and served as Vice-President - communications of the ASU MBA Student Body Association in 1999-2000), a Global Leadership Certificate from Thunderbird - The American Graduate School of International Management in 2000, and a B.A. from Pomona College in 1995, where he graduated magna cum laude and was elected to Phi Beta Kappa. Mr. Black speaks Russian fluently. JAMES P. MCDERMOTT, 39, became a Director of TSET in July 2001. Mr. McDermott has over 17 years of financial and operational problem-solving experience. From 1992 through 2000, Mr. McDermott held various managerial and executive positions with PennCorp Financial Group, Inc. and its affiliates. From 1998 through 2000, Mr. McDermott was Executive Vice-President and Chief Financial Officer of PennCorp Financial Group. While serving in this position, Mr. McDermott was one-third of the executive management team that was responsible for developing and implementing operational stabilization, debt reduction and recapitalization plans for the company. From 1995 through 1998, Mr. McDermott served as Senior Vice-President of PennCorp Financial Group. Mr. McDermott worked closely with the Audit Committee of the Board of Directors on evaluating the PennCorp's accounting and actuarial practices. In addition, Mr. McDermott was responsible for developing a corporate-wide technology management program resulting in technology convergence and cost savings to the company's technology budget. From 1994 through 1998, Mr. McDermott was a principal in Knightsbridge Capital Fund I, LP, a $92 million investment fund specializing in leverage-equity acquisitions of insurance and insurance-related businesses. Mr. McDermott was also the founding Chairman of the e-business Internet service provider, Kivex.com, and a senior manager of one of the world's leading public accounting firms, KPMG. Mr. McDermott received a B.S. Degree in Business Administration from the University of Wisconsin, Madison. DIRECTORS Our Board of Directors consists of eight seats. Directors serve for a term of one year and stand for election at our annual meeting of stockholders. Four of our current directors were reelected at our annual meeting of stockholders held on December 15, 2000, and two additional directors were appointed in June 2001. One vacancy currently exists on the Board of Directors as of the date of this prospectus. Pursuant to our Bylaws, a majority of directors may appoint a successor to fill any vacancy on the Board of Directors. Jeffrey D. Wilson, our Chairman and Chief Executive Officer, Richard A. Papworth, our Chief Financial Officer, Secretary, and Treasurer, and Erik W. Black, our Executive Vice-President - Business Development, are also executive officers of TSET. James P. McDermott, a principal of The Eagle Rock Group, LLC, was nominated to our Board of Directors in July 2001. ADVISORY BOARD We established an Advisory Board in July 2001 to assist management in the development of long-range business plans for our Company. Currently, William Poster is the sole Advisory Board Member. Mr. Poster is a seasoned entrepreneur with a successful track record as a founder of several businesses spanning five continents. Mr. Poster has experience in developing business opportunities in the United States, Europe, Asia and the Middle East. Mr. Poster recently stepped down as President of Computer Systems & Communications Corporation, a wholly-owned subsidiary of General Dynamics. Computer Systems & Communications 24 Corporation is a cutting-edge communications and technology company that Mr. Poster founded and later sold to General Dynamics. We will continue to evaluate additional potential candidates for our Advisory Board. COMMITTEES As of the date of this prospectus, we have not constituted any nominating or other committees of the Board of Directors. All director nominees were selected by the entire Board of Directors. COMPENSATION OF DIRECTORS CASH COMPENSATION. Our Bylaws provide that, by resolution of the Board of Directors, each director may be reimbursed his expenses of attendance at meetings of the Board of Directors; likewise, each director may be paid a fixed sum or receive a stated salary as a director. As of the date of this prospectus, no director receives any salary or other form of cash compensation for such service. No director is precluded from serving our Company in any other capacity and receiving compensation from us in connection therewith. SHARE-BASED COMPENSATION. Each director is entitled to receive annually 50,000 restricted shares of our common stock, either granted as shares or in the form of fully-vested options, as compensation for their services as members of our Board of Directors. The Chairman of our Board of Directors is entitled to receive annually an additional 50,000 shares of our common stock, either granted as shares or in the form of fully-vested options, as compensation for his services as Chairman of our Board of Directors. As of the date of this prospectus, Messrs. Wilson and Strang have been granted 200,000 and 50,000 options, respectively as compensation for Mr. Wilson's services as Chairman of our Board of Directors and Mr. Strang's services as a member of our Board of Directors. Messrs. Tusing and Dwight have each been granted 50,000 shares of our common stock as compensation for their services as members of our Board of Directors. 25 EXECUTIVE COMPENSATION The following table sets forth compensation for the fiscal year ended June 30, 2001 for our executive officers:
SUMMARY COMPENSATION TABLE ANNUAL COMPENSATION LONG-TERM COMPENSATION ------------------------------------------------- -------------------------------------------------- AWARDS PAYOUTS -------------------------------------------------- RESTRICTED SECURITIES ALL OTHER STOCK UNDERLYING LTIP OTHER SALARY BONUS COMPENSATION AWARDS OPTIONS/SAR's PAYOUTS COMPENSATION NAME AND PRINCIPAL YEAR $ $ $ $ # $ $ FISCAL POSITION (a) (b) (c) (d) (e) (f) (g) (h) (i) - --------------------- --------- ------------ ---------- - ----------- - ---------- ------------- ------- ----------- Jeffrey D. Wilson, 2001 180,000 -- 12,000 -- 600,000(1) -- -- Chairman of the 2000 155,000(2) 30,000(3) 2,670(4) 700,000(5) 700,000 -- -- Board of Directors 1999 25,000(2) -- -- 300,000 -- -- -- and Chief Executive Officer Richard A. Papworth, 2001 120,000 -- 2,000 -- 448,475(7) -- -- Chief Financial 2000 10,000(6) -- -- 50,000(8) -- -- -- Officer 1999 -- -- -- -- -- -- -- Erik W. Black, 2001 100,000 -- 6,000 -- 50,000(9) -- -- Executive Vice 2000 4,167(10) -- 4,500(11) -- -- -- -- President - 1999 -- -- -- -- -- -- -- Business Development
- --------------------------------- (1) Mr. Wilson was granted 350,000 options pursuant to a Letter Agreement dated April 10, 2001 amending Mr. Wilson's Employment Agreement, dated April 16, 1999. 125,000 options were fully vested as of April 10, 2001 and the remaining 225,000 options vest upon the achievement of certain performance objectives. The exercise price is equal to $0.885 per share, which was the closing price of our Company's common stock as quoted on the Over-the-Counter Bulletin Board on April 9, 2001. Mr. Wilson was granted 50,000 options on April 9, 2001. These options are full vested and the exercise price is equal to $0.885 per share. In addition, Mr. Wilson, was granted 200,000 options on May 3, 2001, in connection with his service as Chairman of the Board of Directors in 1999 and 2000. These options are fully vested and the exercise price is equal to $0.71 per share. (2) Mr. Wilson's 1999 salary of $25,000 consisted of two months at $12,500. Mr. Wilson's 2000 salary of $155,000 consisted of ten months at $12,500 and two months at $15,000. Mr. Wilson deferred all salary during fiscal year 1999 and 2000 and is entitled to receive 12% annual interest on all deferred amounts. (3) Under the terms of his employment agreement, Mr. Wilson was to receive a cash bonus of $30,000 on or before May 1, 2000; however, Mr. Wilson deferred his cash bonus during fiscal year 2000 and is entitled to receive 12% annual interest on all deferred compensation. (4) Mr. Wilson is entitled to an automobile allowance of $1,000 per month, of which $2,670 was received in fiscal year 2000. (5) As a signing bonus to his employment agreement, Mr. Wilson's nominee, The Pangaea Group LLC, received 1,000,000 restricted shares of our common stock. Such stock vested at a rate of 100,000 shares per month over a 10-month period; 700,000 shares vested during fiscal year 2000. The $700,000 value is obtained by multiplying the vested shares with the closing market price of our unrestricted common stock ($1.00 per share) on the date such shares were granted (April 20, 1999). Notwithstanding the above calculation, we expensed such stock transaction at a value of $300,000, or $0.30 per share. (6) Mr. Papworth joined our Company in May 2000. He is compensated $120,000 annually. (7) Mr. Papworth was granted an option to purchase 398,475 restricted shares of our common stock pursuant to a Letter Agreement dated April 10, 2001 amending Mr. Papworth's employment agreement, dated April 16, 1999. The options were fully vested as of April 10, 2001 and the exercise price is equal to $0.885 per share, which was the closing price of our common stock as quoted on the Over-the-Counter Bulletin Board on April 9, 2001. In addition, Mr. Papworth was granted 50,000 options on April 9, 2001. These options are fully vested and the exercise price is equal to $0.885 per share. (8) As a signing bonus to his employment agreement, Mr. Papworth received 14,815 restricted shares of our common stock. The $50,000 value is determined by multiplying the number of such shares with the closing market price of our Company's unrestricted common stock ($3.374 per share) on the date such shares were granted (May 19, 2000). (9) Mr. Black was granted 50,000 options on April 9, 2001. These options are fully vested and the exercise price is equal to $0.885 per share. (10) Mr. Black joined our Company in May 2000. He is compensated $100,000 annually, of which $4,167 was received in fiscal year 2000. (11) Mr. Black is entitled to an automobile allowance of $500 per month, and a one-time relocation allowance of $5,000, of which $4,500 was received in fiscal year 2000. 26
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTIONS/SAR VALUES(1) NUMBER OF SECURITIES VALUE OF UNEXERCISED SHARES UNDERLYING UNEXERCISED IN-THE-MONEY ACQUIRED ON VALUE OPTIONS/SAR'S AT OPTIONS/SAR'S AT NAME EXERCISE REALIZED ($) FISCAL YEAR END(1) FISCAL YEAR END(2) - ------------------------ ------------- -------------- ----------------------- --------------------- Jeffrey D. Wilson -0- -0- Exercisable: 375,000 $0 Chairman of the Board of Unexercisable: 225,000 $0 Directors and Chief Executive Officer Richard A. Papworth -0- -0- Exercisable: 448,475 $0 Chief Financial Officer Unexercisable: 0 $0 Erik W. Black -0- -0- Exercisable: 50,000 $0 Vice-President Unexercisable: 0 $0 Business Development - --------------------------------- (1) These grants represent options to purchase common stock. No SAR's have been granted. (2) The value of the unexercised in-the-money options were calculated by determining the difference between the fair market value of the common stock underlying the options and the exercise price of the options as of June 30, 2001. OPTION/SAR GRANTS TABLE % TOTAL NO. OF SECURITIES OPTIONS/SAR'S UNDERLYING GRANTED TO OPTIONS/SAR'S EMPLOYEES IN FISCAL EXERCISE OR BASE PRICE NAME GRANTED (#) YEAR (%) ($ PER SHARE) EXPIRATION DATE - ------------------------- ----------------- ------------------- ---------------------- --------------- Jeffrey D. Wilson 50,000 4.6% $0.885 April 9, 2006 Chairman of the Board of 350,000 31.9% $0.885 April 9, 2011 Directors and 200,000 1.8% $0.710 May 3, 2011 Chief Executive Officer Richard A. Papworth 50,000 4.6% $0.885 April 9, 2006 Chief Financial Officer 398,475 36.3% $0.885 April 9, 2011 Erik W. Black 50,000 4.6% $0.885 April 9, 2006 Vice-President Business Development
STOCK OPTION PLANS As of the date of this prospectus, we have not adopted or implemented any stock option plan. EMPLOYMENT AGREEMENTS The Employment Agreement of Jeffrey D. Wilson, our Chairman and Chief Executive Officer, is effective as of April 20, 1999 and continues for an "evergreen" term of five years unless Mr. Wilson provides at least 60 days' prior written notice of his resignation. Such agreement provides for base cash compensation during the first 12-month period in the amount of $12,500 per month, plus a cash bonus in the amount of $30,000 to be paid in one lump sum on or before May 1, 2000. During the second 12-month period, Mr. Wilson's base cash compensation increases to $15,000 per month, and during the third 12-month period such base cash compensation increases to $20,000 per month. Mr. Wilson has deferred all cash and bonus compensation from April 1999 through August 2000; however, commencing in September 2000, Mr. Wilson began receiving cash compensation in the amount of $17,500 per month, approved by the Board of Directors, in consideration of his previous deferral of such compensation. We are obligated to pay interest at the rate of 12% annually on all compensation deferred by Mr. Wilson until all such amounts have been paid in full. Mr. Wilson's nominee, The Pangaea Group, LLC, received a signing bonus of 100,000 fully vested and non-forfeitable restricted shares of our common stock; The Pangaea Group, LLC received an additional 900,000 restricted shares of our common stock, which vested at the rate of 100,000 shares per month over the 9-month period 27 following Mr. Wilson's acceptance of the terms of his employment agreement. As of the date of this prospectus, all such shares are fully vested. Mr. Wilson will be entitled to fully participate in any and all 401(k), stock option, stock bonus, savings, profit-sharing, insurance, and other similar plans and benefits of employment; however, as of the date of this prospectus, we have not adopted or implemented any such plans. Mr. Wilson has "piggyback" registration rights with respect to all restricted shares owned by him, as well as "demand" registration rights with respect thereto exercisable two times during each 5-year term of his employment. The cost of exercising such piggyback and demand registration rights shall be borne by us. As of the date of this prospectus, Mr. Wilson has not exercised such registration rights. Mr. Wilson is entitled to be indemnified, defended, and held harmless by us from and against any and all costs, losses, damages, penalties, fines, or expenses (including, without limitation, reasonable attorneys' fees, court costs, and associated expenses) suffered, imposed upon, or incurred by him in any manner in connection with his service as our Chairman and Chief Executive Officer. On April 10, 2001, we entered into a Letter Agreement with Mr. Wilson amending Mr. Wilson's Employment Agreement. Pursuant to the Letter Agreement, Mr. Wilson waived the anti-dilution provision of his Employment Agreement in consideration for options to purchase 350,000 shares of our restricted common stock. The option to purchase 125,000 shares of common stock was fully vested as of April 10, 2001 and the remaining 225,000 share option vests upon the achievement of certain performance objectives. The exercise price of these options is equal to $0.885 per share, which was the closing price of our common stock as quoted on the Over-the-Counter Bulletin Board on April 9, 2001. EMPLOYMENT AGREEMENTS WITH OTHER NAMED EXECUTIVE OFFICERS Richard A. Papworth, our Chief Financial Officer, has an Employment Agreement effective as of May 19, 2000, which continues for an "evergreen" term of two years, unless Mr. Papworth provides at least 90 days' prior written notice of his resignation. Mr. Papworth's Employment Agreement provides for base cash compensation in the amount of $10,000 per month, a signing bonus of $50,000 worth of fully vested and non-forfeitable restricted shares of our common stock, plus a year-end bonus payable in cash and additional shares, in a "blended" amount to be determined. Mr. Papworth will be entitled to fully participate in any and all 401(k), stock option, stock bonus, savings, profit-sharing, insurance, and other similar plans and benefits of employment; however, as of the date of this prospectus, we have not adopted or implemented any such plans. Mr. Papworth is entitled to be indemnified, defended, and held harmless by us from and against any and all costs, losses, damages, penalties, fines, or expenses (including, without limitation, reasonable attorneys' fees, court costs, and associated expenses) suffered, imposed upon, or incurred by him in any manner in connection with his service as our Chief Financial Officer. On April 10, 2001, we entered into a Letter Agreement with Mr. Papworth amending Mr. Papworth's Employment Agreement. Pursuant to the Letter Agreement, Mr. Papworth waived the anti-dilution provision of his Employment Agreement in consideration for an option to purchase 398,475 shares of our restricted common stock. The option was fully vested as of April 10, 2001 and the exercise price is equal to $0.885 per share, which was the closing price of our common stock as quoted on the Over-the-Counter Bulletin Board on April 9, 2001. EXECUTIVE SEVERANCE AGREEMENTS The Employment Agreement of Jeffrey D. Wilson, our Chairman and Chief Executive Officer, provides that upon the occurrence of any "change of control transaction" (as defined therein), any shares of our common stock to which Mr. Wilson is entitled through any directors' compensation, stock option, or other stock ownership plan shall immediately vest and, if such transaction results in termination of his employment, Mr. Wilson will be entitled to receive all the compensation and benefits of employment that he would have received for the full term of his employment but for such termination (i.e., given the 5-year "evergreen" term of his employment, Mr. Wilson would therefore receive five years' worth of such compensation), the immediate vesting of shares in any stock option or other stock ownership plan, and the immediate vesting of all matching contributions made by us in any 401(k), savings, profit-sharing, or other similar plan or benefit program (such entitlement also applies in the event of any termination of Mr. Wilson's employment for reasons other than certain "termination events" described in his Employment Agreement). For purposes of Mr. Wilson's Employment Agreement, a change in control transaction is defined as a merger, sale, share exchange, consolidation, change of control, or other acquisition of TSET. The Employment Agreement of Richard A. Papworth, our Chief Financial Officer, provides that upon the occurrence of any transaction involving a change of control of TSET pursuant to which his employment is terminated, any shares of our common stock to which Mr. Papworth is entitled through any stock option or other stock ownership plan shall immediately vest and Mr. Papworth will be entitled to receive all the compensation and benefits of employment that he would have received for the full term of his employment but for such termination (i.e., given the 2-year "evergreen" term of his employment, Mr. Papworth would 28 therefore receive two years' worth of such compensation), the immediate vesting of shares in any stock option or other stock ownership plan, and the immediate vesting of all matching contributions made by us in any 401(k), savings, profit-sharing, or other similar plan or benefit program. As of the date of this prospectus, we have not adopted any separate executive severance agreements. 29 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS We believe that all prior related party transactions have been entered into upon terms no less favorable to us than those that could be obtained from unaffiliated third parties. Our reasonable belief of fair value is based upon proximate similar transactions with third parties or attempts to obtain the consideration from third parties. All ongoing and future transactions with such persons, including any loans or compensation to such persons, will be approved by a majority of disinterested members of the Board of Directors. In connection with his employment agreement, Jeffrey D. Wilson's nominee, The Pangaea Group LLC, received a signing bonus of 100,000 restricted shares of our common stock; such shares were fully vested and non-forfeitable upon issuance. In addition, The Pangaea Group LLC received an additional 900,000 restricted shares of our common stock, vesting at the rate of 100,000 shares per month over the 9-month period ended January 2000. All such shares are fully vested and have been accounted for in our financial books. On August 11, 2000, we entered into a Finders Agreement with Richard F. Tusing and Daniel R. Dwight, pursuant to which Messrs. Tusing and Dwight will introduce us to prospective investors and brokers that would thereafter make similar introductions, and otherwise assist us in corporate finance matters. We approved the list of prospective investors and brokers provided by Messrs. Tusing and Dwight contemporaneously with the execution and delivery of the Finders Agreement. Under the Finders Agreement, we will pay to Messrs. Tusing and Dwight a finders fee equal to 1% of the total investment value realized from investors introduced by them that provide equity or debt capital to us. In the case of provision of equity or debt capital by investors introduced by brokers introduced by Messrs. Tusing and Dwight, the finders fee will be equal to 0.25% of the total investment value realized from such investors. We retain the right to negotiate the specific terms of any financing transaction arising out of any such introductions and are not obligated to accept any financing offered by any such investors or through any such brokers. Out-of-pocket expenses incurred by Messrs. Tusing and Dwight in connection with provision of their services under the Finders Agreement will be reimbursed by us up to $15,000, unless expenses in excess of this limit are approved in writing by us. The Finders Agreement was entered into prior to Messrs. Tusing's and Dwight's appointment as members of our Board of Directors in October 2000 and was negotiated at arm's length. We intend that the Finders Agreement will remain in place, notwithstanding the appointment of Messrs. Tusing and Dwight to our Board of Directors. We believe that the compensation and other provisions of the Finders Agreement are fair, reasonable, customary, and favorable to us. On August 11, 2000, we entered into a Consulting Agreement with Richard F. Tusing and Daniel R. Dwight, pursuant to which Messrs. Tusing and Dwight will provide management, financial, strategic, and other consulting services to us in exchange for consulting fees payable in cash and options of our common stock. Out-of-pocket expenses incurred by Messrs. Tusing and Dwight in connection with provision of their services under the Consulting Agreement will also be reimbursed by us. The Consulting Agreement was entered into prior to Messrs. Tusing's and Dwight's appointment as members of our Board of Directors in October 2000 and was negotiated at arm's length. We believe that the compensation and other provisions of the Consulting Agreement are fair, reasonable, customary, and favorable to us. The Consulting Agreement was renewed with Dwight, Tusing & Associates on similar terms and conditions with a rate adjustment as of January 1, 2001, and was amended on April 12, 2001 to decrease the strike price of the options granted as partial compensation thereunder. On June 27, 2000, we entered into a Finders Agreement with John Bowles, pursuant to which Mr. Bowles will introduce us to prospective investors. We approved the list of prospective investors provided by Mr. Bowles contemporaneously with the execution and delivery of the Finders Agreement. Under the Finders Agreement, we will pay to Mr. Bowles a finders fee equal to 5% of the total investment value realized from investors introduced by them that provide equity or debt capital to us. We retain the right to negotiate the specific terms of any financing transaction arising out of any such introductions and is not obligated to accept any financing offered by any such investors or through any such brokers. We will reimburse out-of-pocket expenses incurred by Mr. Bowles in connection with provision of their services under the Finders Agreement up to $15,000, unless we approve expenses in excess of this limit in writing. We believe that the compensation and other provisions of the Finders Agreement are fair, reasonable, customary, and favorable to us. On April 10, 2000, we entered into a Finder's Agreement with Bolivar International Inc., pursuant to which Bolivar will introduce us to prospective investors. We approved the list of prospective investors provided by Bolivar contemporaneously with the execution and delivery of the Finders Agreement. Under the Finders Agreement, we will pay to Bolivar a variable finders fee between 2% - 5% dependent upon the total investment value realized from investors introduced by them that provide equity or debt capital to us. This 30 Finder's Fee will be converted into options for our common stock based on the closing trading price the date of funding execution. We retain the right to negotiate the specific terms of any financing transaction arising out of any such introductions and are not obligated to accept any financing offered by any such investors or through any such brokers. We will reimburse out-of-pocket expenses incurred by Bolivar in connection with provision of their services under the Finders Agreement up to $15,000, unless we approve expenses in excess of this limit in writing. We believe that the compensation and other provisions of the Finders Agreement are fair, reasonable, customary, and favorable to us. 31 THE FUSION CAPITAL TRANSACTION GENERAL On June 19, 2001, we entered into a common stock purchase agreement with Fusion Capital pursuant to which Fusion Capital agreed to purchase on each trading day during the term of the agreement, $12,500 of our common stock or an aggregate, under certain conditions, of $10.0 million. The $10.0 million of common stock is to be purchased over a 40-month period, subject to a six-month extension or earlier termination at our discretion. The purchase price of the shares of common stock will be equal to the then current market price of the common stock without any fixed discount to the market price. PURCHASE OF SHARES UNDER THE COMMON STOCK PURCHASE AGREEMENT Under the common stock purchase agreement, on each trading day Fusion Capital is obligated to purchase a specified dollar amount of our common stock. Subject to our right to suspend such purchases at any time and our right to terminate the agreement with Fusion Capital at any time, each as described below, Fusion Capital shall purchase on each trading day during the term of the agreement $12,500 of our common stock. We may decrease this daily purchase amount at any time. We also have the right to increase the daily purchase amount at any time, provided however, we may not increase the daily purchase amount above $12,500 unless our stock price is above $3.00 per share for five consecutive trading days. The purchase price per share is equal to the lesser of: o the lowest sale price of our common stock on the purchase date; or o the average of the three (3) lowest closing sale prices of our common stock during the twelve (12) consecutive trading days prior to the date of a purchase by Fusion Capital. The purchase price will be adjusted for any reorganization, recapitalization, non-cash dividend, stock split or other similar transaction occurring during the trading days in which the closing sale price is used to compute the purchase price. Fusion Capital may not purchase shares of our common stock under the common stock purchase agreement if Fusion Capital, together with its affiliates, would beneficially owned more than 9.9% of our common stock outstanding at the time of the purchase by Fusion Capital. However, even though Fusion Capital may not receive additional shares of our common stock in the event that the 9.9% limitation is ever reached, Fusion Capital is still obligated to pay to us $12,500 on each trading day. Fusion Capital has the right to sell some, all or none of the shares purchased from us, at any time. 32 The following table sets forth the number of shares of our common stock that would be sold to Fusion Capital under the common stock purchase agreement at varying purchase prices:
PROCEEDS FROM THE SALE OF ASSUMED PERCENTAGE OUTSTANDING 5,000,000 SHARES TO FUSION AVERAGE NUMBER OF SHARES TO BE AFTER GIVING EFFECT TO CAPITAL UNDER THE COMMON PURCHASE PRICE BE ISSUED IF FULL PURCHASE THE ISSUANCE TO FUSION CAPITAL(1) STOCK PURCHASE AGREEMENT -------------- -------------------------- --------------------------------- --------------------------- $0.50 20,000,000 36.2% $2,500,000 $0.59(2) 16,949,153 32.5% $2,950,000 $0.75 13,333,333 27.5% $3,750,000 $1.00 10,000,000 22.1% $5,000,000 $1.50 6,666,667 15.9% $7,500,000 $2.00 5,000,000 12.4% $10,000,000 $3.00 3,333,333 8.6% $10,000,000 $4.00 2,500,000 6.6% $10,000,000
- -------------------- (1) Based on 35,226,255 shares outstanding as of July 16, 2001. Includes the issuance of 640,000 shares of common stock issuable to Fusion Capital as a commitment fee and the number of shares issuable at the corresponding assumed purchase price set forth in the adjacent column. (2) Closing sale price of TSET common stock on July 16, 2001. We estimate that we will issue no more than 5,640,000 shares to Fusion Capital under the common stock purchase agreement, including the shares issuable as a commitment fee, all of which are included in this offering. If more than 5,640,000 shares are issuable to Fusion Capital under the common stock purchase agreement, we have the right to terminate the agreement without any payment or liability to Fusion Capital. OUR RIGHT TO SUSPEND PURCHASES We have the unconditional right to suspend purchases at any time for any reason effective upon one trading day's notice. Any suspension would remain in effect until our revocation of the suspension. To the extent we need to use the cash proceeds of the sales of common stock under the common stock purchase agreement for working capital or other business purposes, we do not intend to restrict purchases under the common stock purchase agreement. OUR RIGHT TO INCREASE AND DECREASE THE DAILY PURCHASE AMOUNT We have the unconditional right to decrease the daily amount to be purchased by Fusion Capital at any time for any reason effective upon one trading day's notice. We also have the right to increase the daily purchase amount at any time for any reason; provided however, we may not increase the daily purchase amount above $12,500 unless our stock price has been above $3.00 per share for five consecutive trading days. For any trading day that the sale price of our common stock is below $3.00, the daily purchase amount shall not be greater than $12,500. OUR TERMINATION RIGHTS We have the unconditional right at any time for any reason to give notice to Fusion Capital terminating the common stock purchase agreement. Such notice shall be effective one trading day after Fusion Capital receives such notice. EFFECT OF PERFORMANCE OF THE COMMON STOCK PURCHASE AGREEMENT ON OUR STOCKHOLDERS All shares registered in this offering will be freely tradable. It is anticipated that shares registered in this offering will be sold over a period of up to 40 months from the date of this prospectus. The sale of a significant amount of shares registered in this offering at any given time could cause the trading price of our common stock to decline and to be highly volatile. Fusion Capital may ultimately purchase all of the shares of common stock issuable under the common stock purchase agreement, and it may sell some, none or all of the shares of common stock it acquires upon purchase. Therefore, the purchases under the common stock purchase agreement may result in substantial dilution to the interests of other holders of our common stock. However, we have the right at any time for any reason to: (1) reduce the daily purchase amount, (2) suspend purchases of the common stock by Fusion Capital and (3) terminate the common stock purchase agreement. 33 NO SHORT-SELLING OR HEDGING BY FUSION CAPITAL Fusion Capital has agreed that neither it nor any of its affiliates shall engage in any direct or indirect short-selling or hedging of our common stock during any time prior to the termination of the common stock purchase agreement. EVENTS OF DEFAULT Generally, Fusion Capital may terminate the common stock purchase agreement without any liability or payment to the Company upon the occurrence of any of the following events of default: o if for any reason the shares offered by this prospectus cannot be sold pursuant to this prospectus for a period of ten consecutive trading days or for more than an aggregate of 30 trading days in any 365-day period; o suspension by our principal market of our common stock from trading for a period of ten consecutive trading days or for more than an aggregate of 30 trading days in any 365-day period; o our failure to satisfy any listing criteria of our principal market for a period of ten consecutive trading days or for more than an aggregate of 30 trading days in any 365-day period; o the transfer agent's failure for five trading days to issue to Fusion Capital shares of our common stock which Fusion Capital is entitled to under the common stock purchase agreement; o any material breach of the representations or warranties or covenants contained in the common stock purchase agreement or any related agreements which has or which could have a material adverse affect on us subject to a cure period of ten trading days; o a default by us of any payment obligation in excess of $1.0 million; or o any participation or threatened participation in insolvency or bankruptcy proceedings by or against us. COMMITMENT SHARES ISSUED TO FUSION CAPITAL Under the terms of the common stock purchase agreement Fusion Capital has received 640,000 shares of our common stock as a commitment fee. Unless an event of default occurs, Fusion Capital must maintain ownership of at least 640,000 shares for 40 months from the date of the common stock purchase agreement or the date the common stock purchase agreement is terminated. NO VARIABLE PRICED FINANCINGS Until the termination of the common stock purchase agreement, we have agreed not to issue, or enter into any agreement with respect to the issuance of, any variable priced equity or variable priced equity-like securities unless we have obtained Fusion Capital's prior written consent. PLACEMENT AGENT We have engaged Dutchess Advisors Ltd. to act as our placement agent in connection with the equity line of credit. We will pay to Dutchess Advisors Ltd. a one-time cash fee equal to $75,000 once we have received $575,000 under the common stock purchase agreement with Fusion Capital. 34 PRINCIPAL SHAREHOLDERS The following table presents certain information regarding the beneficial ownership of all shares of common stock at July 16, 2001 for each executive officer and director of our company and for each person known to us who owns beneficially more than 5% of the outstanding shares of our common stock. The percentage ownership shown in such table is based upon the 35,226,255 common shares issued and outstanding at July 16, 2001 and ownership by these persons of options or warrants exercisable within 60 days of such date. Also included is beneficial ownership on a fully diluted basis showing all authorized, but unissued, shares of our common stock at July 16, 2001 as issued and outstanding. Unless otherwise indicated, each person has sole voting and investment power over such shares. COMMON STOCK BENEFICIALLY OWNED ----------------------------- NAME AND ADDRESS NUMBER PERCENT - ---------------------------------- --------------- ------------ Jeffrey D. Wilson 1,375,000(1)(2) 3.9% 333 South State Street PMB 111 Lake Oswego, OR 97034 Charles D. Strang 100,000(3) 0.3% 333 South State Street PMB 111 Lake Oswego, OR 97034 Richard F. Tusing 301,000(4) 0.9% 333 South State Street PMB 111 Lake Oswego, OR 97034 Daniel R. Dwight 290,300(5) 0.8% 333 South State Street PMB 111 Lake Oswego, OR 97034 Richard A. Papworth 463,290 (6) 1.3% 333 South State Street PMB 111 Lake Oswego, OR 97034 Erik W. Black 172,699 (7) 0.5% 333 South State Street PMB 111 Lake Oswego, OR 97034 (1) Includes 1,000,000 shares of common stock owned of record by The Pangaea Group, LLC, of which Mr. Wilson is the principal owner. (2) Includes options to purchase 375,000 shares of common stock that can be acquired within sixty days of July 16, 2001. (3) Includes options to purchase 100,000 shares of common stock that can be acquired within sixty days of July 16, 2001. (4) Includes options to purchase 251,000 shares of common stock that can be acquired within sixty days of July 16, 2001. (5) Includes options to purchase 240,300 shares of common stock that can be acquired within sixty days of July 16, 2001. (6) Includes options to purchase 448,475 shares of common stock that can be acquired within sixty days of July 16, 2001. (7) Includes options to purchase 50,000 shares of common stock that can be acquired within sixty days of July 16, 2001. We are unaware of any arrangement or understanding that may, at a subsequent date, result in a change of control of our company. 35 SELLING STOCKHOLDERS SELLING STOCKHOLDERS OTHER THAN FUSION CAPITAL The following table presents information regarding the selling stockholders other than Fusion Capital. None of the selling stockholders have held a position or office, or had any other material relationship, with our Company, except as follows: o NuWave Limited acquired its shares through a private placement by our Company. o Ted and Shirley Boucher, Trustees, FBO Boucher Family Trust, U/A DTD 4/19/1991, received shares through a private placement by our Company. o Foster & Price Ltd. acquired its shares pursuant to settlement of litigation.
PERCENTAGE OF PERCENTAGE OF OUTSTANDING OUTSTANDING SHARES SHARES SHARES BENEFICIALLY BENEFICIALLY SHARES TO BE BENEFICIALLY SELLING OWNED BEFORE OWNED BEFORE SOLD IN THE OWNED AFTER STOCKHOLDER OFFERING OFFERING(1) OFFERING OFFERING - --------------------- ------------ ------------- ------------ ------------- NuWave Limited 1,579,391 4.5% 687,500 2.0% Boucher Family Trust 150,000 0.4% 150,000 0.0% Foster & Price, Ltd. 375,000 1.1% 375,000 0.0%
- ----------------------------------------- (1) Percentage of outstanding shares is based on 35,226,255 shares of common stock outstanding as of July 16, 2001, which includes all shares of common stock beneficially owned by the selling shareholders before this offering. FUSION CAPITAL Under the common stock purchase agreement, Fusion Capital agreed to purchase up to $10.0 million of our common stock. The purchase price of our common stock being purchased by Fusion Capital is based upon the future market price of our common stock. We will commence the purchase and sale of stock with Fusion Capital after this registration statement becomes effective. We estimate the maximum number of shares we will sell to Fusion Capital under common stock purchase agreement will be 5,000,000 shares assuming Fusion Capital purchases all $10.0 million of common stock. We have the right to suspend and/or terminate the common stock purchase agreement without any payment or liability to Fusion Capital. We have also issued to Fusion Capital 640,000 shares as a commitment fee. Unless an event of default occurs, Fusion Capital must maintain ownership of at least 640,000 shares for 40 months or until the common stock purchase agreement has been terminated. This prospectus relates to the offer and sale from time to time by Fusion Capitol of these shares. The common stock purchase agreement is described in detail under the heading "The Fusion Capital Transaction." Notwithstanding certain limitations on the ability of Fusion Capital to purchase shares as set forth in the common stock purchase agreement, assuming the purchase of the 5,000,000 shares by Fusion Capital based upon our estimates, together with the commitment fee of 640,000 shares, Fusion Capital would beneficially own 14% of our outstanding stock as of July 16, 2001. To the extent we need to use the cash proceeds of sales of common stock issuable under the common stock purchase agreement for working capital or other business purposes, we do not intend to restrict purchases under the common stock purchase agreement. 36 EFFECT OF PERFORMANCE OF THE COMMON STOCK PURCHASE AGREEMENT ON US AND OUR STOCKHOLDERS All shares issued to Fusion Capital pursuant to the common stock purchase agreement will be freely tradable. We expect that they will be sold over a period of up to 40 months from the date of this prospectus. Depending upon market liquidity at the time, sale of shares under this offering could cause the trading price of our common stock to decline and to be highly volatile. Fusion Capital may ultimately purchase all of the shares of common stock issuable under the common stock purchase agreement, and it may sell all of the shares of common stock it acquires upon purchase. Therefore, the purchase of shares under the common stock purchase agreement may result in substantial dilution to the interests of other holders of our common stock. However, we have the right to suspend purchases under the common stock purchase agreement and to require termination of the common stock purchase agreement in some cases. OUR RIGHT TO SUSPEND PURCHASES The common stock purchase agreement provides that we may at any time suspend purchases under the common stock purchase agreement. To the extent we need to use the cash proceeds of sales of common stock issuable under the common stock purchase agreement for working capital or other business purposes, we do not intend to suspend purchases under the common stock purchase agreement. HOLDINGS OF FUSION CAPITAL UPON TERMINATION OF THE OFFERING To the extent we need to use the cash proceeds of sales of common stock issuable under the common stock purchase agreement for working capital or other business purposes, we do not intend to restrict purchases under the common stock purchase agreement. Because Fusion Capital may sell all, some, or none of the common stock offered by this prospectus, we cannot estimate the amount of common stock that will be held by Fusion Capital upon termination of the offering. 37 PLAN OF DISTRIBUTION The common stock offered by this prospectus is being offered by selling stockholders of TSET. The common stock may be sold or distributed from time to time by the selling stockholders directly to one or more purchasers or through brokers, dealers, or underwriters who may act solely as agents or may acquire the common stock as principals, at market prices prevailing at the time of sale, at prices related to the prevailing market prices, at negotiated prices, or at fixed prices, which may be changed. The sale of the common stock offered by this prospectus may be effected in one or more of the following methods: o ordinary brokers' transactions; o transactions involving cross or block trades or otherwise on the Over-the-Counter Bulletin Board; o purchases by brokers, dealers, or underwriters as principal and resale by these purchasers for their own accounts pursuant to this prospectus; o "at the market" to or through market makers or into an existing market for the common stock; o in other ways not involving market makers or established trading markets, including direct sales to purchasers or sales effected through agents; o in privately negotiated transactions; or o any combination of the foregoing. See the table under the section entitled "The Fusion Capital Transaction" for the number of shares of our common stock that would be sold to Fusion Capital upon our sale of common stock under the common stock purchase agreement at varying purchase prices. In order to comply with the securities laws of certain states, if applicable, the shares may be sold only through registered or licensed brokers or dealers. In addition, in certain states, the shares may not be sold unless they have been registered or qualified for sale in the state or an exemption from the registration or qualification requirement is available and complied with. Brokers, dealers, underwriters, or agents participating in the distribution of the shares as agents may receive compensation in the form of commissions, discounts, or concessions from the selling stockholders and/or purchasers of the common stock for whom the broker-dealers may act as agent, or to whom they may sell as principal, or both. The compensation paid to a particular broker-dealer may be less than or in excess of customary commissions. Fusion Capital is an "underwriter" within the meaning of the Securities Act. Neither we nor the selling stockholders can presently estimate the amount of compensation that any agent will receive. We know of no existing arrangements between any selling stockholders, any other stockholders, broker, dealer, underwriter, or agent relating to the sale or distribution of the shares. At the time a particular offer of shares is made, a prospectus supplement, if required, will be distributed that will set forth the names of any agents, underwriters, or dealers and any compensation from the selling stockholders and any other required information. We will pay all of the expenses incident to the registration, offering, and sale of the shares to the public other than commissions or discounts of underwriters, broker-dealers, or agents. We have also agreed to indemnify Fusion Capital against specified liabilities, including liabilities under the Securities Act of 1933, as amended. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended may be permitted to our directors, officers, and controlling persons, we have been advised that in the opinion of the Securities and Exchange Commission this indemnification is against public policy as expressed in the Securities Act of 1933, as amended and is therefore, unenforceable. 38 Fusion Capital and its affiliates have agreed not to engage in any direct or indirect short selling or hedging of our common stock during the term of the common stock purchase agreement. We have advised the selling stockholders that while they are engaged in a distribution of the shares included in this prospectus they are required to comply with Regulation M promulgated under the Securities Exchange Act of 1934, as amended. With certain exceptions, Regulation M precludes the selling stockholders, any affiliated purchasers, and any broker-dealer or other person who participates in the distribution from bidding for or purchasing, or attempting to induce any person to bid for or purchase any security which is the subject of the distribution until the entire distribution is complete. Regulation M also prohibits any bids or purchases made in order to stabilize the price of a security in connection with the distribution of that security. All of the foregoing may affect the marketability of the shares offered hereby this prospectus. This offering will terminate on the date that all shares offered by this prospectus have been sold by the selling stockholders. 39 SHARES ELIGIBLE FOR RESALE Sales of substantial amounts of our common stock in the public market following this offering could negatively affect the market price of our common stock. Such sales could also impair our future ability to raise capital through the sale of our equity securities. Upon the completion of the re-sale of common stock by the selling stockholders, we will have outstanding 40,226,255 shares of our common stock. Of these shares, approximately: o 30,053,165 shares will be freely tradable by persons, other than "affiliates", without restriction under the Securities Act of 1933, as amended; and o 10,173,090 shares will be "restricted" securities, within the meaning of Rule 144 under the Securities Act of 1933, as amended and may not be sold in the absence of registration under the Securities Act of 1933, as amended, unless an exemption from registration is available, including the exemption provided by Rule 144. As of July 16, 2001, 1,237,514 shares are held by affiliates of our Company, and may only be sold pursuant to Rule 144. In general, under Rule 144, a person or persons whose shares are aggregated, including any affiliate of our Company who has beneficially owned restricted securities for at least one year, would be entitled to sell within any three-month period, a number of shares that does not exceed 1% of the number of common stock then outstanding. The number of shares thus available for resale in Rule 144 transactions would constitute approximately 7,689,806 shares immediately after the completion of this offering. Sales under Rule 144 are also subject to manner of sale and notice requirements and to the availability of current public information about our Company. Under Rule 144(k), a person who is not considered to have been an affiliate of our Company at any time during the 90 days preceding a sale, and who has beneficially owned restricted securities for at least two years, including the holding period of any prior owner except an affiliate of our Company, may sell these shares without following the terms of Rule 144. 40 DESCRIPTION OF CAPITAL STOCK Our authorized capital stock consists of 500,000,000 shares of common stock, par value $0.001 per share, and 50,000,000 shares of preferred stock, no par value. As of July 16, 2001, 35,226,255 shares of common stock were issued and outstanding; no shares of our preferred stock are issued and outstanding. In this offering, we may issue up to an additional 5,000,000 shares of common stock, consisting of 5,000,000 shares of common stock to be issued in connection with the common stock purchase agreement. The rights and preferences of the preferred stock will be determined upon issuance by our Board of Directors. The following description is a summary of our capital stock and contains the material terms thereof. Additional information can be found in our Articles of Incorporation and Bylaws, which were filed as exhibits to our registration statement on Form S-1 with the Securities and Exchange Commission. COMMON STOCK Holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders, including the election of directors. Accordingly, holders of a majority of our common stock entitled to vote in any election of directors may elect all of the directors standing for election should they choose to do so. Neither our Articles of Incorporation nor our Bylaws provide for cumulative voting for the election of directors. Holders of our common stock are entitled to receive their pro rata share of any dividends declared from time to time by the Board of Directors out of funds legally available therefor. Holders of our common stock have no preemptive, subscription, conversion, sinking fund, or redemption rights. All outstanding shares of our common stock are fully paid and non-assessable. In the event of liquidation, dissolution, or winding up of TSET, the holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to prior distribution rights of preferred stock (if any) then outstanding. PREFERRED STOCK Our Articles of Incorporation authorizes 50,000,000 shares of preferred stock, no par value. No shares of preferred stock are issued and outstanding as of the date of this prospectus. The Board of Directors is authorized, subject to any limitations prescribed by the Nevada Revised Statutes, or the rules of any quotation system or national securities exchange on which our stock may be quoted or listed, to provide for the issuance of shares of preferred stock in one or more series; to establish from time to time the number of shares to be included in each such series; to fix the rights, powers, preferences, and privileges of the shares of such series, without further vote or action by the stockholders. Depending upon the terms of the preferred stock established by the Board of Directors, any or all series of preferred stock could have preference over the common stock with respect to dividends and other distributions and upon liquidation of TSET or could have voting or conversion rights that could adversely affect the holders of the outstanding common stock. As of the date of this prospectus, the voting and other rights associated with the preferred stock have yet to be determined by the Board of Directors. There are no present plans by the Board of Directors to issue preferred shares or address the rights to be assigned thereto. OPTIONS In April 2001, we entered into agreements with employees, consultants and directors for the grant of stock options to purchase shares of our common stock. We do not have a formal stock option plan. All stock option grants are exercisable at the fair market value of the shares on the date of grant, except for those options granted to the consultants. The exercise price in the consulting agreements is fixed and in excess of the fair market value on the date of grants. On April 10, Messrs. Jeffrey D. Wilson and Richard A. Papworth were granted options to acquire, collectively, 748,475 shares of common stock in consideration for their relinquishment of the anti-dilution clauses in their employment agreements. On April 10, 2001, members of our management team and Board of Directors were granted stock options totaling 450,000 shares. On May 4, 2001, two members of the Board of Directors were granted stock options for 250,000 shares of common stock. Through July 16, 2001, 499,300 stock options have been granted, at various options prices, to three consultants as compensation under their consulting agreements. 41 NUMBER OF OPTIONS EXERCISE PRICE --------------------- ------------------ 250,000 $0.071 1,198,475 $0.885 391,300 $0.960 108,000 $1.120 LIMITATION OF LIABILITY; INDEMNIFICATION As permitted by the Nevada Revised Statutes, our Bylaws provide for the indemnification of our directors, officers, and employees or of any corporation in which any such person serves as a director, officer, or employee at our request, to the fullest extent allowed by the Nevada Revised Statutes, against expenses (including, without limitation, attorney's fees, judgments, awards, fines, penalties, and amounts paid in satisfaction of judgment or in settlement of any action, suit, or proceeding) incurred by any such director, officer, or employee. The Nevada Revised Statutes currently provides that such liability may be so limited, except for: (a) acts or omissions which involve intentional misconduct, fraud, or a knowing violation of law; or (b) the payment of distributions in violation of Nevada Revised Statutes 78.300. As a result of this provision, our company and our stockholders may be unable to obtain monetary damages from such persons for breach of their duty of care. Although stockholders may continue to seek injunctive and other equitable relief for an alleged breach of fiduciary duty by such persons, stockholders may have no effective remedy against the challenged conduct if equitable remedies are unavailable. We provide director and officer liability insurance and pays all premiums and other costs associated with maintaining such insurance coverage. We have also entered into indemnification agreements with each director and officer. REGISTRATION RIGHTS In April 1999, Mr. Wilson was granted certain registration rights, including demand and piggy-back registration rights. Mr. Wilson's demand registration rights may be exercised two times during each five-year period of his employment, and may exercise his piggy-back rights at any time we register shares. We will pay all costs associated with Mr. Wilson's exercise of such registration rights. The registration rights granted to Mr. Wilson remain in effect in the event his employment is terminated under the circumstances not involving specified "termination events," as described in his employment agreement. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for our common stock is Merit Transfer Company, 68 South Main Street, Suite 708, Salt Lake City, UT 84101, Telephone (801) 531-7558. EXPERTS The consolidated financial statements of TSET and its subsidiaries as of June 30, 2000 have been included in the registration statement in reliance upon the report of Grant Thornton LLP, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. The consolidated financial statements of TSET and its subsidiaries as of June 30, 1999 and 1998 have been included in the registration statement in reliance upon the report of Randy Simpson CPA, P.C., independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. LEGAL MATTERS Kirkpatrick & Lockhart LLP, Miami, Florida, will pass upon the validity of the shares of common stock offered under this prospectus. 42 AVAILABLE INFORMATION For further information with respect to us and the securities offered hereby, reference is made to the Registration Statement, including the exhibits thereto. Statements herein concerning the contents of any contract or other document are not necessarily complete, and in each instance reference is made to such contract or other statement filed with the Securities and Exchange Commission or included as an exhibit, or otherwise, each such statement, being qualified by and subject to such reference in all respects. Reports, registration statements, proxy and information statements, and other information filed by us with the Securities and Exchange Commission can be inspected and copied at the public reference room maintained by the Securities and Exchange Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at its regional offices located at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of these materials may be obtained at prescribed rates from the Public Reference Section of the Securities and Exchange Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. The Securities and Exchange Commission maintains a site on the World Wide Web (http://www.sec.gov) that contains reports, registration statements, proxy and information statements and other information. You may obtain information on the Public Reference Room by calling the Securities and Exchange Commission at 1-800-SEC-0330. 43 INDEX TO FINANCIAL STATEMENTS Page ---- TSET, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AT MARCH 31, 2001 (UNAUDITED) Consolidated Balance Sheet March 31, 2001...................................................F-2 Consolidated Statements of Operations for the nine months ended March 31,2001 and 2000 .............. F-3 Consolidated Statements of Cash Flows for the nine months ended March 31,2001 and 2000 .............. F-4 Consolidated Statement of Shareholders Equity For the nine months ended March 31, 2001 ...................... F-5 Notes to Consolidated Financial Statements................................. F-6 F-1 TSET, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (UNAUDITED) March 31, 2001 ------------ Assets Current Assets Cash $ 114,393 Accounts receivable, net 113,436 Inventories 784,596 Prepaid expenses 29,770 ------------ Total Current Assets 1,042,195 Property and Equipment 280,905 Less: Accumulated Depreciation (83,945) ------------ Net Property and Equipment 196,960 Other Assets Intangibles, net 5,004,670 ------------ Total Other Assets 5,004,670 ------------ Total Assets $ 6,243,825 ============ Liabilities and Shareholders' Equity Current Liabilities Accounts payable $ 438,207 Accrued expenses 1,435,522 Notes payable, current portion 1,059,924 ------------ Total Current Liabilities 2,933,653 ------------ Long-Term Liabilities Notes payable - ------------ Total Long-Term Liabilities - ------------ Minority Interest 568,617 ------------ Shareholders' Equity Common stock, authorized 500,000,000 shares of $.001 33,265 par value Capital in excess of par value 11,835,967 Retained earnings (accumulated deficit) (9,127,678) ------------ Total Shareholders' Equity (deficit) 2,741,555 ------------ Total Liabilities and Shareholders' Equity $ 6,243,825 ============ The accompanying notes are an integral part of these statements. F-2 TSET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) For the Nine Months Ended March 31, -------------------------- 2001 2000 ------------ ------------ Sales $ 592,570 $ - Cost of sales 304,488 - ------------ ------------ Gross profit 288,082 - ------------ ------------ Operating expenses: Compensation and benefits 1,253,747 662,500 Marketing 270,626 - Research and development 131,178 - Professional services 562,700 803 Amortization of intangibles 424,831 23,730 Other general & administrative 639,884 8,654 ------------ ------------ Total operating expense 3,282,966 695,687 ------------ ------------ Income or (loss) from Operations (2,994,884) ( 695,687) Other Income / (Expense) 5,054 58 Interest Expense ( 8,279) - Minority Interests 131,383 - ------------ ------------ Net Income (loss) Before Taxes $ (2,866,726) ( 695,629) Provision for Income Taxes - - ------------ ------------ Net Income (loss) from continuing operations $ (2,866,726) ( 695,629) Discontinued Operations (Note 6): Income (Loss) from discontinued operations (less applicable income taxes of $0) ( 450,772) ( 77,076) Loss on disposal of discontinued operations (less applicable income taxes of $0) (2,510,000) - ------------ ------------ Net Income (loss) $ (5,827,499) $ ( 772,705) ============ ============ Basic and Diluted Earnings (Loss) Per Share: Income from Continuing Operations $ (0.09) (0.03) Loss on Discontinued Operations (0.09) (0.00) ------------ ------------ Net Income (Loss) $ (0.18) (0.03) ============ ============ Weighted Average Shares Outstanding Basic 32,031,543 25,282,783 ============ ============ Diluted 32,031,543 25,282,783 ============ ============ The accompanying notes are an integral part of these statements. F-3 TSET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Nine Months Ended March 31, ------------------------- 2001 2000 ----------- ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (loss) from continuing operations (2,866,726) $( 695,629) Adjustments to reconcile Net Income to net cash (used in) provided by operations: Depreciation and amortization 445,355 25,530 Minority Interests ( 131,383) - Provision for doubtful accounts - - Common stock issued as compensation 83,954 - Change In: Inventories ( 239,649) - Accounts receivable ( 2,958) - Prepaid expenses and other assets ( 493) - Accounts Payable 330,851 - Accrued Expenses and other liabilities 171,617 662,500 ----------- ------------ Net cash (used in) provided by Continuing operations (2,209,432) ( 7,599) Discontinued operations ( 271,550) ( 13,692) ----------- ------------ Net cash (used in) provided by Operating Activities (2,480,982) ( 21,291) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment ( 115,209) - Cash investment in subsidiaries - ( 286,567) ----------- ------------ Net cash (used in) provided by Investing Activities ( 115,209) ( 286,567) ----------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of common stock 2,138,885 399,275 Minority Interest 700,000 - Proceeds from short-term borrowings 267,011 341 Repayments of short-term borrowings ( 498,262) - ----------- ------------ Net cash (used in) provided by Financing Activities 2,607,634 399,616 ----------- ------------ NET (DECREASE) INCREASE IN CASH 11,443 91,758 CASH Beginning of year 102,950 536 ----------- ------------ End of year 114,393 92,294 =========== ============ Supplemental disclosures of cash flow information Cash paid during the year for Interest 106,444 6,196 Income taxes -- -- Supplemental schedule of non-cash investing and financing activities: Purchase of patent rights -- 50,000 The accompanying notes are an integral part of these statements. F-4
TSET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY FOR THE NINE MONTHS ENDED MARCH 31, 2001 (UNAUDITED) Retained Total Common Stock Capital In Earnings Shareholders' ----------------------- Excess of Par (Accumulated Equity Shares Amount Value Deficit) (Deficit) ---------- -------- ------------- ------------ ------------- BALANCE at June 30, 2000 30,651,661 30,652 9,615,743 (3,300,179) 6,346,216 Shares of restricted common stock issued on July 20, 2000 for cash 161,538 161 188,839 189,000 Shares issued on August 3, 2000 as compensation 5,000 5 6,555 6,560 Shares issued in August 2000 to liquidate certain debt of Atomic Soccer USA, Ltd. 362,259 362 375,981 376,343 Shares of restricted common stock issued on September 30, 2000 for cash 832,000 832 831,168 832,000 Shares issued in September, 2000 to liquidate certain debt of TSET, Inc. 42,800 43 42,757 42,800 Shares of restricted common stock issued on December 8, 2000 for cash 168,492 169 99,831 100,000 Shares of restricted common stock issued on December 27, 2000 for cash 39,091 39 22,301 22,340 Shares of restricted common stock issued on January 9, 2001 for cash 687,500 688 399,312 400,000 Shares of restricted common stock issued on January 12, 2001 for cash 56,000 56 34,944 35,000 Shares of restricted common stock issued on January 19, 2001 for cash 10,240 10 6,390 6,400 Shares of restricted common stock issued on January 19, 2001 as compensation for services rendered 61,915 62 77,332 77,394 Shares of restricted common stock issued on March 23, 2001 for cash 186,302 186 134,814 135,000 Net loss for the nine months ended March 31, 2001 (5,827,499) (5,827,499) ---------- -------- ------------- ------------ ------------- BALANCE at March 31, 2001 33,264,798 $ 33,265 $ 11,835,967 $(9,127,678) $ 2,741,554 ========== ======== ============= ============ ============= The accompanying notes are an integral part of these statements.
F-5 TSET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - ACCOUNTING MATTERS The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments necessary to present fairly the information set forth therein have been included. Operating results for the nine-month period ended March 31, 2001 are not necessarily indicative of the results that may be experienced for the fiscal year ending June 30, 2001. These financial statements are those of the Company and its wholly owned subsidiaries. All significant inter-company accounts and transactions have been eliminated in the preparation of the consolidated financial statements. The accompanying financial statements should be read in conjunction with the TSET, Inc. Form 10K for the fiscal year ended June 30, 2000 filed on October 24, 2000, the TSET, Inc. Form 10Q for the quarter ended September 30, 2000 filed on November 20, 2000, the TSET, Inc. Form 10Q for the quarter ended December 31, 2000 filed on February 14, 2001, and the TSET, Inc. Form 10Q for the quarter ended March 31, 2001 filed on May 21, 2001. Recent Accounting Pronouncements. On July 20, 2001, the Financial Accounting Standard Board issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." These statements make significant changes to the accounting for business combinations, goodwill, and intangible assets. SFAS No. 141 establishes new standards for accounting and reporting requirements for business combinations and will require that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Use of the pooling-of-interests method will be prohibited. This statement is effective for business combinations completed after June 30, 2001. SFAS No. 142 establishes new standards for goodwill acquired in a business combination and eliminates amortization of goodwill and instead sets forth methods to periodically evaluate goodwill for impairment. Intangible assets with a determinable useful life will continue to be amortized over that period. The Company expects to adopt these statements during the first quarter of fiscal 2003. Management is in the process of evaluating the requirements of SFAS No. 142. The final determination of the impact of these statements has not been completed. NOTE 2 - INVENTORIES Inventories are valued at their lower of cost or market. The FIFO (first-in, first out) method is used to determine the cost of inventories. Inventories at March 31, 2001 by major classification, are as follows: March 31, 2000 --------- Raw materials $ 207,687 Work in process 22,529 Finished goods 533,886 Freight in 20,494 --------- $ 784,596 ========= F-6 NOTE 3 -- INCOME TAXES The composition of deferred tax assets and the related tax effects at March 31, 2001 are as follows: March 31, 2001 ---------- Benefit from carryforward of net operating losses $1,681,633 Other temporary differences 112,936 Reserve for loss on sale of subsidiary 853,400 Less valuation allowance (2,647,969) ---------- Net deferred tax asset $ - ========== F-7 TSET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (UNAUDITED) The difference between the income tax benefit in the accompanying statements of operations and the amount that would result if the U.S. Federal statutory rate of 34% were applied to pre-tax loss is as follows: Nine Months Ended March 31, --------------------------------------------- 2001 2000 --------------------- ---------------------- % of % of Pre-tax Pre-tax Amount Loss Amount Loss ----------- -------- ----------- --------- Benefit for income tax at federal statutory rate $1,981,350 34.0% $ 245,317 34.0% Non-deductible expenses ( 242,043) ( 4.2%) ( 12,641) ( 1.8%) Minority interest 44,669 0.8% - - Increase in valuation allowance (1,783,976) (30.6%) ( 232,676) (32.2%) ---------- ------- ---------- ------- Total $ - 0% $ - 0% ========== ======= ========== ======= The non-deductible expenses shown above related primarily to amortization of goodwill and to the accrual of restricted shares of common stock for compensation using different valuation methods for financial and tax reporting purposes. At March 31, 2001, for federal income tax and alternative minimum tax reporting purposes, the Company has approximately $4.9 million of unused net operating losses available for carryforward to future years. The benefit from carryforward of such net operating losses will expire in various years between 2011 and 2020 and could be subject to severe limitations if significant ownership changes occur in the Company. Of the $4.9 million of unused net operating losses noted above, approximately $1.1 million relates to losses incurred by the Company's subsidiaries, Atomic Soccer USA, Ltd. and EdgeAudio, Inc. In fiscal years prior to June 30, 2000, Atomic and EdgeAudio did not file their tax returns on a consolidated basis with the Company. Accordingly, the $1.1 million loss incurred by Atomic and EdgeAudio is further subject to separate limitations that restrict the ability of the Company to use such losses. NOTE 4 - SEGMENTS OF BUSINESS The Company has adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." The Company operates principally in three segments of business: The Kronos Air Technologies segment develops, manufactures and distributes air movement and purification devices utilizing the Kronos(TM) technology. The speaker segment manufactures and distributes home theater speakers and speaker systems. The sports apparel segment manufactures and distributes sports apparel to team organizations and retailers (see note 6 regarding the discontinuation of this segment). Although there are future plans for expansion into foreign markets, in the nine months ended March 31, 2001, the Company operated only in the U.S. The following tables provide a comparison of revenues, net profit, total assets, amortization expense and interest expense for the nine months ended March 31, 2001: F-8 TSET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (UNAUDITED) Sports Apparel Kronos Speaker Other Total ---------- ----------- ---------- ----------- ----------- Revenue $ 714,464 $ 5,000 $ 587,570 $ - $ 1,307,034 Interest expense $ 69,232 $ - $ 8,279 $ - $ 77,511 Amortization $ 203,107 $ 203,523 $ 194,801 $ 26,507 $ 627,938 Net loss $ (450,772) $(1,110,968) $ (851,715) $(3,414,043) $(5,827,499) Total assets $3,135,537 $ 2,531,611 $2,739,283 $(2,162,606) $ 6,243,825 Segment information has not been provided for prior years as neither the Kronos or speaker segments had commenced operations. NOTE 5 - EARNINGS PER SHARE Basic (loss) earnings per share is computed using the weighted average number of shares both authorized to be issued and issued and outstanding. Diluted (loss) earnings per share is computed using the weighted average number of shares outstanding adjusted for the incremental shares attributed to outstanding options to purchase common stock. As of March 31, 2001, there were no outstanding options to purchase TSET, Inc. common stock. NOTE 6 - DISCONTINUED OPERATIONS In early January 2001, management committed to a formal plan of action to sell or otherwise dispose of its sports apparel segment, Atomic Soccer USA, Ltd. Agreement was reached with a buyer group, that included current and former Atomic Soccer management, to sell them the outstanding shares of common stock of Atomic Soccer USA, Ltd. The transaction was effective on April 11, 2001 (see Note 7). Accordingly, a reserve for the anticipated loss on this transaction of $2.51 million or $.08 per share was recorded in the quarter ended March 31, 2001. The Company's unaudited consolidated financial statements for all periods have been reclassified to report separately results of operations and operating cash flows from continuing operations and the discontinued sports apparel operation. Atomic Soccer's net assets at March 31, 2001 and Atomic Soccer's operating results for the nine-months ended March 31, 2001 and 2000 are as follows: Atomic Soccer Net Assets: March 31, 2001 -------------- Current Assets $663,940 Net Property and Equipment 56,877 Goodwill 2,414,720 Current Liabilities ( 935,819) Notes payable - ------------- Net Assets $2,199,718 ============= F-9 TSET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (UNAUDITED) Atomic Soccer Operating Results: For the Nine Months Ended March 31, -------------------------- 2001 2000(1) ------------ ------------ Sales $ 714,464 $ 72,568 Cost of sales ( 512,282) ( 76,459) Depreciation and amortization ( 215,399) ( 16,297) General and Administrative ( 369,058) ( 47,908) ------------ ------------ ( 394,567) ( 68,094) Other Income 735 - Interest expense ( 69,232) ( 8,982) ------------ ------------ Income (Loss) before income taxes ( 450,772) ( 77,076) Income taxes - - ------------ ------------ Loss from discontinued operations $ ( 450,772) $ ( 77,076) ============ ============ (1) - Atomic Soccer was acquired on March 13, 2000. NOTE 7 - SUBSEQUENT EVENTS Pursuant to a Letter Agreement dated as of April 11, 2001 (the "Letter Agreement"), the Company transferred ownership of 100% of the issued and outstanding shares of common stock of Atomic Soccer to a new ownership group comprised primarily of Atomic Soccer's current and former management (see note 6). The Letter Agreement contains, among other things, a complete release of the Company from any and all liabilities and obligations to Atomic Soccer and its former stockholders. The shares of Atomic Soccer owned by the Company were transferred in exchange for cash consideration of $1,000.00 and a profits participation interest equal to 15% of Atomic Soccer's "adjusted profits" (as defined in the Letter Agreement) for seven years in which Atomic Soccer's profits are $50,000.00 or greater. In addition, and without prejudice to or diminution of its rights thereto, the Company may elect to defer to a future year receipt of the Profits Participation Interest in any year in which Atomic Soccer's adjusted profits do not exceed $100,000. In April 2001, the Company entered into agreements with employees, consultants and directors for the grant of stock options to purchase shares of the Company's common stock. The Company does not have a formal stock option plan. All stock option grants are exercisable at the fair market value of the shares on the date of grant, except for those options granted to the consultants. The exercise price in the consulting agreements is fixed and in excess of the fair market value on the date of grants. On April 10, Messrs. Jeffrey D. Wilson and Richard A. Papworth were granted options to acquire 748,475 shares of common stock in consideration for their forfeiture of the anti-dilution clauses in their management agreements. On April 10, 2001, members of the Company's management team and Board of Directors were granted stock options totaling 450,000 shares. On May 4, 2001, two members of the Board of Directors were granted stock options for 250,000 shares of common stock. Through June 15, 2001, 438,100 stock options have been granted, at various options prices, to three consultants as compensation under their consulting agreements. On May 4, 2001, Kronos Air Technologies delivered Kronos devises to Bath Iron Works, a division of General Dynamics, for installation in the crew quarters of a US Navy Aegis class destroyer. The $90,000 contract was recognized as revenue upon delivery in May, 2001. On June 19, 2001, we entered into a common stock purchase agreement with Fusion Capital Fund II, LLC pursuant to which Fusion Capital agreed to purchase on each trading day during the term of the agreement, $12,500 of our common stock or an aggregate of $10.0 million. The $10.0 million of common stock is to be purchased over a 40-month period, subject to a six-month extension or earlier termination at our discretion. The purchase price of the shares of common stock will be equal to the then current market price of the common stock without any fixed discount to the market price. F-10 TSET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) FOR THE THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 2001 AND 2000 (UNAUDITED) On July 7, 2001, our Company entered into a mutual release and settlement agreement with & Price Ltd. and Alex D. Saenz (the "Settlement Agreement"), pursuant to which our Company, Foster & Price Ltd. and Mr. Saenz mutually and fully released each other from all related claims and counterclaims and agreed to the dismissal of the litigation initiated by our Company against Foster & Price Ltd. on January 13, 2000. The Settlement Agreement does not contain any admission of liability or fault by any party. The parties also agreed, among other things, to not institute any future litigation relating to the term sheet of the previous relationship. As settlement consideration, our Company has agreed to deliver to Foster & Price Ltd. and Mr. Saenz, collectively, a total of 375,000 shares of our common stock. Such shares are included for registration in this prospectus; however, Foster & Price Ltd. and Mr. Saenz have agreed that, following such registration, in no case shall they sell on any given trading day more than 5,000 shares, or more than 12,500 shares in any consecutive five-day trading period, or more than 50,000 shares in any 30-day consecutive trading period. Foster & Price Ltd. and Mr. Saenz have agreed to certain confidential provisions and to indemnify our Company against claims arising out of any dispute between Foster & Price Ltd. and Mr. Saenz relating to any allocation of shares between them as well as claims brought by persons who are not parties to the Settlement Agreement. In July 2001, the Company reorganized to prioritize and focus management and financial resources on Kronos Air Technologies. As a result, the Company is investing only limited corporate management and financial resources in EdgeAudio. Accordingly, the Company is in the process of determining whether its investment in EdgeAudio is impaired. At March 31, 2001, the Company's investment in EdgeAudio was $2,739,283, which included $2,359,250 of goodwill. The results of this analysis could have a material impact on the Company's financial position and results of operations. NOTE 8 - MINORITY INTEREST On September 12, 2000, EdgeAudio sold twenty-five thousand (25,000) shares of newly-authorized convertible preferred stock equal to twenty percent (20%) of the total outstanding shares of EdgeAudio (the "Preferred Shares") to a private investor for $500,000 cash and a 90-day note for $200,000. The Company and the investor also entered into a Shareholders Agreement which provides, among other things, for rights of first refusal between the Company and the investor in connection with any proposed transfer of the EdgeAudio common shares owned by the Company or the Preferred Shares owned by the investor. EdgeAudio's articles of incorporation were also amended to provide that the Preferred Shares be entitled to, among other things, certain dividend and liquidation preferences, conversion rights, and voting power such that the Preferred Shares will represent voting control of EdgeAudio; however, the Company retains the right to veto a certain class of transactions. Registration rights were also granted with respect to the Preferred Shares. Certain provisions of the Agreement and Plan of Reorganization, dated as of May 4, 2000, pursuant to which the Company acquired sole ownership of EdgeAudio, were also amended to, among other things, reflect changes in executive management, composition of EdgeAudio's board of directors, and vesting authority in EdgeAudio's board of directors for certain actions that previously were subject to the Company's control or consent. The Company's ownership of EdgeAudio and the minority interest are accounted for based on the equity method of accounting. F-11 INDEX TO FINANCIAL STATEMENTS Page ---- TSET, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AT JUNE 30,2000 Report of Independent Certified Public Accountants........................ F-13 Independent Auditors report............................................... F-14 Consolidated Balance Sheets June 30, 2000 and 1999........................................ F-15 Consolidated Statements of Operations for the years ended June 30, 2000, 1999 and 1998.................................. F-16 Consolidated Statements of Cash Flows for the years ended June 30, 2000, 1999 and 1998.................................. F-17 Consolidated Statements of Shareholder Equity for the years ended June 30, 2000, 1999 and 1998.................................. F-18 Notes to Consolidated Financial Statements................................ F-19 F-12 Report of Independent Certified Public Accountants -------------------------------------------------- Board of Directors and Shareholders TSET, Inc. We have audited the accompanying consolidated balance sheet of TSET, Inc. and its subsidiaries as of June 30, 2000, and the related consolidated statements of operations, shareholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of TSET, Inc. and its subsidiaries as of June 30, 2000, and the consolidated results of their operations and their consolidated cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the financial statements, the Company incurred a net loss of $2,857,659 during the year ended June 30, 2000, and, as of that date, the Company's current liabilities exceeded its current assets by $1,734,618. These factors, among others, as discussed in Note 3 to financial statements, raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ Grant Thornton LLP Portland, Oregon October 18, 2000, except note 14, as to which the date is July 6, 2001 F-13 INDEPENDENT AUDITORS' REPORT To the Board of directors and Stockholders of TSET, Inc. We have audited the balance sheet of TSET, Inc. (formerly Technology Selection, Inc.) as of June 30, 1999 and the related statements of operations, changes in shareholders' equity and cashflows for the two years ending June 30, 1999 and 1998. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, based on our audits, the financial statements referred to above present fairly, in all material respects, the financial position of TSET, Inc. (formerly Technical Selection, Inc.) as of June 30, 1999 and the results of operations and its cashflows for the two years ending June 30, 1999 and 1998 in conformity with generally accepted accounting principles. /s/ Randy Simpson C.P.A., P.C. March 17, 2000 Salt Lake City, Utah F-14
TSET, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS As of June 30, --------------------------------------- 2000 1999 ------------ ----------- Assets Current Assets: Cash $ 102,949 $ 536 Accounts receivable, net 130,654 - Inventories 623,991 - Prepaid expenses 36,505 2,500 ------------ ----------- Total Current Assets 894,099 3,036 ------------ ----------- Property and Equipment: 165,696 - Less: Accumulated Depreciation (51,129) - ------------ ----------- Net Property and Equipment 114,567 - ------------ ----------- Other Assets: Intangibles 8,142,609 - ------------ ----------- Total Other Assets 8,142,609 - ------------ ----------- Total Assets $ 9,151,275 $ 3,036 ============ =========== Liabilities and Shareholders' Equity Current Liabilities Accounts payable $ 225,521 $ - Accrued expenses 1,288,364 30,150 Notes payable, current portion 1,114,832 49,691 ------------ ----------- Total Current Liabilities 2,628,717 79,841 ------------ ----------- Long-Term Liabilities Notes payable 176,342 - ------------ ----------- Total Long-Term Liabilities 176,342 - ------------ ----------- Shareholders' Equity Common stock, authorized 500,000,000 shares of $.001 par value 30,652 24,997 Capital in excess of par value 9,615,743 340,718 Retained earnings (accumulated deficit) (3,300,179) (442,520) ------------ ----------- Total Shareholders' Equity (deficit) 6,346,216 (76,805) ------------ ----------- Total Liabilities and Shareholders' Equity $ 9,151,275 $ 3,036 ============ =========== The accompanying notes are an integral part of these statements.
F-15
TSET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Year ended June 30, 2000 1999 1998 ------------- ------------- ------------- Sales $ 13,182 $ - $ - Cost of sales 7,820 - - ------------- ------------- ------------- Gross Margin 5,362 - - ------------- ------------- ------------- Selling, General and Administrative expenses: Compensation and benefits 1,413,146 343,150 5,000 In process technology 633,229 - - Amortization of intangibles 139,634 - - Other selling, general & administrative expenses 322,504 8,796 12,978 ------------- ------------- ------------- Total Selling, General and Administrative expenses 2,508,513 351,946 17,978 ------------- ------------- ------------- Income or (loss) from Operations (2,503,151) (351,946) (17,978) Other Income / (Expense) 2,898 272 146 Interest Expense - - - ------------- ------------- ------------- Net Income (loss) Before Taxes $ (2,500,253) $ (351,674) $ (17,832) Provision for Income Taxes - - - ------------- ------------- ------------- Net Income (loss) from Continuing Operations $ (2,500,253) $ (351,674) $ (17,832) Discontinued Operations (Note 14): Net Income (Loss) from discontinued operations (less applicable taxes of $0) ( 357,406) - - Loss from disposal of discontinued operations (less applicable taxes of $0) - - - ------------- ------------- ------------- Net income (loss) $ (2,857,659) $ ( 351,674) $ ( 17,832) ============= ============= ============= Basic and Diluted Earnings (Loss) Per Share: Loss from continuing operations $ (0.10) $ (0.01) $ (0.00) Loss from discontinued operations (0.01) (0.00) (0.00) ------------- ------------- ------------- Net income (loss) $ (0.11) $ (0.01) $ (0.00) ============= ============= ============= Weighted Average Shares Outstanding 25,820,688 25,119,571 17,832,000 ============= ============= =============
The accompanying notes are an integral part of these statements. F-16
TSET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended June 30, ---------------------------------------------- 2000 1999 1998 ------------ ------------ ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (loss) $(2,857,659) $(351,674) $ (17,832) Adjustments to reconcile Net Income to net cash (used in) provided by operations: Depreciation and amortization 242,469 1,000 1,000 Unrealized loss on patent technology 50,000 - - In-process technology 633,229 - - Provision for doubtful accounts 75,645 - - Common stock issued as compensation 50,000 310,000 - Change In: Inventories (168,550) - - Accounts receivable (299) - - Prepaid expenses and other assets (13,523) - - Accounts Payable 22,059 - - Accrued Expenses and other liabilities 1,201,000 30,150 - ------------ ------------ ----------- Net cash (used in) provided by Operating Activities (765,630) (10,524) (16,832) ------------ ------------ ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of cash accounts of subsidiaries (4,030) - - Purchases of property and equipment (36,994) - - Pre-acquisition investment in subsidiaries (225,125) - - ------------ ------------ ----------- Net cash (used in) provided by Investing Activities (266,149) - - ------------ ------------ ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of common stock 1,124,125 - - Proceeds from short-term borrowings 50,491 7,297 19,619 Repayments of short-term borrowings (40,424) - - Proceeds from notes payable - - - ------------ ------------ ----------- Net cash (used in) provided by Financing Activities 1,134,192 7,297 19,619 ------------ ------------ ----------- NET (DECREASE) INCREASE IN CASH 102,413 (3,227) 2,787 CASH Beginning of year 536 3,763 976 ------------ ------------ ----------- End of year 102,949 536 3,763 ============ ============ =========== Supplemental disclosures of cash flow information Cash paid during the year for Interest $ 44,658 - - Income taxes - - - Supplemental schedule of non-cash investing and financing activities:
The Company purchased all of the outstanding stock of its subsidiaries and other technology with shares of its own common stock. The total purchase price of $8,106,555 was allocated to assets acquired and liabilities assumed as follows: Fair value of tangible assets $ 771,102 Marketing intangibles 587,711 In-process research and development 633,229 Patent technology 2,125,935 Goodwill 5,708,867 Liabilities assumed (1,720,289) ----------- $8,106,555 =========== The accompanying notes are an integral part of these statements. F-17
TSET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED JUNE 30, 2000, 1999 AND 1998 Common Stock Retained Total Capital In Earnings Shareholders' Excess of Par (Accumulated Equity Shares Amount Value Deficit) (Deficit) X ---------- --------- --------------- -------------- -------------- BALANCE at June 30, 1997 23,976,730 $ 23,976 $ 31,743 $ (73,014) $ (17,295) Net loss for the year ended June 30, 1998 (17,832) (17,832) ---------- -------- ---------- ------------ ------------ BALANCE at June 30, 1998 23,976,730 23,976 31,743 (90,846) (35,127) Shares of restricted common stock issued to Pangaea Group, LLC per CEO management agreement 1,000,000 1,000 299,000 300,000 Shares of restricted common stock issued for services rendered 25,000 25 9,975 10,000 Shares certificate cancelled (4,000) (4) (4) Net loss for the year ended June 30, 1999 (351,674) (351,674) ---------- -------- ---------- ------------ ------------ BALANCE at June 30, 1999 24,997,730 24,997 340,718 (442,520) (76,805) Shares reissued from prior year cancellation 4,000 4 4 Shares issued on August 31, 1999 to acquire the patents and technology of the utility meter 100,000 100 49,900 50,000 Shares issued on March 14, 2000 to acquire Atomic Soccer USA, Ltd 1,037,555 1,038 1,805,212 1,806,250 Shares issued on March 14, 2000 to acquire Kronos Air Technologies, Inc. 2,250,000 2,250 3,344,625 3,346,875 Shares issued on for May 9, 2000 to acquire EdgeAudio.com, Inc. 1,298,701 1,299 2,548,701 2,550,000 Shares issued on May 9, 2000 to acquire Cancer Detection International Inc. 180,000 180 353,250 353,430 Shares issued on May 19, 2000 as compensation 14,815 15 49,985 50,000 Shares of restricted common stock issued on June 30, 2000 for cash 768,860 769 1,123,352 1,124,121 Net loss for the year ended June 30, 2000 (2,857,659) (2,857,659) ---------- -------- ---------- ------------ ------------ BALANCE at June 30, 2000 30,651,661 $ 30,652 $9,615,743 $(3,300,179) $ 6,346,216 ========== ======== ========== ============ ============ The accompanying notes are an integral part of these statements.
F-18 TSET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - ORGANIZATION AND NATURE OF OPERATIONS TSET, Inc. (formerly, Technology Selection, Inc.), is a Nevada corporation and was originally organized on September 17, 1980 as Penguin Petroleum, Inc. ("PPI") under the laws of the State of Utah. Stockholders approved a name change of the corporation on October 6, 1982 to Petroleum Corporation of America, Inc. On December 29, 1996, stockholders approved a reorganization whereby they exchanged their stock on a one-for-one basis with Technology Selection, Inc., a Nevada corporation ("TSI"). TSI's shares began trading on the over-the-counter bulletin board exchange on August 28, 1996 under the symbol "TSET." On November 19, 1998, TSI changed its name to TSET. The Company had been seeking select business opportunities globally among a wide range of prospects. Over the past two years the Company made several investments, including Kronos Air Technologies, Inc. and EdgeAudio, Inc. After further evaluation of these investments, the Company believes its investment in Kronos Air Technologies, Inc. represents the single biggest opportunity for the Company. As a result, the Company has prioritized its management and financial resources to fully capitalize on this investment opportunity. The Company believes that focusing on Kronos Air Technologies will create the most shareholder value. In March 2000, the Company purchased Atomic Soccer USA, Ltd. (Atomic), a sports apparel manufacturer and distributor. Atomic Soccer was sold on April 11, 2001 (See note 14). In March 2000, the Company also acquired Kronos Air Technologies, Inc. (Kronos) which is developing applications for its patent pending air movement and purification process. In May 2000, the Company purchased EdgeAudio.com, Inc. (EdgeAudio), a manufacturer and distributor of home theater speaker systems incorporating licensed DiAural(R) crossover circuitry. In May 2000, the Company also purchased Cancer Detection International (CDI) which performs state-of-the-art blood laboratory analysis for the very early detection of cancer. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Accounting Method. The Company's financial statements are prepared using the accrual method of accounting. The Company has elected a June 30 fiscal year end. Principles of Consolidation. The consolidated financial statements of the Company include those of the Company for the entire fiscal year and of each of its wholly-owned subsidiaries for the period subsequent to acquisition by the Company. The wholly-owned subsidiaries are Atomic Soccer USA, Ltd., Kronos Air Technologies, Inc., EdgeAudio.com, Inc., and Cancer Detection International. All significant intercompany accounts and transactions have been eliminated in the preparation of the consolidated financial statements. Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the periods. Actual results could differ from those estimates. Concentrations of Credit Risk. Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of trade and other receivable. The Company manages its exposure to risk through ongoing credit evaluations of its customers and generally does not require collateral. The Company maintains an allowance for doubtful accounts for potential losses and does not believe it is exposed to concentrations of credit risk that are likely to have a material adverse impact on the Company's financial position or results of operations. Cash and Cash Equivalents. The Company considers all highly liquid short-term investments, with an original maturity of three months or less when purchased, to be cash equivalents. F-19 TSET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Accounts Receivable. The Company provides an allowance for losses on trade receivables based on a review of the current status of existing receivables and management's evaluation of periodic aging of accounts. Accounts receivable are shown net of a $33,537 allowance for doubtful accounts at June 30, 2000. Inventories. Inventories consist of finished goods held for sale which are stated at the lower of cost or market, with cost determined on a first-in, first out basis and market based on the lower of replacement cost or realizable value. Property and Equipment. Property and equipment are recorded at cost. Depreciation is provided over the estimated useful lives of the assets, which range from three to seven years. Expenditures for major renewals and betterments that extend the original estimated economic useful lives of the applicable assets are capitalized. Expenditures for normal repairs and maintenance are charged to expense as incurred. The cost and related accumulated depreciation of assets sold or otherwise disposed of are removed from the accounts, and any gain or loss is included in operations. Intangibles. Intangible assets include goodwill, marketing intangibles and patent technology which are being amortized over 10 years. Patent technology represents acquired patents which are being further developed to achieve commercial viability and generate revenue. The carrying value of intangibles are reviewed whenever circumstances occur that indicate the carrying values may not be recoverable. Total accumulated amortization related to these intangible assets is $229,904 at June 30, 2000 ($139,634 for continuing operations and $90,270 for discontinued operations). Income Taxes. Income taxes are accounted for in accordance with the provisions of SFAS No. 109. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amounts expected to be realized. Research and Development Expenses. Costs related to research and development are charged to research and development expense as incurred. Earnings Per Share. Basic (loss) earnings per share is computed using the weighted average number of shares outstanding. Diluted (loss) earnings per share is computed using the weighted average number of shares outstanding adjusted for the incremental shares attributed to outstanding options to purchase common stock. Per share amounts disclosed in these Consolidated Financial Statements are not shown on a dilutive basis but rather on a basic basis as there are no stock options outstanding. Revenue Recognition. Revenue from product sales is recognized upon shipment. Sales are reported net of applicable cash discounts and allowances for returns. Recent Accounting Pronouncements. In 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133 ("SFAS 133"), Accounting for Derivative Instruments and Hedging Activities, which is effective for 2000. SFAS 133 will require the Company to record all derivatives on the balance sheet at fair value. For derivatives that are hedges, changes in the fair value of derivatives will be offset by the changes in the fair value of the hedged assets, liabilities or firm commitments. The new standard, as amended by SFAS 137 and SFAS 138, is effective for fiscal years beginning after June 15, 2000. The Company believes the impact of adopting this standard will not be material to results of operations or equity. NOTE 3 - REALIZATION OF ASSETS The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The Company has sustained losses from operations in recent years, and such losses have continued through the current year ended June 30, 2000. In addition, the Company has used, rather than provided cash in its operations. The Company is currently using its resources to raise capital necessary to complete research and development work, and to provide the working capital needs of itself and its subsidiaries. F-20 TSET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) In view of the matters described in the preceding paragraph, recoverability of a major portion of the asset amounts shown in the accompanying balance sheet is dependent upon continued operations of the Company, which in turn is dependent upon the Company's ability to meet its financing requirements on a continuing basis, to maintain present financing and to succeed in its future operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence. Management has taken the following steps with respect to its operating and financial requirements, which it believes are sufficient to provide the Company with the ability to continue in existence: 1. On May 5, 2000 the Company initiated a private placement to raise $5.0 million to $20.0 million. On August 31, 2000, the offering was extended for an additional 90 days to November 29, 2000. The proceeds of this Offering will be applied, among other things, to (a) funding financial obligations to the Subsidiaries and increasing shareholder value by seeking out and participating in additional investment and acquisition opportunities which satisfy the Company's acquisition criteria, and (b) recruiting and hiring additional executive management, management and employee compensation, administrative expenses, engagement of third party professionals to assist in various aspects of the Company's financial and financial reporting, legal, securities law compliance, and corporate activities and investment and acquisition transactions, procurement of necessary policies of insurance (including key person and director and officer liability coverage), establishment and implementation of management and employee stock option, incentive, and benefits plans, and satisfying applicable requirements for a NASDAQ Large Capital National Market Listing. To date no funds have been accepted by the Company for this private placement. This PPM has been subsequently withdrawn. 2. The Company is attempting to restructure accounts and notes payable of Atomic and have commitments to convert approximately $376,343 of such payable into approximately 362,259 shares of common stock of the Company. 3. The Company brought in an investor to provide $700,000 of working capital for EdgeAudio via issuance of 25,000 shares of a newly authorized class of EdgeAudio preferred stock. 4. Subsequent to June 30, 2000, the Company has raised additional capital of $820,000 through issuance of the Company's Common Stock to provide short-term funding of working capital. (See note 18) NOTE 4 - BUSINESS COMBINATIONS On March 13, 2000, the Company acquired Kronos Air Technologies, Inc. (a development stage company), a Nevada corporation ("Kronos"). Kronos is a research and development company having headquarters in Redmond, Washington. Kronos owns all of the intellectual property rights, including certain patents pending, for a technology known as "Kronos(TM)" (formerly named the "electron wind generator"). The consideration for the acquisition was 2,250,000 shares of the Company's common stock. The Company acquired all of the issued and outstanding shares of Kronos. The transaction was accounted for using the purchase method of accounting, accordingly, the results of operations from March 13, 2000 are included in the consolidated statement of operations. The total purchase price of $3.3 million was determined based upon the market value of stock issued which incorporates the restrictions on the transferability of the shares and was allocated to the net assets acquired based on their fair market values at the date of acquisition. Of the purchase price, $600,000 was F-21 TSET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) allocated to in-process technology which had not reached technological feasibility which the Company expensed as of the acquisition date. The remainder of the purchase price was allocated to purchased technology ($2.1 million) and identifiable intangibles ($600,000), which are being amortized on a straight line basis over 10 years. On March 6, 2000, the Company acquired of all of the issued and outstanding shares of Atomic Soccer USA, Ltd. ("Atomic"), a Wisconsin corporation (See note 14). Atomic, with headquarters in Madison, Wisconsin, makes and distributes soccer uniforms under the "Atomic" label, and basketball, volleyball, lacrosse, and hockey uniforms under the "BAHR" label. The consideration for the acquisition was 1,000,000 shares of TSET common stock. The transaction was accounted for using the purchase method of accounting, accordingly, the results of operations from March 6, 2000 are included in the consolidated statement of operations. The total purchase price of $1.8 million was determined based upon the adjusted market value of stock issued which incorporates the restrictions on the transferability of the shares and was allocated to the net assets acquired based on their fair market values at the date of acquisition. The fair value of the tangible assets acquired and liabilities assumed were $700,000 and $1.6 million, respectively. The remainder of the purchase price was allocated to goodwill ($2.7 million) which is being amortized on a straight line basis over ten years. On May 4, 2000, the Company acquired EdgeAudio.com, Inc. (a development stage company), an Oregon corporation ("EdgeAudio"), having its principal offices in Lake Oswego, Oregon and its research and development group located in Ogden, Utah. EdgeAudio manufactures and sells home theater speaker systems (collectively, the "Speaker Systems"). Sales of the Speaker Systems and certain accessories are made directly to consumers via the Internet. The Company acquired all of EdgeAudio's issued and outstanding shares in exchange for 1,298,701 shares of the Company's common stock. The transaction was accounted for using the purchase method of accounting, accordingly, the results of operations from May 5, 2000 are included in the consolidated statement of operations. The total purchase price of $2.6 million was determined based upon the adjusted market value of stock issued which incorporates the restrictions on the transferability of the shares and was allocated to the net assets acquired based on their fair market values at the date of acquisition. At the time this acquisition was completed, the purchase price was allocated to goodwill ($2.6 million) which is being amortized on a straight line basis over ten years. On May 4, 2000, the Company acquired 100% ownership of Cancer Detection International ("CDI"), in exchange for 180,000 shares of the Company's common stock. CDI engages in the business of performing state-of-the-art blood laboratory analysis for the very early detection of cancer. CDI utilizes specialized processing and handling of blood serums to be laboratory assayed in order to identify the presence and the level of anti-malignin antibodies in the patient. The blood analysis utilized by CDI has recently been approved by the FDA and is covered by Medicare and most other insurances. The transaction was accounted for using the purchase method of accounting, accordingly, the results of operations from May 5, 2000 are included in the consolidated statement of operations. The total purchase price of $353,000 was determined based upon the adjusted market value of stock issued which incorporates the restrictions on the transferability of the shares and was allocated to the net assets acquired based on their fair market values at the date of acquisition. Since CDI is a development stage company, the purchase price was allocated to goodwill ($353,000) which is being amortized on a straight line basis over ten years. As of June 30, 2000 CDI had not yet begun commercial operations. The Company has no current plans to exploit this business opportunity. The following table reflects the unaudited proforma combined results of operations of the Company, Kronos, Atomic, EdgeAudio and CDI as if the acquisitions had taken place at the beginning of the fiscal year for each of the periods presented, excluding the effects of the one time charge of in-process technology: F-22 TSET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) June 30, June 30, June 30, In thousands, except per share data 2000 1999 1998 ------- ------- ------- Revenue $ 960 $ 730 $ 192 ======= ======= ======= Net Income (loss) $(3,284) $(1,434) $(1,079) ======= ======= ======= Basic earnings (loss) per share $( 0.13) $( 0.06) $( 0.06) ======= ======= ======= Number of shares used in computing basic earnings per share 25,821 25,120 17,832 ======= ======= ======= In management's opinion, the unaudited pro forma combined results of operations are not necessarily indicative of the actual results that would have occurred had the acquisitions been consummated at the beginning of the respective years under the management of the Company. NOTE 5 - INVENTORIES Inventories are valued at their lower of cost or market. The FIFO (first-in, first out) method is used to determine the cost of inventories. Inventories at June 30, by major classification, are as follows: 2000 1999 --------- --------- Raw materials $ 203,921 $ - Work in process 22,228 - Finished goods 362,222 - Freight in 35,620 - --------- --------- $ 623,991 $ - ========= ========= NOTE 6 - PROPERTY AND EQUIPMENT Property and equipment at June 30 consists of the following: 2000 1999 --------- --------- Leasehold improvements $ 2,212 $ - Office furniture and fixtures 48,094 - Machinery and equipment 115,390 - --------- --------- 165,696 - Less accumulated depreciation ( 51,129) - --------- --------- Net property and equipment $ 114,567 $ - ========= ========= Depreciation expense for the years ended June 30, 2000 and 1999 was $10,095 and $0, respectively. F-23 TSET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) NOTE 7 - INTANGIBLES Intangible assets at June 30 consists of the following: 2000 1999 ----------- ----------- Patent technology $ 2,125,935 $ - Marketing intangibles 587,711 - Goodwill 5,658,867 - ----------- ----------- 8,372,513 - Less accumulated amortization (229,904) - ----------- ----------- Net intangibles $ 8,142,609 $ - =========== =========== Amortization expense for the years ended June 30, 2000 and 1999 was $229,904 and $0, respectively. NOTE 8 - ACCRUED EXPENSES A accrued expenses at June 30 consists of the following: 2000 1999 ---------- -------- Accrued cash compensation $ 82,654 $ 30,150 Accrued stock compensation 892,476 - Deferred compensation 180,000 - Accrued interest 57,785 - Accrued professional services 75,000 - Other accrual 450 - ---------- -------- $1,288,365 $ 30,150 ========== ======== NOTE 9 - NOTES PAYABLE Notes payable at June 30 consists of the following: 2000 1999 ---------- ---------- Notes to banks (Atomic) $ 460,000 $ - Notes to individuals 350,491 - Notes to corporations 65,183 49,692 Current portion, long-term debt 239,158 - ---------- ---------- $1,114,832 $ 49,692 ========== ========== Atomic has available a $500,000 line of credit with a bank, which matures March 31, 2001 and is collateralized by accounts receivable, inventory, and personal guarantees of the officers of Atomic. Interest on the unpaid balance accrues at the rate of prime plus 1.0% (10.5%) and is payable monthly. The amount outstanding was $460,000 on June 30, 2000. The line of credit agreement contains financial covenants including covenants relating to restrictions on dividends, mergers, acquisitions, and sales of assets. Atomic was in compliance with these covenants at June 30, 2000. F-24 TSET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) NOTE 10 - LEASES The Company has entered into noncancelable operating leases for facilities. Rental expense was approximately $12,000 and $0 for years ended June 30, 2000 and 1999, respectively. Future minimum lease payments under these operating leases for the years ending June 30 are as follows: Year Ended June 30 Redmond, Wa Madison, WI Tigard, OR Total - ---------- ----------- ----------- ---------- ---------- 2001 $ 47,028 $ 12,720 $ 13,225 $ 72,973 2002 42,670 12,720 13,800 69,190 2003 36,633 6,360 13,800 56,793 Thereafter - - - - ----------- ----------- ---------- ---------- Total $ 126,331 $ 31,800 $ 40,825 $ 198,956 =========== =========== ========== ========== NOTE 11 - LONG-TERM DEBT Long-term debt consists of the following: 2000 1999 --------- --------- Notes related to Atomic stock repurchase $ 415,500 $ - Current portion (239,158) - --------- --------- Noncurrent portion $ 176,342 $ - ========= ========= Future payments of the debt outstanding for the years ended June 30 are as follows: 2002 $ 136,514 2003 39,828 ---------- Total $ 176,342 ========== F-25 TSET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued) NOTE 12 -- INCOME TAXES The composition of deferred tax assets and the related tax effects at June 30, 2000, 1999 and 1998 are as follows: 1999 2000 (Restated) ---------- ---------- Benefit from carryforward of net operating losses $ 783,073 $ 26,541 Other temporary differences 80,920 10,200 Less valuation allowance (863,993) (36,741) ---------- ---------- Net deferred tax asset $ - $ - ========== ========== The difference between the income tax benefit in the accompanying statements of operations and the amount that would result if the U.S. Federal statutory rate of 34% were applied to pre-tax loss is as follows: June 30, --------------------------------------------- 2000 1999 --------------------- ---------------------- % of % of Pre-tax Pre-tax Amount Loss Amount Loss ----------- -------- ----------- --------- Benefit for income tax at federal statutory rate $ 971,604 34.0% $ 119,569 34.0% Non-deductible expenses (537,407) (18.8%) (102,000) (29.0%) Acquired NOL and other 393,055 13.8% - - Increase in valuation allowance (827,252) (29.0%) (17,569) (5.0%) ---------- ------- ---------- ------- Total $ - 0% $ - 0% ========== ======= ========== ======= The non-deductible expenses shown above related primarily to accrued and deferred compensation and to the accrual of restricted shares of common stock for compensation using different valuation methods for financial and tax reporting purposes. At June 30, 2000, for federal income tax and alternative minimum tax reporting purposes, the Company has approximately $2.3 million of unused net operating losses available for carryforward to future years. The benefit from carryforward of such net operating losses will expire in various years between 2011 and 2020 and could be subject to severe limitations if significant ownership changes occur in the Company. Of the $2.3 million of unused net operating losses noted above, approximately $1.1 million relates to losses incurred by the Company's subsidiaries, Atomic and EdgeAudio. In fiscal years prior to June 30, 2000, Atomic and EdgeAudio did not file their tax returns on a consolidated basis with the Company. Accordingly, the $1.1 million loss incurred by Atomic and EdgeAudio is further subject to separate limitations that restrict the ability of the Company to use such losses. NOTE 13 -- PURCHASED IN PROCESS RESEARCH AND DEVELOPMENT Purchased in process research and development (IPR&D) represents the value assigned in a purchase business combination to research and development projects of the acquired business that had commenced but had not yet been completed at the date of acquisition and which have no alternative future use. In accordance with SFAS No. 2, "Accounting for Research and Development Costs," as clarified by FASB Interpretation No. 4, amounts assigned to IPR&D meeting the above stated criteria must be charged to expense as part of the allocation of the purchase price of the business combination. Accordingly, charges totaling $633,000 F-26 TSET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued) were recorded during fiscal 2000 as part of the allocation of the purchase price related to the acquisition of Kronos. The method used to determine the purchase price allocations of IPR&D was an income or cash flow method. The calculations were based on estimates of operating earnings, capital charges (representing the effect of capital expenditures), trade name royalties, charges for core technology, and working capital requirements to support the cash flows attributed to the technologies. The after tax cash flows were bifurcated to reflect the stage of development of the technology. A discount rate reflecting the stage of development and the risk associated with the technology was used to value IPR&D. The Company believes there is limited risk that the projects described below will not be concluded within reasonable proximity to the expected completion date. The allocation of the purchase price of Kronos resulted in the recording of an IPR&D charge of $633,000, which has been included in the Kronos segment (see Note 16). Projects associated with the Kronos(TM) technology acquired include development of the technology and development of devices incorporating the Kronos(TM) technology in a full range of automotive, military, hospital/medical clinic, medical equipment, hotel, and home applications. These projects were approximately 40 percent complete, with expected completion in years 2000 through 2004. NOTE 14 - DISCONTINUED OPERATIONS In early January 2001, management committed to a formal plan of action to sell or otherwise dispose of it sports apparel segment, Atomic Soccer USA, Ltd. Agreement was reached with a buyer group, that included current and former Atomic Soccer management, to sell them the outstanding shares of common stock of Atomic Soccer USA, Ltd. The transaction was effective on April 11, 2001. Accordingly, a reserve for the anticipated loss on this transaction of $2.51 million or $.08 per share was recorded in the quarter ended March 31, 2001. The Company's unaudited consolidated financial statements for all periods have been reclassified to report separately results of operations and operating cash flows from continuing operations and the discontinued sports apparel operation. Atomic Soccer's net assets at June 30, 2000 and Atomic Soccer's operating results for the year ended June 30, are as follows: Atomic Soccer Net Assets: June 30, 2000 ------------ Current Assets $ 739,057 Net Property and Equipment 66,458 Goodwill 2,617,826 Current Liabilities (1,258,853) Notes payable ( 176,342) ------------- Net Assets $ 1,988,146 ============= F-27 TSET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Atomic Soccer Operating Results: For the year ended June 30, 2000, -------------------- Sales $ 292,889 Cost of sales ( 248,773) Depreciation and amortization ( 98,138) General and Administrative ( 261,600) ------------ ( 315,622) Other Income - Interest expense ( 41,784) ------------ Income (Loss) before income taxes ( 357,406) Income taxes (benefits) - ------------ Loss from discontinued operations $( 357,406) ============ Note 15 - COMMITMENTS AND CONTINGENCIES Litigation. On January 13, 2000, the Company initiated legal proceedings in Clackamas County, Oregon against Foster & Price Ltd., an Isle of Man corporation (the "Defendant"), seeking, among other things, a judicial declaration that a certain Term Sheet signed by the Company and the Defendant was lawfully terminated by the Company due to the Defendant's failure to perform certain terms thereunder and is null and void, and that the Company and the Defendant have no further contractual obligations between them. The Defendant provided assistance to the Company in the acquisition of a technology patent known as Intelligent Utility Meter System. The Defendant claimed entitlement to the issuance of 10,000,000 shares of the Company's common stock, notwithstanding the Defendant's nonperformance of certain important obligations under the Term Sheet. Discussions between the Company and the Defendant failed to produce a mutually satisfactory resolution of the matter, whereupon the Company initiated the litigation. On August 14, 2000, the Defendant filed an answer, in the State of Oregon, denying the Company's allegations against the Defendant, alleging breach of contract and seeking declaratory relief, asserting various affirmative defenses and counterclaims, and seeking monetary damages. The Company intends to proceed with the discovery process. The Company believes that the Defendant's demands are without merit and intends to vigorously seek judicial declaration in its favor. EdgeAudio "Earn-out" provision. Part of the consideration given by the Company for EdgeAudio is related to an earn-out provision in which the Company would award $3.75 million of additional common stock of the Company as EdgeAudio achieves stipulated revenue milestones over a five year period commencing on May 4, 2000. The earn out provides five cumulative gross revenue milestones that range between $1,764,271 and $22,187,203. Upon achieving each milestone, an additional $750,000 of TSET, Inc. common stock will be issued. The share conversion is to be based on an average of the closing price of the shares for the five trading days immediately preceding the date that the revenue milestone is achieved. Funding commitments to subsidiaries. As of June 30, 2000, the Company is committed to provide additional funding to its subsidiaries as follows: F-28 TSET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (continued) Remaining End of funding funding Subsidiary requirement period -------------- -------------- ----------- Kronos $165,500 9/13/2000 Atomic $459,875 3/13/2001 EdgeAudio $213,900 12/31/2001 Employment agreements. An employment agreement exists with the Company's chairman of the board whereby he will serve in such capacity as well as chief executive officer through May 1, 2004, with a five year "evergreen" provision. The terms of the employment agreement provide for an annual base salary and certain other benefits which include a 3.98% non-dilutable interest in the Company. Compensation continuation agreements exist with other officers of the Company whereby each receives compensation and benefits in the event their employment is terminated following certain events relating to a change in control of the Company. The maximum amount of cash compensation that could be paid under the agreements, based on present salary levels, is approximately $1.4 million. NOTE 16 - SEGMENTS OF BUSINESS The Company has adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." The Company operates principally in three segments of business: the sports apparel segment manufactures and distributes sports apparel to team organizations and retailers. The Kronos segment licenses, manufactures and distributes air movement and purification devices utilizing the Kronos(TM) technology. The speaker segment manufactures and distributes home theater speakers and speaker systems. Although there are future plans for expansion into foreign markets, in the year ended June 30, 2000, the Company operated only in the U.S. The following tables provide a comparison of revenues, net profit, total assets, amortization expense, in-process research and development expense and interest expense for the year ended June 30, 2000: Sports Apparel Kronos Speaker Other Total ---------- ---------- ---------- ----------- ----------- Revenue $ 292,889 $ - $ 33,182 $ - $ 306,071 Interest expense $ 41,784 $ - $ - $ - $ 41,784 Amortization $ 90,270 $ 90,455 $ 43,289 $ 5,891 $ 229,904 In Process R&D $ - $ 633,229 $ - $ - $ 633,229 Net loss $ (357,406) $ (926,676) $ (222,182) $(1,351,395) $(2,857,659) Total assets $3,423,341 $2,776,912 $2,603,334 $ 347,688 $ 9,151,275 Segment information has not been provided for prior years as neither the Kronos or speaker segments had commenced operations. Atomic has revenue from a single customer that represents $101,538 of the Company's consolidated revenue. This customer is served by the sports apparel operating segment. (See note 18 regarding the customer's filing for bankruptcy protection) NOTE 17 - RELATED PARTIES During the year ended June 30, 2000, the Company received advances from officers and directors of the Company of $109,213. At June 30, 2000 the amount due the officers and directors was $81,213. The Company has a liability at June 30, 2000 to an officer/director of the Company of $893,896 for regular and deferred compensation NOTE 18 - SUBSEQUENT EVENTS F-29 TSET, INC. AND SUBSIDIARIES. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (continued) On August 29, 2000, the Company and Computerized Thermal Imaging, Inc. (CTI) mutually terminated their marketing agreement. The marketing agreement had provided the Company with marketing rights for CTI thermal imaging systems in certain global markets. During September 2000 the Company issued approximately 832,000 shares of its common stock to raise $832,000. On September 12, 2000, EdgeAudio sold twenty-five thousand (25,000) shares of newly-authorized convertible preferred stock equal to twenty percent (20%) of the total outstanding shares of EdgeAudio (the "Preferred Shares") to a private investor for $500,000 cash and a 90-day note for $200,000. The Company and the investor also entered into a Shareholders Agreement which provides, among other things, for rights of first refusal between the Company and the investor in connection with any proposed transfer of the EdgeAudio common shares owned by the Company or the Preferred Shares owned by the investor. EdgeAudio's articles of incorporation were also amended to provide that the Preferred Shares be entitled to, among other things, certain dividend and liquidation preferences, conversion rights, and voting power such that the Preferred Shares will represent voting control of EdgeAudio; however, the Company retains the right to veto a certain class of transactions. Registration rights were also granted with respect to the Preferred Shares. Certain provisions of the Agreement and Plan of Reorganization, dated as of May 4, 2000, pursuant to which the Company acquired sole ownership of EdgeAudio, were also amended to, among other things, reflect changes in executive management, composition of EdgeAudio's board of directors, and vesting authority in EdgeAudio's board of directors for certain actions that previously were subject to the Company's control or consent. On September 13, 2000, Charles D. Strang accepted an appointment as a director of the Company. His annual compensation will be 50,000 shares of common stock of the Company. Mr. Strang is also currently serving as Commissioner of the National Association of Stock Car Auto Racing (NASCAR). On October 3, 2000, Big Toe Sports, a significant customer of Atomic, filed for Chapter 11 bankruptcy protection. On October 9, 2000, the assets of Big Toe Sports were purchased by HCC Sports LLC, a subsidiary of Hycite Corporation of Madison, Wisconsin. HCC Sports has reached agreements with all of its vendors, including Atomic, regarding the disposition of outstanding payables and inventory. Atomic recorded a provision for bad debts of $90,000 in anticipation of the agreement with HCC Sports which results in a remaining receivable from Big Toe of $38,923. HCC Sports will continue to operate using the Big Toe Sports name and will operate under Big Toe Sports' existing business plan. Atomic will remain a vendor of Big Toe Sports and continue to regularly evaluate that relationship. On October 5, 2000, Weijing Li resigned as director and treasurer of the Company. On October 6, 2000, Richard Tusing accepted an appointment as director of the company. His annual compensation will be 50,000 shares of common stock of the Company. Mr. Tusing is currently providing business consulting services to select clients. The Company engaged Mr. Tusing to provide various consulting services prior to his appointment as director. F-30 TSET, INC. AND SUBSIDIARIES. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (continued) NOTE 19 - QUARTERLY RESULTS The Company was inactive from the time that it discontinued operations in 1996 until the time it was reactivated in mid-1999 and from inception through June 30, 2000 it had no significant revenues from operations. Therefore, the unaudited results of operations by quarter for the year ended June 30, 1999 are not disclosed. The following is a summary of unaudited results of operations for the year ended June 30, 2000: Net loss per basic Net loss per Fiscal Year Ended Gross Net common diluted June 30, 2000: Revenues Margin (Loss) share common share -------- ------ ------ ----- ------------ First Quarter $0 $0 $(48,841) $0.00 $0.00 Second Quarter 0 0 (48,679) 0.00 0.00 Third Quarter 0 0 (675,185) (0.02) (0.02) Fourth Quarter 13,182 5,362 (2,084,954) (0.09) (0.09) F-31 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth estimated expenses expected to be incurred in connection with the issuance and distribution of the securities being registered. Securities and Exchange Commission $ 1,002 Registration Fee Printing and Engraving Expenses $ 5,000 Accounting Fees and Expenses $29,998 Legal Fees and Expenses $45,000 Blue Sky Qualification Fees and Expenses $10,000 TOTAL $91,000 All amounts except the Securities and Exchange Commission registration fee are estimated. No portion of the expenses associated with this offering will be borne by the selling stockholders. ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS We will indemnify each director, to the fullest extent permitted by law, from and against any and all claims of any type arising from or related to his past or future acts or omissions as a director or officer of our Company and any of our subsidiaries. In addition, we have agreed to advance all expenses of each director as they are incurred and in advance of the final disposition of any claim. Pursuant to our Bylaws, we are obligated to indemnify each of our directors and officers to the fullest extent permitted by law with respect to all liability and loss suffered, and reasonable expenses incurred, by such person in any action, suit, or proceeding in which such person was or is made or threatened to be made a party or is otherwise involved by reason of the fact that such person is or was a director or officer of our Company. Our bylaws further eliminate personal liability of a director or an officer to our Company or to any of our stockholders for monetary damages for a breach of fiduciary duty as a director or an officer except for: (i) acts or omissions which involve intentional misconduct, fraud, or a knowing violation of law; or (ii) the payment of distributions in violation of Section 78.300 of Nevada Revised Statutes. We are also obligated to pay the reasonable expenses of indemnified directors or officers in defending such proceedings if the indemnified party agrees to repay all amounts advanced should it be ultimately determined that such person is not entitled to indemnification. We also maintain an insurance policy covering directors and officers under which the insurer agrees to pay, subject to certain exclusions, for any claim made against the directors and officers of our Company for a wrongful act for which they may become legally obligated to pay or for which we are required to indemnify our directors and officers. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES In August 1999, we issued 100,000 common shares, valued at $0.50 per share, to twelve persons in exchange for U.S. patent no. 4,803,632 (issued February 7, 1989) and related intellectual property rights relating to a technology and device referred to as the "Intelligent Utility Meter System". The above shares were issued pursuant to the exemption provided for under Section 4(2) of the Securities Act of 1933, as amended, as a "transaction not involving a public offering." In March 2000, we issued 1,037,555 common shares, valued at $1.81 per share, to eight persons in exchange for common stock of Atomic Soccer USA, Ltd. The above shares were issued pursuant to the exemption provided for under Section 4(2) of the Securities Act of 1933, as amended, as a "transaction not involving a public offering." In March 2000, we issued 2,250,000 common shares, valued at $1.49 per share, to six persons in exchange for common stock of Kronos Air Technologies, Inc. The above shares were issued pursuant to the exemption provided for under Section 4(2) of the Securities Act of 1933, as amended, as a "transaction not involving a public offering." II-1 In May 2000, we issued 1,298,701 common shares, valued at $1.96 per share, to five persons in exchange for common stock of EdgeAudio.com, Inc. The above shares were issued pursuant to the exemption provided for under Section 4(2) of the Securities Act of 1933, as amended, as a "transaction not involving a public offering." In May 2000, we issued 180,000 common shares, valued at $1.96 per share, in exchange for common stock of Cancer Detection International, Inc. The above shares were issued pursuant to the exemption provided for under Section 4(2) of the Securities Act of 1933, as amended, as a "transaction not involving a public offering." In May 2000, we issued 14,815 common shares valued at $3.375 per share to Richard A. Papworth based on his employment agreement dated May 19, 2000. The above shares were issued pursuant to the exemption provided for under Section 4(2) of the Securities Act of 1933, as amended, as a "transaction not involving a public offering." In June 2000, we issued 768,860 common shares valued at $1.49 per share to one person in exchange for cash. The above shares were issued pursuant to the exemption provided for under Section 4(2) of the Securities Act of 1933, as amended, as a "transaction not involving a public offering." In July 2000, we issued 161,538 common shares valued at $1.17 per share to one entity in exchange for cash. The above shares will be issued pursuant to the exemption provided for under Section 4(2) of the Securities Act of 1933, as amended, as a "transaction not involving a public offering." In August 2000, we issued 5,000 common shares valued at $1.312 per share to one person as compensation. The above shares were issued pursuant to the exemption provided for under Section 4(2) of the Securities Act of 1933, as amended, as a "transaction not involving a public offering." In August 2000, we issued 362,259 common shares valued at $1.17 per share to five persons in liquidation of debt of Atomic Soccer USA, Ltd. The above shares will be issued pursuant to the exemption provided for under Section 4(2) of the Securities Act of 1933, as amended, as a "transaction not involving a public offering." In September 2000, we issued 832,000 common shares valued at $1.00 per share to three persons in exchange for cash. The above shares will be issued pursuant to the exemption provided for under Section 4(2) of the Securities Act of 1933, as amended, as a "transaction not involving a public offering." In September 2000, we issued 42,800 common shares valued at $1.00 per share to two entities in liquidation of debt of TSET, Inc. The above shares will be issued pursuant to the exemption provided for under Section 4(2) of the Securities Act of 1933, as amended, as a "transaction not involving a public offering." In December 2000, we issued 168,492 common shares valued at $0.59 per share to one entity, an accredited investor, in exchange for cash. The above shares will be issued pursuant to the exemption provided for under Section 4(2) of the Securities Act of 1933, as amended, as a "transaction not involving a public offering." No commissions were paid on the transaction. In December 2000, we issued 39,091 common shares valued at $0.55 per share to two persons, both of which are accredited investors, in exchange for cash. The above shares will be issued pursuant to the exemption provided for under Section 4(2) of the Securities Act of 1933, as amended, as a "transaction not involving a public offering." No commissions were paid on the transaction. In January 2001, we issued 687,500 common shares valued at $0.58 per share to one entity, an accredited investor, in exchange for cash. The above shares were issued pursuant to the exemption provided for under Section 4(2) of the Securities Act of 1933, as amended, as a "transaction not involving a public offering." No commissions were paid on the transaction. In January 2001, we issued 56,000 common shares valued at $0.63 per share to two persons, both of which are accredited investors, in exchange for cash. The above shares were issued pursuant to the exemption provided for under Section 4(2) of the Securities Act of 1933, as amended, as a "transaction not involving a public offering." No commissions were paid on the transaction. In January 2001, we issued 10,240 common shares valued at $0.63 per share to one person, an accredited investor, in exchange for cash. The above shares were issued pursuant to the exemption provided for under Section 4(2) of the II-2 Securities Act of 1933, as amended, as a "transaction not involving a public offering." No commissions were paid on the transaction. In January 2001, we issued 40,000 common shares valued at $1.25 per share to one person in exchange for services. The above shares were issued pursuant to the exemption provided for under Section 4(2) of the Securities Act of 1933, as amended, as a "transaction not involving a public offering." No commissions were paid on the transaction. In January 2001, we issued 21,915 common shares valued at $1.25 per share to seven persons as compensation. The above shares were issued pursuant to the exemption provided for under Section 4(2) of the Securities Act of 1933, as amended, as a "transaction not involving a public offering." No commissions were paid on the transaction. In March 2001, we issued 186,301 common shares valued at $0.72 per share to one person, an accredited investor, in exchange for cash. The above shares were issued pursuant to the exemption provided for under Section 4(2) of the Securities Act of 1933, as amended, as a "transaction not involving a public offering." No commissions were paid on the transaction. In May 2001, we issued 891,891 common shares valued at $0.34 per share to NuWave Limited in exchange for cash. The above shares were issued pursuant to the exemption provided for under Section 4(2) of the Securities Act of 1933, as amended, as a "transaction not involving a public offering." No commissions were paid on the transaction. In June 2001, we issued 50,000 common shares valued at $0.95 to a former director of TSET as compensation for his service as a director. The above shares were issued pursuant to the exemption provided for under Section 4(2) of the Securities Act of 1933, as amended, as a "transaction not involving a public offering." No commissions were paid on the transaction. II-3 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES The following exhibits are filed as part of this registration statement: EXHIBIT NO. DESCRIPTION LOCATION - ----------- ----------- -------- 2.1 Articles of Merger for Technology Selection, Inc. Provided herewith with the Nevada Secretary of State 3.1 Articles of Incorporation Provided herewith 3.2 Bylaws Provided herewith 5.1 Opinion re: Legality Provided herewith 10.1 Employment Agreement, dated April 16, 1999, by Provided herewith and between TSET, Inc. and Jeffrey D. Wilson 10.2 Deal Outline, dated December 9, 1999, by and Provided herewith between TSET, Inc. and Atomic Soccer USA, Ltd. 10.3 Letter of Intent, dated December 27, 1999, by and Provided herewith between TSET, Inc. and Electron Wind Technologies, Inc. 10.4 Agreement, dated February 5, 2000, by and between Provided herewith DiAural, LLC and EdgeAudio, LLC 10.5 Stock Purchase Agreement, dated March 6, 2000, by Provided herewith and among TSET, Inc., Atomic Soccer USA, Ltd., Todd P. Ragsdale, James Eric Anderson, Jewel Anderson, Timothy Beglinger and Atomic Millennium Partners, LLC 10.6 Acquisition Agreement, dated March 13, 2000, by Provided herewith and among TSET, Inc., High Voltage Integrated, LLC, Ingrid Fuhriman, Igor Krichtafovitch, Robert L. Fuhriman and Alan Thompson 10.7 Letter of Intent, dated April 18, 2000, by and Provided herewith between TSET, Inc. and EdgeAudio.com, Inc. 10.8 Lease Agreement, dated May 3, 2000, by and Provided herewith between Kronos Air Technologies, Inc. and TIAA Realty, Inc. 10.9 Agreement and Plan of Reorganization, dated May Provided herewith 4, 2000, by and among TSET, Inc., EdgeAudio.com, Inc., LYNK Enterprises, Inc., Robert Lightman, J. David Hogan, Eric Alexander and Eterna Internacional, S.A. de C.V. 10.10 Letter Agreement, dated May 4, 2000, by and Provided herewith between TSET, Inc. and Cancer Detection International, LLC 10.11 Employment Agreement, dated May 19, 2000, by and Provided herewith between TSET, Inc. and Richard A. Papworth 10.12 Finders Agreement, dated August 21, 2000, by and Provided herewith among TSET, Inc., Richard F. Tusing and Daniel R. Dwight 10.13 Contract Services Agreement, dated June 27, 2000, Provided herewith by and between Chinook Technologies, Inc. and Kronos Air Technologies, Inc. 10.14 Letter of Intent, dated July 17, 2000, by and Provided herewith between Kronos Air Technologies, Inc. and Polus Technologies, Inc. 10.15 Consulting Agreement, dated August 1, 2000, by Provided herewith and among TSET, Inc., Richard F. Tusing and Daniel R. Dwight 10.16 Preferred Stock Purchase Agreement, dated Provided herewith September 12, 2000, by and between EdgeAudio.com, Inc. and Bryan Holbrook 10.17 Shareholders Agreement, dated September 12, 2000, Provided herewith by and among TSET, Inc., Bryan Holbrook and EdgeAudio.com, Inc. II-4 EXHIBIT NO. DESCRIPTION LOCATION - ----------- ----------- -------- 10.18 Amendment to Agreement and Plan of Reorganization Provided herewith dated September 12, 2000, by and among TSET, Inc., EdgeAudio.com, Inc., LYNK Enterprises, Inc., Robert Lightman, J. David Hogan, Eric Alexander and Eterna Internacional, S.A. de C.V. 10.19 Agreement Regarding Sale of Preferred Stock, Provided herewith dated November 1, 2000, by and between EdgeAudio.com, Inc. and Bryan Holbrook 10.20 Amendment to Subcontract, dated December 14, Provided herewith 2000, by and between Bath Iron Works and High Voltage Integrated 10.21 Consulting Agreement, dated January 1, 2001, by Provided herewith and between TSET, Inc. and Dwight, Tusing & Associates 10.22 Employment Agreement, dated March 18, 2001, by Provided herewith and between TSET, Inc. and Alex Chriss 10.23 Stock Option Agreement, dated April 9, 2001, by Provided herewith and between TSET, Inc. and Jeffrey D. Wilson 10.24 Stock Option Agreement, dated April 9, 2001, by Provided herewith and between TSET, Inc. and Jeffrey D. Wilson 10.25 Stock Option Agreement, dated April 9, 2001, by Provided herewith and between TSET, Inc. and Daniel R. Dwight 10.26 Stock Option Agreement, dated April 9, 2001, by Provided herewith and between TSET, Inc. and Richard F. Tusing 10.27 Stock Option Agreement, dated April 9, 2001, by Provided herewith and between TSET, Inc. and Charles D. Strang 10.28 Stock Option Agreement, dated April 9, 2001, by Provided herewith and between TSET, Inc. and Richard A. Papworth 10.29 Stock Option Agreement, dated April 9, 2001, by Provided herewith and between TSET, Inc. and Richard A. Papworth 10.30 Stock Option Agreement, dated April 9, 2001, by Provided herewith and between TSET, Inc. and Erik W. Black 10.31 Stock Option Agreement, dated April 9, 2001, by Provided herewith and between TSET, Inc. and J. Alexander Chriss 10.32 Stock Option Agreement, dated April 9, 2001, by Provided herewith and between TSET, Inc. and Charles H. Wellington 10.33 Stock Option Agreement, dated April 9, 2001, by Provided herewith and between TSET, Inc. and Igor Krichtafovitch 10.34 Letter Agreement, dated April 10, 2001, by and Provided herewith between TSET, Inc. and Richard A. Papworth 10.35 Letter Agreement, dated April 12, 2001, by and Provided herewith between TSET, Inc. and Daniel R. Dwight and Richard F. Tusing 10.36 Finders Agreement, dated April 20, 2001, by and Provided herewith between TSET, Inc. and Bernard Aronson, d/b/a Bolivar International Inc. 10.37 Indemnification Agreement, dated May 1, 2001, by Provided herewith and between TSET, Inc. and Jeffrey D. Wilson 10.38 Indemnification Agreement, dated May 1, 2001, by Provided herewith and between TSET, Inc. and Daniel R. Dwight 10.39 Indemnification Agreement, dated May 1, 2001, by Provided herewith and between TSET, Inc. and Richard F. Tusing 10.40 Indemnification Agreement, dated May 1, 2001, by Provided herewith and between TSET, Inc. and Charles D. Strang 10.41 Indemnification Agreement, dated May 1, 2001, by Provided herewith and between TSET, Inc. and Richard A. Papworth II-5 EXHIBIT NO. DESCRIPTION LOCATION - ----------- ----------- -------- 10.42 Indemnification Agreement, dated May 1, 2001, by Provided herewith and between TSET, Inc. and Erik W. Black 10.43 Stock Option Agreement, dated May 3, 2001, by and Provided herewith between TSET, Inc. and Jeffrey D. Wilson 10.44 Common Stock Purchase Agreement, dated June 19, Provided herewith 2001, by and between TSET, Inc. and Fusion Capital Fund II, LLC 10.45 Registration Rights Agreement, dated June 19, Provided herewith 2001, by and between TSET, Inc. and Fusion Capital Fund II, LLC 10.46 Mutual Release and Settlement Agreement, dated Provided herewith July 7, 2001, by and between TSET, Inc. and Foster & Price Ltd. 10.47 Letter Agreement, dated July 9, 2001, by and Provided herewith between TSET, Inc. and The Eagle Rock Group, LLC 10.48 Finders Agreement by and between TSET, Inc. Provided herewith and John S. Bowles 10.49 Form of Warrant Agreement, dated July 16, 2001, Provided herewith by and between TSET, Inc. and The Eagle Rock Group, LLC 11.1 Statement re: Computation of Earnings Not applicable 12.1 Statement re: Computation of Ratios Not applicable 15.1 Letter re: Unaudited Interim Financial Not applicable Information 16.1 Letter re: Change in Certifying Accountant Not applicable 21.1 Subsidiaries of the Registrant Not applicable 23.1 Consent of Kirkpatrick & Lockhart LLP Provided herewith 23.2 Consent of Grant Thornton Provided herewith 23.3 Consent of Randy Simpson, C.P.A., P.C. Provided herewith 24.1 Power of Attorney Included on signature page 27.1 Financial Data Schedule Not applicable II-6 ITEM 28. UNDERTAKINGS The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933, as amended; (ii) to reflect in the prospectus anY facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Securities and Exchange Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and (iii) to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; (2) That, for the purpose of determining any liability under the Securities Act of 1933, as amended, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) If the registrant is a foreign private issuer, to file a post-effective amendment to the registration statement to include any financial statements required by Rule 3-19 of this chapter at the start of any delayed offering or throughout a continuous offering. Financial statements and information otherwise required by Section 10(a)(3) of the Securities Act of 1933, as amended, need not be furnished, PROVIDED, that the registrant includes in the prospectus, by means of a post-effective amendment, financial statements required pursuant to this paragraph (a)(4) and other information necessary to ensure that all other information in the prospectus is at least as current as the date of those financial statements. Notwithstanding the foregoing, with respect to registration statements on Form F-3, a post-effective amendment need not be filed to include financial statements and information required by Section 10(a)(3) of the Securities Act of 1933, as amended, or Rule 3-19 of this chapter if such financial statements and information are contained in periodic reports filed with or furnished to the Securities and Exchange Commission by the registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended, that are incorporated by reference in the Form F-3. II-7 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Registration Statement to be signed on our behalf by the undersigned, thereunto duly authorized, in Lake Oswego, Oregon on August 6, 2001. TSET, INC. By: /s/ Jeffrey D. Wilson -------------------------------- Jeffrey D. Wilson, Chairman and Chief Executive Officer KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Sydney A. Harland his true and lawful attorney-in-fact and agent, with full power of substitution and revocation, for him and in his name, place and stead, in any and all capacities (until revoked in writing), to sign any and all amendments (including post-effective amendments) to this Registration Statement and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done as fully for all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or is substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE /s/ Jeffrey D. Wilson - ------------------------------- Jeffrey D. Wilson Chairman and Chief Executive August 6, 2001 Officer /s/ Erik Black - ------------------------------- Erik Black Director and Executive August 6, 2001 Vice-President /s/ Richard A. Papworth - ------------------------------- Richard A. Papworth Director and Chief Financial August 6, 2001 Officer /s/ Charles D. Strang - ------------------------------- Charles D. Strang Director August 6, 2001 /s/ Richard F. Tusing - ------------------------------- Richard F. Tusing Director August 6, 2001 /s/ Daniel R. Dwight - ------------------------------- Daniel R. Dwight Director August 6, 2001 /s/ James P. McDermott - ------------------------------- James P. McDermott Director August 6, 2001
II-8 EX-2.1 3 ex2-1.txt Exhibit 2.1 ARTICLES OF MERGER TECHNOLOGY SELECTION, INC. These Articles of Merger for TECHNOLOGY SELECTION, INC. are hereby respectively submitted for filing by the Nevada Secretary of State as required under Sections 78.458 and 78.461 of the State of Nevada Domestic and Foreign Corporation Laws. WITNESSETH WHEREAS, a Merger Agreement was entered into on May 21, 1996 by the following: Constituent Corporation: PETROLEUM CORPORATION OF AMERICA, a Utah Corporation Surviving Corporation: TECHNOLOGY SELECTION, INC., a Nevada Corporation (Wholly owned Subsidiary of PETROLEUM CORPORATION OF AMERICA); and WHEREAS, the Merger Agreement was adopted by the Board of Directors of PETROLEUM CORPORATION OF AMERICA, Utah Corporation and TECHNOLOGY SELECTION, INC., Nevada Corporation, on May 21, 1996. The address of both Corporations is the same: 68 So. Main Street, Suite #607, Salt Lake City, Utah, 84101. WHEREAS, approval of the Merger Agreement was required by both the Shareholders of PETROLEUM CORPORATION OF AMERICA, and TECHNOLOGY SELECTION, INC.. Notice to the Shareholders was mailed on May 16, 1996, for meetings held on May 29, 1996 for both corporations. PETROLEUM CORPORATION OF AMERICA, a Utah Corporation ---------------------------------------------------- (CONSTITUENT) (A) One class of Stock - Common Stock Authorized 100,000,000 Shares @ ($0.001 par value) Issued and Outstanding - 23,971,330 Number of Shares represented at meeting - 22,115,780 Number of Shares voted for approval - 22,115,780 Number of Shares voted against - None Shareholders unanimously approved Merger Agreement TECHNOLOGY SELECTION, INC, Nevada Corporation (Survivor) -------------------------------------------------------- (B) Two Classes of Stock. COMMON STOCK - Authorized 500,000,000 Shares ($0,001 par value) Issued and Outstanding - 1,000 Shares PREFERRED STOCK - Authorized 50,000,000 (no par value) Issued and Outstanding - None Number of Shares represented at meeting - 1,000 Number of Shares voted for approval - 1,000 Number of Shares voted against - None Shareholders unanimously approved Merger Agreement. WHEREAS, the Boards of Directors of TECHNOLOGY SELECTION, INC. and PETROLEUM CORPORATION OF AMERICA have resolved that PETROLEUM CORPORATION OF AMERICA be merged under and pursuant to the laws of the States of Utah and Nevada into a single corporation existing under the laws of the State of Nevada, to wit: TECHNOLOGY SELECTION, INC., which shall be the surviving corporation (the "Surviving Corporation") in a transaction qualifying as a reorganization within the meaning of Section 368(a)(1)(F) of the Internal Revenue code of 1986, as amended, and qualifying as an exempt transaction in accordance with Rules 145(a)(2) and 145(a)(3) to the Securities Act of 1933, as amended. NOW THEREFORE, in consideration of the premises and the mutual agreements, provisions and covenants herein contained, the parties hereto hereby agree in accordance with the laws of the States of Utah and Nevada, and that PETROLEUM CORPORATION OF AMERICA shall be, at the Effective Date (as hereinafter defined), merged (hereinafter called "Merger") into a single Corporation, and the parties hereto adopt and agree to the following agreements, terms and conditions relating to the Merger and the mode of carrying the same into effect. 1. STOCKHOLDERS' MEETINGS; FILINGS; EFFECTS OF MERGER 1.1. PETROLEUM CORPORATION OF AMERICA STOCKHOLDERS' MEETING. PETROLEUM CORPORATION OF AMERICA called a meeting of its stockholders to be held on May 29, 1996 in accordance with the laws of the State of Utah, upon due notice mailed on May 16, 1996 to its stockholders to consider and vote upon, among other matters, adoption of this Agreement. 1.2. Action by PETROLEUM CORPORATION OF AMERICA as Sole STOCKHOLDER OF TECHNOLOGY SELECTION, INC. On or before May 29, 1996, PETROLEUM CORPORATION OF AMERICA, as the sole stockholder of TECHNOLOGY SELECTION, INC. adopted this Agreement in accordance with the laws of the State of Utah and Nevada. 1.3. FILING OF CERTIFICATE OF MERGER; EFFECTIVE DATE. This Agreement was adopted by the stockholders of PETROLEUM CORPORATION OF AMERICA in accordance with the laws of the State of Utah, (b) this Agreement was adopted by PETROLEUM CORPORATION OF AMERICA as the sole stockholder of TECHNOLOGY SELECTION, INC. in accordance with the laws of the State of Utah and Nevada, and (c) this Agreement is not thereafter, and has not theretofore been, terminated or abandoned as permitted by the provisions hereof, then the Merger Agreement shall be filed and recorded in accordance with the laws of the State of Nevada and the State of Utah. Such filings, if practicable, shall be made on the same day. The Merger shall become effective at 9:00 A.M. on the calendar day following the day of such filing in Nevada, which date and time are herein referred to as the "Effective Date." 1.4. CERTAIN EFFECTS OF MERGER. On the Effective Date, the separate existence of PETROLEUM CORPORATION OF AMERICA shall cease, and PETROLEUM CORPORATION OF AMERICA shall be merged into TECHNOLOGY SELECTION, INC. which, as the Surviving Corporation, shall possess all the rights, privileges, powers, and franchises, of a public as well as of a private nature, and be subject to all the restrictions, disabilities, and duties of PETROLEUM CORPORATION OF AMERICA; and all and singular, the rights, privileges, powers, 2 and franchises of PETROLEUM CORPORATION OF AMERICA and all property, real, personal, and mixed, and all debts due to PETROLEUM CORPORATION OF AMERICA on whatever account, as well as for stock subscriptions and all other things in action or belonging to PETROLEUM CORPORATION OF AMERICA, shall be vested in the Surviving Corporation; and all property, rights, privileges, powers, and franchises, and all and every other interest shall be thereafter as effectually the property of the Surviving Corporation as they were of PETROLEUM CORPORATION OF AMERICA, and the title to any real estate vested by deed or otherwise, under the laws of Utah or Nevada or any other jurisdictions, in PETROLEUM CORPORATION OF AMERICA shall not revert or be in any way impaired; but all rights of creditors and all liens upon any property of PETROLEUM CORPORATION OF AMERICA shall be preserved unimpaired, and all debts, liabilities, and duties of PETROLEUM CORPORATION OF AMERICA shall thenceforth attach to the Surviving Corporation and may be enforced against it to the same extent as if said debts, liabilities, and duties had been incurred or contracted by it. At any time, or from time to time, after the Effective Date, the last acting officers of PETROLEUM CORPORATION OF AMERICA or the corresponding officers of the Surviving Corporation, may in the name of PETROLEUM CORPORATION OF AMERICA, execute and deliver all such property deeds, assignments, and other instruments and take or cause to be taken all such further or other action as the Surviving Corporation may deem necessary or desirable in order to vest, perfect, or confirm in the Surviving Corporation title to and possession of all PETROLEUM CORPORATION OF AMERICA's property, right, privileges, powers, franchises, immunities, and interests and otherwise to carry out the purposes of this Agreement. 2. NAME OF SURVIVING CORPORATION; CERTIFICATE OF INCORPORATION; BY-LAWS 2.1. NAME OF SURVIVING CORPORATION. The name of TECHNOLOGY SELECTION, INC. shall be the Surviving Corporation, from and after the Effective Date. 2.2. CERTIFICATE OF INCORPORATION. The Certificate of Incorporation of TECHNOLOGY SELECTION, INC. as in effect on the date hereof shall from and after the Effective Date be, and continue to be, the Certificate of Incorporation of the Surviving Corporation until changed or amended as provided by law. 2.3. BY-LAWS. The By-Laws of TECHNOLOGY SELECTION, INC. immediately before the Effective Date, shall from and after the Effective Date be, and continue to be, the By-Laws of the Surviving Corporation until amended as provided therein. 3. STATUS AND CONVERSION OF SECURITIES The manner and basis of converting the shares of the capital stock of PETROLEUM CORPORATION OF AMERICA and the nature and amount of securities of TECHNOLOGY SELECTION, INC. which the holders of shares of PETROLEUM CORPORATION OF AMERICA Common Stock are to receive in exchange for such shares are as follows: 3.1. PETROLEUM CORPORATION OF AMERICA COMMON STOCK. Every one (1) share of PETROLEUM CORPORATION OF AMERICA Common Stock which shall be issued and outstanding immediately before the Effective Date shall, by virtue of the Merger and without any action on the part of the holder thereof, be converted at the Effective Date into one (1) fully paid share of TECHNOLOGY SELECTION, INC. Common Stock, and outstanding certificates representing shares of PETROLEUM CORPORATION OF AMERICA Common Stock shall thereafter represent shares of TECHNOLOGY SELECTION, INC. Common Stock. Such certificates may, but need not be, exchanged by the holders thereof after the merger becomes effective for new certificates for the appropriate number of shares bearing the name of the 3 Surviving Corporation. The exchange of TECHNOLOGY SELECTION, INC. Common Stock for PETROLEUM CORPORATION OF AMERICA Common Stock shall be effectuated pursuant to Rules 145(a)(2) and 145(a)(3) to the Securities Act of 1933, as amended. 3.2. TECHNOLOGY SELECTION, INC. Common Stock Held by PETROLEUM CORPORATION OF AMERICA. All issued and outstanding shares of TECHNOLOGY SELECTION, INC. Common Stock held by PETROLEUM CORPORATION OF AMERICA immediately before the Effective Date shall, by virtue of the Merger and at the Effective Date, cease to exist and certificates representing such shares shall be canceled and voided. 3.3. Directors and Officers Elected for TECHNOLOGY SELECTION, INC. The Directors and Officers for the Surviving Corporation, Technology Selection, Inc. are as follows: Richard V. Secord Director/Chairman of the Board, CEO David B. Johnston Director/President, COO Li Wei Jing Director/Secretary-Treasurer Wang Hong Jun Director Zhou Ru Bai Director 4. Miscellaneous 4.1. This Merger Agreement may be terminated and the proposed Merger abandoned at any time before the Effective Date of the Merger, and whether before or after approval of this Merger Agreement by the shareholders of PETROLEUM CORPORATION OF AMERICA, if the Board of Directors of PETROLEUM CORPORATION OF AMERICA or of the surviving Corporation duly adopt a resolution abandoning this Merger Agreement. 4.2. For the convenience of the parties hereto and to facilitate the filing of this Merger Agreement, any number of counterparts hereof may be executed; and each such counterpart shall be deemed to be an original instrument. DAVID B. JOHNSTON - DIRECTOR/PRESIDENT & C.O.O. Mr. Johnston has been a Director of Thermal Medical Imaging, Inc. since December, 1995. He is a financial services professional by training, with extensive experience in medical and computer venture financing. From 1987 to the present, he founded Computerized Thermal Imaging, Inc., the original developer of the Company's current technology. From 1984 to 1989, Mr. Johnston was President of Funding Selection, Inc., an Oregon investment banking and mergers and acquisitions firm. From 1983 to 1986, he was Chairman of Grace Capital Ltd. in Oregon, a specialized medical and computer technology private placement firm. Mr. Johnston received a B.S. degree in Business Administration from Brigham Young University and a graduate degree in banking and corporate finance from the University of Southern California. WANG HONG JUN - DIRECTOR/VICE CHAIRMAN General Manager of China Ywan Wang (Group) Corporation involved in Mainland China. He is a businessman involved in Mainland China Satellite Communications, Computer Manufacturing, Compact Disc Company, Thermal Sensor Factory, Telecommunications Company and Construction Companies and various other businesses. 4 LI WEI JING - DIRECTOR/SECRETARY-TREASURER A businessman involved in Mainland China Satellite Communications, Computer Manufacturing, Compact Disc Company, Thermal Sensor Factory, Telecommunications Company and Construction Companies and various other businesses. He has a Masters Degree in Computer Sciences and is an international businessman. ZMOU RU BAI - DIRECTOR A businessman involved in Mainland China Satellite Communications, Computer Manufacturing, Compact Disc Company, Thermal Sensor Factory, Telecommunications Company and Construction Companies and various other businesses. PRINCIPAL REASONS FOR CHANGING THE CORPORATIONS DOMICILE FROM UTAH TO NEVADA The State of Nevada does not provide for any state corporate income taxation. Accordingly, from the date of reincorporation in the State of Nevada, the Company will be able to reduce or eliminate corporate income taxes, which otherwise may be assessed against the Company under the applicable statutes in the State of Utah. Moreover, for many years Nevada has followed a policy of encouraging incorporation in that state, or and, in furtherance of that policy, has adopted comprehensive, modern and flexible corporate laws that are periodically updated and revised to meet changing business needs. As a result, many corporations are now incorporated in Nevada. IN WITNESS WHEREOF, these Articles of Merger have been executed by PETROLEUM CORPORATION OF AMERICA and TECHNOLOGY SELECTION, INC. ATTEST: PETROLEUM CORPORATION OF AMERICA By: /s/ George Smith - ---------------------------- ------------------------------ Secretary President (SEAL) ATTEST: TECHNOLOGY SELECTION, INC. By: /s/ George Smith - ---------------------------- ------------------------------ Secretary President (SEAL) 5 EX-3.1 4 ex3-1.txt Exhibit 3.1 ARTICLES OF INCORPORATION OF TECHNOLOGY SELECTION, INC. I, the undersigned, have this day formed a corporation under and by virtue of the laws of the State of Nevada and I do hereby state and certify: FIRST: That the name of said corporation shall be: TECHNOLOGY SELECTION, INC. SECOND: That the name and location of the Resident Agent of the corporation is Scott Ockey at 2880 Meade Ave., Suite 202, Las Vegas, Nevada 89102. It is hereby expressly provided that other office or offices for the transaction of the business of the corporation may be maintained at such place or places, either within or without the State of Nevada as may from time to time be named and selected by its Board of Directors, or may be provided in the By-laws of this corporation, and any and all business transacted by Stockholders' of Directors' meeting of said corporation held outside of the State of Nevada shall be as effectual for all purposes as though said meetings were held at the principal office and place of business of said corporation within the State of Nevada. THIRD: That the nature of the business and the objects and purpose proposed to be transacted, promoted or carried on by this corporation are as follows: Generally to carry on any lawful business or businesses, and to engage in any and every line of activity and business enterprise which the Board of Directors may from time to time deem to be reasonably incident to any of the objects and purposes above named, or to be beneficial or helpful to the interest of this corporation, or which may be calculated, directly or indirectly, to enhance the value of its property, and to carry on any and all of its business and the other operations in any City, County, State, Province, territory or place in the world; and to establish head and branch offices and places of business wherever it may deem advisable; and to do any and all of the matters and things hereinabove set forth to the extent that natural persons might or could do, and in any part of the world, either as persons, agents, contractors, trustees or otherwise, alone or in the company of others. FOURTH: That the total authorized capital stock of the corporation shall consist of Five Hundred Million shares of common stock, with a par value of $0.001 all of which shall be non-assessable and, entitled to voting power, and, Fifty Million Shares of Preferred Stock, with no voting power. FIFTH: The object and powers specified in any clause contained in these Articles shall not in any wise limit or restrict by reference to, or inference from the terms of any other clause of these Articles; and the foregoing enumeration of powers, as specified, shall not be held to limit or restrict in any manner the general powers of the corporation and the enjoyment thereof as conferred by the laws of the State of Nevada upon corporations organized under the general corporation of said State. SIXTH: The members of the governing board shall be styled "Directors", and the number of such directors shall be One (1). The Board of Directors, or the stockholders, at any regular meeting or special meeting called for that purpose, by resolution may increase the number of members of the Board of Directors as deemed advisable, provided that the number may not be increased to more than nine (9). SEVENTH: The name and address of the Incorporator, Director, and Stockholder is as follows: George Smith 68 South Main St., Suite 607 Salt Lake City, Utah 84101 EIGHTH: The private property of the stockholders of this corporation shall be, and is hereby made, forever exempt from the debts of the corporation. NINTH: This corporation shall have perpetual existence. TENTH: The corporation, through its By-laws, shall have power and authority to make such provisions as may from time to time be deemed necessary or advisable for the promotion of the interests of this corporation, and the corporation may through its By-laws, confer such powers, privileges, authorities and duties upon its Board of Directors as it may deem necessary or advisable upon an executive committee or other committees; and this corporation and its Board of Directors shall and may exercise all rights, powers and privileges of whatsoever kind or nature, whether specifically provided herein or not, which may now or hereafter be conferred upon similar corporations organized under and by virtue of the laws. 2 IN WITNESS WHEREOF, the undersigned incorporator has executed these Articles of Incorporation this 13 day of May. /s/ George Smith ------------------------- George Smith State of: County of: On this 13th day of May, 1996, before me, GEORGE SMITH a notary public personally appeared George Smith, known to me to be the person whose name subscribed to the within instrument and acknowledged to me that he executed the same. My Commission Expires: 12/18/99 /s/ Joell B. Psalto - -------------------------------- ------------------------- 3 EX-3.2 5 ex3-2.txt Exhibit 3.2 BY-LAWS OF TECHNOLOGY SELECTION, INC. ARTICLE I Offices Section 1. The principal office of the Corporation shall be located in Mountain View, Calif. The Corporation may have such other offices, either within or without the State of Utah as the Board of Directors may designate or as the business of the Corporation may require from time to time. The registered office of the Corporation required by the Nevada Business Corporation Act to be maintained in the State of Nevada may be, but need not be, identical with the principal offices, and the address of the registered office may be changed from time to time by the Board of Directors. ARTICLE II Stockholders Section 1. ANNUAL MEETING. The annual meeting of the stockholders shall be held at the principal office of the Corporation, at Mountain View, Calif. or at such other place as the Board of Directors may from time to time determine, on the first Monday of June of each year beginning in June 1997. If the day so designated falls upon a legal holiday then the meeting shall be held upon the first business day thereafter. The Secretary shall serve personally or by mail a written notice thereof, not less than ten nor more than fifty days previous to such meeting, addressed to each stockholder at his address as it appears on the stock book. At any meeting at which all stockholders shall be present, or at which all stockholders not present have waived notice in writing, the giving of notice as above required may be dispensed with. Section 2. SPECIAL MEETINGS. Special meetings of stockholders other than those regulated by statute, may be called at any time by the Chairman of the Board, the President, or the holders of at least 1/3 of all shares entitled to vote. Notice of such meeting stating the place, day and hour and the purpose for which it is called shall be served personally or by mail, not less than ten days before the date set for such meeting. If mailed, it shall be directed to a stockholder at his address as it appears on the stock book. At any meeting at which all stockholders shall be present, or at which stockholders not present have waived notice in writing, the giving of notice as above described may be dispensed with. Section 3. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. For the purpose of determining shareholders entitled to receive notice of or to vote at any meeting of shareholders or any adjournment thereof, or shareholders entitled to receive payment of any dividend; or in order to make a determination of shareholders for any other proper purpose, the Board of Directors of the Corporation may provide that the stock transfer books shall be closed for a stated period not to exceed, in any case, fifty days. If the stock transfer books shall be closed for the purpose of determining shareholders entitled to notice of or to vote at a meeting of shareholders, such books shall be closed for at least ten days immediately preceding such meeting. In lieu of closing the stock transfer books, the Board of Directors may fix in advance a date as the record date for any such determination of shareholders, such date in any case to be not more than fifty days, and in case of a meeting of shareholders, not less than ten days prior to the date on which the particular action requiring such determination of shareholders is to be taken. If the stock transfer books are 2 not closed, and no record date is fixed for the determination of shareholders entitled to receive notice of or to vote at a meeting of shareholders, or shareholders entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination as shareholders. When determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment thereof. Section 4. VOTING. At all meetings of the shareholders of record having the right to vote, each stockholder of the Corporation is entitled to one vote for each share of stock having voting power standing in the name of such stockholder on the books of the company. Votes may be cast in person or by written authorized proxy. Section 5. PROXY. Each proxy must be executed in writing by the stockholder of the Corporation or his duly authorized attorney. No proxy shall be valid after the expiration of the eleven months from the date of its execution unless it shall have specified therein its duration. Every proxy shall be revocable at the discretion of the person executing it or of his personal representative or assigns. Section 6. VOTING OF SHARES OF CERTAIN HOLDERS. Shares held by an administrator, executor, guardian, or conservator may be voted by him, either in person or by proxy without a transfer of such shares into his name. Shares standing in the name of a trustee may be voted by him either in person or by proxy, but no trustee shall be entitled to vote shares held by him without a transfer of such shares into his name. 3 Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer thereof into his name if authority so to do be contained in an appropriate order of the Court by which such receiver was appointed. A shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the share so transferred. Shares of its own stock belonging to the Corporation or held by it in a fiduciary capacity shall not be voted, directly or indirectly, at any meeting, and shall not be counted in determining the total number of outstanding shares at any given time. Section 7. CUMULATIVE VOTING. Cumulative voting shall not be permitted in the election of directors. Directors shall be elected by plurality vote. Section 8. QUORUM. A majority of the outstanding shares of the Corporation entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of the stockholders. If a quorum shall not be present or represented, the stockholders entitled to a vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time until a quorum shall be present or represented. At such rescheduled meeting at which a quorum shall be present or represented, any business or any specified item of business may be transacted which might have been transacted at the meeting as originally notified. 4 The number of votes or consents of the holders of any class of stock having voting power which shall be necessary for the transaction of any business or any specified item of business at any meeting of stockholders, including amendments to the Articles of Incorporation, or the giving of any consent, shall be a majority of the outstanding shares of the Corporation entitled to vote, represented in person or by proxy. Section 9. INFORMAL ACTION BY SHAREHOLDERS. Any action required to be taken at a meeting of the shareholders, or any other action which may be taken at a meeting of the shareholders, may be taken without a meeting if a consent in writing setting forth the action so taken shall be signed by all of the shareholders entitled to vote with respect to the subject matter thereof. ARTICLE III Directors Section 1. NUMBER. The affairs and business of this Corporation shall be managed by a Board of Directors. The first Board of Directors shall consist of three members, but may total a maximum of nine members. Directors need not be residents of the State of Nevada and need not be stockholders of the Corporation. Section 2. ELECTION. The Directors shall be elected at each annual meeting of the stockholders, but if any such annual meeting is not held, or the Directors are not elected thereat, the Directors may be elected at any special meeting of the stockholders held for that purpose. Section 3. TERM OF OFFICE. The term of office of each of the Directors shall be one year, which shall continue until his successor has been elected and qualified. 5 Section 4. DUTIES. The Board of Directors shall have the control and general management of the affairs and business of the corporation, and shall have the power to do all such lawful acts as are not required to be done by the shareholders. Section 5. DIRECTORS' MEETINGS. Regular meetings of the Board of Directors shall be held immediately following the annual meeting of the stockholders, and at such other time and place as the Board of Directors may determine. Special meetings of the Board of Directors may be called by the President or any one Director at any time. Section 6. NOTICE OF MEETINGS. Notice of meetings other than the regular meeting shall be given by service upon each Director in person, by telephone, or by mail at least three days before the date therein designated for such meeting, specifying the time and place of such meeting, and the business to be brought before the meeting. Any business including business other than that specified in such notice may be transacted at any special meeting. At any Directors' meeting at which a quorum of the Board of Directors shall be present, (although held without notice,) any and all business may be transacted which might have been transacted if the meeting had been duly called if a quorum of the Directors waive or are willing to waive the notice requirements of such meeting. Any Director may waive notice of any meeting. The attendance of a Director at a meeting shall constitute a Waiver of Notice of such meeting except where a Director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully convened or called. 6 Section 7. VOTING. At all meetings of the Board of Directors, each Director is to have one vote. The act of a majority of the Directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. Section 8. VACANCIES. Vacancies in the Board of Directors occurring between annual meetings shall be filled for the unexpired portion of the term by a majority of the remaining Directors. Section 9. REMOVAL OF DIRECTORS. Any one or more of the Directors may be removed, but only for cause, at any time, by a vote of the stockholders holding a majority of the stock, at any special meeting called for that purpose. Section 10. QUORUM. The number of Directors who shall be present any meeting of the Board of Directors in order to constitute a quorum for the transaction of any business or any specified item of business shall be a majority. If a quorum shall not be present at any meeting of the Board of Directors, those present may adjourn the meeting from time to time, until a quorum shall be present. Section 11. COMPENSATION. By resolution of the Board of Directors, the Directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors, and each may be paid a stated salary as Director. No such payment shall preclude any Director from serving the Corporation in any other capacity and receiving compensation therefor. Section 12. ACTION BY CONSENT. Any action which may be taken at a meeting of the directors, may be taken without a meeting if a consent in writing 7 setting forth the action so taken shall be signed by all of the directors entitled to vote with respect to the subject matter thereof. ARTICLE IV Officers Section 1. NUMBER. The officers of this Corporation shall be: President, Vice-President, Secretary and Treasurer, and such additional Vice Presidents and assistant Secretaries as the President shall determine. Any officer may hold more than one office. Section 2. ELECTION. All officers of the Corporation shall be elected annually by the Board of Directors at its meeting held immediately after the meeting of stockholders, and shall hold office for the term of one year or until their successors are duly elected. Officers need not be members of the Board of Directors. The Board of Directors may appoint such other officers, agents and employees as it shall deem necessary who shall have such authority and shall perform such duties as from time to time shall be prescribed by the Board of Directors. Section 4. DUTIES OF OFFICERS. The duties and powers of the officers of the company shall be as follows: PRESIDENT The President shall preside at all meetings of shareholders and shall have general supervision of the affairs of the Company, shall sign or countersign all share certificates, contracts and other instruments of the company, and perform all such other duties as are incident to his office or 8 properly required of him by the Board of Directors. If the Board of Directors chooses not to elect a Chairman of the Board or if the Chairman of the Board is not designated as the Company's Chief Executive Officer, then the President shall serve in such capacity. VICE-PRESIDENT The Vice President shall exercise all the functions of the President during the absence or disability of the President. Additional Vice Presidents may be elected by the Board of Directors which shall establish their relative seniority. Each Vice President shall have such powers and discharge such duties as may be assigned him from time to time by the Board of Directors. Secretary The Secretary shall keep the minutes of the meetings of the Board of Directors and of the stockholders, shall give and serve all notices of the Corporation, and shall be custodian of the records and of the corporate seal and shall affix the latter when required. The Secretary shall keep the stock and transfer books in the manner prescribed by law, so as to show at all times the amount of capital stock issued and outstanding; the manner in which compensation for the same was paid in; the names of the owners thereof, and the number of shares owned by each. The Secretary shall sign all certificates of stock, and shall attend to all correspondence and perform all the duties incident to the office of Secretary. TREASURER The Treasurer shall have the care and custody of and be responsible for all the funds and securities of the Corporation. He shall render a statement of the condition of the finances of the Corporation at each regular meeting of the Board of Directors, and at such other times as shall be required of him, and a full financial report at the annual meeting of the stockholders. He shall keep 9 regular and correct books of account of all business and transactions, and shall perform all duties appertaining to the office of Treasurer. Section 5. VACANCIES, HOW FILLED. All vacancies in any office shall be filled by the Board of Directors without undue delay, either at its regular meeting or at a meeting specially called for that purpose. In the case of the absence of any officer of the Corporation or for any reason that the Board of Directors may deem sufficient, the board may, except as specifically otherwise provided in these By-Laws, delegate the powers or duties of such officers to any other officer or Director for the time being, provided a majority of the entire Board of Directors concur therein. Section 6. COMPENSATION OF OFFICERS. The officers shall receive such salary or compensation as may be determined by the Board of Directors. Section 7. REMOVAL OF OFFICERS. The Board of Directors may remove any officer, by a majority vote, at any time with or without cause. ARTICLE V Certificates of Stock Section 1. DESCRIPTION OF STOCK CERTIFICATES. The certificates of stock shall be numbered and registered in the order in which they are issued. Such certificates shall exhibit the holder's name and number of shares. They shall be signed by the President or Vice-President, and countersigned by the Secretary or Treasurer. Section 2. TRANSFER OF STOCK. The stock of the Corporation shall be assignable and transferable on the books of the Corporation only by the person in whose name it appears on said books, his legal representatives or by his duly 10 authorized agent. In case of transfer by attorney, the power of attorney, duly executed and acknowledged, shall be deposited with the Secretary. In all cases of transfer, the former certificate must be surrendered up and cancelled before a new certificate may be issued. No transfer shall be made upon the books of the Corporation within ten days next preceding the annual meeting of the shareholders. Section 3. LOST CERTIFICATES. If a stockholder shall claim to have lost or destroyed a certificate or certificates of stock issued by the Corporation, the Board of Directors may, at its discretion, direct a new certificate or certificates to be issued, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost or destroyed, and upon the deposit of a bond or other indemnity in such form and with such sureties that the Board of Directors may require, if any. ARTICLE VI Dividends Section 1. WHEN DECLARED. The Board of Directors shall by vote declare dividends from the surplus profits of the Corporation whenever, in their opinion, the condition of the Corporation's affairs will render it appropriate for such dividends to be declared. Section 2. RESERVE. The Board of Directors may set aside, out of the net profits of the Corporation available for dividends, such sum or sums (before payment of any dividends) as the Board of Directors in their absolute discretion think proper as a reserve fund, to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the Directors shall think conducive to the interest of 11 the Corporation, and they may abolish or modify any such reserve in the manner in which it was created. ARTICLE VII Contracts, Loans, Checks and Deposits Section 1. CONTRACTS. The Board of Directors may authorize any office or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Corporation, and such authority may be general or confined to a specific instance. Section 2. LOANS. No Loans shall be contracted on behalf of the Corporation and no evidence of indebtedness shall be issued in its name unless authorized by a resolution of the Board of Directors. Such authority may be general or confined to a specific instance. Section 3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation shall be signed by such officer or officers, agent or agents of the Corporation and in such manner as shall from time to time be determined by resolution of the Board of Directors. Section 4. DEPOSITS. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the Board of Directors may elect. ARTICLE VII Indemnification Section 1. Any person made or threatened to be made a party to or involved in any civil, criminal or administrative action, suit, or proceeding by 12 reason of the fact that he or his testator or intestate is or was a Director, officer, or employee of the Corporation, or of any corporation which he, the testator, or intestate served as such at the request of the Corporation shall be indemnified by the Corporation to the fullest extent allowed by law against expenses reasonably incurred by him or imposed on him in connection with or resulting from such action, suit, or proceeding and in connection with or resulting from any appeal thereon. As used herein the term "expense" shall include all obligations incurred by such person for the payment of money, including without limitation attorney's fees, judgments, awards, fines, penalties, and amounts paid in satisfaction of judgment or in settlement of any such action, suit, or proceedings. ARTICLE VIII Amendments Section 1. HOW AMENDED. These By-Laws may be altered, amended, repealed or added to by the vote of the Board of Directors of this Corporation at any regular or special meeting of Directors. These By-Laws may also be amended or replaced by the stockholders at any annual or special meeting of the stockholders. ARTICLE IX Fiscal Year Section 1. FISCAL YEAR. The fiscal year of the Corporation year shall be fixed by resolution of the Board of Directors. ARTICLE X Waiver of Notice Section 1. Whenever any notice is required to be given to any shareholders or directors of the Corporation under the provisions of these By-Laws or under the Articles of Incorporation or under the provisions of the 13 Nevada Business Corporation Act, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated herein, shall be deemed equivalent to the giving of such notice. ADOPTED this 20th day of June, 1996. (SEAL) TECHNOLOGY SELECTION, INC. Attest: By: - -------------------------------- -------------------------------- Secretary President CERTIFICATE OF SECRETARY I, the undersigned, do hereby certify: That I am the duly elected and acting Secretary of and that the foregoing By-Laws, comprising seventeen pages, constitute the By-Laws of said corporation as duly adopted at the meeting of the Board of Directors thereof duly held the 20th day of June, 1996. ------------------------------ (SEAL) Secretary A:BYLAWS EX-5.1 6 ex5-1.txt Exhibit 5.1 August 6, 2001 TSET, Inc. 333 South State Street, PMB III Lake Oswego, Oregon 097034 RE: TSET, INC. (THE "CORPORATION") REGISTRATION STATEMENT ON FORM SB-2 (THE "REGISTRATION STATEMENT") Gentlemen: We have acted as counsel to the Corporation in connection with the preparation of the Registration Statement filed with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended (the "1933 ACT"), relating to the proposed public offering of up to 6,852,500 shares of the Corporation's Common Stock, par value $0.001 per share (the "COMMON STOCK"). We are furnishing this opinion to you in accordance with Item 601(b)(5) of Regulation S-K promulgated under the 1933 Act for filing as Exhibit 5.1 to the Registration Statement. We are familiar with the Registration Statement, and we have examined the Corporation's Articles of Incorporation, as amended to date, the Corporation's Bylaws, as amended to date, and minutes and resolutions of the Corporation's Board of Directors and shareholders. We have also examined such other documents, certificates, instruments and corporate records, and such statutes, decisions and questions of law as we have deemed necessary or appropriate for the purpose of this opinion. Based upon the foregoing, we are of the opinion that the shares of Common Stock to be sold by the Selling Stockholders (as defined in the Registration Statement) to the public, when issued and sold in the manner described in the Registration Statement (as amended), will be validly issued, fully paid and non-assessable. We hereby consent to the filing of this opinion as an Exhibit to the Registration Statement and to the use of our name in the Prospectus constituting a part thereof in connection with the matters referred to under the caption "Legal Matters." Very truly yours, /s/ Kirkpatrick & Lockhart LLP KIRKPATRICK & LOCKHART LLP EX-10.1 7 exhibit10-01.txt Exhibit 10.1 TSET, Inc. April 16, 1999 Mr. Jeffrey D. Wilson 2002 Wembley Park Road Lake Oswego, OR 97034 Dear Mr. Wilson: Per our recent discussions, TSET, Inc. is pleased to offer you employment as Chairman of the Board of Directors and Chief Executive Officer. In these capacities, you will be responsible, on a full-time basis, for TSET's operations and transactions, development and implementation of its business and investment plans, and oversight of TSET's employees. You will spend such time as may be reasonably necessary in order to discharge your responsibilities, and shall at all times exercise fiduciary judgment and seek to advance the best interests and maximize the value of TSET, all in compliance with applicable to TSET's business. Rest assured that TSET intends to make available to you all of the financial and other resources necessary for your success, and that of the business enterprise; however, your compensation will be initially weighted more in the direction of stock value and benefits of employment, until circumstances and resources permit a more substantial cash component. The following summarizes the main terms of employment hereby offered to you: 1. INITIAL COMPENSATION. (a) Your base compensation for the first 12-month period following your acceptance of TSET's offer of employment will consist of (i) a cash salary in the amount of $12,500 monthly, payable on or before the fifth business day of each month, and (ii) a guaranteed first year bonus of $30,000, payable in one lump sum on or before May 1, 2000. During the second 12-month period, you shall be paid a cash salary in the amount of $15,000 monthly, and during the third 12-month period, you shall be paid a cash salary in the amount of $20,000, all payable as aforesaid. In any ensuing year hereunder, your annual bonus shall not be less than as provided in clause (ii) above. To the extent you elect to defer any compensation payable to you, or if TSET is unable to satisfy its financial obligations to you hereunder, TSET shall pay you interest on any unpaid compensation at the rate of 12% annually until all such amounts are paid in full. (b) You (or your nominee) shall receive a signing bonus of 100,000 restricted shares of TSET's common stock ("TSET Shares"), which shares shall be fully vested and non-forfeitable upon your acceptance of TSET's offer of employment. In addition, you shall receive 900,000 TSET Shares, which TSET Shares shall vest at the rate of 100,000 TSET Shares per month over the 9-month period following your acceptance of TSET's offer of employment. Your then-existing percentage share ownership of TSET shall not be subject to dilution during any period of your employment; accordingly, TSET shall from time to time issue to you such additional TSET Shares as may be necessary to maintain such percentage ownership interest. At your election, you (or your nominee) may receive Mr. Jeffrey D. Wilson April 16, 1999 Page 2 the TSET Shares in exchange for shares or interests in any entity owned or controlled by you. Such TSET Shares shall be subject to the terms noted on the certificates representing the same and you agree to comply therewith. In the event of any merger, sale, share exchange, consolidation, change of control, or other acquisition of TSET (in any case, a "Change of Control Transaction"), the TSET Shares described in this paragraph 1, as well as all TSET Shares in which you participate in any such stock option or stock ownership program, shall immediately and fully vest to your account. In addition to the immediately preceding sentence, if any Change of Control Transaction results in termination of your employment, the provisions of paragraph 3 relating to payment of your compensation and provision of Benefits of Employment (as hereinafter defined) shall apply. (c) TSET represents and warrants to you that it has or will shortly have in place sufficient financial resources to fund all of the obligations to you set forth in this letter, as well as to conduct its business operations and investment programs, including funds necessary to pay or reimburse the expense of domestic and international travel, lodging, meals, equipment, third party professional assistance, and other elements. You shall not be obligated to engage in fund-raising activities to enable TSET's performance of its financial obligations to you. 2. BENEFITS OF EMPLOYMENT. (a) You shall receive full family medical, dental, and hospitalization insurance coverage; executive life (with benefits payable at five times then-current salary plus bonus), travel, and disability insurance; workman's compensation insurance; 401(k) or other savings, pension, or profit-sharing plan participation; and any and all other benefits (collectively, the "Benefits of Employment"), as soon as such benefits are implemented by TSET. The Benefits of Employment shall be payable to such beneficiaries as you may direct. All premiums for all insurance benefits shall be paid, or reimbursed to you, by TSET. After the first 12-month period of your employment, TSET shall pay, or reimburse to you, the costs of estate and retirement planning services and your membership dues in professional organizations. In addition, TSET shall pay, or reimburse to you, all automobile costs up to $1,000 per month, and reimburse you at the rate of $0.50 per mile for TSET business travel using your automobile. You shall receive 4.5 weeks of vacation at full salary during the first 12-month period next following your acceptance of this letter, with such vacation benefit to be not less than aforesaid in ensuing years; such vacation benefit shall increase by one week each year of your employment, up to a maximum of 7.5 weeks. You may take time-off on an as-needed basis, provided such does not materially interfere in the performance of his duties, and shall have such emergency leave as may be required. In the event relocation from Lake Oswego, Oregon should be required, TSET shall pay all expenses associated therewith and provide such other customary relocation benefits commensurate with your position as chairman and chief executive officer, including without limitation, protection against economic loss in the sale of your residence. You acknowledge that TSET does not presently have in place certain of the aforesaid Benefits of Employment; however, TSET hereby covenants and agrees that it will take all necessary and appropriate Mr. Jeffrey D. Wilson April 16, 1999 Page 3 action to provide all such Benefits of Employment as soon as practicable following your acceptance of this letter. (b) In addition to the foregoing, and included in the definition of Benefits of Employment, you shall be entitled to further increases in salary and participation in all additional annual executive bonus programs, annual merit or bonus increases, and stock option, stock appreciation, stock bonus, and other executive benefits programs and perquisites as soon as they are implemented by TSET. You shall be entitled to "piggyback" registration rights relating to all restricted TSET Shares owned by you from time to time, and shall have "demand" registration rights exercisable two times during each 5-year period of your employment, with the costs of such registration to be borne by TSET. (c) Your Benefits of Employment shall not at any time during any period of your employment be diminished or be less than those provided for other senior executives of TSET and shall at all times be commensurate with your position as chairman and chief executive officer. Without your prior written consent, there shall be no reduction in or withdrawal of your Benefits of Employment during any period of your employment. 3. TERM AND TERMINATION. (a) Your employment shall be "evergreen" for 5-year terms, pending your earlier retirement, resignation, permanent incapacity, or death. Should you choose to resign or retire, you will provide TSET with not less than 60 days' prior written notice. (b) Your employment may be terminated by TSET only in the event of gross negligence or willful misconduct in the performance of your duties; your conviction of, or a plea of nolo contendere to, a felony or crime involving moral turpitude; your habitual use or a conviction for the use of illegal drugs; or conviction for fraud in connection with your employment, which convictions are not overturned or set aside on appeal (collectively, the "Termination Events"), in which case no compensation beyond such termination date shall be paid; provided, however, that all unreimbursed expenses shall be paid to you within 5 business days of such termination. In the event of any termination other than for Termination Events, whether in connection with a Change of Control Transaction or otherwise, TSET shall pay you the compensation and provide continuation of (or reimburse you for all costs associated with) all Benefits of Employment you would have received but for such termination for the full term of employment as provided in subparagraph (a) above (all without any discount for present value), and you shall immediately and fully vest in all TSET Shares in which you participate in any stock option or other similar programs, and in all TSET matching contributions to any 401(k), savings, profit-sharing, or other similar programs, mentioned in paragraphs 1 and 2 above or otherwise implemented by TSET. Mr. Jeffrey D. Wilson April 16, 1999 Page 4 4. INDEMNIFICATION; LIABILITY INSURANCE. (a) Without prejudicing any other remedy available to you at law or in equity, TSET hereby covenants and agrees, immediately upon demand therefor, to indemnify, defend, and hold you harmless from and against any and all costs, losses, damages, penalties, fines, or expenses (including, without limitation, reasonable attorneys' fees, court costs, and associated expenses) suffered, imposed upon, or incurred by you in any manner whatsoever connected with your service as chairman and chief executive officer of TSET including, without limitation, any expenses, claims, costs, fines, penalties, or other liabilities or obligations of any kind, character, or description whatsoever arising from or in any way connected with (i) any claim that may be brought against you by a stockholder of TSET for any cause arising out of any act or omission by you in the performance of your services as chairman and chief executive officer, except for those items enumerated in paragraph 3(b) hereof; (ii) any representation or warranty of TSET upon which you may have relied in accepting this letter being untrue or incorrect in any material respect; (iii) any material misrepresentation in or material omission of any information provided by TSET to you in connection with this letter or in connection with any communication from you to TSET's stockholders, the Securities and Exchange Commission or other government or regulatory agency, or other filing, submission, or provision of information based upon such information; or (iv) TSET's failure to fully and timely perform its obligations hereunder. TSET's obligations under this paragraph 5 shall survive any termination of your employment and shall continue in full force and effect thereafter. TSET shall pay any indemnification amounts due under this paragraph 5 within 10 days after receipt by TSET of written notice from you of the amounts due. (b) TSET further represents and warrants that it shall procure and pay all costs relating to director and officer indemnification insurance as soon as practicable following your acceptance of this letter, and that you shall be entitled to complete coverage thereunder and all benefits thereof, which shall be deemed a Benefit of Employment hereunder for all purposes. 5. OTHER ACTIVITIES. TSET acknowledges your substantial experience in international business and legal matters and that you have, by reason of such expertise, for many years been engaged to privately represent certain clients in world markets in various transactional matters and might be requested by such clients to serve as a director, officer, or advisor thereof, and that you have made your ability to continue to represent such clients in select transactions from time to time in the future and accept such positions of involvement, without diminution of your compensation and Benefits of Employment hereunder, an express condition of your acceptance of this letter and the employment offered hereby. Accordingly, TSET hereby indicates its acceptance of this condition and will rely upon your good faith judgment, consistent with your full-time responsibilities in behalf of TSET, as to the accommodation of such periodic engagements and your responsibilities with respect to TSET, and hereby fully and forever relinquishes any claim against any compensation or other remuneration or benefits to which you may become entitled in connection therewith. Mr. Jeffrey D. Wilson April 16, 1999 Page 5 6. OFFICE AND EQUIPMENT. TSET shall provide to you and pay all costs associated with a suitable and appealing office, together with suitable and necessary furnishings, equipment, software, secretarial assistance, subscriptions to periodicals and newspapers (including, without limitation, The Wall Street Journal) and such other items as may be necessary for the conduct of business and commensurate with your position as TSET's chairman and chief executive officer. As soon as practicable following your acceptance of this letter, TSET will pay, or reimburse to you, the costs of purchasing appropriate computer, fax, copying, telecommunications, and other equipment and related software and supplies. To the extent you utilize your private study for the transaction of TSET's business, TSET shall pay, or reimburse to you, all expenses incurred in connection therewith (e.g., long-distance telephone and fax charges, telecommunications links, equipment, and other items and supplies). 7. REIMBURSEMENT OF EXPENSES. TSET shall promptly reimburse any and all out-of-pocket business travel, business entertainment, and other business-related expenses incurred by you in connection with the performance of TSET's business. You will provide appropriate expense reports and copies of invoices in connection therewith. Any international travel or domestic travel in excess of 3 hours from departure to destination required or deemed advisable in connection with performance of your duties shall be business class or better. 8. DIRECTORS' SHARES. You will receive 100,000 TSET Shares annually, in addition to the reimbursement of expenses incurred in preparing for, attending, and participating in meetings thereof, for your service as TSET's chairman of the board of directors. TSET Shares relating to the first 12-month period of your employment shall be issued to you (or your nominee) on or before May 1, 2000. To the extent TSET's board of directors establishes compensation arrangements in behalf of directors, you shall be entitled to fully participate therein. 9. STOCK BONUSES. Upon disclosure of all material terms to TSET's board of directors, you will be entitled to receive stock bonuses or additional options in connection with transactions you may introduce, arrange, facilitate, effect, or contribute to TSET. Your entitlement to such stock bonuses or options shall continue with respect to any transaction concluded by TSET (or any successor) with any person or transaction introduced, arranged, facilitated, effected, or contributed by you for a period of 12 months following any termination of your employment, whether or not arising out of any Termination Event. Nothing herein shall prohibit your ability to participate in your individual capacity in opportunities involving investments in publicly-traded securities or other investments (passive or otherwise) of a personal nature. 10. ASSIGNMENT. Your services and obligations hereunder are personal as to you and shall not be assigned or delegated to any other person without TSET's prior written consent; provided, however, that the benefits to which you are entitled hereunder may be assigned to any nominee you may designate in writing to TSET's board of directors. Your obligations to TSET shall not be assigned by TSET to any other person without your Mr. Jeffrey D. Wilson April 16, 1999 Page 6 prior written consent (whether in connection with a Change in Control Transaction or otherwise), and TSET acknowledges that your consent to any such assignment may be expressly conditioned upon, among other things, such assignment not resulting in any diminution in your compensation, Benefits of Employment, or level of executive responsibility. If any such event occurs, you may terminate your employment and thereafter the provisions of paragraph 3(b) of this letter shall apply. 11. GOVERNING LAW; SUBMISSION TO ARBITRATION. (a) This letter shall be governed by and construed in accordance with the laws of the State of Oregon, excluding its conflicts of laws rules. (b) In the event that any dispute, controversy, or claim (collectively, a "Dispute") arising out of or relating to this letter cannot be settled amicably between you and TSET, either you or TSET may submit the Dispute to arbitration in Clackamas County, Oregon (you and TSET hereby consenting to such venue), to be governed by the rules of the American Arbitration Association (the "AAA") applicable to contracts of this type. If you and TSET cannot agree on the appointment of an arbitrator, you and TSET hereby agree that the AAA shall appoint an independent arbitrator whose decision shall be final and binding upon both you and TSET, and enforceable in any court of competent jurisdiction. 12. MISCELLANEOUS PROVISIONS. (a) This letter constitutes the entire agreement between you and TSET hereto with respect to the subject matter hereof and supersedes any and all prior oral or written agreements and understandings with respect thereto. No other agreements, whether written or oral, shall be used to modify or contradict the provisions hereof unless the same is in writing and has been signed by both you and TSET, and states that it is intended to amend the provisions hereof. No waiver by either you or TSET of any breach of this letter in any particular instance shall constitute a waiver of any other breach hereof in any other circumstance or any relinquishment for the future of any rights to strictly enforce all of the provisions hereof or seek all remedies which may be available to either you or TSET at law or in equity. (b) All of your rights hereunder shall inure to the benefit of and be enforceable by your personal or legal representatives, estate, executors, administrators, heirs, and beneficiaries. In the event of your death, all amounts payable to you hereunder shall be paid to your estate, heirs, or representatives. (c) If any provision (or portion thereof) of this letter is adjudged 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 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. Each provision, paragraph, and subparagraph shall be deemed to constitute a separate and distinct covenant that may be severed to preserve the validity of this letter. Mr. Jeffrey D. Wilson April 16, 1999 Page 6 (d) This letter may be executed in multiple counterparts, each of which shall be deemed an original, and all of which, taken together, shall be deemed to constitute one and the same instrument. You and TSET agree that facsimile signatures shall be sufficient to form the binding obligations contemplated herein regardless of whether manual signatures are exchanged. (e) This letter shall be binding upon, and inure to the benefit of, the respective successors, heirs, and permitted assigns of you and TSET, as the case may be. (f) TSET shall be entitled to withhold from amounts to be paid to you any federal, state, local, or other withholding or other taxes or charges that it is from time to time required to withhold. TSET shall be entitled to rely upon an opinion of counsel if any questions as to the amount or requirement of any such withholding shall arise. (g) The provisions of this letter shall be kept confidential and not disclosed to any person except as may be required pursuant to any law, rule, or regulation to which TSET may be subject, or mandated in connection with any valid and enforceable judicial or government order pursuant to a subpoena, civil investigative demand, or other similar legal process not sought by TSET for the purpose of circumventing its obligations hereunder. * * * * TSET believes your background, profile, experience, and talents are ideal for the position offered to you hereby, and hopes you will favorably consider and accept the terms contained in this letter. Your signature, in the space provided below, will indicate your acceptance of this letter. Sincerely, /s/ Weijing Li ---------------------------------- Weijing Li, Director ACCEPTED AND AGREED: April 20, 1999 /s/ Jeffrey D. Wilson - ------------------------------------ Jeffrey D. Wilson EX-10.2 8 exhibit10-02.txt EXHIBIT 10.2 DEAL OUTLINE THIS DEAL OUTLINE, dated effective as of December 9, 1999, sets forth the main terms upon which TSET, Inc., a Nevada corporation ("TSET"), will acquire 100% of the issued and outstanding capital stock of Atomic Soccer USA, Ltd., a Wisconsin corporation ("Atomic Soccer"). TSET and Atomic Soccer intend to enter into agreements relating to such acquisition as soon as practicable after the date hereof, based upon the terms described herein, which shall set forth the definitive rights, obligations, undertakings, and liabilities of the parties. NOW, THEREFORE, TSET and Atomic Soccer agree to the following main terms: A. TSET to acquire 100% of Atomic Soccer in exchange for 1,000,000 TSET "investment" shares, to be allocated pro rata as requested by Atomic Soccer's current stockholders, subject to any finder's/broker's fees payable by Atomic Soccer. B. TSET to designate at least one director to Atomic Soccer's board of directors; day-to-day management and operations to remain in the hands of current executive management. C. Atomic Soccer's maquiladora manufacturing facility in Ensenada, Mexico (Atomic S.A. de C. V.) to be acquired by Atomic Soccer in the near future. D. Following the proposed acquisition, Atomic Soccer to conduct its business as heretofore conducted, with management and employees to diligently seek at all times to advance the interests, value, and expansion of the business enterprise, and protection of its trademarks, tradenames, and other valuable rights. Atomic Soccer's primary focus will be to further develop and expand the U.S. market for its products; international development to be considered in the future, once U.S. market development has been deemed sufficiently developed to warrant such expansion. E. TSET to assist and support Atomic Soccer's capital-raising efforts, with Atomic Soccer projecting operational funding needs of up to $1,000,000 over the next 12 months, to be described in more detail by Atomic Soccer's management in a written "use of proceeds" and pursuant to approved budgets. If necessary, TSET to use its own shares to raise such capital. TSET does not assume or obligate itself with respect to Atomic Soccer's indebtedness, operating expenses, or other financial liabilities including, without limitation, those financial obligations owed to David Ragsdale and Paul Hix. F. TSET understands that Atomic Soccer currently has outstanding a $500,000 revolving line of credit, and that the guaranty thereof provided by David Ragsdale must be replaced on or before June 30, 1999. TSET to act to retire, or renew such line of credit with replacement guaranties, on or before June 30, 2000. G. TSET and Atomic Soccer to consider a spin-off of Atomic Soccer into its own public vehicle at a mutually agreed time in the future (not earlier than 12-18 months following the proposed acquisition) with TSET or its designees to retain an appropriate ownership interest. H. TSET and Atomic Soccer to issue a press release upon signing this Deal Outline, indicating their agreement to the main terms set forth herein. EX-10.3 9 exhibit10-03.txt Exhibit 10.3 LETTER OF INTENT The purpose of this Letter of Intent, dated effective as of December 27, 1999, is to set forth the main terms upon which TSET, Inc., a Nevada corporation ("TSET"), will acquire 100% of the issued and outstanding capital stock of Electron Wind Technologies, Inc., a corporation to be formed ("EWT"). The parties in interest to the transactions outlined in this Letter of Intent are TSET; EWT (to be formed); High Voltage Integrated, LLC, a Washington limited liability company ("HVI"); Ingrid Fuhriman, an individual owning 20% of HVI; Robert L. Fuhriman II, an individual owning 20% of HVI; Dr. Igor Krichtafovitch, an individual owning 50% of HVI; and Alan Thomson, an individual owning 10% of HVI (Ingrid Fuhriman, Robert L. Fuhriman II, Dr. Igor Krichtafovitch, and Alan Thomson are hereinafter collectively referred to as the "Principals"). TSET, EWT, HVI, and each of the Principals intend to enter into formal definitive legal agreements (collectively, the "Definitive Agreements") relating to such acquisition as soon as practicable after the date hereof, based upon the terms described herein, which Definitive Agreements shall set forth the definitive rights, obligations, undertakings, and liabilities of the parties. The parties' stated interest in proceeding expeditiously to complete and sign this Letter of Intent and the Definitive Agreements is to their mutual satisfaction and they look forward to working together to accomplish these goals. Based upon recent meetings and discussions, the main terms of the proposed transactions among TSET, HVI, and the Principals (individually and collectively) may be summarized as follows: A. INCORPORATION OF ELECTRON WIND TECHNOLOGIES, INC. The parties intend that TSET effect the incorporation of EWT under the laws of either the State of Delaware or the State of Nevada (to be determined by TSET) as part of the above-mentioned formal legal documentation. The parties intend that EWT constitute the operating entity for purposes of their future relationship, as described herein; provided, however, that the Principals intend to retain discretion whether to continue the corporate existence of HVI and their respective ownership interests therein. B. ISSUANCE OF SHARES. The parties intend that TSET own 100% of EWT's issued and outstanding shares, in exchange for 2,000,000 TSET "investment" shares (the "TSET Shares"). The parties intend that the TSET Shares be issued and allocated as will be designated in writing by the Principals. The parties intend that any finder's or broker's fees or other compensation payable by HVI or the Principals to any other person shall be paid out of the TSET Shares or in such other manner as HVI, the Principals, and any such finder or broker may agree, any such compensation being for the account of HVI and the Principals. C. TRANSFER OF RIGHTS. The parties intend that, in consideration of the issuance of the TSET Shares described in item B above, HVI and the Principals, individually and collectively, sell, assign, and transfer to EWT all existing right, title, and interest in and to any and all patents, trademarks, and servicemarks, and including all improvements and derivatives thereof and applications relating thereto, and all other related intellectual property, know-how, licenses, and contract rights of any kind, character, and description, all pertaining to that certain technology commonly referred to by HVI and the Principals as the "electron wind generator" (collectively, the "Technology"). D. MANAGEMENT. The parties intend that those of the Principals currently having executive management responsibility for HVI also have strategic decision-making and day-to-day management responsibility over EWT's business, business development, operations, marketing, intellectual property rights protection, and finances, with the Principals to at all times seek in good faith to advance the best business interests of EWT and the further development and widespread exploitation and deployment of the Technology. The parties intend that TSET be entitled to designate at least one director to EWT's board of directors. HVI and the Principals have informed TSET that no oral or written compensation arrangements or agreements have been entered into, and that no shares, units, or warrants or options to acquire the same have been orally or in writing granted to or are owned by, HVI's four advisory board members. E. BUSINESS PURPOSE. The parties intend that EWT shall concentrate its efforts on the further development and improvement of the Technology for licensing, deployment, and exploitation in a full range of automotive, medical equipment, hotel, home, and hospital/clinic applications (collectively, the "Core Applications"). In the event applications of the Technology other than the Core Applications (in any case, an "Alternative Application") appear viable, TSET and EWT will give consideration to providing a "grant-back" to HVI or the Principals (as the case may be) of patent or other intellectual property rights on a case-by-case basis for the specific fields of use pertaining to the Alternative Application in question, so long as (1) TSET and EWT do not desire to pursue such Alternative Application and (2) the pursuit of such Alternative Application does not materially interfere with, or divert significant time, attention, and resources away from the development, improvement, deployment, and licensing of the Core Applications. F. SECURING OF SERVICES. The parties intend that EWT enter into long-term employment agreements with, and obtain "key-person" insurance upon, at least Dr. Igor Krichtafovitch and Robert L. Fuhriman II. All expenses associated with the matters described in this item F shall be borne by EWT. G. INITIAL FUNDING. The parties intend that TSET assist and support EWT's capital-raising efforts, to provide EWT with projected initial operational funding needs of up to $500,000 over the 6-month next following execution of the Definitive Agreements (the "Initial Funding"), all to be described in more detail by the Principals in a written "use of proceeds" to be provided to TSET no later than 21 days following execution of this Letter of Intent, and pursuant to operating budgets to be approved by EWT's board of directors. The parties intend that EWT's management be responsible for the establishment of appropriate guidelines and accounting procedures and the prudent and appropriate budgeting, conservation, and expenditure of EWT's financial resources, all with a view toward the further development, improvement, exploitation, marketing, and licensing of the Technology in the Core Applications and the perfection and policing in the U.S. and appropriate global markets of patent and other intellectual property rights and confidentiality arrangements. The parties intend that, as necessary, TSET will use its own shares arrange for the Initial Funding; provided, however, that TSET does not assume or obligate itself with Page 2 respect to the indebtedness, operating expenses, or other financial liabilities of HVI or any of the Principals. H. FUTURE EVENTS. The parties intend that TSET and EWT will consider a spin-off of EWT into its own public-owned entity (through reverse merger or other appropriate mechanism) at a mutually agreed time in the future (to occur no earlier than 12-18 months after the occurrence of a mutually-agreed "kick-off" date). The parties intend that TSET and its designees will retain an appropriate ownership interest in EWT's publicly-owned successor, as the case may be. I. PRESS RELEASE. The parties intend to collaborate on the content of an appropriate press announcement regarding the transactions outlined herein to be released by TSET upon signing this Letter of Intent. J. UNDERTAKING OF GOOD FAITH. Realizing that they are unable to anticipate and provide for every contingency which may arise during the course of their 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 EWT and maximize the economic value of the Technology in the Core Applications (and such Alternative Applications as EWT and TSET agree to pursue). K. PURPOSE OF THE 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 indicated herein and shall not be deemed of itself to grant any binding, enforceable, or exclusive rights in or to the TSET Shares or the Technology, or constitute 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 shall be contained only in the Definitive Agreements signed by all the parties. 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 Transaction Documents, 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 the parties, all acting in good faith, as soon as practicable after the date hereof. The parties intend that the Definitive Agreements contain appropriate customary terms, conditions, representations, and warranties, including appropriate disclosures by HVI and the Principals relating to such matters as intellectual property ownership, material contracts, taxes, litigation, absence of breaches or defaults in legal obligations, authority and capacity to enter into the transactions outlined herein, outstanding proxies, ownership of warrants and options, and the like. The parties intend that each of them will bear their respective costs and expenses associated herewith and the transactions outlined herein. L. CONFIDENTIALITY. The parties acknowledge that TSET has previously entered into the standard form confidentiality agreement used by HVI. TSET further intends that it will be bound by the provisions of such confidentiality agreement regardless of whether this Letter of Intent or the Definitive Agreements are entered into by the parties, as herein proposed. M. PRIORITY OF THE LETTER OF INTENT. Other than as provided in the confidentiality agreement mentioned in item L above, this Letter of Intent Page 3 supersedes all prior communications, understandings, statements of intent, and agreements between the parties with respect to the subject matter hereof. ***** The parties' execution in the space provided below shall evidence their respective acceptance of the terms of this Letter of Intent and that they intend to proceed as outlined herein. TSET, Inc. By: /s/ Jeffrey D. Wilson ------------------------------------------------ Jeffrey D. Wilson Chairman and Chief Executive Officer HIGH VOLTAGEINTEGRATED, LLC By: /s/ Ingrid T. Fuhriman ------------------------------------------------ Name: Ingrid T. Fuhriman ------------------------------------------ Authorized Signatory /s/ Ingrid T. Fuhriman 12-27-99 ------------------------------------------------- Ingrid Fuhriman, individually, and as a member of High Voltage Integrated, LLC /s/ Robert L. Fuhriman II 12-27-99 ------------------------------------------------- Robert L. Fuhriman II, individually, and as a member of High Voltage Integrated, LLC /s/ Igor Krichtafovitch 12-27-99 ------------------------------------------------- Dr. Igor Krichtafovitch, individually, and as a member of High Voltage Integrated, LLC /s/ Alan Thomson 12-27-99 ------------------------------------------------- Alan Thomson, individually, and as a member of High Voltage Integrated, LLC I. Definitive agreements regarding the proposed acquisition to be prepared and signed by the parties as soon as practicable after the date hereof. Such agreements to contain appropriate customary terms, conditions, representations, and warranties. TSET and Atomic Soccer will each bear their respective transaction costs. IN WITNESS WHEREOF, the parties have executed and delivered this Deal Outline effective as of the date first written above. TSET, Inc. By /s/ Jeffrey D. Wilson Jeffrey D. Wilson Chairman and Chief Executive Officer ATOMIC SOCCER USA, LTD. By: /s/ Todd Ragsdale Todd Ragsdale President 2 EX-10.4 10 exhibit10-04.txt EXHIBIT 10.4 AGREEMENT BETWEEN DIAURAL L.L.C. AND EDGE AUDIO, LLC - -------------------------------------------------------------------------------- AGREEMENT This Agreement is made and entered into this 5TH day of FEBRUARY, 2000 (herinafter "EFFECTIVE DATE") by and between DiAural L.L.C., a company organized and existing under the laws of the State of Utah, and having an office at 2752 South 1900 West, Ogden, Utah 84401, U.S.A. (hereinafter "LICENSOR"), and EDGE AUDIO, LLC, a LIMITED LIABILITY Company organized and existing under the laws of the State of Oregon, and having an office at 16018 SW Parker, Suite A, Lake Oswego, OR, 97035 (hereinafter "LICENSEE"), all of which are collectively referred to as the "Parties" and, individually, a "Party". R E C I T A L S WHEREAS, the LICENSOR has acquired certain rights, title and interest in and to certain inventions, technology, know-how and patent applications relating to loudspeaker interface (crossover) technology; and WHEREAS, the LICENSOR is in the process of acquiring patent rights to the aforesaid loudspeaker interface (crossover) technology and represents itself to be the owner of all right, title and interest in and to the loudspeaker interface (crossover) technology and to all pending patent applications, inventions, technology and know-how requisite for the manufacture, use, sale and assembly thereof; and WHEREAS, LICENSEE desires to manufacture, use, market, offer for sale and otherwise commercialize audio products that incorporate the loudspeaker interface (crossover) technology and associated technology; and WHEREAS, LICENSEE is also desirous of using in connection with his manufacturing, use, marketing, offering for sale and other commercialization of the loudspeaker interface (crossover) technology and associated technology 1 certain trademarks owned by LICENSOR and other trademarks developed hereafter which relate to the loudspeaker interface (crossover) technology; and WHEREAS, LICENSEE is desirous of acquiring from LICENSOR a nonexclusive license to manufacture, market, sell and offer for sale audio products incorporating the loudspeaker interface (crossover) technology, associated technology and know-how, as needed to manufacture, market and sell such audio products; WHEREAS, LICENSEE is desirous of acquiring from LICENSOR a nonexclusive license to use in connection with his manufacturing, use, marketing, offering for sale and other commercialization of the loudspeaker interface (crossover) technology and associated technology certain trademarks owned by LICENSOR and other trademarks developed hereafter which relate to the loudspeaker interface (crossover) technology; and NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein, and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, LICENSEE and LICENSOR intending to be legally bound, agree as follows: TERMS OF AGREEMENT SECTION 1 - DEFINITIONS 1.1 The term "CROSSOVER TECHNOLOGY" shall mean the technology disclosed in United States Patent applications Serial No. 09/121,753 filed on July 23, 1998, Serial No. 09/256,040 filed on February 23, 1999, and foreign patent applications processed under the Patent Cooperation Treaty including PCT/US98/20826 filed on October 2, 1998 and a PCT filing corresponding to U.S. Serial No. 09/256,040 filed on May 6, 1999, which are represented by LICENSOR to be owned and controlled by LICENSOR. 2 1.2 The term "LETTERS PATENT" shall mean United States Patent applications Serial No. 09/121,753 filed on July 23, 1998, and Serial No. 09/256,040 filed on February 23, 1999, and foreign patent applications processed under the Patent Cooperation Treaty including PCT/US98/20826 filed on October 2, 1998 and a PCT filing corresponding to U.S. Serial No. 09/256,040 filed on May 6, 1999, which are represented to be owned by LICENSOR, as well as any corresponding United States or foreign Patent or Patents which issue therefrom, along with any corresponding United States or foreign applications or patents, including counterparts, continuation-in-parts, reissues, re-examinations, substitutes thereof and any other patents or patent applications relating to the CROSSOVER TECHNOLOGY or subsequent improvements thereto. 1.3 The term "TECHNICAL INFORMATION" as used in this Agreement shall mean any technical or business information, any invention, equipment or apparatus, methods or processes, technology, know-how, trade secret, drawing, data, evaluation, specifications, quantity and inspection standards, sales literature, report, business plan, memorandum, market study, customer lists, training materials, computer programs or software, or any other documents which are in whole or in part, whether confidential or proprietary, which relates to the CROSSOVER TECHNOLOGY. 1.4 The term "LICENSED PRODUCTS" means all products, equipment, components, and devices relating to CROSSOVER TECHNOLOGY and TECHNICAL INFORMATION which are within the scope of at least one pending or issued claim of any of the LETTERS PATENTS, including any spare part or replacement part thereof or any other component or subsystem which is not itself a LICENSED PRODUCT, the sale of which part, component, or subsystem would, but for the 3 license extended herein, be a contributory or other indirect infringement of the LETTERS PATENT or trade secrets. 1.5 The term "FINISHED PRODUCT" means a commercially marketable product that incorporates LICENSED PRODUCTS into a form factor known by LICENSEE as the final integration of LICENSED PRODUCTS and includes the final enclosure or cabinet in the case of audio speakers. 1.6 The term "NET SALES PRICE" means the cumulative amounts (including the receipt of non-cash items valued at fair market value) derived by LICENSEE from the sale of a FINISHED PRODUCT in an arms-length transaction with an independent third party, whether for cash, credit or otherwise. 1.7 The term "TERM OF THE AGREEMENT" means the duration between the Effective Date of this Agreement and, unless terminated earlier in accordance with other provisions of this Agreement, shall expire upon the date of the last to expire LETTERS PATENT including through the pendency of any filed patent applications as defined under LETTERS PATENT above. 1.8 The term "TERRITORY" means any countries of the world in which patents have been applied for or issued from including the United States of America. SECTION 2 - GRANT OF TECHNOLOGY LICENSE 2.1 Subject to other terms and conditions set forth in this Agreement, the LICENSOR hereby grants to LICENSEE a personal, nontransferable (except if and as expressly provided below), nonexclusive right and license under the LETTERS PATENT, whether pending patent applications for CROSSOVER TECHNOLOGY or any Letter Patent that may issue therefrom, to manufacture, use, sell, offer for 4 sale and commercialize the LICENSED PRODUCTS throughout the TERRITORY for the TERM OF THE AGREEMENT. 2.2 The right and license granted to LICENSEE under this Agreement does not include the right, directly or indirectly by implication, estoppel or otherwise, to sub-license another. The sale, lease or other disposition by LICENSEE of a LICENSED PRODUCT will not convey, by implication, estoppel or otherwise, to the party to which the LICENSED PRODUCT is sold, leased or otherwise transferred, any license or right under the LICENSED PRODUCTS including LETTERS PATENTS and TECHNICAL INFORMATION. 2.3 LICENSEE agrees that any written contract entered into by LICENSEE for the sale, lease or other disposition of LICENSED PRODUCTS shall include a statement in a form previously approved in writing by LICENSOR, such approval not to be unreasonably withheld, advising the purchaser of (i) the proprietary nature of the CROSSOVER TECHNOLOGY including identification of LETTERS PATENT and any patent pending designation, (ii) and an express acknowledgment that no right or license, by implication, estoppel or otherwise, in the LICENSED PRODUCT is granted to the purchaser. SECTION 3 - RIGHT AND OBLIGATION TO USE TRADEMARKS 3.1 The LICENSOR hereby grants to LICENSEE a nonexclusive right and obligation to use the trademarks "DIAURAL" including related icons or other trademarks and icons (hereinafter "TRADEMARKS") specified by LICENSOR for designating use of the CROSSOVER TECHNOLOGY by LICENSEE in LICENSED PRODUCTS. The form and substance of the use of TRADEMARKS to be previously approved in writing by LICENSOR, such approval not to be unreasonably withheld. 5 SECTION 4 - REPRESENTATIONS, COVENANTS BY THE PARTIES AND TECHNICAL SUPPORT 4.1 The LICENSOR and LICENSEE each represent and warrant to the other that they possess all the requisite power and authority to enter into this Agreement and to perform each and every term, provision, and obligation of this Agreement, and that neither the execution or delivery of this Agreement nor the performance of the terms of this Agreement will conflict with or result in the breach of any terms, provisions, or obligations of, or constitute a default under any other agreement or instrument under which such Party is obligated. 4.2 The LICENSOR hereby warrants that it is the owner of the LETTERS PATENT and said TRADEMARKS and that it possesses the right to grant the nonexclusive license, as provided herein, to the LICENSED PRODUCTS. 4.3 There are no other warranties of any kind, express or implied, including, without limitation, implied warranties of fitness for a particular purpose, merchantability or title, except for the warranties expressly set out in this Agreement. For example, LICENSOR does not warrant or represent: (i) that any LETTERS PATENT is valid or enforceable; (ii) that any LICENSED PRODUCT, or that the incorporation of an invention covered by a LETTERS PATENT into a LICENSED PRODUCT, or that the use of any invention or process covered by a LETTERS PATENT, will not infringe any patent or other property or proprietary right of any third party; or (iii) that LICENSOR will continue to prosecute any application constituting LETTERS PATENT, or maintain any patent constituting a LETTERS PATENT, or enforce any LETTERS PATENT against any third party. 4.4 LICENSEE represents that it is technically proficient, able to evaluate the purchase value of the CROSSOVER TECHNOLOGY and TECHNICAL INFORMATION, and that LICENSEE is able to competently apply the use of CROSSOVER TECHNOLOGY in the development of LICENSED PRODUCTS. 6 SECTION 5 - LICENSE FEE AND ROYALTIES 5.1 LICENSEE agrees to pay LICENSOR during the term of this Agreement fees and royalties as set forth below. 5.2 LICENSEE agrees to pay LICENSOR: 5.2.1 A yearly license fee (hereinafter "YEARLY LICENSE FEE") of fifty thousand U.S. Dollars ($50,000.00) initially due on the EFFECTIVE DATE of this Agreement, and at each annual anniversary of the EFFECTIVE DATE through the TERM OF THE AGREEMENT, which shall be nonrefundable, except: 5.2.1.1 At the sole discretion of the LICENSOR, if both (i) this Agreement is executed and the YEARLY LICENSE FEE is paid and received at least 60 days before manufacture of LICENSED PRODUCTS by LICENSOR and (ii) LICENSEE in the previous 12 months of business had a total gross revenue of: 5.2.1.1.1 Less than or equal to two million U.S. Dollars ($2,000,000.00), then for that annual payment only of the YEARLY LICENSE FEE, LICENSEE may take a prepaid discount of forty-nine thousand U.S. Dollars ($49,000.00) against the YEARLY LICENSE FEE; or 5.2.1.1.2 More than two million U.S. Dollars ($2,000,000.00) and less than or equal to four million U.S. Dollars ($4,000,000.00), then for that annual payment only of the YEARLY LICENSE FEE, LICENSEE may take a prepaid discount of forty-seven thousand U.S. Dollars ($47,000.00) against the YEARLY LICENSE FEE; or 5.2.1.1.3 More than four million U.S. Dollars ($4,000,000.00) and less than or equal to six million U.S. Dollars ($6,000,000.00), then for that annual payment only of the YEARLY LICENSE FEE, LICENSEE may take a prepaid discount of forty-six thousand U.S. Dollars ($46,000.00) against the YEARLY LICENSE FEE; or 7 5.2.1.1.4 More than six million U.S. Dollars ($6,000,000.00) and less than or equal to ten million U.S. Dollars ($10,000,000.00), then for that annual payment only of the YEARLY LICENSE FEE, LICENSEE may take a prepaid discount of forty-four thousand U.S. Dollars ($44,000.00) against the YEARLY LICENSE FEE; or 5.2.1.1.5 More than ten million U.S. Dollars ($10,000,000.00) and less than or equal to fifteen million U.S. Dollars ($15,000,000.00), then for that annual payment only of the YEARLY LICENSE FEE, LICENSEE may take a prepaid discount of forty-two thousand U.S. Dollars ($42,000.00) against the YEARLY LICENSE FEE; or 5.2.1.1.6 More than fifteen million U.S. Dollars ($15,000,000.00), then for that annual payment only of the YEARLY LICENSE FEE, LICENSEE may take a prepaid discount of forty thousand U.S. Dollars ($40,000.00) against the YEARLY LICENSE FEE. 5.2.2 A Royalty on each and every FINISHED PRODUCT integrating LICENSED PRODUCT that is manufactured, used, sold, or otherwise commercialized, said Royalty being either: 5.2.2.1 The greater of either (i) twenty-five percent (25%) of the NET SALES PRICE of a FINISHED PRODUCT or (ii) two hundred U.S. Dollars ($200.00) for the first two (2) electroacoustic transducers within a FINISHED PRODUCT and an additional fifty U.S. Dollars ($50.00) for each additional electroacoustic transducer in the same FINISHED PRODUCT; 5.2.2.2 If Royalty is paid at least sixty (60) days in advance of manufacture of FINISHED PRODUCTS via purchase of special prepaid 8 royalty stickers in one-thousand U.S. Dollar ($1,000.00) minimum lots, then Royalty for each FINISHED PRODUCT (one single cabinet or enclosure) is: 5.2.2.2.1 Two and one-half U.S. Dollars ($2.50) if the FINISHED PRODUCT does not exceed twenty-five (25) pounds in weight; or 5.2.2.2.2 Ten U.S. Cents ($0.10) for each and every pound if the FINISHED PRODUCT does exceed twenty-five (25) pounds in weight. 5.2.2.3 For vehicular applications of LICENSED PRODUCTS, if Royalty is paid, at least sixty (60) days in advance of manufacture or integration of LICENSED PRODUCTS into the vehicle, via purchase of special prepaid royalty stickers, the Royalty for private cars, trucks, planes, boats, and RVs is one hundred-fifty U.S. Dollars ($150.00) for the first two (2) electroacoustic transducers in the vehicle and an additional twenty U.S. Dollars ($20.00) for each additional electroacoustic transducer in the same vehicle. Special prepaid royalty stickers shall be issued by LICENSOR with the serial number of the vehicle and LICENSEE shall visibly affix the special prepaid royalty stickers to the driver's/pilot's door jamb, or adjacent to the vehicle serial number, or another location determined and specified in writing at time of purchase of special prepaid royalty stickers. 5.3 The Parties have agreed to the Royalty on LICENSED PRODUCTS as stated herein as a mutually acceptable, convenient and practical measure of an appropriate royalty for the use of the LICENSED PRODUCTS throughout the TERRITORY. In order to ensure that the NET SALES PRICE of FINISHED PRODUCTS sold by LICENSEE is readily ascertainable, LICENSEE agrees that all FINISHED PRODUCTS sold or otherwise disposed of by LICENSEE shall be separately invoiced for no less than fair market value. 9 SECTION 6 - SAMPLES AND QUALITY CONTROL 6.1 LICENSEE shall prior to initial sale of LICENSED PRODUCT, and at any time requested by LICENSOR provide, at no charge to LICENSOR, up to three (3) pairs/sets of any product including FINISHED PRODUCTS (hereinafter "SAMPLES") requested by LICENSOR that incorporate LICENSED PRODUCTS. LICENSEE shall have the SAMPLES delivered to LICENSOR within thirty (30) days of the request, at no charge and freight prepaid. The SAMPLES thereafter become the sole property of LICENSOR. 6.2 Before LICENSEE offers for sale or sells any of the LICENSED PRODUCTS, the Parties shall agree upon and reduce to writing quality standards for the LICENSED PRODUCTS to ensure a technically satisfactory exploitation of the LICENSED PRODUCTS and the CROSSOVER TECHNOLOGY embodied herein and to ensure that the LICENSED PRODUCTS made by LICENSEE conform to the quality standards that are expected by LICENSOR. LICENSEE agrees that all units of the LICENSED PRODUCTS and FINISHED PRODUCTS sold under this Agreement shall meet such quality standards. LICENSEE shall not commence the sale of the LICENSED PRODUCTS unless and until LICENSEE has first provided LICENSOR with SAMPLES for inspection. SECTION 7 - PAYMENTS, RECORDS AND REPORTS 7.1 The obligation of LICENSEE to pay the Royalty with respect to a LICENSED PRODUCT shall arise at the time the LICENSED PRODUCT is first sold, leased or otherwise disposed of by LICENSEE. A LICENSED PRODUCT shall be deemed to have been sold, leased or otherwise disposed of when it is first invoiced or shipped to a customer by LICENSEE, whichever comes first. 10 7.2 During the TERM OF THE AGREEMENT, within thirty (30) days after the end of each calendar quarter following the Effective Date of this Agreement, LICENSEE shall send to LICENSOR a written statement identifying the LICENSED PRODUCTS including FINISHED PRODUCTS for which royalties are payable for such period and showing the total number of such LICENSED PRODUCTS sold, leased or otherwise disposed of by LICENSEE during such period and the amount of Royalties due and payable thereon, including the calculations used by LICENSEE to determine the amount. The written statements furnished to LICENSOR by LICENSEE shall be maintained in confidence by LICENSOR. 7.3 Concurrent with the written statement to be furnished to LICENSOR, LICENSEE shall pay to LICENSOR the full amount of Royalties shown thereon, the payment to also include any due and unpaid YEARLY LICENSE FEE. In the event of LICENSEE's failure to make any required payment on or before the required date, a supplemental royalty equal to five percent (5%) of the amount otherwise due, or the maximum amount permitted by law, whichever is less, shall be paid by LICENSEE for each month or portion thereof that the payment is late by more than five (5) days. 7.4 The royalty report shall be certified by an authorized representative of LICENSEE and shall state the number of LICENSED PRODUCTS and FINISHED PRODUCTS sold, leased or otherwise disposed of. In the event a LICENSED PRODUCT is sold at varying NET SALES PRICES, then the report shall indicate the number of LICENSED PRODUCTS sold at each NETS SALES PRICE. Further, LICENSEE shall furnish whatever additional information LICENSOR may reasonably request from time to time to enable LICENSOR to verify the calculation of Royalties due pursuant to this Agreement. 11 7.5 All monies payable hereunder shall be tendered in United States Dollars in such locations in the United States as LICENSOR may from time to time designate by written notice. All payments under this Agreement shall be made payable to LICENSOR and shall initially until further notice be delivered to the LICENSOR's address as specified above. 7.6 It is expressly understood and agreed by the Parties hereto that all computations relating to determination of the amounts of Royalties due and payable pursuant to this Agreement shall be made in accordance with internationally recognized and generally accepted accounting principles as reflected in the practice of certified independent public accountants of international reputation. 7.7 LICENSEE shall keep proper books of account regarding all sales and manufacturing of LICENSED PRODUCTS. Upon reasonable request by the LICENSOR, such books of account shall be made available at reasonable times and places provided by the LICENSOR (including the right to inspect, copy, and make abstracts therefrom) for the purpose of verifying the royalties due or paid, or for the purpose of determining compliance of other provisions of this Agreement. SECTION 8 - PATENTS AND TRADEMARKS 8.1 LICENSEE is not obligated to pay any costs, fees, and expenses incurred in obtaining patent protection or trademark protection in the United States related to the CROSSOVER TECHNOLOGY and TRADEMARKS or other related trademarks including related icons or other trademarks and icons specified by LICENSOR for designating use of the CROSSOVER TECHNOLOGY by LICENSEE in LICENSED PRODUCTS. 8.2 LICENSOR shall have the sole right to direct the continuing prosecution of the LETTERS PATENT including pending patent applications directed 12 to the CROSSOVER TECHNOLOGY and/or related TECHNICAL INFORMATION, including any and all improvements thereto. 8.3 During the TERM OF THE AGREEMENT, the LICENSEE shall disclose to LICENSOR any improvements or modifications relating to the LICENSED PRODUCTS which are developed by the LICENSEE or the LICENSEE's employees, contractors or agents. All improvements shall be the exclusive property of LICENSOR and shall be subject to the license granted in Agreement to LICENSEE. LICENSEE shall promptly assign to LICENSOR, in perpetuity and throughout the world, all rights in and to all improvements to CROSSOVER TECHNOLOGY and LICENSED PRODUCTS and LICENSOR shall have the sole and exclusive right, but not the obligation, to prepare, file and prosecute, in the name of LICENSOR and at LICENSOR's expense, application for patents in the United States and throughout the world for all such improvements. LICENSEE shall provide LICENSOR with all documents, information and assistance as may be required by LICENSOR in connection with such applications. 8.4 If during the TERM OF THE AGREEMENT, LICENSEE shall file a patent application or be granted a patent, or be granted the right to grant others a license under any patent application or patent, anywhere in the world, with respect to derivatives of CROSSOVER TECHNOLOGY or any other aspect of LICENSOR's technology, LICENSEE agrees to, and hereby does, grant to LICENSOR an irrevocable, non-exclusive, royalty-free, worldwide license (with the right to sub-license only to a parent or subsidiary of LICENSOR) in perpetuity to make, have made, use, sell lease or otherwise dispose of, and import items, devices and products covered by any such patent or patent application, and practice any methods covered by any such patent or patent application. 13 8.5 LICENSE agrees to mark LICENSED PRODUCTS, or in the event their size or configuration makes such marking impractical, their containers or labels, as well as all literature describing the LICENSED PRODUCTS with the respective patent numbers of LETTERS PATENT and any corresponding "Patent Pending" designators for any pending patent applications. 8.6 In all literature originated by LICENSEE that relates to CROSSOVER TECHNOLOGY, LICENSEE agrees to prominently print the legend "DiAural(TM) Technology" or other descriptive legend as LICENSOR may from time to time designate. Except for advertising and marketing materials, said legend shall be in print no less distinct and in size than the accompanying text. 8.7 On all LICENSED PRODUCTS and FINISHED PRODUCTS, LICENSEE agrees to prominently display legends, trademarks or other identifying icons denoting the use of CROSSOVER TECHNOLOGY and the identity of LICENSOR as mutually agreed upon by the Parties in view of LICENSEE's specific LICENSED PRODUCTS and FINISHED PRODUCTS. SECTION 9 - CONFIDENTIAL DISCLOSURE 9.1 LICENSEE recognizes that LICENSOR has related to LICENSEE certain technology, know-how and other trade secrets and knowledge ("CONFIDENTIAL INFORMATION") which may be proprietary to LICENSOR. LICENSEE agrees to take all reasonable steps to maintain the confidentiality of any CONFIDENTIAL INFORMATION provided to LICENSEE by LICENSOR in the furtherance of this Agreement and to protect all such CONFIDENTIAL INFORMATION with at least the same diligence, care and precaution that the LICENSEE uses to protect its own confidential and trade secret information, but in no event less than reasonable care. LICENSEE agrees 14 to not disclose any CONFIDENTIAL INFORMATION to any person not a Party to this Agreement without the express written consent of LICENSOR. 9.2 The LICENSOR recognizes that LICENSEE also possesses like information that has great value to LICENSEE. The LICENSOR also agrees to take all reasonable steps and precautions necessary to maintain the propriety nature of such information. 9.3 The Parties' obligations with respect to maintaining confidentiality shall remain effective, notwithstanding the expiration or termination of this Agreement. 9.4 With respect to any of LICENSOR'S CONFIDENTIAL INFORMATION disclosed by LICENSEE to a third party, the LICENSEE shall be directly liable to the LICENSOR for any damages incurred as a result of unauthorized use or disclosure of CONFIDENTIAL INFORMATION including, without limitation, damages in the form of attorney's fees and costs incurred by the LICENSOR in any action or proceeding against a third party seeking redress for such unauthorized use of CONFIDENTIAL INFORMATION. 9.5 Except as otherwise provided for in this Agreement relating to the utilization of CROSSOVER TECHNOLOGY in LICENSED PRODUCTS, LICENSEE shall not attempt to reverse engineer or otherwise attempt to reconstruct or discover any underlying ideas relating to the CROSSOVER TECHNOLOGY. SECTION 10 - INFRINGEMENT OF PATENT RIGHTS 10.1 In the event that LICENSEE suspects or becomes aware of unauthorized or improper use or infringement of any LETTERS PATENTS, TECHNICAL INFORMATION or TRADEMARKS, LICENSEE shall immediately notify LICENSOR. LICENSOR may, at its option, elect to undertake and control the prosecution, defense or settlement of any legal action in connection with such alleged improper use or infringement, and LICENSEE shall have no right to initiate, prosecute, defend or 15 settle any claim, suit or action against or by any such third party without LICENSOR's prior written consent. LICENSOR shall have the first right to enforce the LETTERS PATENT and TECHNICAL INFORMATION bearing all costs, expenses, and attorneys' fees but also maintaining for itself all damages awarded in the litigation. SECTION 11 - TERM AND TERMINATION 11.1 The original term of Agreement shall commence upon the signing hereof and continue in full force and effect through the TERM OF THE AGREEMENT except as otherwise provided herein. 11.2 LICENSOR shall have the right to terminate this Agreement during the TERM OF THE AGREEMENT if LICENSEE is in arrears for ninety (90) days after the due date of any payments including Royalties and YEARLY LICENSE FEES or if LICENSEE is declared bankrupt and a distribution to creditors is ordered. 11.3 The LICENSOR shall also have the right to terminate this Agreement during the TERM OF THE AGREEMENT if LICENSEE generates less than ten-thousand U.S. Dollars ($10,000.00) in Royalties in any twelve (12) consecutive month period beginning with the twenty-fourth (24) month following the Effective Date of the Agreement and continuing thereafter through the TERM OF THE AGREEMENT. 11.4.1 The LICENSOR shall also have the right to terminate this Agreement during the TERM OF THE AGREEMENT at LICENSOR'S sole discretion upon written notification to the LICENSEE at least ninety days (90) prior to the annual anniversary of the EFFECTIVE DATE of this Agreement, thereby stating LICENSOR'S intent not to renew LICENSEE'S licenses to LICENSOR'S CROSSOVER TECHNOLOGY. 16 11.4.2 The LICENSEE shall have the right to terminate this Agreement during the TERM OF THE AGREEMENT at LICENSEE'S sole discretion upon written notification to the LICENSOR at least ninety days (90) prior to the annual anniversary of the EFFECTIVE DATE of this Agreement, thereby stating LICENSEE'S intent not to renew LICENSEE'S licenses to LICENSOR'S CROSSOVER TECHNOLOGY 11.5 In the event that either Party has the right to terminate, termination shall first be noticed in writing to the other Party. Except for the right to terminate under section 11.4, both Parties recognize that before this Agreement can be terminated, a one-hundred twenty (120) day period in which the defaulting Party may cure after notice of termination is granted to each Party. If the defaulting Party's outstanding obligations or capabilities are corrected so as to meet the obligations under this Agreement, and this occurs within the one hundred twenty (120) day period, this Agreement shall not be terminated. However, if the defaulting Party is unable to cure during the one hundred twenty (120) day period, this Agreement shall be terminated sixty (60) days after the conclusion of the one hundred twenty (120) day period. SECTION 12 - INDEMNIFICATION 12.1 LICENSEE hereby indemnifies, holds harmless and agrees to defend LICENSOR from and against all claims, damages, expenses (including, without limitation, attorney's fees and reasonable investigative and discovery costs), liabilities and judgments on account of injury to persons, loss of life, or damage to property occurring from LICENSEE's sale, marketing and commercialization of the LICENSED PRODUCTS; provided, LICENSEE does not indemnify LICENSOR against any injury, loss of life, or damage which is caused by the active or passive negligence of LICENSOR, their agents, servants or employees. 17 12.2 The Parties' obligations with respect to indemnification herein shall remain effective, notwithstanding the expiration or termination of the Agreement, as to claims accruing prior to the expiration or termination of this Agreement. SECTION 13 - INDEPENDENCE OF THE PARTIES 13.1 This Agreement shall not constitute the designation of either Party as a representative or agent of the other or as a joint venture or partnership between the Parties, nor shall either Party by this Agreement have the right or opportunity to make any promise, guarantee, warranty or representation, or to assume, create or incur any liability or other obligation of any kind, express or implied, against or in the name of, or on behalf of, the other. SECTION 14 - ASSIGNMENT 14.1 LICENSEE shall not have the right to assign or otherwise transfer this Agreement, without the prior written consent of LICENSOR. 14.2 LICENSOR shall have the right to assign their right to receive royalty and other payments to any third party, without the prior written consent of LICENSEE. Such assignments shall not be deemed effective until LICENSEE is given notice of such assignment in writing as provided herein. SECTION 15 - NOTICE 15.1 All notices, demands, and other communications under this Agreement shall be in writing and deemed to have been duly given and delivered one day after being sent by telefax, or five (5) days after posting by certified mail, return receipt requested, postage prepaid to the Parties at the above addresses. 18 15.2 The Parties hereto may at any time give written notice of changes of address, and after such notices have been received, any notice of request shall thereafter be given to such Party at the changed address. SECTION 16 - APPLICABLE LAW 16.1 This Agreement is entered into pursuant to the laws of the State of Utah, and the validity and interpretation of this Agreement shall be governed by and in accordance with the laws of the State of Utah as such law shall from time to time be in effect, excluding the choice of law provisions of any other state or jurisdiction. The Parties agree that any action for relief based in whole or in part on this Agreement (or the breach thereof) or otherwise relating in whole or in part to this Agreement shall be filed in, and the Parties consent to personal jurisdiction and venue in, the Federal and State Courts closest to the above-identified place of business of LICENSOR in Ogden, Utah having subject matter jurisdiction over such action. In any such action between the Parties, the prevailing Party shall be entitled to recover (in addition to any other relief awarded or granted) its reasonable costs and expenses (including attorneys' fees) incurred in the proceeding. SECTION 17 - ATTORNEYS' FEES 17.1 In the event either Party brings or commences a legal proceeding to enforce any of the terms of this Agreement or it becomes necessary for any Party to employ the services of any attorney, either to enforce or to terminate this Agreement, each Party shall bear his own costs, expenses and attorneys' fees incurred thereby with respect to the resolution of such matter. 19 SECTION 18 - GENERAL PROVISIONS 18.1 The Parties agree that this Agreement and the terms of this Agreement are to be strictly confidential, and neither Party shall disclose this Agreement or anything with respect to the terms of this Agreement to any third party except: (i) to legal counsel; (ii) auditors; (iii) to the extent, if any, required by law; (iv) in accordance with the terms of a protective or other order duly entered in a legal proceeding; or (v) with the prior written consent of the other Party. 18.2 The Parties hereto have read this Agreement and agree to be bound by the terms herein. The Parties further agree that this Agreement shall constitute the complete and exclusive statement of the agreement between them and that this Agreement supersedes all proposals, written or oral, or any other communications, warranties, representations or agreements between the Parties relating to the LICENSED PRODUCTS. 18.3 No agreement changing, modifying, amending, extending, superseding, discharging or terminating this Agreement or any provisions thereof shall be valid unless it is in writing and is dated and signed by a duly authorized representative of the Party or Parties to be charged. 18.4 The provisions of this Agreement are severable in the event that any provisions of this Agreement shall be held to be invalid, illegal or unenforceable. The validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 18.5 Failure of any Party hereto to enforce any provision of this Agreement or rights with respect thereto or to exercise any election provided for herein, shall in no way be considered as a waiver of such right to enforce any other provisions or any other elections under this Agreement. Such failure of any Party hereto to enforce any provision of this Agreement or rights with respect thereto or to exercise any election provided for herein, shall in no way 20 be considered as a waiver to enforce the same provision of this Agreement or rights with respect thereto or to exercise the election provided for herein at any time in the future. 18.6 All the provisions contained in this Agreement shall be binding upon, inure to the benefit of and be enforceable by the respective successors and assigns of the Parties to the same extent as if each such successor and assign were named as party to this Agreement. 18.7 The headings of the Sections contained herein are for convenience only and do not define, limit or construe the contents of such Sections. 18.8 This Agreement shall be interpreted and construed only by the contents hereof, and there shall be no presumption or standard of construction in favor or against either Party. 18.9 When required by context, the singular shall include the plural, and the neuter gender shall include a person, corporation, firm or association. 18.10 There shall be no liability on either Party on account of any loss, damage or delay occasioned, or caused by strikes, riots, fires, insurrection or the elements, embargoes, failure of carriers, acts of God or of the public enemy, compliance with any law, regulation, or other governmental order, or any other causes beyond the control of either Party, whether or not similar to the foregoing. 18.11 This Agreement may be executed in any number of original counterparts, each of which shall be deemed to be an original, all of which constitute one and the same agreement. 21 IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be duly executed as of the day and year first above written. /s/ Ray L. Kimber FOR: EDGE AUDIO, LLC - ------------------------------- -------------------------------------------- DIAURAL L.L.C. By: /s/ Winthrop Jeanfreau -------------------------------------------- Ray L. Kimber, President [handwritten] Winthrop Jeanfreau, President -------------------------------------------- "LICENSOR" "LICENSEE" 22 EX-10.5 11 exhibit10-05.txt Exhibit 10.5 STOCK PURCHASE AGREEMENT ------------------------ THIS STOCK PURCHASE AGREEMENT is entered into effective as of March 6, 2000, by and among TSET, Inc., a Nevada corporation ("TSET"); Atomic Soccer USA, Ltd., a Wisconsin corporation ("ASUSA"); Todd P. Ragsdale, an individual; James Eric Anderson, an individual; Jewel Anderson, an individual; Timothy Beglinger, an individual; and Atomic Millennium Partners, LLC, a Wisconsin limited liability corporation (Todd P. Ragsdale, James Eric Anderson, Jewel Anderson, Lorena Anderson, Timothy Beglinger, and Atomic Millennium Partners, LLC are hereinafter collectively referred to as the "Stockholders"), and is acknowledged and agreed by certain employees of ASUSA (the "Employees"). WHEREAS, on December 9, 1999, TSET and ASUSA 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 ASUSA, and other elements of the relationship of the parties; WHEREAS, the Stockholders are the owners of all of the issued and outstanding capital stock of ASUSA; and WHEREAS, the Stockholders wish to sell, and TSET wishes to purchase, all of the issued and outstanding capital stock of ASUSA, upon the terms and subject to the conditions set forth 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 agrees as follows: 1. PURCHASE AND SALE OF SHARES. Upon the terms and subject to the conditions set forth herein, the Stockholders each agree to sell to TSET, and TSET agrees to purchase from each of the Stockholders, all of the ASUSA 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 "Atomic Shares"): NAME CLASS A VOTING SHARES CLASS B NON-VOTING SHARES - ---- --------------------- ------------------------- Todd P. Ragsdale 18.8125 253.125 James Eric Anderson 29.945 489.5625 Jewel Anderson 15.13 210.9375 Timothy Beglinger 13.7625 185.625 Atomic Millennium Partners, LLC 10.1 135.0 TOTALS 87.75 1,274.25 - ------ ----- --------
The Atomic Shares shall be sold to and purchased by TSET free and clear of any and all liens, claims, encumbrances, sureties, restrictions of any kind whatsoever on their free transferability, options, or rights of any third parties, including preemptive rights or claims of any nature whatsoever as well as all rights attaching thereto. 2. CONSIDERATION FOR THE ATOMIC SHARES; EXCHANGE OF SHARES. (a) The aggregate consideration to be paid for the Atomic Shares by TSET shall be 1,000,000 "investment" shares of the common stock of TSET, par value $0.001 per share (the "TSET Shares"), to be allocated on a pro rata basis among the Stockholders and the Employees as follows: Todd P. Ragsdale 196,660 TSET Shares James Eric Anderson 380,355 TSET Shares Judi Anderson 163,883 TSET Shares Timothy Beglinger 144,217 TSET Shares Atomic Millennium Partners, LLC 104,885 TSET Shares Jonathan Beglinger 3,500 TSET Shares Michael Santry 3,500 TSET Shares Suzanne May 2,000 TSET Shares Thomas Bates 500 TSET Shares Sterling Anderson 500 TSET Shares The TSET Shares shall be the sole compensation for the Atomic Shares of the Stockholders. (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 Atomic Shares owned by them, accompanied by appropriate stock powers endorsed in blank, and shall cause the Atomic Shares to be registered in TSET's name on ASUSA's share registry and perform any and all other actions required by applicable law to evidence TSET's ownership of the Atomic Shares; and (ii) TSET shall deliver to each of the Stockholders certificates representing the number of TSET Shares to be acquired by them, and shall cause the TSET Shares to be registered in the names of each of the Stockholders on TSET's share registry 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 ASUSA's shares and ASUSA shall be wholly-owned subsidiary of TSET. (c) The Stockholders understand and acknowledge that the TSET Shares shall be subject to, and the Stockholders 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 acquisition of, the TSET Shares by each Stockholder pursuant to this Section 2 shall be for the account of, and shall be borne solely by, each such Stockholder. 2 (d) Any compensation or finder's fee payable by ASUSA or the Stockholders (or any of them) 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. 3. MANAGEMENT. (a) Following TSET's acquisition of the Atomic Shares. ASUSA's board of directors shall be comprised of the following individuals: Todd P. Ragsdale James Eric Anderson Timothy Beglinger Jeffrey D. Wilson (serving as chairman of the board of directors and representing TSET) Such directors shall serve in accordance with ASUSA's bylaws and applicable law. In the event of any tie concerning any matter brought before ASUSA's board of directors for a vote, Jeffrey D. Wilson, as chairman of the board of directors, shall have the tie-breaking vote. (b) Following TSET's acquisition of the Atomic Shares, ASUSA's officers and executive management shall be comprised as follows: Todd Ragsdale President James Eric Anderson Vice-president Timothy Beglinger Secretary and Treasurer (c) The parties agree that the primary responsibility for ASUSA's day-to-day management, business development, finances and the administration thereof, budgets (capital, operations, and others), and the conduct of the Corporate Business (as defined in Section 4 hereof), shall belong to ASUSA's board of directors, but with such consultations and determinations as are consistent with TSET's ownership of ASUSA. In carrying out such responsibilities and conducting all elements of the Corporate Business, ASUSA's 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 pursue the Corporate Business, seeking to advance the best interests of ASUSA, complying with all laws, rules, and regulations applicable to the Corporate Business, and keeping available to ASUSA the services of its directors, officers, and key employees. The Corporate Business shall be conducted by ASUSA's board of directors in the regular and ordinary course in substantially the manner heretofore conducted. The directors and officers of ASUSA, individually and collectively, shall dedicate their full time attention and efforts to the conduct of the Corporate Business, except as may be otherwise permitted by ASUSA's board of directors. (d) 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 ASUSA's best interests and maximize the value of ASUSA's business enterprise. 3 4. THE CORPORATE BUSINESS. The parties understand and acknowledge that the "Corporate Business" of ASUSA is the distribution of soccer uniform under the "Atomic" brand label and basketball, volleyball, lacrosse, and hockey uniforms under the "BAHR" brand label, primarily through independent sales representatives. TSET intends that the Corporate Business shall be conducted in substantially the same manner as conducted prior to TSET's acquisition of the Atomic Shares, and that the Corporate Business shall also include the pursuit of such other activities as ASUSA's board of directors may determine from time to time including, without limitation, recruitment of additional distributors for the "Atomic" and "BAHR" brand labels and expansion of the geographical territories in which ASUSA's products are marketed, distributed, and sold; potential acquisition of additional sports apparel and equipment distributorships and expansion of ASUSA's current product lines to achieve a greater diversity; protect ASUSA's trademarks, tradenames, label names, and other valuable rights; and such other activities as may enhance the value and name recognition of the "Atomic" and "BAHR" labels, all with a view to advance ASUSA's best interests and maximize ASUSA's profitability and success for the benefit of TSET. In addition, as soon as practicable TSET intends to give favorable consideration to the acquisition of ASUSA's maquiladora cut-and-sew facility (Atomic S.A. de C.V.) in Ensenada, Mexico. 5. CONTRIBUTIONS BY TSET: CLAW-BACK. (a)(i) TSET shall assist and support ASUSA's capital-raising efforts and shall provide and make available to ASUSA working capital in the aggregate amount of up to $1,000,000.00 (the "Initial Funding") over the 12-month period next following the execution and delivery of this Agreement (the "Funding Period"). ASUSA hereby acknowledges that TSET has, prior to the date of this Agreement, provided and ASUSA has received a portion of the Initial Funding in the amount of $125,125.00. 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 ASUSA or the Stockholders including, without limitation, those financial obligations owed to David M. Ragsdale or Paul Hix as described in Exhibit 5 attached hereto and made a part hereof for all purposes. Provision of the Initial Funding shall be the sole financial obligation owed by TSET to ASUSA; provided, however, that TSET may elect, but is not obligated, to provide to ASUSA 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, ASUSA'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. (ii) TSET acknowledges that ASUSA currently has outstanding a $500,000 revolving line of credit, and that the guaranty thereof provided by David M. Ragsdale must be replaced on or before June 30, 2000 (the "Replacement Date"). TSET hereby agrees to exert its best efforts to retire or renew such line of credit with replacement guaranties on or before the Replacement Date. (b)(i) The parties acknowledge that TSET's undertaking to provide the Initial Funding is a significant inducement to ASUSA and the Stockholders to enter into this Agreement and consummate the transactions contemplated herein, and that on or before the lapse of the Funding Period TSET shall have provided 4 to ASUSA the entire amount of the Initial Funding. In the event TSET provides less than all of the Initial Funding by or before the lapse of the Funding Period, ASUSA shall provide written notice to TSET that an event of default has occurred hereunder (the "Default Notice"). If TSET fails to provide the unpaid portion of the Initial Funding to ASUSA within 45 days of TSET's receipt of the Default Notice (the "Cure Period"), the number of Atomic Shares owned by TSET shall be reduced to reflect the proportionate value of the Initial Funding provided by TSET to ASUSA, with the number of the Atomic Shares deducted from TSET's holding to be transferred to and distributed among the Stockholders 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. (ii) If TSET fails to provide any Initial Funding prior to the lapse of the Funding Period and the resulting Cure Period, this Agreement shall be terminated and deemed null and void and the Atomic Shares shall be assigned, transferred, and conveyed by TSET to the Stockholders, as they may direct in writing to TSET. (c) If TSET fails to provide any Initial Funding prior to the lapse of the Funding Period and the resulting Cure Period, the sole remedy of ASUSA and the Stockholders shall be: (i) the Share Adjustment (in case of the events described in Subsection (b)(i) above); and (ii) the termination of this Agreement and assignment, transfer, and conveyance to ASUSA and the Stockholders of the Atomic Shares (in case of the events described in Subsection (b)(ii) 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. 6. OPTIONS AND OTHER PROGRAMS. TSET intends to adopt for itself, and intends that ASUSA adopt, stock option, incentive, profit-sharing, savings, and other similar programs (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 ASUSA. ASUSA's directors, executive management, and key employees (collectively, "management") 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 management and to ensure participation by management in the future success of ASUSA, TSET, as sole stockholder of ASUSA, hereby agrees to reserve up to 20% of ASUSA's authorized capital stock to be used in Programs to be adopted by ASUSA's board of directors and consents to the full participation of management therein, subject to the terms for such participation established by ASUSA's board of directors; provided, however, that the final terms of the Programs adopted by ASUSA's board of directors shall be subject to TSET's prior written consent, which consent shall not be unreasonably withheld, conditioned, or delayed. 5 7. FUTURE EVENTS. 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 ASUSA may become a publicly-owned entity (the "Reconstitutive Decision"); provided, however, that a decision to retain ASUSA as a wholly- or majority-owned subsidiary of TSET or effect a transaction pursuant to which ASUSA's ownership materially changes but remains privately held shall not be deemed a breach of this Section 7. In the event of any Reconstitutive Decision, TSET (or its nominees) shall retain not less than a non-dilutible 20% ownership interest in ASUSA. 8. REPRESENTATIONS AND WARRANTIES OF ASUSA AND THE STOCKHOLDERS. ASUSA and each of the Stockholders, jointly and severally, hereby represent and warrant to TSET as follows: (a) CORPORATE ORGANIZATION. ASUSA is duly organized, validly existing, and in good standing under the laws of the State of Wisconsin and has all requisite power, authorizations, consents, and approvals necessary to own or lease its assets and carry on its business as currently being conducted, and to consummate the transactions contemplated herein. ASUSA 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 its business requires it to be so licensed or qualified. Complete and correct copies of all constitutive documents of ASUSA have been delivered to TSET. ASUSA's minute books or other similar records contain an accurate record of all meetings and other corporate action of its stockholders and board of directors (and any committees thereof). (b) NO DEFAULTS OR BREACHES. Except as disclosed in Exhibit 8(b) attached hereto and made a part hereof for all purposes, neither the execution of this Agreement nor the performance of its obligations hereunder and thereunder does or will: (i) conflict with or violate any provision of ASUSA's constituent 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) contract, agreement, 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 ASUSA or any of the Stockholders is a party or by which ASUSA or any of the Stockholders or any of their respective or collective securities, properties, or businesses are bound; (iii) constitute a violation by ASUSA or any of the Stockholders of any 6 (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 ASUSA, the Atomic Shares, or any of the Stockholders. (c) ACTIONS AND PROCEEDING. Except as disclosed in Exhibit 8(c-i) 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 ASUSA and any of the Stockholders, threatened, to which ASUSA or any of the Stockholders is our would be a party, including, without limitation, any Proceeding which could reasonably be expected to restrain, prevent, or prohibit ASUSA 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 transactions contemplated herein. Except as disclosed in Exhibit 8(c-2) attached hereto and made a part hereof for all purposes, there is no Judgment outstanding against ASUSA or any Stockholder. (d) NO BROKERS. Except as disclosed in Exhibit 8(d) attached hereto and made a part hereof for all purposes, all negotiations relating to this Agreement and the transactions contemplated herein have been carried on without the intervention of any party acting in behalf of ASUSA or any of the Stockholders in such manner as to give rise to any valid claim against ASUSA or any of the Stockholders, individually or collectively, for any broker's or finder's fee or similar compensation (whether payable in cash, Atomic Shares, any interest in ASUSA, 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. ASUSA has all necessary corporate power and authority, and each of the Stockholders have the power, legal capacity, and authority, to execute, deliver, and perform its obligations hereunder; and the execution, delivery, and performance by ASUSA 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 sane, and is within the authority of each of the Stockholders. This Agreement constitutes the legal, valid, and binding obligations of ASUSA and each of the Stockholders, 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) TAXES AND TAX RETURNS. Except as disclosed in Exhibit 8(f-1) attached hereto and made a part hereof for all purposes: 7 (i) ASUSA 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 ASUSA 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 ASUSA 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 proceedings and for which adequate reserves are being maintained. Adequate provisions in accordance with generally accepted accounting principles consistently applied have been made in ASUSA's financial statements for the payment of all Taxes for which ASUSA may be liable for the periods covered thereby that were not yet due and payable as of the date thereof, regardless of whether the liability for such Taxes is disputed; (ii) There are no pending or, to the best knowledge of ASUSA and each Stockholder, threatened, audits or investigations relating to any Taxes for which ASUSA may become directly or indirectly liable. No deficiencies for any Taxes have been proposed, asserted, or assessed against ASUSA and no state of facts exists or has existed that would constitute grounds for the assessment of a Tax liability against ASUSA. There are no agreements in effect to extend the period of limitations for the assessment or collection of any Taxes for which ASUSA may become liable and no requests for any such agreements are pending; (iii) Except as disclosed in Exhibit 8(f-2) attached hereto and made a part hereof for all purposes, ASUSA 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 ASUSA on or prior to the date of this Agreement, provided or made available to TSET by ASUSA, are complete and accurate; and (v) ASUSA 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" 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 an national, regional, local, or foreign government or subdivision or agency thereof. (g) CONSENTS. Except as disclosed in Exhibit 8(g) attached hereto and made a part hereof for all purposes, no authorizations, approvals, or 8 consents of, and no filings or registrations with, any governmental agency or authority are necessary for the execution, delivery, and performance by ASUSA and each of the 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 ASUSA or any of the Stockholders 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. ASUSA 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 8(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, ASUSA's board of directors, employees, or any Stockholder. (k) INTELLECTUAL PROPERTY. (i) Exhibit 8(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, and brand label names used or held by ASUSA in connection with its operations and intended conduct of 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 ASUSA 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 party. (ii) The Trademarks and patents listed in Exhibit 8(k-1) have been duly registered or filed with the appropriate trademark and patent authority for each of the jurisdictions indicated in Exhibit 8(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 8(k-1) and there is no valid basis for any such claim. (iv) Except as disclosed in Exhibit 8(k-1), ASUSA 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 incident to the conduct of the Corporate Business, in the jurisdictions in which the Corporate Business has been or will be conducted or 9 where ASUSA's products are distributed, and the consummation of the transactions contemplated in this Agreement will not alter or impair any such rights. (v) The use or other exploitation by ASUSA of the Intellectual Property Rights used or held by ASUSA in connection with its operations and the conduct of the Corporate Business does not infringe on or dilute the rights of any other person. (vi) Except as disclosed in Exhibit 8(k-2) attached hereto and made a part hereof for all purposes, neither ASUSA nor any of the Stockholders are aware of any infringements or illicit uses of the Intellectual Property Rights used or held by ASUSA in connection with its operations or the conduct of the Corporate Business (l) OWNERSHIP OF ATOMIC SHARES. Except as disclosed in Exhibit 8(1) attached hereto and made a part hereof for all purposes, each Stockholder holds full title to, and is duly registered as the owner of, the Atomic Shares to be transferred by such Stockholder pursuant to this Agreement, free and clear of any and all Liens. (m) SUBSIDIARIES. Exhibit 8(m), 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 interest is owned, directly or indirectly, by ASUSA (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 under the laws of its jurisdiction of incorporation and has full power and authority to own, lease, and operate the assets held or used by it and to conduct its business as currently conducted. Each Subsidiary 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 its business requires it to be so licensed or qualified. Complete and correct copies of all constitutive documents of each Subsidiary have been delivered to TSET. The minute books or other similar records of each Subsidiary contain an accurate record of all meetings and other corporate action of its stockholders and board of directors (and any committees thereof). (n) TITLE TO PROPERTY: CONDITION; SUFFICIENCY. (i) ASUSA 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, claims, and encumbrances, other than "Permitted Encumbrances," 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. 10 (ii) The properties and other assets owned or leased by ASUSA constitute all properties and other assets necessary for the conduct of the businesses and activities conducted by ASUSA. (o) FINANCIAL STATEMENTS. (i) Complete and correct copies of the audited and consolidated financial statements (i.e., balance sheet and profit and loss statement) of ASUSA since inception are attached hereto as Exhibit 8(o) and made a part hereof for all purposes (collectively, the "Financial Statements"). (ii) The Financial Statements give a true and accurate account of the consolidated financial condition, assets and liabilities of ASUSA as of the dates thereof, and the results of operations and changes in financial condition for the periods then ended. Except as otherwise disclosed in Exhibit 8(o), the Financial Statements have been prepared in accordance with generally accepted accounting principles, consistently applied. Any Interim Financial Statements (herein so called) will, when prepared, give a true and accurate account of the financial condition, assets and liabilities of ASUSA at the date thereof and the results of its operations and changes in financial position for the period to which the Interim Financial Statements apply and will be prepared in accordance with generally accepted accounting principles, consistently applied. (iii) As of December 31, 1999, ASUSA 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 financial statements, or (B) individually or in the aggregate material to ASUSA's financial condition, and that, in either case, were not reflected or expressly reserved against in the audited consolidated balance sheet included in the Financial Statements or specifically disclosed or provided for in the notes thereto. Since December 31, 1999, ASUSA 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 ASUSA's financial condition. (iv) Since January 1, 2000, ASUSA has conducted its businesses 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 ASUSA, 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; 11 (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) not 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 of any third party; (F) mortgaged, pledged, or subjected to any lien, claim, or encumbrance any of its properties other than in the ordinary course of business consistent with past practice; (G) discharged or satisfied any material lien, claim, or encumbrance 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 ASUSA 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; (L) directly or indirectly, other than with respect to negotiating and entering into this Agreement, (1) solicited, initiated, or encouraged any inquiries, discussions, or proposals from any other person relating to a possible acquisition of all or any part of the Atomic Shares or assets of ASUSA, (2) continued, solicited, encouraged, or entered into negotiations or discussions relating to any such possible acquisition, (3) furnished to any other person any information (not already in the public domain) relating to ASUSA, or (4) entered into or consummated any agreement or understanding providing for any such acquisition; or (M) entered into any oral or written commitments or understandings to take any of the foregoing actions. (p) OUTSTANDING COMMITMENTS. (i) Exhibit 8(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 12 past practice by ASUSA's customers or suppliers) to which ASUSA 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 ASUSA 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 ASUSA on less than three months' notice without payment of any penalty or premium, (C) are Contracts under whose terms ASUSA 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 ASUSA, or any relative or affiliate of any such person, or (E) were not entered into in the ordinary course of ASUSA's business. (ii) All Contracts listed in Exhibit 8(p) are valid, binding, and enforceable by ASUSA in accordance with their respective terms and ASUSA 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) None of the Contracts to which ASUSA is a party or a beneficiary violates any provision of any applicable Law or Judgment. All Contracts between ASUSA, 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 conditions or exceptional discounts, in accordance with normal commercial practice. (q) EMPLOYMENT MATTERS. (i) Exhibit 8(q-1) attached hereto and made a part hereof for all purposes sets forth all of the collective rules applicable to ASUSA'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. (ii) Exhibit 8(q-2) attached hereto and made a part hereof for all purposes sets forth all consulting, employment, severance, termination, or compensation Contracts of ASUSA 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 13 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 ASUSA or in connection with any change in control of ASUSA and no amount will become due to any employee, consultant, officer, or director of ASUSA under the Collective Rules or any Employment Agreement solely as a result of the transactions contemplated in this Agreement. (iii) Exhibit 8(q-3) attached hereto and made a part hereof for all purposes sets forth all obligations of ASUSA to employee representative organizations which exceed those provided for by law or in the applicable Collective Rules. (iv) ASUSA 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 ASUSA have been made when due and all amounts properly accrued as Liabilities of ASUSA which have not been paid have been properly recorded on ASUSA's books. (v) Since inception, there have occurred no strikes, slow downs, work stoppages, or other similar labor actions by any group of ASUSA's employees. Except as set forth in Exhibit 8(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 ASUSA and each Stockholder, threatened. (vi) ASUSA has not made any commitment to any public agency, labor organization, employees' representatives, or any other party, relating to the numbers of ASUSA's employees or to future collective dismissals. (r) ENVIRONMENTAL, HEALTH, AND SAFETY. (i) ASUSA 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. All such Permits are valid and in full force and effect for the conduct of ASUSA's business as such business are presently conducted, and where applicable, timely renewal applications have been submitted for all such Permits. No Proceeding has been filed or commenced against ASUSA alleging any failure to comply with any such Laws, Judgments, or Permits. (ii) ASUSA has no Liability (and there is no past or present fact, status, condition, activity, occurrence, action, or failure to act 14 related to the past or present operations, properties, or facilities of ASUSA that forms or reasonably could form the basis for the imposition of any Liability): (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 substance, or (C) for any illness of or personal injury to any of its employees or any third party. (s) INSURANCE. Exhibit 8(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 ASUSA 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"). The Insurance Contracts listed on Exhibit 8(s) are in full force and effect in accordance with their respective terms and will remain in full force and effect hereafter. ASUSA has not received any notice that it is in default with respect to any provision of any Insurance Contracts. ASUSA has not provided inaccurate, incomplete, or misleading information in connection with 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 REGUIREMENTS. (i) ASUSA and each Stockholder is currently conducting, and has in the past conducted, its respective businesses in compliance with all applicable Laws, Judgments, and Permits. (ii) ASUSA possesses, and upon consummation of the transactions contemplated in this Agreement will continue to possess all Permits necessary to conduct its operations as they are 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 ASUSA and each Stockholder, threatened. (iii) Neither ASUSA 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 the time of such notice or is not currently in compliance with all such applicable Laws, Judgments, and Permits. (u) CAPITALIZATION. ASUSA's capitalization is as set forth in Section 1 hereof, and the Stockholders listed are the only stockholders of ASUSA and have sole right to own the Atomic Shares shown opposite their respective names. No other person has any right or expectancy to own any Atomic 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. 15 The representations and warranties contained in this Section 8 shall survive the execution and delivery of this Agreement without limitation as to time 9. REPRESENTATIONS AND WARRANTIES OF TSET. TSET hereby represents and warrants to ASUSA and the Stockholders 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. (b) Neither the execution of this Agreement 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 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. (d) 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 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 constitutes 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. 10. DISTRIBUTION OF PROFITS. The parties agree that, as the sole stockholder of ASUSA, all profits resulting from the conduct of the Corporate Business shall belong to TSET, and that TSET shall be entitled to distribution thereof from ASUSA on a regular basis. The directors of ASUSA 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 ASUSA 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 benefits plans according to the terns thereof, plus reasonable reserves for contingencies or extraordinary items. In connection with any request by TSET for a cash distribution, TSET and ASUSA's board of directors shall consult to determine ASUSA's reasonable cash needs, as provided above. 16 11. 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 (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. (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, 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. 12. INDEMNIFICATION. (a) From and after the date of this Agreement, ASUSA 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 ASUSA or any Stockholder set forth in Section 8 hereof or elsewhere herein; and (ii) any breach of any covenant or agreement of ASUSA 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) 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 TSET intends to 17 seek indemnification from ASUSA or the Stockholders hereunder (a "Third Party Claim" or (B) TSET intends to make a claim to be indemnified by ASUSA or the Stockholders hereunder which does not involve a Third Party Claim (a "Direct Claim"), TSET shall promptly, within 21 days of the date on which it first becomes aware of the existence of such claim, send written notice to ASUSA and the Stockholders specifying the nature of such claim or demand and the amount (or a good faith estimate of such amount, which estimate shall not be conclusive of any final amount of such claim and demand) (a "Claim Notice"); provided, however, that failure to provide a Claim Notice shall not constitute any waiver or relinquishment of TSET's rights to indemnification hereunder. (c) In the event of a Third Party Claim, ASUSA and the Stockholders may participate, at their own expense, in the defense thereof with legal counsel of their own choice reasonably acceptable to TSET. Unless ASUSA and the Stockholders shall have agreed in writing that any and all Damages to TSET are fully covered by the indemnities provided herein, no Third Party Claim may be settled without TSET's prior written consent, which consent shall not be unreasonably withheld, conditioned, or delayed. (d) In the event of a Direct Claim, unless ASUSA and the Stockholders notify TSET 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 ASUSA and the Stockholders and shall be paid to TSET no later than 10 days following lapse of such 30-day period. 13. GENERAL PROVISIONS. (a) INTEGRATION AND AMENDMENT. This Agreement constitutes 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 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), 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 further exercise thereof or the exercise of any other right, power, or privilege. 18 (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, ASUSA 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: 333 South State Street, PMB 111 ------- Lake Oswego, OR 97034 Tel: 503.293.1270 Fax: 503.293.7233 Attn: Jeffrey D. Wilson Chairman and Chief Executive Officer TO ASUSA: 6045 Monona Drive --------- Madison, WI 53716 Tel: 608. 226.9982 Fax: 608. 226.9670 Email: todd@atomicsoccer.com TO TODD P. RAGSDALE: 6205 Westin Drive -------------------- Madison, WI 53719 Tel: 608.278.7086 TO JAMES ERIC ANDERSON: Calle Huerta 132 Col Carlos ----------------------- Ensenada, BC Mexico Tel: 52.615.42369 TO JEWEL ANDERSON: 5251 Anna Lane ------------------ Middleton, WI 53562 Tel: 608.233.6515 TO TIMOTHY BEGLINGER: 2200 U.S. Highway 51 --------------------- Stoughton, WI 53589 Tel: 608.873.0961 19 TO ATOMIC MILLENIUM PARTNERS: 305 East Spring Road ----------------------------- Dodgeville, WI 53533 Attn: Tim Singer Tel: 608.935.3361 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) COSTS. EXPENSES, AND TAXES. Each party shall bear its own costs, expenses, and taxes incurred or associated with the transactions contemplated herein. (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. [SIGNATURES APPEAR ON NEXT PAGE] 20 IN WITNESS WHEREOF, the parties have executed and delivered this Agreement effective as of the date first written above. TSET, Inc. By: -------------------------------------- Jeffrey D. Wilson Chairman and Chief Executive Officer ATOMIC SOCCER USA, LTD. By: -------------------------------------- Name: ------------------------------- Title: ------------------------------- - ----------------------------------------- Todd P. Ragsdale, individually - ------------------------------------- James Eric Anderson, individually - ------------------------------------- Jewel Anderson, individually - ------------------------------------- Timothy Beglinger, individually ATOMIC MILLENNIUM PARTNERS, LLC By: -------------------------------------- Name: ------------------------------- Authorized Signatory: 21 ACKNOWLEDGED AND AGREED: - ------------------------------------- Jonathan Beglinger, individually - ------------------------------------- Michael Santry, individually - ------------------------------------- Suzanne May, individually - ------------------------------------- Thomas Bates, individually - ------------------------------------- Sterling Anderson, individually 22 LIST OF EXHIBITS EXHIBIT 5 -- FINANCIAL OBLIGATIONS OWED BY ASUSA TO DAVID M. RAGSDALE AND PAUL HIX EXHIBIT 8(B) -- DEFAULTS AND BREACHES EXHIBIT 8(C-1) -- LITIGATION EXHIBIT 8(C-2) -- JUDGMENTS EXHIBIT 8(D) -- FINDERS AND BROKERS EXHIBIT 8I(1) -- TAXES EXHIBIT 8(F-2) -- TAX WITHHOLDINGS EXHIBIT 8 (G) -- CONSENTS AND APPROVALS EXHIBIT 8(J) -- COMPENSATION OR OTHER AGREEMENTS IN FAVOR OF MANAGEMENT, EMPLOYEES, OR STOCKHOLDERS EXHIBIT 8(1) -- INTELLECTUAL PROPERTY EXHIBIT 8(K-2) -- ENCUMBRANCES, LIENS, OR SUPERIOR CLAIMS UPON THE INTELLECTUAL PROPERTY RIGHTS AND THE TECHNOLOGY; INFRINGEMENTS EXHIBIT 8(T) -- LIENS UPON THE ATOMIC SHARES OWNED BY THE STOCKHOLDERS EXHIBIT 8(M) -- SUBSIDIARIES EXHIBIT 8(O) -- FINANCIAL STATEMENTS EXHIBIT 8(P) -- OUTSTANDING COMMITMENTS EXHIBIT 8(Q-1) -- COLLECTIVE RULES EXHIBIT 8(Q-2) -- EMPLOYMENT AGREEMENTS EXHIBIT 8(Q-3) -- OBLIGATIONS TO EMPLOYEE REPRESENTATIVE ORGANIZATIONS; HISTORY OF LABOR ACTIONS EXHIBIT 8(S) -- INSURANCE 22 EX-10.6 12 exhibit10-06.txt EXHIBIT 10.6 ACQUISITION AGREEMENT 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"); Ingrid Fuhriman, an individual; Igor Krichtafovitch, an individual; Robert L. Fuhriman II, an individual; and Alan Thomson, an individual (Ingrid Fuhriman, Igor Krichtafovitch, Robert L. Fuhriman II, and Alan Thomson 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 IA 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 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 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 (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. Page 2 2. TRANSFER OF INTELLECTUAL PROPERTY RIGHTS. Immediately following the 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 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 Ingrid Fuhriman 450,000 shares Igor Krichtafovitch 1,125,000 shares Robert L. Fuhriman, II 450,000 shares Alan Thomson 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 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 Ingrid Fuhriman 288,000 shares Igor Krichtafovitch 720,000 shares Robert L. Fuhriman, II 288,000 shares Alan Thomson 144,000 shares F. Briton McConkie* 180,000 shares Ralph Thomson* 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 Page 3 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 by the Principals in connection with the incorporation of Kronos, shall be comprised of the following individuals: Ingrid Fuhriman Igor Krichtafovitch Robert L. Fuhriman, II Alan Thomson Jeffrey D. Wilson (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: Alan Thomson - Chief Executive Officer and President Igor Krichtafovitch - Vice President Ingrid Fuhriman - Secretary Robert L. Fuhriman, II - 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 l5 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 Page 4 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 shall govern all elements of the relationship of the parties hereunder and the conduct of the Corporate 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 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 Page 5 "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' 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 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 Page 6 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 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 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 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, Page 7 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 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. 12. REPRESENTATIONS AND WARRANTIES OF HVI AND THE PRINCIPALS. HVI and 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. Page 8 (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 delivering the same, and is within the authority of each of the Principals. This Agreement arid 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. Page 9 (k) Except as disclosed in Exhibit l2(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 (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 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 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). Page 10 (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. (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. Page 11 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, 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 12 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. (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 Page 13 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 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 Page 14 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: 333 South State Street, PMB 111 Lake Oswego, OR 97034 Tel: 503.293.1270 Fax: 503.635.4452 and 503.293.7233 Attn: Jeffrey D. Wilson Chairman and Chief Executive Officer TO HVI: 13910 S.E. 23rd Street Bellevue, WA 98005 Tel: 425.746.9647 Fax: 425.746.0719 TO INGRID FUHRIMAN: 13910 S.E. 23rd Street Bellevue, WA 98005 Tel: 425.746.9647 Fax: 425.746.0719 TO ROBERT L. FUHRIMAN II: 13910 S.E. 23rd Street Bellevue, WA 98005 Tel: 425.746.9647 Fax: 425.746.0719 TO DR. IGOR KRICHTAFOVITCH: 822 S.E. 233rd Street Bothell, WA 98021 Tel: 425.750.9004 Fax: 425.806.8556 TO ALAN THOMSON: 2411 North 750 East Provo, UT 84601 Tel: 801.360.0456 Fax: 801.342.2380
Page 15 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 16 IN WITNESS WHEREOF, the parties have executed and delivered this Agreement effective as of the date first written above. TSET, Inc. By: /s/ Jeffrey D. Wilson ---------------------------------------------------------- Jeffrey D. Wilson Chairman and Chief Executive Officer HIGH VOLTAGE INTEGRATED, LLC By: /s/ Alan Thomson ---------------------------------------------------------- Name: Alan Thomson ----------------------------------------------- Authorized Signatory /s/ Ingrid Fuhriman - -------------------------------------------------------------- Ingrid Fuhriman, individually /s/ Igor Krichtafovitch - -------------------------------------------------------------- Igor Krichtafovitch, individually /s/ Robert L. Fuhriman II - -------------------------------------------------------------- Robert L. Fuhriman II, individually /s/ Alan Thomson - -------------------------------------------------------------- Alan Thomson, individually Page 17 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(c) -- 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 18 EXHIBIT 2A DESCRIPTION OF TRANSFER DOCUMENTS ASSIGNMENT OF INVENTION (United States Patent Application Serial No. 09/419,720) from HIGH VOLTAGE INTEGRATED, L.L.C. to KRONOS TECHNOLOGIES, INC. In consideration of the payment by ASSIGNEE to ASSIGNOR of the sum of One Dollar ($1.00) and for other good and valuable consideration the receipt of which is hereby acknowledged, HIGH VOLTAGE INTEGRATED, L.L.C. ("ASSIGNOR"), a Washington limited liability company, of 13910 S. E. 23rd Street, Bellevue, Washington 98005, United States of America, hereby sells, assigns, and transfers to KRONOS TECHNOLOGIES, INC. ("ASSIGNEE"), a Nevada corporation, whose address is 13910 S. E. 23rd Street, Bellevue, Washington 98005, United States of America, and the successors, assigns, and legal representatives of the ASSIGNEE, the entire right, title, and interest for the United States and its territorial possessions and for all foreign countries, including all rights to claim priority, in and to any and all inventions that are disclosed in the patent application which is entitled "Electrostatic Fluid Accelerator," I.E., United States Patent Application Serial No. 09/419,720, filed on October 14, 1999, and, in and to, all Letters Patent to be obtained for said invention and, as to letters patent, any reissue, re-examination, or extension thereof and any related statutorily provided periods of market exclusivity. ASSIGNOR hereby represents and warrants that no assignment, sale, agreement, or encumbrance has been, or will be, made or entered which would conflict with or be prior in right to this Assignment. ASSIGNOR further covenants that ASSIGNEE will, upon its request, be promptly provided with all pertinent facts and documents relating to said invention and said Letters Patent and legal equivalents as may be known and accessible to ASSIGNOR and that ASSIGNOR will testify as to the same in any interference, litigation, or other proceeding related thereto and will promptly execute and deliver to ASSIGNEE or its legal representatives any and all papers, instruments, or affidavits required to apply for, obtain, maintain, issue, and enforce said Letters Patent and said equivalents thereof which may be necessary or desirable to accomplish the purposes thereof or of this Assignment. ASSIGNOR additionally warrants that this Assignment is an authorized act of ASSIGNOR. ASSIGNMENT OF INVENTION (United States Patent No. 5,359,103) Page 1 of 2 IN WITNESS WHEREOF, I have hereunto set hand and seal this ______ day of March, 1998. ASSIGNOR: HIGH VOLTAGE INTEGRATED, L.L.C. By /s/ Alan Thomson ----------------------------------- Alan Thomson Its Manager Acknowledgment STATE OF WASHINGTON ) : ss County of King ) The foregoing instrument, I.E., Assignment of Invention (United States Patent Application Serial No. 09/419,720), was acknowledged before me this ______ day of March, 2000, by Robert L. Fuhriman, Jr., who is the manager of High Voltage Integrated, L.L.C. ----------------------------------------- NOTARY PUBLIC: Residing at: My commission expires: ASSIGNMENT OF INVENTION (United States Patent No. 5,359,103) Page 2 of 2 EXHIBIT 7 FUTURE APPLICATIONS Shipbuilding (military/commercial - foreign/domestic) Aircraft (military/commercial - foreign/domestic Military Vehicles (foreign/domestic) EX-10.7 13 exhibit10-07.txt 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 EdgeAudio.com, 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 Edge 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 Edge'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 Edge's board. C. MANAGEMENT. The parties intend that Edge'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 Edge's board of directors. The parties intend that Edge'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 Edge'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 Edge's management, the parties intend that Edge'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 TSET's board of directors. F. MANUFACTURING FACILITIES. The parties intend that, upon request by Edge'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. Page 2 CONFIDENTIAL 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. Page 3 CONFIDENTIAL 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 Edge's board of directors vote in favor of such distributions as may be requested from time to time by TSET. 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 Edge'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 Edge'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 Edge, any such compensation being for the sole account of, and payable solely by, Edge. 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/ Jeffrey D. Wilson --------------------------------------- Jeffrey D. Wilson Chairman and Chief Executive Officer EdgeAudio.com, Inc. By: /s/ Winthrop E. Jeanfreau --------------------------------------- Winthrop E. Jeanfreau Chief Executive Officer Page 4 EX-10.8 14 exhibit10-08.txt Exhibit 10.8 1. BASIC LEASE TERMS a. DATE OF LEASE: MAY 3, 2000 ---------------------------------------------------- b. TENANT: KRONOS AIR TECHNOLOGIES, A NEVADA CORPORATION ------------------------------------------------------------ Trade Name: KRONOS AIR TECHNOLOGIES -------------------------------------------------------- Address (Leased Premises): 8551 154TH AVENUE NE, REDMOND, WA 98052 ---------------------------------------- Building/Unit: B/8551 ---------------------------------------------------- Address (For Notices): 8551 154TH AVENUE NE, REDMOND, WA 98052 -------------------------------------------- c. LANDLORD: TIAA REALTY, INC., A DELAWARE CORPORATION Address (For Notices): 8449 154TH AVENUE NE, REDMOND, WA 98052 with a copy to CB Richard Ellis or to such other place as Landlord may from time to time designate by notice to Tenant. d. TENANT'S USE OF PREMISES: OFFICE USE FOR DEVELOPMENT & RESEARCH OF HVAC TECHNOLOGY ---------------------------------------- e. PREMISES AREA: An agreed 2,342 Rentable Square Feet ----------------- f. PROJECT AREA: An agreed 19,145 Rentable Square Feet ------------------ g. TERM OF LEASE: This Lease shall commence on June 1, 2000 or such earlier or later date as is provided in Section 3 (the "Commencement Date"), and shall terminate on the last day of the Thirty-sixth (36th) full calendar month after the Commencement Date (the "Expiration Date"). h. BASE MONTHLY RENT (months refer to period through the applicable full calendar month): Commencement Date - Month 18 $2,179.00 Month 19 - Month 19 $0.00 Month 20 - Month 22 $2,179.00 Month 23 - Month 23 $0.00 Month 24 - Month 24 $2,179.00 Month 25 - Month 26 $2,395.00 Month 27 - Month 27 $0.00 Month 28 - Month 29 $2,395.00 Month 30 - Month 30 $0.00 Month 31 - Month 31 $2,395.00 Month 32 - Month 32 $0.00 Month 33 - Month 34 $2,395.00 Month 35 - Month 35 $247.00 Month 36 - Month 36 $2,395.00 i. LEASE CONSIDERATION: $13,691.00 ; see provision 30 of lease. ------------------- j. SECURITY DEPOSIT: $2,395.00 NON-REFUNDABLE CLEANING FEE: $0.00 ---------- ------ k. BROKER(S): Tenant's Broker BILL SPENCER, REAL ESTATE ADVISORY SERVICES; --------------------------------------- Landlord's Broker MOLLY BRUNDAGE/LINDA BRANDT, CB RICHARD ELLIS. ----------------------------------------------- 1. GUARANTOR(S): NA ---------------------------------------------------- m. EXHIBITS: Exhibit A -The Premises Exhibit B - The Project Exhibit C - Premises Condition Exhibit D - Rules and Regulations Exhibit E - Tenant Sign Criteria 2 2. PREMISES/COMMON AREAS/PROJECT. a. PREMISES. Landlord leases to Tenant the premises described in Section 1 and in Exhibit A (the "Premises"), located in this project described on Exhibit B (the "Project"). By entry on the Premises, Tenant acknowledges that it has examined the Premises and accepts the Premises in their present condition, subject to any Landlord's Work required under this Lease. Landlord's Work shall consist of such work, if any, as is specifically identified as Landlord's responsibility under Exhibit C. Unless otherwise identified in written notice from Tenant to Landlord prior to the dates specified below, Landlord's Work shall be deemed approved by Tenant in all respects on the earlier of (a) the date Tenant commences construction or installation of any Tenant's Work, or (b) the date Tenant begins to move its personal property into the Premises. Tenant represents and warrants that it agrees with the square footage specified for the Premises and the Project in Section 1 and will not hereafter challenge such determination and agreement. b. COMMON AREAS. As used in this Lease, "Common Areas" shall mean all portions of the Project not leased or demised for lease to specific tenants. During the Lease Term, Tenant and its licensees, invitees, customers and employees shall have the non-exclusive right to use the public portions of the Common Areas, including all parking areas, landscaped areas, entrances, lobbies, elevators, stairs, corridors, and public restrooms in common with Landlord, other Project tenants and their respective licensees, invitees, customers and employees. Landlord shall at all times have exclusive control and management of the Common Areas and no diminution thereof shall be deemed a constructive or actual eviction or entitle Tenant to compensation or a reduction or abatement of rent. Landlord in its discretion may increase, decrease or change the number, locations and dimensions of any Common Areas and other improvements shown on Exhibit A which are not within the Premises. c. PROJECT. Landlord reserves the right in its sole discretion to modify or alter the configuration or number of buildings in the Project, provided only that upon such modification or alteration, the Project Area as set forth in Section 1(f) shall be adjusted to reflect such modification or alteration. 3. TERM. The Commencement Date listed in Section 1 of this Lease represents an estimate of the Commencement Date. This Lease shall commence on the estimated Commencement Date if tenant improvement work required of Landlord pursuant to this Lease ("Landlord's Work") is substantially completed (as that term is used in the construction industry) by such date, but otherwise the Commencement Date shall be first to occur of the following events (i) the date on which Landlord notifies Tenant that Landlord's Work is substantially complete, (ii) the date on which Tenant takes possession or commences beneficial occupancy of the Premises, or (iii) if substantial completion of Landlord's Work is delayed due to Tenant's failure to perform its obligations under this Lease, then the date determined by Landlord as the date upon which Landlord's Work would have been substantially completed, but for Tenant's failure to perform. If this Commencement Date is later than the Section 1 Commencement Date, this Lease shall not be void or voidable, nor shall Landlord be liable to Tenant for any loss or damage resulting therefrom. Landlord shall confirm the Commencement Date by written notice to Tenant. This Lease shall be for a term ("Lease Term") beginning on the Commencement Date and ending on the Expiration Date, unless extended or sooner terminated in accordance with the terms of this Lease. All provisions of this Lease, other than those relating to payment of Base Monthly Rent and Additional Rent, shall become effective on the date that Tenant or its 3 officers, agents, employees or contractors is first present on the Premises for inspection, construction or move in purposes. 4. RENT a. BASE MONTHLY RENT. Tenant shall pay Landlord monthly base rent in the initial amount in Section 1 which shall be payable monthly in advance on the first day of each and every calendar month ("Base Monthly Rent") provided, however, the first month's Base Monthly Rent is due and payable upon execution of this Lease. If the term of this Lease contains any rental abatement period, Tenant hereby agrees that if Tenant breaches the Lease and fails to cure such breach within the applicable cure period, if any, and/or abandons the Premises before the end of the Lease term, or if Tenant's right to possession is terminated by Landlord because of Tenant's breach of the Lease, the rental abatement period shall be deemed extinguished, and there shall be immediately due from Tenant to Landlord, in addition to any damages otherwise due Landlord under the terms and conditions of the Lease, Base Monthly Rent prorated for the entirety of the rental abatement period at the average Base Monthly Rent for the Lease, plus any and all other charges (such as Expenses) that were abated during such rental abatement period. For purposes of Section 467 of the Internal Revenue Code, the parties to this Lease hereby agree to allocate the stated Rents, provided herein, to the periods which correspond to the actual Rent payments as provided under the terms and conditions of this agreement. b. EXPENSES. The purpose of this Section 4(b) is to ensure that Tenant bears a share of all Expenses related to the use, maintenance, ownership, repair or replacement, and insurance of the Project. Accordingly, beginning on the date Tenant takes possession of the Premises, Tenant shall each month pay to Landlord one-twelfth (1/12) of Tenant's Share of Expenses related to the Project. As used in this Lease, "Tenant's Share" shall mean the Premises Area, as defined in Section 1(e), divided by the Project Area, as defined in Section 1(f), and "Tenant's Share of Expenses" shall mean the total Expenses for the Project for the applicable calendar year multiplied by Tenant's Share. Landlord may specially allocate individual expenses where and in the manner necessary, in Landlord's discretion, to appropriately reflect the consumption of the expense or service. For example where some but not all premises in the Project have HVAC, Landlord may reallocate Project Expenses for HVAC to all premises utilizing HVAC to be apportioned on a per square foot basis, or could allocate to each premises utilizing HVAC the cost of maintaining that space's individual unit. In the event the average occupancy level of the Project for any year is less than ninety five percent (95%), the actual Expenses for such year shall be proportionately adjusted to reflect those costs which Landlord estimates would have been incurred, had the Project been ninety five percent (95%) occupied during such year. 1) EXPENSES DEFINED. The term "Expenses" shall mean all costs and expenses of the ownership, operation, maintenance, repair or replacement, and insurance of the Project, including without limitation, the following costs: (a) All supplies, materials, labor, equipment, and utilities used in or related to the operation and maintenance of the Project, (b) All maintenance, janitorial, legal, accounting, insurance, service agreement and management (including on-site management office) costs related to the Project; 4 (c) All maintenance, replacement and repair costs relating to the areas within or around the Project, including, without limitation, air conditioning systems, sidewalks, landscaping, service areas, driveways, parking Areas (including resurfacing and restriping parking areas), walkways, building exteriors (including painting), signs and directories, repairing and replacing roofs, walls, etc. These costs may be included either based on actual expenditures or the use of an accounting reserve based on past cost experience for the Project. (d) Amortization (along with reasonable financing charges) of capital additions or improvements made to the Project which may be required by any government authority or which will improve the operating efficiency of the Project (provided, however, that the amount of such amortization for improvements not mandated by government authority shall not exceed in any year the amount of costs reasonably determined by Landlord in its sole discretion to have been saved by the expenditure either through the reduction or minimization of increases which would have otherwise occurred). (e) Real Property Taxes including all taxes, assessments (general and special) and other impositions or charges which may be taxed, charged, levied, assessed or imposed upon all or any portion of or in relation to the Project or any portion thereof, any leasehold estate in the Premises or measured by Rent from the Premises, including any increase caused by the transfer, sale or encumbrance of the Project or any portion thereof. "Real Property Taxes" shall also include any form of assessment, levy, penalty, charge or tax (other than estate, inheritance, net income, or franchise taxes) imposed by any authority having a direct or indirect power to tax or charge, including, without limitation, any city, county, state federal or any improvement or other district, whether such tax is (1) determined by the value of the Project or the Rent or other sums payable under this Lease; (2) upon or with respect to any legal or equitable interest of Landlord in the Project or any part thereof; (3) upon this transaction or any document to which Tenant is a party creating a transfer in any interest in the Project, (4) in lieu of or as a direct substitute in whole or in part of or in addition to any real property taxes on the Project, (5) based on any parking spaces or parking facilities provided in the Project, (6) in consideration for services, such as police protection, fire protection, street, sidewalk and roadway maintenance, refuse removal or other services that may be provided by any governmental or quasi-governmental agency from time to time which were formerly provided without charge or with less charge to property owners or occupants, or (7) otherwise based on the operation of the Project (such as transit, carpooling or environmental facilities. (f) Landlord agrees that Expenses as defined in Section 4(b) shall not include leasing commissions; payments of principal and interest on any mortgages, deeds of trust or other encumbrances upon the Project; depreciation of the capital cost of capital additions or improvements except as provided at 4(b)(1)(d); Landlord's executive salaries, management fees in excess of market rates; costs resulting from defective design or construction of the Project; costs incurred in connection with entering into new leases; or costs of disputes under existing leases. In no event shall Expenses include any charge for which Landlord receives reimbursement from insurance or from another Tenant, nor shall any item of Expense be counted more than 5 once, nor shall Landlord collect more than one hundred percent (100%) of Expenses. 2) ANNUAL ESTIMATE OF EXPENSES. When Tenant takes possession of the Premises, Landlord shall estimate Tenant's Share of Expenses for the remainder of the calendar year, and at the commencement of each calendar year thereafter, Landlord shall provide Tenant with an estimate of Tenant's Share of Expenses for the ensuing calendar year. 3) MONTHLY PAYMENT OF EXPENSES. Tenant shall pay to Landlord, monthly in advance, as Additional Rent, one-twelfth (1/12) of the Annual Estimate of Tenant's Share of Expenses beginning on the date Tenant takes possession of the Premises. As soon as practical following each calendar year, Landlord shall prepare an accounting of actual Expenses incurred during the prior calendar year and such accounting shall reflect Tenant's Share of Expenses. If the Additional Rent paid by Tenant under this Section 4(b)(3) during the preceding calendar year was less than the actual amount of Tenant's Share of Expenses, Landlord shall so notify Tenant and Tenant shall pay such amount to Landlord within 30 days of receipt of such notice. Such amount shall be deemed to have accrued during the prior calendar year and shall be due and payable from Tenant even though the term of this Lease has expired or this Lease has been terminated prior to Tenant's receipt of this notice. Tenant shall have thirty (30) days from receipt of such notice to contest the amount due, failure to so notify Landlord shall represent final determination of Tenant's Share of Expenses. If Tenant's payments were greater than the actual amount, then such overpayment shall be credited by Landlord to Tenant's Share of Expenses due under this Section 4(b)(3). 4) RENT WITHOUT OFFSET AND LATE CHARGE. As used herein, "Rent" shall mean all monetary sums due from Tenant to Landlord. All Base Monthly Rent shall be paid by Tenant to Landlord without prior notice or demand in advance on the first day of every calendar month, at the address shown in Section 1, or such other place as landlord may designate in writing from time to time. Whether or not so designated, all other sums due from Tenant under this Lease shall constitute Additional Rent, payable without prior notice or demand when specified in this Lease, but if not specified, then within ten (10) days of demand. All Rent shall be paid without any deduction or offset whatsoever. All Rent shall be paid in lawful currency of the United States of America. Proration of Rent due for any partial month shall be calculated by dividing the number of days in the month for which Rent is due by the actual number of days in that month and multiplying by the applicable monthly rate. Tenant acknowledges that late payment by Tenant to Landlord of any Rent or other sums due under this Lease will cause Landlord to incur costs not contemplated by this Lease, the exact amount of such cost being extremely difficult and impracticable to ascertain. Such costs include, without limitation, processing and accounting charges and late charges that may be imposed on Landlord by the terms of any encumbrance or note secured by the Premises. Therefore, if any Rent or other sum due from Tenant is not received when due, Tenant shall pay to Landlord an additional sum equal to 10% of such overdue payment. Landlord and Tenant hereby agree that such late charge represents a fair and reasonable estimate of the costs that Landlord will incur by reason of any such late payment and that the late charge is in addition to any and all remedies available to the Landlord and that the assessment and/or collection of the late charge shall not be deemed a waiver of any other default. Additionally, all such delinquent Rent or other sums, plus this late charge, shall bear interest at the rate of 18 percent per annum. If the interest rate specified in this Lease is higher than the rate permitted by law, the interest rate 6 is hereby decreased to the maximum legal interest rate permitted by law. Any payments of any kind returned for insufficient funds will be subject to an additional handling charge of $25.00, and thereafter, Landlord may require Tenant to pay all future payments of Rent or other sums due by money order or cashier's check. 5. PREPAID RENT. Upon the execution of this Lease, Tenant shall, in addition to the payment of the first month's Rent as set forth in Section 4(a), pay to Landlord the prepaid Rent set forth in Section 1(i), and if Tenant is not in default of any provisions of this Lease, such prepaid Rent shall be applied toward Base Monthly Rent for the months set forth in Section 1(i). Landlord's obligations with respect to the prepaid Rent are those of a debtor and not of a trustee, and Landlord can commingle the prepaid Rent with Landlord's general funds. Landlord shall not be required to pay Tenant interest on the prepaid Rent. Landlord shall be entitled to immediately endorse and cash Tenant's prepaid Rent; however, such endorsement and cashing shall not constitute Landlord's acceptance of this Lease. In the event Landlord does not accept this Lease, Landlord shall return said prepaid Rent. 6. DEPOSIT. Upon execution of this Lease, Tenant shall deposit a security deposit and a cleaning fee as set forth in Section 1(j) with Landlord. If twice within any 12 month period, late charges are assessed against Tenant by Landlord, Landlord may, by written notice to Tenant, require Tenant to pay Landlord an amount equal to one month's Base Rent as an increase in the Security Deposit, which additional amount shall be due within 5 days after Tenant's receipt of the notice. If Tenant is in default, Landlord can use the Security Deposit or any portion of it to cure the default or to compensate Landlord for any damages sustained by Landlord resulting from Tenant's default. Upon demand, Tenant shall immediately pay to Landlord a sum equal to the portion of the Security Deposit expended or applied by Landlord to restore the Security Deposit to its full amount. In no event will Tenant have the right to apply any part of the Security Deposit to any Rent or other sums due under this Lease. If Landlord transfers its interest in the Premises, Landlord shall transfer the Security Deposit to its successor in interest, whereupon Landlord shall be automatically released from any liability for the return of the Security Deposit. If, at the end of the Lease Term, Tenant has fully complied with all obligations under this Lease, then the remaining Security Deposit shall be returned to Tenant after Landlord has verified that Tenant has fully vacated the Premises, removed all of its property and surrendered the Premises in the condition required under this Lease; provided that Landlord may hold back a portion of the Security Deposit until final determination of Tenant's share of Common Expenses, whereupon a final adjustment shall be made and any remaining Security Deposit shall be returned to Tenant. The Non-Refundable Cleaning Fee shall be retained by Landlord. Landlord's obligations with respect to the Security Deposit are those of a debtor and not of a trustee, and Landlord can commingle the Security Deposit with Landlord's general funds. Landlord shall not be required to pay Tenant interest on the deposit. Each time the Base Monthly Rent is increased, Tenant shall deposit additional funds with Landlord sum sufficient to increase the Security Deposit to an amount which bears the same relationship to the adjusted Base Monthly Rent as the initial Security Deposit bore to the initial Base Monthly Rent. 7. USE OF PREMISES AND PROJECT FACILITIES. Tenant shall use the Premises solely for the purposes set forth in Section 1 and for no other purpose whatsoever without obtaining the prior written consent of Landlord. Tenant acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty with respect to the Premises or with respect to the suitability of the Premises or the Project for the conduct of Tenant's business, nor has Landlord agreed to undertake any modification, alteration or improvement to the Premises or the Project, except as provided in writing in this Lease. Tenant acknowledges that Landlord may from time to time, at its sole discretion, retake such modifications, alterations, deletions or improvements to the Project as 7 Landlord may deem necessary or desirable, without compensation or notice to Tenant. Tenant shall promptly comply with all laws, ordinances, orders and regulations affecting the Premises and the Project, including, without limitation, the rules and regulations attached hereto as Exhibit D and any reasonable modifications to these rules and regulations as Landlord may adopt from time to time. Tenant acknowledges that, except for Landlord's obligations pursuant to Section 13, Tenant is solely responsible for ensuring that the Premises comply with any and all governmental regulations applicable to Tenant's conduct of business on the Premises, and that Tenant is solely responsible for any alterations or improvements that may be required by such regulations, now existing or hereafter adopted. Tenant shall not do or permit anything to be done in or about the Premises or bring or keep anything in the Premises that will in any way increase the premiums paid by Landlord on its insurance related to the Project or which will in any way increase the premiums for fire or casualty insurance carried by other tenants in the Project. Tenant will not perform any act or carry on any practices that may injure the Premises or the Project; that may be a nuisance or menace to other tenants in the Project; or that shall in any way interfere with the quiet enjoyment of such other tenants. Tenant shall not use the Premises for sleeping, washing clothes, cooking or the preparation, manufacture or mixing of anything that might emit any objectionable odor, noises, vibrations or lights onto such other tenants. If sound insulation is required to muffle noise produced by Tenant on the Premises, Tenant at its own cost shall provide all necessary insulation. Tenant shall not do anything on the Premises which will overload any existing parking or service to the Premises. Pets and/or animals of any type shall not be kept on the Premises. 8. HAZARDOUS SUBSTANCES; DISRUPTIVE ACTIVITIES a. HAZARDOUS SUBSTANCES. --------------------- (1) PRESENCE AND USE OF HAZARDOUS SUBSTANCES. As used in this Lease, "Hazardous Substances" shall mean anything which may be harmful to persons or property, including, but not limited to, materials designated as a "Hazardous Substance" pursuant to Section 101 of the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as now or hereafter amended, 42 USC 9601, et seq., or as a Hazardous Substance, Hazardous Household Substance, Moderate Risk Waste or Hazardous Waste under RCW 70.105.010, or which is regulated by any federal, state, or local law, statute, ordinance or regulation pertaining to health, industrial hygiene or the environment. Tenant shall not, without Landlord's prior written consent, keep on or around the Premises, Common Areas or Building, for use, disposal, treatment, generation, storage or sale, any Hazardous Substances except such Hazardous Substances as are commonly used in general administrative office operations. With respect to any Hazardous Substance, Tenant shall: (i) Comply promptly, timely, and completely with all governmental requirements for reporting, keeping, and submitting manifests, and obtaining and keeping current identification numbers; (ii) Submit to Landlord true and correct copies of all reports, manifests, and identification numbers at the same time as they are required to be and/or are submitted to the appropriate governmental authorities; (iii) Within five (5) days of Landlord's request, submit written reports to Landlord regarding Tenant's use, storage, treatment, transportation, generation, disposal or sale of Hazardous Substances and provide evidence satisfactory to Landlord of Tenant's compliance with the applicable government regulations; 8 (iv) Allow Landlord or Landlord's agent or representative to come on the premises at all times to check Tenant's compliance with all applicable governmental regulations regarding Hazardous Substances; (v) Comply with minimum levels, standards or other performance standards or requirements which may be set forth or established for certain Hazardous Substances (if minimum standards or levels are applicable to Hazardous Substances present on the Premises, such levels or standards shall be established by an on-site inspection by the appropriate governmental authorities and shall be set forth in an addendum to this Lease); and (vi) Comply with all applicable governmental rules, regulations and requirements regarding the proper and lawful use, sale, transportation, generation, treatment, and disposal of Hazardous Substances. (2) Any and all costs incurred by Landlord and associated with Landlord's monitoring of Tenant's compliance with this Section 8, including Landlord's attorneys' fees and costs, shall be Additional Rent and shall be due and payable to Landlord immediately upon demand by Landlord. b. CLEANUP COSTS, DEFAULT AND INDEMNIFICATION. ------------------------------------------ (1) Tenant shall be fully and completely liable to Landlord for any and all cleanup costs, and any and all other charges, fees, penalties (civil and criminal) imposed by any governmental authority with respect to Tenant's use, disposal, transportation, generation and/or sale of Hazardous Substances, in or about the Premises, Common Areas, or Building. (2) Tenant shall indemnify, defend and save Landlord and Landlord's lender, if any, harmless from any and all of the costs, fees, penalties and charges assessed against or imposed upon Landlord (as well as Landlord's and Landlord's lender's attorneys' fees and costs) as a result of Tenant's use, disposal, transportation, generation and/or sale of Hazardous Substances. (3) Upon Tenant's default under this Section 8, in addition to the rights and remedies set forth elsewhere in this Lease, Landlord shall be entitled to the following rights and remedies: (i) At Landlord's option, to terminate this Lease immediately; and/or (ii) To recover any and all damages associated with the default, including, but not limited to cleanup costs and charges, civil and criminal penalties and fees, loss of business and sales by Landlord and other tenants of the Building, any and all damages and claims asserted by third parties and Landlord's attorneys' fees and costs. c. DISPOSAL OF WASTE (1) Refuse Disposal. Tenant shall not keep any trash, garbage, waste or other refuse on the Premises except in sanitary containers and shall regularly and frequently remove same from the Premises. Tenant shall keep all incinerators, containers or other equipment used for storage or disposal of such materials in a clean and sanitary condition. (2) Sewage Disposal. Tenant shall properly dispose of all sanitary sewage and shall not use the sewage disposal system (a) for the disposal of anything except sanitary sewage or (b) in excess of the lesser amount (i) reasonably contemplated by the uses permitted under this Lease or 9 (ii) permitted by any governmental entity. Tenant shall keep the sewage disposal system free of all obstructions and in good operating condition. (3) Disposal of Other Waste. Tenant shall properly dispose of all other waste or other matter delivered to, stored upon, located upon or within, used on, or removed from, the Premises in such a manner that it does not, and will not, adversely affect the (a) health or safety of persons, wherever located, whether on the Premises or elsewhere (b) condition, use or enjoyment of the Premises or any other real or personal property, wherever located, whether on the Premises or anywhere else, or (c) Premises or any of the improvements thereto or thereon including buildings, foundations, pipes, utility lines, landscaping or parking areas. d. DISRUPTIVE ACTIVITIES. Tenant shall not: --------------------- (1) Produce, or permit to be produced, any intense glare, light or heat except within an enclosed or screened area and then only in such manner that the glare, light or heat shall not, outside the Premises, be materially different that the light or heat from other sources outside the Premises; (2) Create, or permit to be created, any sound pressure level which will interfere with the quiet enjoyment of any real property outside the Premises, or which will create a nuisance or violate any governmental law, rule, regulation or requirement; (3) Create, or permit to be created, any ground vibration that is materially discernible outside the Premises; (4) Transmit, receive or permit to be transmitted or received, any electromagnetic, microwave or other radiation which is harmful or hazardous to any person or property in, or about the project; or (5) Create, or permit to be created, any noxious odor that is disruptive to the business operations of any other tenant in the Project. 9. SIGNAGE. All signing shall comply with rules and regulations set forth by Landlord as may be modified from time to time. Current rules and regulations relating to signs are described on Exhibit E. Tenant shall place no window covering (e.g., shades, blinds, curtains, drapes, screens, or tinting materials), stickers, signs, lettering, banners or advertising or display material on or near exterior windows or doors if such materials are visible from the exterior of the Premises, without Landlord's prior written consent. Similarly, Tenant may not install any alarm boxes, foil protection tape or other security equipment on the Premises without Landlord's prior written consent. Any material violating this provision may be destroyed by Landlord without compensation to Tenant. 10. PERSONAL PROPERTY TAXES. Tenant shall pay before delinquency all taxes, assessments, license fees and public charges levied, assessed or imposed upon its business operations as well as upon all trade fixtures, leasehold improvements, merchandise and other personal property in or about the Premises. 11. PARKING. Landlord grants to Tenant and Tenant's customers, suppliers, employees and invitees, a non-exclusive license to use the designated parking areas in the Project for the use of motor vehicles during the term of this Lease. Landlord reserves the right at any time to grant similar non-exclusive use to other tenants, to promulgate rules and regulations relating to the use of such parking areas, including reasonable restrictions on parking by tenants and employees, to 10 designate specific spaces for the use of any tenant, to make changes in the parking layout from time to time, and to establish reasonable time limits on parking. Overnight parking is prohibited and any vehicle violating this or any other vehicle regulation adopted by Landlord is subject to removal at the owner's expense. 12. UTILITIES; SERVICES. Landlord shall furnish the Premises with electricity for office use, including lighting and low power usage for office machines and water for restroom facilities. From 7:00 a.m. to 6:00 p.m. on weekdays and 9:00 a.m. to 1:00 p.m. on Saturday, excluding legal holidays ("Normal Business Hours"), Landlord shall furnish the Premises with heat and air conditioning services as required, in Landlord's judgment, for the comfortable use and occupancy of the Premises. Landlord shall provide further services (such as janitorial services and trash disposal) if Landlord and Tenant specifically agree to such additional services and identify such services with specificity on Exhibit F hereto. If requested by Tenant, Landlord shall furnish heat and air conditioning services at times other than Normal Business Hours, and supplements to Exhibit F special services, and Tenant shall pay for such additional services as additional rent at such rates as Landlord may establish from time to time. The mechanical system is designed to accommodate heating loads generated by the types and quantities of lights and equipment commonly found in suburban office park general administrative offices. Before installing lights and equipment in the Premises which in the aggregate exceed such amount (e.g. devoting the Premises to high density computer work station operations) or require a voltage other than 120 volts single phase, Tenant shall obtain the written permission of Landlord. Landlord may refuse to grant such permission unless Tenant agrees to pay Landlord's costs of installing any supplementary air conditioning or electrical systems required by such equipment or lights. In addition, Tenant shall pay Landlord in advance, as additional rent, on the first day of each month during the Term, the amount estimated by Landlord as the cost of furnishing electricity for the operation of such equipment or lights and the amount estimated by Landlord as the cost of operating and maintaining supplementary air conditioning units necessitated by Tenant's use of such equipment or lights. Landlord shall be entitled to install and operate, at Tenant's cost, a monitoring/metering system in the Premises to measure the added demands on electricity and the HVAC systems resulting from such equipment and lights, and from Tenant's HVAC requirements during other than Normal Business Hours. Tenant shall comply with Landlord's instruction for the use of drapes, blinds, and thermostats. Tenant acknowledges that Landlord shall have sole control over the determination of what utility providers serve the Project, and Landlord shall have no obligation to give access or easement rights or otherwise allow onto the Project any utility providers except those approved by Landlord in its discretion. If, for any reason, Landlord permits Tenant to purchase utility services from a provider other than Landlord's designated compan(ies), such provider shall be considered a contractor of Tenant and Tenant shall indemnify defend and hold Landlord harmless from such provider's acts and omissions while in, or in connection with their services to, the Building or Project in accordance with the terms and conditions of Article 15. In addition, Tenant shall allow Landlord to purchase such utility service from Tenant's provider at Tenant's rate or at such lower rate as can be negotiated by the aggregation of Landlord's tenants' requirements for such utility. Except for the costs of above-building standard and/or after-hours services, which shall be paid directly by Tenant, the costs of all utilities and services provided pursuant to this Section 12 shall be Expenses allocated to Tenant as part of Tenant's Share of Expenses pursuant to Section 4(b), above. Tenant shall pay when due and directly to the service provider any telephone or other services metered, chargeable or provided to the Premises and not charged as part of Tenant's Share of Expenses. 11 Landlord does not warrant that any utilities or services will be free from interruption including by reason of accident, repairs, alterations or improvements and including by reason of computer programming weaknesses known generally as the "Year 2000" problem. No utility interruption shall be deemed an eviction or disturbance of Tenant, or render Landlord liable to Tenant for damages, or relieve Tenant from the full and complete performance of all of Tenant's obligations under this Lease. Landlord shall provide such security for the Project as it deems appropriate. During other than Normal Business Hours, Landlord may restrict access to the Project in accordance with the Project's security system. Landlord shall not be liable to Tenant for injury to its agents, employees, customers or invitees, or for losses due to theft or burglary, or for damages done by unauthorized persons in the Project. Landlord shall provide five keys for the corridor door entering the Premises, and additional keys at a charge by Landlord on an order signed by Tenant. All such keys shall remain the property of Landlord. No additional locks shall be allowed on any door of the Premises without Landlord's written permission, and Tenant shall not make, or permit to be made, any duplicate keys, except those furnished by Landlord. Upon termination of this Lease, Tenant shall surrender to Landlord all keys to the Premises. 13. MAINTENANCE. Landlord shall maintain, in good condition, the structural parts of the Premises, which shall include only the foundations, bearing and exterior walls (excluding glass), subflooring and roof (excluding skylights), the unexposed electrical, plumbing and sewerage systems, including those portions of the systems lying outside the Premises, gutters and downspouts on the Building and the heating, ventilating and air conditioning system servicing the Premises; provided, however, the cost of all such maintenance shall be considered "Expenses" for purposes of Section 4(b). Except as provided above, Tenant shall maintain and repair the Premises in good condition, including, without limitation, maintaining and repairing all walls, storefronts, floors, ceilings, interior and exterior doors, exterior and interior windows and fixtures and interior plumbing as well as damage caused by Tenant, its agents, employees or invitees. Upon expiration or termination of this Lease, Tenant shall surrender the Premises to Landlord in the same condition as existed at the commencement of the term, except for reasonable wear and tear or damage caused by fire or other casualty for which Landlord has received all funds necessary for restoration of the Premises from insurance proceeds. 14. ALTERATIONS. Tenant shall not make any alterations to the Premises, or to the Project, including any changes to the existing landscaping, without Landlord's prior written consent. If Landlord gives its consent to alterations, Landlord may post notices in accordance with the laws of the state in which the premises are located. Any alterations made shall remain on and be surrendered with the Premises upon expiration or termination of this Lease, except that Landlord may, within 30 days before or 30 days after expiration of the term, elect to require Tenant to remove any alterations which Tenant may have made to the Premises. If Landlord so elects, at its own cost Tenant shall restore the Premises to the condition designated by Landlord in its election, before the last day of the term or within 30 days after notice of its election is given, whichever is later. Should Landlord consent in writing to Tenant's alteration of the Premises, Tenant shall contract with a contractor approved by Landlord for the construction of such alterations, shall secure all appropriate governmental approvals and permits, and shall complete such alterations with due diligence in compliance with plans and specifications approved by Landlord. All such construction shall be performed in a manner which will not interfere with the quiet enjoyment of other tenants of the 12 Project. Tenant shall pay all costs for such construction and shall keep the Premises and the Project free and clear of all mechanics' liens which may result from construction by Tenant. Tenant shall not use any portion of the common areas in connection with an alteration without the prior written consent of Landlord. 15. RELEASE AND INDEMNITY. a. INDEMNITY. Tenant shall indemnify, defend (using legal counsel acceptable to Landlord) and save Landlord and its property manager harmless from all claims, suits, losses, damages, fines, penalties, liabilities and expenses (including Landlord's personnel and overhead costs and attorneys fees and other costs incurred in connection with claims, regardless of whether such claims involve litigation) resulting from any actual or alleged injury (including death) of any person or from any actual or alleged loss of or damage to, any property arising out of or in connection with (i) Tenant's occupation, use or improvement of the Premises, or that of its employees, agents or contractors, (ii) Tenant's breach of its obligations hereunder, or (iii) any act or omission of Tenant or any subtenant, licensee, assignee or concessionaire of Tenant, or of any officer, agent, employee, guest or invitee of Tenant, or of any such entity in or about the Premises. Tenant agrees that the foregoing indemnity specifically covers actions brought by its own employees. This indemnity with respect to acts or omissions during the term of this Lease shall survive termination or expiration of this Lease. The foregoing indemnity is specifically and expressly intended to, constitute a waiver of Tenant's immunity under Washington's Industrial Insurance Act, RCW Title 51, to the extent necessary to provide Landlord with a full and complete indemnity from claims made by Tenant and its employees, to the extent provided herein. Tenant shall promptly notify Landlord of casualties or accidents occurring in or about the Premises. LANDLORD AND TENANT ACKNOWLEDGE THAT THE INDEMNIFICATION PROVISIONS OF SECTION 8 AND THIS SECTION 15 WERE SPECIFICALLY NEGOTIATED AND AGREED UPON BY THEM. b. RELEASE. Tenant hereby fully and completely waives and releases all claims against Landlord for any losses or other damages sustained by Tenant or any person claiming through Tenant resulting from any accident or occurrence in or upon the Premises, including but not limited to: any defect in or failure of Project equipment; any failure to make repairs; any defect, failure, surge in, or interruption of Project facilities or services; any defect in or failure of Common Areas; broken glass; water leakage; the collapse of any Building component; or any act, omission or negligence of co-tenants, licensees or any other persons or occupants of the Building, provided only that the release contained in this Section 15(b) shall not apply to claims for actual damage to persons or property (excluding consequential damages such as lost profits) resulting directly from Landlord's gross negligence or willful misconduct, or breach of its express obligations under this Lease which Landlord has not cured within a reasonable time after receipt of written notice of such breach from Tenant. Notwithstanding any other provision of this Lease, and to the fullest extent permitted by law, Tenant hereby agrees that Landlord shall not be liable for injury to Tenant's business or any loss of income therefrom, whether such injury or loss results from conditions arising upon the Premises or the Project, or from other sources or places including, without limitation, any interruption of services and utilities or any casualty, or from any cause whatsoever, including, Landlord's negligence, and regardless of whether the cause of such injury or loss or the means of repairing the same is inaccessible to Landlord or Tenant. Tenant may elect, at its sole cost and expense, to obtain 13 business interruption insurance with respect to such potential injury or loss. c. LIMITATION ON INDEMNITY. In compliance with RCW 4.24.115 as in effect on the date of this Lease, all provisions of this Lease pursuant to which Landlord or Tenant (the "Indemnitor") agrees to indemnify the other (the "Indemnitee") against liability for damages arising out of bodily injury to Persons or damage to property relative to the construction, alteration, repair, addition to, subtraction from, improvement to, or maintenance of, any building, road, or other structure, project, development, or improvement attached to real estate, including the Premises, (i) shall not apply to damages caused by or resulting from the sole negligence of the Indemnitee, its agents or employees, and (ii) to the extent caused by or resulting from the concurrent negligence of (a) the Indemnitee or the Indemnitee's agents or employees, and (b) the Indemnitor or the Indemnitor's agents or employees, shall apply only to the extent of the Indemnitor's negligence; PROVIDED, HOWEVER, the limitations on indemnity set forth in this Section shall automatically and without further act by either Landlord or Tenant be deemed amended so as to remove any of the restrictions contained in this Section no longer required by then applicable law. d. DEFINITIONS. As used in any Section establishing indemnity or release of Landlord, "Landlord" shall include Landlord, its partners, officers, agents, employees and contractors, and "Tenant" shall include Tenant and any person or entity claiming through Tenant. 16. INSURANCE. Tenant shall, throughout the term of this Lease and any renewal hereof, at its own expense, keep and maintain in full force and effect, a policy of commercial general liability (occurrence form) insurance, including contractual liability (including Tenant's indemnification obligations under this Lease) insuring Tenant's activities upon, in or about the Premises or the Project, against claims of bodily injury or death or property damage or loss with a combined single limit of not less than One Million Dollars ($1,000,000) per occurrence and Two Million Dollars ($2,000,000) in the aggregate, with such increases in limits as Landlord may from time to time require consistent with insurance requirements of institutional landlords in similar projects in the area. If Tenant manufactures on the Premises consumer goods using any materials supplied by Landlord (including but not limited to water supplied as part of utilities to the Premises), Tenant's insurance shall include products liability insurance in the amounts specified for the commercial general liability insurance. Tenant shall further, throughout the term of this Lease and any renewal thereof, at its own expense, keep and maintain in full force and effect, what is commonly referred to as "Special Cause of Loss" or "Special" coverage insurance (excluding earthquake and flood) on tenant's leasehold improvements in an amount equal to one hundred percent (100%) of the replacement value thereof with a coinsurance waiver. The proceeds from any such policy shall be used by Tenant for the restoration of Tenant's improvements or alterations. As used in this Lease, "tenant's leasehold improvements" shall mean any alterations, additions or improvements installed in or about the Premises by or with Landlord's permission or otherwise permitted by this Lease, whether or not the cost thereof was paid for by Tenant. All insurance required to be provided by Tenant under this Lease: (a) shall be issued by Insurance companies authorized to do business in the state in which the premises are located with a financial rating of at least an A+X status as rated in the most recent edition of Best's Insurance Reports; (b) shall be issued as a primary policy; shall be on an occurrence basis; (c) name Landlord and Landlord's property manager 14 as additional insured; and (d) shall contain an endorsement requiring at least 30 days prior written notice of cancellation to Landlord and Landlord's lender, before cancellation or change in coverage, scope or amount of any policy. Tenant shall deliver a certificate or copy of such policy together with evidence of payment of all current premiums to Landlord within 30 days of execution of this Lease and at the time of all renewals thereof. If Tenant fails at any time to maintain the insurance required by this Lease, and fails to cure such default within five (5) business days of written notice from Landlord then, in addition to all other remedies available under this Lease and applicable law, Landlord may purchase such insurance on Tenant's behalf and the cost of such insurance shall be Additional Rent due within ten (10) days of written invoice from Landlord to Tenant. Tenant hereby releases Landlord, and waives its entire right of recovery for loss or damage to property located within or constituting a part or all of the Building or the Project to the extent that the loss or damage is covered by (a) Tenant's insurance, or (b) the insurance Tenant is required to carry under this Article 16, whichever is greater. This waiver applies whether or not the loss is due to the negligent acts or omissions of Landlord or Tenant, or their respective officers, directors, employees, agents, contractors, or invitees. Tenant shall have its insurers endorse the applicable insurance policies to reflect the foregoing waiver of claims, provided however, that the endorsement shall not be required if the applicable policy of insurance permits the named insured to waive rights of subrogation on a blanket basis, in which case the blanket waiver shall be acceptable 17. DESTRUCTION. If during the term, the Premises or Project are more than 10% destroyed from any cause, or rendered inaccessible or unusable from any cause, Landlord may, in its sole discretion, terminate this Lease by delivery of notice to Tenant within 30 days of such event without compensation to Tenant. If in Landlord's estimation, the Premises cannot be restored within 90 days following such destruction, the Landlord shall notify Tenant and Tenant may terminate this Lease by delivery of notice to Landlord within 30 days of receipt of Landlord's notice. If neither Landlord nor Tenant terminates this Lease as provided above, then Landlord shall commence to restore the Premises in compliance with then existing laws and shall complete such restoration with due diligence. In such event, this Lease shall remain in full force and effect, but there shall be an abatement of Base Monthly Rent and Tenant's Share of Expenses between the date of destruction and the date of completion of restoration, based on the extent to which destruction interferes with Tenant's use of the Premises. 18. CONDEMNATION. a. TAKING. If all of the Premises are taken by Eminent Domain, this Lease shall terminate as of the date Tenant is required to vacate the Premises and all Base and Additional Rent shall be paid to that date. The term "Eminent Domain" shall include the taking or damaging of property by, through or under any governmental or statutory authority, and any purchase or acquisition in lieu thereof, whether the damaging or taking is by government or any other person. If, in the reasonable judgment of Landlord, a taking of any part of the Premises by Eminent Domain renders the remainder thereof unusable for the business of Tenant (or the cost of restoration of the Premises is not commercially reasonable), the Lease may, at the option of either party, be terminated by written notice given to the other party not more than thirty (30) days after Landlord gives Tenant written notice of the taking, and such termination shall be effective as of the date when Tenant is required to vacate the portion of the Premises so taken. If this Lease is so terminated, all Base and Additional Rent shall be paid to the date of termination. Whenever any portion of the Premises is taken by Eminent Domain and this Lease is not terminated, Landlord shall at its expense 15 proceed with all reasonable dispatch to restore, to the extent of available proceeds and to the extent it is reasonably prudent to do so, the remainder of the Premises to the condition they were in immediately prior to such taking, and Tenant shall at its expense proceed with all reasonable dispatch to restore its personal property and all improvements made by it to the Premises to the same condition they were in immediately prior to such taking. The Base and Additional Rent payable hereunder shall be reduced from the date Tenant is required to partially vacate the Premises in the same proportion that the Rentable Area taken bears to the total Rentable Area of the Premises prior to taking. b. AWARD. Landlord reserves all right to the entire damage award or payment for any taking by Eminent Domain, and Tenant waives all claim whatsoever against Landlord for damages for termination of its leasehold interest in the Premises or for interference with its business. Tenant hereby grants and assigns to Landlord any right Tenant may now have or hereafter acquire to such damages and agrees to execute and deliver such further instruments of assignment as Landlord may from time to time request. Tenant shall, however, have the right to claim from the condemning authority all compensation that may be recoverable by Tenant on account of any loss incurred by Tenant in moving Tenant's merchandise, furniture, trade fixtures and equipment, provided, however, that Tenant may claim such damages only if they are awarded separately in the eminent domain proceeding and not out of or as part of Landlord's damages. 19. ASSIGNMENT OR SUBLEASE. Tenant shall not assign or encumber its interest in this Lease or the Premises or sublease all or any part of the Premises or allow any other person or entity (except Tenant's authorized representatives, employees, invitees, or guests) to occupy or use all or any part of the Premises without first obtaining Landlord's consent which shall not be unreasonably withheld for tenants meeting Landlord's then-existing Project standards for creditworthiness and use. No assignment or sublease shall release Tenant from the obligation to perform all obligations under this Lease. Any assignment, encumbrance or sublease without Landlord's written consent shall be voidable and at Landlord's election, shall constitute a default. If Tenant is a partnership, a withdrawal or change, voluntary, involuntary or by operation of law of any partner, or the dissolution of the partnership, shall be deemed a voluntary assignment. If Tenant consists of more than one person, a purported assignment, voluntary or involuntary or by operation of law from one person to the other shall be deemed a voluntary assignment. If Tenant is a corporation, any dissolution, merger, consolidation or other reorganization of Tenant, or sale or other transfer of a controlling percentage of the capital stock of Tenant, or the sale of at least 25% of the value of the assets of Tenant shall be deemed a voluntary assignment. The phrase "controlling percentage" means ownership of and right to vote stock possessing at least 25% of the total combined voting power of all classes of Tenant's capital stock issued, outstanding and entitled to vote for election of directors. This Section 19 shall not apply to corporations the stock of which is traded through an exchange or over the counter. All rent received by Tenant from its subtenants in excess of the Rent payable by Tenant to Landlord under this Lease shall be paid to Landlord, or any sums to be paid by an assignee to Tenant in consideration of the assignment of this Lease shall be paid to Landlord. If Tenant requests Landlord to consent to a proposed assignment or subletting, Tenant shall pay to Landlord, whether or not consent is ultimately given, $100 or Landlord's reasonable attorney's fees incurred in connection with such request, whichever is greater. No interest of Tenant in this Lease shall be assignable by involuntary assignment through operation of law (including without limitation the transfer of this Lease by testacy or intestacy). Each of the following acts shall be considered an involuntary assignment: (a) if Tenant is or becomes bankrupt or insolvent, makes an assignment for the benefit of creditors, or institutes proceedings under the Bankruptcy Act in which 16 Tenant is the bankrupt; or if Tenant is a partnership or consists of more than one person or entity, if any partner of the partnership or other person or entity is or becomes bankrupt or insolvent, or makes an assignment for the benefit of creditors; or (b) if a writ of attachment or execution is levied on this Lease; or (c) if in any proceeding or action to which Tenant is a party, a receiver is appointed with authority to take possession of the Premises. An involuntary assignment shall constitute a default by Tenant and Landlord shall have the right to elect to terminate this Lease, in which case this Lease shall not be treated as an asset of Tenant. 20. DEFAULT. The occurrence of any of the following shall constitute a default by Tenant: (a) a failure to pay Rent or other charge when due; (b) abandonment and vacation of the Premises (failure to occupy and operate the Premises for ten consecutive days shall be conclusively deemed an abandonment and vacation); or (c) failure to perform any other provision of this Lease. 21. LANDLORD'S REMEDIES. Landlord shall have the following remedies if Tenant is in default. (These remedies are not exclusive; they are cumulative and in addition to any remedies now or later allowed by law): Landlord may terminate Tenant's right to possession of the Premises at any time. No act by Landlord other than giving notice to Tenant shall terminate this Lease. Acts of maintenance, efforts to relet the Premises, or the appointment of a receiver on Landlord's initiative to protect Landlord's interest under this Lease shall not constitute a termination of Tenant's right to possession. Upon termination of Tenant's right to possession, Landlord has the right to recover from Tenant: (1) the worth of the unpaid Rent that had been earned at the time of termination of Tenant's right to possession; (2) the worth of the amount of the unpaid Rent that would have been earned after the date of termination of Tenant's right to possession less the amount that Tenant proves Landlord should be able to earn during such period net of all releasing costs; (3) any other amount, including but not limited to, expenses incurred to relet the Premises, court, attorney and collection costs, necessary to compensate Landlord for all detriment caused by Tenant's default. "The Worth," as used for Item (1) in this Paragraph 21 is to be computed by allowing interest at the rate of 18 percent per annum. If the interest rate specified in this Lease is higher than the rate permitted by law, the interest rate is hereby decreased to the maximum legal interest rate permitted by law. "The Worth" as used for Item (2) in this Paragraph 21 is to be computed by discounting the amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of termination of Tenant's right of possession. 22. ENTRY ON PREMISES. Landlord and its authorized representatives shall have the right to enter the Premises at all reasonable times for any of the following purposes: (a) to determine whether the Premises are in good condition and whether Tenant is complying with its obligations under this Lease; (b) to do any necessary maintenance and to make any restoration to the Premises or the Project that Landlord has the right or obligation to perform; (c) to post "for sale" signs at any time during the term, to post "for rent" or "for lease" signs during the last 90 days of the term, or during any period while Tenant is in default; (d) to show the Premises to prospective brokers, agents, buyers, tenants or persons interested in leasing or purchasing the Premises, at any time during the term; or (e) to repair, maintain or improve the Project and to erect scaffolding and protective barricades around and about the Premises but not so as to prevent entry to the Premises and to do any other act or thing necessary for the safety or preservation of the Premises or the Project. Landlord shall not be liable in any manner for any inconvenience, disturbance, loss of business, nuisance or other damage arising out of Landlord's entry onto the Premises as provided in this Section 22. Tenant shall not be entitled to an abatement or reduction of Rent if Landlord exercises any rights reserved in this Section 22. Landlord shall conduct his activities on the Premises as provided herein in a commercially reasonable manner so as to limit inconvenience, annoyance or disturbance to Tenant to the maximum extent practicable. For each of these purposes, Landlord shall at all times have and retain a key with which to unlock all the doors in, upon and 17 about the Premises, excluding Tenant's vaults and safes. Tenant shall not alter any lock or install a new or additional lock or bolt on any door of the Premises without prior written consent of Landlord. If Landlord gives its consent, Tenant shall furnish Landlord with a key for any such lock. 23. SUBORDINATION; ESTOPPEL CERTIFICATE. a. SUBORDINATION. Without the necessity of any additional document being executed by Tenant for the purpose of effecting a subordination, and at the election of Landlord or any mortgagee or any beneficiary of a Deed of Trust with a lien on the Project or any ground lessor with respect to the Project, this Lease shall be subject and subordinate at all times to (a) all ground leases or underlying leases which may now exist or hereafter be executed affecting the Project, and (b) the lien of any mortgage or deed of trust which may now exist or hereafter be executed in any amount for which the Project, ground leases or underlying leases, or Landlord's interest or estate in any of said items is specified as security. In the event that any ground lease or underlying lease terminates for any reason or any mortgage or Deed of Trust is foreclosed or a conveyance in lieu of foreclosure is made for any reason, Tenant shall, notwithstanding any subordination, attorn to and become the Tenant of the successor in interest to Landlord, at the option of such successor in interest. Tenant covenants and agrees to execute and deliver, upon demand by Landlord and in the form requested by Landlord any additional documents evidencing the priority or subordination of this Lease with respect to any such ground lease or underlying leases or the lien of any such mortgage or Deed of Trust. Tenant hereby irrevocably appoints Landlord as attorney-in-fact of Tenant to execute, deliver and record any such document in the name and on behalf of Tenant. b. ESTOPPEL CERTIFICATE. Tenant shall, within 10 days of demand, execute and deliver to Landlord a written statement certifying: (i) the commencement and the expiration date of the Term; (ii) the amount of Base Rent and the date to which it has been paid; (iii) that this Lease is in full force and effect and has not been assigned or amended in any way (or specifying the date and terms of each agreement so affecting this Lease) and that no part of the Premises has been sublet (or to the extent such is not the case, a copy of any sublease); (iv) that Landlord is not in default under this Lease (or if such is not the case, the extent and nature of such default); (v) on the date of such certification, there are no existing defenses or claims which Tenant has against Landlord (or if such is not the case, the extent and nature of such defenses or claims); (vi) the amount of the Security Deposit held by Landlord; and (vii) any other fact or representation that a mortgagee or purchaser may reasonably request. It is intended that any such statement shall be binding upon Tenant and may be relied upon by a prospective purchaser or mortgagee. If Tenant fails to respond within 10 days of receipt of a written request by Landlord therefor, (a) Tenant shall be deemed to have given a certificate as above provided, without modification, and shall be conclusively deemed to have admitted the accuracy of any information supplied by Landlord to a prospective purchaser or mortgagee, and (b) Landlord may impose a fee of $100 per day for each day of delay in providing the statement by Tenant after the 10 day period. 18 24. NOTICE. Any notice, demand or request required hereunder shall be given in writing to the party's facsimile number or address set forth in Section 1 hereof by any of the following means: (a) personal service; (b) electronic communication, whether by telex, telegram or facsimile with electronic confirmation; (c) overnight courier; or (d) registered or certified, first class mail, return receipt requested. Such addresses may be changed by notice to the other parties given in the same manner as above provided. Any notice, demand or request sent pursuant to either subsection (a) or (b) hereof shall be deemed received upon such personal service or upon dispatch by electronic means with electronic confirmation of receipt. Any notice, demand or request sent pursuant to subsection (c) hereof shall be deemed received on the business day immediately following deposit with the overnight courier and, if sent pursuant to subsection (d), shall be deemed received forty-eight (48) hours following deposit in the U.S. mail. Tenant hereby appoints as its agent to receive the service of all dispossessory or distraint proceedings and notices thereunder the person in charge of or occupying the Premises at the time, and, if no person shall be in charge of occupying the same, then such service may be made by attaching the same on the main entrance of the Premises. 25. WAIVER. No delay or omission in the exercise of any right or remedy by Landlord shall impair such right or remedy or be construed as a waiver. No act or conduct of Landlord, including without limitation, acceptance of the keys to the Premises, shall constitute an acceptance of the surrender of the Premises by Tenant before the expiration of the term. Only written notice from Landlord to Tenant shall constitute acceptance of the surrender of the Premises and accomplish termination of the Lease. Landlord's consent to or approval of any act by Tenant requiring Landlord's consent or approval shall not be deemed to waive or render unnecessary Landlord's consent to or approval of any subsequent act by Tenant. Any waiver by Landlord of any default must be in writing and shall not be a waiver of any other default concerning the same or any other provision of the Lease. TENANT SPECIFICALLY ACKNOWLEDGES AND AGREES THAT, WHERE TENANT HAS RECEIVED A NOTICE TO CURE DEFAULT (WHETHER RENT OR NON-RENT), NO ACCEPTANCE BY LANDLORD OF RENT SHALL BE DEEMED A WAIVER OF SUCH NOTICE, AND, INCLUDING BUT WITHOUT LIMITATION, NO ACCEPTANCE BY LANDLORD OF PARTIAL RENT SHALL BE DEEMED TO WAIVE OR CURE ANY RENT DEFAULT. LANDLORD MAY, IN ITS DISCRETION, AFTER RECEIPT OF PARTIAL PAYMENT OF RENT, REFUND SAME AND CONTINUE ANY PENDING ACTION TO COLLECT THE FULL AMOUNT DUE, OR MAY MODIFY ITS DEMAND TO THE UNPAID PORTION. IN EITHER EVENT THE DEFAULT SHALL BE DEEMED UNCURED UNTIL THE FULL AMOUNT IS PAID IN GOOD FUNDS. 26. SURRENDER OF PREMISES; HOLDING OVER. Upon expiration of the term, Tenant shall surrender to Landlord the Premises and all Tenant improvements and alterations in good condition, except for ordinary wear and tear and alterations Tenant has the right or is obligated to remove under the provisions of Section 14 herein. Tenant shall remove all personal property including, without limitation, all data and phone wires, wallpaper, paneling and other decorative improvements or fixtures and shall perform all restoration made necessary by the removal of any alterations or Tenant's personal property before the expiration of the term, including for example, restoring all wall surfaces to their condition prior to the commencement of this Lease. Landlord can elect to retain or dispose of in any manner Tenant's personal property not removed from the Premises by Tenant prior to the expiration of the term. Tenant waives all claims against Landlord for any damage to Tenant resulting from Landlord's retention or disposition of Tenant's personal property. Tenant shall be liable 19 to Landlord for Landlord's cost for storage, removal or disposal of Tenant's personal property. If Tenant, with Landlord's consent, remains in possession of the Premises after expiration or termination of the term, or after the date in any notice given by Landlord to Tenant terminating this Lease, such possession by Tenant shall be deemed to be a month-to-month tenancy terminable as provided under Washington law, by either party. All provisions of this Lease, except those pertaining to term and Rent, shall apply to the month-to-month tenancy. During any holdover term, Tenant shall pay Base Monthly Rent in an amount equal to 150% of Base Monthly Rent for the last full calendar month during the regular term plus 100% of Tenant's share of Expenses pursuant to Section 4(b)(3). If Tenant fails to surrender possession of the Premises upon termination or expiration of this Lease and if Tenant does not obtain Landlord's written consent to Tenant's continued occupancy, then Tenant shall be deemed a trespasser and shall be liable to Landlord for all damages sustained by Landlord as a result thereof, together with Base Rate at a rate double the Latest Rate. 27. LIMITATION OF LANDLORD'S LIABILITY. In consideration of the benefits accruing hereunder, Tenant agrees that, in the event of any actual or alleged failure, breach or default of this Lease by Landlord, Landlord's liability under this Lease shall be limited to, and Tenant shall look only to Landlord interest in the Project and the rents and proceeds thereof. 28. BUILDING PLANNING. If Landlord requires the Premises for use in conjunction with another suite or for other reasons connected with the Project planning program, upon notifying Tenant in writing, Landlord shall have the right to move Tenant to other space in the Project that is substantially the same in size, configuration and tenant improvements, such move (including out-of-pocket ancillary costs such as reprinting of stationary) to be at Landlord's sole cost and expense. Upon such move, the terms and conditions of the original Lease shall remain in full force and effect, save and excepting that a revised Exhibit "A" shall become part of this Lease and shall reflect the location of the new space and Section 1 of this Lease shall be amended to include and state all correct data as to the new space. 29. MISCELLANEOUS PROVISIONS. a. TIME OF ESSENCE. Time is of the essence of each provision of this Lease. b. SUCCESSOR. This Lease shall be binding on and inure to the benefit of the parties and their successors, except as provided in Section 19 herein. c. LANDLORD'S CONSENT. Any consent required by Landlord under this Lease must be granted in writing and may be withheld or conditioned by Landlord in its sole and absolute discretion. d. COMMISSIONS. Each party represents that it has not had dealings with any real estate broker, finder or other person with respect to this Lease in any manner, except for the broker(s) identified in Section 1, who shall be compensated by Landlord. Landlord and Tenant recognize that it is possible that they may hereafter make additional agreements regarding further extension or renewal of this Lease or a new lease or leases for all or 20 one or more parts of the Premises or other space in the Project for a term or terms commencing after the Commencement Date of this Lease. Landlord and Tenant recognize that it is also possible that they may hereafter modify this Lease to add additional space or to substitute space as part of the Premises. If any such additional agreements, new leases or modifications to this Lease are made, Landlord shall not have any obligation to pay any compensation to any real estate broker or to any other third person engaged by Tenant to render services to Tenant in connection with negotiating such matters, regardless of whether under the circumstances such person is or is not regarded by the law as an agent of Landlord. e. OTHER CHARGES. If either party commences any litigation against the other patty or files an appeal of a decision arising out of or in connection with the Lease, the prevailing party shall be entitled to recover from the other party reasonable attorney's fees and costs of suit. If Landlord employs a collection agency to recover delinquent charges, Tenant agrees to pay all collection agency and attorneys' fees charged to Landlord in addition to Rent, late charges, interest and other sums payable under this Lease. Tenant shall pay a charge of $75 to Landlord for preparation of a demand for delinquent Rent. f. FORCE MAJEURE. Landlord shall not be deemed in default hereof nor liable for damages arising from its failure to perform its duties or obligations hereunder if such is due to causes beyond its reasonable control, including, but not limited to, acts of God, acts of civil or military authorities, fires, floods, windstorms, earthquakes, strikes or labor disturbances, civil commotion, delays in transportation, governmental delays or war. g. RULES AND REGULATIONS. Tenant shall faithfully observe and comply with the "Rules and Regulations", a copy of which is attached hereto, and all reasonable and nondiscriminatory modifications thereof and additions thereto from time to time put into effect by Landlord. Landlord shall not be responsible to Tenant for the violation or non-performance by any other tenant or occupant of the building or Project of said tenant or occupant's lease or of any of said Rules and Regulations. h. LANDLORD'S SUCCESSORS. In the event of a sale or conveyance by Landlord of the Project, the same shall operate to release Landlord from any liability under this Lease, and in such event Landlord's successor in interest shall be solely responsible for all obligations of Landlord under this Lease. i. INTERPRETATION. This Lease shall be construed and interpreted in accordance with the laws of the state in which the premises are located. This Lease constitutes the entire agreement between the parties with respect to the Premises and the Project, except for such guarantees or modifications as may be executed in writing by the parties from time to time. When required by the context of this Lease, the singular shall include the plural, and the masculine shall include the feminine and/or neuter. "Party" shall mean Landlord or Tenant. If more than one person or entity constitutes Landlord or Tenant, the obligations imposed upon that party shall be joint and several. The enforceability, invalidity or illegality of any provision shall not render the other provisions unenforceable, invalid or illegal. 21 j. PRIOR UNDERSTANDINGS. Tenant acknowledges that neither Landlord nor anyone representing Landlord has made statements of any kind whatsoever on which Tenant has relied in entering into this Lease. Tenant further acknowledges that Tenant has relied solely on its independent investigation and its own business judgment in entering into this Lease. Landlord and Tenant agree that: this Lease supersedes all prior and contemporaneous understandings and agreement; the provisions of this Lease are intended by them as the final expression of their agreement; this Lease constitutes the complete and exclusive statement of its terms; and no extrinsic evidence whatsoever may be introduced in any judicial proceeding involving this Lease. No provision of this Lease may be amended except by an agreement in writing signed by the parties hereto or their respective successors in interest, whether or not such amendment is supported by new consideration. k. AUTHORITY. If Tenant is a corporation, each individual executing this Lease on behalf of said corporation represents and warrants that he/she is duly authorized to execute and deliver this Lease on behalf of said corporation. Concurrently with the execution of this Lease, Tenant shall deliver to Landlord a certified copy of a resolution of the Board of Directors of said corporation authorizing the execution of this Lease. If Tenant is a partnership, each individual executing this Lease on behalf of said partnership represents and warrants that he/she is duly authorized to execute and deliver this Lease on behalf of said partnership and that this Lease is binding upon said partnership in accordance with its terms, and concurrently with execution of this Lease, Tenant shall deliver to Landlord such evidence of authorization as Landlord may require. If Tenant is a marital community, or a member of a marital community, both members of the marital community shall execute this Lease. Where Tenant is comprised of more than one person or entity, all covenants, agreements and obligations of Tenant hereunder shall be the joint and several covenants, agreements and obligations of each person or entity comprising l. CLEAN AIR ACT. Tenant acknowledges that Landlord has not made any portion of the Premises or the Building accessible for smoking in compliance with WAC 296-62-12000. If Tenant wishes to make any portion of the Premises accessible for smoking, Tenant shall make all improvements necessary to comply with all applicable governmental rules and regulations. Tenant acknowledges that the indemnity contained in Section 15 of the Lease includes, but is not limited to claims based on the presence of tobacco smoke as a result of the activities of Tenant, its employees, agents, or guests. LEASE CONSIDERATION: In consideration of Landlord's entry into this lease, Tenant shall pay $13,691.00 concurrent with the execution of this Lease. Such consideration shall be deemed fully earned by Landlord with full execution of Lease and shall not be refundable. LANDLORD: TIAA REALTY, INC. --------------------------------- By: Teachers Insurance & Annuity Association of America, Inc., a New York corporation, its authorized representative By: /s/ James Garofalo ----------------------------- James Garofalo 22 Its Assistant Secretary ----------------------------- TENANT: Kronos Air Technologies ------------------------------------ By: /s/ Robert Fuhriman II ------------------------------------ Robert Fuhriman II Its COO ----------------------------- 23 EXHIBIT A (the "Premises") [Floor Plan Omitted] (North) FIRST FLOOR PLAN Office Area: 1,010 sf ---------------- Shell Area: 1,332 sf Total Area: 2,342 sf - -------------------------------------------------------------------------------- Building B 8551 154th Avenue NE [SITE MAP OMITTED] Redmond, WA 98052 24 EXHIBIT B (the "Project") [MAP OMITTED] LEGAL DESCRIPTION: (Building B) Lot B, WestPark, a Binding Site Plan, according to the Plat thereof, recorded in Volume 137 of Plats, Pages 85 through 88, inclusive, and recorded under Recording No. 8706220570, in King County, Washington. 25 EXHIBIT C (Premises Condition) BLDG/UNIT: B/8551 ------------------ QUANTITY AND/OR SIZE HEIGHT, LENGTH, ETC. ITEM: ____ STANDARD IMPROVEMENTS ONLY ____ STANDARD IMPROVEMENTS PLUS THOSE SHOWN BELOW XX SPACE TAKEN "AS-IS" - ----- PARTITIONS: NA CEILINGS: NA DOORS: NA FLOOR COVERING: Landlord will provide building-standard carpet throughout office portion of premises. PLUMBING: NA LIGHTS: NA SWITCHES: NA WALL ELECTRICAL OUTLETS: NA TELEPHONE OUTLETS: NA AIR CONDITIONING OR VENT FAN: NA AIR CONDITIONING HOOK UP: NA WATER HEATER: NA PAINTING: Landlord will repaint office portion of premises with building standard materials and building standard color. OTHER: Landlord shall provide $500.00 toward building standard signage. 26 EXHIBIT D (Rules and Regulations) 1. Except as specifically provided in the Lease to which these Rules and Regulations are attached, no sign, placard, picture, advertisement, name or notice shall be installed or displayed on any part of the outside or inside of the building or Project without the prior written consent of Landlord. Landlord shall have the right to remove, at Tenant's expense and without notice, any sign installed or displayed in violation of this rule. All approved signs or lettering on doors and walls shall be printed, painted, affixed or inscribed at the expense of Tenant by a person approved by Landlord. 2. If Landlord objects in writing to any curtains, blinds, shades, screens or hanging plants or other similar objects attached to or used in connection with any window or door of the Premises, or placed on any windowsill, which is visible from the exterior of the Premises, Tenant shall immediately discontinue such use. Tenant shall not place anything against or near glass partitions or doors or windows which may appear unsightly from outside the Premises. 3. Tenant shall not obstruct any sidewalks, halls, passages, exits, entrances, elevators, escalators or stairways of the Project. The halls, passages, exits, entrances, shopping malls, elevators, escalators and stairways are not open to the general public, but are open, subject to reasonable regulations, to Tenant's business invitees. Landlord shall in all cases retain the right to control and prevent access thereto of all persons whose presence in the judgment of Landlord would be prejudicial to the safety, character, reputation and interest of the Project and its tenants; provided that nothing herein contained shall be construed to prevent such access to persons with whom any tenant normally deals in the ordinary course of its business, unless such persons are engaged in illegal or unlawful activities. No tenant and no employee or invitee of any tenant shall go upon the roof(s) of the Project. 4. The directory of the building or Project will be provided exclusively for the display of the name and location of tenants only and Landlord reserves the right to exclude any other names therefrom. 5. Landlord will furnish Tenant, free of charge, with five keys to each door lock in the Premises. Landlord may make a reasonable charge for any additional keys. Tenant shall not make or have made additional keys, and Tenant shall not alter any lock or install a new additional lock or bolt on any door of its Premises. Tenant, upon the termination of its tenancy, shall deliver to Landlord the keys of all doors which have been furnished to Tenant, and in the event of loss of any keys so furnished, shall pay Landlord therefor. 6. If Tenant requires telegraphic, telephonic, burglar alarm or similar services, it shall first obtain, and comply with, Landlord's instructions in their installation. 7. Tenant shall not place a load upon any floor of the Premises which exceeds the load per square foot which such floor was designed to carry and which is allowed by law. Landlord shall have the right to prescribe the weight, size and position of all equipment, materials, furniture or other property brought into the building. Heavy objects shall, if considered necessary by Landlord, stand on such platforms as determined by Landlord to be necessary to properly distribute the weight, which platforms shall be provided at Tenant's expense. Business machines and mechanical equipment belonging to Tenant, which cause noise or vibration that may be transmitted to the structure of the building or to any space therein to such a degree as to be objectionable to Landlord or to any tenants in the building, shall be placed and maintained by Tenant, at 27 Tenant's expense, on vibration eliminators or other devices sufficient to eliminate noise or vibration. The persons employed to move such equipment in or out of the building must be acceptable to Landlord. Landlord will not be responsible for loss of, or damage to, any such equipment or other property from any cause, and all damage done to the building by maintaining or moving such equipment or other property shall be repaired at the expense of Tenant. 8. Tenant shall not use or keep in the Premises any kerosene, gasoline or inflammable or combustible fluid or material other than those limited quantities necessary for the operation or maintenance of office equipment. Tenant shall not use or permit to be used in the Premises any foul or noxious gas or substance, or permit or allow the Premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the building by reason of noise, odors or vibrations, nor shall Tenant bring into or keep in or about the Premises any birds or animals. 9. Tenant shall not use any method of heating or air conditioning other than that supplied by Landlord. 10. Tenant shall not waste electricity, water or air conditioning and agrees to cooperate fully with Landlord to assure the most effective operation of the building's heating and air conditioning and to comply with any governmental energy-saving rules, laws or regulations of which Tenant has actual notice, and shall refrain from attempting to adjust controls. Tenant shall keep corridor doors closed, and shall close window coverings at the end of each business day. 11. Landlord reserves the right, exercisable without notice and without liability to Tenant, to change the name and street address of the building. 12. Landlord reserves the right to exclude from the building between the hours of 6 p.m. and 7 a.m. the following day, or such other hours as may be established from time to time by landlord, and on Sundays and legal holidays, any person unless that person is known to the person or employee in charge of the building and has a pass or is properly identified. Tenant shall be responsible for all persons for whom it requests passes and shall be liable to Landlord for all acts of such persons. Landlord shall not be liable for damages for any error with regard to the admission to or exclusion from the building of any person. Landlord reserves the right to prevent access to the building in case of invasion, mob, riot, public excitement or other commotion by closing the doors or by other appropriate action. 13. Tenant shall close and lock the doors of its Premises and entirely shut off all water faucets or other water apparatus, and electricity, gas or air outlets before tenant and its employees leave the Premises. Tenant shall be responsible for any damage or injuries sustained by other tenants or occupants of the building or by Landlord for noncompliance with this rule. 14. Overnight parking is prohibited and any vehicle violating this or any other vehicle regulation adopted by Landlord is subject to removal at the owner's expense. 15. Tenant shall not obtain for use on the Premises ices, drinking water, food, beverage, towel or other similar services or accept barbering or bootblacking service upon the Premises, except at such hours and under such regulations as may be fixed by Landlord. 16. The toilet rooms, toilets, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed and no foreign substance of any kind whatsoever shall be thrown therein. The expense of any breakage stoppage or damage resulting 28 from the violation of this rule shall be borne by the tenant who, or whose employees or invitees, shall have caused it. 17. Tenant shall not sell, or permit the sale at retail of newspapers, magazines, periodicals, theater tickets or any other goods or merchandise to the general public in or on the Premises. Tenant shall not make any room-to-room solicitation of business from other tenants in the Project. Tenant shall not use the Premises for any business or activity other than that specifically provided for in Tenant's Lease. 18. Tenant shall not install any radio or television antenna, loudspeaker or other devices on the roof(s) or exterior walls of the building or Project. Tenant shall not interfere with radio or television broadcasting or reception from or in the Project or elsewhere. 19. Tenant shall not mark, drive nails, screw or drill into the partitions, woodwork or plaster or in any way deface the Premises or any part thereof, except in accordance with the provisions of the Lease pertaining to alterations. Landlord reserves the right to direct electricians as to where and how telephone and telegraph wires are to be introduced to the Premises. Tenant shall not cut or bore holes for wires. Tenant shall not affix any floor covering to the floor of the Premises in any manner except as approved by Landlord. Tenant shall repair any damage resulting from noncompliance with this rule. 20. Tenant shall not install, maintain or operate upon the Premises any vending machines without the written consent of Landlord. 21. Canvassing, soliciting and distribution of handbills or any other written material, and peddling in the Project are prohibited, and Tenant shall cooperate to prevent such activities. 22. Landlord reserves the right to exclude or expel from the Project any person who, in Landlord's judgment, is intoxicated or under the influence of liquor or drugs or who is in violation of any of the Rules and Regulations of the Building. 23. Tenant shall store all its trash and garbage within its premises or in other facilities provided by Landlord. Tenant shall not place in any trash box or receptacle any material which cannot be disposed of in the ordinary and customary manner of trash and garbage disposal. All garbage and refuse disposal shall be made in accordance with directions issued from time to time by Landlord. 24. The Premises shall not be used for the storage of merchandise held for sale to the general public, or for lodging or for manufacturing of any kind, nor shall the Premises be used for any improper, immoral or objectionable purpose. No cooking shall be done or permitted on the Premises without landlord's consent, except that use by Tenant of Underwriters' Laboratory approved equipment for brewing coffee, tea, hot chocolate and similar beverages or use of microwave ovens for employees use shall be permitted, provided that such equipment and use is in accordance with all applicable, federal, state county and city laws, codes, ordinances, rules and regulations. 25. Tenant shall not use in any space or in the public halls of the Project any hand truck except those equipped with rubber tires and side guards or such other material-handling equipment as Landlord may approve. Tenant shall not bring any other vehicles of any kind into the building or Project. 29 26. Without the written consent of Landlord, Tenant shall not use the name of the building or Project in connection with or in promoting or advertising the business of Tenant except as Tenant's address. 27. Tenant shall comply with all safety, fire protection and evacuation procedures and regulations established by Landlord or any governmental agency. 28. Tenant assumes any and all responsibility for protecting its Premises from theft, robbery and pilferage, which includes keeping doors locked and other means of entry to the Premises closed. 29. Tenant's requirements will be attended to only upon appropriate application to the Project management office by an authorized individual. Employees of Landlord shall not perform any work or do anything outside of their regular duties unless under special instructions from Landlord, and no employee of Landlord will admit any person (Tenant or otherwise) to any office without specific instructions from Landlord. 30. Landlord may waive any one or more of these Rules and Regulations for the benefit of Tenant or any other tenant, but no such waiver by Landlord shall be construed as a waiver of such Rules and Regulations in favor of Tenant or any other tenant, nor prevent Landlord from thereafter enforcing any such Rules and Regulations against any or all of the tenants of the Project. 31. These Rules and Regulations are in addition to, and shall not be construed to in any way modify or amend, in whole or in part, the terms, covenants, agreements and conditions of the Lease. 32. Landlord reserves the right to make such other and reasonable Rules and Regulations as, in its judgment, may from time to time be needed for safety and security, for care and cleanliness of the Project and for the preservation of good order therein. Tenant agrees to abide by all such Rules and Regulations hereinabove stated and any additional rules and regulations which are adopted. 33. Tenant shall be responsible for the observance of all of the foregoing rules by Tenant's employees, agents, clients, customers, invitees and guests. 30 EXHIBIT E TENANT SIGN CRITERIA The following signage criteria have been established for the purpose of allowing sufficient business identification for businesses locating within WestPark, Pacific Business & Technical Center and Center Court. The criteria have also been established for the purpose of maintaining the overall appearance by providing maximum continuity with the environment and an architectural integration with the project. The signage guidelines are in accordance with the Redmond Community Development Code, Section 20c.20.230. No deviation from these criteria will be permitted without Landlord's and City of Redmond's prior written approval. Conformity will be strictly enforced. Any sign installed without approval of the Landlord will be brought into conformance at the expense of the Tenant. REQUIREMENTS ------------ I. EXTERIOR SIGNAGE, BUILDINGS 1 - 10, A - P, AND RCC NORTH & SOUTH ---------------------------------------------------------------- 1. Landlord shall provide the following signage at no cost to Tenant: a) Tenant's name and suite number on all exterior project directories and one (1) mailbox. b) Tenant's suite number on front entry transom glass. c) Tenant's name and suite number on rear transom glass where applicable. 2. Method of attachment, location, color and size shall be in standard conformance as determined by Landlord and shall be approved by Landlord and City of Redmond prior to installation. 3. Tenant shall have one (1) exterior sign per leased premises. No additional exterior signage shall be allowed on the face of the structure. 4. Tenant shall be responsible for coordinating the construction, installation and payment of building-mounted company signs through Landlord's approved vendor. 5. With the submittal of each set of construction drawings for tenant improvements, a request for approval to add the tenant's name to the building shall be made. 6. If no tenant improvements are required, tenant shall submit copy of exterior signage layout to Landlord for final approval prior to submitting to City for permit process. 7. No signage is allowed except for Tenant's company name who Leases premises. A. PACIFIC BUSINESS & TECHNICAL CENTER, BUILDING 1-2 ------------------------------------------------- 1. The signage shall be located on the facade as designated by the Landlord. The designated facade will encompass the Tenant's space per attached approved drawings. 2. The letters for each tenant shall be 12" maximum, dimensional foam letters. All signs shall be painted a uniform color, either black or a color to match the 31 building trim color. The letters will be mounted with adhesive directly to the building surface. Maximum sign coverage will not exceed 25 square feet. Maximum overall length not to exceed 12.5 feet. Maximum overall height not to exceed 24 inches. Tenant signage may contain no more than two rows of information provided that the total sign area of 25 square feet is not exceeded and the number of rows of information presents a professional appearance. All signage must be submitted to Landlord for Landlord's approval. 3. Logos separate from lettering may be allowed and if so allowed shall not exceed 24 inches by 24 inches, to be included WITHIN the 25 square feet allowed in item Two (2) of this Section. All logos must be submitted to Landlord for Landlord's approval. 5. All wall signage to be installed between panel joints. All signs installed at first floor level shall be at same height. All signs installed at second floor level shall be at same height. 6. Compliance with above criteria shall be effective immediately for all new Tenants. Current Tenants shall comply no later than September 30, 1994. B. PACIFIC BUSINESS & TECHNICAL CENTER, BUILDINGS 3 - 10 ----------------------------------------------------- 1. Building-mounted company signage shall consist of individual 9" high dimensional styrofoam letters in a type style of Helvetica Medium upper and/or lower case, painted to match building trim as may be changed from time to time by Landlord. Maximum line length shall not exceed 10 feet. Maximum of two (2) lines or 20 square feet over tenant's entrance door. C. WESTPARK, BUILDINGS A - P ------------------------- In accordance with the previously established and adopted sign program for WestPark, the following specifications outline more specifically the nature of the intended signage. 1. Tenants' names will be limited to the upper facade of the individual tenant space. First-floor-only tenants may locate signage over main entry doors where possible and with Landlord's written approval. Tenants on the second floor and 2-story tenants shall locate signage on the panel designated by Landlord. 2. The letters for each tenant shall be 12" maximum, dimensional foam letters painted of a color approved by the Landlord. The letters will be mounted with adhesive directly to the building surface. Maximum sign coverage will not exceed 25 square feet. Maximum overall length not to exceed 12.5 feet. Maximum overall height not to exceed 24 inches. Tenant signage may contain no more than two rows of information provided that the total sign area of 25 square feet is not exceeded and the number of rows of information presents a professional appearance. All signage must be submitted to Landlord for Landlord's approval. 3. Separate logos may be allowed and shall not exceed 24 inches by 24 inches. Approved logos will be included WITHIN the 25 square feet allowed in item Two (2) of this 32 Section. All logos must be submitted to Landlord for Landlord's approval. D. REDMOND CENTER COURT, NORTH & SOUTH ----------------------------------- 1. Tenant's names will be limited to upper facade of the individual tenant space. Tenants shall locate signage over main entry doors. 2. The letters for tenant signs shall be twenty-inch (20") maximum in height, dimensional foam letters painted of a color approved by the Landlord. The letters will be mounted with adhesive directly to the building surface. Maximum sign coverage shall not exceed forty square, feet. Tenant signage may contain logos and no more than two rows of information provided that the total sign area of forty square feet is not exceeded. Logos cannot exceed 24" X 24" in size. 3. All signs must be approved in writing by Landlord, including both "inside" and "outside" signs. II. OTHER SPECIFICATIONS, BUILDINGS 1 - 10, A - P, AND RCC N&S ---------------------------------------------------------- A. DIRECTORY --------- 1. Each Tenant shall be allowed a space on the building directory sign, if applicable. 2. Method of attachment, location, color and size shall be in standard conformance and shall be solely up to the Landlord's approval. B. MEZZANINE TENANTS ----------------- 1. Each mezzanine Tenant shall be allowed a space on the entry sign located at the building lobby, if applicable, and signage on their individual entrance door. C. WINDOW GRAPHICS --------------- 1. The Tenant sign order attached provides the window sign guidelines. The signs will be located on the window closest to the front door. The copy color shall be white. Logo style and color to be approved by Landlord and City of Redmond. 2. The style, color and size of the individual company's name shall be standard and in conformance with the Landlord's approval. Landlord reserves the right to modify window signage design based on Tenant's corporate type style and/or format. (See attached sign order). 3. No electrical or audible signs will be permitted except those which presently exist in project or which may be required by the Americans With Disabilities Act. 4. Except as provided herein, no advertising placards, banners, pennants, names, insignia trademarks, "sandwich boards" or other descriptive material shall be affixed or 33 maintained upon the glass, exterior walls, landscaped areas, street, or parking areas. The following is an example of a standard layout for window identification graphics for WestPark and Pacific Business & Technical Center and WestPark. NOTE: the example is a flush-left layout. Your layout may not be flush left depending on the position of your window. - ----------------------------------------- ------------------------- LOGO [Logo] [DIAGRAM OMITTED] TENANT NAME SUB COMPANY CB RICHARD ELLIS LEASING OFFICE (ALL COPY IN WHITE) (ALL COPY IN WHITE) - ----------------------------------------- ------------------------- (LOGO SYMBOL IN COLOR, ALL OTHER COPY MUST BE IN WHITE:) (IF NO ARTWORK PROVIDED, HELVETICA MEDIUM TYPE WILL BE USED:) REGARDING THE 11" X 36" TENANT I.D. ZONE: IF THE TENANT'S NAME OR LOGOTYPE WILL FIT ON: 1 LINE, THEN MAXIMUM LETTER HEIGHT ALLOWED IS 8" 2 LINES, THEN MAXIMUM LETTER HEIGHT ALLOWED IS 5" 3 LINES, THEN MAXIMUM LETTER HEIGHT ALLOWED IS 3" 34 STATE OF NY ) ------------------------------------------------- )ss. COUNTY OF NY ) ----------------------------------------------- I certify that I know or have satisfactory evidence that JAMES GAROFALO is the person who appeared before me, and said person acknowledged that they signed this instrument, on oath stated that they were authorized to execute the instrument and acknowledged it as the ASSISTANT SECRETARY of TEACHERS INSURANCE & ANNUITY ASSOCIATION OF AMERICA, INC., to be the free and voluntary act of such party for the uses and purposes mentioned in the instrument. Dated: 5/24/00 [STAMPED MARIAN USELOFF /s/ Marian Useloff NOTARY PUBLIC, State of New York -------------------------- No. 01US4671828 (Signature) Qualified in New York County Marian Useloff Commission Expires March 30, 2002] -------------------------- (Print Name) Notary Public, in and for the State of New York, residing at New York Co. My Commission Expires 3/30/02 STATE OF ) ------------------------------------------ )ss. COUNTY OF ) ---------------------------------------- I certify that I know or have satisfactory evidence that ROBERT FUHRIMAN II is the person who appeared before me, and said person acknowledged that they signed this instrument, on oath stated that they were authorized to execute the instrument and acknowledged it as the COO of KRONOS AIR TECHNOLOGIES to be the free and voluntary act of such party for the uses and purposes mentioned in the instrument. Dated: 5/29/00 [STAMPED FAYE A. HOLTZ /s/ Faye A. Holtz NOTARY PUBLIC, State of Washington ----------------------- Commission Expires July 19, 2003] (Signature) Faye A. Holtz ------------------------ (Print Name) Notary Public, in and for the State of Washington, residing at Seattle. My Commission Expires 7/19/03 35 EX-10.9 15 exhibit10-09.txt Exhibit 10.9 AGREEMENT AND PLAN OF REORGANIZATION ------------------------------------ THIS AGREEMENT AND PLAN OF REORGANIZATION is entered into effective as of May 4, 2000, by and among TSET, Inc., a Nevada corporation ("TSET"); EdgeAudio.Com, an Oregon corporation ("EdgeAudio"); LYNK Enterprises, Inc., an Oregon corporation ("LYNK"); Robert Lightman, an individual; J. David Hogan, an individual; Eric Alexander, an individual; and Eterna Internacional, S.A. de C.V., a corporation organized and existing under the laws of the Republic of Mexico ("Eterna") (LYNK, Robert I. Lightman, J. David Hogan, Eric J. Alexander, 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 ---- ----------------------------- LYNK Enterprises, Inc. 55,000 Eterna Internacional, S.A. de C.V. 25,000 Robert I. Lightman 10,000 J. David Hogan 5,000 Eric J. Alexander 5,000 ------- 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: LYNK Enterprises, Inc. 714,286 TSET Shares Eterna Internacional, S.A. de C.V. 324,675 TSET Shares Robert I. Lightman 129,870 TSET Shares J. David Hogan 64,935 TSET Shares Eric J. Alexander 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 Page 2 (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 Page 3 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 --------------------------------------- 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. Page 4 (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. Page 5 (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: Winthrop E. Jeanfreau Robert I. Lightman J. David Hogan James Eric Anderson Jeffrey D. Wilson (representing TSET) Except as provided below, such directors shall serve in accordance with EdgeAudio's bylaws and applicable law. Winthrop E. Jeanfreau, Robert I. Lightman, and J. David Hogan 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 Winthrop E. Jeanfreau, Robert I. Lightman, or J. David Hogan 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. Jeffrey D. Wilson 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, Page 6 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 Page 7 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: Page 8 (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 Page 9 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 Page 10 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 Page 11 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: 333 South State Street, PMB 111 Lake Oswego, OR 97034 Tel: 503.293.1270 Fax: 503.293.7233 Attn: Jeffrey D. Wilson Chairman and Chief Executive Officer TO EDGEAUDIO: 16018 S.W. Parker Road, Suite A Lake Oswego, OR 97035 Tel: 503.699.8200 Fax: 503.699.8268 Email: win@edgeaudio.com Attn: Winthrop E. Jeanfreau Page 29 TO LYNK ENTERPRISES, INC.: 16018 S.W. Parker Road, Suite A Lake Oswego, OR 97035 Tel: 503.699.8200 Fax: 503.699.8268 Email: win@edgeaudio.com Attn: Winthrop E. Jeanfreau TO ROBERT I. LIGHTMAN: 5344 Westfield Court Lake Oswego, or 97035 Tel: 503.598.0777 Fax: 503.598.2235 Email: BLIGHTMAN@EDGEAUDIO.COM TO J. DAVID HOGAN: 1091 Bickner Street Lake Oswego, OR 97034 Tel: 503.697.7383 Fax: 503.699.8268 Email: DHOGAN@EDGEAUDIO.COM TO ERIC J. ALEXANDER: 4540 Adams Ogden, UT 84403 Tel: 801.479.9048 Fax: 801.334.5511 Email: EALEXANDER@EDGEAUDIO.COM TO ETERNA INTERNACIONAL, S.A. DE C.V.: Avenida Pedro Loyola #1063-1 Colonia Carlos Pacheco Ensenada, Baja California, Mexico Tel: 011.52.61.77.5660 Fax: 011.52.61.77.5661 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/ Jeffrey D. Wilson ------------------------------------- Jeffrey D. Wilson Chairman and Chief Executive Officer EdgeAudio.Com, Inc. By: /s/ Winthrop E. Jeanfreau ------------------------------------- Winthrop E. Jeanfreau Chief Executive Officer LYNK Enterprises, Inc. By: /s/ Winthrop E. Jeanfreau -------------------------------------- Winthrop E. Jeanfreau President /s/ Robert I. Lightman ------------------------------------- Robert I. Lightman, individually /s/ J. David Hogan ------------------------------------- J. David Hogan, individually ------------------------------------- Eric J. Alexander, individually Page 31 Eterna Internacional, S.A. de C.V. By: -------------------------------------- James Eric Anderson President Page 32 --------------------------------------- Robert I. Lightman, individually --------------------------------------- J. David Hogan, individually --------------------------------------- Eric J. Alexander, individually Eterna Internacional, S.A. de C.V. By: /s/ James Eric Anderson -------------------------------------- James Eric Anderson President Page 33 --------------------------------------- Robert I. Lightman, individually --------------------------------------- J. David Hogan, individually /s/ Eric J. Alexander --------------------------------------- Eric J. Alexander, individually Eterna Internacional, S.A. de C.V. By: --------------------------------------- James Eric Anderson President Page 34 EX-10.10 16 exhibit10-10.txt Exhibit 10.10 May 4, 2000 Cancer Detection International, LLC C/o Victor Weisser, Esq. 799 Hummingbird Court El Cajon, CA 92019-2768 Gentlemen: This letter will constitute the undertaking of TSET, Inc., a Nevada corporation ("TSET"), to acquire all of the equity ownership interests (the "CDI Interests") of Cancer Detection International, LLC, a Nevada limited liability company ("CDI"). TSET shall acquire all of the CDI Interests, free and clear of any and all liens, claims, encumbrances, options, rights of any third parties, and restrictions of any kind whatsoever, in exchange for 180,000 shares of TSET's common stock, par value $0.001 per share (the "TSET Shares"), to be allocated among CDI's equity holders (the "Equity Holders") according to their pro rata interests therein, to be set forth in writing provided to TSET. The TSET Shares shall constitute the sole compensation to the Equity Holders for the CDI Interests. The Equity Holders understand that the TSET Shares shall be subject to all of the restrictions, conditions, and limitations noted on the certificates representing the same, and each Equity Holder agrees to comply therewith at all times. CDI's current management will continue in place and be responsible for CDI's day-to-day business operations, subject to such strategic direction as may be provided by TSET from time to time. TSET, at its sole option, shall be entitled to appoint representatives to CDI's board of directors proportionate to TSET's ownership interest in CDI, and in no case shall have less than one representative on CDI's board of directors. The parties agree that more detailed, definitive legal documentation (collectively, the "Definitive Agreements") will be completed and signed by them; however, the parties intend that this letter constitute the basic agreement between them for the acquisition of CDI contemplated hereby, upon which the Definitive Agreements shall be based, until such time as the Definitive Agreements are completed and signed. In connection with preparation and negotiation of specific provisions of the Definitive Agreements, the parties agree to fully and amicably cooperate, act in good faith, and exert their respective best efforts to enable the execution thereof at the earliest practicable date. The parties agree that the Definitive Agreements shall contain customary terms, conditions, and undertakings, including, without limitation, customary and appropriate representations and warranties to be made by CDI and each Equity Holder, and indemnification provisions in favor of TSET. CDI has represented to TSET, among other things, and in addition to those representations and warranties to be made by CDI and each Equity Holder in the Definitive Agreements, that (a) it engages in the business of performing state-of-the-art blood laboratory analysis for the very early detection of cancer (the "Blood Analysis"), through the identification and level of anti-malignin antibodies; (b) the Blood Analysis can detect very early stage cancers with a high degree of reliability; (c) CDI has all requisite right, Cancer Detection International, LLC May 4, 2000 Page 2 title, and interest in, and authority to perform, the Blood Analysis, without infringement upon the intellectual property or other proprietary rights of any other person; (d) CDI has conducted business operations to date in compliance with all applicable legal requirements; (e) any and all consents of third parties required for the consummation of the transactions contemplated herein and in the Definitive Agreements have been obtained; (f) no broker's or finder's fees are payable to any person in connection with the transactions contemplated herein and in the Definitive Agreements; (g) CDI and each Equity Holder have full legal authority and capacity to execute and deliver this letter and the Definitive Agreements and perform all obligations contained herein and therein; and (h) there are no litigation or other administrative, arbitral, or alternative dispute resolution proceedings pending or threatened against CDI or any Equity Holder seeking to restrain or prohibit in any manner the transactions contemplated herein and in the Definitive Agreements, nor is there any outstanding judgment against CDI or any Equity Holder having such effect. CDI hereby agrees that it shall continue to conduct its business in substantially the same manner as heretofore conducted and incur no financial liabilities or commit for the expenditure of any of the Working Capital (as defined below) without TSET's prior written consent. TSET shall provide to CDI working capital in the aggregate amount of $350,000 (the "Working Capital") to enable CDI to, among other things, effectively market and pay the costs associated with performing the Blood Analysis. The Working Capital shall be provided in such increments as TSET and CDI may agree, pursuant to a budget and disbursement schedule to be established by them, with the administration of the Working Capital to be performed by TSET. The parties agree that some initial number of the Blood Analysis, which costs approximately $300 each, will be offered free of charge to prospective patients in the Palm Springs, California area. As the sole owner of CDI, any and all profits resulting from the conduct of CDI's business shall belong to TSET, and TSET shall be entitled to distribution thereof from time to time; however, the parties understand that CDI's main value will derive from using the Blood Analysis to identify early stage cancers and then refer patients to such cancer diagnostic and treatment centers as may be established by TSET through another entity. Accordingly, the parties do not anticipate significant, if any, initial profits to be generated by CDI. Any disputes arising out of this letter or the Definitive Agreements shall be resolved through arbitration rather than litigation, to the extent such disputes cannot be resolved amicably through good faith efforts. All arbitration proceedings shall take place in Clackamas County, Oregon and shall be governed by the rules of the American Arbitration Association applicable to contracts of this type. The final decision of the arbitrator shall be final and binding upon the parties and shall be enforceable in any court of competent jurisdiction; provided, however, that the arbitrator shall not award or require the payment of incidental, consequential, or punitive damages except in cases of bad faith breach of this letter or the Definitive Agreements or instances of gross negligence or willful misconduct. No party shall seek to delay or prevent the implementation of any arbitral decision. The prevailing party in any arbitration proceeding shall be entitled to recover reasonable attorney's fees and related costs and expenses of the arbitration. The parties acknowledge that their Cancer Detection International, LLC May 4, 2000 Page 3 agreement to resolve disputes through arbitration constitutes a waiver of their right to resolve disputes in any court through litigation, 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. This letter and the Definitive Agreements may be executed in multiple counterparts (and by facsimile signature, with manual signatures to be exchanged as soon as practicable thereafter), each of which shall be deemed an original, and all of which shall be deemed to constitute a single agreement. The parties agree that the Definitive Agreements shall supersede this letter upon their execution and delivery; however, no other agreement, whether oral or written, shall be used to modify or contradict the written agreements of the parties set forth herein and in the Definitive Agreements. No amendment of this letter or the Definitive Agreements shall be valid and binding upon the parties unless the same is in writing and signed by the parties. This letter shall be governed by and construed in accordance with the laws of the State of Oregon, exclusive of its conflicts of laws rules. Your signature, in the space provided below, shall evidence your acceptance and agreement to this letter, which shall continue in full force and effect until superseded by the Definitive Agreements. Please sign both enclosed copies of this letter and return one fully signed copy to TSET by return express delivery. Sincerely, Jeffrey D. Wilson Chairman and Chief Executive Officer AGREED AND ACCEPTED: May 4, 2000 Cancer Detection International, LLC By: ----------------------------------------------- Victor Weisser, Esq. Authorized Signatory and Attorney-in-fact EX-10.11 17 exhibit10-11.txt Exhibit 10.11 TSET Inc. May 19, 2000 Mr. Richard A. Papworth 13554 Rogers Road Lake Oswego, OR 97035 Dear Rick: Per our recent discussions, TSET, Inc., a Nevada corporation ("TSET"), is pleased to offer you employment as Chief Financial Officer. In this capacity, you will be responsible, on a full-time basis, for TSET's financial, financial reporting, and account matters, as well as such other responsibilities as may be assigned from time to time by TSET's board of directors or chief executive officer. The following discussion summarizes the main employment terms offered to you: A. Compensation. ------------ Base Cash Amount: $120,000 annually Signing Bonus: $50,000 worth of "investment" shares of TSET's common stock, such shares immediately vesting to your account Year-end Bonus: "blended" cash and shares-based bonus, to be stated as a percentage of base cash compensation, in an amount to be determined Equity Portion: TSET will give good faith consideration to fixing your equity participation as a non-dilutible percentage of TSET's capital stock, such determination to be made as soon as practicable B. Benefits of Employment. ---------------------- Full participation in all senior executive benefits programs including, without limitation, stock option, stock and cash bonus, 401 (k) or other savings, pension, and profit-sharing plans, as and when implemented by TSET. Reimbursement of premiums for family medical and dental insurance coverage (including "Cobra" extension of benefits from your previous employer), until replacement policies are provided by TSET. Full participation in executive life (with benefits payable at two times your then-current salary and bonus), travel, and disability insurance, as and when such policies are provided by TSET. Full coverage under director and officer liability insurance policies as and when provided by TSET. Three weeks of vacation at full salary during your first 12 months of employment, with such vacation benefit to be not less than 3 weeks in ensuing years; such vacation benefit to increase by 5 days for such subsequent year of your employment, up to a maximum of 5 weeks. You may take time off on an as-needed basis, provided such does not materially interfere in the performance of your duties; you may have such emergency leave as may be required. TSET intends to take necessary and appropriate action to provide all benefits of employment and adopt benefits programs and plans as soon as practicable, taking into account TSET's financial and other resources; in this regard, you acknowledge that TSET may provide some, but not all, of the above-referenced benefits, or phase in over a period of time certain of such benefits as TSET's resources and circumstances may permit. C. Term and Termination. -------------------- Your employment shall be "evergreen" for 2-year terms, pending your earlier retirement, resignation, permanent incapacity, or death. You shall provide TSET with not less than 90 days' prior written notice of any resignation. Your employment may be terminated by TSET only in the event of gross negligence or willful misconduct in the performance of your duties; your conviction of, or a plea of nolo contendere to, a felony or crime involving moral turpitude; your habitual use or a conviction for the use of illegal drugs; conviction for fraud in connection with your employment; or such other circumstances deemed appropriate by TSET's board of directors. In any such event, no compensation beyond the effective date of termination shall be paid by TSET and any unreimbursed expenses shall be paid within 10 business days thereof. In the event of any transaction involving a change in control of TSET and your subsequent loss of employment in connection therewith, you shall receive all compensation which you would have received but for such loss of employment for the full term of such 2 employment, and immediately and fully vest in all shares in which you participate through any stock option or other similar program, and in all TSET matching contributions to any 401(k) savings, profit-sharing, or other similar plans implemented by TSET. D. Indemnification. --------------- TSET shall indemnify, defend, and hold you harmless from and against any and all costs, losses, damages, penalties, fines, or expenses (including, without limitation, reasonable attorney's fees and related costs and disbursements) suffered, imposed upon, or incurred by you connected with your service as Chief Financial Officer of TSET. Your rights of indemnification shall survive any termination of your employment and continue in full force and effect thereafter, except for any circumstances under which your employment has been terminated "for cause" (as mentioned in paragraph C above) if any claim for indemnification arises out of consequences resulting from such conduct. E. Reimbursement of Expenses. ------------------------- TSET shall reimburse any and all out-of-pocket expenses incurred by you in connection with performance of your responsibilities as Chief Financial Officer including, without limitation, business travel, meal, lodging, entertainment, and so forth. You will provide appropriate expense reports and copies of invoices to TSET in connection with any such reimbursement. F. Compliance with Law. ------------------- In performing your duties as Chief Financial Officer, you shall at all times comply with all applicable laws, rules, and regulations including, without limitation, compliance with all federal and state securities laws relating to any transfers of "investment" shares of TSET's common stock. Nothing herein shall prohibit your ability to participate in investments in publicly-traded securities or other investments of a personal nature. G. Governing Law and Arbitration. ----------------------------- This letter shall be governed by and construed in accordance with the laws of the State of Oregon, exclusive of its conflicts of laws rules. Any disputes arising out of this letter that cannot be settled amicably between you and TSET shall be submitted to binding arbitration in Portland, Oregon before a single arbitrator and in accordance with the commercial arbitration rules of the Arbitration Service of Portland. If TSET and you are unable to agree on an 3 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 of competent jurisdiction. The arbitrator shall not award or require the payment of, and neither TSET nor you shall seek, incidental, consequential, or punitive damages except in cases of bad faith breach of this letter, gross negligence, willful misconduct, or fraud. Neither TSET nor you shall seek to delay or prevent the implementation of any decision of the arbitrator. You acknowledge that, except as otherwise provided in this paragraph G, your agreement to resolve disputes through arbitration constitutes a waiver of your right to resolve such disputes in court, and that in arbitration proceedings you may not be entitled to all of the rights that would otherwise be available to you in court proceedings. H. Confidentiality. --------------- The provisions of this letter are confidential and shall not be disclosed to any person except as may be required by applicable law, rule, or regulation to which TSET may be subject, or mandated in connection with any valid and enforceable judicial or government order pursuant to a subpoena, civil investigative demand, or other similar legal process not sought by TSET for the purpose of circumventing its obligations hereunder. ................................................................................. TSET believes your experience and talents qualify you for the position being offered hereby and hopes you will favorably consider and accept the terms of employment offered hereby. Should you decide to accept, please sign in the space provided below, and return one copy to TSET at your earliest convenience. Sincerely, /s/ Jeffrey D. Wilson ------------------------------------ Jeffrey D. Wilson Chairman and Chief Executive Officer ACCEPTED AND AGREED: May 20, 2000 /s/ Richard A. Papworth - ------------------------------- Richard A. Papworth 4 EX-10.12 18 exhibit10-12.txt Exhibit 10.12 FINDERS AGREEMENT This Finders Agreement (the "Agreement") is made and entered into as of the effective date below among TSET, Inc. (TSET), a Nevada corporation, Richard F. Tusing, and Daniel R. Dwight (Richard F. Tusing and Daniel R. Dwight are hereinafter collectively referred to as the "Finder"). RECITALS TSET is interested in being introduced by Finder to prospective Investors for the purpose of soliciting investments in the company. For such service, TSET is willing to compensate Finder, subject to the covenants, conditions and limitations set forth in this Agreement. Finder is willing to provide the services contemplated by and in accordance with the covenants, conditions and limitations of this Agreement. AGREEMENT In consideration of the foregoing recitals, the mutual covenants hereinafter provided, and for other good and valuable considerations, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound and equitably bound, hereby agree as follows: 1. DEFINITIONS. For purposes of this Agreement, the following terms shall have the following meanings: 1. TSET shall mean TSET, Inc. and its subsidiaries. 2. Act shall mean the Investment Advisers Act of 1940, as amended; 3. Applicable Law shall mean and include any law enacted by the Congress of the United States (including, without limitation, the Act), by any legislature of any of the states comprising the United States of America, by any parliament, congress or legislature of any country, province or state outside of the United States of America. 4. Authorized Finder Investor shall have the meaning ascribed thereto in paragraph 2 below; 5. Authorized Broker shall have the meaning ascribed thereto in paragraph 2 below; 6. Finders Fee shall have the meaning ascribed thereto in paragraph 3 below; 7. Person shall mean and include any individual, partnership, limited liability company, corporation, trust or other entity; 1 8. Investor shall mean Person whom shall make an investment into TSET by any form including debt or equity; 9. Regulator shall mean and include the Securities and Exchange Commission, any agency that regulates the purchase and sale of securities within one of the states of the United States of America, and any similar governmental agency of any country, province or state outside of the United States. 2. SCOPE AND LIMITATIONS OF ENGAGEMENT. ----------------------------------- 1. FINDERS AUTHORIZATION TO INTRODUCE TSET TO PROSPECTIVE AUTHORIZED FINDER INVESTORS AND AUTHORIZED BROKERS. TSET hereby appoints Finder, and Finder hereby accepts such appointment, on a non-exclusive basis, to contact and introduce TSET to Persons believed by Finder to be Authorized Finder Investors and Authorized Brokers that may provide debt- and/or equity-based financing to TSET upon terms and conditions agreeable to TSET. Finder shall not contact or otherwise initiate any effort to contact, directly or indirectly, any Person for the purpose of making an introduction on behalf of the TSET without the express prior written consent of the TSET. (1) Following execution of this Agreement, and periodically thereafter, Finder shall inform TSET of Persons believed by Finder to be prospective Authorized Finder Investors and Authorized Brokers to whom Finder desires to introduce to TSET. (2) As to each such prospective Investor Broker, TSET shall have the right, but not the obligation, to authorize Finder to take appropriate steps to introduce such prospective Investor or Broker to the TSET. Each such Person authorized by the TSET to be so contacted by Finder shall be an Authorized Finder Investor or Authorized Broker. No such authorization shall be effective unless in writing signed by the TSET. An Authorized Finder Investor is determined by making a direct investment; while an Authorized Broker shall act as an intermediary to other third party investors. (3) By execution of this Agreement, all Persons in Attachment A are authorized by TSET as Authorized Finder Investor and Authorized Broker. TSET shall in good faith notify Finder in writing whether any Authorized Finder Investor or Authorized Broker proposed to be contacted or introduced by Finder to TSET hereunder has previously been contacted by, or previously introduced to, TSET, in which case such proposed Authorized Finder Investor and Authorized Broker shall be excluded from the list of approved Persons in Attachment A. In connection with the execution of this Agreement and for purposes of establishing the compensation payable to Finder hereunder, Finder shall designate in Attachment A those Persons that are to be deemed Authorized Finder Investors and Authorized Brokers hereunder. Such designation shall be a condition of TSET's acceptance of those Persons listed in Attachment A. 2. AVOIDING DISPUTES REGARDING FINDERS RIGHTS. If, for any reason, as to any specific prospective investor, Finder fails to strictly comply with the procedure described in this paragraph 2 or fails to comply with any other provision of this Agreement, Finder shall have no rights to compensation 2 pursuant to paragraph 3 with regard to such prospective investor. 3. FINDERS FUNCTIONS LIMITED. The sole function of Finder shall be to provide impersonal advisory services by bringing together Authorized Finder Investors and TSET. Finder shall not, in any manner, offer or sell any investment in the company. Finder shall provide such assistance as TSET may request from time to time regarding the structure, evaluation, and negotiation of definitive terms of investment proposed by an Authorized Finder Investor and Authorized Broker, the parties understanding that final approval of all such terms shall be the sole responsibility of TSET. 3. INDEPENDENT STATUS OF FINDER. Finder shall, at all times, be an independent contractor hereunder, rather than a co-venturer, agent, employee, or representative of TSET. Finder shall work independently, without supervision or training by TSET, shall be responsible for Finders taxes, shall not be required to work on continuing daily basis or any specific work schedule, and shall not be provided with office space or administrative support by the TSET. Finder is permitted to engage in other businesses and ventures. Finder shall be solely responsible for complying with all laws, rules, and regulations applicable to its services hereunder. 4. TSET RETAINS ABSOLUTE DISCRETION. Notwithstanding any other provisions of this Agreement, in accordance with TSET' s fiduciary duties, TSET, may, in its sole and absolute discretion, refuse to meet with or admit any prospective investor, and TSET shall be under no obligation to accept as investor any Authorized Finder Investor. 6. CONFIDENTIALITY. Finder shall assist TSET in obtaining execution by Authorized Finder Investors and Authorized Brokers of any confidentiality agreements deemed necessary or proper by TSET to protect non-public, confidential, or proprietary information. 3. COMPENSATION. ------------ 1. FINDERS FEE. TSET shall pay to Finder and Finder shall receive from TSET a fee equal to 1% of the Total Investment Value by Authorized Finder Investors. TSET shall pay to Finder and Finder shall receive from TSET a fee equal to 0.25% of the Total Investment Value by Authorized Broker. Total Investment Value includes total value of all investments including equity, which includes any options or warrants, debt, which includes any letter of credit and/or any barter value for goods or services. Payment is to be paid in cash or cashier's check via overnight delivery to contact address within five business days of the availability of the Total Investment Value for expenditure by TSET, or by wire deposit to Finder's designated bank account. Finder shall be solely responsible for paying any and all federal, state, or local income and other taxes arising out of payment of any compensation to Finder by TSET hereunder. 2. TRAVEL REIMBURSEMENT. TSET shall have the obligation to Finder for reimbursement of any pre-approved travel or other pre-approved expenses incurred by Finder in connection with services to be rendered by Finder 3 pursuant to this Agreement, as expressly agreed in writing by TSET. Pre-approved travel and pre-approved other expenses will be reimbursed within five business days from receipt of expense documentation. Expenses incurred by Finder pursuant to this Agreement shall not exceed an aggregate of $15,000 without TSET's prior written consent. 3. NON-CIRCUMVENTION. TSET represents and warrants to Finder that TSET shall not seek to circumvent Finder or contact directly any Authorized Finder Investor or Authorized Broker not excluded by TSET in Attachment A or seek to consummate any investment of any nature with any Authorized Finder Investor or Authorized Broker without paying to Finder the compensation described in this Section 3. 4. FINDERS WARRANTIES, REPRESENTATIONS AND ADDITIONAL --------------------------------------------------- COVENANTS. - --------- 1. FULL AUTHORITY. Finder warrants and represents to TSET that: (i) Finder has the full unrestricted right to enter into this Agreement, (ii) by entering into this Agreement, Finder is not violating or otherwise contravening any agreement to which Finder is bound or any Applicable Law; and (iii) no Person must consent to the execution and performance of this Agreement by Finder. 2. RECEIPT OF TSET BUSINESS PLAN. Finder acknowledges receipt of the TSET Business Plan and represents that Finder has carefully reviewed the TSET Business Plan and has been afforded an opportunity to fully inform himself as to the contents thereof. 3. FRAUD AND BAD ACTS. Finder represents and warrants to TSET that Finder is not now, and covenants that Finder shall not in the future be, a Person (i) subject to an order of any Regulator under Applicable Law, or (ii) convicted within the previous ten (10) years of any felony or misdemeanor involving conduct described Section 203(e)(2)(A)-(D) of the Act or any similar Applicable Law, or (iii) who has been found by any Regulator to have engaged, or been convicted of engaging, in any conduct specified in paragraphs (1), (4) or 5 of Section 203(f) of the Act or of any other similar Applicable Law, or (iv) is subject to an order, judgment or decree described in Section 203(e)(3) of the Act or any similar Applicable Law. 4. COMPLIANCE WITH ALL LAWS. Finder covenants with TSET that Finder shall comply with all Applicable Laws in connection with the execution and performance of this Agreement and performance of Finder's activities hereunder. 5. FULL DISCLOSURE TO TSET. Without limiting any other provision of this Agreement, Finder agrees to fully disclose all activities in which Finder is engaged pursuant to this Agreement and fully, fairly and accurately report the results of all contacts with Authorized Finder Investors. 4 4. TERMINATION. ----------- 1. This Agreement may be terminated immediately by TSET, without notice, in the event that Finder commits a material breach of this Agreement, in which event, Finder shall have no further entitlement to compensation hereunder. 2. In the absence of breach by the Finder, TSET may terminate this Agreement upon ten (10) days prior written notice to Finder. In this event, Finder shall be entitled to all compensation pursuant to Paragraph 3 of this Agreement with regard to investments made by an Authorized Finder Investor, as if this Agreement had not been terminated. 3. Finder may terminate this Agreement upon ten (10) days prior written notice. In this event, Finder shall be entitled to all compensation pursuant to Paragraph 3 of this Agreement with regard to investments made by an Authorized Finder Investor, as if this Agreement had not been terminated, for a period of 6 months following the effective date of any such termination; provided, however, if TSET later determines that Finder committed a material breach of this Agreement prior to such termination, Finder shall have no entitlement to compensation hereunder following the occurrence of such breach. 5. MISCELLANEOUS. ------------- 1. BINDING EFFECT AND SURVIVAL OF RIGHTS. This Agreement will benefit and bind the parties and their respective personal representatives, executors, administrators, heirs, legatees, devisees, successors and permitted assigns. 2. NOTICES. All notices, demands, requests and other communications required or permitted to be given by any provision of this Agreement will be in writing addressed as follows: If to TSET: 333 South State Street, PMB 111 ---------- Lake Oswego, OR 97034 503.293.1270 Attn: Jeffrey D. Wilson, Chairman and Chief Executive Officer, or Richard A. Papworth, Chief Financial Officer If to Finder: Richard F. Tusing ------------ 7256 Spring Side Way McLean, Virginia 22101 (703) 821-7662 home (703) 220-0271 cell (703) 821-0173 fax 5 Daniel R. Dwight 1 Edgewood Drive Hudson, MA 01749 (978) 562-3910 home (617) 834-5162 cell Any such notice, demand, request or communication will be deemed to have been given and received for all purposes under this Agreement: (a) on the date of delivery when delivered in person; (b) on the date of transmission when delivered by facsimile transmission (provided such transmission is confirmed by transmission receipt and such notice is promptly confirmed by some other means described herein); and/or (c) on the next business day after the same is deposited with a nationally recognized overnight delivery service that guarantees overnight delivery; provided, however, if the day such notice, demand, request or communication will be deemed to have been given and received as aforesaid is not a business day, such notice, demand, request or communication will be deemed to have been given and received on the next business day. Any party to this Agreement may change such parties address for the purpose of notice, demands, requests and communications required or permitted under this Agreement by providing written notice of such change of address to all of the parties by written notice as provided herein. 3. INTERPRETATION. The parties acknowledge to each other that each party has reviewed and participated in the negotiation of this Agreement. Accordingly, the normal rule of construction to the effect that any ambiguities are resolved against the drafting party will not be employed in the interpretation of this Agreement. 4. INCORPORATION. The Recitals, all exhibits and schedules attached hereto, or to be attached hereto, and all other agreements and instruments referred to herein are hereby incorporated by reference into this Agreement as fully as if copied herein verbatim. 5. FURTHER ASSURANCES. The parties further agree that, upon request, they will do such further acts and deeds and will execute, acknowledge, deliver and record such other documents and instruments as may be reasonably necessary from time to time to evidence, confirm or carry out the intent and purpose of this Agreement. 6. LAWFUL AUTHORITY. If any party executing this Agreement is a corporation or limited liability company, the individual executing on behalf of the corporation or limited liability company hereby personally represents and warrants to all other parties that he/she has been fully authorized to execute and deliver this Agreement on behalf of (a) the corporation pursuant to a duly adopted resolution of its Board of Directors, or by virtue of its bylaws, or within the scope of authority of the person executing this Agreement; or (b) the limited liability company pursuant to a duly adopted resolution of its members or by virtue of its operating agreement. 7. ATTORNEYS FEES. If any legal action or other proceeding (including arbitration pursuant to this Agreement) is brought for the enforcement of this Agreement, or because of any alleged dispute, breach, 6 default or misrepresentation in connection with any provisions of this Agreement, the prevailing party will be entitled to recover reasonable attorneys fees, court costs and all reasonable expenses, even if not taxable or assessable as court costs (including, without limitation, all such fees, costs and expenses incident to appeal) incurred in that action or proceeding in addition to any other relief to which such party may be entitled. 8. Waivers and Consents. -------------------- (1) Each and every waiver of any provision of this Agreement must be in writing and signed by each party whose interests are adversely affected by such waiver. (2) Unless otherwise expressly provided in a waiver, no such waiver granted in any one instance will be construed as a continuing waiver applicable in any other instance. (3) No waiver by any party to this Agreement to or of any breach or default by any other party to this Agreement in the performance by such other party of its obligations hereunder will be deemed or construed to be a waiver of any breach or default of any other party of the same or any subsequent obligations hereunder. (4) Subject to applicable statutes of limitation, the failure on the part of any party to this Agreement to complain of any act or failure to act of any other party to this Agreement or to declare such other party in default, irrespective of how long such failure continues, shall not constitute a waiver by the non-defaulting party of its rights hereunder. (5) Each and every consent by any party to this Agreement must be in writing signed by the party to be bound thereby. No consent will be deemed or construed to be a consent to any action except as described in such writing. 9. SECTION HEADINGS. The Section headings contained in this Agreement are for reference purposes only and will not affect the interpretation of this Agreement. 10. GOVERNING LAW. This Agreement will be governed in all respects, including validity, interpretation and effect by, and will be enforceable in accordance with, the internal laws of the State of Oregon without regard to conflicts of laws principles. 11. SEVERABILITY. If any provision of this Agreement is held to be unlawful, invalid or unenforceable under present or future laws effective during the term hereof such provision will be fully severable, and this Agreement will be construed and enforced without giving effect to such unlawful, invalid or unenforceable provision. Furthermore, if any provision of this Agreement is capable of two (2) constructions, one of which would render the provision void, and the other which would render the provision valid, then the provision will have the meaning which renders it valid. 7 12. COUNTERPART EXECUTION. This Agreement may be executed in multiple counterparts, each one of which will be deemed an original, but all of which will be considered together as one and the same instrument. Further, in making proof of this Agreement, it will not be necessary to produce or account for more than one (i) such counterpart. Provided all parties have signed at least one counterpart, the execution by a party of a signature page hereto will constitute due execution and will create a valid, binding obligation of the party so signing, and it will not BE necessary or required that the signatures of all parties appear on a single signature page hereto. 13. AMENDMENTS. Each and every modification and amendment amendment of this Agreement must be in writing and except as otherwise provided herein, signed by all the parties hereto. 14. ENTIRE AGREEMENT. This Agreement contains the entire agreement between the parties regarding the subject matter hereof. Any prior agreements, discussions or representations not expressly contained in this Agreement will be deemed to be replaced by the provisions hereof, and no party has relied on any such prior agreements, discussions or representations as an inducement to the execution hereof. 15. RULES OF CONSTRUCTION. (a) All terms in this Agreement in the singular and plural will have comparable meanings when used in the plural and vice-versa unless otherwise specified; (b) the words hereof, herein, hereunder and words of similar import when used in this Agreement, will refer to this Agreement as a whole and not any particular provision of this Agreement and all references to articles, sections and subdivisions thereof are to this Agreement unless otherwise specified; (c) the words include, includes and including will be deemed to be followed by the phrase without limitation; (d) all pronouns and any variations thereof will be deemed to refer to masculine, feminine or neuter, singular or plural, as the identity of the individual, individuals, entity or entities may require; (e) all references to documents, contracts, agreements or instruments will include any and all supplements and amendments thereto; and (f) all accounting terms not specifically defined herein will be construed in accordance with generally accepted accounting principles or generally accepted auditing standards then applied in the United States. 16. FORUM SELECTION. EXCEPT TO THE EXTENT THE COURTS IN NEVADA DO NOT HAVE SUBJECT MATTER JURISDICTION, FINDER AND TSET DO HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMIT TO THE SOLE AND EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF OREGON AND DO FURTHER IRREVOCABLY AND UNCONDITIONALLY STIPULATE AND AGREE THAT THE FEDERAL COURTS IN THE STATE OF OREGON OR THE STATE COURTS OF NEVADA WILL HAVE JURISDICTION TO HEAR AND FINALLY DETERMINE ANY DISPUTE, CLAIM, CONTROVERSY OR ACTION ARISING OUT OF OR CONNECTED (DIRECTLY OR INDIRECTLY) WITH THIS AGREEMENT THAT IS NOT SUBJECT TO ARBITRATION, OR TO ENTER A JUDGMENT CONSISTENT WITH ANY ARBITRATION AWARD. FINDER AND TSET FURTHER HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY AND ALL OBJECTIONS OR DEFENSES TO SAID JURISDICTION. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT SERVICE UPON ANY PARTY HERETO SHALL BE MADE BY DELIVERY VIA PRIORITY 8 OVERNIGHT DELIVERY (E.G., FEDEX) AND BY FACSIMILE OF A COPY OF SUCH PROCESS TO THE ADDRESS OF SUCH PARTY FOR NOTICES TO SUCH PARTY AS SET FORTH IN THIS AGREEMENT LETTER (OR SUCH DIFFERENT ADDRESS AS SUCH PARTY WILL HEREAFTER SPECIFY IN ACCORDANCE WITH THE TERMS OF THIS AGREEMENT). THE FOREGOING CONSENT, IN ADVANCE, TO THE JURISDICTION OF THE AFOREMENTIONED COURTS AND THE AFOREMENTIONED METHOD OF SERVICE ARE MATERIAL INDUCEMENTS FOR THE PARTIES HERETO TOP ENTER INTO THIS AGREEMENT. [SIGNATURES APPEAR ON NEXT PAGE] 9 17. PERSONAL NATURE OF UNDERTAKING. Finder acknowledges that the engagement of Finder's services hereunder by TSET is personal to Finder, and such services shall not be delegated or assigned to any other Person by Finder without TSET's express prior written consent, which may be withheld in TSET's sole and absolute discretion. IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the date signed by the parties, as shown below. TSET, INC. By: /s/ Jeffrey D. Wilson August 9, 2000 ---------------------------------- Jeffrey D. Wilson, Chairman and Chief Executive Officer RICHARD F. TUSING /s/ Richard F. Tusing August 13, 2000 -------------------------------------- DANIEL R. DWIGHT /s/ Daniel R. Dwight 8/21/00 ------------------------------------------------------ 10 ATTACHMENT A AUTHORIZED FINDER INVESTORS Summit Partners Advent International Heller Financial Hewlitt-Packard Dell Computer Compaq IBM ATT/ATT Financial Services GE/GE Capital The Crossroads Group Veronis Suhler & Associates Thayer Capital Partners The Carlyle Group NEA New Enterprise Associates Deutsche Banc Alex. Brown Columbia Capital Ferris, Baker, Watts Bain Capital Banc Boston/Fleet Equity Donaldson Lufkin & Jenrette TA Associates Parthenon Capital EX-10.13 19 exhibit10-13.txt Exhibit 10.13 CONTRACT SERVICES AGREEMENT THIS AGREEMENT is made and entered into this 29TH, day of JUNE 2000, by and between CHINOOK TECHNOLOGIES CORPORATION (herein referred to as "CHINOOK"), a Washington corporation with its principal place of business at 3808 N. Sullivan Road, Building 10, Spokane, WA 99216, and Kronos / High Voltage Integrated (HVI), (herein referred to as "CUSTOMER") with its principal place of business at 13910 SE 23rd Street, Bellevue, WA 98005, with reference to the following facts: RECITALS A. CUSTOMER conducts high voltage air movement business which requires specialty design services on a continuing basis. B. CHINOOK is engaged in the business of custom product design and specialty manufacturing. C. CHINOOK agrees to provide the required services to CUSTOMER according to the terms and conditions of this agreement. Such services shall be performed at CHINOOK's above-designated place of business. NOW, THEREFORE, in consideration of the mutual covenants contained herein, the legal sufficiency of which is acknowledged by the parties to this Agreement, CUSTOMER and CHINOOK hereby agree as follows: 1. DESCRIPTION OF WORK CHINOOK shall provide contract labor services as may be requested from time to time in project description orders which, as issued and accepted by both parties, shall be incorporated into this agreement. 2. PAYMENT a. CUSTOMER shall pay for the services provided by CHINOOK according to the attached Quote HVI0500. CUSTOMER shall reimburse CHINOOK for all reasonably necessary material and supplies, as well as other expenses such as travel expenses, telephone calls, supplies and transportation where CUSTOMER has provided prior authorization or where reasonably incurred by CHINOOK in making changes requested by CUSTOMER in the services to be performed in any project description order. b. Invoices covering services performed and charges incurred by CHINOOK will be issued per the attached payment schedule and are payable according to Quote HVI0500, or if not stated, within thirty (30) days of the invoice date. 3. CHINOOK'S PERSONNEL a. The personnel assigned by CHINOOK to perform the services described in any project description order hereunder will be qualified to perform the assigned duties. CHINOOK reserves the right to determine which of its personnel shall be assigned to any particular project and to replace or reassign such personnel during a project. b. CHINOOK assumes responsibility for its personnel providing services hereunder and will make all deductions required of employers by state, federal, and local laws, including deductions for social security and withholding taxes, and contributions for unemployment compensation funds, and shall maintain worker's compensation and liability insurance for each of them. 4. RELATIONSHIP OF PARTIES The parties intend that an independent contractor-employer relationship be created by this contract. Nothing contained in this Agreement shall be construed as creating a joint venture, partnership or employment relationship between the parties hereto. Except as specified herein, neither party shall have the right, power or implied authority to create any obligation or duty, express or implied, on behalf of the other party hereto. 5. DATA SAFEGUARDS All written information, submitted by CUSTOMER to CHINOOK in connection with services performed by CHINOOK under this agreement, which is identified as proprietary information, will be safeguarded by CHINOOK to at least the same extent as CHINOOK safeguards like information relating to its own business. If such data is publicly available, is already in CHINOOK's possession or known to it, or is rightfully obtained by CHINOOK from third parties, CHINOOK shall bear no responsibility for its disclosure, inadvertent or otherwise. 6. DURATION a. The initial term of this contract shall commence on the 29TH day of JUNE, and shall continue in full force and effect until COMPLETED, for a term of _____ (months/years), unless terminated by mutual agreement or by either party for cause by the giving of written notice. b. In the event of termination, CUSTOMER shall pay for all services performed and disbursements made by CHINOOK to the effective date of termination. 7. LIABILITY OF CHINOOK a. CHINOOK shall not be liable for any damages caused by delay in rendering performance hereunder arising from any cause beyond the reasonable control of CHINOOK. b. CHINOOK shall in no event be liable for any incidental, special or consequential damages, unless otherwise expressly agreed to in writing. c. In no event shall CHINOOK's liability for any services performed hereunder exceed the amount of money paid by CUSTOMER to CHINOOK under the project description order covering such services. 8. TERMS TO BE EXCLUSIVE The entire agreement between the parties with respect to the subject matter hereunder is contained in this agreement. In the event CUSTOMER issues a purchase order, memorandum, specifications or other instrument covering the services provided for in this agreement, such purchase order, memorandum, specifications, or instrument is for CUSTOMER's internal purposes only and any and all terms and conditions contained herein, whether printed or written, shall be of no force or effect. 9. WAIVER OR MODIFICATION OF TERMS No waiver, alteration, or modification of any of the provisions of this agreement shall be binding unless in writing and signed by a duly authorized representative of CHINOOK and by CUSTOMER. 10. ASSIGNMENT Any assignment of this agreement by either party without the written consent of the other shall be void. 11. WRITTEN NOTICE a. All communications regarding this agreement should be sent to CHINOOK and CUSTOMER at the address set forth above unless the other party is notified in writing to the contrary. Any written notice hereunder shall become effective as of the date of mailing by registered or certified mail and shall be deemed sufficiently given if sent to the addressee at the address stated in this agreement or such other address as may hereafter be specified by notice in writing. 12. GOVERNING LAW This Agreement shall be construed and enforced in accordance with the laws of the State of Washington. IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto as of the date first above written. CHINOOK TECHNOLOGIES, INC. DEVELOPER CUSTOMER KRONOS AIR TECHNOLOGIES - ---------------------------------------- ------------------------------- By : Ronald G. Stokes, CEO and President By : /s/ ROBERT FUHRIMAN II ------------------------- Its : ------------------------- C.O.O. CHINOOK TECHNOLOGIES - -------------------------------------------------------------------------------- To: Kronos Air Technologies Bothell, Wa Attn: Chip Wellington Igor Krichtafovitch Gentlemen, Here are some concepts drawings for both the TUBE FAN and BERTH FAN. The jpeg's I sent to Chip last night printed out to dark and were unsuitable for faxing. This caused us to produce some quick line drawings. Take a look and remember these are CONCEPT DESIGNS that you requested and still can be changed. Another issue we need to have closure on is the Design Contract and payment schedule. We appreciate the first payment and look forward to finalizing the contract so we can move forward on the projects. We will keep moving towards creating a drawing package for shipment Thursday but will need the to have all the paperwork in order prior to shipping. After your return from D.C. we will schedule a design review at Kronos to go over things you want changed or explained. Sound acceptable? Thank you, /s/ Greg Somers Greg Somers Principal CHINOOK Technologies, INC CONFIDENTIAL - -------------------------------------------------------------------------------- 3808 N. SULLIVAN RD BLDG 10 SPOKANE, WA 99216 509.921.1443 CHINOOK TECHNOLOGIES - -------------------------------------------------------------------------------- PROGRAM MANAGEMENT: CHINOOK will interface and manage all logistics with tool quoting, vendor selection, and first article of inspection. This will include managing all prototyping and tooling logistics through CHINOOK's established network of vendors, many of which have assisted with past HVI programs. DELIVERABLES: DESIGN: Modular housing with modular array systems TOOLING: Quoting, Selection, FAI and Tool Acceptance MANUFACTURING: Provide the needed facilities and manufacturing capabilities (with a Manufacturing Agreement) Provide support through U.L. approval NRE TOTAL: $45,500.00 LEADTIME: 5-6 WEEKS PROTOTYPES: TIME AND MATERIAL IN ADDITION TO THE NRE (cost approved, Purchase Order, invoices Net Due upon receipt by Kronos / HVI) TOOLING: ESTIMATED 6-10 WEEKS (limiting factors of shop load and complexity, quotes to be approved by Kronos / HVI, invoices to be paid according to tooling schedule) NOTES: 1. Quote is good for 30 days. 2. Contract Service Agreement signed prior to any start 3. Payment schedule: SCOPE I: 50% of total Scope I with P.O. Remainder Net Due on delivery of Scope I prototype SCOPE II: 50% down of total NRE 40% remainder Net Due on Design Completion 10% remainder on tool completion 4. P.O. to be approved prior to start of program. 5. All travel and expenses to be approved and provided by customer. 6. Customer to pay for all tooling and vendor NRE directly to tool vendor per their payment terms. 7. Additional work to be paid at time plus material by customer. 8. This quote is based from scope decided upon between customer and CHINOOK at start of program. If scope changes CHINOOK has the right to requote for additional changes. 9. For terms and conditions please reference the attached sheets titled, "Contract Service Agreement." Thank you for the opportunity to quote this job. Greg Somers / Principal - -------------------------------------------------------------------------------- 3808 N. SULLIVAN RD BLDG 10 SPOKANE, WA 99216 509.921.1443 EX-10.14 20 exhibit10-14.txt Exhibit 10.14 LETTER OF INTENT The purpose of this Letter of Intent, dated effective as of July 17, 2000, is to summarize the main terms of a proposed business relationship between Kronos Air Technologies, Inc., a Nevada corporation ("KAT"), and Polus Technologies, Inc. ("Polus"), pursuant to which Polus intends to assist KAT in various activities in certain markets relating to the technologies developed and owned by KAT, and devices containing or embodying such technologies, commonly known as "Kronos." KAT and Polus intend to commence negotiations and prepare definitive agreements (collectively, the "Definitive Agreements") in due course after the date hereof, based upon the matters summarized herein, which Definitive Agreements will be intended to set forth the rights, obligations, and undertakings of the parties. The parties' stated intend to proceed expeditiously to complete and sign this Letter of Intent and commence the activities described herein 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 relationship between KAT and Polus may be summarized as follows: A. CONTRIBUTIONS OF POLUS. The parties intend that Polus actively exert its good faith best efforts to seek and promote the deployment of Kronos in hospitals, clinics, and other medical facilities in Poland, with similar activity for the further deployment of Kronos in certain other countries of Eastern and Northern Europe. In connection with the foregoing, in all such markets the parties intend that Polus will assume responsibility for, among other things, (i) the arrangement, establishment, and set-up of necessary and suitable manufacturing facilities, (ii) conducting marketing and distribution activities, (iii) compliance with legal and regulatory requirements, (iv) national and local government liaison and relations, (v) protection and enforcement of intellectual property rights relating to Kronos, (vi) general facilitation of all matters necessary for the promotion and deployment of Kronos in the manner contemplated by the parties, and (vii) day-to-day management of all business and other affairs relating to the activities contemplated in this paragraph A. B. CONTRIBUTIONS OF KAT. The parties intend that KAT make available and provide Kronos in applications appropriate for deployment in hospitals, clinics, and medical facilities, and provide such other cooperation and assistance as Polus may reasonably request from time to time to facilitate the activities contemplated in paragraph A above. C. 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 proceed with the activities contemplated in paragraph A above and complete the Definitive Agreements, and shall not of itself be deemed to grant or constitute any binding, enforceable, or exclusive rights, licenses, or obligations of the parties in or to Kronos, or any right, obligation, offer, or commitment of any of the parties to enter into the Definitive Agreements. The parties intend that any and all rights, obligations, offers, commitments, and licenses shall be contained only in the Definitive Agreements executed and delivered by them. The parties do not intend that either 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 each of them will bear their respective costs and expenses associated with this Letter of Intent and completion of the Definitive Agreements. D. UNDERTAKING OF GOOD FAITH. Realizing that they are unable to anticipate and provide for every contingency which may arise during the course of their relations prior to execution and delivery of the Definitive Agreements, the parties intend that principles of commercial good faith will govern and that they will at all times seek to enhance and maximize the economic value of Kronos, and amicably resolve any disputes which may arise between them. E. PRESS RELEASE. The parties intend to collaborate on the content of an appropriate press release regarding the transactions contemplated herein, to be issued as soon as practicable following the date of this Letter of Intent. F. FINDERS. Neither KAT nor Polus has utilized the services of any finder, directly or indirectly, in connection with any introduction, negotiation, or other proceeding relating to this Letter of Intent or the transactions contemplated herein or in the Definitive Agreements, and no fees or other compensation is payable by either KAT or Polus to any finder in connection herewith or therewith. G. 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 mater hereof. [SIGNATURES APPEAR ON NEXT PAGE] 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. 2 Kronos Air Technologies, Inc. By: /s/ W. Alan Thomson --------------------------------- Name: W. Alan Thomson --------------------------- Title: President 7/18/00 -------------------------- Polus Technologies, Inc. By: /s/ Clyde W. Frank --------------------------------- Clyde W. Frank, President 3 EX-10.15 21 exhibit10-15.txt Exhibit 10.15 CONSULTING AGREEMENT THIS CONSULTING AGREEMENT (this "Agreement") is made effective for all purposes as of August 1, 2000 by and between TSET, Inc. (the "Company") and Richard F. Tusing and Daniel R. Dwight (Richard F. Tusing and Daniel R. Dwight are hereinafter collectively referred to as "Consultant"). RECITALS: A. Company is engaged in the business to seek out select business opportunities globally among a wide range of prospects that meet the companies general acquisition and investment criteria, enhance asset base and increase shareholder value. B. Company wishes to have Consultant provide the Company certain consulting services and, subject to the terms and conditions set forth herein, Consultant is willing to provide such consulting services. C. Company and Consultant wish to set forth terms and conditions upon which Consultant will provide consulting services to the Company. NOW, THEREFORE, in consideration of the foregoing, and of the mutual premises hereinafter set forth, and of other good and valuable consideration, the receipt, adequacy and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows: 1. SERVICES OF CONSULTANT. Consultant shall use its best efforts to assist the Company during the term of this Agreement in connection with the work products set forth in detail on Exhibit A attached hereto and made a part hereof, the subject of which shall include, without limitation, the following: (i) assisting the Company in connection with its investor presentations; (ii) assisting the Company in connection with its business plans and a summary version of such plan; (iii) assisting the Company in establishing licensing strategies; and (iv) such other matters mutually determined by the Consultant and the Company to be appropriate for Consultant's services. Consultant shall work on a part time basis and shall comply with Companies instruction for maximum hours of consulting services in any given calendar period, which shall be in writing prior to first day of each subsequent month. 2. FEE FOR SERVICES. In consideration for Consultant providing the services described in Section 1 hereof, the Company agrees to pay Consultant an hourly compensation of Eighty Dollars ($80) per hour, with payment due no later than the earlier to occur of (a) five days after funds received from investors pursuant to a financing in which the Company receives financing (whether debt or equity-based), cumulatively or in a lump sum, of at least $3,000,000, first become available for expenditure by the Company, or (b) December 31, 2000. At Consultant's sole discretion, Consultant may elect to convert hourly cash compensation to an option to purchase shares of common stock of the company providing one hundred option shares (100) for each hour of consulting services. Such Conversion Option, once elected, shall be exercisable for a period of three (3) years following the date of such election at an exercise price of two dollars and fifty cents ($2.50) per share. Consultant must make selection of method of consideration prior to five days after funds received from investors pursuant to the Memorandum first become available for expenditure by the Company. Consultant acknowledges (i) that it is an independent contractor and not an employee and (ii) that it shall be responsible for any and all tax obligations arising from the payments made hereunder. The Company hereby acknowledges that Consultant has, prior to the date of this Agreement, provided 112 hours of services in the Company's behalf, which shall be compensated in the manner provided herein. 3. GRANT OF OPTION. In consideration for Consultant's willingness to provide the services set forth herein, the Company in addition to fee for Services also agrees to grant Consultant an option to purchase shares of common stock of the Company. Such Stock Option to be exercisable for a period of three (3) years at a price of two dollars and fifty cents ($2.50) per share for one hundred shares (100) for each hour of consulting services. 4. EXPENSE REIMBURSEMENT. The Company shall promptly reimburse Consultant for all normal out-of-pocket expenses, including meals, travel and entertainment related to the Company's business that are actually paid or incurred by Consultant in the performance of its services under this Agreement upon the delivery of invoices or other evidence of payment therefor. 5. TERM. This Agreement shall remain in effect for an initial term of six (6) months, and shall thereafter be automatically renewed for successive terms of six (6) months each, unless either party indicates its intention to terminate this Agreement prior to the expiration of such initial term or any successive term. Termination hereunder may occur for any reason or no reason at either party's option upon 30 days' prior written notice to be given by the party terminating this Agreement. 6. CONFIDENTIALITY. Consultant will maintain the confidentiality of this Agreement, all provisions of this Agreement and all materials of the Company received by Consultant pursuant to its consulting services to the Company (collectively, "Confidential Information"), and, without the prior written consent of the Company, the Consultant shall not make any press release or other public announcement of or otherwise disclose any Confidential Information to any third party. The foregoing stall not restrict Consultant from disclosing such Confidential Information (i) to its professional advisors whose duties reasonably require familiarity with this Agreement, provided that such persons are bound to maintain the confidentiality of this Agreement, and (ii) to the extent such disclosure may be required by applicable law or regulation, provided that Consultant will only disclose such information as is legally required will use reasonable efforts to obtain confidential treatment for any information that is so disclosed. If Consultant is required to disclose any Confidential Information pursuant to or in connection with any subpoena, order, or other event involving any legal, administrative or regulatory action or proceeding, Consultant shall immediately notify the Company. 2 7. AGREEMENT NOT TO COMPETE. ------------------------ a. Consultant agrees that it will not, during the term hereof, and for a period of one (1) year thereafter, engage in any business or businesses competitive to that conducted by the Company or any subsidiary or affiliate of the Company, as such business is described in Section 7(b)(iii) of this Agreement. b. The Consultant further agrees that it will not, for a period of one (1) year after the termination of this Agreement (the "Non-Compete Period"): (i) Solicit any customers of the Company or of a subsidiary or affiliate of the Company; or (ii) Solicit for employment, hire, request or cause any employee of Company to terminate his or her employment with Company or otherwise attempt to engage the services of any employee of the Company or any subsidiary or affiliate of the Company for any purpose or any endeavor (either on the Company's own behalf or on behalf of any business referred to in Section 7(a) above) without the prior consent of the Company. (ii) For purposes of this Agreement, the parties acknowledge and agree that the Company's business is the creation and licensing of Ion Wind Generation products. 8. INDEMNIFICATION. a. The Company hereby agrees to indemnify and hold harmless the Consultant from and against any and all loss, cost, damage, claim or liability of any sort, including, without limitation, reasonable attorney's fees and expenses (collectively, a "Claims") arising out of or in connection with the services being provided by the Consultant to the Company hereunder; provided, the foregoing provision shall not apply to indemnify the Consultant for any Claim suffered by Consultant as a result of its own negligent action. b. In the case of Consultant's negligent actions, the Consultant shall indemnify and hold harmless the Company from and against any and all Claims arising out of or in connection with such negligent action. 9. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Oregon, without regard to principles of conflicts of laws thereof. In case of any dispute arising hereunder, the parties agree that such matter shall be submitted to binding arbitration in the Portland, Oregon metropolitan area, for arbitration in accordance with the rules of the American Arbitration Association. 10. COSTS OF COLLECTION. Should either party to this Agreement be required to incur costs in connection with the collection of any amounts due from the other party hereunder, including the reasonable costs of counsel engaged for such purpose (collectively, "Collection Costs"), the party required to pay the amount being collected hereunder shall also be liable for the payment of the Collection Costs. 11. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of any successors and assigns of the parties hereto; provided, however, that the 3 services of Consultant engaged by the Company hereunder are personal and shall not be assigned or delegated by Consultant without the Company's express prior written consent, which may be withheld in the Company's sole discretion. 12. INTEGRATION. This document sets forth the entire agreement between Company and Consultant relating to the subject matter herein and supersedes any previous written or oral agreements relating to this subject matter between them. 13. AMENDMENTS. This Agreement may not be varied, altered, modified, changed, or in any way amended except by an instrument in writing, executed by the parties hereto or their legal representatives. 14. HEADINGS. Headings and paragraph captions used in this Agreement are intended for convenience of reference only and shall not affect the interpretation of this Agreement. 15. COUNTERPART AND FACSIMILE EXECUTION. This Agreement may be executed in any number of counterparts, which taken together shall be deemed to constitute one original. Execution of this Agreement by facsimile shall be sufficient for all purposes and shall be binding upon any that so executes. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. TSET, Inc. By: /S/ JEFFREY D. WILSON ------------------------------ Jeffrey D. Wilson Chairman and Chief Executive Officer RICHARD F. TUSING /S/ RICHARD F. TUSING 8/8/00 - ----------------------------------- DANIEL R. DWIGHT /S/ DANIEL R. DWIGHT 8/21/00 - ----------------------------------- 4 Exhibit A -- Statement of Work 1. Create investor Powerpoint presentation draft and investor executive summary 2. Review and comment upon TSET's Form 10K draft 3. Review, suggest modifications, and rewrite as necessary business plans (including financial models and marketing plans) 4. Review and create license strategy and general term sheet for Kronos Air Technologies; assist in marketing as requested 5. Detailed review of Atomic Soccer and EdgeAudio.com business plans; evaluate strategies for improved scalability and business effectiveness 6. Other work efforts in support of TSET and subsidiaries, as mutually agreed ******************* Maximum 1200 hours during the next 6-month period, unless otherwise mutually agreed in writing. All work product and completion dates are subject to change by mutual agreement. 5 EX-10.16 22 exhibit10-16.txt EXHIBIT 10.16 PREFERRED STOCK PURCHASE AGREEMENT THIS PREFERRED STOCK PURCHASE AGREEMENT ("Agreement") is made as of September 12, 2000, by and between EdgeAudio. Com, Inc. an Oregon corporation (the "Company") and Bryan Holbrook ("Investor"). WHEREAS, Investor desires to purchase, and the Company desires to sell and issue to Investor, shares of the Company's Series A Convertible Preferred Stock ("Series A Stock"). NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the parties hereby agree as follows: 1. PURCHASE AND SALE OF STOCK 1.1 SALE AND ISSUANCE OF COMMON STOCK (a) The Company shall adopt and file with the Corporation Division of the Secretary of State of the State of Oregon on or before the Closing, as defined in Section 1.2 herein, the Amended Articles of Incorporation in the form attached hereto as Exhibit A ("Amended Articles of Incorporation"). (b) Subject to the terms and conditions of this Agreement, Investor agrees to purchase, and the Company agrees to sell and issue to Investor, at the Closing, 25,000 shares of Series A Stock at a price of $28.00 per share, for $700,000.00 in the aggregate (the "Purchase Price"). The first $250,000 of the Purchase Price shall be paid by Investor by check or by wire transfer at Closing as defined in Section 1.2 herein. The balance of the Purchase Price shall be paid by check or wire transfer upon the earlier of (i) demand by the Company's chief executive officer, or (ii) 90 days following the Closing. The parties intend that the Investor's obligation to pay the entire aggregate amount of the Purchase Price shall be absolute and unconditional, and that the Investor shall not object, condition, delay, or interpose any defense in connection with making payment(s) of the Purchase Price as provided in the immediately preceding sentence or the Company's enforcement of its right to receive the aggregate amount of the Purchase Price, as aforesaid. 1.2. CLOSING The purchase and sale of the Series A Stock shall take place at the offices of the Company on the date first set forth above, or such other location and time as the Company and Investor mutually agree upon, which time and place shall be designated as the "Closing". Promptly following payment for part or all of the shares of Series A Stock that Investor is purchasing, the Company shall deliver to Investor a certificate or a Statement of Share Ownership pursuant to ORS 60.164 representing the number of shares of Series A Stock that Investor has paid for. PAGE 1 - PREFERRED STOCK PURCHASE AGREEMENT 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to Investor that, as of the date of this Agreement: 2.1 ORGANIZATION; GOOD STANDING; QUALIFICATION The Company is a corporation duly organized and validly existing under the laws of the State of Oregon and has the requisite corporate power and authority to own and operate its properties and assets and to conduct its business as now conducted and as proposed to be conducted in the future, to execute and deliver this Agreement and the other agreements contemplated herein, to issue the Series A Stock and to carry out the provisions of this Agreement and the other agreements contemplated herein. The Company is now, or will be as soon as practicable after Closing, duly qualified and authorized to transact business and is in good standing as a foreign corporation in each jurisdiction in which the failure to so qualify would have a material adverse affect on its business, properties, prospects or financial condition. 2.2 CAPITALIZATION The authorized capital stock of the Company consists, or will consist immediately prior to Closing, of: (a) PREFERRED STOCK. 25,000 shares of Preferred Stock, one-cent par value, all of which have been designated as Series A Convertible Preferred Stock ("Series A Stock"), which will be sold pursuant to this Agreement. The rights, privileges and preferences of the Series A Stock are as stated in the Amended Articles of Incorporation. (b) COMMON STOCK. 1,000,000 shares of Common Stock, one-cent par value, ("Common Stock") of which 100,000 shares are issued and outstanding. (c) The outstanding shares of Series A Stock and the Common Stock have been duly authorized and validly issued, are fully paid and nonassessable. (d) There are no outstanding options, warrants, rights, proxy or stockholders agreements of any kind for the purchase from the Company of any of its securities. 2.3 AUTHORIZATION All corporate action on the part of the Company, its officers, directors and Investors necessary for the authorization, execution and delivery of this Agreement and the other agreements and transactions contemplated herein, the performance of all obligations of the Company hereunder and thereunder and the authorization, issuance and delivery of the Series A Stock being sold hereunder have been or will be taken prior to the Closing. This Agreement and the other agreements contemplated herein constitute valid and legally binding obligations of the Company, enforceable in accordance with their terms. 2.4 VALID ISSUANCE OF SERIES A STOCK The Series A Stock, when issued, sold and delivered in accordance with this Agreement, will be duly and validly issued, fully paid and PAGE 2 - PREFERRED STOCK PURCHASE AGREEMENT nonassessable and free of any liens or encumbrances created by the Company and will be issued in compliance with applicable federal and state securities laws. 2.5 GOVERNMENTAL CONSENTS No consent, approval, order or authorization of, registration, qualification or filing with, any federal, state or local governmental authority is required on the part of the Company in connection with the consummation of the transactions contemplated by this Agreement, except for filings, if any, required pursuant to applicable state securities laws, which filings will be made within the required statutory period. 2.6 SUBSIDIARIES The Company does not own or control, directly or indirectly, any interest in any other corporation, association, partnership or other entity. The Company is not a participant in any joint venture, partnership or similar arrangement. 2.7 PERMITS The Company has all permits, licenses and similar authorizations necessary for the conduct of its business as now being conducted by it, the lack of which could materially and adversely affect the business, properties, prospects, or financial condition of the Company and believes that it can obtain, without undue burden or expense, any similar authority for the conduct of its business as presently planned to be conducted. The Company is not in default in any material respect under any such permits, licenses or similar authority. 2.8 COMPLIANCE WITH OTHER INSTRUMENTS The Company is not in violation or default in any material respect of any provision of its Articles of Incorporation, as amended or restated, or Bylaws or in any material respect of any mortgage, indenture, agreement, instrument or contract to which it is a party or by which it is bound or, to the best of its knowledge, of any federal or state judgment, order, writ, decree, statute, rule, regulation or restriction applicable to the Company, which violation or default would have a material adverse effect on its business, properties, prospects or financial condition. The execution, delivery and performance of this Agreement and the other agreements contemplated herein and the consummation of the transactions contemplated hereby and thereby will not result in any such violation or default or require any consent under or be in conflict with or constitute either a violation or default under any such mortgage, indenture, agreement, instrument or contract or an event which results in the creation of any liens, charge or encumbrance upon any assets of the Company. 2.9 LITIGATION There is no action, suit, proceeding or investigation pending or, to the Company's knowledge, currently threatened against the Company or any of its officers, directors, employees or agents which questions the validity of this Agreement or the other agreements contemplated herein or the right of the Company to enter into such agreements or to consummate the transactions contemplated hereby or thereby, or which might result in any material adverse PAGE 3 - PREFERRED STOCK PURCHASE AGREEMENT change in the assets, conditions, affairs, prospects or business of the Company, financially or otherwise, or any change in the current equity ownership of the Company. 2.10 DISCLOSURE The Company has provided Investor with all information reasonably available to it without undue expense that Investor, and/or its agents and representatives, has requested for deciding whether to purchase the Series A Stock and all information that the Company believes is reasonably necessary to enable Investor to make such decision. To the best of the Company's knowledge after reasonable investigation, neither this Agreement not any other agreements, written statements made or delivered in connection herewith contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements herein or therein not misleading. 2.11 TITLE TO PROPERTY AND ASSETS The Company has good and marketable title to its properties and assets, free and clear of any material liens, claims or encumbrances. With respect to the property and assets it leases, the Company is in compliance with such leases and, to the best of its knowledge, holds a valid leasehold interest free of any material liens, claims or encumbrances. 2.12 OFFERING Subject in part to the truth and accuracy of Investor's representations set forth in this Agreement, the offer, sale and issuance of the Series A Stock contemplated by this Agreement are exempt from the registration requirements of the Securities Act of 1933, as amended (the "Act"), and are exempt from registration or qualification under applicable state securities laws. Neither the Company nor any authorized representative acting on its behalf will take any action hereafter that would cause the loss of such exemption. 3. REPRESENTATIONS AND WARRANTIES OF INVESTOR Investor hereby represents and warrants to the Company that: 3.1 AUTHORIZATION Investor has full power and authority to execute, deliver and perform his obligations under this Agreement and to own the Series A Stock and this Agreement constitutes a valid and legally binding obligation of Investor. 3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT This Agreement is made with Investor in reliance upon its representation to the Company, which, by Investor's execution of this Agreement, Investor hereby confirms, that the Series A Stock to be received by Investor will be acquired for investment for his own account and not with a view to the distribution of any part thereof and that Investor has no present intention of selling, granting any participation in, or otherwise distributing the same. PAGE 4 - PREFERRED STOCK PURCHASE AGREEMENT 3.3 DISCLOSURE OF INFORMATION; DUE DILIGENCE Investor represents that he has had an opportunity to ask questions of and receive answers from the Company regarding the Company and the terms and conditions of the offering of the Series A Stock and to obtain additional information necessary to verify the accuracy of the information supplied or to which it had access. 3.4 INVESTMENT EXPERIENCE; ACCREDITED INVESTOR STATUS Investor represents that he is experienced in evaluating and investing in private placement transactions of securities of companies in a similar stage of development as the Company and acknowledges that he is able to fend for himself, can bear the economic risk of such an investment and has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of the investment in the Series A Stock. Investor understands that the Series A Stock to be purchased hereunder constitutes a speculative risk and that the Series A Stock has not been registered under the Act, or the securities laws of any jurisdiction, by reason of reliance upon certain of Investor's representations and warranties under this Section 3. Investor is familiar with Regulation D promulgated under the Securities Act of 1933 and is an "accredited investor" as defined in Rule 501(a) of such Regulation D. 3.5 RESTRICTED SECURITIES Investor understands that the Series A Stock to be purchased hereunder and the Common Stock issuable from time to time upon conversion of the Series A Stock are characterized as "restricted securities" under the Securities Act of 1933 and that consequently the transferability and resale of the Series A Stock and the Common Stock will be limited. Investor understands that any certificate evidencing the Series A Stock to be purchased hereunder and any Common Stock issuable upon conversion of the Series A Stock will bear a legend in substantially the following form: THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THE SHARES HAVE BEEN ACQUIRED WITHOUT A VIEW TO DISTRIBUTION AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SHARES UNDER THE ACT AND UNDER ANY APPLICABLE SECURITIES LAWS, OR AN OPINION OF COUNSEL ACCEPTABLE TO THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED AS TO SUCH SALE OR OFFER. 3.6 INDEMNIFICATION Investor shall indemnify and hold harmless the Company, its officers, directors, employees, nominees, and agents against any damage, claim or liability and the costs of any action or proceeding brought as the result of any untrue representation, warranty or agreement made herein. Investor understands that such liability could substantially exceed the Purchase Price of PAGE 5 - PREFERRED STOCK PURCHASE AGREEMENT the Series A Stock, particularly if the untrue representations relate to Investor's status as an accredited investor, as represented in Section 3.4 herein. 4. CONDITIONS OF INVESTOR'S OBLIGATIONS AT CLOSING The obligations of Investor under Section 1.1 of this Agreement are subject to the fulfillment at or before Closing of each of the following conditions: 4.1 REPRESENTATIONS AND WARRANTIES The representations and warranties of the Company contained in Section 2 of this Agreement shall be true and correct in all material respects on and as of Closing with the same effect as though such representations and warranties had been made as of the date of Closing. 4.2 PERFORMANCE The Company shall have performed and complied with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it before Closing. 4.3 CORPORATE DOCUMENTS The Company shall have delivered to Investor or its counsel, copies of all corporate documents of the Company as Investor shall reasonably request. 4.4 DELIVERY OF SHARES The Company shall have delivered to Investor at Closing a stock certificate or a Statement of Share Ownership pursuant to ORS 60.164 representing 25,000 shares of the Series A Stock to be purchased by Investor hereunder by payment of the Purchase Price called for by Section 1.1. 4.5 CONSENTS, PERMITS AND WAIVERS The Company shall have obtained all consents, permits and waivers necessary for the consummation of the transactions contemplated by this Agreement and the other agreements contemplated herein. 4.6 QUALIFICATIONS All authorizations, approvals or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Series A Stock pursuant to this Agreement shall be duly obtained and effective at Closing. 4.7 PROCEEDINGS AND DOCUMENTS All corporate and other proceedings in connection with the transactions contemplated at Closing and all documents incident thereto including evidence of the filing of the Restated Articles of Incorporation shall PAGE 6 - PREFERRED STOCK PURCHASE AGREEMENT be satisfactory in form and substance to Investor and its legal counsel and its counsel shall have received all such counterpart original and certified or other copies of such documents as they may reasonable request. 4.9 MATERIAL ADVERSE OCCURRENCE There shall not occurred any event or condition of any character that might, in the reasonable opinion of Investor, materially and adversely affect the business, properties, prospects or financial condition of the Company, as such business is presently conducted and as is proposed to be conducted. 5. CONDITIONS FOR THE COMPANY'S OBLIGATIONS AT CLOSING The obligations of the Company to Investor under this Agreement are subject to the fulfillment at or before Closing of each of the following conditions: 5.1 REPRESENTATIONS AND WARRANTIES The representations and warranties of Investor contained in Section 3, shall be true in all material respects on and as of Closing with the same effect as though such representations and warranties had been made as of the date of Closing. 5.2 PAYMENT OF PURCHASE PRICE Investor shall have delivered to the Company the Purchase Price in the amount of $700,000.00 for the shares of the Series A Stock as specified in Section 1.1. 5.3 SECURITIES LAWS QUALIFICATIONS The offer and sale to Investor shall be qualified or exempt from qualification under all applicable federal and state securities laws, which qualification or exemption the Company shall have exercised its best efforts to obtain. 6. REGISTRATION RIGHTS The Company covenants and agrees as follows: 6.1. DEFINITIONS For purposes of this Section 6, the following definitions will apply: "AGREEMENT" means this Registration Rights Agreement. "BOARD" means the Board of Directors of the Company. "COMMON STOCK" means the common stock of the Company "COMMISSION" means the Securities and Exchange Commission. PAGE 7 - PREFERRED STOCK PURCHASE AGREEMENT "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "PERSON" includes any natural person, corporation, trust, association, company, partnership, joint venture and other entity and any government, governmental agency, instrumentality or political subdivision "REGISTER", "REGISTERED" and "REGISTRATION" refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of the effectiveness of such registration statement. "REGISTRABLE SECURITIES" means (1) Common Stock issuable or issued upon conversion of the outstanding Series A Stock and (2) any securities issued or issuable with respect to the Common Stock referred to in clause (1) above by way of a stock dividend or stock split or in connection with a combination of shares, reclassification, recapitalization, merger or consolidation or reorganization; provided, however, that such shares of Common Stock shall only be treated as Registrable Securities if and so long as they have not been (i) sold to or through a broker or dealer or underwriter in a public distribution or a public securities transaction, or (ii) sold in a transaction exempt from the registration and prospectus delivery requirements of the Securities Act under Section 4(l) thereof so that all transfer restrictions and restrictive legends with respect to such Common Stock are removed upon the consummation of such sale and the seller and purchaser of such Common Stock receive an pinion of counsel for the Company, which shall be in form and content reasonably satisfactory to the seller and buyer and their respective counsel, to the effect that such Common Stock in the hands of the purchaser is freely transferable without restriction or registration under the Securities Act in any public or private transaction. "SECURITIES ACT" means the Securities Act of 1933, as amended. 6.2 COMPANY REGISTRATION (a) Each time the Company shall determine to file a registration statement under the Securities Act (other than on Form S-4, S-8 or a registration statement on Form S-1 covering solely an employee benefit plan) in connection with the proposed offer and sale for money of any of its securities either for its own account or on behalf of any other security holder, the Company agrees to give promptly written notice of its determination to Investor. Upon the written request of Investor given within thirty (30) days after the receipt of such written notice from the Company, the Company agrees to cause all such Registrable Securities, which Investor has so requested registration thereof, to be included in such registration statement and registered under the Securities Act, all to the extent requisite to permit the sale or other disposition by Investor of the Registrable Securities to be so registered. (b) If the registration of which the Company gives written notice pursuant to Section 2(a) is for a public offering involving an underwriting, the Company agrees to so advise Investor as a part of its written notice. In such event the right of Investor to registration pursuant to this Section 6.2 shall be conditioned upon Investor's participation in such underwriting and the inclusion of Investor's Registrable Securities in the underwriting to the extent provided herein. Investor agrees to enter into (together with the Company and the other holders distributing their securities through such underwriting) an underwriting agreement with the underwriter or underwriters selected for such PAGE 8 - PREFERRED STOCK PURCHASE AGREEMENT underwriting by the Company, provided that such underwriting agreement is in customary form. (c) Notwithstanding any other provision of this Section 6.2, if the managing underwriter of an underwritten distribution advises the Company and Investor in writing that in its good faith judgment the number of shares of Registrable Securities and the other securities requested to be registered exceeds the number of shares of Registrable Securities and other securities which can be sold in such offering, then (i) the number of shares of Registrable Securities and other securities so requested to be included in the offering shall be reduced to that number of shares which in the good faith judgment of the managing underwriter can be sold in such offering (except for shares to be issued by the Company in an offering initiated by the Company, which shall have priority over the shares of Registrable Securities), and (ii) such reduced number of shares shall be allocated among Investor and the holders of other securities in proportion, as nearly as practicable, to the respective number of shares of Registrable Securities and other securities held by Investor and other holders at the time of filing the registration statement. All Registrable Securities and other securities which are excluded from the underwriting by reason of the underwriter's marketing limitation and all other Registrable Securities not originally requested to be so included shall not be included in such registration and shall be withheld from the market by Investor for a period which the managing underwriter reasonably determines is necessary to effect the underwritten public offering. 6.3 REGISTRATION PROCEDURES. If and whenever the Company is required by the provisions of Section 6.2 hereof to effect the registration of Registrable Securities under the Securities Act, the Company, at its expense and as expeditiously as possible, agrees to: (a) In accordance with the Securities Act and all applicable rules and regulations, prepare and file with the Commission a registration statement with respect to such securities and use its best efforts to cause such registration statement to become and remain effective until the securities covered by such registration statement have been sold, and prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus contained therein as may be necessary to keep such registration statement effective and such registration statement and prospectus accurate and complete until the securities covered by such registration statement have been sold; (b) If the offering is to be underwritten in whole or in part, enter into a written underwriting agreement in form and substance reasonably satisfactory to the managing underwriter of the public offering and Investor; (c) Furnish to Investor and the underwriters of the securities being registered such number of copies of the registration statement and each amendment and supplement thereto, preliminary prospectus, final prospectus and such other documents as such underwriters and Investor may reasonably request in order to facilitate the public offering of such securities; (d) Use its best efforts to register or qualify the securities covered by such registration statement under such state securities or blue sky laws of such jurisdictions as Investor and underwriters may reasonably request within ten (10) days prior to the original filing of such registration statement, except that the Company shall not for any purpose be required to PAGE 9 - PREFERRED STOCK PURCHASE AGREEMENT execute a general consent to service of process or to qualify to do business as a foreign corporation in any jurisdiction where it is not so qualified; (e) Notify Investor, promptly after it shall receive notice thereof, of the date and time when such registration statement and each post-effective amendment thereto has become effective or a supplement to any prospectus forming a part of such registration statement has been filed; (f) Notify Investor promptly of any request by the Commission for the amending or supplementing of such registration statement or prospectus or for additional information; (g) Prepare and file with the Commission, promptly upon the request of Investor, any amendments or supplements to such registration statement or prospectus which, in the opinion of counsel for Investor, is required under the Securities Act or the rules and regulations thereunder in connection with the distribution of the Registrable Securities by Investor; (h) Prepare and file promptly with the Commission, and promptly notify Investor of the filing of, such amendments or supplements to such registration statement or prospectus as may be necessary to correct any statements or omissions if, at the time when a prospectus relating to such securities is required to be delivered under the Securities Act, any event has occurred as the result of which any such prospectus or any other prospectus as then in effect would include an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; (i) In case Investor or any underwriter for Investor is required to deliver a prospectus at a time when the prospectus then in circulation is not in compliance with the Securities Act or the rules and regulations of the Commission, prepare promptly upon request such amendments or supplements to such registration statement and such prospectus as may be necessary in order for such prospectus to comply with the requirements of the Securities Act and such rules and regulations; (j) Advise Investor, promptly after it shall receive notice or obtain knowledge thereof, of the issuance of any stop order by the Commission suspending the effectiveness of such registration statement or the initiation or threatening of any proceeding for that purpose and promptly use its best efforts to prevent the issuance of any stop order or to obtain its withdrawal if such stop order should be issued; (k) Not file any registration statement or prospectus or any amendment or supplement to such registration statement or prospectus to which Investor has reasonably objected on the grounds that such registration statement or prospectus or amendment or supplement thereto does not comply in all material respects with the requirements of the Securities Act or the rules and regulations thereunder, after having been furnished with a copy thereof at least five (5) business days prior to the filing thereof; provided, however, that the failure of Investor or its counsel to review or object to any registration statement or prospectus or any amendment or supplement to such registration statement or prospectus shall not affect the rights of Investor or its respective officers, directors, legal counsel, accountants or controlling Persons or any underwriter or any controlling Person of such underwriter; PAGE 10 - PREFERRED STOCK PURCHASE AGREEMENT (l) Make available for inspection upon request by Investor, by any managing underwriter of any distribution to be effected pursuant to such registration statement and by any attorney, accountant or other agent retained by any Investor or any such underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause all of the Company's officers, directors and employees to supply all information reasonably requested by Investor, underwriter, attorney, accountant or agent in connection with such registration statement; and (m) At the request of Investor, furnish to Investor on the effective date of the registration statement or, if such registration includes an underwritten public offering, at the closing provided for in the underwriting agreement, (i) an opinion dated such date of the counsel representing the Company for the purposes of such registration, addressed to the underwriters, if any, and to Investor, covering such matters with respect to the registration statement, the prospectus and each amendment or supplement thereto, proceedings under state and federal securities laws, other matters relating to the Company, the securities being registered and the offer and sale of such securities as are customarily the subject of opinions of issuer's counsel provided to underwriters in underwritten public offerings, and such opinion of counsel shall additionally cover such legal and factual matters with respect to the registration as Investor may reasonably request, and (ii) letters dated each of such effective date and such closing date, from the independent certified public accountants of the Company, addressed to the underwriters, if any, and to Investor, stating that they are independent certified public accountants within the meaning of the Securities Act and dealing with such matters as the underwriters may request, or if the offering is not underwritten that in the opinion of such accountants the financial statements and other financial data of the Company included in the registration statement or the prospectus or any amendment or supplement thereto comply in all material respects with the applicable accounting requirements of the Securities Act, and additionally covering such other accounting and financial matters, including information as to the period ending not more than five (5) business days prior to the date of such letter with respect to the registration statement and prospectus, as Investor may reasonably request. 6.4 EXPENSES (a) With respect to each inclusion of shares of Registrable Securities in a registration statement pursuant to this Section 6.2 hereof, the Company agrees to bear all fees, costs and expenses of and incidental to such registration and the public offering in connection therewith; provided, however, that Investor participating in any such registration agrees to bear its pro rata share of the underwriting discount and commissions. (b) The fees, costs and expenses of registration to be borne as provided in paragraph (a) above, shall include, without limitation, all registration, filing and NASD fees, printing expenses, fees and disbursements of counsel and accountants for the Company, fees and disbursements of counsel for the underwriter or underwriters of such securities (if the Company and/or selling security holders are otherwise required to bear such fees and disbursements), all legal fees and disbursements and other expenses of complying with state securities or blue sky laws of any jurisdictions in which the securities to be offered are to be registered or qualified, reasonable fees and disbursements of one firm of counsel for the selling security holders, selected by Investor, and the premiums and other costs of policies of insurance against liability arising out of such public offering. PAGE 11 - PREFERRED STOCK PURCHASE AGREEMENT 6.5 INDEMNIFICATION (a) The Company hereby agrees to indemnify and hold harmless Investor pursuant to the provisions of this Agreement and each of such Investor's officers, directors, legal counsel and accountants, and each Person who controls such Investor within the meaning of the Securities Act and any underwriter (as defined in the Securities Act) for such Investor, and any Person who controls such underwriter within the meaning of the Securities Act, from and against, and agrees to reimburse Investor, its officers, directors, legal counsel, accountants and controlling Persons and each such underwriter and controlling Person of such underwriter with respect to, any and all claims, actions (actual or threatened), demands, losses, damages, liabilities, costs and expenses to which Investor, its officers, directors, legal counsel, accountants or controlling Persons, or any such underwriter or controlling Person of such underwriter may become subject under the Securities Act or otherwise, insofar as such claims, actions, demands, losses, damages, liabilities, costs or expenses arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in such registration statement, any prospectus contained therein, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that the Company will not be liable in any such case to the extent that any such claim, action, demand, loss, damage, liability, cost or expense is caused by an untrue statement or alleged untrue statement or omission or alleged omission so made in strict conformity with written information furnished by Investor, such underwriter or such controlling Person specifically for use in the preparation thereof. (b) Investor hereby agrees to indemnify and hold harmless the Company, its officers, directors, legal counsel and accountants and each Person who controls the Company within the meaning of the Securities Act, from and against, and agrees to reimburse the Company, its officers, directors, legal counsel, accountants and controlling Persons with respect to, any and all claims, actions, demands, losses, damages, liabilities, costs or expenses to which the Company, its officers, directors, legal counsel, accountants or such controlling Persons may become subject under the Securities Act or otherwise, insofar as such claims, actions, demands, losses, damages, liabilities, costs or expenses are caused by any untrue or alleged untrue statement of any material fact contained in such registration statement, any prospectus contained therein or any amendment or supplement with respect to any claims, actions, demands, losses, damages, liabilities, costs or expenses referred to therein, then each indemnifying party under any such subsection, in lieu of indemnifying such indemnified party thereunder, hereby agrees to contribute to the amount paid or payable by such indemnified party as a result of such claims, actions, demands, losses, damages, liabilities, costs or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions which resulted in such claims, actions, demands, losses, damages, liabilities, costs or expenses, as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties, relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. Notwithstanding the foregoing, the amount Investor shall be obligated to contribute pursuant to this subsection (d) shall be limited to an amount equal to the per share public offering price (less any PAGE 12 - PREFERRED STOCK PURCHASE AGREEMENT underwriting discount and commissions) multiplied by the number of shares of Registrable Securities sold by Investor pursuant to the registration statement which gives rise to such obligation to contribute (less the aggregate amount of any damages which Investor has otherwise been required to pay in respect of such claim, action, demand, loss, damage, liability, cost or expense or any substantially similar claim, action, demand, loss, damage, liability, cost or expense arising from the sale of such Registrable Securities). No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution hereunder from any person who was not guilty of such fraudulent misrepresentation. 6.6. INVESTOR INFORMATION. The Company may request Investor to furnish the Company with such information with respect to Investor and the distribution of Registrable Securities as the Company may from time to time reasonably request in writing and as shall be required by law or by the Commission in connection therewith, and Investor agrees to furnish the Company with such information. 7. COVENANTS OF THE COMPANY 7.1 DELIVERY OF FINANCIAL INFORMATION AND OTHER INFORMATION The Company shall deliver to Investor: (a) as soon as practicable, but in any event within 10 days after the end of each month, an unaudited income statement and balance sheet for such month end.; (b) such other information relating to the financial condition, business, prospects, corporate affairs of the Company as Investor may from time to time reasonably request; and (c) any information provided to the holders of Common Stock. The information provided pursuant this Section 7 shall be used by Investor solely in furtherance of his interests as an investor in the Company and Investor shall maintain the confidentiality of all confidential information of the Company obtained under this Section 7. 7.2 RESERVATION OF COMMON STOCK The Company will at all times reserve and keep available, solely for issuance and delivery upon the conversion of Series A Stock, all Common Stock issuable from time to time upon such conversion. 8. MISCELLANEOUS 8.1 SURVIVAL OF WARRANTIES The warranties, representations and covenants of the Company and Investor contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement and Closing. PAGE 13 - PREFERRED STOCK PURCHASE AGREEMENT 8.2 SUCCESSORS AND ASSIGNS The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as may be expressly provided in this Agreement. 8.3 GOVERNING LAW This Agreement shall be governed by and construed in accordance with the laws of the State of Oregon. 8.4 COUNTERPARTS This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 8.5 TITLES AND SUBTITLES The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 8.6 NOTICES All notices required or permitted to be given under this Agreement shall be in writing. Notices may be served by certified or registered mail, postage pre-paid with return receipt requested; by private courier, prepaid; by facsimile or other telecommunications device, or personally. Mailed notices shall be deemed delivered five (5) days after mailing, properly addressed. Notices by courier shall be deemed delivered on the date that the courier warrants that delivery occurred. Telecommunications notices shall be deemed delivered when receipt is confirmed by confirming transmission. Unless a party changes its address by giving notice to the other party as provided herein, notices shall be delivered to the parties at the addresses set forth on the signature page of this Agreement. To Investor: Bryan Holbrook 142 N. Blue Sage Layton, UT 84040 To Company: EdgeAudio.Com, Inc. 16018 S.W. Parker Road, Suite A Lake Oswego, OR 97223 Facsimile: (503) 293-8412 PAGE 14 - PREFERRED STOCK PURCHASE AGREEMENT 8.7 ATTORNEYS' FEES If any suit or action arising out of or related to this Agreement is brought by any party, the prevailing party shall be entitled to recover its costs and fees, including reason attorneys' fees, incurred by such party in such suit or action, including any appellate proceeding. 8.8 AMENDMENTS AND WAIVERS After Closing, any provision of this Agreement may be amended and the observance of any provision may be waived only with the written consent of the Company and Investor. PAGE 15 - PREFERRED STOCK PURCHASE AGREEMENT 8.9 SEVERABILITY If one or more of the provisions of this Agreement is held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of this Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. 8.10 ENTIRE AGREEMENT This Agreement and the other documents delivered at Closing constitute the full and entire understanding and agreement between the parties with respect to the subject matter hereof and supersede all prior agreements with respect to the subject matter hereof. 8.11 LEGAL COUNSEL This Agreement was prepared by legal counsel to the Company. Investor has been advised to seek the advice and representation of his own legal counsel in connection with this Agreement and Investor has elected not to seek such advice and representation. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. EDGEAUDIO. COM, INC. INVESTOR By: /s/ Bryan Holbrook --------------------------------------- ----------------------------- Robert I. Lightman, President Bryan Holbrook PAGE 16 - PREFERRED STOCK PURCHASE AGREEMENT 8.10 ENTIRE AGREEMENT This Agreement and the other documents delivered at Closing constitute the full and entire understanding and agreement between the parties with respect to the subject matter hereof and supersede all prior agreements with respect to the subject matter hereof. 8.11 LEGAL COUNSEL This Agreement was prepared by legal counsel to the Company. Investor has been advised to seek the advice and representation of his own legal counsel in connection with this Agreement and Investor has elected not to seek such advice and representation. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. EDGEAUDIO. COM, INC. INVESTOR By: /s/ Robert I. Lightman --------------------------------------- ----------------------------- Robert I. Lightman, President Bryan Holbrook PAGE 16 - PREFERRED STOCK PURCHASE AGREEMENT EXHIBIT A AMENDED ARTICLES OF INCORPORATION PAGE 17 - PREFERRED STOCK PURCHASE AGREEMENT EX-10.17 23 exhibit10-17.txt Exhibit 10.17 SHAREHOLDERS AGREEMENT This Shareholders Agreement, dated for reference purposes September 12, 2000, is made by and among TSET, Inc., a Nevada corporation ("TSET"), Bryan Holbrook ("Holbrook") an individual, and EdgeAudio.Com, Inc., an Oregon corporation ("the Corporation"). TSET and Holbrook are referred to in this Agreement collectively as the "Shareholders" and each individually as a "Shareholder." The Shareholders own all of the outstanding common stock of the Corporation. The Shareholders believe that it will promote their mutual interests and help insure continuity and stability in the management of the Corporation to impose certain restrictions and obligations upon themselves and the Corporation with respect to the transfer and ownership of their shares of common stock of the Corporation ("Shares"). Therefore, for valuable consideration, including the mutual covenants set forth below, the parties agree as follows: 1. RESTRICTIONS ON TRANSFER 1.1 No transfer of any of the Shares shall be valid unless such transfer is made in accordance with the provisions of this Agreement. Any transfer in violation of this Agreement shall be void. The Corporation may demand evidence of compliance with this Agreement as a condition precedent to registering the purported transfer on the Corporation's books. 1.2 The restrictions set forth in this Agreement shall apply to all Shares now or at any time owned or acquired by any Shareholder. 2. TRANSFER DEFINED The term "transfer" as used in this Agreement means any sale, assignment, exchange, pledge, hypothecation, lien, encumbrance, attachment, levy, foreclosure, or sale by legal process. The term transfer as used in this Agreement shall also include any filing by or against a Shareholder under any bankruptcy, reorganization, receivership, or other laws providing relief for debtors (collectively, Debtor Relief Laws). The term transfer shall not, however, include any gift, assignment, or sale to the Corporation. 3. RIGHT OF FIRST REFUSAL UPON PROPOSED TRANSFER 3.1 If a Shareholder wishes to transfer part or all of his Shares to a bona fide third party who is willing to purchase such Shares, the Shareholder must first offer to sell such Shares to the Corporation and the other Shareholders, at the price and on the same terms of the proposed transfer. The offer shall be made by giving the other Shareholders and the Corporation written notice of the proposed transfer (the "Proposed Transfer Notice") stating (a) that the Shareholder intends to transfer part or all his Shares, and (b) the terms of the proposed transfer, including the name and address of the proposed transferee, the transfer price, and the terms of payment. -1- 3.2 During the 30-day period following delivery of the Proposed Transfer Notice the Corporation or the other Shareholders may accept the offer by giving written notice to the transferring Shareholder. 3.3 The Corporation shall have the first right to purchase the offered Shares. If the Corporation elects not to purchase the offered Shares, the other Shareholders may purchase the offered Shares in such proportions as they mutually agree. If the other Shareholders can not agree on how many of the offered Shares each shall purchase, they shall have the right to purchase the offered Shares in proportion to the number of Shares each other Shareholder then owns. 3.4 If the Corporation and the other Shareholders do not accept the offer during the 30-day period, then the Shareholders must upon the earlier of (a) within five (5) business days after determining that neither the Corporation nor the Shareholders are going to accept the offer or (b) the expiration of the 30-day period, provide the additional notice required under paragraph 6 of the Amendment to Agreement and Plan of Reorganization dated of even date herewith ("Amendment"). If the option to purchase provided for under paragraph 6 of the Amendment is not exercised, then the transferring Shareholder may complete the transfer, but only in strict accordance with the terms previously stated in the Proposed Transfer Notice and only if the proposed transferee first executes a counterpart of this Agreement, as amended, pursuant to which the proposed transferee agrees to be bound by the terms and provisions of this Agreement. If the transfer of the Shares is not completed within 30 days after the expiration of the option period provided for in paragraph 6 of the Amendment, the offered Shares shall again become subject to the restrictions of this Agreement. 4. INVOLUNTARY TRANSFERS 4.1 If any Shareholder (1) voluntarily or involuntarily becomes a debtor under the United States Bankruptcy Code (2) makes a general assignment for the benefit of creditors or permits any of his or her Shares to be attached or levied upon or to become subject to judicial sale or execution of judgment, or (3) would be required to voluntarily or involuntarily transfer his or her Shares as a result of any event other than his or her death, the Shareholder shall automatically be deemed, immediately before such event occurs, to have made an offer (the "Offer") to sell to the Corporation and the other Shareholders all of the Shareholder's Shares at the price in effect under Section 5 on the date of the Offer and on the terms set forth in Section 6. Written notice of the Offer shall be given by certified mail to the Corporation and the other Shareholders. The Offer shall state the number of Shares to be transferred, the name and address of the proposed transferee and the nature and terms of the proposed transfer. The Offer shall be given by the person, firm, or entity seeking to attach, levy upon, lien, encumber, foreclose upon, sell by legal process, or otherwise exercise any asserted right or remedy with respect to the Shares. If the transfer is a proceeding against a Shareholder under any Debtor Relief Law, the person, firm, or entity filing the proceeding shall give the Offer. 4.2 Within 90 days of the receipt of the Offer, the Corporation or the other Shareholders may elect to purchase all (but not less than all) of the offered Shares. The Corporation shall have the first right to purchase the offered Shares. If the Corporation elects not to purchase the offered Shares, the other Shareholders may purchase the offered Shares in such proportions as they mutually agree. If the other Shareholders can not agree on how many of the -2- offered Shares each shall purchase, they shall have the right to purchase the offered Shares in proportion to the number of Shares each other Shareholder then owns. If the Corporation or the other Shareholders do not elect to purchase all of the offered Shares, the transfer may then become effective. The transferee(s), in either case, shall then be deemed to be a Shareholder subject to all the restrictions of this Agreement. If the transfer of the Shares is not completed within 30 days after the expiration of the 90-day period specified above, the offered Shares shall again become subject to the restrictions of this Agreement. 5. PRICE If the Corporation or other Shareholders purchase Shares as a result of an involuntary transfer, a transfer by operation of law, or pursuant to a proceeding filed under any Debtor Relief Law, the price to be paid by the Corporation or other Shareholders for the Shares shall be the lesser of the sum required to satisfy the applicable lien, encumbrance, judgment, or proceeding or the book value of the Shares being purchased. 6. TERMS 6.1 In the case of an involuntary transfer a purchaser shall pay the purchase price in cash at closing or at its election, in a series of 60 substantially equal monthly payments of principal and interest beginning on the closing date. The remaining balance (if any) shall be payable in full on the date the 60th payment is due. Interest shall be computed at a rate equal to the prime rate published in the Wall Street Journal on the closing date and shall be adjusted annually on each anniversary of the closing date. 6.2 Except as may be otherwise agreed by the parties, the closing of any purchase shall be held at the Corporation's principal place of business on the 30th day after all notices have been given, all options have been exercised, and the purchase price has been determined. If the 30th day is a Saturday, Sunday, or a legal holiday, the closing shall be held on the next business day. At closing, the purchaser(s) shall tender to the selling Shareholder the required payment, and the selling Shareholder shall tender to the purchaser(s) the Shares to be purchased, together with an executed stock power. 7. LEGEND Each certificate representing Shares of the Corporation now or hereafter held by the Shareholders shall be inscribed as follows: "The transfer of the shares of the Corporation represented by this certificate is restricted under the terms of a Shareholders Agreement dated September 12, 2000, a copy of which is on file at the offices of the Corporation." 8. WAIVER Waiver by any party of any provision of this Agreement shall be in writing and signed by the party waiving the provision. In any event, such waiver shall not prejudice that party's right to subsequently require strict performance of the same or any other provision of this Agreement. -3- 9. ATTORNEY FEES In the event of any legal action to enforce or interpret this Agreement, or otherwise related to this Agreement, or in the event a petition in bankruptcy is filed by or on behalf of a party, the prevailing party, in addition to all other sums that the other party may be required to pay, shall be entitled to recover such additional sum for the prevailing party's attorney fees and costs, as the applicable court determines to be reasonable in the action, including any proceeding at trial, on appeal, or on petition for review, and in any bankruptcy proceeding. 10. EQUITABLE RELIEF The parties to this Agreement acknowledge that the Shares of the Corporation are unique and that money damages for breach of this Agreement are inadequate. Any party aggrieved by a breach of the provisions of this Agreement may bring an action at law or a suit in equity to obtain redress, including specific performance, injunctive relief, or any other available equitable remedy. Time and strict performance are of the essence of this Agreement. 11. SUCCESSION This Agreement shall be binding on and inure to the benefit of the heirs, personal representatives, successors, assigns, and respective transferees of the Corporation and the Shareholders. 12. NEW SHAREHOLDERS Notwithstanding any other provision, this Agreement shall be binding upon any person who becomes a shareholder of the Corporation by any method other than pursuant to an IPO, and such new Shareholder shall, if requested by the Corporation's Board of Directors or by the holders of a majority of the remaining Shares, execute a counterpart of this Agreement. The parties agree to require the execution of a counterpart of this Agreement by any transferee of Shares as a precondition to the effectiveness of any transfer as defined in Section 2 of this Agreement and of the effectiveness of any issue of new or treasury shares. 13. NOTICES Any notice, direction, or other instrument required or permitted to be given under this Agreement shall be in writing and may be given by delivering the same or sending the same by telecommunication or by registered or certified mail, postage prepaid, addressed to the applicable address shown below Agreement. Any notice, direction, or other instrument, if delivered, shall be deemed to have been given on the date on which it was delivered. If transmitted by telecommunication, it shall be deemed to have been given at the opening of business in the office of the addressee on the business day next following its transmission. If mailed, it shall be deemed to have been given on the second business day following its mailing. In this paragraph, a business day means any day except Saturday, Sunday, or a statutory holiday in the United States. Notice shall be sent to the addresses set for below: -4- If to the Corporation: 15615 S.W. 74th, Suite 100 Tigard, Oregon 97224 If to a Shareholder: to such Shareholder's address on file with the Corporation Any party may, by written notice to the others, change his, her or its address for purposes of this Agreement. 14. GOVERNING LAW This Agreement shall be governed and construed in all respects in accordance with the laws of the state of Oregon without regard to its conflicts of laws rules. 15. SEVERABILITY The invalidity or unenforceability of any particular provision of this Agreement shall not affect the other provisions hereof, and this Agreement shall be construed as if such invalid or unenforceable provisions were omitted. In any such case, the provision deemed invalid 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. 16. ENTIRE AGREEMENT This Agreement constitutes the entire agreement between the parties hereto and supersedes all prior promises, representations, and agreements with respect to Shares of the Corporation. No modification of this Agreement shall be effective unless in writing and signed by all the parties. 17. PARAGRAPH CAPTIONS Paragraph captions are for the convenience of the parties and shall not affect the interpretation of this Agreement. 18. COUNTERPARTS This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. 19. PUBLIC OFFERING If a public offering is made for the sale of shares with regulatory approval under state Blue Sky laws or the Securities and Exchange Commission of the United States, (a) the Shareholders agree to cooperate with the Corporation in obtaining such regulatory approval, including, but not limited to, providing to the Corporation information and documentation regarding the Shareholders, and (b) upon the sale of shares pursuant to such offering, this Agreement shall terminate. -5- IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first written above. SHAREHOLDERS: TSET INC By: /s/ Jeffrey D. Wilson --------------------- Jeffrey D. Wilson, Chairman and Chief Executive Officer /s/ Bryan Holbrook ----------------------- Bryan Holbrook CORPORATION: EDGEAUDIO.COM, INC. By: -------------------------- Title: ------------------------ -6- SHAREHOLDERS: TSET INC By: --------------------------------- Jeffrey D. Wilson, Chairman and Chief Executive Officer ------------------------------------- Bryan Holbrook CORPORATION: EDGEAUDIO.COM, INC. By: /s/Jeffrey D. Wilson -------------------- Jeffrey D. Wilson Title: CEO ---- -7- EX-10.18 24 exhibit10-18.txt Exhibit 10.18 AMENDMENT TO AGREEMENT AND PLAN OF REORGANIZATION This amendment ("Amendment") is intended to amend the Agreement and Plan of Reorganization dated May 4, 2000, ("Agreement") by and among TSET, Inc., a Nevada corporation ("TSET"); EdgeAudio.Com, Inc., an Oregon corporation ("EdgeAudio"); LYNK Enterprises, Inc., an Oregon corporation ("LYNK"); Robert Lightman, an individual; J. David Hogan, an individual; Eric Alexander, an individual; and Eterna Internacional, S.A. de C.V., a corporation organized and existing under the laws of the Republic of Mexico ("Eterna") (LYNK), Robert I. Lightman, J. David Hogan, Eric J. Alexander, and Eterna are hereinafter collectively referred to as the "Stockholders"), and Bryan Holbrook ("Holbrook"). RECITALS TSET, as EdgeAudio's sole shareholder, has authorized EdgeAudio's Articles of Incorporation to be amended to authorize and issue Preferred Stock ("Preferred Stock") of EdgeAudio to Holbrook. As a condition to Holbrook's acquisition of the Preferred Stock, certain provisions of the Agreement must be amended. AMENDMENT NOW THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree to amend the Agreement as follows: 1. Holbrook shall hereby be added to the Agreement as a party and shall have privity of contract with all other parties to the Agreement. 2. Section 5(a) of the Agreement shall be amended as follows: Effective the date of this Amendment (a) Holbrook shall replace James Eric Anderson as a member of EdgeAudio's board of directors, and at that time Holbrook shall also become Chairman of the Board, and (b) Richard A. Papworth ("Papworth") shall replace J. David Hogan as a member of EdgeAudio's board of directors and Papworth shall be elected chief financial officer of EdgeAudio. 3. The following language found at the end of the first sentence of Section 5(c) of the Agreement shall be deleted: "but with such consultations and determinations as are consistent with TSET's ownership of EdgeAudio". 4. The term "TSET" at the end of the first sentence of Section 6 of the Agreement shall be changed to "its shareholders." The second sentence of Section 6 of the Agreement shall be amended to read as follows: "The shareholders intend that the Corporate Business be conducted by EdgeAudio in substantially the same manner as conducted prior to execution and delivery of this Amendment and the Agreement." 5. The last sentence of Section 8 of the Agreement shall be amended to read as follows: "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. The terms for such participation in the EdgeAudio related Programs shall be established by EdgeAudio's board of directors." 6. Section 9 of the Agreement shall be deleted in its entirety and replaced by the following: "TSET shall use its best efforts to assist EdgeAudio to negotiate and consummate a long term manufacturing agreement with Eterna International S.A. de C.V. and Johnstowne, Inc. related to the manufacture of product for EdgeAudio upon mutually agreeable terms." 7. Section 10 of the Agreement shall be deleted in its entirety and replaced by the following: (a) 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 and/or Holbrook propose to sell part or all of their EdgeAudio stock (other than in an IPO) to a bona fide third party who is willing to purchase such stock, and EdgeAudio, TSET and Holbrook have all declined to exercise any rights to purchase such shares pursuant to Section 3 of the Shareholders Agreement of even data herewith, TSET and/or Holbrook must, pursuant to the timing requirements of Section 3.4 of the Shareholders Agreement, offer to sell such stock to the Stockholders, at the same 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 and/or Holbrook intends to transfer part or all of their 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. (b) 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 and/or Holbrook 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 2 offered shares in proportion to the respective number of EdgeAudio Shares set forth opposite such Stockholder's name in Section 1. (c) Following exercise of the option, the parties shall close the purchase no later than 60 days after the Stockholders receive a Proposed Transfer Notice. (d) If the option to purchase is not exercised by the Stockholders, TSET and/or Holbrook may complete the transfer(s), but only in strict accordance with the terms previously offered by the transferee stated to the Stockholders as required under Section 10(a). 8. Section 13 of the Agreement shall be deleted in its entirety. 9. Except as expressly amended by this Amendment, all other terms of the Agreement shall remain in full force and effect. 10. This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Amendment may be executed by facsimile signatures, each of which shall be deemed an original. 11. Section 16 of the Agreement shall be incorporated into this Amendment by this reference and shall fully apply to the terms of this Amendment. 12. The following shall be added onto the end of Section 16(f) of the Agreement: "TO BRYAN HOLBROOK, 142 N. Blue Sage, Layton, Utah 84040 (801) 544-0690". 13. Except as set forth below, EdgeAudio shall not take any of the following actions or participate in the following transactions without TSET's prior written approval: (a) the sale of all or substantially all of its assets; (b) a merger, consolidation or similar transaction; (c) confession of any judgment; (d) amendment of its articles of incorporation or bylaws; (e) dissolution, winding up or liquidation; (f) the filing of any voluntary petition in bankruptcy; or (g) any action that requires approval under the Oregon Business Corporation Act (the "Act") of more than a majority of the shares entitled to vote on the matter. Notwithstanding the previous sentence or the Act, TSET's approval shall not be required for any action or transaction that would result in TSET receiving or retaining shares or other consideration equal in value to the consideration paid by TSET for its shares of EdgeAudio plus any direct capital contributions made by TSET to EdgeAudio. 14. Promptly after execution of the Amendment, EdgeAudio shall issue new share certificates to document the ownership of its shares. 15. EdgeAudio shall cooperate with TSET and supply information related to EdgeAudio as necessary to enable TSET to comply with its obligations to supply information and make reports required by federal and state securities law. 3 16. EdgeAudio, Robert I. Lightman, LYNK Enterprises, Inc., J. David Hogan, Eric J. Alexander, and Eterna Internacional, S.A. de C.V. hereby release TSET and TSET hereby releases the above referenced parties from any and all claims and causes of action identified or unidentified that may have arisen after May 4, 2000, related to TSET's obligation to provide additional funding to EdgeAudio or otherwise arising from any cause whatsoever to the extent related to or arising out of the Agreement. This release is intended to release only claims related to breaches and causes of action arising on or before the date of this Amendment, but is not intended to and does not release any of the above referenced parties from their continuing obligations under the Agreement as modified by this Amendment. 17. EdgeAudio acknowledges that TSET has satisfied $186,100 of its obligation under Section 7 of the Agreement to provide working capital. TSET's obligation to provide the remainder of the funding described in Section 7 of the Agreement shall be suspended until Holbrook has contributed the full $700,000 he is obligated to provide under the Preferred Stock Purchase Agreement of even date herewith. 18. Section 14 of the Agreement shall be incorporated into this Amendment and the Preferred Stock Purchase Agreement, and any Claims related to this Amendment or the Preferred Stock Purchase Agreement shall be resolved using the dispute resolution mechanism contained in Section 14 of the Agreement. 19. The parties agree to cooperate with each other and take such other actions and sign such other documentation following the closing as is necessary to effectuate the intent of this Amendment. 4 IN WITNESS WHEREOF, the parties have executed this Amendment effective September 12, 2000. TSET, Inc. ---------------------------------- Robert I. Lightman, individually By: /s/ Jeffrey D. Wilson ----------------------------------- ---------------------------------- Jeffrey D. Wilson, Chairman and J. David Hogan, individually Chief Executive Officer EdgeAudio.Com, Inc. ---------------------------------- Eric J. Alexander, individually /s/ Bryan Holbrook By: ---------------------------------- ---------------------------------- Robert I. Lightman Bryan Holbrook, individually President LYNK Enterprises, Inc. By: -------------------------------- Winthrop E. Jeanfreau President Eterna Internacional, S.A. de C.V. By: -------------------------------- James Eric Anderson President 5 IN WITNESS WHEREOF, the parties have executed this Amendment effective September 12, 2000. TSET, Inc. /s/ Robert I. Lightman -------------------------------- Robert I. Lightman, individually By: /s/ J. David Hogan ------------------------------------- -------------------------------- Jeffrey D. Wilson, Chairman and J. David Hogan, individually Chief Executive Officer EdgeAudio.Com, Inc. -------------------------------- Eric J. Alexander, individually By: /s/ Robert I. Lightman ------------------------------------- -------------------------------- Robert I. Lightman Bryan Holbrook, individually President LYNK Enterprises, Inc. By: /s/ Winthrop E. Jeanfreau ------------------------------------ Winthrop E. Jeanfreau President Eterna Internacional, S.A. de C.V. By: /s/ James Eric Anderson ------------------------------------ James Eric Anderson President 6 EX-10.19 25 exhibit10-19.txt Exhibit 10.19 AGREEMENT REGARDING SALE OF PREFERRED STOCK This Agreement is entered into this 1st day of November, 2000, by and between EdgeAudio.com, Inc. ("EdgeAudio") and Bryan Holbrook ("Holbrook"). RECITALS 1. Holbrook has contributed capital to EdgeAudio in contemplation of the purchase of 25,000 shares of Series A Preferred Stock of EdgeAudio. 2. EdgeAudio has prepared and Holbrook has reviewed a Preferred Stock Purchase Agreement related to the contemplated purchase. 3. Holbrook is willing to execute the Preferred Stock Purchase Agreement subject to the modifications that are set forth below. Now therefore, in consideration of Holbrook executing the Preferred Stock Purchase Agreement, the parties agree as follows: 1. INDEMNITY. EdgeAudio shall indemnify Holbrook to the fullest extent permissible under the Oregon Business Corporation Act, as the same exists or may hereafter by amended, against all expense, liability, and loss (including without limitation attorneys fees) incurred or suffered by Holbrook by reason of or arising from the fact that Holbrook is or was a director or shareholder of the corporation, or is or was serving at the request of the corporation as a director, officer, manager, partner, trustee, employee, or agent of another foreign or domestic corporation, limited liability company, partnership, joint venture, trust, employee benefit plan, or other enterprise, and such indemnification shall continue as to Holbrook after he ceases to be a director, shareholder, officer, manager, partner, trustee, employee, or agent and shall inure to the benefit of Holbrook's heirs, executors, and administrators. 2. NOTICE OF SECURITIES REGISTRATION FILINGS. EdgeAudio shall notify Holbrook in the event it files a registration statement with the Securities and Exchange Commission on form S-1, S-4 or S-8. 3. CHANGE OF ADDRESS. The address for notice provided in Section 8.6 of the Preferred Stock Purchase Agreement for EdgeAudio.com, Inc. is changed to the following address: 15615 S.W. 74th, Suite 100 Tigard, Oregon 97224 Facsimile 503-598-8831 4. ATTORNEY'S FEES. Section 8.7 of the Preferred Stock Purchase Agreement is amended to read as follows to correct several typographical errors: "If any suit or action arising out of or related to this Agreement is brought by any party, the prevailing party shall be entitled to recover its costs and fees, including reasonable attorney's fees, incurred by such party in such suit or action, including any appellate proceeding." -1- 5. PAYMENT OF DIVIDENDS. EdgeAudio agrees that without Holbrook's prior written consent it shall pay no dividends (including dividends payable solely in the common stock of the corporation) on any common stock of the corporation until dividends in the total amount of 84 cents per share (as adjusted) on the Series A Stock have been paid or declared and set apart during that fiscal year, and any prior year in which dividends accumulated but remain unpaid. 6. NONDILUTEABILITY. In accordance with the terms of the business agreement between Holbrook and EdgeAudio, EdgeAudio agrees that in the event it issues options or shares of stock to other parties such as employees, EdgeAudio shall issue additional options or shares to Holbrook at his discretion to prevent dilution of his 20 percent interest in EdgeAudio. 7. CORRECTION OF CROSS-REFERENCES IN AMENDMENT TO ARTICLES OF INCORPORATION. To correct several incorrect cross-references in Article II of EdgeAudio's amended and restated Articles of Incorporation the following changes shall be made: A. Section 2.3.5d(ii)(E)(1) and (2) shall be modified to change the cross-references to Section 2.3.5d(iii)(C) and (D) therein to 2.3.5d(ii)(C) and (D). B. The cross-reference in Section 2.3.5d(iii) to 2.3.5d(iii)(E) shall be changed to reference Section 2.3.5d(ii)(E). C. The cross-reference in Section 2.3.5k referring to Section 4.4 shall be modified to refer to Section 2.3. 8. CORRECTION OF SHAREHOLDER'S AGREEMENT. The following paragraphs of the EdgeAudio Shareholder's Agreement shall be amended to correct typographical errors. A. The references in the second paragraph to "common stock" shall be changed to "common and preferred stock". B. The reference in Section 3.4 to "paragraph 6" shall be changed to "paragraph 7". IN WITNESS WHEREOF, the undersigned have executed this Amendment on the date first written above. EdgeAudio.com, Inc. By:/s/ Winthrop Jeanfreau /s/ Bryan Holbrook ----------------------------- ----------------------------- Bryan Holbrook Title: CEO -------------------------- -2- TSET, Inc. By: ------------------------------------- Title: CFO ---------------------------------- -3- EX-10.20 26 exhibit10-20.txt EXHIBIT 10.20 Amendment #002 to SUBCONTRACT #A-2116-H22 BETWEEN BATH IRON WORKS, A GENERAL DYNAMICS COMPANY AND HIGH VOLTAGE INTEGRATED This Amendment made this _14th__ day of __December_2000, by and between Bath Iron Works ("BIW"), and High Voltage Integrated ("HVI") pursuant to Subcontract #A-2116-H22 date November 8, 1999 WITNESSETH: That in consideration of the promises and mutual obligations hereinafter set forth, the parties hereby agree as follows: 1. 1. TERM AND TERMINATION Paragraph (a), "6/1/00" shall be revised to read "12/31/01" All other terms and condition of the Subcontract dated November 8, 1999 and any preceeding amendments thereto shall remain unchanged. IN WITNESS WHEREOF, the parties hereto have caused this Subcontract to be executed as of the day and year first above written. Bath Iron Works High Voltage Integrated By: Roger A. Spencer By: /s/ W. Alan Thomson ----------------------------------- ------------------- Title: Material Project Manager Title: President Date: 12/15/00 Date: 12/19/00 --------------------------------- ----------------- /s/ Roger A. Spencer /s/ W. Alan Thomson --------------------------------------- ----------------------- Signature Signature - -------------------------------------------------------------------------------- Contract No.: A-2128-H22_ ATTACHMENT A BATH IRON WORKS CORPORATION STATEMENT OF WORK -----------------
- ------------------------------------------------------------------------------------------------- Task No.: 002 Date: 3/13/00 Contractor: High Voltage Integrated Amendment No. Date: BIW Tech Rep: Peter Heisey - ------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------- -------------------------------- WORK DESCRIPTION: Sched Start: 12/15/00 HVI shall provide ONR with research and development Sched Complete: 2/1/01 Engineering services in support of Electronic Wind Generation (EWG) aboard submarines. __X__ Total Firm Fixed Price $15,000 Detailed statement of work is incorporated herein via Attachment A-1. Pricing shall be in accordance with Attachment B - BIW USE ONLY CAR/CAF: 00-74 --------- Charge No.: 08825-7719-0000 - ---------------------------------------------------------------- -------------------------------- - ---------------------------------------------------------------- -------------------------------- The Contractor is hereby authorized pursuat to the above TASK COMPLETED, BIW FINAL referenced Contract to commence performance of the above ACCEPTANCE: described work. ------------------------- BIW Tech Rep. ------------------------- BATH IRON WORKS CORPORATION: Date: -------------- By /s/ Roger A. Spencer Date 12/18/00 ------------------------- --------------------------- -------- cc: Contract File (orig) CONTRACTOR ACCEPTANCE: Accts Payable Contractor Rep By /s/ W. Alan Thomson Date 12/22/00 BIW Tech Rep --------------------------- -------- - ---------------------------------------------------------------- --------------------------------
Electron Wind Generator - Ventilation System Statement of Work - ------------------------------------------------------------------------------- STATEMENT OF WORK CONTRACTOR: High Voltage Integrated INTRODUCTION The Electron Wind Generator (EWG) creates air movement without moving parts. It operates by applying a high voltage potential between sets of electrodes that are introduced into the cross section of the ventilation ductwork as shown conceptually in Figure 1 below. As air passes through the electrodes, a high density of ions is created. The High Voltage Power Supply (HVPS) applies a potential between the corona electrode and the accelerating electrode that causes the ions to move. As the ions collide with the air molecules, they cause an overall movement to the right. This effect is known as "electron wind" and can be used to generate gas flow velocity of about 700 feet per minute. The airflow velocity is completely adjustable from zero to the maximum by controlling the electrode voltage. Reversing the electrode voltage can also reverse flow direction. The accelerating electrode neutralizes the gas ions resulting in airflow with negligible ozone content. [GRAPH] FIGURE 1. EWG CONCEPT. THE EWG COMBINES AIR MOVEMENT AND PURIFICATION. The EWG performs two functions in addition to creating air movement. The corona field, the ions, and the small amount of ozone created have been proven to kill bacteria and are expected to oxidize chemical contaminants such as carbon monoxide, hydrogen, and hydrocarbons. In addition, it has been demonstrated that the EWG precipitates dust particles - a function currently performed by electrostatic precipitators. Figure 1 shows a separate removable and cleanable dust-collecting electrode that could be added to perform this function. The EWG offers many potential ventilation system advantages including: o The EWG can be designed in many shapes and sizes and has extremely low weight facilitating distribution in ventilation ducting throughout the ship. ================================================================================ o The adjustable flow velocity and reversibility of the EWG can support increased damage control automation and fight-while-hurt capability. o The dust removal and air purification capability of the EWG can reduce ventilation system components, increase ship cleanliness, and assist in damage control efforts. o The virtually silent operation of the EWG can reduce the ship acoustic signature while eliminating most of the sound mounting currently required by the ventilation system. Innovative new ventilation system designs are required to realize the full benefits of the EWG. An electron wind generator ventilation system (EWG-VS) design should be modular and adaptive with significantly increased affordability, maintainability, and survivability. There is a need to examine the full range of design options offered by the EWG and develop concepts for innovative surface ship and submarine ventilation systems. These concept designs will allow quantifying the benefits of EWG-VS as compared to conventional designs to support ONR ventilation system development. The design work will also identify critical technical issues for EWG deployment and any development efforts required. REQUIRED EFFORT The contractor shall work as part of a design team developing concepts for innovative surface ship and submarine ventilation systems that take advantage of the EWG's light weight, controllability, configuration flexibility, and purification capability. The contractor shall provide measured and projected performance data for the EWG as required by the team. The contractor shall also provide ideas on highly modular and adaptive systems with significantly increased affordability, maintainability, and survivability for evaluation by the team. SCHEDULE AND MILESTONES Figure 2 shows the schedule for this effort. The ventilation system concepts shall be presented at a tailored SDR prior to the preparation of the final report. [GRAPH] FIGURE 2. EWG-VS PHASE 1 SCHEDULE. ================================================================================ EX-10.21 27 exhibit10-21.txt Exhibit 10.21 CONSULTING AGREEMENT THIS CONSULTING AGREEMENT (this "Agreement") is made effective for all purposes as of the 1st day of January, 2001 by and between TSET, Inc. (the "Company") and Dwight, Tusing & Associates, LLC ("DTA") with Richard F. Tusing and Daniel R. Dwight as principals (hereinafter collectively referred to as the "Consultant"). RECITALS: A. Company is engaged in the business to seek out select business opportunities globally among a wide range of prospects that meet the companies general acquisition and investment criteria, enhance asset base and increase shareholder value. B. Company wishes to have Consultant continue to provide the Company certain consulting services as previously provided under Consulting Agreement dated August 11, 2000 and expired as of January 1, 2001 and, subject to the terms and conditions set forth herein, Consultant is willing to provide such consulting services, all as disclosed to and approved by the Company's board of directors. C. Company recognizes Richard F. Tusing and Daniel R. Dwight as principals of DTA are also Members of the Board of TSET, Inc. and recognizes that performance of both functions are not in conflict. D. Company recognizes previously executed Finder's Agreement dated August 9, 2000, as disclosed to and approved by the Company's board of directors, of which continued performance is not in conflict with this Agreement or TSET Board representation. E. Company and Consultant wish to set forth terms and conditions upon which Consultant will provide consulting services to the Company. NOW, THEREFORE, in consideration of the foregoing, and of the mutual premises hereinafter set forth, and of other good and valuable consideration, the receipt, adequacy and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows: 1. Services of Consultant. Consultant shall use its best efforts to assist the Company during the term of this Agreement in connection with the following: (i) assisting the Company with management consulting services including performing operational management responsibilities as may be mutually agreed; (ii) assisting the Company in connection with the creation of its business plans and investor presentation versions of such plan; (iii) assisting the Company in establishing Intellectual Property and licensing strategies; (iv) assist the Company in operational matters with its subsidiaries and other investments; and (v) such other matters mutually determined by the Consultant and the Company to be appropriate for Consultant's services. Consultant shall work on a part time basis and shall provide a maximum of 1200 hours during the period ending April 30, 2001 unless otherwise agreed in writing. Consultant shall perform all services hereunder in compliance with all applicable laws, rules, and regulations. 2. Fee for Services. In consideration for Consultant providing the services described in Section 1 hereof, the Company agrees to pay Consultant an hourly compensation of One Hundred and Fifty Dollars ($150) per hour, with payment in full due no later than the earlier of (a) five days after funds received from investors pursuant to a financing in which the company receives financing (whether debt or equity based), cumulative or in lump sum, of at least $3,000,000, first become available for expenditure by the Company, or (b) April 30, 2001. At Consultant's sole discretion, Consultant may elect to convert unpaid hourly cash compensation to an option to purchase restricted shares of common stock of the Company providing one hundred option shares (100) for each hour of consulting services. Such Conversion Option, once elected, shall be exercisable for a period of three (3) years at a price of two dollars and zero cents ($2.00) per share. Consultant must make selection of method of consideration prior to five days after closing of first round of Private Placement Memorandum or April 30, 2001 whichever is earlier. Consultant acknowledges (i) that it is an independent contractor and not an employee and (ii) that it shall be responsible for any and all tax obligations arising from the payments made or options granted or exercised hereunder. Interest shall accrue on any unpaid cash amounts due hereunder calculated at the annual rate of 12% until all such amounts have been paid in full. 3. Grant of Option. In consideration for Consultant's willingness to provide the services set forth herein, the Company in addition to Fee for Services also agrees to grant Consultant an option to purchase Shares of common stock of the company. Such Stock Option to be exercisable for a period of three (3) years at a price of two dollars and zero cents ($2.00) per share for one hundred shares (100) for each hour of consulting services. 4. Expense Reimbursement. The Company shall promptly reimburse Consultant for all normal out-of-pocket expenses, including meals, travel, phone, other incidental office expenses and entertainment related to the Company's business that are actually paid or incurred by Consultant in the performance of its services under this Agreement upon the delivery of invoices or other evidence of payment therefor. Consultant shall not incur any individual item of expense in excess of $2,500.00 without the Company's prior written consent. 5. Term. This Agreement shall remain in effect for an initial term of six (6) months, and shall thereafter be automatically renewed for successive terms of six (6) months each, unless either party indicates its intention to terminate this Agreement prior to the expiration of such initial term or any successive term. Termination hereunder may occur for any reason or for no reason at either party's option upon 30 days' prior written notice to be given by the party terminating this Agreement. 6. Confidentiality. Consultant will maintain the confidentiality of this Agreement, all provisions of this Agreement and all materials of the Company received by Consultant pursuant to its consulting services to the Company (collectively, "Confidential Information"), and, without the prior written consent of the Company, the Consultant shall not make any press release or other public announcement of or otherwise disclose any Confidential Information to any third party. The foregoing shall not restrict Consultant from disclosing such Confidential Information (i) to its professional advisors whose duties reasonably require familiarity with this Agreement, provided that such persons are bound to maintain the confidentiality of this Agreement, and (ii) to the extent such disclosure may be required by applicable law or regulation, provided that Consultant will only disclose such information as is legally required and will use reasonable efforts to obtain confidential treatment for any information that is so disclosed. If Consultant is required to disclose any Confidential Information pursuant to or in connection with any subpoena, order, or other event involving any legal, administrative, or regulatory action or proceeding, Consultant shall immediately notify the Company. 7. Agreement Not To Compete. a. Consultant agrees that it will not, during the term hereof, and for a period of one (1) year thereafter, engage in any business or businesses competitive to that conducted by the Company or any subsidiary or affiliate of the Company, as such business is described in Section 7(b)(iii) of this Agreement. b. The Consultant further agrees that it will not, for a period of one (1) year after the termination of this Agreement (the "Non-Compete Period"): (i) Solicit any customers of the Company or of a subsidiary or affiliate of the Company; or (ii) Solicit for employment, hire, request or cause any employee of Company to terminate his or her employment with Company or otherwise attempt to engage the services of any employee of the Company or any subsidiary or affiliate of the Company for any purpose or any endeavor (either on the Company's own behalf or on behalf of any business referred to in Section 7(a) above) without the prior consent of the Company. (iii) For purposes of this Agreement (and specifically this Section 7), the parties acknowledge and agree that the Company's business is the creation and licensing of Ion Wind Generation products. 8. Indemnification. a. The Company hereby agrees to indemnify and hold harmless the Consultant from and against any and all loss, cost, damage, claim or liability of any sort, including, without limitation, reasonable attorney's fees and expenses (collectively, a "Claims") arising out of or in connection with the services being provided by the Consultant to the Company hereunder; provided, the foregoing provision shall not apply to indemnify the Consultant for any Claim suffered by Consultant as a result of the Consultant's own negligent or illegal action. b. Consultant hereby agrees to indemnify, defend, and hold harmless the Company from and against any and all Claims arising out of any illegal action, violation of applicable laws, rules, or regulations, fraud, any misrepresentation or omission of material facts provided to the Company or any prospective investor or other third party, or other acts of negligence or misconduct by Consultant. 9. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Oregon, without regard to principles of conflicts of laws thereof. In case of any dispute arising hereunder, the parties agree that such matter shall be submitted to binding arbitration in the Portland, Oregon metropolitan area, for arbitration in accordance with the rules of the American Arbitration Association. 10. Costs of Collection. Should either party to this Agreement be required to incur costs in connection with the collection of any amounts due from the other party hereunder, including the reasonable costs of counsel engaged for such purpose (collectively, "Collection Costs", the party required to pay the amount being collected hereunder shall also be liable for the payment of the Collection Costs. 11. Successors and Assigns. This Agreement shall inure to the benefit of any successors and assigns of the parties hereto; provided, however, that the services of Consultant engaged by the Company hereunder are personal and shall not be assigned or delegated by Consultant without the Company's express prior written consent, which may be withheld in the Company's sole discretion. 12. Integration. This document sets forth the entire agreement between Company and Consultant relating to the subject matter herein and supersedes any previous written or oral agreements relating to this subject matter between them including, without limitation, that certain Consulting Agreement dated as of August 11, 2000, which is superseded and replaced in its entirety by this Agreement. 13. Amendments. This Agreement may not be varied, altered, modified, changed, or in any way amended except by an instrument in writing, executed by the parties hereto or their legal representatives stating that such instrument is intended to amend the provisions hereof. 14. Headings. Headings and paragraph captions used in this Agreement are intended for convenience of reference only and shall not affect the interpretation of this Agreement. 15. Counterpart and Facsimile Execution. This Agreement may be executed in any number of counterparts, which taken together shall be deemed to constitute one original. Execution of this Agreement by facsimile shall be sufficient for all purposes and shall be binding upon any that so executes. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. TSET, Inc. /s/ Jeffrey Wilson By: Jeffrey Wilson Chairman and Chief Executive Officer Dwight, Tusing & Associates, LLC /s/ Richard F. Tusing By: Richard F. Tusing Managing Partner /s/ Daniel R. Dwight Daniel R. Dwight Managing Partner EX-10.22 28 exhibit10-22.txt Exhibit 10.22 TSET, INC. 333 SOUTH STATE STREET, PMB 111 LAKE OSWEGO, OR 97034 March 18, 2001 Mr. Alex Chriss 10 Rogers Street, Apt. 1203 Cambridge, MA 02142 Dear Alex: TSET, Inc. ("TSET") hereby extends to you an offer to join the Kronos Air Technologies, Inc. ("KAT") management team as an Executive Vice President Business Development. This will be a temporary position effective from January 1, 2001 through April 30, 2001. During this period of time, TSET will seek to offer you a permanent position with KAT. Your primary responsibility will be to assist TSET and KAT raise investor funds and to assist in the business and market development of KAT. You will report day-to-day to, and be subject to the supervision and direction of, Daniel R. Dwight, a TSET board member and Acting Chief Executive Officer of KAT. In consideration for providing these services, KAT agrees to pay you a salary of $35,000 for the next four months. Payment for these services will be payable five days after funds received from investors pursuant to a financing in which the company receives financing (whether debt or equity based), cumulative or in lump sum, of at least $3,000,000, first become available for expenditure by TSET or KAT, or by April 31, 2001, which ever comes first. In consideration of your willingness to provide the services set forth herein, TSET in addition to your salary also agrees to grant you an option to purchase shares of common stock of TSET. Such stock option to be exercisable for a period of three (3) years at a price of two dollars and zero cents ($2.00) per share for one hundred shares (100) for each hour of services provided during the four month temporary employment period, hours not to exceed 40 hours per week. KAT shall promptly reimburse you for all pre-approved normal out-of-pocket expenses, including meals, travel, phone, other incidental office expenses and entertainment related to the KAT's business that are actually paid or incurred by you in the performance of your services under this Agreement upon the delivery of invoices or other evidence of payment therefore. You are required to obtain advance approval for any single item of expense, or any aggregate expenses, in excess $2,500. This Agreement shall remain in effect for an initial term of four (4) months, and shall thereafter be automatically renewed for successive terms of four (4) months each, unless either party indicates its intention to terminate this Agreement prior to the expiration of such initial term or any successive term. Termination hereunder may occur for any reason or for no reason at either party's option upon seven (7) days' prior written notice to be given by the party terminating this Agreement. You will be required to execute a Confidentiality Agreement and maintain the confidentiality of this Agreement, all provisions of this Agreement and all materials of TSET and its subsidiaries received by employee pursuant to your services to TSET (collectively, "Confidential Information"), and, without the prior written consent of TSET, you shall not make any press release or other public announcement of or otherwise disclose any Confidential Information to any third party. Please sign below to concur your acceptance of this agreement. I welcome you to the KAT team and look forward to working with you. Best regards, TSET, Inc. /s/ Jeffrey D. Wilson - ------------------------------- Jeffrey D. Wilson Chief Executive Officer - ------------------------------- Alex Chriss 2 party indicates its intention to terminate this Agreement prior to the expiration of such initial term or any successive term. Termination hereunder may occur for any reason or for no reason at either party's option upon seven (7) days' prior written notice to be given by the party terminating this Agreement. You will be required to execute a Confidentiality Agreement and maintain the confidentiality of this Agreement, all provisions of this Agreement and all materials of TSET and its subsidiaries received by employee pursuant to your services to TSET (collectively, "Confidential Information"), and, without the prior written consent of TSET, you shall not make any press release or other public announcement of or otherwise disclose any Confidential Information to any third party. Please sign below to concur your acceptance of this agreement. I welcome you to the KAT team and look forward to working with you. Best regards, TSET, Inc. /s/ Jeffrey D. Wilson - ------------------------------- Jeffrey D. Wilson Chief Executive Officer /s/ Alex Chriss - ------------------------------- Alex Chriss EX-10.23 29 exhibit10-23.txt Exhibit 10.23 STOCK OPTION AGREEMENT THIS STOCK OPTION AGREEMENT is entered into as of April 9, 2001, by and between TSET, Inc., a Nevada corporation ("TSET"), and Jeffrey D. Wilson ("Wilson"). WITNESSETH: WHEREAS, TSET desires to grant to Wilson an option to acquire up to 350,000 restricted shares of TSET's common stock, par value $0.001 per share (the "Option Shares"), in consideration of valuable contributions made by Wilson to TSET and its wholly-owned subsidiaries; and WHEREAS, Wilson desires to accept such option. NOW, THEREFORE, for and in consideration of the premises and mutual promises, covenants, and agreements set forth herein and for other good and valuable consideration, the delivery, receipt, and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. GRANT OF OPTION. TSET hereby grants to Wilson an option (the "Option") to acquire the Option Shares at an exercise price of $0.885 per share (the "Exercise Price"). The Option shall immediately and fully vest in Wilson's favor for all purposes upon execution and delivery of this Agreement by the parties, as to 125,000 Option Shares. The remaining 225,000 Option Shares shall vest immediately upon (a) an announcement by TSET's wholly-owned subsidiary, Kronos Air Technologies, Inc., of a significant order purchase order for devices embodying the KronosTM technology, or (b) TSET's shares of common stock, as traded on the over-the-counter bulletin board exchange, achieving a price of $2.00 per share. The Option is personal to Wilson and may be exercised only by Wilson during his lifetime. The Option shall continue in full force and effect for a period of 10 years from the date hereof (the "Term"), at which time the Option shall expire and terminate unless previously exercised by Wilson. The Option shall not be subject to forfeiture or termination, except for Wilson's failure to exercise the Option during the Term. 2. EXERCISE OF OPTION. The Option may be exercised by Wilson, in whole or in part, at any time during the Term upon receipt by TSET of written notice from Wilson (the "Exercise Notice"). The Exercise Notice shall specify the number of Option Shares Wilson desires to acquire pursuant thereto and provide any necessary or appropriate instructions to TSET and its transfer agent regarding the denomination of certificates representing the Option Shares and the name in which the Option Shares should be registered. The exercise of the Option shall be on a "cashless" basis and Wilson shall not be required to remit to TSET any payment therefor. 3. RESERVATION OF THE OPTION SHARES. To ensure fulfillment of its obligations hereunder should Wilson elect to exercise the Option, TSET shall reserve from its authorized but unissued capital that number of shares of its common stock equal to the Option Shares. 4. RESTRICTIONS ON TRANSFER. Wilson acknowledges that the Option Shares are subject to certain restrictions upon transfer, and cannot be sold, assigned, transferred, or conveyed (in any case, a "transfer") except in compliance with such restrictions and applicable provisions of federal and state securities laws. Certificates representing the Option Shares shall bear appropriate restrictive legends and notices. In the event Wilson desires to transfer any Option Shares prior to the expiration of such restrictions, TSET shall be entitled to receive from Wilson written undertakings, certifications, or opinions of legal counsel evidencing compliance with such restrictions. 5. TAX MATTERS. Wilson acknowledges that treatment of the Option, the Option Shares, and events or transactions with respect thereto, for federal and state income and other tax purposes, is dependent upon various factors and events which are not determined by this Agreement. TSET makes no representations to Wilson with respect to, and hereby disclaims any and all responsibility as to such tax treatment. Wilson shall be solely and fully responsible for the payment of, and shall pay, any and all federal, state, and other taxes (including any and all withholding taxes) levied with respect to the grant of the Option, the purchase of the Option Shares, and any subsequent transfer thereof. In the event the exercise of the Option or the disposition of the Option Shares following exercise of the Option results in Wi1son's realization of income which for federal, state, local, or other income tax purposes is, in TSET's opinion, subject to withholding of tax, then at the election of TSET and prior to the delivery to Wilson of certificates representing the Option Shares acquired by him pursuant to an Exercise Notice, (a) Wilson shall pay to TSET an amount equal to such withholding tax or (b) TSET may withhold such amount from any compensation or other payments owed by TSET to Wilson. 6. NONQUALIFIED STATUS. The Option is not intended to be an "incentive stock option" as defined in the Internal Revenue Code of 1986, as amended, and shall not be treated as such whether or not, by the terms hereof, it meets the requirements of any applicable provisions thereof. 7. 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 and Wilson, 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: 333 South State Street, PMB 111 Lake Oswego, OR 97034 Attn: Richard A. Papworth Chief Financial Officer Tel.: 503.968.1547 Fax: 503.968.0867 To Wilson: 333 South State Street, PMB 111 Lake Oswego, OR 97035 Tel: 503.380.5558 Fax: 503.968.2337 Notices hereunder shall be deemed given when delivered in person, upon confirmation of successful transmission when sent by facsimile, or 5 days after being mailed by express, registered, or certified mail (return receipt requested), postage and fees prepaid. 8. INTEGRATION AMENDMENT, AND WAIVER. When executed and delivered, this Agreement shall constitute the entire agreement between the parties with respect to the subject matter hereof and shall supersede any and 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. No waiver by either party of any breach of this Agreement in any particular instance shall constitute a waiver of any other breach hereof in any other circumstance or any relinquishment for the future of their respective rights to strictly enforce all of the other provisions hereof or seek all remedies which may be available at law or in equity. 9. COUNTERPARTS; BINDING EFFECT. This Agreement 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. This Agreement shall be binding upon and inure to the benefit of the parties' respective permitted heirs, successors, and assigns. 10. ASSIGNMENT. This Agreement is personal to the parties hereto. Accordingly, Wilson shall not assign or transfer this Agreement without the prior written consent of TSET, which consent shall not be unreasonably withheld, conditioned, or delayed; provided, however, that Wilson shall be permitted to assign or transfer this Agreement to a legal entity owned by Wilson without such consent. Any attempted assignment of this Agreement by Wilson without receipt of such consent from TSET shall be null and void. 11. SEVERABILITY. If any provision (or portion thereof) of this Agreement is adjudged unenforceable by a court of competent jurisdiction, the remaining provisions shall nevertheless continue in full force and effect and the provision deemed unenforceable shall be remade or interpreted by the parties in a manner that such provisions shall be enforceable to preserve, to the maximum extent possible, the original intention and meaning thereof. If necessary to effect such intent, TSET and Wilson shall negotiate in good faith to amend this Agreement to replace such provision with language believed in good faith by the parties to be enforceable, which as closely as possible reflects such intent. 12. NO THIRD PARTY BENEFICIARIES. This Agreement is for the sole benefit of the parties and their permitted successors, heirs, and assigns. Nothing herein, expressed or implied, shall give or be construed to give any other person, other than the parties and their permitted assigns, any legal or equitable rights hereunder. No finder's or other fees shall be payable by either party with respect to the exercise of the Option or the issuance of the Option Shares pursuant to this Agreement. 13. STATE SECURITIES QUALIFICATIONS. The sale of the Option Shares pursuant to any exercise of the Option has not been qualified with the securities regulatory authorities in any state or other jurisdiction and the issuance of the Option Shares prior to such qualification may be unlawful unless such transactions are exempt from such qualification requirements. The rights of the parties hereto are expressly conditioned upon such qualification being obtained, unless any such transaction is so exempt. 14. 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/ Richard A. Papworth ------------------------------ Richard A. Papworth Chief Financial Officer /s/ Jeffrey D. Wilson - ----------------------------- Jeffrey D. Wilson EX-10.24 30 exhibit10-24.txt Exhibit 10.24 STOCK OPTION AGREEMENT ---------------------- THIS STOCK OPTION AGREEMENT is entered into as of April 9, 2001, by and between TSET, Inc., a Nevada corporation ("TSET"), and Jeffrey D. Wilson ("Wilson"). WITNESSETH: ---------- WHEREAS, TSET desires to grant to Wilson an option to acquire up to 50,000 restricted shares of TSET's common stock, par value $0.001 per share (the "Option Shares"), in consideration of valuable contributions made by Wilson to TSET and its wholly-owned subsidiaries; and WHEREAS, Wilson desires to accept such option. NOW, THEREFORE, for and in consideration of the premises and mutual promises, covenants, and agreements set forth herein and for other good and valuable consideration, the delivery, receipt, and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. GRANT OF OPTION. TSET hereby grants to Wilson an option (the "Option") to acquire the Option Shares at an exercise price of $0.885 per share (the "Exercise Price"). The Option shall immediately and fully vest in Wilson's favor for all purposes upon execution and delivery of this Agreement by the parties. The Option is personal to Wilson and may be exercised only by Wilson during his lifetime. The Option shall continue in full force and effect for a period of 5 years from the date hereof (the "Term"), at which time the Option shall expire and terminate unless previously exercised by Wilson. The Option shall not be subject to forfeiture or termination, except for Wilson's failure to exercise the Option during the Term. 2. EXERCISE OF OPTION. The Option may be exercised by Wilson, in whole or in part, at any time during the Term upon receipt by TSET of written notice from Wilson (the "Exercise Notice"). The Exercise Notice shall specify the number of Option Shares Wilson desires to acquire pursuant thereto and provide any necessary or appropriate instructions to TSET and its transfer agent regarding the denomination of certificates representing the Option Shares and the name in which the Option Shares should be registered. The exercise of the Option shall be on a "cashless" basis and Wilson shall not be required to remit to TSET any payment therefor. 3. RESERVATION OF THE OPTION SHARES. To ensure fulfillment of its obligations hereunder should Wilson elect to exercise the Option, TSET shall reserve from its authorized but unissued capital that number of shares of its common stock equal to the Option Shares. 4. RESTRICTIONS ON TRANSFER. Wilson acknowledges that the Option Shares are subject to certain restrictions upon transfer, and cannot be sold, assigned, transferred, or conveyed (in any case, a "transfer") except in compliance with such restrictions and applicable provisions of federal and state securities laws. Certificates representing the Option Shares shall bear appropriate restrictive legends and notices. In the event Wilson desires to transfer any Option Shares prior to the expiration of such restrictions, TSET shall be entitled to receive from Wilson written undertakings, certifications, or opinions of legal counsel evidencing compliance with such restrictions. 5. TAX MATTERS. Wilson acknowledges that treatment of the Option, the Option Shares, and events or transactions with respect thereto, for federal and state income and other tax purposes, is dependent upon various factors and events which are not determined by this Agreement. TSET makes no representations to Wilson with respect to, and hereby disclaims any and all responsibility as to such tax treatment. Wilson shall be solely and fully responsible for the payment of, and shall pay, any and all federal, state, and other taxes (including any and all withholding taxes) levied with respect to the grant of the Option, the purchase of the Option Shares, and any subsequent transfer thereof. In the event the exercise of the Option or the disposition of the Option Shares following exercise of the Option results in Wilson's realization of income which for federal, state, local, or other income tax purposes is, in TSET's opinion, subject to withholding of tax, then at the election of TSET and prior to the delivery to Wilson of certificates representing the Option Shares acquired by him pursuant to an Exercise Notice, (a) Wilson shall pay to TSET an amount equal to such withholding tax or (b) TSET may withhold such amount from any compensation or other payments owed by TSET to Wilson. 6. NONQUALIFIED STATUS. The Option is not intended to be an "incentive stock option" as defined in the Internal Revenue Code of 1986, as amended, and shall not be treated as such whether or not, by the terms hereof, it meets the requirements of any applicable provisions thereof. 7. 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 and Wilson, 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: 333 South State Street, PMB 111 Lake Oswego, OR 97034 Attn: Richard A. Papworth Chief Financial Officer Tel: 503.968.1547 Fax: 503.968.0867 To Wilson: 333 South State Street, PMB 111 Lake Oswego, OR 97035 Tel: 503.380.5558 Fax: 503.968.2337 Notices hereunder shall be deemed given when delivered in person, upon confirmation of successful transmission when sent by facsimile, or 5 days after being mailed by express, registered, or certified mail (return receipt requested), postage and fees prepaid. 8. INTEGRATION, AMENDMENT, AND WAIVER. When executed and delivered, this Agreement shall constitute the entire agreement between the parties with respect to the subject matter hereof and shall supersede any and 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. No waiver by either party of any breach of this Agreement in any particular instance shall constitute a waiver of any other breach hereof in any other circumstance or any relinquishment for the future of their respective rights to strictly enforce all of the other provisions hereof or seek all remedies which may be available at law or in equity. 9. COUNTERPARTS; BINDING EFFECT. This Agreement 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. This Agreement shall be binding upon and inure to the benefit of the parties' respective permitted heirs, successors, and assigns. 10. ASSIGNMENT. This Agreement is personal to the parties hereto. Accordingly, Wilson shall not assign or transfer this Agreement without the prior written consent of TSET, which consent shall not be unreasonably withheld, conditioned, or delayed; provided, however, that Wilson shall be permitted to assign or transfer this Agreement to a legal entity owned by Wilson without such consent. Any attempted assignment of this Agreement by Wilson without receipt of such consent from TSET shall be null and void. 11. SEVERABILITY. If any provision (or portion thereof) of this Agreement is adjudged unenforceable by a court of competent jurisdiction, the remaining provisions shall nevertheless continue in full force and effect and the provision deemed unenforceable shall be remade or interpreted by the parties in a manner that such provisions shall be enforceable to preserve, to the maximum extent possible, the original intention and meaning thereof. If necessary to effect such intent, TSET and Wilson shall negotiate in good faith to amend this Agreement to replace such provision with language believed in good faith by the parties to be enforceable, which as closely as possible reflects such intent. 12. NO THIRD PARTY BENEFICIARIES. This Agreement is for the sole benefit of the parties and their permitted successors, heirs, and assigns. Nothing herein, expressed or implied, shall give or be construed to give any other person, other than the parties and their permitted assigns, any legal or equitable rights hereunder. No finder's or other fees shall be payable by either party with respect to the exercise of the Option or the issuance of the Option Shares pursuant to this Agreement. 13. STATE SECURITIES QUALIFICATIONS. The sale of the Option Shares pursuant to any exercise of the Option has not been qualified with the securities regulatory authorities in any state or other jurisdiction and the issuance of the Option Shares prior to such qualification may be unlawful unless such transactions are exempt from such qualification requirements. The rights of the parties hereto are expressly conditioned upon such qualification being obtained, unless any such transaction is so exempt. 14. 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/ RICHARD A. PAPWORTH -------------------------- Richard A. Papworth Chief Financial Officer /s/ JEFFREY D. WILSON - ------------------------------ Jeffrey D. Wilson EX-10.25 31 exhibit10-25.txt EXHIBIT 10.25 STOCK OPTION AGREEMENT THIS STOCK OPTION AGREEMENT is entered into as of April 9, 2001, by and between TSET, Inc., a Nevada corporation ("TSET"), and Daniel R. Dwight ("Dwight"). WITNESSETH: WHEREAS, TSET desires to grant to Dwight an option to acquire up to 50,000 restricted shares of TSET's common stock, par value $0.001 per share (the "Option Shares"), in consideration of valuable contributions made by Dwight to TSET and its wholly-owned subsidiaries; and WHEREAS, Dwight desires to accept such option. NOW, THEREFORE, for and in consideration of the premises and mutual promises, covenants, and agreements set forth herein and for other good and valuable consideration, the delivery, receipt, and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. GRANT OF OPTION. TSET hereby grants to Dwight an option (the "Option") to acquire the Option Shares at an exercise price of $0.885 per share (the "Exercise Price"). The Option shall immediately and fully vest in Dwight's favor for all purposes upon execution and delivery of this Agreement by the parties. The Option is personal to Dwight and may be exercised only by Dwight during his lifetime. The Option shall continue in full force and effect for a period of 5 years from the date hereof (the "Term"), at which time the Option shall expire and terminate unless previously exercised by Dwight. The Option shall not be subject to forfeiture or termination, except for Dwight's failure to exercise the Option during the Term. 2. EXERCISE OF OPTION. The Option may be exercised by Dwight, in whole or in part, at any time during the Term upon receipt of TSET of written notice from Dwight (the "Exercise Notice"). The Exercise Notice shall specify the number of Option Shares Dwight desires to acquire pursuant thereto and provide any necessary or appropriate instructions to TSET and its transfer agent regarding the denomination of certificates representing the Option Shares and the name in which the Option Shares should be registered. The exercise of the Option shall be on a "cashless" basis and Dwight shall not be required to remit to TSET any payment therefor. 3. RESERVATION OF THE OPTION SHARES. To ensure fulfillment of its obligations hereunder should Dwight elect to exercise the Option, TSET shall reserve from its authorized but unissued capital that number of shares of its common stock equal to the Option Shares. 4. RESTRICTIONS ON TRANSFER. Dwight acknowledges that the Option Shares are subject to certain restrictions upon transfer, and cannot be sold, assigned, transferred, or conveyed (in any case, a "transfer") except in compliance with such restrictions and applicable provisions of federal and state securities laws. Certificates representing the Option Shares shall bear appropriate restrictive legends and notices. In the event Dwight desires to transfer any Option Shares prior to the expiration of such restrictions, TSET shall be entitled to receive from Dwight written undertakings, certifications, or opinions of legal counsel evidencing compliance with such restrictions. 5. TAX MATTERS. Dwight acknowledges that treatment of the Option, the Option Shares, and events and transactions with respect thereto, for federal and state income and other tax purposes, is dependent upon various factors and events which are not determined by this Agreement. TSET makes no representations to Dwight with respect to, and hereby disclaims any and all responsibility as to such tax treatment. Dwight shall be solely and fully responsible for the payment of, and shall pay, any and all federal and state, and other taxes (including any and all withholding taxes) levied with respect to the grant of the Option, the purchase of the Option Shares, and any subsequent transfer thereof. In the event the exercise of the Option or the disposition of the Option Shares following exercise of the Option results in Dwight's realization of income which for federal, state, local, or other income tax purposes is, in TSET's opinion, subject to withholding of tax, then at the election of TSET and prior to the delivery of Dwight of certificates representing the Option Shares acquired by him pursuant to an Exercise Notice, (a) Dwight shall pay to TSET an amount equal to such withholding tax or (b) TSET may withhold such amount from any compensation or other payments owed by TSET to Dwight. 6. NONQUALIFIED STATUS. The Option is not intended to be an "incentive stock option" as defined in the Internal Revenue Code of 1986, as amended, and shall not be treated as such whether or not, by the terms hereof, it meets the requirements of any applicable provisions thereof. 7. 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 and Dwight, 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: 333 South State Street, PMB 111 Lake Oswego, OR 97034 Attn: Richard A. Papworth Chief Financial Officer Tel: 503.968.1547 Fax: 503.968.0867 To Dwight: 1 Edgewood Drive Hudson, MA 01749 Tel: 978.562.7046 Fax: 978.562.7046 Notices hereunder shall be deemed given when delivered in person, upon confirmation of successful transmission when sent by facsimile, or 5 days after being mailed by express, registered, or certified mail (return receipt requested), postage and fees prepaid. 8. INTEGRATION, AMENDMENT, AND WAIVER. When executed and delivered, this Agreement shall constitute the entire agreement between the parties with respect to the subject matter hereof and shall supersede any and 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. No waiver by either party of any breach of this Agreement in any particular instance shall constitute a waiver of any other breach hereof in any other circumstance or any relinquishment for the future of their respective rights to strictly enforce all of the other provisions hereof or seek all remedies which may be available at law or in equity. 9. COUNTERPARTS; BINDING EFFECT. This Agreement 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. This Agreement shall be binding upon and inure to the benefit of the parties' respective permitted heirs, successors, and assigns. 10. ASSIGNMENT. This Agreement is personal to the parties hereto. Accordingly, Dwight shall not assign or transfer this Agreement without the prior written consent of TSET, which consent shall not be unreasonably withheld, conditioned, or delayed; provided, however, that Dwight shall be permitted to assign or transfer this Agreement to a legal entity owned by Dwight without such consent. Any attempted assignment of this Agreement by Dwight without receipt of such consent from TSET shall be null and void. 11. SEVERABILITY. If any provision (or portion thereof) of this Agreement is adjudged unenforceable by a court of competent jurisdiction, the remaining provisions shall nevertheless continue in full force and effect and the provision deemed unenforceable shall be remade and interpreted by the parties in a manner that such provisions shall be enforceable to preserve, to the maximum extent possible, the original intention and meaning thereof. If necessary to effect such intent, TSET and Dwight shall negotiate in good faith to amend this Agreement to replace such provision with language believed in good faith by the parties to be enforceable, which as closely as possible reflects such intent. 12. NO THIRD PARTY BENEFICIARIES. This Agreement is for the sole benefit of the parties and their successors, heirs, and assigns. Nothing herein, expressed or implied, shall give or be construed to give any other person, other than the parties and their permitted assigns, any legal or equitable rights hereunder. No finder's or other fees shall be payable by either party with respect to the exercise of the Option or the issuance of the Option Shares pursuant to this Agreement. 13. STATE SECURITIES QUALIFICATIONS. The sale of the Option Shares pursuant to any exercise of the Option has not been qualified with the securities regulatory authorities in any state or other jurisdiction and the issuance of the Option Shares prior to such qualification may be unlawful unless such transactions are exempt from such qualification requirements. The rights of the parties hereto are expressly conditioned upon such qualification being obtained, unless any such transaction is so exempt. 14. 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/ Jeffrey D. Wilson -------------------------------- Jeffrey D. Wilson Chairman and Chief Executive Officer /s/ Daniel R. Dwight - ------------------------------------ Daniel R. Dwight EX-10.26 32 exhibit10-26.txt Exhibit 10.26 STOCK OPTION AGREEMENT THIS STOCK OPTION AGREEMENT is entered into as of April 9, 2001, by and between TSET, Inc., a Nevada corporation ("TSET"), and Richard F. Tusing ("Tusing"). WITNESSETH: WHEREAS, TSET desires to grant to Tusing an option to acquire up to 50,000 restricted shares of TSET's common stock, par value $0.001 per share (the "Option Shares"), in consideration of valuable contributions made by Tusing to TSET and its wholly-owned subsidiaries; and WHEREAS, Tusing desires to accept such option. NOW, THEREFORE, for and in consideration of the premises and mutual promises, covenants, and agreements set forth herein and for other good and valuable consideration, the delivery, receipt, and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. GRANT OF OPTION. TSET hereby grants to Tusing an option (the "Option") to acquire the Option Shares at an exercise price of $0.885 per share (the "Exercise Price"). The Option shall immediately and fully vest in Tusing's favor for all purposes upon execution and delivery of this Agreement by the parties. The Option is personal to Tusing and may be exercised only by Tusing during his lifetime. The Option shall continue in full force and effect for a period of 5 years from the date hereof (the "Term"), at which time the Option shall expire and terminate unless previously exercised by Tusing. The Option shall not be subject to forfeiture or termination, except for Tusing's failure to exercise the Option during the Term. 2. EXERCISE OF OPTION. The Option may be exercised by Tusing, in whole or in part, at any time during the Term upon receipt by TSET of written notice from Tusing ("the "Exercise Notice"). The Exercise Notice shall specify the number of Option Shares Tusing desires to acquire pursuant thereto and provide any necessary or appropriate instructions to TSET and its transfer agent regarding the denomination of certificates representing the Option Shares and the name in which the Option Shares should be registered. The exercise of the Option shall be on a "cashless" basis and Tusing shall not be required to remit to TSET any payment therefor. 3. RESERVATION OF THE OPTION SHARES. To ensure fulfillment of its obligations hereunder should Tusing elect to exercise the Option, TSET shall reserve from its authorized but unissued capital that number of shares of its common stock equal to the Option Shares. 1 4. RESTRICTIONS ON TRANSFER. Tusing acknowledges that the Option Shares are subject to certain restrictions upon transfer, and cannot be sold, assigned, transferred, or conveyed (in any case, a "transfer") except in compliance with such restrictions and applicable provisions of federal and state securities laws. Certificates representing the Option Shares shall bear appropriate restrictive legends and notices. In the event Tusing desires to transfer any Option Shares prior to the expiration of such restrictions, TSET shall be entitled to receive from Tusing written undertakings, certifications, or opinions of legal counsel evidencing compliance with such restrictions. 5. TAX MATTERS. Tusing acknowledges that treatment of the Option, the Option Shares, and events or transactions with respect thereto, for federal and state income and other tax purposes, is dependent upon various factors and events which are not determined by this Agreement. TSET makes no representations to Tusing with respect to, and hereby disclaims any and all responsibility as to such tax treatment. Tusing shall be solely and fully responsible for the payment of, and shall pay, any and all federal, state, and other taxes (including any and all withholding taxes) levied with respect to the grant of the Option, the purchase of the Option Shares, and any subsequent transfer thereof. In the event the exercise of the Option or the disposition of the Option Shares following exercise of the Option results in Tusing's realization of income which for federal, state, local, or other income tax purposes is, in TSET's opinion, subject to withholding of tax, then at the election of TSET and prior to the delivery of Tusing of certificates representing the Option Shares acquired by him pursuant to an Exercise Notice, (a) Tusing shall pay to TSET an amount equal to such withholding tax or (b) TSET may withhold such amount from any compensation or other payments owed by TSET to Tusing. 6. NONQUALIFIED STATUS. The Option is not intended to be an "incentive stock option" as defined in the Internal Revenue Code of 1986, as amended, and shall not be treated as such whether or not, by the terms hereof, it meets the requirements of any applicable provisions thereof. 7. 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 and Tusing, 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: 333 South State Street, PMB 111 Lake Oswego, OR 97034 Attn: Richard A. Papworth Chief Financial Officer 2 Tel: 503.968.1547 Fax: 503.968.0867 To Tusing: 7256 Spring Side Way McLean, VA 22101 Tel: 703.821.7662 Fax: 703.821.0173 Notices hereunder shall be deemed given when delivered in person, upon confirmation of successful transmission when sent by facsimile, or 5 days after being mailed by express, registered, or certified mail (return receipt requested), postage and fees prepaid. 8. INTEGRATION, AMENDMENT, AND WAIVER. When executed and delivered, this Agreement shall constitute the entire agreement between the parties with respect to the subject matter hereof and shall supersede any and 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. No waiver by either party of any breach of this Agreement in any particular instance shall constitute a waiver of any other breach hereof in any other circumstance or any relinquishment for the future of their respective rights to strictly enforce all of the other provisions hereof or seek all remedies which may be available at law or in equity. 9. COUNTERPARTS; BINDING EFFECT. This Agreement 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. This Agreement shall be binding upon and inure to the benefit of the parties' respective permitted heirs, successors, and assigns. 10. ASSIGNMENT. This Agreement is personal to the parties hereto. Accordingly, Tusing shall not assign or transfer this Agreement without the prior written consent of TSET, which consent shall not be unreasonably withheld, conditioned, or delayed; provided, however, that Tusing shall be permitted to assign or transfer this Agreement to a legal entity owned by Tusing without such consent. Any attempted assignment of this Agreement by Tusing without receipt of such consent from TSET shall be null and void. 11. SEVERABILITY. If any provision (or portion thereof) of this Agreement is adjudged unenforceable by a court of competent jurisdiction, the remaining provisions shall nevertheless continue in full force and effect and the provision deemed unenforceable shall be remade or interpreted by the parties in a manner that such provisions shall be enforceable to preserve, to the maximum extent possible, the original intention and meaning thereof. If necessary to effect such intent, TSET and Tusing shall negotiate in good faith to amend this Agreement to replace such provisions with language 3 believed in good faith by the parties to be enforceable, which as closely as possible reflects such intent. 12. NO THIRD PARTY BENEFICIARIES. This Agreement is for the sole benefit of the parties and their permitted successors, heirs, and assigns. Nothing herein, expressed or implied, shall give or be construed to give any other person, other than the parties and their permitted assigns, any legal or equitable rights hereunder. No finder's or other fees shall be payable by either party with respect to the exercise of the Option or the issuance of the Option Shares pursuant to this Agreement. 13. STATE SECURITIES QUALIFICATIONS. The sale of the Option Shares pursuant to any exercise of the Option has not been qualified with the securities regulatory authorities in any state or other jurisdiction and the issuance of the Option Shares prior to such qualification may be unlawful unless such transactions are exempt from such qualification requirements. The rights of the parties hereto are expressly conditioned upon such qualification being obtained, unless any such transaction is so exempt. 14. 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/ Jeffrey D. Wilson ----------------------------- Jeffrey D. Wilson Chairman and Chief Executive Officer /s/ Richard F. Tusing - --------------------------- Richard F. Tusing 4 EX-10.27 33 exhibit10-27.txt EXHIBIT 10.27 STOCK OPTION AGREEMENT THIS STOCK OPTION AGREEMENT is entered into as of April 9, 2001, by and between TSET, Inc., a Nevada corporation ("TSET"), and Charles D. Strang ("Strang"). WITNESSETH: ---------- WHEREAS, TSET desires to grant to Strang an option to acquire up to 50,000 restricted shares of TSET's common stock, par value $0.001 per share (the "Option Shares"), in consideration of valuable contributions made by Strang to TSET and its wholly-owned subsidiaries; and WHEREAS, Strang desires to accept such option. NOW, THEREFORE, for and in consideration of the premises and mutual promises, covenants, and agreements set forth herein and for other good and valuable consideration, the delivery, receipt, and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: GRANT OF OPTION. TSET hereby grants to Strang an option (the "Option") to acquire the Option Shares at an exercise price of $0.885 per share (the "Exercise Price"). The Option shall immediately and fully vest in Strang's favor for all purposes upon execution and delivery of this Agreement by the parties. The Option is personal to Strang and may be exercised only by Strang during his lifetime. The Option shall continue in full force and effect for a period of 5 years from the date hereof (the "Term"), at which time the Option shall expire and terminate unless previously exercised by Strang. The Option shall not be subject to forfeiture and termination, except for Strang's failure to exercise the Option during the Term. EXERCISE OF OPTION. The Option may be exercised by Strang, in whole or in part, at any time during the Term upon receipt by TSET of written notice from Strang (the "Exercise Notice"). The Exercise Notice shall specify the number of Option Shares Strang desires to acquire pursuant thereto and provide any necessary or appropriate instructions to TSET and its transfer agent regarding the denomination of certificates representing the Option Shares and the name in which the Option Shares should be registered. The exercise of the Option shall be on a "cashless" basis and Strang shall not be required to remit to TSET any payment therefor. RESERVATION OF THE OPTION SHARES. To ensure fulfillment of its obligation hereunder should Strang elect to exercise the Option, TSET shall reserve from its authorized but unissued capital that number of shares of its common stock equal to the Option Shares. RESTRICTIONS ON TRANSFER. Strang acknowledges that the Option Shares are subject to certain restrictions upon transfer, and cannot be sold, assigned, transferred, or conveyed (in any case, a "transfer") except in compliance with such restrictions and applicable provisions of federal and state securities laws. Certificates representing the Option Shares shall bear appropriate restrictive legends and notices. In the event Strang desires to transfer any Option Shares prior to the expiration of such restrictions, TSET shall be entitled to receive from Strang written undertakings, certifications, or opinions of legal counsel evidencing compliance with such restrictions. TAX MATTERS. Strang acknowledges that treatment of the Option, the Option Shares, and events or transactions with respect thereto, for federal and state income and other tax purposes, is dependent upon various factors and events which are not determined by this Agreement. TSET makes no representations to Strang with respect to, and hereby disclaims any and all responsibility as to such tax treatment. Strang shall be solely and fully responsible for the payment of, and shall pay, any and all federal, state, and other taxes (including any and all withholding taxes) levied with respect to the grant of the Option, the purchase of the Option Shares, and any subsequent transfer thereof. In the event the exercise of the Option or the disposition of the Option Shares following exercise of the Option results in Strang's realization of income which for federal, state, local, or other income tax purposes is, in TSET's opinion, subject to withholding of tax, then at the election of TSET and prior to the delivery to Strang of certificates representing the Option Shares acquired by him pursuant to an Exercise Notice, (a) Strang shall pay to TSET an amount equal to such withholding tax or (b) TSET may withhold such amount from any compensation or other payments owed by TSET to Strang. NONQUALIFIED STATUS. The Option is not intended to be an "incentive stock option" as defined in the Internal Revenue Code of 1986, as amended, and shall not be treated as such whether or not, by the terms hereof, it meets the requirements of any applicable provisions thereof. 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 and Strang, 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: 333 South State Street, PMB 111 Lake Oswego, OR 97034 Attn: Richard A. Papworth Chief Financial Officer Tel: 503.968.1547 Fax: 503.968.0867 To Strang: 25679 West Florence Avenue Antioch, IL 60007 Tel: 847.395.4776 Fax: ___________ 2 Notices hereunder shall be deemed given when delivered in person, upon confirmation of successful transmission when sent by facsimile, or 5 days after being mailed by express, registered, or certified mail (return receipt requested), postage and fees prepaid. INTEGRATION, AMENDMENT, AND WAIVER. When executed and delivered, this Agreement shall constitute the entire agreement between the parties with respect to the subject matter hereof and shall supersede any and 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. No waiver by either party of any breach of this Agreement in any particular instance shall constitute a waiver of any other breach hereof in any other circumstance or any relinquishment for the future of their respective rights to strictly enforce all of the other provisions hereof or seek all remedies which may be available at law or in equity. COUNTERPARTS; BINDING EFFECT. This Agreement 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. This Agreement shall be binding upon and inure to the benefit of the parties' respective permitted heirs, successors, and assigns. ASSIGNMENT. This Agreement is personal to the parties hereto. Accordingly, Strang shall not assign or transfer this Agreement without the prior written consent of TSET, which consent shall not be unreasonably withheld, conditioned, or delayed; provided, however, that Strang shall be permitted to assign or transfer this Agreement to a legal entity owned by Strang without such consent. Any attempted assignment of this Agreement by Strang without receipt of such consent from TSET shall be null and void. SEVERABILITY. If any provision (or portion thereof) of this Agreement is adjudged unenforceable by a court of competent jurisdiction, the remaining provisions shall nevertheless continue in full force and effect and the provision deemed unenforceable shall be remade or interpreted by the parties in a manner that such provisions shall be enforceable to preserve, to the maximum extent possible, the original intention and meaning thereof. If necessary to effect such intent, TSET and Strang shall negotiate in good faith to amend this Agreement to replace such provision with language believed in good faith by the parties to be enforceable, which as closely as possible reflects such intent. NO THIRD PARTY BENEFICIARIES. This Agreement is for the sole benefit of the parties and their permitted successors, heirs, and assigns. Nothing herein, expressed or implied, shall give or be construed to give any other person, other than the parties and their permitted assigns, any legal or equitable rights hereunder. No finder's or other fees shall be payable by either party with respect to the exercise of the Option or the issuance of the Option Shares pursuant to this Agreement. 3 STATE SECURITIES QUALIFICATIONS. The sale of the Option Shares pursuant to any exercise of the Option has not been qualified with the securities regulatory authorities in any state or other jurisdiction and the issuance of the Option Shares prior to such qualification may be unlawful unless such transactions are exempt from such qualification requirements. The rights of the parties hereto are expressly conditioned upon such qualification being obtained, unless any such transaction is so exempt. 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/ JEFFREY D. WILSON -------------------------------------- Jeffrey D. Wilson Chairman and Chief Executive Officer /S/ CHARLES D. STRANG - ----------------------------------------- Charles D. Strang 4 EX-10.28 34 exhibit10-28.txt Exhibit 10.28 STOCK OPTION AGREEMENT THIS STOCK OPTION AGREEMENT is entered into as of April 9, 2001, by and between TSET, Inc., a Nevada corporation ("TSET"), and Richard A. Papworth ("Papworth"). WITNESSETH: WHEREAS, TSET desires to grant to Papworth an option to acquire up to 398,475 restricted shares of TSET's common stock, par value $0.001 per share (the "Option Shares"), in consideration of valuable contributions made by Papworth to TSET and its wholly-owned subsidiaries; and WHEREAS, Papworth desires to accept such option. NOW, THEREFORE, for and in consideration of the premises and mutual promises, covenants, and agreements set forth herein and for other good and valuable consideration, the delivery, receipt, and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. GRANT OF OPTION. TSET grants to Papworth an option (the "Option") to acquire the Option Shares at an exercise price of $0.885 per share (the "Exercise Price"). The Option shall immediately and fully vest in Papworth's favor for all purposes upon execution and delivery of this Agreement by the parties. The Option is personal to Papworth and may be exercised only by Papworth during his lifetime. The Option shall continue in full force and effect for a period of 10 years from the date hereof (the "Term"), at which time the Option shall expire and terminate unless previously exercised by Papworth. The Option shall not be subject to forfeiture or termination, except for Papworth's failure to exercise the Option during the Term. 2. EXERCISE OF OPTION. The Option may be exercised by Papworth, in whole or in part, at any time during the Term upon receipt by TSET of written notice from Papworth (the "Exercise Notice"). The Exercise Notice shall specify the number of Option Shares Papworth desires to acquire pursuant thereto and provide any necessary or appropriate instructions to TSET and its transfer agent regarding the denomination of certificates representing the Option Shares and the name in which the Option Shares should be registered. The exercise of the Option shall be on a "cashless" basis and Papworth shall not be required to remit to TSET any payment therefor. 3. RESERVATION OF THE OPTION SHARES. To ensure fulfillment of its obligations hereunder should Papworth elect to exercise the Option, TSET shall reserve from its authorized but unissued capital that number of shares of its common stock equal to the Option Shares. 4. RESTRICTIONS ON TRANSFER. Papworth acknowledges that the Option Shares are subject to certain restrictions upon transfer, and cannot be sold, assigned, transferred, or conveyed (in any case, a "transfer") except in compliance with such restrictions and applicable provisions of federal and state securities laws. Certificates representing the Option Shares shall bear appropriate restrictive legends and notices. In the event Papworth desires to transfer any Option Shares prior to the expiration of such restrictions, TSET shall be entitled to receive from Papworth written undertakings, certifications, or opinions of legal counsel evidencing compliance with such restrictions. 5. TAX MATTERS. Papworth acknowledges that treatment of the Option, the Option Shares, and events or transactions with respect thereto, for federal and state income and other tax purposes, is dependent upon various factors and events which are not determined by this Agreement. TSET makes no representations to Papworth with respect to, and hereby disclaims any and all responsibility as to such tax treatment. Papworth shall be solely and fully responsible for the payment of, and shall pay, any and all federal, state, and other taxes (including any and all withholding taxes) levied with respect to the grant of the Option, the purchase of the Option Shares, and any subsequent transfer thereof. In the event the exercise of the Option or the disposition of the Option Shares following exercise of the Option results in Papworth's realization of income which for federal, state, local, or other income tax purposes is, in TSET's opinion, subject to withholding of tax, then at the election of TSET and prior to the delivery to Papworth of certificates representing the Option Shares acquired by him pursuant to an Exercise Notice, (a) Papworth shall pay to TSET an amount equal to such withholding tax or (b) TSET may withhold such amount from any compensation or other payments owed by TSET to Papworth. 6. NONQUALIFIED STATUS. The Option is not intended to be an "incentive stock option" as defined in the Internal Revenue Code of 1986, as amended, and shall not be treated as such whether or not, by the terms hereof, it meets the requirements of any applicable provisions thereof. 7. 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 and Papworth, 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): 333 South State Street, PMB 111 To TSET: Lake Oswego, OR 97034 Attn: Jeffrey D. Wilson Chief Executive Officer Tel: 503.968.1547 Fax: 503.968.0867 To Papworth: 333 South State Street, PMB 111 Lake Oswego, OR 97035 Tel: 503.968.1547 Fax: 503.968.0867 Notices hereunder shall be deemed given when delivered in person, upon confirmation of successful transmission when sent by facsimile, or 5 days after being mailed by express, registered, or certified mail (return receipt requested), postage and fees prepaid. 8. INTEGRATION, AMENDMENT, AND WAIVER. When executed and delivered, this Agreement shall constitute the entire agreement between the parties with respect to the subject matter hereof and shall supersede any and 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. No waiver by either party of any breach of this Agreement in any particular instance shall constitute a waiver of any other breach hereof in any other circumstance or any relinquishment for the future of their respective rights to strictly enforce all of the other provisions hereof or seek all remedies which may be available at law or in equity. 9. COUNTERPARTS; BINDING EFFECT. This Agreement 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. This Agreement shall be binding upon and inure to the benefit of the parties' respective permitted heirs, successors, and assigns. 10. ASSIGNMENT. This Agreement is personal to the parties hereto. Accordingly, Papworth shall not assign or transfer this Agreement without the prior written consent of TSET, which consent shall not be unreasonably withheld, conditioned, or delayed; provided, however, that Papworth shall be permitted to assign or transfer this Agreement to a legal entity owned by Papworth without such consent. Any attempted assignment of this Agreement by Papworth without receipt of such consent from TSET shall be null and void. 11. SEVERABILITY. If any provision (or portion thereof) of this Agreement is adjudged unenforceable by a court of competent jurisdiction, the remaining provisions shall nevertheless continue in full force and effect and the provision deemed unenforceable shall be remade or interpreted by the parties in a manner that such provisions shall be enforceable to preserve, to the maximum extent possible, the original intention and meaning thereof. If necessary to effect such intent, TSET and Papworth shall negotiate in good faith to amend this Agreement to replace such provision with language believed in good faith by the parties to be enforceable, which as closely as possible reflects such intent. 12. NO THIRD PARTY BENEFICIARIES. This Agreement is for the sole benefit of the parties and their permitted successors, heirs, and assigns. Nothing herein, expressed or implied, shall give or be construed to give any other person, other than the parties and their permitted assigns, any legal or equitable rights hereunder. No finder's or other fees shall be payable by either party with respect to the exercise of the Option or the issuance of the Option Shares pursuant to this Agreement. 13. STATE SECURITIES QUALIFICATIONS. The sale of the Option Shares pursuant to any exercise of the Option has not been qualified with the securities regulatory authorities in any state or other jurisdiction and the issuance of the Option Shares prior to such qualification may be unlawful unless such transactions are exempt from such qualification requirements. The rights of the parties hereto are expressly conditioned upon such qualification being obtained, unless any such transaction is so exempt. 14. 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/ Jeffrey D. Wilson ---------------------------- Jeffrey D. Wilson Chairman and Chief Executive Officer /s/ Richard A. Papworth - ---------------------------- Richard A. Papworth EX-10.29 35 exhibit10-29.txt Exhibit 10.29 STOCK OPTION AGREEMENT ---------------------- THIS STOCK OPTION AGREEMENT is entered into as of April 9, 2001, by and between TSET, Inc., a Nevada corporation ("TSET"), and Richard A. Papworth ("Papworth"). WITNESSETH: ---------- WHEREAS, TSET desires to grant to Papworth_ an option to acquire up to 50,000 restricted shares of TSET's common stock, par value $0.001 per share (the "Option Shares"), in consideration of valuable contributions made by Papworth to TSET and its wholly-owned subsidiaries; and WHEREAS, Papworth desires to accept such option. NOW, THEREFORE, for and in consideration of the premises and mutual promises, covenants, and agreements set forth herein and for other good and valuable consideration, the delivery, receipt, and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. GRANT OF OPTION. TSET hereby grants to Papworth an option (the "Option") to acquire the Option Shares at an exercise price of $0.885 per share (the "Exercise Price"). The Option shall immediately and fully vest in Papworth's favor for all purposes upon execution and delivery of this Agreement by the parties. The Option is personal to Papworth and may be exercised only by Papworth during his lifetime. The Option shall continue in full force and effect for a period of 5 years from the date hereof (the "Term"), at which time the Option shall expire and terminate unless previously exercised by Papworth. The Option shall not be subject to forfeiture or termination, except for Papworth's failure to exercise the Option during the Term. 2. EXERCISE OF OPTION. The Option may be exercised by Papworth, in whole or in part, at any time during the Term upon receipt by TSET of written notice from Papworth (the "Exercise Notice"). The Exercise Notice shall specify the number of Option Shares Papworth desires to acquire pursuant thereto and provide any necessary or appropriate instructions to TSET and its transfer agent regarding the denomination of certificates representing the Option Shares and the name in which the Option Shares should be registered. The exercise of the Option shall be on a "cashless" basis and Papworth shall not be required to remit to TSET any payment therefor. 3. RESERVATION OF THE OPTION SHARES. To ensure fulfillment of its obligations hereunder should Papworth elect to exercise the Option, TSET shall reserve from its authorized but unissued capital that number of shares of its common stock equal to the Option Shares. 4. RESTRICTIONS ON TRANSFER. Papworth acknowledges that the Option Shares are subject to certain restrictions upon transfer, and cannot be sold, assigned, transferred, or conveyed (in any case, a "transfer") except in compliance with such restrictions and applicable provisions of federal and state securities laws. Certificates representing the Option Shares shall bear appropriate restrictive legends and notices. In the event Papworth desires to transfer any Option Shares prior to the expiration of such restrictions, TSET shall be entitled to receive from Papworth written undertakings, certifications, or opinions of legal counsel evidencing compliance with such restrictions. 5. TAX MATTERS. Papworth acknowledges that treatment of the Option, the Option Shares, and events or transactions with respect thereto, for federal and state income and other tax purposes, is dependent upon various factors and events which are not determined by this Agreement. TSET makes no representations to Papworth with respect to, and hereby disclaims any and all responsibility as to such tax treatment. Papworth shall be solely and fully responsible for the payment of, and shall pay, any and all federal, state, and other taxes (including any and all withholding taxes) levied with respect to the grant of the Option, the purchase of the Option Shares, and any subsequent transfer thereof. In the event the exercise of the Option or the disposition of the Option Shares following exercise of the Option results in Papworth's realization of income which for federal, state, local, or other income tax purposes is, in TSET's opinion, subject to withholding of tax, then at the election of TSET and prior to the delivery to Papworth of certificates representing the Option Shares acquired by him pursuant to an Exercise Notice, (a) Papworth shall pay to TSET an amount equal to such withholding tax or (b) TSET may withhold such amount from any compensation or other payments owed by TSET to Papworth. 6. NONQUALIFIED STATUS. The Option is not intended to be an "incentive stock option" as defined in the Internal Revenue Code of 1986, as amended, and shall not be treated as such whether or not, by the terms hereof, it meets the requirements of any applicable provisions thereof. 7. 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 and Papworth, as the case may be, to the following address (which may be changed by the parties from time to time upon written notice given as aforesaid): To TSET: 333 South State Street, PMB 111 Lake Oswego, OR 97034 Attn: Jeffrey D. Wilson Chief Executive Officer Tel: 503.968.1547 Fax: 503.968.0867 To Papworth: 333 South State Street, PMB 111 Lake Oswego, OR 97035 Tel: 503.968.1547 Fax: 503.968.0867 Notices hereunder shall be deemed given when delivered in person, upon confirmation of successful transmission when sent by facsimile, or 5 days after being mailed by express, registered, or certified mail (return receipt requested), postage and fees prepaid. 8. INTEGRATION, AMENDMENT, AND WAIVER. When executed and delivered, this Agreement shall constitute the entire agreement between the parties with respect to the subject matter hereof and shall supersede any and 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. No waiver by either party of any breach of this Agreement in any particular instance shall constitute a waiver of any other breach hereof in any other circumstance or any relinquishment for the future of their respective rights to strictly enforce all of the other provisions hereof or seek all remedies which may be available at law or in equity. 9. COUNTERPARTS; BINDING EFFECT. This Agreement 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. This Agreement shall be binding upon and inure to the benefit of the parties' respective permitted heirs, successors, and assigns. 10. ASSIGNMENT. This Agreement is personal to the parties hereto. Accordingly, Papworth shall not assign or transfer this Agreement without the prior written consent of TSET, which consent shall not be unreasonably withheld, conditioned, or delayed; provided, however, that Papworth shall be permitted to assign or transfer this Agreement to a legal entity owned by Papworth without such consent. Any attempted assignment of this Agreement by Papworth without receipt of such consent from TSET shall be null and void. 11. SEVERABILITY. If any provision (or portion thereof) of this Agreement is adjudged unenforceable by a court of competent jurisdiction, the remaining provisions shall nevertheless continue in full force and effect and the provision deemed unenforceable shall be remade or interpreted by the parties in a manner that such provisions shall be enforceable to preserve, to the maximum extent possible, the original intention and meaning thereof. If necessary to effect such intent, TSET and Papworth shall negotiate in good faith to amend this Agreement to replace such provision with language believed in good faith by the parties to be enforceable, which as closely as possible reflects such intent. 12. NO THIRD PARTY BENEFICIARIES. This Agreement is for the sole benefit of the parties and their permitted successors, heirs, and assigns. Nothing herein, expressed or implied, shall give or be construed to give any other person, other than the parties and their permitted assigns, any legal or equitable rights hereunder. No finder's or other fees shall be payable by either party with respect to the exercise of the Option or the issuance of the Option Shares pursuant to this Agreement. 13. STATE SECURITIES QUALIFICATIONS. The sale of the Option Shares pursuant to any exercise of the Option has not been qualified with the securities regulatory authorities in any state or other jurisdiction and the issuance of the Option Shares prior to such qualification may be unlawful unless such transactions are exempt from such qualification requirements. The rights of the parties hereto are expressly conditioned upon such qualification being obtained, unless any such transaction is so exempt. 14. 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/ JEFFREY D. WILSON ------------------------------------ Jeffrey D. Wilson Chairman and Chief Executive Officer /s/ RICHARD A. PAPWORTH ------------------------------------ Richard A. Papworth EX-10.30 36 exhibit10-30.txt Exhibit 10.30 STOCK OPTION AGREEMENT ---------------------- THIS STOCK OPTION AGREEMENT is entered into as of April 9, 2001, by and between TSET, Inc., a Nevada corporation ("TSET"), and Erik W. Black ("Black"). WITNESSETH: ---------- WHEREAS, TSET desires to grant to Black an option to acquire up to 50,000 restricted shares of TSET's common stock, par value $0.001 per share (the "Option Shares"), in consideration of valuable contributions made by Black to TSET and its wholly-owned subsidiaries; and WHEREAS, Black desires to accept such option. NOW, THEREFORE, for and in consideration of the premises and mutual promises, covenants, and agreements set forth herein and for other good and valuable consideration, the delivery, receipt, and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. GRANT OF OPTION. TSET hereby grants to Black an option (the "Option") to acquire the Option Shares at an exercise price of $0.885 per share (the "Exercise Price"). The Option shall immediately and fully vest in Black's favor for all purposes upon execution and delivery of this Agreement by the parties. The Option is personal to Black and may be exercised only by Black during his lifetime. The Option shall continue in full force and effect for a period of 5 years from the date hereof (the "Term"), at which time the Option shall expire and terminate unless previously exercised by Black. The Option shall not be subject to forfeiture or termination, except for Black's failure to exercise the Option during the Term. 2. EXERCISE OF OPTION. The Option may be exercised by Black, in whole or in part, at any time during the Term upon receipt by TSET of written notice from Black (the "Exercise Notice"). The Exercise Notice shall specify the number of Option Shares Black desires to acquire pursuant thereto and provide any necessary or appropriate instructions to TSET and its transfer agent regarding the denomination of certificates representing the Option Shares and the name in which the Option Shares should be registered. The exercise of the Option shall be on a "cashless" basis and Black shall not be required to remit to TSET any payment therefor. 3. RESERVATION OF THE OPTION SHARES. The ensure fulfillment of its obligations hereunder should Black elect to exercise the Option, TSET shall reserve from its authorized but unissued capital that number of shares of its common stock equal to the Option Shares. 4. RESTRICTIONS ON TRANSFER. Black acknowledges that the Option Shares are subject to certain restrictions upon transfer, and cannot be sold, assigned, transferred, or conveyed (in any case, a "transfer") except in compliance with such restrictions and applicable provisions of federal and state securities laws. Certificates representing the Option Shares shall bear appropriate restrictive legends and notices. In the event Black desires to transfer any Option Shares prior to the expiration of such restrictions, TSET shall be entitled to receive from Black written undertakings, certifications, or opinions of legal counsel evidencing compliance with such restrictions. 5. TAX MATTERS. Black acknowledges that treatment of the Option, the Option Shares, and events or transactions with respect thereto, for federal and state income and other tax purposes, is dependent upon various factors and events which are not determined by this Agreement. TSET makes no representations to Black with respect to, and hereby disclaims any and all responsibility as to such tax treatment. Black shall be solely and fully responsible for the payment of, and shall pay, any and all federal, state, and other taxes (including any and all withholding taxes) levied with respect to the grant of the Option, the purchase of the Option Shares, and any subsequent transfer thereof. In the event the exercise of the Option or the disposition of the Option Shares following exercise of the Option results in Black's realization of income which for federal, state, local, or other income tax purposes is, in TSET's opinion, subject to withholding of tax, then at the election of TSET and prior to the delivery to Black of certificates representing the Option Shares acquired by him pursuant to an Exercise Notice, (a) Black shall pay to TSET an amount equal to such withholding tax or (b) TSET may withhold such amount from any compensation or other payments owed by TSET to Black. 6. NONQUALIFIED STATUS. The Option is not intended to be an "incentive stock option" as defined in the Internal Revenue Code of 1986, as amended, and shall not be treated as such whether or not, by the terms hereof, it meets the requirements of any applicable provisions thereof. 7. 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 and Black, as the case may be, to the following address (which may be changed by the parties from time to time upon written notice given as aforesaid): To TSET: 333 South State Street, PMB 111 Lake Oswego, OR 97034 Attn: Richard A. Papworth Chief Financial Officer Tel: 503.968.1547 Fax: 503.968.0867 To Black: 4150 Mt. Herbert Avenue San Diego, CA 92117 18 Tel: 858.354.8456 Fax: 858.467.0384 Notices hereunder shall be deemed given when delivered in person, upon confirmation of successful transmission when sent by facsimile, or 5 days after being mailed by express, registered, or certified mail (return receipt requested), postage and fees prepaid. 8. INTEGRATION, AMENDMENT, AND WAIVER. When executed and delivered, this Agreement shall constitute the entire agreement between the parties with respect to the subject matter hereof and shall supersede any and 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. No waiver by either party of any breach of this Agreement in any particular instance shall constitute a waiver of any other breach hereof in any other circumstance or any relinquishment for the future of their respective rights to strictly enforce all of the other provisions hereof or seek all remedies which may be available at law or in equity. 9. COUNTERPARTS; BINDING EFFECT. This Agreement 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. This Agreement shall be binding upon and inure to the benefit of the parties' respective permitted heirs, successors, and assigns. 10. ASSIGNMENT. This Agreement is personal to the parties hereto. Accordingly, Black shall not assign or transfer this Agreement without the prior written consent of TSET, which consent shall not be unreasonably withheld, conditioned, or delayed; provided, however, that Black shall be permitted to assign or transfer this Agreement to a legal entity owned by Black without such consent. Any attempted assignment of this Agreement by Black without receipt of such consent from TSET shall be null and void. 11. SEVERABILITY. If any provision (or portion thereof) of this Agreement is adjudged unenforceable by a court of competent jurisdiction, the remaining provisions shall nevertheless continue in full force and effect and the provision deemed unenforceable shall be remade or interpreted by the parties in a manner that such provisions shall be enforceable to preserve, to the maximum extent possible, the original intention and meaning thereof. If necessary to effect such intent, TSET and Black shall negotiate in good faith to amend this Agreement to replace such provision with language believed in good faith by the parties to be enforceable, which as closely as possible reflects such intent. 12. NO THIRD PARTY BENEFICIARIES. This Agreement is for the sole benefit of the parties and their permitted successors, heirs, and assigns. Nothing herein, expressed or implied, shall give or be construed to give any other person, other than the parties and their permitted 19 assigns, any legal or equitable rights hereunder. No finder's or other fees shall be payable by either party with respect to the exercise of the Option or the issuance of the Option Shares pursuant to this Agreement. 13. STATE SECURITIES QUALIFICATIONS. The sale of the Option Shares pursuant to any exercise of the Option has not been qualified with the securities regulatory authorities in any state or other jurisdiction and the issuance of the Option Shares prior to such qualification may be unlawful unless such transactions are exempt from such qualification requirements. The rights of the parties hereto are expressly conditioned upon such qualification being obtained, unless any such transaction is so exempt. 14. 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/ JEFFREY D. WILSON ------------------------------------ Jeffrey D. Wilson Chairman and Chief Executive Officer /s/ ERIK W. BLACK ------------------------------------ Erik W. Black EX-10.31 37 exhibit10-31.txt Exhibit 10.31 STOCK OPTION AGREEMENT THIS STOCK OPTION AGREEMENT is entered into as of April 9, 2001, by and between TSET, Inc., a Nevada corporation ("TSET"), and J. Alexander Chriss ("Chriss"). WITNESSETH: WHEREAS, TSET desires to grant to Chriss an option to acquire up to 50,000 restricted shares of TSET's common stock, par value $0.001 per share (the "Option Shares"), in consideration of valuable contributions made by Chriss to TSET and its wholly-owned subsidiaries; and WHEREAS, Chriss desires to accept such option. NOW, THEREFORE, for and in consideration of the premises and mutual promises, covenants, and agreements set forth herein and, for other good and valuable consideration, the delivery, receipt, and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. GRANT OF OPTION. TSET hereby grants to Chriss an option (the "Option") to acquire the Option Shares at an exercise price of $0.885 per share (the "Exercise Price"). The Option shall immediately and fully vest in Chriss' favor for all purposes upon execution and delivery of this Agreement by the parties. The Option is personal to Chriss and may be exercised only by Chriss during his lifetime. The Option shall continue in full force and effect for a period of 5 years from the date hereof (the "Term"), at which time the Option shall expire and terminate unless previously exercised by Chriss. The Option shall not be subject to forfeiture or termination, except for Chriss's failure to exercise the Option during the Term. 2. EXERCISE OF OPTION. The Option may be exercised by Chriss, in whole or in part, at any time during the Term upon receipt by TSET of written notice from Chriss (the "Exercise Notice"). The Exercise Notice shall specify the number of Option Shares Chriss desires to acquire pursuant thereto and provide any necessary or appropriate instructions to TSET and its transfer agent regarding the denomination of certificates representing the Option Shares and the name in which the Option Shares should be registered. The exercise of the Option shall be on a "cashless" basis and Chriss shall not be required to remit to TSET any payment therefor. 3. RESERVATION OF THE OPTION SHARES. To ensure fulfillment of its obligations hereunder should Chriss elect to exercise the Option, TSET shall reserve from its authorized but unissued capital that number of shares of its common stock equal to the Option Shares. 4. RESTRICTIONS ON TRANSFER. Chriss acknowledges that the Option Shares are subject to certain restrictions upon transfer, and cannot be sold, assigned, transferred, or conveyed (in any case, a "transfer") except in compliance with such restrictions and applicable provisions of federal and state securities laws. Certificates representing the Option Shares shall bear appropriate restrictive legends and notices. In the event Chriss desires to transfer any Option Shares prior to the expiration of such restrictions, TSET shall be entitled to receive from Chriss written undertakings, certifications, or opinions of legal counsel evidencing compliance with such restrictions. 5. TAX MATTERS. Chriss acknowledges that treatment of the Option, the Option Shares, and events or transactions with respect thereto, for federal and state income and other tax purposes, is dependent upon various factors and events which are not determined by this Agreement. TSET makes no representations to Chriss with respect to, and hereby disclaims any and all responsibility as to such tax treatment. Chriss shall be solely and fully responsible for the payment of, and shall pay, any and all federal, state, and other taxes (including any and all withholding taxes) levied with respect to the grant of the Option, the purchase of the Option Shares, and any subsequent transfer thereof. In the event the exercise of the Option or the disposition of the Option Shares following exercise of the Option results in Chriss's realization of income which for federal, state, local, or other income tax purposes is, in TSET's opinion, subject to withholding of tax, then at the election of TSET and prior to the delivery to Chriss of certificates representing the Option Shares acquired by him pursuant to an Exercise Notice, (a) Chriss shall pay to TSET an amount equal to such withholding tax or (b) TSET may withhold such amount from any compensation or other payments owed by TSET to Chriss. 6. NONQUALIFIED STATUS. The Option is not intended to be an "incentive stock option" as defined in the Internal Revenue Code of 1986, as amended, and shall not be treated as such whether or not, by the terms hereof, it meets the requirements of any applicable provisions thereof. 7. 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 and Chriss, 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: 333 South State Street, PMB 111 Lake Oswego, OR 97034 Attn: Richard A. Papworth Chief Financial Officer Tel: 503.968.1547 Fax: 503.968.0867 To Chriss: 10 Rogers Street, Apt. 1203 Cambridge, MA 02142 Tel: 617.577.9109 Notices hereunder shall be deemed given when delivered in person, upon confirmation of successful transmission when sent by facsimile, or 5 days after being mailed by express, registered, or certified mail (return receipt requested), postage and fees prepaid. 8. INTEGRATION, AMENDMENT, AND WAIVER. When executed and delivered, this Agreement shall constitute the entire agreement between the parties with respect to the subject matter hereof and shall supersede any and 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. No waiver by either party of any breach of this Agreement in any particular instance shall constitute a waiver of any other breach hereof in any other circumstance or any relinquishment for the future of their respective rights to strictly enforce all of the other provisions hereof or seek all remedies which may be available at law or in equity. 9. COUNTERPARTS; BINDING EFFECT. This Agreement 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. This Agreement shall be binding upon and inure to the benefit of the parties' respective permitted heirs, successors, and assigns. 10. ASSIGNMENT. This Agreement is personal to the parties hereto. Accordingly, Chriss shall not assign or transfer this Agreement without the prior written consent of TSET, which consent shall not be unreasonably withheld, conditioned, or delayed; provided, however, that Chriss shall be permitted to assign or transfer this Agreement to a legal entity owned by Chriss without such consent. Any attempted assignment of this Agreement by Chriss without receipt of such consent from TSET shall be null and void. 11. SEVERABILITY. If any provision (or portion thereof) of this Agreement is adjudged unenforceable by a court of competent jurisdiction, the remaining provisions shall nevertheless continue in full force and effect and the provision deemed unenforceable shall be remade or interpreted by the parties in a manner that such provisions shall be enforceable to preserve, to the maximum extent possible, the original intention and meaning thereof. If necessary to effect such Intent, TSET and Chriss shall negotiate in good faith to amend this Agreement to replace such provision with language believed in good faith by the parties to be enforceable, which as closely as possible reflects such Intent. 12. NO THIRD PARTY BENEFICIARIES. This Agreement is for the sole benefit of the parties and their permitted successors, heirs, and assigns. Nothing herein, expressed or implied, shall give or be construed to give any other person, other than the parties and their permitted assigns, any legal or equitable rights hereunder. No finder's or other fees shall be payable by either party with respect to the exercise of the Option or the issuance of the Option Shares pursuant to this Agreement. 13. STATE SECURITIES QUALIFICATIONS. The sale of the Option Shares pursuant to any exercise of the Option has not been qualified with the securities regulatory authorities in any state or other jurisdiction and the issuance of the Option Shares prior to such qualification may be unlawful unless such transactions are exempt from such qualification requirements. The rights of the parties hereto are expressly conditioned upon such qualification being obtained, unless any such transaction is so exempt. 14. 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/ Jeffrey D. Wilson ------------------------------- Jeffrey D. Wilson Chief Executive Officer /s/ J. Alexander Chriss - ----------------------------------- J. Alexander Chriss EX-10.32 38 exhibit10-32.txt Exhibit 10.32 STOCK OPTION AGREEMENT THIS STOCK OPTION AGREEMENT is entered into as of April 9, 2001, by and between TSET, Inc., a Nevada corporation ("TSET"), and Charles H. Wellington, Jr. ("Wellington"). WITNESSETH: WHEREAS, TSET desires to grant to Wellington an option to acquire up to 50,000 restricted shares of TSET's common stock, par value $0.001 per share (the "Option Shares"), in consideration of valuable contributions made by Wellington to TSET and its wholly-owned subsidiaries; and WHEREAS, Wellington desires to accept such option. NOW, THEREFORE, for and in consideration of the premises and mutual promises, covenants, and agreements set forth herein and for other good and valuable consideration, the delivery, receipt, and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. GRANT OF OPTION. TSET hereby grants to Wellington an option (the "Option") to acquire the Option Shares at an exercise price of $0.885 per share (the "Exercise Price "). The Option shall immediately and fully vest in Wellington's favor for all purposes upon execution and delivery of this Agreement by the parties. The Option is personal to Wellington and may be exercised only by Wellington during his lifetime. The Option shall continue in full force and effect for a period of 5 years from the date hereof (the "Term"), at which time the Option shall expire and terminate unless previously exercised by Wellington. The Option shall not be subject to forfeiture or termination, except for Wellington's failure to exercise the Option during the Term. 2. EXERCISE OF OPTION. The Option may be exercised by Wellington, in whole or in part, at any time during the Term upon receipt by TSET of written notice from Wellington (the "Exercise Notice "). The Exercise Notice shall specify the number of Option Shares Wellington desires to acquire pursuant thereto and provide any necessary or appropriate instructions to TSET and its transfer agent regarding the denomination of certificates representing the Option Shares and the name in which the Option Shares should be registered. The exercise of the Option shall be on a "cashless" basis and Wellington shall not be required to remit to TSET any payment therefor. 3. RESERVATION OF THE OPTION SHARES. To ensure fulfillment of its obligations hereunder should Wellington elect to exercise the Option, TSET shall reserve from its authorized but unissued capital that number of shares of its common stock equal to the Option Shares. 4. RESTRICTIONS ON TRANSFER. Wellington acknowledges that the Option Shares are subject to certain restrictions upon transfer, and cannot be sold, assigned, transferred, or conveyed (in any case, a "transfer") except in compliance with such restrictions and applicable provisions of federal and state securities laws. Certificates representing the Option Shares shall bear appropriate restrictive legends and notices. In the event Wellington desires to transfer any Option Shares prior to the expiration of such restrictions, TSET shall be entitled to receive from Wellington written undertakings, certifications, or opinions of legal counsel evidencing compliance with such restrictions. 5. TAX MATTERS. Wellington acknowledges that treatment of the Option, the Option Shares, and events or transactions with respect thereto, for federal and state income and other tax purposes, is dependent upon various factors and events which are not determined by this Agreement. TSET makes no representations to Wellington with respect to, and hereby disclaims any and all responsibility as to such tax treatment. Wellington shall be solely and fully responsible for the payment of, and shall pay, any and all federal, state, and other taxes (including any and all withholding taxes) levied with respect to the grant of the Option, the purchase of the Option Shares, and any subsequent transfer thereof. In the event the exercise of the Option or the disposition of the Option Shares following exercise of the Option results in Wellington's realization of income which for federal, state, local, or other income tax purposes is, in TSET's opinion, subject to withholding of tax, then at the election of TSET and prior to the delivery to Wellington of certificates representing the Option Shares acquired by him pursuant to an Exercise Notice, (a) Wellington shall pay to TSET an amount equal to such withholding tax or (b) TSET may withhold such amount from any compensation or other payments owed by TSET to Wellington. 6. NONQUALIFIED STATUS. The Option is not intended to be an "incentive stock option" as defined in the Internal Revenue Code of 1986, as amended, and shall not be treated as such whether or not, by the terms hereof, it meets the requirements of any applicable provisions thereof. 7. 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 and Wellington, 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: 333 South State Street, PMB 111 Lake Oswego, OR 97034 Attn: Richard A. Papworth Chief Financial Officer Tel: 503.968.1547 Fax: 503.968.0867 To Wellington: P.O. Box 99150 Seattle, WA 98199 Tel: 206.281.3179 Fax: 206.281.3179 Notices hereunder shall be deemed given when delivered in person, upon confirmation of successful transmission when sent by facsimile, or 5 days after being mailed by express, registered, or certified mail (return receipt requested), postage and fees prepaid. 8. INTEGRATION, AMENDMENT, AND WAIVER. When executed and delivered, this Agreement shall constitute the entire agreement between the parties with respect to the subject matter hereof and shall supersede any and 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. No waiver by either party of any breach of this Agreement in any particular instance shall constitute a waiver of any other breach hereof in any other circumstance or any relinquishment for the future of their respective rights to strictly enforce all of the other provisions hereof or seek all remedies which may be available at law or in equity. 9. COUNTERPARTS; BINDING EFFECT. This Agreement 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. This Agreement shall be binding upon and inure to the benefit of the parties' respective permitted heirs, successors, and assigns. 10. ASSIGNMENT. This Agreement is personal to the parties hereto. Accordingly, Wellington shall not assign or transfer this Agreement without the prior written consent of TSET, which consent shall not be unreasonably withheld, conditioned, or delayed; provided, however, that Wellington shall be permitted to assign or transfer this Agreement to a legal entity owned by Wellington without such consent. Any attempted assignment of this Agreement by Wellington without receipt of such consent from TSET shall be null and void. 11. SEVERABILITY. If any provision (or portion thereof) of this Agreement is adjudged unenforceable by a court of competent jurisdiction, the remaining provisions shall nevertheless continue in full force and effect and the provision deemed unenforceable shall be remade or interpreted by the parties in a manner that such provisions shall be enforceable to preserve, to the maximum extent possible, the original intention and meaning thereof. If necessary to effect such intent, TSET and Wellington shall negotiate in good faith to amend this Agreement to replace such provision with language believed in good faith by the parties to be enforceable, which as closely as possible reflects such intent. 12. NO THIRD PARTY BENEFICIARIES. This Agreement is for the sole benefit of the parties and their permitted successors, heirs, and assigns. Nothing herein, expressed or implied, shall give or be construed to give any other person, other than the parties and their permitted assigns, any legal or equitable rights hereunder. No finder's or other fees shall be payable by either party with respect to the exercise of the Option or the issuance of the Option Shares pursuant to this Agreement. 13. STATE SECURITIES QUALIFICATIONS. The sale of the Option Shares pursuant to any exercise of the Option has not been qualified with the securities regulatory authorities in any state or other jurisdiction and the issuance of the Option Shares prior to such qualification may be unlawful unless such transactions are exempt from such qualification requirements. The rights of the parties hereto are expressly conditioned upon such qualification being obtained, unless any such transaction is so exempt. 14. 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/ Jeffrey D. Wilson ------------------------------------ Jeffrey D. Wilson Chairman and Chief Executive Officer /s/ Charles H. Wellington, Jr. ---------------------------------- Charles H. Wellington, Jr. EX-10.33 39 exhibit10-33.txt EXHIBIT 10.33 STOCK OPTION AGREEMENT THIS STOCK OPTION AGREEMENT is entered into as of April 9, 2001, by and between TSET, Inc., a Nevada corporation ("TSET"), and Igor Krichtafovitch ("Krichtafovitch"). WITNESSETH: WHEREAS, TSET desires to grant to Krichtafovitch an option to acquire up to 50,000 restricted shares of TSET's common stock, par value $0.001 per share (the "Option Shares"), in consideration of valuable contributions made by Krichtafovitch to TSET and its wholly-owned subsidiaries; and WHEREAS, Krichtafovitch desires to accept such option. NOW, THEREFORE, for and in consideration of the premises and mutual promises, covenants, and agreements set forth herein and for other good and valuable consideration, the delivery, receipt, and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. GRANT OF OPTION. TSET hereby grants to Krichtafovitch an option (the "Option") to acquire the Option Shares at an exercise price of $0.885 per share (the "Exercise Price"). The Option shall immediately and fully vest in Krichtafovitch' favor for all purposes upon execution and delivery of this Agreement by the parties. The Option is personal to Krichtafovitch and may be exercised only by Krichtafovitch during his lifetime. The Option shall continue in full force and effect for a period of 5 years from the date hereof (the "Term"), at which time the Option shall expire and terminate unless previously exercised by Krichtafovitch. The Option shall not be subject to forfeiture or termination, except for Krichtafovitch's failure to exercise the Option during the Term. 2. EXERCISE OF OPTION. The Option may be exercised by Krichtafovitch, in whole or in part, at any time during the Term upon receipt by TSET of written notice from Krichtafovitch (the "Exercise Notice"). The Exercise Notice shall specify the number of Option Shares Krichtafovitch desires to acquire pursuant thereto and provide any necessary or appropriate instructions to TSET and its transfer agent regarding the denomination of certificates representing the Option Shares and the name in which the Option Shares should be registered. The exercise of the Option shall be on a "cashless" basis and Krichtafovitch shall not be required to remit to TSET any payment therefor. 3. RESERVATION OF THE OPTION SHARES. To ensure fulfillment of its obligations hereunder should Krichtafovitch elect to exercise the Option, TSET shall reserve from its authorized but unissued capital that number of shares of its common stock equal to the Option Shares. 4. RESTRICTIONS ON TRANSFER. Krichtafovitch acknowledges that the Option Shares are subject to certain restrictions upon transfer, and cannot be sold, assigned, transferred, or conveyed (in any case, a "transfer") except in compliance with such restrictions and applicable provisions of federal and state securities laws. Certificates representing the Option Shares shall bear appropriate restrictive legends and notices. In the event Krichtafovitch desires to transfer any Option Shares prior to the expiration of such restrictions, TSET shall be entitled to receive from Krichtafovitch written undertakings, certifications, or opinions of legal counsel evidencing compliance with such restrictions. 5. TAX MATTERS. Krichtafovitch acknowledges that treatment of the Option, the Option Shares, and events or transactions with respect thereto, for federal and state income and other tax purposes, is dependent upon various factors and events which are not determined by this Agreement. TSET makes no representations to Krichtafovitch with respect to, and hereby disclaims any and all responsibility as to such tax treatment. Krichtafovitch shall be solely and fully responsible for the payment of, and shall pay, any and all federal, state, and other taxes (including any and all withholding taxes) levied with respect to the grant of the Option, the purchase of the Option Shares, and any subsequent transfer thereof. In the event the exercise of the Option or the disposition of the Option Shares following exercise of the Option results in Krichtafovitch's realization of income which for federal, state, local, or other income tax purposes is, in TSET's opinion, subject to withholding of tax, then at the election of TSET and prior to the delivery to Krichtafovitch of certificates representing the Option Shares acquired by him pursuant to an Exercise Notice, (a) Krichtafovitch shall pay to TSET an amount equal to such withholding tax or (b) TSET may withhold such amount from any compensation or other payments owed by TSET to Krichtafovitch. 6. NONQUALIFIED STATUS. The Option is not intended to be an "incentive stock option" as defined in the Internal Revenue Code of 1986, as amended, and shall not be treated as such whether or not, by the terms hereof, it meets the requirements of any applicable provisions thereof. 7. 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 and Krichtafovitch, 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: 333 South State Street, PMB 111 Lake Oswego, OR 97034 Attn: Richard A. Papworth Chief Financial Officer Tel: 503.968.1547 Fax: 503.968.0867 2 To Krichtafovitch: 6827 117th Avenue, N.E. Kirkland, WA 98033 Tel: 425.889.0186 Fax: 425.889.0576 Notices hereunder shall be deemed given when delivered in person, upon confirmation of successful transmission when sent by facsimile, or 5 days after being mailed by express, registered, or certified mail (return receipt requested), postage and fees prepaid. 8. INTEGRATION, AMENDMENT, AND WAIVER. When executed and delivered, this Agreement shall constitute the entire agreement between the parties with respect to the subject matter hereof and shall supersede any and 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. No waiver by either party of any breach of this Agreement in any particular instance shall constitute a waiver of any other breach hereof in any other circumstance or any relinquishment for the future of their respective rights to strictly enforce all of the other provisions hereof or seek all remedies which may be available at law or in equity. 9. COUNTERPARTS; BINDING EFFECT. This Agreement 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. This Agreement shall be binding upon and inure to the benefit of the parties' respective permitted heirs, successors, and assigns. 10. ASSIGNMENT. This Agreement is personal to the parties hereto. Accordingly, Krichtafovitch shall not assign or transfer this Agreement without the prior written consent of TSET, which consent shall not be unreasonably withheld, conditioned, or delayed; provided, however, that Krichtafovitch shall be permitted to assign or transfer this Agreement to a legal entity owned by Krichtafovitch without such consent. Any attempted assignment of this Agreement by Krichtafovitch without receipt of such consent from TSET shall be null and void. 11. SEVERABILITY. If any provision (or portion thereof) of this Agreement is adjudged unenforceable by a court of competent jurisdiction, the remaining provisions shall nevertheless continue in full force and effect and the provision deemed unenforceable shall be remade or interpreted by the parties in a manner that such provisions shall be enforceable to preserve, to the maximum extent possible, the original intention and meaning thereof. If necessary to effect such intent, TSET and Krichtafovitch shall negotiate in good faith to amend this Agreement to replace such provision with language believed in good faith by the parties to be enforceable, which as closely as possible reflects such intent. 3 12. NO THIRD PARTY BENEFICIARIES. This Agreement is for the sole benefit of the parties and their permitted successors, heirs, and assigns. Nothing herein, expressed or implied, shall give or be construed to give any other person, other than the parties and their permitted assigns, any legal or equitable rights hereunder. No finder's or other fees shall be payable by either party with respect to the exercise of the Option or the issuance of the Option Shares pursuant to this Agreement. 13. STATE SECURITIES QUALIFICATIONS. The sale of the Option Shares pursuant to any exercise of the Option has not been qualified with the securities regulatory authorities in any state or other jurisdiction and the issuance of the Option Shares prior to such qualification may be unlawful unless such transactions are exempt from such qualification requirements. The rights of the parties hereto are expressly conditioned upon such qualification being obtained, unless any such transaction is so exempt. 14. 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/ Jeffrey D. Wilson ---------------------------------- Jeffrey D. Wilson Chairman and Chief Executive Officer /s/ Igor Krichtafovitch - ----------------------------------- Igor Krichtafovitch EX-10.34 40 exhibit10-34.txt Exhibit 10.34 TSET, Inc. 333 South State Street, PMB 111 Lake Oswego, OR 97034 April 10, 2001 Mr. Richard A. Papworth Chief Financial Officer TSET, Inc. 333 South State Street, PMB 111 Lake Oswego, OR 97034 Dear Mr. Papworth: Reference is made to the employment agreement entered into between you and TSET, Inc. ("TSET"), dated May 19, 2000 (the "Employment Agreement"). You hereby agree that all references to non-dilution of your stock percentage ownership interest in TSET shall be deleted from the Employment Agreement. Except as expressly provided in the preceding sentence, all other provisions of the Employment Agreement shall remain in full force and effect. In consideration of the foregoing amendment, TSET shall issue to you 398,475 restricted shares of its common stock. You may elect whether to receive such shares as a grant, to be issued as and when you request, or as options fully vested in you as of the date hereof. If you elect to receive such shares as options, the exercise price therefor shall be $0.885 per share (the closing price for shares of TSET's common stock as quoted on the over-the-counter bulletin board exchange on April 9, 2001). Your execution, in the space provided below, shall evidence your acceptance of the terms of this amendment. Sincerely, /s/ Jeffrey D. Wilson --------------------------------------------- Jeffrey D. Wilson Chairman and Chief Executive Officer AGREED AND ACCEPTED /s/ Richard A. Papworth - -------------------------------- Richard A. Papworth EX-10.35 41 exhibit10-35.txt Exhibit 10.35 April 12, 2001 VIA E-MAIL Mr. Jeffrey D. Wilson TSET, Inc. Two Centerpointe Drive, Suite 580 Lake Oswego, OR 97035 Dear Jeff: Over the past eight months, Rich Tusing and I have provided TSET and its subsidiaries tremendous value. During this time we have focused on ways to improve the long-term prospects and market value of TSET. Our efforts have culminated in the development and on-going execution of a detailed business plan for Kronos Air Technologies, the development of a comprehensive intellectual property strategy, the operating review and subsequent disposition of Atomic Soccer, the assumption of active operating roles in TSET and Kronos Air Technologies, among other things. Despite our efforts, TSET has not been able to full fill its financial obligations to us in a timely fashion. Therefore, I respectfully request that the stock option strike price under the consulting contracts for Daniel R. Dwight and Richard F. Tusing dated August 2, 2000 and the consulting contract for Dwight, Tusing & Associates dated January 1, 2001 be revised. The stock option exercise price should be set to the closing stock price of TSET on today, April 12, 2001. Please indicate your agreement with these contractual changes by printing, signing and dating this letter below. Copies should be provided to Richard Tusing and myself. Best regards, Daniel R. Dwight /s/ Jeffrey D. Wilson 4/12/01 - -------------------------- ------------ Jeffrey D. Wilson Chairman and Chief Executive Officer cc: Richard F. Tusing EX-10.36 42 exhibit10-36.txt EXHIBIT 10.36 FINDERS AGREEMENT This Finders Agreement (the "AGREEMENT") is made and entered into as of the effective date below between TSET, Inc. (TSET), a Nevada corporation and Bernard Aronson dba Bolivar International Inc. of 7611 Takoma Avenue, Takoma Park, Maryland 20912, hereinafter collectively referred to as the "FINDER"). RECITALS TSET is interested in being introduced by Finder to prospective Investors for the purpose of soliciting investments in the company. For such service, TSET is willing to compensate Finder, subject to the covenants, conditions and limitations set forth in this Agreement. Finder is willing to provide the services contemplated by and in accordance with the covenants, conditions and limitations of this Agreement. AGREEMENT In consideration of the foregoing recitals, the mutual covenants hereinafter provided, and for other good and valuable considerations, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound and equitably bound, hereby agree as follows: I DEFINITIONS. ----------- For purposes of this Agreement, the following terms shall have the following meanings: 1. TSET shall mean TSET, Inc. and its subsidiaries. 2. ACT shall mean the Investment Advisers Act of 1940, as amended; 3. APPLICABLE LAW shall mean and include any law enacted by the Congress of the United States (including, without limitation, the Act), by any legislature of any of the states comprising the United States of America, by any parliament, congress or legislature of any country, province or state outside of the United States of America. 4. AUTHORIZED FINDER INVESTOR shall have the meaning ascribed thereto in paragraph 2 below; 5. FINDERS FEE shall have the meaning ascribed thereto in paragraph 3 below; 6. PERSON shall mean and include any individual, partnership, limited liability company, corporation, trust or other entity; 7. INVESTOR shall mean Person whom shall make an investment into TSET by any form including debt or equity. 8. REGULATOR shall mean and include the Securities and Exchange Commission, or any agency which regulates the purchase and sale of securities within one of the states of the United States of America, and any similar governmental agency of any country, province or state outside of the United States. II SCOPE AND LIMITATIONS OF ENGAGEMENT. ----------------------------------- 1. FINDERS AUTHORIZATION TO INTRODUCE TSET TO PROSPECTIVE AUTHORIZED FINDER INVESTORS. TSET hereby appoints Finder and Finder hereby accepts such appointment, on a non-exclusive basis, to contact and introduce TSET to Persons believed by Finder to be Authorized Finder Investors that may provide debt and/or equity based financing to TSET upon terms and conditions agreeable to TSET. Finder shall not contact or otherwise initiate any effort to contact, directly or indirectly, any Person for the purpose of making an introduction on behalf of the TSET without the express written consent of the TSET. Following execution of this Agreement, and periodically thereafter, Finder shall inform TSET of Persons believed by Finder to be prospective Authorized Finder Investors whom Finder desires to introduce to TSET. By execution of this Agreement, all Persons in Attachment A are authorized by TSET as Authorized Finder Investors. TSET shall in good faith notify Finder in writing whether any Authorized Finder Investor proposed to be contacted or introduced by Finder to TSET hereunder has previously been contacted by, or previously introduced to, TSET, in which case such proposed Authorized Finder Investor shall be excluded from the list of approved Persons in Attachment A. In connection with the execution of this Agreement and for purposes of establishing the compensation payable to Finder hereunder, Finder shall designate those Persons that are to be deemed Authorized Finder Investor hereunder. Such designation shall be a condition of acceptance of those Persons listed in Attachment A. 2. AVOIDING DISPUTES REGARDING FINDERS RIGHTS. If, for any reason, as to any specific prospective investor, Finder fails to strictly comply with the procedure described in this paragraph 2 or fails to comply with any other provision of this Agreement, Finder shall have no rights to compensation pursuant to paragraph 3 with regard to such prospective investor. 3. FINDERS FUNCTIONS LIMITED. The sole function of Finder shall be to provide impersonal advisory services by bringing together Authorized Finder Investors and TSET. Finder shall not, in any manner, offer or sell any investment in TSET. Finder shall provide such assistance as TSET may request from time to time regarding the structure, evaluation, negotiation of definitive terms of investment proposed by an Authorized Finder Investor. The parties understanding that final approval of all such terms shall be the sole responsibility of TSET. 4. INDEPENDENT STATUS OF FINDER. Finder shall, at all times, be an independent contractor hereunder, rather than a co-venturer, agent, employee, or representative of TSET. Finder shall work independently, without supervision or training by TSET, shall be responsible for Finders taxes, shall not be required to work on a continuing daily basis or any specific work schedule, and shall not be provided with office space or administrative support by the TSET. Finder is permitted to engage in other businesses and ventures. 2 Finder shall be solely responsible for complying with all laws, rules, and regulations applicable to its services hereunder. 5. TSET RETAINS ABSOLUTE DISCRETION. Notwithstanding any other provisions of this Agreement, in accordance with TSET's fiduciary duties, TSET, may, in its sole and absolute discretion, refuse to meet with or admit any prospective investor, and TSET shall be under no obligation to accept as an investor any Authorized Finder Investor. 6. CONFIDENTIALITY. Finder shall assist TSET in obtaining execution by Authorized Finder Investors of any confidentiality agreements deemed necessary or proper by TSET to protect non-public, confidential, or proprietary information. III COMPENSATION. 1. FINDERS FEE. TSET shall pay to Finder and Finder shall receive from TSET a Finder's Fee based upon the Total Investment Value by Authorized Finder Investors. Finder's Fee will be calculated according to the following: 5% of Investment Amounts from $0 - $2M. 4% of Investments Amounts from $2M - $3M 3% of Investment Amounts from $3M - $4M 2% of Investment Amounts above $4M Finder's Fee amounts will be paid by conversion into TSET share options based upon a) the TSET trading closing share price on the day that Investment fund commitment is executed or b) at the contracted investment share price whichever is lower (e.g. based on a $2M Investment, with a share price of $1.00, Finder's Fee is equal to 5% x $2M / $1.00 per share for 100,000 options with an exercise price of $1.00, with a life of option of five years). If within eighteen months of completion of any initial investment by Authorized Investor, an additional investment is committed, TSET shall pay to Finder and Finder shall receive from TSET a Finder's Fee of three percent (3%) of additional investment Total Investment Value actually received by TSET in the same terms as described above. The life of all options is five years from grant date. If investment by Authorized Investor is directed to Kronos Air Technologies, Finder may elect to take Compensation in Kronos Air Technology shares if they are so available on the same terms as described above for TSET shares. Total Investment Value includes total value of all investments including equity, which includes any options or warrants, debt, which includes any letter of credit and/or any barter value for goods or services. Finder shall be solely responsible for paying any and all federal, state or local income and other taxes arising out of payment of any compensation to Finder by TSET hereunder. If within eighteen (18) months following the Term of this Agreement, TSET engages in a Transaction with a prospective Authorized Finder Investor, Finder shall receive the Finders Fee. Any compensation payable to any person other than the consultant in connection with the provision of the Finder's services hereunder shall be paid out of the compensation described in this Section 3, such that such compensation shall be 3 the sole compensation to be paid by TSET in connection therewith. 2. TRAVEL REIMBURSEMENT. TSET shall reimburse pre-approved travel or other pre-approved expenses incurred by Finder in connection with services to be rendered by Finder pursuant to this Agreement, as expressly agreed in writing by TSET. Pre-approved travel and pre-approved other expenses will be reimbursed within five business days from receipt of expense documentation. Expenses incurred by Finder pursuant to this Agreement shall not exceed an aggregate of $5,000 without TSET's prior written consent. 3. NON-CIRCUMVENTION. TSET warrants to Finder that TSET shall not seek to circumvent Finder or contact directly any Authorized Finder Investor not excluded by TSET in Attachment A or seek to consummate any investment of any nature without paying to Finder the compensation described in this section 3. IV FINDERS WARRANTIES, REPRESENTATIONS AND ADDITIONAL COVENANTS. ------------------------------------------------------------ 1. FULL AUTHORITY. Finder warrants and represents to TSET that: (i) Finder has the full unrestricted right to enter into this Agreement, (ii) by entering into this Agreement, Finder is not violating or otherwise contravening any agreement to which Finder is bound or any Applicable Law; and (iii) no Person must consent to the execution and performance of this Agreement by Finder. 2. RECEIPT OF TSET BUSINESS PLAN. Finder acknowledges receipt of the TSET BUSINESS PLAN and represents that Finder has carefully reviewed the TSET BUSINESS PLAN as well as public information provided by TSET pursuant to its reporting obligations under the Securities Exchange Act of 1934, as amended, and has been afforded an opportunity to fully inform himself as to the contents thereof. 3. FRAUD AND BAD ACTS. Finder represents and warrants to TSET that Finder is not now, and covenants that Finder shall not in the future be, a Person (i) subject to an order of any Regulator under Applicable Law, or (ii) convicted within the previous ten (10) years of any felony or misdemeanor involving conduct described Section 203(e)(2)(A)-(D) of the Act or any similar Applicable Law, or (iii) who has been found by any Regulator to have engaged, or been convicted of engaging, in any conduct specified in paragraphs (1), (4) or 5 of Section 203(f) of the Act or of any other similar Applicable Law, or (iv) is subject to an order, judgment or decree described in Section 203(e)(3) of the Act or any similar Applicable Law. 4. COMPLIANCE WITH ALL LAWS. Finder covenants with TSET that Finder shall comply with all Applicable Laws in connection with the execution and performance of this Agreement. 5. FULL DISCLOSURE TO TSET. Without limiting any other provision of this Agreement, Finder agrees to fully disclose all activities in which Finder is engaged pursuant to this Agreement and fully, fairly and accurately report the results of all contacts with Authorized Finder Investors. 4 V TERMINATION. ----------- 1. This Agreement may be terminated immediately by TSET, without notice, in the event that Finder commits a material breach of this Agreement, in which event, Finder shall have no further entitlement to compensation hereunder. 2. In the absence of breach by the Finder, TSET may terminate this Agreement upon ten (10) days prior written notice to Finder. In this event, Finder shall be entitled to all compensation pursuant to Paragraph 3 of this Agreement with regard to investments made by an Authorized Finder Investor, as if this Agreement had not been terminated. 3. Finder may terminate this Agreement upon ten (10) days prior written notice. In this event, Finder shall be entitled to all compensation pursuant to Paragraph 3 of this Agreement with regard to investments made by an Authorized Finder Investor, as if this Agreement had not been terminated; provided, however, if TSET later determines that Finder committed a material breach of this Agreement prior to such termination, Finder shall have no entitlement to compensation hereunder following the occurrence of such breach. VI MISCELLANEOUS. ------------- 1. BINDING EFFECT AND SURVIVAL OF RIGHTS. This Agreement will benefit and bind the parties and their respective personal representatives, executors, administrators, heirs, legatees, devisees, successors and assigns. 2. NOTICES. All notices, demands, requests and other communications required or permitted to be given by any provision of this Agreement will be in writing addressed as follows: IF TO TSET: TSET, Inc. ---------- 333 South State Street, PMB 111 Lake Oswego, OR 97034 503.968.1547 Attn: Jeffrey D. Wilson, Chairman and Chief Executive Officer, or Richard A. Papworth, Chief Financial Officer IF TO FINDER: ------------ Any such notice, demand, request or communication will be deemed to have been given and received for all purposes under this Agreement: (a) on the date of delivery when delivered in person; (b) on the date of transmission when delivered by facsimile transmission (provided such transmission is confirmed by 5 transmission receipt and such notice is promptly confirmed by some other means described herein); and/or (c) on the next business day after the same is deposited with a nationally recognized overnight delivery service that guarantees overnight delivery; provided, however, if the day such notice, demand, request or communication will be deemed to have been given and received as aforesaid is not a business day, such notice, demand, request or communication will be deemed to have been given and received on the next business day. Any party to this Agreement may change such parties address for the purpose of notice, demands, requests and communications required or permitted under this Agreement by providing written notice of such change of address to all of the parties by written notice as provided herein. 3. INTERPRETATION. The parties acknowledge to each other that each party has reviewed and participated in the negotiation of this Agreement. Accordingly, the normal rule of construction to the effect that any ambiguities are resolved against the drafting party will not be employed in the interpretation of this Agreement. 4. INCORPORATION. The Recitals, all exhibits and schedules attached hereto, or to be attached hereto, and all other agreements and instruments referred to herein are hereby incorporated by reference into this Agreement as fully as if copied herein verbatim. 5. FURTHER ASSURANCES. The parties further agree that, upon request, they will do such further acts and deeds and will execute, acknowledge, deliver and record such other documents and instruments as may be reasonably necessary from time to time to evidence, confirm or carry out the intent and purpose of this Agreement. 6. LAWFUL AUTHORITY. If any party executing this Agreement is a corporation or limited liability company, the individual executing on behalf of the corporation or limited liability company hereby personally represents and warrants to all other parties that he/she has been fully authorized to execute and deliver this Agreement on behalf of: (a) the corporation pursuant to a duly adopted resolution of its Board of Directors, or by virtue of its bylaws; or (b) the limited liability company pursuant to a duly adopted resolution of its members or by virtue of its operating agreement. 7. ATTORNEYS FEES. If any legal action or other proceeding (including arbitration pursuant to this Agreement) is brought for the enforcement of this Agreement, or because of any alleged dispute, breach, default or misrepresentation in connection with any provisions of this Agreement, the prevailing party will be entitled to recover reasonable attorneys fees, court costs and all reasonable expenses, even if not taxable or assessable as court costs (including, without limitation, all such fees, costs and expenses incident to appeal) incurred in that action or proceeding in addition to any other relief to which such party may be entitled. 8. WAIVERS AND CONSENTS. -------------------- (1) Each and every waiver of any provision of this Agreement must be in writing and signed by each party whose interests are adversely affected by such waiver. 6 (2) Unless otherwise expressly provided in a waiver, no such waiver granted in any one instance will be construed as a continuing waiver applicable in any other instance. (3) No waiver by any party to this Agreement to or of any breach or default by any other party to this Agreement in the performance by such other party of its obligations hereunder will be deemed or construed to be a waiver of any breach or default of any other party of the same or any subsequent obligations hereunder. (4) Subject to applicable statutes of limitation, the failure on the part of any party to this Agreement to complain of any act or failure to act of any other party to this Agreement or to declare such other party in default, irrespective of how long such failure continues, shall not constitute a waiver by the non-defaulting party of its rights hereunder. (5) Each and every consent by any party to this Agreement must be in writing signed by the party to be bound thereby. No consent will be deemed or construed to be a consent to any action except as described in such writing. 9. SECTION HEADINGS. The Section headings contained in this Agreement are for reference purposes only and will not affect the interpretation of this Agreement. 10. GOVERNING LAW. This Agreement will be governed in all respects, including validity, interpretation and effect by, and will be enforceable in accordance with, the internal laws of the State of Oregon without regard to conflicts of laws principles. 11. SEVERABILITY. If any provision of this Agreement is held to be unlawful, invalid or unenforceable under present or future laws effective during the term hereof, such provision will be fully severable, and this Agreement will be construed and enforced without giving effect to such unlawful, invalid or unenforceable provision. Furthermore, if any provision of this Agreement is capable of two (2) constructions, one of which would render the provision void, and the other which would render the provision valid, then the provision will have the meaning which renders it valid. 12. COUNTERPART EXECUTION. This Agreement may be executed in multiple counterparts, each one of which will be deemed an original, but all of which will be considered together as one and the same instrument. Further, in making proof of this Agreement, it will not be necessary to produce or account for more than one (1) such counterpart. Provided all parties have signed at least one counterpart, the execution by a party of a signature page hereto will constitute due execution and will create a valid, binding obligation of the party so signing, and it will not be necessary or required that the signatures of all parties appear on a single signature page hereto. 13. AMENDMENTS. Each and every modification and amendment of of this Agreement must be in writing and except as otherwise provided herein, signed by all the parties hereto. 7 14. ENTIRE AGREEMENT. This Agreement contains the entire agreement between the parties regarding the subject matter hereof. Any prior agreements, discussions or representations not expressly contained in this Agreement will be deemed to be replaced by the provisions hereof, and no party has relied on any such prior agreements, discussions or representations as an inducement to the execution hereof. 15. RULES OF CONSTRUCTION. (a) All terms in this Agreement in the singular and plural will have comparable meanings when used in the plural and vice-versa unless otherwise specified; (b) the words hereof, herein, hereunder and words of similar import when used in this Agreement, will refer to this Agreement as a whole and not any particular provision of this Agreement and all references to articles, sections and subdivisions thereof are to this Agreement unless otherwise specified; (c) the words include, includes and including will be deemed to be followed by the phrase without limitation; (d) all pronouns and any variations thereof will be deemed to refer to masculine, feminine or neuter, singular or plural, as the identity of the individual, individuals, entity or entities may require; (e) all references to documents, contracts, agreements or instruments will include any and all supplements and amendments thereto; and (f) all accounting terms not specifically defined herein will be construed in accordance with generally accepted accounting principles or generally accepted auditing standards then applied in the United States. 16. FORUM SELECTION. EXCEPT TO THE EXTENT THE COURTS IN NEVADA DO NOT HAVE SUBJECT MATTER JURISDICTION, FINDER AND TSET DO HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMIT TO THE SOLE AND EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF OREGON AND DO FURTHER IRREVOCABLY AND UNCONDITIONALLY STIPULATE AND AGREE THAT THE FEDERAL COURTS IN THE STATE OF OREGON OR THE STATE COURTS OF OREGON WILL HAVE JURISDICTION TO HEAR AND FINALLY DETERMINE ANY DISPUTE, CLAIM, CONTROVERSY OR ACTION ARISING OUT OF OR CONNECTED (DIRECTLY OR INDIRECTLY) WITH THIS AGREEMENT THAT IS NOT SUBJECT TO ARBITRATION, OR TO ENTER A JUDGMENT CONSISTENT WITH ANY ARBITRATION AWARD. FINDER AND TSET FURTHER HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY AND ALL OBJECTIONS OR DEFENSES TO SAID JURISDICTION. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT SERVICE UPON ANY PARTY HERETO SHALL BE MADE BY DELIVERY VIA PRIORITY OVERNIGHT DELIVERY (E.G., FEDEX) AND BY FACSIMILE OF A COPY OF SUCH PROCESS TO THE ADDRESS OF SUCH PARTY FOR NOTICES TO SUCH PARTY AS SET FORTH IN THIS AGREEMENT LETTER (OR SUCH DIFFERENT ADDRESS AT SUCH PARTY WILL HEREAFTER SPECIFY IN ACCORDANCE WITH THE TERMS OF THIS AGREEMENT). THE FOREGOING CONSENT, IN ADVANCE, TO THE JURISDICTION OF THE AFOREMENTIONED COURTS AND THE AFOREMENTIONED METHOD OF SERVICE ARE MATERIAL INDUCEMENTS FOR THE PARTIES HERETO TO ENTER INTO THIS AGREEMENT. 17. PERSONAL NATURE OF UNDERTAKING. Finder acknowledges that the engagement of Finder's services hereunder by TSET is personal to Finder, and such services shall not be delegated or assigned to any other Person or Finder without TSET's express prior written consent, which may be withheld in 8 TSET's sole and absolute discretion. [COUNTERPART SIGNATURE PAGE(S) FOLLOW] COUNTERPART SIGNATURE PAGE TO FINDERS AGREEMENT IN WITNESS WHEREOF, the parties have executed this Finders Agreement effective as of the date signed by the parties, as shown below. TSET: By:/s/ JEFFREY D. WILSON --------------------------------------- Jeffrey D. Wilson, Chairman and Chief Executive Officer Date 4/20/01 /s/ Bernard Aronson ------------------------------------------ 4/11/01 ------------------------------------------ Date 9 EX-10.37 43 exhibit10-37.txt Exhibit 10.37 INDEMNIFICATION AGREEMENT THIS INDEMNIFICATION AGREEMENT (the "Agreement") between TSET, Inc., a Nevada corporation (the "Company"), and Jeffrey D. Wilson, (the "Indemnitee"), is effective as of May 1, 2001. In consideration of the Indemnitee's past and future services and to benefit the Company, the Company and the Indemnitee agree as follows: 1. DEFINITIONS. a) "CLAIM" means any threatened, pending or completed action, suit or proceeding, liability, claim, damage, judgment, cost or expense (including attorneys' fees, expenses, bonds and costs of investigation) or any inquiry or investigation that the Indemnitee in good faith believes might lead to the institution of any such action, suit or proceeding, whether civil, criminal, administrative, investigative or other. b) "INDEPENDENT COUNSEL" means a law firm or member of a law firm that has not within the last five (5) years represented the Company or the Indemnitee in a matter material to either or in a matter material to any other party to the action, suit or proceeding giving rise to the Indemnitee's claim for indemnification under this Agreement. Independent Counsel shall not include any member of a law firm who would have a conflict of interest under applicable standards of professional conduct in representing the Company or the Indemnitee in an action hereunder. Such Independent Counsel shall be chosen by the Indemnitee and approved by the Board of Directors of the Company (the "BOARD OF DIRECTORS") which approval shall not be unreasonably withheld. c) "REVIEWING PARTY" means (1) the Board of Directors of the Company by a majority vote of a quorum consisting of directors who were not parties to the action, suit, or proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by Independent Counsel in a written opinion, or (3) by the stockholders of the Company. 2. INDEMNITY. Subject to Sections 8 and 9 hereof, the Company agrees to indemnify and hold the Indemnitee harmless, to the fullest extent permitted by law, including, but not limited to, the extent and in the manner herein provided, from and against any and all Claims of any type arising from or related to his past or future acts or omissions as a director or officer of the Company and/or its subsidiaries (which term shall mean any entities of which the Company owns directly, or through any such subsidiaries, at least fifty percent (50%) of the voting stock (hereinafter referred to as "SUBSIDIARIES")). This indemnity shall extend to all matters except to the extent applicable law prohibits indemnification. 3. JUDGMENTS. Subject to Sections 8 and 9 hereof, the Company agrees to promptly pay on behalf of the Indemnitee any and all judgments against the Indemnitee for damages arising from acts or omissions as a director or officer of the Company and/or its Subsidiaries when any such judgment becomes final and subject to execution against the Indemnitee, to the full extent allowable under applicable law. 4. APPEAL BONDS. Subject to Sections 8 and 9 hereof, the Company shall pay the cost of, provide collateral for and cause to be timely and duly filed in court, appellate bonds to prevent execution of judgment against the Indemnitee during the pendency of appeals as the Indemnitee may reasonably initiate, to the full extent allowable under applicable law. 5. COST OF DEFENSE. Subject to Sections 8 and 9 hereof, the Company shall promptly pay the reasonable cost of the defense of the Indemnitee against any and all Claims against him arising from the Indemnitee's past or future acts or omissions as a director or officer of the Company and/or its Subsidiaries 2 when statements for legal services are delivered to the Company or the Indemnitee (including any required retainer amounts), to the full extent allowable under applicable law. 6. FINES, COSTS, FEES. Subject to Sections 8 and 9 hereof, the Company shall promptly pay on the Indemnitee's behalf any fines, court costs, legal fees or other charges assessed against him related to any Claim where allegations against the Indemnitee arise from his acts or omissions as a director or officer of the Company and/or its Subsidiaries, to the full extent allowable under applicable law. 7. ADVANCE PAYMENT OF EXPENSES. Expenses incurred by the Indemnitee in connection with defending a Claim shall be paid by the Company as they are incurred and in advance of the final disposition of such Claim within twenty (20) days of receipt of an undertaking by the Indemnitee, in substantially the same form as Exhibit "A" hereto, to repay such amount if it is ultimately determined by a court of competent jurisdiction that he is not entitled to be indemnified by the Company. If the Company fails to advance any amounts required to be advanced under this Section 7 within twenty (20) days after receipt of an undertaking by the Indemnitee, the Indemnity may at any time thereafter bring suit against the Company for specific performance or to recover the unpaid amount. If successful in whole or in part, the Indemnitee shall also be entitled to be paid the expense of prosecuting such claim. 8. GENERAL RIGHT TO INDEMNIFICATION. Upon written demand by the Indemnitee for indemnification under the terms of this Agreement (unless otherwise ordered by a court or advanced pursuant to Section 7 hereof or advanced pursuant to applicable law, as the same may be amended from time to time (but, in the case of any such amendment with reference to events occurring prior to the effect date thereof, only to the extent that such amendment permits 3 the Company to provide broader indemnification rights than such law permitted the Company to provide prior to such amendment)), the Indemnitee shall be entitled to such indemnification unless the Reviewing Party determines within thirty (30) days of receiving Indemnitee's written demand that the Indemnitee would not be permitted to be indemnified under applicable law. The Indemnitee and its counsel shall be given an opportunity to be heard and to present evidence on the Indemnitee's behalf before the Reviewing Party. If the Reviewing Party determines that the Indemnitee is not entitled to indemnification, the Reviewing Party shall provide the Indemnitee, concurrently with its determination, a detailed written explanation setting forth its reasons. The failure to provide the Indemnitee with a detailed written explanation shall entitle the Indemnitee to a presumption that the Indemnitee has met the applicable standard of conduct and that the unfavorable determination was wrongful in any subsequent suit brought by either the Indemnity or the Company to determine whether the Indemnitee is entitled to indemnification. 9. RIGHT OF INDEMNITEE TO BRING SUIT. a) If there has been no determination by the Reviewing Party or if the Reviewing Party determines that the Indemnitee substantively would not be permitted to be indemnified in whole or in part under applicable law, the Indemnitee shall have the right to bring suit seeking an initial determination by the court or challenging any such determination by the Reviewing Party or any aspect thereof (and the Indemnitee shall be entitled to any presumption specified in Section 8 hereof), and the Company hereby consents to service of process and to appear in any such proceeding. Any determination by the Reviewing Party otherwise shall be conclusive and binding on the Company and the Indemnitee. 4 b) In any action brought by the Indemnitee to enforce a right to indemnification hereunder, or by the Company to recover payments by the Company of expenses incurred by the Indemnitee in connection with a Claim in advance of its final disposition, the burden of proving that the Indemnitee is not entitled to be indemnified under this Agreement or otherwise shall be on the Company. Neither the failure of the Company or the Reviewing Party to have made a determination prior to the commencement of such action that indemnification of the Indemnitee is proper in the circumstances because the Indemnitee has met the applicable standard of conduct set forth under applicable law, nor an actual determination by the Company or the Reviewing Party that the Indemnitee has not met such applicable standard of conduct, shall create a presumption that the Indemnitee has not met the applicable standard of conduct or, in the case of such an action brought by the Indemnitee, be a defense to the Claim. c) The Company shall pay all expenses (including attorneys' fees) actually and reasonably incurred by the Indemnitee in connection with such judicial determination, whether or not the Indemnitee prevails in such proceeding. 10. INSURANCE. If a loss, payment or expense contemplated by this Agreement is paid by the Company and is also covered by collectible insurance, the Indemnitee shall cooperate with the Company to effect collection of all available insurance and through assignment, reimbursement to the Company or otherwise exercise all reasonable efforts to cause applicable insurance benefits to be paid to or on behalf of the Company, thus reducing the Company's payments under this Agreement. 11. LAW, CONSTRUCTION, ARBITRATION. This Agreement is to be liberally construed to provide the Indemnitee with the broadest indemnity permitted by applicable law and ambiguities in the terms of this Agreement, if any, choice of law, or construction of laws are to be resolved in the Indemnitee's favor. The 5 Indemnitee shall be entitled to the benefits of all changes in law, whether effected by statute, regulation, rule, judicial decision or otherwise, which in any way expand his right to be indemnified by the Company or to have the Company advance his expenses. The law of the State of Nevada shall apply. 12. OTHER MEANS OF INDEMNITY. The Company acknowledges that the benefits to the Indemnitee of this Agreement are not exclusive and that the Indemnitee retains all rights of indemnity or repayment from the Company that are available to him by applicable law, other agreements, the Articles of Incorporation and By-Laws of the Company and/or its Subsidiaries or by vote of the Board of Directors or stockholders of the Company. 13. SUBROGATION. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the Company to bring suit to enforce such rights. 14. NO DUPLICATION OF PAYMENTS. The Company shall not be liable under this Agreement to make any payment in connection with any Claim made against the Indemnitee to the extent the Indemnitee has otherwise actually received payment (under any insurance policy or otherwise). 15. TERM. This Agreement shall remain in full force and effect until terminated by the mutual consent of the parties in writing. Termination of the Indemnitee's status as a director or officer of the Company and/or its Subsidiaries does not terminate this Agreement. This Agreement inures to the benefit of the Indemnitee, his estate, heirs, and the personal representative (executor/administrator) of his estate. 6 16. GOOD FAITH. If any dispute arises under this Agreement or any attack is made by anyone related to the enforcement of this Agreement, it shall be conclusively presumed that the Indemnitee acted in good faith in executing this Agreement and for the best interest of the Company. The Company acknowledges that it is fully informed of all decisions and votes made by the Indemnitee in the past and recognizes its right to keep itself informed in the future. 17. DEFENSE. If any claim is threatened or commenced against the Indemnitee other than by or on behalf of the Company, he shall notify the Company in writing. His failure to do so or to do so promptly, however, shall not diminish his rights under this Agreement except to the extent the Company demonstrates by clear and convincing evidence that his failure caused it actual damage. The Company may assume the defense of the claim, but only if it pays all costs and expenses of defense, acknowledges to the Indemnitee in writing that it is obligated to indemnify him with respect to the claim, and permits him to select defense counsel. Any counsel the Indemnitee selects shall be reasonably satisfactory to the Company. If the Company assumes the defense, the Indemnitee shall cooperate with the Company in that defense if it pays his costs and expenses of doing so. The Company shall not settle any claim in any manner which would impose a penalty, liability or limitation on the Indemnitee unless the Indemnitee first consents to the settlement in writing. He shall not withhold his consent unreasonably. 18. SEVERABILITY. If any provision of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions (including portions of any paragraph of this Agreement containing an invalid, illegal or unenforceable provision) shall not be impaired. To the extent practicable, any invalid, illegal or unenforceable provision of this Agreement shall be deemed modified as necessary to comply with all applicable laws. 7 19. AMENDMENTS AND WAIVERS. No amendment of this Agreement shall be binding unless the amendment is in writing and executed by both parties. Waiver, if any, of a provision of this Agreement shall not constitute waiver of any other provision. 20. SPECIFIC PERFORMANCE. The parties hereto agree that irreparable damage would occur in the event that any provision of this Agreement was not performed in accordance with the terms hereof and that the parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy at law or in equity. IN WITNESS WHEREOF, the parties hereto have caused this Indemnification Agreement to be duly executed and signed effective as of the date first set forth above. TSET, INC. By: /s/ Richard A. Papworth ---------------------------------------- Richard A. Papworth Chief Financial Officer AGREED TO AND ACCEPTED BY INDEMNITEE: By: /s/ Jeffrey D. Wilson ---------------------------------------- Jeffrey D. Wilson 8 EX-10.38 44 exhibit10-38.txt Exhibit 10.38 INDEMNIFICATION AGREEMENT THIS INDEMNIFICATION AGREEMENT (the "Agreement") between TSET, Inc., a Nevada corporation (the "Company"), and Daniel R. Dwight, (the "Indemnitee"), is effective as of May 1, 2001. In consideration of the Indemnitee's past and future services and to benefit the Company, the Company and the Indemnitee agree as follows: 1. DEFINITIONS. a) "CLAIM" means any threatened, pending or completed action, suit or proceeding, liability, claim, damage, judgment, cost or expense (including attorneys' fees, expenses, bonds and costs of investigation) or any inquiry or investigation that the Indemnitee in good faith believes might lead to the institution of any such action, suit or proceeding, whether civil, criminal, administrative, investigative or other. b) "INDEPENDENT COUNSEL" means a law firm or member of a law firm that has not within the last five (5) years represented the Company or the Indemnitee in a matter material to either or in a matter material to any other party to the action, suit or proceeding giving rise to the Indemnitee's claim for indemnification under this Agreement. Independent Counsel shall not include any member of a law firm who would have a conflict of interest under applicable standards of professional conduct in representing the Company or the Indemnitee in an action hereunder. Such Independent Counsel shall be chosen by the Indemnitee and approved by the Board of Directors of the Company (the "BOARD OF DIRECTORS") which approval shall not be unreasonably withheld. c) "REVIEWING PARTY" means (1) the Board of Directors of the Company by a majority vote of a quorum consisting of directors who were not parties to the action, suit, or proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by Independent Counsel in a written opinion, or (3) by the stockholders of the Company. 2. INDEMNITY. Subject to Sections 8 and 9 hereof, the Company agrees to indemnify and hold the Indemnitee harmless, to the fullest extent permitted by law, including, but not limited to, the extent and in the manner herein provided, from and against any and all Claims of any type arising from or related to his past or future acts or omissions as a director or officer of the Company and/or its subsidiaries (which term shall mean any entities of which the Company owns directly, or through any such subsidiaries, at least fifty percent (50%) of the voting stock (hereinafter referred to as "SUBSIDIARIES")). This indemnity shall extend to all matters except to the extent applicable law prohibits indemnification. 3. JUDGMENTS. Subject to Sections 8 and 9 hereof, the Company agrees to promptly pay on behalf of the Indemnitee any and all judgments against the Indemnitee for damages arising from acts or omissions as a director or officer of the Company and/or its Subsidiaries when any such judgment becomes final and subject to execution against the Indemnitee, to the full extent allowable under applicable law. 4. APPEAL BONDS. Subject to Sections 8 and 9 hereof, the Company shall pay the cost of, provide collateral for and cause to be timely and duly filed in court, appellate bonds to prevent execution of judgment against the Indemnitee during the pendency of appeals as the Indemnitee may reasonably initiate, to the full extent allowable under applicable law. 5. COST OF DEFENSE. Subject to Sections 8 and 9 hereof, the Company shall promptly pay the reasonable cost of the defense of the Indemnitee against any and all Claims against him arising from the Indemnitee's past or future acts or omissions as a director or officer of the Company and/or its Subsidiaries 2 when statements for legal services are delivered to the Company or the Indemnitee (including any required retainer amounts), to the full extent allowable under applicable law. 6. FINES, COSTS, FEES. Subject to Sections 8 and 9 hereof, the Company shall promptly pay on the Indemnitee's behalf any fines, court costs, legal fees or other charges assessed against him related to any Claim where allegations against the Indemnitee arise from his acts or omissions as a director or officer of the Company and/or its Subsidiaries, to the full extent allowable under applicable law. 7. ADVANCE PAYMENT OF EXPENSES. Expenses incurred by the Indemnitee in connection with defending a Claim shall be paid by the Company as they are incurred and in advance of the final disposition of such Claim within twenty (20) days of receipt of an undertaking by the Indemnitee, in substantially the same form as Exhibit "A" hereto, to repay such amount if it is ultimately determined by a court of competent jurisdiction that he is not entitled to be indemnified by the Company. If the Company fails to advance any amounts required to be advanced under this Section 7 within twenty (20) days after receipt of an undertaking by the Indemnitee, the Indemnity may at any time thereafter bring suit against the Company for specific performance or to recover the unpaid amount. If successful in whole or in part, the Indemnitee shall also be entitled to be paid the expense of prosecuting such claim. 8. GENERAL RIGHT TO INDEMNIFICATION. Upon written demand by the Indemnitee for indemnification under the terms of this Agreement (unless otherwise ordered by a court or advanced pursuant to Section 7 hereof or advanced pursuant to applicable law, as the same may be amended from time to time (but, in the case of any such amendment with reference to events occurring prior to the effect date thereof, only to the extent that such amendment permits 3 the Company to provide broader indemnification rights than such law permitted the Company to provide prior to such amendment)), the Indemnitee shall be entitled to such indemnification unless the Reviewing Party determines within thirty (30) days of receiving Indemnitee's written demand that the Indemnitee would not be permitted to be indemnified under applicable law. The Indemnitee and its counsel shall be given an opportunity to be heard and to present evidence on the Indemnitee's behalf before the Reviewing Party. If the Reviewing Party determines that the Indemnitee is not entitled to indemnification, the Reviewing Party shall provide the Indemnitee, concurrently with its determination, a detailed written explanation setting forth its reasons. The failure to provide the Indemnitee with a detailed written explanation shall entitle the Indemnitee to a presumption that the Indemnitee has met the applicable standard of conduct and that the unfavorable determination was wrongful in any subsequent suit brought by either the Indemnity or the Company to determine whether the Indemnitee is entitled to indemnification. 9. RIGHT OF INDEMNITEE TO BRING SUIT. a) If there has been no determination by the Reviewing Party or if the Reviewing Party determines that the Indemnitee substantively would not be permitted to be indemnified in whole or in part under applicable law, the Indemnitee shall have the right to bring suit seeking an initial determination by the court or challenging any such determination by the Reviewing Party or any aspect thereof (and the Indemnitee shall be entitled to any presumption specified in Section 8 hereof), and the Company hereby consents to service of process and to appear in any such proceeding. Any determination by the Reviewing Party otherwise shall be conclusive and binding on the Company and the Indemnitee. 4 b) In any action brought by the Indemnitee to enforce a right to indemnification hereunder, or by the Company to recover payments by the Company of expenses incurred by the Indemnitee in connection with a Claim in advance of its final disposition, the burden of proving that the Indemnitee is not entitled to be indemnified under this Agreement or otherwise shall be on the Company. Neither the failure of the Company or the Reviewing Party to have made a determination prior to the commencement of such action that indemnification of the Indemnitee is proper in the circumstances because the Indemnitee has met the applicable standard of conduct set forth under applicable law, nor an actual determination by the Company or the Reviewing Party that the Indemnitee has not met such applicable standard of conduct, shall create a presumption that the Indemnitee has not met the applicable standard of conduct or, in the case of such an action brought by the Indemnitee, be a defense to the Claim. c) The Company shall pay all expenses (including attorneys' fees) actually and reasonably incurred by the Indemnitee in connection with such judicial determination, whether or not the Indemnitee prevails in such proceeding. 10. INSURANCE. If a loss, payment or expense contemplated by this Agreement is paid by the Company and is also covered by collectible insurance, the Indemnitee shall cooperate with the Company to effect collection of all available insurance and through assignment, reimbursement to the Company or otherwise exercise all reasonable efforts to cause applicable insurance benefits to be paid to or on behalf of the Company, thus reducing the Company's payments under this Agreement. 11. LAW, CONSTRUCTION, ARBITRATION. This Agreement is to be liberally construed to provide the Indemnitee with the broadest indemnity permitted by applicable law and ambiguities in the terms of this Agreement, if any, choice of law, or construction of laws are to be resolved in the Indemnitee's favor. The 5 Indemnitee shall be entitled to the benefits of all changes in law, whether effected by statute, regulation, rule, judicial decision or otherwise, which in any way expand his right to be indemnified by the Company or to have the Company advance his expenses. The law of the State of Nevada shall apply. 12. OTHER MEANS OF INDEMNITY. The Company acknowledges that the benefits to the Indemnitee of this Agreement are not exclusive and that the Indemnitee retains all rights of indemnity or repayment from the Company that are available to him by applicable law, other agreements, the Articles of Incorporation and By-Laws of the Company and/or its Subsidiaries or by vote of the Board of Directors or stockholders of the Company. 13. SUBROGATION. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the Company to bring suit to enforce such rights. 14. NO DUPLICATION OF PAYMENTS. The Company shall not be liable under this Agreement to make any payment in connection with any Claim made against the Indemnitee to the extent the Indemnitee has otherwise actually received payment (under any insurance policy or otherwise). 15. TERM. This Agreement shall remain in full force and effect until terminated by the mutual consent of the parties in writing. Termination of the Indemnitee's status as a director or officer of the Company and/or its Subsidiaries does not terminate this Agreement. This Agreement inures to the benefit of the Indemnitee, his estate, heirs, and the personal representative (executor/administrator) of his estate. 6 16. GOOD FAITH. If any dispute arises under this Agreement or any attack is made by anyone related to the enforcement of this Agreement, it shall be conclusively presumed that the Indemnitee acted in good faith in executing this Agreement and for the best interest of the Company. The Company acknowledges that it is fully informed of all decisions and votes made by the Indemnitee in the past and recognizes its right to keep itself informed in the future. 17. DEFENSE. If any claim is threatened or commenced against the Indemnitee other than by or on behalf of the Company, he shall notify the Company in writing. His failure to do so or to do so promptly, however, shall not diminish his rights under this Agreement except to the extent the Company demonstrates by clear and convincing evidence that his failure caused it actual damage. The Company may assume the defense of the claim, but only if it pays all costs and expenses of defense, acknowledges to the Indemnitee in writing that it is obligated to indemnify him with respect to the claim, and permits him to select defense counsel. Any counsel the Indemnitee selects shall be reasonably satisfactory to the Company. If the Company assumes the defense, the Indemnitee shall cooperate with the Company in that defense if it pays his costs and expenses of doing so. The Company shall not settle any claim in any manner which would impose a penalty, liability or limitation on the Indemnitee unless the Indemnitee first consents to the settlement in writing. He shall not withhold his consent unreasonably. 18. SEVERABILITY. If any provision of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions (including portions of any paragraph of this Agreement containing an invalid, illegal or unenforceable provision) shall not be impaired. To the extent practicable, any invalid, illegal or unenforceable provision of this Agreement shall be deemed modified as necessary to comply with all applicable laws. 7 19. AMENDMENTS AND WAIVERS. No amendment of this Agreement shall be binding unless the amendment is in writing and executed by both parties. Waiver, if any, of a provision of this Agreement shall not constitute waiver of any other provision. 20. SPECIFIC PERFORMANCE. The parties hereto agree that irreparable damage would occur in the event that any provision of this Agreement was not performed in accordance with the terms hereof and that the parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy at law or in equity. IN WITNESS WHEREOF, the parties hereto have caused this Indemnification Agreement to be duly executed and signed effective as of the date first set forth above. TSET, INC. By: /s/ Jeffrey D. Wilson ---------------------------------------- Jeffrey D. Wilson Chairman and Chief Executive Officer AGREED TO AND ACCEPTED BY INDEMNITEE: By: /s/ Daniel R. Dwight ---------------------------------------- Daniel R. Dwight 8 EX-10.39 45 exhibit10-39.txt Exhibit 10.39 INDEMNIFICATION AGREEMENT THIS INDEMNIFICATION AGREEMENT (the "Agreement") between TSET, Inc., a Nevada corporation (the "Company"), and Richard F. Tusing, (the "Indemnitee"), is effective as of May 1, 2001. In consideration of the Indemnitee's past and future services and to benefit the Company, the Company and the Indemnitee agree as follows: 1. DEFINITIONS. a) "CLAIM" means any threatened, pending or completed action, suit or proceeding, liability, claim, damage, judgment, cost or expense (including attorneys' fees, expenses, bonds and costs of investigation) or any inquiry or investigation that the Indemnitee in good faith believes might lead to the institution of any such action, suit or proceeding, whether civil, criminal, administrative, investigative or other. b) "INDEPENDENT COUNSEL" means a law firm or member of a law firm that has not within the last five (5) years represented the Company or the Indemnitee in a matter material to either or in a matter material to any other party to the action, suit or proceeding giving rise to the Indemnitee's claim for indemnification under this Agreement. Independent Counsel shall not include any member of a law firm who would have a conflict of interest under applicable standards of professional conduct in representing the Company or the Indemnitee in an action hereunder. Such Independent Counsel shall be chosen by the Indemnitee and approved by the Board of Directors of the Company (the "BOARD OF DIRECTORS") which approval shall not be unreasonably withheld. c) "REVIEWING PARTY" means (1) the Board of Directors of the Company by a majority vote of a quorum consisting of directors who were not parties to the action, suit, or proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by Independent Counsel in a written opinion, or (3) by the stockholders of the Company. 2. INDEMNITY. Subject to Sections 8 and 9 hereof, the Company agrees to indemnify and hold the Indemnitee harmless, to the fullest extent permitted by law, including, but not limited to, the extent and in the manner herein provided, from and against any and all Claims of any type arising from or related to his past or future acts or omissions as a director or officer of the Company and/or its subsidiaries (which term shall mean any entities of which the Company owns directly, or through any such subsidiaries, at least fifty percent (50%) of the voting stock (hereinafter referred to as "SUBSIDIARIES")). This indemnity shall extend to all matters except to the extent applicable law prohibits indemnification. 3. JUDGMENTS. Subject to Sections 8 and 9 hereof, the Company agrees to promptly pay on behalf of the Indemnitee any and all judgments against the Indemnitee for damages arising from acts or omissions as a director or officer of the Company and/or its Subsidiaries when any such judgment becomes final and subject to execution against the Indemnitee, to the full extent allowable under applicable law. 4. APPEAL BONDS. Subject to Sections 8 and 9 hereof, the Company shall pay the cost of, provide collateral for and cause to be timely and duly filed in court, appellate bonds to prevent execution of judgment against the Indemnitee during the pendency of appeals as the Indemnitee may reasonably initiate, to the full extent allowable under applicable law. 5. COST OF DEFENSE. Subject to Sections 8 and 9 hereof, the Company shall promptly pay the reasonable cost of the defense of the Indemnitee against any and all Claims against him arising from the Indemnitee's past or future acts or omissions as a director or officer of the Company and/or its Subsidiaries 2 when statements for legal services are delivered to the Company or the Indemnitee (including any required retainer amounts), to the full extent allowable under applicable law. 6. FINES, COSTS, FEES. Subject to Sections 8 and 9 hereof, the Company shall promptly pay on the Indemnitee's behalf any fines, court costs, legal fees or other charges assessed against him related to any Claim where allegations against the Indemnitee arise from his acts or omissions as a director or officer of the Company and/or its Subsidiaries, to the full extent allowable under applicable law. 7. ADVANCE PAYMENT OF EXPENSES. Expenses incurred by the Indemnitee in connection with defending a Claim shall be paid by the Company as they are incurred and in advance of the final disposition of such Claim within twenty (20) days of receipt of an undertaking by the Indemnitee, in substantially the same form as Exhibit "A" hereto, to repay such amount if it is ultimately determined by a court of competent jurisdiction that he is not entitled to be indemnified by the Company. If the Company fails to advance any amounts required to be advanced under this Section 7 within twenty (20) days after receipt of an undertaking by the Indemnitee, the Indemnity may at any time thereafter bring suit against the Company for specific performance or to recover the unpaid amount. If successful in whole or in part, the Indemnitee shall also be entitled to be paid the expense of prosecuting such claim. 8. GENERAL RIGHT TO INDEMNIFICATION. Upon written demand by the Indemnitee for indemnification under the terms of this Agreement (unless otherwise ordered by a court or advanced pursuant to Section 7 hereof or advanced pursuant to applicable law, as the same may be amended from time to time (but, in the case of any such amendment with reference to events occurring prior to the effect date thereof, only to the extent that such amendment permits 3 the Company to provide broader indemnification rights than such law permitted the Company to provide prior to such amendment)), the Indemnitee shall be entitled to such indemnification unless the Reviewing Party determines within thirty (30) days of receiving Indemnitee's written demand that the Indemnitee would not be permitted to be indemnified under applicable law. The Indemnitee and its counsel shall be given an opportunity to be heard and to present evidence on the Indemnitee's behalf before the Reviewing Party. If the Reviewing Party determines that the Indemnitee is not entitled to indemnification, the Reviewing Party shall provide the Indemnitee, concurrently with its determination, a detailed written explanation setting forth its reasons. The failure to provide the Indemnitee with a detailed written explanation shall entitle the Indemnitee to a presumption that the Indemnitee has met the applicable standard of conduct and that the unfavorable determination was wrongful in any subsequent suit brought by either the Indemnity or the Company to determine whether the Indemnitee is entitled to indemnification. 9. RIGHT OF INDEMNITEE TO BRING SUIT. a) If there has been no determination by the Reviewing Party or if the Reviewing Party determines that the Indemnitee substantively would not be permitted to be indemnified in whole or in part under applicable law, the Indemnitee shall have the right to bring suit seeking an initial determination by the court or challenging any such determination by the Reviewing Party or any aspect thereof (and the Indemnitee shall be entitled to any presumption specified in Section 8 hereof), and the Company hereby consents to service of process and to appear in any such proceeding. Any determination by the Reviewing Party otherwise shall be conclusive and binding on the Company and the Indemnitee. 4 b) In any action brought by the Indemnitee to enforce a right to indemnification hereunder, or by the Company to recover payments by the Company of expenses incurred by the Indemnitee in connection with a Claim in advance of its final disposition, the burden of proving that the Indemnitee is not entitled to be indemnified under this Agreement or otherwise shall be on the Company. Neither the failure of the Company or the Reviewing Party to have made a determination prior to the commencement of such action that indemnification of the Indemnitee is proper in the circumstances because the Indemnitee has met the applicable standard of conduct set forth under applicable law, nor an actual determination by the Company or the Reviewing Party that the Indemnitee has not met such applicable standard of conduct, shall create a presumption that the Indemnitee has not met the applicable standard of conduct or, in the case of such an action brought by the Indemnitee, be a defense to the Claim. c) The Company shall pay all expenses (including attorneys' fees) actually and reasonably incurred by the Indemnitee in connection with such judicial determination, whether or not the Indemnitee prevails in such proceeding. 10. INSURANCE. If a loss, payment or expense contemplated by this Agreement is paid by the Company and is also covered by collectible insurance, the Indemnitee shall cooperate with the Company to effect collection of all available insurance and through assignment, reimbursement to the Company or otherwise exercise all reasonable efforts to cause applicable insurance benefits to be paid to or on behalf of the Company, thus reducing the Company's payments under this Agreement. 11. LAW, CONSTRUCTION, ARBITRATION. This Agreement is to be liberally construed to provide the Indemnitee with the broadest indemnity permitted by applicable law and ambiguities in the terms of this Agreement, if any, choice of 5 law, or construction of laws are to be resolved in the Indemnitee's favor. The Indemnitee shall be entitled to the benefits of all changes in law, whether effected by statute, regulation, rule, judicial decision or otherwise, which in any way expand his right to be indemnified by the Company or to have the Company advance his expenses. The law of the State of Nevada shall apply. 12. OTHER MEANS OF INDEMNITY. The Company acknowledges that the benefits to the Indemnitee of this Agreement are not exclusive and that the Indemnitee retains all rights of indemnity or repayment from the Company that are available to him by applicable law, other agreements, the Articles of Incorporation and By-Laws of the Company and/or its Subsidiaries or by vote of the Board of Directors or stockholders of the Company. 13. SUBROGATION. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the Company to bring suit to enforce such rights. 14. NO DUPLICATION OF PAYMENTS. The Company shall not be liable under this Agreement to make any payment in connection with any Claim made against the Indemnitee to the extent the Indemnitee has otherwise actually received payment (under any insurance policy or otherwise). 15. TERM. This Agreement shall remain in full force and effect until terminated by the mutual consent of the parties in writing. Termination of the Indemnitee's status as a director or officer of the Company and/or its Subsidiaries does not terminate this Agreement. This Agreement inures to the benefit of the Indemnitee, his estate, heirs, and the personal representative (executor/administrator) of his estate. 6 16. GOOD FAITH. If any dispute arises under this Agreement or any attack is made by anyone related to the enforcement of this Agreement, it shall be conclusively presumed that the Indemnitee acted in good faith in executing this Agreement and for the best interest of the Company. The Company acknowledges that it is fully informed of all decisions and votes made by the Indemnitee in the past and recognizes its right to keep itself informed in the future. 17. DEFENSE. If any claim is threatened or commenced against the Indemnitee other than by or on behalf of the Company, he shall notify the Company in writing. His failure to do so or to do so promptly, however, shall not diminish his rights under this Agreement except to the extent the Company demonstrates by clear and convincing evidence that his failure caused it actual damage. The Company may assume the defense of the claim, but only if it pays all costs and expenses of defense, acknowledges to the Indemnitee in writing that it is obligated to indemnify him with respect to the claim, and permits him to select defense counsel. Any counsel the Indemnitee selects shall be reasonably satisfactory to the Company. If the Company assumes the defense, the Indemnitee shall cooperate with the Company in that defense if it pays his costs and expenses of doing so. The Company shall not settle any claim in any manner which would impose a penalty, liability or limitation on the Indemnitee unless the Indemnitee first consents to the settlement in writing. He shall not withhold his consent unreasonably. 18. SEVERABILITY. If any provision of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions (including portions of any paragraph of this Agreement containing an invalid, illegal or unenforceable provision) shall not be impaired. To the extent practicable, any invalid, illegal or unenforceable provision of this Agreement shall be deemed modified as necessary to comply with all applicable laws. 7 19. AMENDMENTS AND WAIVERS. No amendment of this Agreement shall be binding unless the amendment is in writing and executed by both parties. Waiver, if any, of a provision of this Agreement shall not constitute waiver of any other provision. 20. SPECIFIC PERFORMANCE. The parties hereto agree that irreparable damage would occur in the event that any provision of this Agreement was not performed in accordance with the terms hereof and that the parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy at law or in equity. IN WITNESS WHEREOF, the parties hereto have caused this Indemnification Agreement to be duly executed and signed effective as of the date first set forth above. TSET, INC. By:/S/ JEFFREY D. WILSON --------------------- Jeffrey D. Wilson Chairman and Chief Executive Officer AGREED TO AND ACCEPTED BY INDEMNITEE: By:/S/ RICHARD F. TUSING --------------------- Richard F. Tusing EX-10.40 46 exhibit10-40.txt Exhibit 10.40 INDEMNIFICATION AGREEMENT THIS INDEMNIFICATION AGREEMENT (the "Agreement") between TSET, Inc., a Nevada corporation (the "Company"), and Charles D. Strang, (the "Indemnitee"), is effective as of May 1, 2001. In consideration of the Indemnitee's past and future services and to benefit the Company, the Company and the Indemnitee agree as follows: 1. DEFINITIONS. a) "CLAIM" means any threatened, pending or completed action, suit or proceeding, liability, claim, damage, judgment, cost or expense (including attorneys' fees, expenses, bonds and costs of investigation) or any inquiry or investigation that the Indemnitee in good faith believes might lead to the institution of any such action, suit or proceeding, whether civil, criminal, administrative, investigative or other. b) "INDEPENDENT COUNSEL" means a law firm or member of a law firm that has not within the last five (5) years represented the Company or the Indemnitee in a matter material to either or in a matter material to any other party to the action, suit or proceeding giving rise to the Indemnitee's claim for indemnification under this Agreement. Independent Counsel shall not include any member of a law firm who would have a conflict of interest under applicable standards of professional conduct in representing the Company or the Indemnitee in an action hereunder. Such Independent Counsel shall be chosen by the Indemnitee and approved by the Board of Directors of the Company (the "BOARD OF DIRECTORS") which approval shall not be unreasonably withheld. c) "REVIEWING PARTY" means (1) the Board of Directors of the Company by a majority vote of a quorum consisting of directors who were not parties to the action, suit, or proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by Independent Counsel in a written opinion, or (3) by the stockholders of the Company. 2. INDEMNITY. Subject to Sections 8 and 9 hereof, the Company agrees to indemnify and hold the Indemnitee harmless, to the fullest extent permitted by law, including, but not limited to, the extent and in the manner herein provided, from and against any and all Claims of any type arising from or related to his past or future acts or omissions as a director or officer of the Company and/or its subsidiaries (which term shall mean any entities of which the Company owns directly, or through any such subsidiaries, at least fifty percent (50%) of the voting stock (hereinafter referred to as "SUBSIDIARIES")). This indemnity shall extend to all matters except to the extent applicable law prohibits indemnification. 3. JUDGMENTS. Subject to Sections 8 and 9 hereof, the Company agrees to promptly pay on behalf of the Indemnitee any and all judgments against the Indemnitee for damages arising from acts or omissions as a director or officer of the Company and/or its Subsidiaries when any such judgment becomes final and subject to execution against the Indemnitee, to the full extent allowable under applicable law. 4. APPEAL BONDS. Subject to Sections 8 and 9 hereof, the Company shall pay the cost of, provide collateral for and cause to be timely and duly filed in court, appellate bonds to prevent execution of judgment against the Indemnitee during the pendency of appeals as the Indemnitee may reasonably initiate, to the full extent allowable under applicable law. 5. COST OF DEFENSE. Subject to Sections 8 and 9 hereof, the Company shall promptly pay the reasonable cost of the defense of the Indemnitee against 2 any and all Claims against him arising from the Indemnitee's past or future acts or omissions as a director or officer of the Company and/or its Subsidiaries when statements for legal services are delivered to the Company or the Indemnitee (including any required retainer amounts), to the full extent allowable under applicable law. 6. FINES, COSTS, FEES. Subject to Sections 8 and 9 hereof, the Company shall promptly pay on the Indemnitee's behalf any fines, court costs, legal fees or other charges assessed against him related to any Claim where allegations against the Indemnitee arise from his acts or omissions as a director or officer of the Company and/or its Subsidiaries, to the full extent allowable under applicable law. 7. ADVANCE PAYMENT OF EXPENSES. Expenses incurred by the Indemnitee in connection with defending a Claim shall be paid by the Company as they are incurred and in advance of the final disposition of such Claim within twenty (20) days of receipt of an undertaking by the Indemnitee, in substantially the same form as Exhibit "A" hereto, to repay such amount if it is ultimately determined by a court of competent jurisdiction that he is not entitled to be indemnified by the Company. If the Company fails to advance any amounts required to be advanced under this Section 7 within twenty (20) days after receipt of an undertaking by the Indemnitee, the Indemnity may at any time thereafter bring suit against the Company for specific performance or to recover the unpaid amount. If successful in whole or in part, the Indemnitee shall also be entitled to be paid the expense of prosecuting such claim. 8. GENERAL RIGHT TO INDEMNIFICATION. Upon written demand by the Indemnitee for indemnification under the terms of this Agreement (unless otherwise ordered by a court or advanced pursuant to Section 7 hereof or advanced pursuant to applicable law, as the same may be amended from time to time (but, in the case of any such amendment with reference to events occurring 3 prior to the effect date thereof, only to the extent that such amendment permits the Company to provide broader indemnification rights than such law permitted the Company to provide prior to such amendment)), the Indemnitee shall be entitled to such indemnification unless the Reviewing Party determines within thirty (30) days of receiving Indemnitee's written demand that the Indemnitee would not be permitted to be indemnified under applicable law. The Indemnitee and its counsel shall be given an opportunity to be heard and to present evidence on the Indemnitee's behalf before the Reviewing Party. If the Reviewing Party determines that the Indemnitee is not entitled to indemnification, the Reviewing Party shall provide the Indemnitee, concurrently with its determination, a detailed written explanation setting forth its reasons. The failure to provide the Indemnitee with a detailed written explanation shall entitle the Indemnitee to a presumption that the Indemnitee has met the applicable standard of conduct and that the unfavorable determination was wrongful in any subsequent suit brought by either the Indemnity or the Company to determine whether the Indemnitee is entitled to indemnification. 9. RIGHT OF INDEMNITEE TO BRING SUIT. a) If there has been no determination by the Reviewing Party or if the Reviewing Party determines that the Indemnitee substantively would not be permitted to be indemnified in whole or in part under applicable law, the Indemnitee shall have the right to bring suit seeking an initial determination by the court or challenging any such determination by the Reviewing Party or any aspect thereof (and the Indemnitee shall be entitled to any presumption specified in Section 8 hereof), and the Company hereby consents to service of process and to appear in any such proceeding. Any determination by the Reviewing Party otherwise shall be conclusive and binding on the Company and the Indemnitee. 4 b) In any action brought by the Indemnitee to enforce a right to indemnification hereunder, or by the Company to recover payments by the Company of expenses incurred by the Indemnitee in connection with a Claim in advance of its final disposition, the burden of proving that the Indemnitee is not entitled to be indemnified under this Agreement or otherwise shall be on the Company. Neither the failure of the Company or the Reviewing Party to have made a determination prior to the commencement of such action that indemnification of the Indemnitee is proper in the circumstances because the Indemnitee has met the applicable standard of conduct set forth under applicable law, nor an actual determination by the Company or the Reviewing Party that the Indemnitee has not met such applicable standard of conduct, shall create a presumption that the Indemnitee has not met the applicable standard of conduct or, in the case of such an action brought by the Indemnitee, be a defense to the Claim. c) The Company shall pay all expenses (including attorneys' fees) actually and reasonably incurred by the Indemnitee in connection with such judicial determination, whether or not the Indemnitee prevails in such proceeding. 10. INSURANCE. If a loss, payment or expense contemplated by this Agreement is paid by the Company and is also covered by collectible insurance, the Indemnitee shall cooperate with the Company to effect collection of all available insurance and through assignment, reimbursement to the Company or otherwise exercise all reasonable efforts to cause applicable insurance benefits to be paid to or on behalf of the Company, thus reducing the Company's payments under this Agreement. 11. LAW, CONSTRUCTION, ARBITRATION. This Agreement is to be liberally construed to provide the Indemnitee with the broadest indemnity permitted by applicable law and ambiguities in the terms of this Agreement, if any, choice of 5 law, or construction of laws are to be resolved in the Indemnitee's favor. The Indemnitee shall be entitled to the benefits of all changes in law, whether effected by statute, regulation, rule, judicial decision or otherwise, which in any way expand his right to be indemnified by the Company or to have the Company advance his expenses. The law of the State of Nevada shall apply. 12. OTHER MEANS OF INDEMNITY. The Company acknowledges that the benefits to the Indemnitee of this Agreement are not exclusive and that the Indemnitee retains all rights of indemnity or repayment from the Company that are available to him by applicable law, other agreements, the Articles of Incorporation and By-Laws of the Company and/or its Subsidiaries or by vote of the Board of Directors or stockholders of the Company. 13. SUBROGATION. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the Company to bring suit to enforce such rights. 14. NO DUPLICATION OF PAYMENTS. The Company shall not be liable under this Agreement to make any payment in connection with any Claim made against the Indemnitee to the extent the Indemnitee has otherwise actually received payment (under any insurance policy or otherwise). 15. TERM. This Agreement shall remain in full force and effect until terminated by the mutual consent of the parties in writing. Termination of the Indemnitee's status as a director or officer of the Company and/or its Subsidiaries does not terminate this Agreement. This Agreement inures to the benefit of the Indemnitee, his estate, heirs, and the personal representative (executor/administrator) of his estate. 6 16. GOOD FAITH. If any dispute arises under this Agreement or any attack is made by anyone related to the enforcement of this Agreement, it shall be conclusively presumed that the Indemnitee acted in good faith in executing this Agreement and for the best interest of the Company. The Company acknowledges that it is fully informed of all decisions and votes made by the Indemnitee in the past and recognizes its right to keep itself informed in the future. 17. DEFENSE. If any claim is threatened or commenced against the Indemnitee other than by or on behalf of the Company, he shall notify the Company in writing. His failure to do so or to do so promptly, however, shall not diminish his rights under this Agreement except to the extent the Company demonstrates by clear and convincing evidence that his failure caused it actual damage. The Company may assume the defense of the claim, but only if it pays all costs and expenses of defense, acknowledges to the Indemnitee in writing that it is obligated to indemnify him with respect to the claim, and permits him to select defense counsel. Any counsel the Indemnitee selects shall be reasonably satisfactory to the Company. If the Company assumes the defense, the Indemnitee shall cooperate with the Company in that defense if it pays his costs and expenses of doing so. The Company shall not settle any claim in any manner which would impose a penalty, liability or limitation on the Indemnitee unless the Indemnitee first consents to the settlement in writing. He shall not withhold his consent unreasonably. 18. SEVERABILITY. If any provision of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions (including portions of any paragraph of this Agreement containing an invalid, illegal or unenforceable provision) shall not be impaired. To the extent practicable, any invalid, illegal or unenforceable provision of this Agreement shall be deemed modified as necessary to comply with all applicable laws. 7 19. AMENDMENTS AND WAIVERS. No amendment of this Agreement shall be binding unless the amendment is in writing and executed by both parties. Waiver, if any, of a provision of this Agreement shall not constitute waiver of any other provision. 20. SPECIFIC PERFORMANCE. The parties hereto agree that irreparable damage would occur in the event that any provision of this Agreement was not performed in accordance with the terms hereof and that the parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy at law or in equity. IN WITNESS WHEREOF, the parties hereto have caused this Indemnification Agreement to be duly executed and signed effective as of the date first set forth above. TSET, INC. By:/S/ JEFFREY D. WILSON --------------------- Jeffrey D. Wilson Chairman and Chief Executive Officer AGREED TO AND ACCEPTED BY INDEMNITEE: By:/S/ CHARLES D. STRANG --------------------- Charles D. Strang 8 EX-10.41 47 exhibit10-41.txt Exhibit 10.41 INDEMNIFICATION AGREEMENT THIS INDEMNIFICATION AGREEMENT (the "Agreement") between TSET, Inc., a Nevada corporation (the "Company"), and Richard A. Papworth, (the "Indemnitee"), is effective as of May 1, 2001. In consideration of the Indemnitee's past and future services and to benefit the Company, the Company and the Indemnitee agree as follows: 1. DEFINITIONS. ----------- a) "CLAIM" means any threatened, pending or completed action, suit or proceeding, liability, claim, damage, judgment, cost or expense (including attorneys' fees, expenses, bonds and costs of investigation) or any inquiry or investigation that the Indemnitee in good faith believes might lead to the institution of any such action, suit or proceeding, whether civil, criminal, administrative, investigative or other. b) "INDEPENDENT COUNSEL" means a law firm or member of a law firm that has not within the last five (5) years represented the Company or the Indemnitee in a matter material to either or in a matter material to any other party to the action, suit or proceeding giving rise to the Indemnitee's claim for indemnification under this Agreement. Independent Counsel shall not include any member of a law firm who would have a conflict of interest under applicable standards of professional conduct in representing the Company or the Indemnitee in an action hereunder. Such Independent Counsel shall be chosen by the Indemnitee and approved by the Board of Directors of the Company (the "BOARD OF DIRECTORS") which approval shall not be unreasonably withheld. c) "REVIEWING PARTY" means (1) the Board of Directors of the Company by a majority vote of a quorum consisting of directors who were not parties to the action, suit, or proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by Independent Counsel in a written opinion, or (3) by the stockholders of the Company. 2. INDEMNITY. Subject to Sections 8 and 9 hereof, the Company agrees to indemnify and hold the Indemnitee harmless, to the fullest extent permitted by law, including, but not limited to, the extent and in the manner herein provided, from and against any and all Claims of any type arising from or related to his past or future acts or omissions as a director or officer of the Company and/or its subsidiaries (which term shall mean any entities of which the Company owns directly, or through any such subsidiaries, at least fifty percent (50%) of the voting stock (hereinafter referred to as "SUBSIDIARIES")). This indemnity shall extend to all matters except to the extent applicable law prohibits indemnification. 3. JUDGMENTS. Subject to Sections 8 and 9 hereof, the Company agrees to promptly pay on behalf of the Indemnitee any and all judgments against the Indemnitee for damages arising from acts or omissions as a director or officer of the Company and/or its Subsidiaries when any such judgment becomes final and subject to execution against the Indemnitee, to the full extent allowable under applicable law. 4. APPEAL BONDS. Subject to Sections 8 and 9 hereof, the Company shall pay the cost of, provide collateral for and cause to be timely and duly filed in court, appellate bonds to prevent execution of judgment against the Indemnitee during the pendency of appeals as the Indemnitee may reasonably initiate, to the full extent allowable under applicable law. 5. COST OF DEFENSE. Subject to Sections 8 and 9 hereof, the Company shall promptly pay the reasonable cost of the defense of the Indemnitee against any and all Claims against him arising from the Indemnitee's past or future acts 2 or omissions as a director or officer of the Company and/or its Subsidiaries when statements for legal services are delivered to the Company or the Indemnitee (including any required retainer amounts), to the full extent allowable under applicable law. 6. FINES, COSTS, FEES. Subject to Sections 8 and 9 hereof, the Company shall promptly pay on the Indemnitee's behalf any fines, court costs, legal fees or other charges assessed against him related to any Claim where allegations against the Indemnitee arise from his acts or omissions as a director or officer of the Company and/or its Subsidiaries, to the full extent allowable under applicable law. 7. ADVANCE PAYMENT OF EXPENSES. Expenses incurred by the Indemnitee in connection with defending a Claim shall be paid by the Company as they are incurred and in advance of the final disposition of such Claim within twenty (20) days of receipt of an undertaking by the Indemnitee, in substantially the same form as Exhibit "A" hereto, to repay such amount if it is ultimately determined by a court of competent jurisdiction that he is not entitled to be indemnified by the Company. If the Company fails to advance any amounts required to be advanced under this Section 7 within twenty (20) days after receipt of an undertaking by the Indemnitee, the Indemnity may at any time thereafter bring suit against the Company for specific performance or to recover the unpaid amount. If successful in whole or in part, the Indemnitee shall also be entitled to be paid the expense of prosecuting such claim. 8. GENERAL RIGHT TO INDEMNIFICATION. Upon written demand by the Indemnitee for indemnification under the terms of this Agreement (unless otherwise ordered by a court or advanced pursuant to Section 7 hereof or advanced pursuant to applicable law, as the same may be amended from time to time (but, in the case of any such amendment with reference to events occurring 3 prior to the effect date thereof, only to the extent that such amendment permits the Company to provide broader indemnification rights than such law permitted the Company to provide prior to such amendment)), the Indemnitee shall be entitled to such indemnification unless the Reviewing Party determines within thirty (30) days of receiving Indemnitee's written demand that the Indemnitee would not be permitted to be indemnified under applicable law. The Indemnitee and its counsel shall be given an opportunity to be heard and to present evidence on the Indemnitee's behalf before the Reviewing Party. If the Reviewing Party determines that the Indemnitee is not entitled to indemnification, the Reviewing Party shall provide the Indemnitee, concurrently with its determination, a detailed written explanation setting forth its reasons. The failure to provide the Indemnitee with a detailed written explanation shall entitle the Indemnitee to a presumption that the Indemnitee has met the applicable standard of conduct and that the unfavorable determination was wrongful in any subsequent suit brought by either the Indemnity or the Company to determine whether the Indemnitee is entitled to indemnification. 9. RIGHT OF INDEMNITEE TO BRING SUIT. a) If there has been no determination by the Reviewing Party or if the Reviewing Party determines that the Indemnitee substantively would not be permitted to be indemnified in whole or in part under applicable law, the Indemnitee shall have the right to bring suit seeking an initial determination by the court or challenging any such determination by the Reviewing Party or any aspect thereof (and the Indemnitee shall be entitled to any presumption specified in Section 8 hereof), and the Company hereby consents to service of process and to appear in any such proceeding. Any determination by the Reviewing Party otherwise shall be conclusive and binding on the Company and the Indemnitee. 4 b) In any action brought by the Indemnitee to enforce a right to indemnification hereunder, or by the Company to recover payments by the Company of expenses incurred by the Indemnitee in connection with a Claim in advance of its final disposition, the burden of proving that the Indemnitee is not entitled to be indemnified under this Agreement or otherwise shall be on the Company. Neither the failure of the Company or the Reviewing Party to have made a determination prior to the commencement of such action that indemnification of the Indemnitee is proper in the circumstances because the Indemnitee has met the applicable standard of conduct set forth under applicable law, nor an actual determination by the Company or the Reviewing Party that the Indemnitee has not met such applicable standard of conduct, shall create a presumption that the Indemnitee has not met the applicable standard of conduct or, in the case of such an action brought by the Indemnitee, be a defense to the Claim. c) The Company shall pay all expenses (including attorneys' fees) actually and reasonably incurred by the Indemnitee in connection with such judicial determination, whether or not the Indemnitee prevails in such proceeding. 10. INSURANCE. If a loss, payment or expense contemplated by this Agreement is paid by the Company and is also covered by collectible insurance, the Indemnitee shall cooperate with the Company to effect collection of all available insurance and through assignment, reimbursement to the Company or otherwise exercise all reasonable efforts to cause applicable insurance benefits to be paid to or on behalf of the Company, thus reducing the Company's payments under this Agreement. 11. LAW, CONSTRUCTION, ARBITRATION. This Agreement is to be liberally construed to provide the Indemnitee with the broadest indemnity permitted by applicable law and ambiguities in the terms of this Agreement, if any, choice of 5 law, or construction of laws are to be resolved in the Indemnitee's favor. The Indemnitee shall be entitled to the benefits of all changes in law, whether effected by statute, regulation, rule, judicial decision or otherwise, which in any way expand his right to be indemnified by the Company or to have the Company advance his expenses. The law of the State of Nevada shall apply. 12. OTHER MEANS OF INDEMNITY. The Company acknowledges that the benefits to the Indemnitee of this Agreement are not exclusive and that the Indemnitee retains all rights of indemnity or repayment from the Company that are available to him by applicable law, other agreements, the Articles of Incorporation and By-Laws of the Company and/or its Subsidiaries or by vote of the Board of Directors or stockholders of the Company. 13. SUBROGATION. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the Company to bring suit to enforce such rights. 14. NO DUPLICATION OF PAYMENTS. The Company shall not be liable under this Agreement to make any payment in connection with any Claim made against the Indemnitee to the extent the Indemnitee has otherwise actually received payment (under any insurance policy or otherwise). 15. TERM. This Agreement shall remain in full force and effect until terminated by the mutual consent of the ---- parties in writing. Termination of the Indemnitee's status as a director or officer of the Company and/or its Subsidiaries does not terminate this Agreement. This Agreement inures to the benefit of the Indemnitee, his estate, heirs, and the personal representative (executor/administrator) of his estate. 6 16. GOOD FAITH. If any dispute arises under this Agreement or any attack is made by anyone related to the enforcement of this Agreement, it shall be conclusively presumed that the Indemnitee acted in good faith in executing this Agreement and for the best interest of the Company. The Company acknowledges that it is fully informed of all decisions and votes made by the Indemnitee in the past and recognizes its right to keep itself informed in the future. 17. DEFENSE. If any claim is threatened or commenced against the Indemnitee other than by or on behalf of the Company, he shall notify the Company in writing. His failure to do so or to do so promptly, however, shall not diminish his rights under this Agreement except to the extent the Company demonstrates by clear and convincing evidence that his failure caused it actual damage. The Company may assume the defense of the claim, but only if it pays all costs and expenses of defense, acknowledges to the Indemnitee in writing that it is obligated to indemnify him with respect to the claim, and permits him to select defense counsel. Any counsel the Indemnitee selects shall be reasonably satisfactory to the Company. If the Company assumes the defense, the Indemnitee shall cooperate with the Company in that defense if it pays his costs and expenses of doing so. The Company shall not settle any claim in any manner which would impose a penalty, liability or limitation on the Indemnitee unless the Indemnitee first consents to the settlement in writing. He shall not withhold his consent unreasonably. 18. SEVERABILITY. If any provision of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions (including portions of any paragraph of this Agreement containing an invalid, illegal or unenforceable provision) shall not be impaired. To the extent practicable, any invalid, illegal or unenforceable provision of this Agreement shall be deemed modified as necessary to comply with all applicable laws. 7 19. AMENDMENTS AND WAIVERS. No amendment of this Agreement shall be binding unless the amendment is in writing and executed by both parties. Waiver, if any, of a provision of this Agreement shall not constitute waiver of any other provision. 20. SPECIFIC PERFORMANCE. The parties hereto agree that irreparable damage would occur in the event that any provision of this Agreement was not performed in accordance with the terms hereof and that the parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy at law or in equity. IN WITNESS WHEREOF, the parties hereto have caused this Indemnification Agreement to be duly executed and signed effective as of the date first set forth above. TSET, INC. By:/S/ JEFFREY D. WILSON --------------------- Jeffrey D. Wilson Chairman and Chief Executive Officer AGREED TO AND ACCEPTED BY INDEMNITEE: By:/S/ RICHARD A. PAPWORTH ----------------------- Richard A. Papworth EX-10.42 48 exhibit10-42.txt Exhibit 10.42 INDEMNIFICATION AGREEMENT THIS INDEMNIFICATION AGREEMENT (the "Agreement") between TSET, Inc., a Nevada corporation (the "Company"), and Erik W. Black, (the "Indemnitee"), is effective as of May 1, 2001. In consideration of the Indemnitee's past and future services and to benefit the Company, the Company and the Indemnitee agree as follows: 1. DEFINITIONS. a) "CLAIM" means any threatened, pending or completed action, suit or proceeding, liability, claim, damage, judgment, cost or expense (including attorneys' fees, expenses, bonds and costs of investigation) or any inquiry or investigation that the Indemnitee in good faith believes might lead to the institution of any such action, suit or proceeding, whether civil, criminal, administrative, investigative or other. b) "INDEPENDENT COUNSEL" means a law firm or member of a law firm that has not within the last five (5) years represented the Company or the Indemnitee in a matter material to either or in a matter material to any other party to the action, suit or proceeding giving rise to the Indemnitee's claim for indemnification under this Agreement. Independent Counsel shall not include any member of a law firm who would have a conflict of interest under applicable standards of professional conduct in representing the Company or the Indemnitee in an action hereunder. Such Independent Counsel shall be chosen by the Indemnitee and approved by the Board of Directors of the Company (the "BOARD OF DIRECTORS") which approval shall not be unreasonably withheld. c) "REVIEWING PARTY" means (1) the Board of Directors of the Company by a majority vote of a quorum consisting of directors who were not parties to the action, suit, or proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by Independent Counsel in a written opinion, or (3) by the stockholders of the Company. 2. INDEMNITY. Subject to Sections 8 and 9 hereof, the Company agrees to indemnify and hold the Indemnitee harmless, to the fullest extent permitted by law, including, but not limited to, the extent and in the manner herein provided, from and against any and all Claims of any type arising from or related to his past or future acts or omissions as a director or officer of the Company and/or its subsidiaries (which term shall mean any entities of which the Company owns directly, or through any such subsidiaries, at least fifty percent (50%) of the voting stock (hereinafter referred to as "SUBSIDIARIES")). This indemnity shall extend to all matters except to the extent applicable law prohibits indemnification. 3. JUDGMENTS. Subject to Sections 8 and 9 hereof, the Company agrees to promptly pay on behalf of the Indemnitee any and all judgments against the Indemnitee for damages arising from acts or omissions as a director or officer of the Company and/or its Subsidiaries when any such judgment becomes final and subject to execution against the Indemnitee, to the full extent allowable under applicable law. 4. APPEAL BONDS. Subject to Sections 8 and 9 hereof, the Company shall pay the cost of, provide collateral for and cause to be timely and duly filed in court, appellate bonds to prevent execution of judgment against the Indemnitee during the pendency of appeals as the Indemnitee may reasonably initiate, to the full extent allowable under applicable law. 5. COST OF DEFENSE. Subject to Sections 8 and 9 hereof, the Company shall promptly pay the reasonable cost of the defense of the Indemnitee against any and all Claims against him arising from the Indemnitee's past or future acts or omissions as a director or officer of the Company and/or its Subsidiaries 2 when statements for legal services are delivered to the Company or the Indemnitee (including any required retainer amounts), to the full extent allowable under applicable law. 6. FINES, COSTS, FEES. Subject to Sections 8 and 9 hereof, the Company shall promptly pay on the Indemnitee's behalf any fines, court costs, legal fees or other charges assessed against him related to any Claim where allegations against the Indemnitee arise from his acts or omissions as a director or officer of the Company and/or its Subsidiaries, to the full extent allowable under applicable law. 7. ADVANCE PAYMENT OF EXPENSES. Expenses incurred by the Indemnitee in connection with defending a Claim shall be paid by the Company as they are incurred and in advance of the final disposition of such Claim within twenty (20) days of receipt of an undertaking by the Indemnitee, in substantially the same form as Exhibit "A" hereto, to repay such amount if it is ultimately determined by a court of competent jurisdiction that he is not entitled to be indemnified by the Company. If the Company fails to advance any amounts required to be advanced under this Section 7 within twenty (20) days after receipt of an undertaking by the Indemnitee, the Indemnity may at any time thereafter bring suit against the Company for specific performance or to recover the unpaid amount. If successful in whole or in part, the Indemnitee shall also be entitled to be paid the expense of prosecuting such claim. 8. GENERAL RIGHT TO INDEMNIFICATION. Upon written demand by the Indemnitee for indemnification under the terms of this Agreement (unless otherwise ordered by a court or advanced pursuant to Section 7 hereof or advanced pursuant to applicable law, as the same may be amended from time to time (but, in the case of any such amendment with reference to events occurring prior to the effect date thereof, only to the extent that such amendment permits 3 the Company to provide broader indemnification rights than such law permitted the Company to provide prior to such amendment)), the Indemnitee shall be entitled to such indemnification unless the Reviewing Party determines within thirty (30) days of receiving Indemnitee's written demand that the Indemnitee would not be permitted to be indemnified under applicable law. The Indemnitee and its counsel shall be given an opportunity to be heard and to present evidence on the Indemnitee's behalf before the Reviewing Party. If the Reviewing Party determines that the Indemnitee is not entitled to indemnification, the Reviewing Party shall provide the Indemnitee, concurrently with its determination, a detailed written explanation setting forth its reasons. The failure to provide the Indemnitee with a detailed written explanation shall entitle the Indemnitee to a presumption that the Indemnitee has met the applicable standard of conduct and that the unfavorable determination was wrongful in any subsequent suit brought by either the Indemnity or the Company to determine whether the Indemnitee is entitled to indemnification. 9. RIGHT OF INDEMNITEE TO BRING SUIT. a) If there has been no determination by the Reviewing Party or if the Reviewing Party determines that the Indemnitee substantively would not be permitted to be indemnified in whole or in part under applicable law, the Indemnitee shall have the right to bring suit seeking an initial determination by the court or challenging any such determination by the Reviewing Party or any aspect thereof (and the Indemnitee shall be entitled to any presumption specified in Section 8 hereof), and the Company hereby consents to service of process and to appear in any such proceeding. Any determination by the Reviewing Party otherwise shall be conclusive and binding on the Company and the Indemnitee. 4 b) In any action brought by the Indemnitee to enforce a right to indemnification hereunder, or by the Company to recover payments by the Company of expenses incurred by the Indemnitee in connection with a Claim in advance of its final disposition, the burden of proving that the Indemnitee is not entitled to be indemnified under this Agreement or otherwise shall be on the Company. Neither the failure of the Company or the Reviewing Party to have made a determination prior to the commencement of such action that indemnification of the Indemnitee is proper in the circumstances because the Indemnitee has met the applicable standard of conduct set forth under applicable law, nor an actual determination by the Company or the Reviewing Party that the Indemnitee has not met such applicable standard of conduct, shall create a presumption that the Indemnitee has not met the applicable standard of conduct or, in the case of such an action brought by the Indemnitee, be a defense to the Claim. c) The Company shall pay all expenses (including attorneys' fees) actually and reasonably incurred by the Indemnitee in connection with such judicial determination, whether or not the Indemnitee prevails in such proceeding. 10. INSURANCE. If a loss, payment or expense contemplated by this Agreement is paid by the Company and is also covered by collectible insurance, the Indemnitee shall cooperate with the Company to effect collection of all available insurance and through assignment, reimbursement to the Company or otherwise exercise all reasonable efforts to cause applicable insurance benefits to be paid to or on behalf of the Company, thus reducing the Company's payments under this Agreement. 11. LAW, CONSTRUCTION, ARBITRATION. This Agreement is to be liberally construed to provide the Indemnitee with the broadest indemnity permitted by applicable law and ambiguities in the terms of this Agreement, if any, choice of law, or construction of laws are to be resolved in the Indemnitee's favor. The 5 Indemnitee shall be entitled to the benefits of all changes in law, whether effected by statute, regulation, rule, judicial decision or otherwise, which in any way expand his right to be indemnified by the Company or to have the Company advance his expenses. The law of the State of Nevada shall apply. 12. OTHER MEANS OF INDEMNITY. The Company acknowledges that the benefits to the Indemnitee of this Agreement are not exclusive and that the Indemnitee retains all rights of indemnity or repayment from the Company that are available to him by applicable law, other agreements, the Articles of Incorporation and By-Laws of the Company and/or its Subsidiaries or by vote of the Board of Directors or stockholders of the Company. 13. SUBROGATION. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the Company to bring suit to enforce such rights. 14. NO DUPLICATION OF PAYMENTS. The Company shall not be liable under this Agreement to make any payment in connection with any Claim made against the Indemnitee to the extent the Indemnitee has otherwise actually received payment (under any insurance policy or otherwise). 15. TERM. This Agreement shall remain in full force and effect until terminated by the mutual consent of the parties in writing. Termination of the Indemnitee's status as a director or officer of the Company and/or its Subsidiaries does not terminate this Agreement. This Agreement inures to the benefit of the Indemnitee, his estate, heirs, and the personal representative (executor/administrator) of his estate. 6 16. GOOD FAITH. If any dispute arises under this Agreement or any attack is made by anyone related to the enforcement of this Agreement, it shall be conclusively presumed that the Indemnitee acted in good faith in executing this Agreement and for the best interest of the Company. The Company acknowledges that it is fully informed of all decisions and votes made by the Indemnitee in the past and recognizes its right to keep itself informed in the future. 17. DEFENSE. If any claim is threatened or commenced against the Indemnitee other than by or on behalf of the Company, he shall notify the Company in writing. His failure to do so or to do so promptly, however, shall not diminish his rights under this Agreement except to the extent the Company demonstrates by clear and convincing evidence that his failure caused it actual damage. The Company may assume the defense of the claim, but only if it pays all costs and expenses of defense, acknowledges to the Indemnitee in writing that it is obligated to indemnify him with respect to the claim, and permits him to select defense counsel. Any counsel the Indemnitee selects shall be reasonably satisfactory to the Company. If the Company assumes the defense, the Indemnitee shall cooperate with the Company in that defense if it pays his costs and expenses of doing so. The Company shall not settle any claim in any manner which would impose a penalty, liability or limitation on the Indemnitee unless the Indemnitee first consents to the settlement in writing. He shall not withhold his consent unreasonably. 18. SEVERABILITY. If any provision of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions (including portions of any paragraph of this Agreement containing an invalid, illegal or unenforceable provision) shall not be impaired. To the extent practicable, any invalid, illegal or unenforceable provision of this Agreement shall be deemed modified as necessary to comply with all applicable laws. 7 19. AMENDMENTS AND WAIVERS. No amendment of this Agreement shall be binding unless the amendment is in writing and executed by both parties. Waiver, if any, of a provision of this Agreement shall not constitute waiver of any other provision. 20. SPECIFIC PERFORMANCE. The parties hereto agree that irreparable damage would occur in the event that any provision of this Agreement was not performed in accordance with the terms hereof and that the parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy at law or in equity. IN WITNESS WHEREOF, the parties hereto have caused this Indemnification Agreement to be duly executed and signed effective as of the date first set forth above. TSET, INC. By: /s/ Jeffrey D. Wilson ---------------------------------------- Jeffrey D. Wilson Chairman and Chief Executive Officer AGREED TO AND ACCEPTED BY INDEMNITEE: By: /s/ Erik W. Black ---------------------------------------- Erik W. Black 8 EX-10.43 49 exhibit10-43.txt EXHIBIT 10.43 STOCK OPTION AGREEMENT ---------------------- THIS STOCK OPTION AGREEMENT is entered into as of May 3, 2001, by and between TSET, Inc., a Nevada corporation ("TSET"), and Jeffrey D. Wilson ("Wilson "). WITNESSETH: ---------- WHEREAS, pursuant to that certain employment agreement dated as of April 20, 1999 by and between TSET (the "Employment Agreement"), and Wilson, TSET desires to grant to Wilson an option to acquire up to 200,000 restricted shares of TSET's common stock, par value $0.001 per share (the "Option Shares"), in consideration of Wilson's service to TSET as chairman of the board of directors from April 1999 through April 2001, the parties acknowledging that the Employment Agreement provides for such consideration at the rate of 100,000 shares annually; and WHEREAS, Wilson desires to accept such option. NOW, THEREFORE, for and in consideration of the premises and mutual promises, covenants, and agreements set forth herein and for other good and valuable consideration, the delivery, receipt, and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. GRANT OF OPTION. TSET hereby grants to Wilson an option (the "Option") to acquire the Option Shares at an exercise price of $0.71 per share (the "Exercise Price"). The Option shall immediately and fully vest in Wilson's favor for all purposes upon execution and delivery of this Agreement by the parties. The Option is personal to Wilson and may be exercised only by Wilson during his lifetime. The Option shall continue in full force and effect for a period of 10 years from the date hereof (the "Term"), at which time the Option shall expire and terminate unless previously exercised by Wilson. The Option shall not be subject to forfeiture or termination, except for Wilson's failure to exercise the Option during the Term. 2. EXERCISE OF OPTION. The Option may be exercised by Wilson, in whole or in part, at any time during the Term upon receipt by TSET of written notice from Wilson (the "Exercise Notice"). The Exercise Notice shall specify the number of Option Shares Wilson desires to acquire pursuant thereto and provide any necessary or appropriate instructions to TSET and its transfer agent regarding the denomination of certificates representing the Option Shares and the name in which the Option Shares should be registered. The exercise of the Option shall be on a "cashless" basis, at Wilson's election, and if so elected Wilson shall not be required to remit to TSET any payment therefor. 3. RESERVATION OF THE OPTION SHARES. To ensure fulfillment of its obligations hereunder should Wilson elect to exercise the Option, TSET shall reserve from its authorized but unissued capital that number of shares of its common stock equal to the Option Shares. 4. RESTRICTIONS ON TRANSFER. Wilson acknowledges that the Option Shares are subject to certain restrictions upon transfer, and cannot be sold, assigned, transferred, or conveyed (in any case, a "transfer") except in compliance with such restrictions and applicable provisions of federal and state securities laws. Certificates representing the Option Shares shall bear appropriate restrictive legends and notices. In the event Wilson desires to transfer any Option Shares prior to the expiration of such restrictions, TSET shall be entitled to receive from Wilson written undertakings, certifications, or opinions of legal counsel evidencing compliance with such restrictions. The Option Shares shall be entitled to all of the benefits provided in the Employment Agreement relating to demand and piggy-back registration rights with respect thereto. 5. TAX MATTERS. Wilson acknowledges that treatment of the Option, the Option Shares, and events or transactions with respect thereto, for federal and state income and other tax purposes, is dependent upon various factors and events, which are not determined by this Agreement. TSET makes no representations to Wilson with respect to, and hereby disclaims any and all responsibility as to such tax treatment. Wilson shall be solely and fully responsible for the payment of, and shall pay, any and all federal, state, and other taxes (including any and all withholding taxes) levied with respect to the grant of the Option, the purchase of the Option Shares, and any subsequent transfer thereof. In the event the exercise of the Option or the disposition of the Option Shares following exercise of the Option results in Wilson's realization of income which for federal, state, local, or other income tax purposes is, in TSET's opinion, subject to withholding of tax, then at the election of TSET and prior to the delivery to Wilson of certificates representing the Option Shares acquired by him pursuant to an Exercise Notice, (a) Wilson shall pay to TSET an amount equal to such withholding tax or (b) TSET may withhold such amount from any compensation or other payments owed by TSET to Wilson. 6. NONQUALIFIED STATUS. The Option is not intended to be an "incentive stock option" as defined in the Internal Revenue Code of 1986, as amended, and shall not be treated as such whether or not, by the terms hereof, it meets the requirements of any applicable provisions thereof. 7. 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 and Wilson, 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: 333 South State Street, PMB 111 Lake Oswego, OR 97034 2 Attn: Richard A. Papworth Chief Financial Officer Tel: 503.968.1547 Fax: 503.968.0867 To Wilson: 333 South State Street, PMB 111 Lake Oswego, OR 97035 Tel: 503.380.5558 Fax: 503.968.2337 Notices hereunder shall be deemed given when delivered in person, upon confirmation of successful transmission when sent by facsimile, or 5 days after being mailed by express, registered, or certified mail (return receipt requested), postage and fees prepaid. 8. INTEGRATION, AMENDMENT, AND WAIVER. When executed and delivered, this Agreement shall constitute the entire agreement between the parties with respect to the subject matter hereof and shall supersede any and 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. No waiver by either party of any breach of this Agreement in any particular instance shall constitute a waiver of any other breach hereof in any other circumstance or any relinquishment for the future of their respective rights to strictly enforce all of the other provisions hereof or seek all remedies which may be available at law or in equity. 9. COUNTERPARTS; BINDING EFFECT. This Agreement 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. This Agreement shall be binding upon and inure to the benefit of the parties' respective permitted heirs, successors, and assigns. 10. ASSIGNMENT. This Agreement is personal to the parties hereto. Accordingly, Wilson shall not assign or transfer this Agreement without the prior written consent of TSET, which consent shall not be unreasonably withheld, conditioned, or delayed; provided, however, that Wilson shall be permitted to assign or transfer this Agreement to a legal entity owned by Wilson without such consent. Any attempted assignment of this Agreement by Wilson without receipt of such consent from TSET shall be null and void. 3 11. SEVERABILITY. If any provision (or portion thereof) of this Agreement is adjudged unenforceable by a court of competent jurisdiction, the remaining provisions shall nevertheless continue in full force and effect and the provision deemed unenforceable shall be remade or interpreted by the parties in a manner that such provisions shall be enforceable to preserve, to the maximum extent possible, the original intention and meaning thereof. If necessary to effect such intent, TSET and Wilson shall negotiate in good faith to amend this Agreement to replace such provision with language believed in good faith by the parties to be enforceable, which as closely as possible reflects such intent. 12. NO THIRD PARTY BENEFICIARIES. This Agreement is for the sole benefit of the parties and their permitted successors, heirs, and assigns. Nothing herein, expressed or implied, shall give or be construed to give any other person, other than the parties and their permitted assigns, any legal or equitable rights hereunder. No finder's or other fees shall be payable by either party with respect to the exercise of the Option or the issuance of the Option Shares pursuant to this Agreement. 13. STATE SECURITIES QUALIFICATIONS. The sale of the Option Shares pursuant to any exercise of the Option has not been qualified with the securities regulatory authorities in any state or other jurisdiction and the issuance of the Option Shares prior to such qualification may be unlawful unless such transactions are exempt from such qualification requirements. The rights of the parties hereto are expressly conditioned upon such qualification being obtained, unless any such transaction is so exempt. 14. 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/ Richard A. Papworth ------------------------------------------ Richard A. Papworth Chief Financial Officer /s/ Jeffrey D. Wilson - ----------------------------------------------- Jeffrey D. Wilson 4 EX-10.44 50 exhibit10-44.txt Exhibit 10.44 COMMON STOCK PURCHASE AGREEMENT COMMON STOCK PURCHASE AGREEMENT (the "Agreement"), dated as of June 19, 2001 by and between TSET, INC. a Nevada corporation (the "Company"), and FUSION CAPITAL FUND II, LLC, an Illinois limited liability company (the "Buyer"). Capitalized terms used herein and not otherwise defined herein are defined in Section 10 hereof. WHEREAS: Subject to the terms and conditions set forth in this Agreement, the Company wishes to sell to the Buyer, and the Buyer wishes to buy from the Company, up to Ten Million Dollars ($10,000,000) of the Company's common stock, par value $0.001 per share (the "Common Stock"). The shares of Common Stock to be purchased hereunder are referred to herein as the "Purchase Shares." NOW THEREFORE, the Company and the Buyer hereby agree as follows: 1. PURCHASE OF COMMON STOCK. Subject to the terms and conditions set forth in Sections 6, 7 and 9 below, the Company hereby agrees to sell to the Buyer, and the Buyer hereby agrees to purchase from the Company, shares of Common Stock as follows: (a) COMMENCEMENT OF PURCHASES OF COMMON STOCK. The purchase and sale of Common Stock hereunder shall commence (the "Commencement") within five (5) Trading Days following the date of satisfaction (or waiver) of the conditions to the Commencement set forth in Sections 6 and 7 below (the date of such Commencement, the "Commencement Date"). (b) BUYER'S PURCHASE RIGHTS AND OBLIGATIONS. Subject to the Company's right to suspend purchases under Section 1(d)(ii) hereof, the Buyer shall purchase shares of Common Stock on each Trading Day during each Monthly Period equal to the Daily Base Amount at the Purchase Price. Within one (1) Trading Day of receipt of Purchase Shares, the Buyer shall pay to the Company an amount equal to the Purchase Amount with respect to such Purchase Shares as full payment for the purchase of the Purchase Shares so received. The Company shall not issue any fraction of a share of Common Stock upon any purchase. All shares of Common Stock (including fractions thereof) issuable upon a purchase under this Agreement shall be aggregated for purposes of determining whether the purchase would result in the issuance of a fraction of a share of Common Stock. If, after the aforementioned aggregation, the issuance would result in the issuance of a fraction of a share of Common Stock, the Company shall round such fraction of a share of Common Stock up or down to the nearest whole share. All payments made under this Agreement shall be made in lawful money of the United States of America by check or wire transfer of immediately available funds to such account as the Company may from time to time designate by written notice in accordance with the provisions of this Agreement. Whenever any amount expressed to be due by the terms of this Agreement is due on any day that is not a Trading Day, the same shall instead be due on the next succeeding day that is a Trading Day. (c) COMPANY'S RIGHT TO DECREASE OR INCREASE THE DAILY BASE AMOUNT. ------------------------------------------------------------ (i) COMPANY'S RIGHT TO DECREASE THE DAILY BASE AMOUNT. The Company shall always have the right at any time to decrease the amount of the Daily Base Amount by delivering written notice (a "Daily Base Amount Decrease Notice") to the Buyer which notice shall specify the amount of the new Daily Base Amount. The decrease in the Daily Base Amount shall become effective one Trading Day after receipt by the Buyer of the Daily Base Amount Decrease Notice. Any purchases by the Buyer which have a Purchase Date on or prior to the first (1st) Trading Day after receipt by the Buyer of a Daily Base Amount Decrease Notice must be honored by the Company as otherwise provided herein. The decrease in the Daily Base Amount shall remain in effect until the Company delivers to the Buyer a Daily Base Amount Increase Notice (as defined below). (ii) COMPANY'S RIGHT TO INCREASE THE DAILY BASE AMOUNT. The Company shall always have the right at any time to increase the amount of the Daily Base Amount up to the Original Daily Base Amount by delivering written notice to the Buyer stating the new amount of the Daily Base Amount (a "Daily Base Amount Increase Notice"). If the Closing Sale Price of the Common Stock on each of the five (5) consecutive Trading Days immediately prior to a Daily Base Amount Increase Notice is at least $3.00, the Company shall have the right to deliver a Daily Base Amount Increase Notice which increases the amount of the Daily Base Amount to any amount above the Original Daily Base Amount. A Daily Base Amount Increase Notice shall be effective one (1) Trading Day after receipt by the Buyer. Such increase in the amount of the Daily Base Amount shall continue in effect until the delivery to the Buyer of a Daily Base Amount Decrease Notice. Notwithstanding anything to the contrary, if the Daily Base Amount then in effect is greater than the Original Daily Base Amount and the Sale Price of the Common Stock during any Trading Day is less than $3.00, the amount of the Daily Base Amount for such Trading Day on which the Sale Price of the Common Stock is less than $3.00 and for each Trading Day thereafter shall be the Original Daily Base Amount or such lesser amount as specified by the Company in a Daily Base Amount Decrease Notice. Thereafter, the Company shall again have the right to increase the amount of the Daily Base Amount to any amount above the Original Daily Base Amount only if the Closing Sale Price of the Common Stock is at least $3.00 on each of five (5) consecutive Trading Days. (d) LIMITATIONS ON PURCHASES. ------------------------ (i) LIMITATION ON BENEFICIAL OWNERSHIP. The Company shall not effect any purchase under this Agreement and the Buyer shall not have the right to purchase shares of Common Stock under this Agreement to the extent that after giving effect to such purchase the Buyer together with its affiliates would beneficially own in excess of 9.9% of the outstanding shares of the Common Stock following such purchase. For purposes hereof, the number of shares of Common Stock beneficially owned by the Buyer and its affiliates or acquired by the Buyer and its affiliates, as the case may be, shall include the number of shares of Common Stock issuable in connection with a purchase under this Agreement with respect to which the determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (1) a purchase of the remaining Available Amount which has not been submitted for purchase, and (2) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company (including, without limitation, any warrants) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Buyer and its affiliates. If the 9.9% limitation is ever reached this shall not effect or limit the Buyer's obligation to purchase the Daily Base Amount or the Company's Mandatory Purchase Rights as otherwise provided in this Agreement. For purposes of this Section, in determining the number of outstanding shares of Common Stock the Buyer may rely on the number of outstanding shares of Common Stock as reflected in (1) the Company's most recent Form 10-Q or Form 10-K, as the case may be, (2) a more recent public announcement by the Company or (3) any other written communication by 2 the Company or its transfer agent setting forth the number of shares of Common Stock outstanding. Upon the reasonable written or oral request of the Buyer, the Company shall promptly confirm orally and in writing to the Buyer the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to any purchases under this Agreement by the Buyer since the date as of which such number of outstanding shares of Common Stock was reported. Except as otherwise set forth herein, for purposes of this Section 1(d)(i), beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended. (ii) COMPANY'S RIGHT TO SUSPEND PURCHASES. The Company may, at any time, give written notice (a "Purchase Suspension Notice") to the Buyer suspending purchases by the Buyer under this Agreement. The Purchase Suspension Notice shall be effective only for purchases that have a Purchase Date later than one (1) Trading Day after receipt of the Purchase Suspension Notice by the Buyer. Any purchase by the Buyer that has a Purchase Date on or prior to the first (1st) Trading Day after receipt by the Buyer of a Purchase Suspension Notice from the Company must be honored by the Company as otherwise provided herein. Such purchase suspension shall continue in effect until a revocation in writing by the Company, at its sole discretion. So long as a Purchase Suspension Notice is in effect, the Buyer shall not be obligated to purchase any Purchase Shares from the Company under Section 1 of this Agreement. (iii) PURCHASE PRICE FLOOR. The Buyer shall not have the right or the obligation to purchase any Purchase Shares under this Agreement in the event that the Purchase Price for any purchases of Purchase Shares would be less than the Floor Price. The Company may at any time give written notice (a "Floor Price Notice") to the Buyer increasing or decreasing the Floor Price. The Floor Price Notice shall be effective only for purchases that have a Purchase Date later than one (1) Trading Day after receipt of the Floor Price Notice by the Buyer. Any purchase by the Buyer that has a Purchase Date on or prior to the first Trading Day after receipt of a Floor Price Notice from the Company must be honored by the Company as otherwise provided herein. (e) RECORDS OF PURCHASES. The Buyer and the Company shall each maintain records showing the remaining Available Amount at any give time and the dates and Purchase Amounts for each purchase or shall use such other method, reasonably satisfactory to the Buyer and the Company. (f) TAXES. The Company shall pay any and all taxes that may be payable with respect to the issuance and delivery of any shares of Common Stock to the Buyer made under of this Agreement. (g) USE OF PROCEEDS. The Buyer and Company agree that the Company's wholly owned subsidiary, Kronos Air Technologies, Inc. ("KAT"), will have the right to $187,500 of the proceeds from the purchase of the Company's common shares by the Buyer. These proceeds will be used exclusively by KAT in conjunction with KAT's work effort on SBIR contract N00167-01-C-0037 that was awarded to KAT on May 23, 2001 and subsequent Phase II awards. These proceeds will be used over the life of SBIR contract N00167-01-C-0037 towards commercialization of Kronos Technology." 3 2. BUYER'S REPRESENTATIONS AND WARRANTIES. The Buyer represents and warrants to the Company that: (a) INVESTMENT PURPOSE. The Buyer is entering into this Agreement and acquiring the Commitment Shares (as defined in Section 4(f) hereof) (this Agreement and the Commitment Shares are collectively referred to herein as the "Securities"), for its own account for investment only and not with a view towards, or for resale in connection with, the public sale or distribution thereof; provided however, by making the representations herein, the Buyer does not agree to hold any of the Securities for any minimum or other specific term. (b) ACCREDITED INVESTOR STATUS. The Buyer is an "accredited investor" as that term is defined in Rule 501(a)(3) of Regulation D. (c) RELIANCE ON EXEMPTIONS. The Buyer understands that the Securities are being offered and sold to it in reliance on specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying in part upon the truth and accuracy of, and the Buyer's compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Buyer set forth herein in order to determine the availability of such exemptions and the eligibility of the Buyer to acquire the Securities. (d) INFORMATION. The Buyer has been furnished with all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Securities that have been reasonably requested by the Buyer, including, without limitation, the SEC Documents (as defined in Section 3(f) hereof). The Buyer understands that its investment in the Securities involves a high degree of risk. The Buyer (i) is able to bear the economic risk of an investment in the Securities including a total loss, (ii) has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of the proposed investment in the Securities and (iii) has had an opportunity to ask questions of and receive answers from the officers of the Company concerning the financial condition and business of the Company and others matters related to an investment in the Securities. Neither such inquiries nor any other due diligence investigations conducted by the Buyer or its representatives shall modify, amend or affect the Buyer's right to rely on the Company's representations and warranties contained in Section 3 below. The Buyer has sought such accounting, legal and tax advice as it has considered necessary to make an informed investment decision with respect to its acquisition of the Securities. (e) NO GOVERNMENTAL REVIEW. The Buyer understands that no United States federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Securities or the fairness or suitability of the investment in the Securities nor have such authorities passed upon or endorsed the merits of the offering of the Securities. (f) TRANSFER OR RESALE. The Buyer understands that except as provided in the Registration Rights Agreement (as defined in Section 6(a) hereof): (i) the Securities have not been and are not being registered under the 1933 Act or any state securities laws, and may not be offered for sale, sold, assigned or transferred unless (A) subsequently registered thereunder or (B) an exemption exists permitting such Securities to be sold, assigned or transferred without such registration; (ii) any sale of the Securities made in reliance on Rule 144 may be made only in accordance with the terms of Rule 144 and further, if Rule 144 is not applicable, any resale of the Securities under circumstances in which the seller (or the person through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the 1933 Act) may require compliance with some other exemption under the 1933 Act or the rules and regulations of the 4 SEC thereunder; and (iii) neither the Company nor any other person is under any obligation to register the Securities under the 1933 Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder. (g) VALIDITY; ENFORCEMENT. This Agreement has been duly and validly authorized, executed and delivered on behalf of the Buyer and is a valid and binding agreement of the Buyer enforceable against the Buyer in accordance with its terms, subject as to enforceability to general principles of equity and to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or affecting generally, the enforcement of applicable creditors' rights and remedies. (h) RESIDENCY. The Buyer is a resident of the State of Illinois. (i) NO PRIOR SHORT SELLING. The Buyer represents and warrants to the Company that at no time prior to the date of this Agreement has any of the Buyer, its agents, associates, representatives or affiliates engaged in or effected, in any manner whatsoever, directly or indirectly, any (i) "short sale" (as such term is defined in Rule 3b-3 of the 1934 Act) of the Common Stock or (ii) hedging transaction, which establishes a net short position with respect to the Common Stock. 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to the Buyer that: (a) ORGANIZATION AND QUALIFICATION. The Company and its "Subsidiaries" (which for purposes of this Agreement means any entity in which the Company, directly or indirectly, owns 50% or more of the voting stock or capital stock or other similar equity interests) are corporations duly organized and validly existing in good standing under the laws of the jurisdiction in which they are incorporated, and have the requisite corporate power and authority to own their properties and to carry on their business as now being conducted. Each of the Company and its Subsidiaries is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which its ownership of property or the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing could not reasonably be expected to have a Material Adverse Effect. As used in this Agreement, "Material Adverse Effect" means any material adverse effect on any of: (i) the business, properties, assets, operations, results of operations or financial condition of the Company and its Subsidiaries, if any, taken as a whole, or (ii) the authority or ability of the Company to perform its obligations under the Transaction Documents (as defined in Section 3(b) hereof). The Company has no Subsidiaries except as set forth on Schedule 3(a). (b) AUTHORIZATION; ENFORCEMENT; VALIDITY. (i) The Company has the requisite corporate power and authority to enter into and perform its obligations under this Agreement, the Registration Rights Agreement (as defined in Section 6(a) hereof) and each of the other agreements entered into by the parties on the Commencement Date and attached hereto as exhibits to this Agreement (collectively, the "Transaction Documents"), and to issue the Securities in accordance with the terms hereof and thereof, (ii) the execution and delivery of the Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby, including without limitation, the issuance of the Commitment Shares and the reservation for issuance and the issuance of the Purchase Shares issuable under this Agreement, have been duly authorized by the Company's Board of Directors and no further consent or authorization is required by the Company, its Board of Directors or its shareholders, (iii) this Agreement has been, and each other Transaction Document shall be on the Commencement Date, duly executed and delivered by the Company and (iv) this Agreement constitutes, and each other Transaction Document 5 upon its execution on behalf of the Company, shall constitute, the valid and binding obligations of the Company enforceable against the Company in accordance with their terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of creditors' rights and remedies. (c) CAPITALIZATION. As of the date hereof, the authorized capital stock of the Company consists of (i) 500,000,000 shares of Common Stock, of which as of the date hereof, 33,972,445 shares are issued and outstanding, no shares are held as treasury shares, 1,951,875 shares are reserved for issuance pursuant to the Company's stock option plans of which no shares remain available and no shares are issuable and reserved for issuance pursuant to securities (other than stock options issued pursuant to the Company's stock option plans) exercisable or exchangeable for, or convertible into, shares of Common Stock and (ii) 50,000,000 shares of Preferred Stock, no par value of which as of the date hereof no shares are issued and outstanding. All of such outstanding shares have been, or upon issuance will be, validly issued and are fully paid and nonassessable. Except as disclosed in Schedule 3(c), (i) no shares of the Company's capital stock are subject to preemptive rights or any other similar rights or any liens or encumbrances suffered or permitted by the Company, (ii) there are no outstanding debt securities, (iii) there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company or any of its Subsidiaries, or contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company or any of its Subsidiaries, (iv) there are no agreements or arrangements under which the Company or any of its Subsidiaries is obligated to register the sale of any of their securities under the 1933 Act (except the Registration Rights Agreement), (v) there are no outstanding securities or instruments of the Company or any of its Subsidiaries which contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to redeem a security of the Company or any of its Subsidiaries, (vi) there are no securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance of the Securities as described in this Agreement and (vii) the Company does not have any stock appreciation rights or "phantom stock" plans or agreements or any similar plan or agreement. The Company has furnished to the Buyer true and correct copies of the Company's Certificate of Incorporation, as amended and as in effect on the date hereof (the "Certificate of Incorporation"), and the Company's By-laws, as amended and as in effect on the date hereof (the "By-laws"), and summaries of the terms of all securities convertible into or exercisable for Common Stock, if any, and copies of any documents containing the material rights of the holders thereof in respect thereto. (d) ISSUANCE OF SECURITIES. The Commitment Shares have been duly authorized and, upon issuance in accordance with the terms hereof, the Commitment Shares shall be (i) validly issued, fully paid and non-assessable and (ii) free from all taxes, liens and charges with respect to the issue thereof. 5,000,000 shares of Common Stock have been duly authorized and reserved for issuance upon purchase under this Agreement. Upon issuance and payment therefore in accordance with the terms and conditions of this Agreement, the Purchase Shares shall be validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof, with the holders being entitled to all rights accorded to a holder of Common Stock. (e) NO CONFLICTS. Except as disclosed in Schedule 3(e), the execution, delivery and performance of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby 6 (including, without limitation, the reservation for issuance and issuance of the Purchase Shares) will not (i) result in a violation of the Certificate of Incorporation, any Certificate of Designations, Preferences and Rights of any outstanding series of preferred stock of the Company or the By-laws or (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its Subsidiaries is a party, or result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations and the rules and regulations of the Principal Market applicable to the Company or any of its Subsidiaries) or by which any property or asset of the Company or any of its Subsidiaries is bound or affected, except in the case of conflicts, defaults and violations under clause (ii), which could not reasonably be expected to result in a Material Adverse Effect. Except as disclosed in Schedule 3(e), neither the Company nor its Subsidiaries is in violation of any term of or in default under its Certificate of Incorporation, any Certificate of Designation, Preferences and Rights of any outstanding series of preferred stock of the Company or By-laws or their organizational charter or by-laws, respectively. Except as disclosed in Schedule 3(e), neither the Company nor any of its Subsidiaries is in violation of any term of or is in default under any material contract, agreement, mortgage, indebtedness, indenture, instrument, judgment, decree or order or any statute, rule or regulation applicable to the Company or its Subsidiaries, except for possible conflicts, defaults, terminations or amendments which could not reasonably be expected to have a Material Adverse Effect. The business of the Company and its Subsidiaries is not being conducted, and shall not be conducted, in violation of any law, ordinance, regulation of any governmental entity, except for possible violations, the sanctions for which either individually or in the aggregate could not reasonably be expected to have a Material Adverse Effect. Except as specifically contemplated by this Agreement and as required under the 1933 Act, the Company is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency or any regulatory or self-regulatory agency in order for it to execute, deliver or perform any of its obligations under or contemplated by the Transaction Documents in accordance with the terms hereof or thereof. Except as disclosed in Schedule 3(e), all consents, authorizations, orders, filings and registrations which the Company is required to obtain pursuant to the preceding sentence shall be obtained or effected on or prior to the Commencement Date. Except as disclosed in Schedule 3(e), the Company is not and has not been since January 1, 1999, in violation of the listing requirements of the Principal Market. (f) SEC DOCUMENTS; FINANCIAL STATEMENTS. Except as disclosed in Schedule 3(f), since January 1, 1999, the Company has timely filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended (the "1934 Act") (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein being hereinafter referred to as the "SEC Documents"). As of their respective dates (except as they have been correctly amended), the SEC Documents complied in all material respects with the requirements of the 1934 Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC (except as they may have been properly amended), contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. As of their respective dates (except as they have been properly amended), the financial statements of the Company included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Such financial statements have been prepared in accordance with generally accepted accounting principles, consistently applied, during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto or (ii) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or 7 summary statements) and fairly present in all material respects the financial position of the Company as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). (g) ABSENCE OF CERTAIN CHANGES. Except as disclosed in Schedule 3(g), since September 30, 2000, there has been no material adverse change in the business, properties, operations, financial condition or results of operations of the Company or its Subsidiaries. The Company has not taken any steps, and does not currently expect to take any steps, to seek protection pursuant to any bankruptcy law nor does the Company or any of its Subsidiaries have any knowledge or reason to believe that its creditors intend to initiate involuntary bankruptcy proceedings. (h) ABSENCE OF LITIGATION. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the Company or any of its Subsidiaries, threatened against or affecting the Company, the Common Stock or any of the Company's Subsidiaries or any of the Company's or the Company's Subsidiaries' officers or directors in their capacities as such, which could reasonably be expected to have a Material Adverse Effect. A description of each action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body which, as of the date of this Agreement, is pending or threatened in writing against or affecting the Company, the Common Stock or any of the Company's Subsidiaries or any of the Company's or the Company's Subsidiaries' officers or directors in their capacities as such, is set forth in Schedule 3(h). (i) ACKNOWLEDGMENT REGARDING BUYER'S STATUS. The Company acknowledges and agrees that the Buyer is acting solely in the capacity of arm's length purchaser with respect to the Transaction Documents and the transactions contemplated hereby and thereby. The Company further acknowledges that the Buyer is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Transaction Documents and the transactions contemplated hereby and thereby and any advice given by the Buyer or any of its representatives or agents in connection with the Transaction Documents and the transactions contemplated hereby and thereby is merely incidental to the Buyer's purchase of the Securities. The Company further represents to the Buyer that the Company's decision to enter into the Transaction Documents has been based solely on the independent evaluation by the Company and its representatives and advisors. (j) NO GENERAL SOLICITATION. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D under the 1933 Act) in connection with the offer or sale of the Securities. (k) INTENTIONALLY OMITTED. (l) DILUTIVE EFFECT. The Company understands and acknowledges that the number of Purchase Shares purchasable under this Agreement will increase in certain circumstances. The Company further acknowledges that its obligation to issue Purchase Shares under this Agreement in accordance with the terms and conditions hereof is absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other shareholders of the Company. (m) INTELLECTUAL PROPERTY RIGHTS. The Company and its Subsidiaries own or possess adequate rights or licenses to use all material trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets and rights necessary to conduct their respective businesses as now conducted. Except as set forth on Schedule 3(m), none of the 8 Company's material trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, government authorizations, trade secrets or other intellectual property rights have expired or terminated, or, by the terms and conditions thereof, could expire or terminate within two years from the date of this Agreement. The Company and its Subsidiaries do not have any knowledge of any infringement by the Company or its Subsidiaries of any material trademark, trade name rights, patents, patent rights, copyrights, inventions, licenses, service names, service marks, service mark registrations, trade secret or other similar rights of others, or of any such development of similar or identical trade secrets or technical information by others and, except as set forth on Schedule 3(m), there is no claim, action or proceeding being made or brought against, or to the Company's knowledge, being threatened against, the Company or its Subsidiaries regarding trademark, trade name, patents, patent rights, invention, copyright, license, service names, service marks, service mark registrations, trade secret or other infringement, which could reasonably be expected to have a Material Adverse Effect. (n) ENVIRONMENTAL LAWS. The Company and its Subsidiaries (i) are in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants ("Environmental Laws"), (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) are in compliance with all terms and conditions of any such permit, license or approval, except where, in each of the three foregoing clauses, the failure to so comply could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. (o) TITLE. The Company and its Subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them which is material to the business of the Company and its Subsidiaries, in each case free and clear of all liens, encumbrances and defects except such as are described in Schedule 3(o) or such as do not materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company and any of its Subsidiaries. Any real property and facilities held under lease by the Company and any of its Subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its Subsidiaries. (p) INSURANCE. The Company and each of its Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the Company believes to be prudent and customary in the businesses in which the Company and its Subsidiaries are engaged. Neither the Company nor any such Subsidiary has been refused any insurance coverage sought or applied for and neither the Company nor any such Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not materially and adversely affect the condition, financial or otherwise, or the earnings, business or operations of the Company and its Subsidiaries, taken as a whole. (q) REGULATORY PERMITS. The Company and its Subsidiaries possess all material certificates, authorizations and permits issued by the appropriate federal, state or foreign regulatory authorities necessary to conduct their respective businesses, and neither the Company nor any such Subsidiary has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit. 9 (r) TAX STATUS. The Company and each of its Subsidiaries has made or filed, with the exceptions indicated, all federal and state income and all other material tax returns, reports and declarations required by any jurisdiction to which it is subject (unless and only to the extent that the Company and each of its Subsidiaries has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes) and has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and has set aside on its books provision reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. The Company is in the process of filing its single entity federal and state income tax returns for the calendar years 1998 and 1999. The returns will show net operating losses and no tax due. The federal and state consolidated income tax returns for the Company and its subsidiaries for the calendar year 2000 are on extension. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim. (s) TRANSACTIONS WITH AFFILIATES. Except as set forth on Schedule 3(s) and other than the grant or exercise of stock options disclosed on Schedule 3(c), none of the officers, directors, or employees of the Company is presently a party to any transaction with the Company or any of its Subsidiaries (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any corporation, partnership, trust or other entity in which any officer, director, or any such employee has an interest or is an officer, director, trustee or partner. (t) APPLICATION OF TAKEOVER PROTECTIONS. The Company and its board of directors have taken or will take prior to the Commencement Date all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Certificate of Incorporation or the laws of the state of its incorporation which is or could become applicable to the Buyer as a result of the transactions contemplated by this Agreement, including, without limitation, the Company's issuance of the Securities and the Buyer's ownership of the Securities. (u) FOREIGN CORRUPT PRACTICES. Neither the Company, nor any of its Subsidiaries, nor any director, officer, agent, employee or other person acting on behalf of the Company or any of its Subsidiaries has, in the course of its actions for, or on behalf of, the Company, used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee. 10 4. COVENANTS. (a) FILING OF REGISTRATION STATEMENT. The Company shall within 30 days from the date hereof file a new registration statement covering the sale of at least 5,640,000 shares of Common Stock. The Buyer and its counsel shall have a reasonable opportunity to review and comment upon such registration statement or amendment to such registration statement and any related prospectus prior to its filing with the SEC. The Company shall use its best efforts to have such registration statement or amendment declared effective by the SEC at the earliest possible date. (b) BLUE SKY. The Company shall, on or before the Commencement Date, take such action, if any, as the Company shall reasonably determine is necessary in order to obtain an exemption for or to qualify the Commitment Shares and the Purchase Shares for sale to the Buyer pursuant to this Agreement under applicable securities or "Blue Sky" laws of the states of the United States, and shall provide evidence of any such action so taken to the Buyer on or prior to the Commencement Date. The Company shall make all filings and reports relating to the offer and sale of the Commitment Shares and the Purchase Shares required under applicable securities or "Blue Sky" laws of the states of the United States following the Commencement Date. (c) NO VARIABLE PRICED FINANCING. Other than pursuant to this Agreement, the Company agrees that beginning on the date of this Agreement and ending on the date of termination of this Agreement (as provided in Section 11(k) hereof), neither the Company nor any of its Subsidiaries shall, without the prior written consent of the Buyer, contract for any equity financing (including any debt financing with an equity component) or issue any equity securities of the Company or any Subsidiary or securities convertible or exchangeable into or for equity securities of the Company or any Subsidiary (including debt securities with an equity component) which, in any case (i) are convertible into or exchangeable for an indeterminate number of shares of common stock, (ii) are convertible into or exchangeable for Common Stock at a price which varies with the market price of the Common Stock, (iii) directly or indirectly provide for any "re-set" or adjustment of the purchase price, conversion rate or exercise price after the issuance of the security, or (iv) contain any "make-whole" provision based upon, directly or indirectly, the market price of the Common Stock after the issuance of the security, in each case, other than reasonable and customary anti-dilution adjustments for issuance of shares of Common Stock at a price which is below the market price of the Common Stock. (d) LISTING. The Company shall promptly secure the listing of all of the Purchase Shares and Commitment Shares upon each national securities exchange and automated quotation system, if any, upon which shares of Common Stock are then listed (subject to official notice of issuance) and shall maintain, so long as any other shares of Common Stock shall be so listed, such listing of all such securities from time to time issuable under the terms of the Transaction Documents. The Company shall maintain the Common Stock's authorization for quotation on the Principal Market. Neither the Company nor any of its Subsidiaries shall take any action that would be reasonably expected to result in the delisting or suspension of the Common Stock on the Principal Market. The Company shall promptly, and in no event later than the following Trading Day, provide to the Buyer copies of any notices it receives from the Principal Market regarding the continued eligibility of the Common Stock for listing on such automated quotation system or securities exchange. The Company shall pay all fees and expenses in connection with satisfying its obligations under this Section. (e) LIMITATION ON SHORT SALES AND HEDGING TRANSACTIONS. The Buyer agrees that beginning on the date of this Agreement and ending on the date of termination of this Agreement as provided in Section 11(k), the Buyer and its agents, representatives and affiliates shall not in any manner whatsoever enter into or effect, directly or indirectly, any (i) "short sale" (as such term is defined in Rule 3b-3 of the 1934 Act) of the Common Stock or (ii) hedging 11 transaction, which establishes a net short position with respect to the Common Stock; provided, however, that such restrictions shall not apply (i) if the Buyer submits after a sale of shares of Common Stock a Purchase Notice entitling the Buyer to receive a number of shares of Common Stock at least equal to the number of shares so sold or (ii) if an Event of Default has occurred, including any failure by the Company to timely issue any Purchase Shares required to be issued pursuant to the terms of this Agreement. (f) ISSUANCE OF COMMITMENT SHARES; LIMITATION ON SALES OF COMMITMENT SHARES. Immediately upon the execution of this Agreement, the Company shall issue to the Buyer 640,000 shares of Common Stock (the "Commitment Shares"). The Commitment Shares shall be issued to the Buyer with a restrictive transfer legend in form reasonably acceptable to the Buyer. The Buyer agrees that the Buyer shall not transfer or sell the Commitment Shares until the earlier of 800 Trading Days (40 Monthly Periods) from the date hereof or date on which this Agreement has been terminated, provided, however, that such restrictions shall not apply: (i) in connection with any transfers to or among affiliates (as defined in the Securities Exchange Act of 1934, as amended), (ii) in connection with any pledge in connection with a bona fide loan or margin account, or (iii) if an Event of Default has occurred, or any event which, after notice and/or lapse of time, would become an Event of Default, including any failure by the Company to timely issue Purchase Shares under this Agreement. Notwithstanding the forgoing, the Buyer may transfer Commitment Shares to a third party in order to settle a sale made by the Buyer where the Buyer reasonably expects the Company to deliver Purchase Shares to the Buyer under this Agreement so long as the Buyer maintains ownership of the same overall number of shares of Common Stock by "replacing" the Commitment Shares so transferred with Purchase Shares when the Purchase Shares are actually issued by the Company to the Buyer. (g) DUE DILIGENCE. The Buyer shall have the right, from time to time as the Buyer may reasonably deem appropriate, to perform reasonable due diligence on the Company during normal business hours, upon 24 hours' prior written notice by the Buyer. The Company and its officers and employees shall reasonably cooperate with the Buyer in connection with any reasonable request by the Buyer related to the Buyer's due diligence of the Company. 5. TRANSFER AGENT INSTRUCTIONS. On the Commencement Date, the Company shall cause any restrictive legend on the Commitment Shares to be removed and all of the Purchase Shares to be issued under this Agreement shall be issued without any restrictive legend. The Company shall issue irrevocable instructions to the Transfer Agent, and any subsequent transfer agent, to issue Purchase Shares in the name of the Buyer for the Purchase Shares (the "Irrevocable Transfer Agent Instructions"). The Company warrants to the Buyer that no instruction other than the Irrevocable Transfer Agent Instructions referred to in this Section 5, will be given by the Company to the Transfer Agent with respect to the Purchase Shares and that the Commitment Shares and the Purchase Shares shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement and the Registration Rights Agreement subject to the provisions of Section 4(f) hereof in the case of the Commitment Shares. 6. CONDITIONS TO THE COMPANY'S OBLIGATION TO COMMENCE SALES OF SHARES OF COMMON STOCK. The obligation of the Company hereunder to commence sales of the Purchase Shares is subject to the satisfaction of each of the following conditions on or before the Commencement Date (the date that sales begin) and 12 once such conditions have been initially satisfied, there shall not be any ongoing obligation to satisfy such conditions after the Commencement has occurred; provided that these conditions are for the Company's sole benefit and may be waived by the Company at any time in its sole discretion by providing the Buyer with prior written notice thereof: (a) The Buyer shall have executed each of the Transaction Documents to which it is a party and delivered the same to the Company including the Registration Rights Agreement substantially in the form of EXHIBIT A hereto (the "Registration Rights Agreement"). (b) Subject to the Company's compliance with Section 4(a), a registration statement covering the sale of all of the Commitment Shares and at least 5,000,000 Purchase Shares shall have been declared effective under the 1933 Act by the SEC and no stop order with respect to the Registration Statement shall be pending or threatened by the SEC. (c) The representations and warranties of the Buyer shall be true and correct in all material respects as of the date when made and as of the Commencement Date as though made at that time (except for representations and warranties that speak as of a specific date), and the Buyer shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Buyer at or prior to the Commencement Date. 7. CONDITIONS TO THE BUYER'S OBLIGATION TO COMMENCE PURCHASES OF SHARES OF COMMON STOCK. The obligation of the Buyer to commence purchases of Purchase Shares under this Agreement is subject to the satisfaction of each of the following conditions on or before the Commencement Date (the date that sales begin) and once such conditions have been initially satisfied, there shall not be any ongoing obligation to satisfy such conditions after the Commencement has occurred; provided that these conditions are for the Buyer's sole benefit and may be waived by the Buyer at any time in its sole discretion by providing the Company with prior written notice thereof: (a) The Company shall have executed each of the Transaction Documents and delivered the same to the Buyer including the Registration Rights Agreement substantially in the form of EXHIBIT A hereto. (b) The Company shall have removed the restrictive transfer legend from the Commitment Shares. (c) The Common Stock shall be authorized for quotation on the Principal Market, trading in the Common Stock shall not have been within the last 365 days suspended by the SEC or the Principal Market and the Purchase Shares and the Commitment Shares shall be approved for listing upon the Principal Market. (d) The Buyer shall have received the opinions of the Company's legal counsel dated as of the Commencement Date in the form of EXHIBIT B attached hereto. (e) The representations and warranties of the Company shall be true and correct in all material respects (except to the extent that any of such representations and warranties is already qualified as to materiality in Section 13 3 above, in which case, such representations and warranties shall be true and correct without further qualification) as of the date when made and as of the Commencement Date as though made at that time (except for representations and warranties that speak as of a specific date) and the Company shall have performed, satisfied and complied with the covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied with by the Company at or prior to the Commencement Date. The Buyer shall have received a certificate, executed by the CEO, President or CFO of the Company, dated as of the Commencement Date, to the foregoing effect in the form attached hereto as EXHIBIT C. (f) The Board of Directors of the Company shall have adopted resolutions in the form attached hereto as EXHIBIT D which shall be in full force and effect without any amendment or supplement thereto as of the Commencement Date. (g) As of the Commencement Date, the Company shall have reserved out of its authorized and unissued Common Stock, solely for the purpose of effecting purchases of Purchase Shares hereunder, at least 5,000,000 shares of Common Stock. (h) The Irrevocable Transfer Agent Instructions, in form acceptable to the Buyer shall have been delivered to and acknowledged in writing by the Company and the Company's Transfer Agent. (i) The Company shall have delivered to the Buyer a certificate evidencing the incorporation and good standing of the Company in the State of Nevada issued by the Secretary of State of the State of Nevada as of a date within ten (10) Trading Days of the Commencement Date. (j) The Company shall have delivered to the Buyer a certified copy of the Certificate of Incorporation as certified by the Secretary of State of the State of Nevada within ten (10) Trading Days of the Commencement Date. (k) The Company shall have delivered to the Buyer a secretary's certificate executed by the Secretary of the Company, dated as of the Commencement Date, in the form attached hereto as EXHIBIT E. (l) A registration statement covering the sale of all of the Commitment Shares and at least 5,000,000 Purchase Shares shall have been declared effective under the 1933 Act by the SEC and no stop order with respect to the registration statement shall be pending or threatened by the SEC. The Company shall have prepared and delivered to the Buyer a final form of prospectus to be used by the Buyer in connection with any sales of any Commitment Shares or any Purchase Shares. The Company shall have made all filings under all applicable federal and state securities laws necessary to consummate the issuance of the Commitment Shares and the Purchase Shares pursuant to this Agreement in compliance with such laws. (m) No Event of Default has occurred, or any event which, after notice and/or lapse of time, would become an Event of Default has occurred. (n) On or prior to the Commencement Date, the Company shall take all necessary action, if any, and such actions as reasonably requested by the Buyer, in order to render inapplicable any control share acquisition, business combination, shareholder rights plan or poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Certificate of Incorporation or the laws of the state of its incorporation which is or could become applicable to the Buyer as a result of the transactions 14 contemplated by this Agreement, including, without limitation, the Company's issuance of the Securities and the Buyer's ownership of the Securities. 8. INDEMNIFICATION. In consideration of the Buyer's execution and delivery of the Transaction Documents and acquiring the Securities hereunder and in addition to all of the Company's other obligations under the Transaction Documents, the Company shall defend, protect, indemnify and hold harmless the Buyer and all of its affiliates, shareholders, officers, directors, employees and direct or indirect investors and any of the foregoing person's agents or other representatives (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the "Indemnitees") from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys' fees and disbursements (the "Indemnified Liabilities"), incurred by any Indemnitee as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by the Company in the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby, (b) any breach of any covenant, agreement or obligation of the Company contained in the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby, or (c) any cause of action, suit or claim brought or made against such Indemnitee and arising out of or resulting from the execution, delivery, performance or enforcement of the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby, other than with respect to Indemnified Liabilities which directly and primarily result from the gross negligence or willful misconduct of the Indemnitee. To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. 9. EVENTS OF DEFAULT. An "Event of Default" shall be deemed to have occurred at any time as any of the following events occurs: (a) while any registration statement is required to be maintained effective pursuant to the terms of the Registration Rights Agreement, the effectiveness of such registration statement lapses for any reason (including, without limitation, the issuance of a stop order) or is unavailable to the Buyer for sale of all of the Registrable Securities (as defined in the Registration Rights Agreement) in accordance with the terms of the Registration Rights Agreement, and such lapse or unavailability continues for a period of ten (10) consecutive Trading Days or for more than an aggregate of thirty (30) Trading Days in any 365-day period; (b) the suspension from trading or failure of the Common Stock to be listed on the Principal Market for a period of ten (10) consecutive Trading Days or for more than an aggregate of thirty (30) Trading Days in any 365-day period; (c) the failure of the Company or the Common Stock to fully meet the requirements for continued listing on the Principal Market for a period of ten (10) consecutive Trading Days or for more than an aggregate of thirty (30) Trading Days in any 365-day period; 15 (d) the failure for any reason by the Transfer Agent to issue Purchase Shares to the Buyer within five (5) Trading Days after the applicable Purchase Date which the Buyer is entitled to receive; (e) [INTENTIONALLY OMITTED]; (f) the Company breaches any representation, warranty, covenant or other term or condition under any Transaction Document if such breach could have a Material Adverse Effect and except, in the case of a breach of a covenant which is reasonably curable, only if such breach continues for a period of at least ten (10) Trading Days; (g) except as set forth on Schedule 9(g), any payment default under any contract whatsoever or any acceleration prior to maturity of any mortgage, indenture, contract or instrument under which there may be issued or by which there may be secured or evidenced any indebtedness for money borrowed by the Company or for money borrowed the repayment of which is guaranteed by the Company, whether such indebtedness or guarantee now exists or shall be created hereafter, which, with respect to any such payment default or acceleration prior to maturity, is in excess of $1,000,000; (h) if any Person commences a proceeding against the Company pursuant to or within the meaning of any Bankruptcy Law; (i) if the Company pursuant to or within the meaning of any Bankruptcy Law; (A) commences a voluntary case, (B) consents to the entry of an order for relief against it in an involuntary case, (C) consents to the appointment of a Custodian of it or for all or substantially all of its property, (D) makes a general assignment for the benefit of its creditors, (E) becomes insolvent, or (F) is generally unable to pay its debts as the same become due; or (j) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that (A) is for relief against the Company in an involuntary case, (B) appoints a Custodian of the Company or for all or substantially all of its property, or (C) orders the liquidation of the Company or any Subsidiary. In addition to any other rights and remedies under applicable law and this Agreement, including the Buyer termination rights under Section 11(k) hereof, so long as an Event of Default has occurred and is continuing, or if any event which, after notice and/or lapse of time, would become an Event of Default, has occurred and is continuing, or so long as the Purchase Price is below the Purchase Price Floor, the Buyer shall not be obligated to purchase any shares of Common Stock under this Agreement. If pursuant to or within the meaning of any Bankruptcy Law, the Company commences a voluntary case or any Person commences a proceeding against the Company, a Custodian is appointed for the Company or for all or substantially all of its property, or the Company makes a general assignment for the benefit of its creditors, (any of which would be an Event of Default as described in Sections 9(h), 9(i) and 9(j) hereof) this Agreement shall automatically terminate without any liability or payment to the Company without further action or notice by any Person. No such termination of this Agreement under Section 11(k)(i) shall affect the Company's or the Buyer's obligations under this Agreement with respect to pending purchases and the Company and the Buyer shall complete their respective obligations with respect to any pending purchases under this Agreement. 16 10. CERTAIN DEFINED TERMS. For purposes of this Agreement, the following terms shall have the following meanings: (a) "1933 Act" means the Securities Act of 1933, as amended. (b) "Available Amount" means initially Ten Million Dollars ($10,000,000) in the aggregate which amount shall be reduced by the Purchase Amount each time the Buyer purchases shares of Common Stock pursuant to Section 1 hereof. (c) "Bankruptcy Law" means Title 11, U.S. Code, or any similar federal or state law for the relief of debtors. (d) "Closing Sale Price" means, for any security as of any date, the last closing trade price for such security on the Principal Market as reported by Bloomberg, or, if the Principal Market is not the principal securities exchange or trading market for such security, the last closing trade price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg. (e) "Custodian" means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law. (f) "Daily Base Amount" means initially Twelve Thousand Five Hundred Dollars ($12,500) per Trading Day, which amount may be increased or decreased from time to time pursuant to Section 1(c) hereof. (g) "Floor Price" means initially $0.00, which amount may be increased or decreased from time to time pursuant to Section 1(d)(iii) hereof. (h) "Maturity Date" means the date that is 800 Trading Days (40 Monthly Periods) from the Commencement Date which such date may be extended by up to an additional Six (6) Monthly Periods by the Company, in its sole discretion, by written notice to the Buyer. (i) "Monthly Base Amount" means Two Hundred Fifty Thousand Dollars ($250,000) per Monthly Period. (j) "Monthly Period" means each successive 20 Trading Day period commencing with the Commencement Date. (k) "Original Daily Base Amount" means Twelve Thousand Five Hundred Dollars ($12,500) per Trading Day. (l) "Person" means an individual or entity including any limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization and a government or any department or agency thereof. (m) "Principal Market" means The Nasdaq OTC/ Bulletin Board market, provided, however, that in the event the Company's Common Stock is ever listed for trading on the Nasdaq National Market, Nasdaq SmallCap Market or the American Stock Exchange, than the "Principal Market" shall mean such other market on which the Company's Common Stock is then listed, and (ii) for purposes of Section 9(c) hereof only, "Principal Market" shall mean The Nasdaq SmallCap Market in respect of the requirements for continued listing on the Principal Market. 17 (n) "Purchase Amount" means the portion of the Available Amount to be purchased by the Buyer pursuant to Section 1 hereof. (o) "Purchase Date" means the actual date that the Buyer is to buy Purchase Shares pursuant to Section 1 hereof. (p) "Purchase Price" means, as of any Purchase Date the lower of the (A) the lowest Sale Price of the Common Stock on the Purchase Date or such other date of determination and (B) the arithmetic average of the three (3) lowest Closing Sale Prices for the Common Stock during the twelve (12) consecutive Trading Days ending on the Trading Day immediately preceding such Purchase Date or other date of determination (to be appropriately adjusted for any reorganization, recapitalization, non-cash dividend, stock split or other similar transaction). (q) "Sale Price" means, for any security as of any date, any trade price for such security on the Principal Market as reported by Bloomberg, or, if the Principal Market is not the principal securities exchange or trading market for such security, the trade price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg. (r) "SEC" means the United States Securities and Exchange Commission. (s) "Trading Day" means any day on which the Principal Market is open for customary trading. 11. MISCELLANEOUS. (a) GOVERNING LAW; JURISDICTION; JURY TRIAL. The corporate laws of the State of Nevada shall govern all issues concerning the relative rights of the Company and its shareholders. All other questions concerning the construction, validity, enforcement and interpretation of this Agreement and the other Transaction Documents shall be governed by the internal laws of the State of Illinois, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Illinois or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of Illinois. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of Chicago, for the adjudication of any dispute hereunder or under the other Transaction Documents or in connection herewith or therewith, or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address for such notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY. 18 (b) COUNTERPARTS. This Agreement may be executed in two or more identical counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party; provided that a facsimile signature shall be considered due execution and shall be binding upon the signatory thereto with the same force and effect as if the signature were an original, not a facsimile signature. (c) HEADINGS. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement. (d) SEVERABILITY. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction. (e) ENTIRE AGREEMENT; AMENDMENTS. This Agreement supersedes all other prior oral or written agreements between the Buyer, the Company, their affiliates and persons acting on their behalf with respect to the matters discussed herein, and this Agreement, the other Transaction Documents and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor the Buyer makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be amended other than by an instrument in writing signed by the Company and the Buyer, and no provision hereof may be waived other than by an instrument in writing signed by the party against whom enforcement is sought. (f) NOTICES. Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one Trading Day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be: If to the Company: TSET, Inc. 333 South State Street, PMB 111 Lake Oswego, Oregon 97034 Telephone: 503-968-1547 Facsimile: 503-968-2337 Attention: Jeffrey D. Wilson With a copy to: Kirkpatrick & Lockhart LLP 201 Sout Biscayne Boulevard, Suite 2000 Miami, FL 33131 Telephone: 305-539-3300 Facsimile: 305-358-7095 Attention: Clayton E. Parker, Esq. 19 If to the Buyer: Fusion Capital Fund II, LLC 222 Merchandise Mart Plaza, Suite 9-112 Chicago, IL 60654 Telephone: 312-644-6644 Facsimile: 312-644-6244 Attention: Steven G. Martin If to the Transfer Agent: Merit Transfer Company 68 South Main Street, Suite 708 Salt Lake City, UT 84101 Telephone: 801-531-7558 Facsimile: 801-531-7558 Attention: Duane Ford or at such other address and/or facsimile number and/or to the attention of such other person as the recipient party has specified by written notice given to each other party three (3) Trading Days prior to the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender's facsimile machine containing the time, date, and recipient facsimile number or (C) provided by a nationally recognized overnight delivery service, shall be rebuttable evidence of personal service, receipt by facsimile or receipt from a nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above, respectively. (g) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns. The Company shall not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Buyer, including by merger or consolidation. The Buyer may not assign its rights or obligations under this Agreement. (h) NO THIRD PARTY BENEFICIARIES. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person. (i) PUBLICITY. The Buyer shall have the right to approve before issuance any press releases or any other public disclosure (including any filings with the SEC) with respect to the transactions contemplated hereby; provided, however, that the Company shall be entitled, without the prior approval of any Buyer, to make any press release or other public disclosure (including any filings with the SEC) with respect to such transactions as is required by applicable law and regulations (although the Buyer shall be consulted by the Company in connection with any such press release or other public disclosure prior to its release and shall be provided with a copy thereof). (j) FURTHER ASSURANCES. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. (k) TERMINATION. This Agreement may be terminated only as follows: (i) By the Buyer any time an Event of Default exists without any liability or payment to the Company. However, if pursuant to or within the meaning of any Bankruptcy Law, the Company commences a voluntary 20 case or any Person commences a proceeding against the Company, a Custodian is appointed for the Company or for all or substantially all of its property, or the Company makes a general assignment for the benefit of its creditors, (any of which would be an Event of Default as described in Sections 9(h), 9(i) and 9(j) hereof) this Agreement shall automatically terminate without any liability or payment to the Company without further action or notice by any Person. No such termination of this Agreement under this Section 11(k)(i) shall affect the Company's or the Buyer's obligations under this Agreement with respect to pending purchases and the Company and the Buyer shall complete their respective obligations with respect to any pending purchases under this Agreement. (ii) In the event that the Commencement shall not have occurred, the Company shall have the option to terminate this Agreement for any reason or for no reason without liability of any party to any other party. (iii) In the event that the Commencement shall not have occurred on or before August 31, 2001, due to the failure to satisfy the conditions set forth in Sections 6 and 7 above with respect to the Commencement (and the nonbreaching party's failure to waive such unsatisfied condition(s)), the nonbreaching party shall have the option to terminate this Agreement at the close of business on such date or thereafter without liability of any party to any other party. (iv) If by the Maturity Date (including any extension thereof by the Company pursuant to Section 10(g) hereof), for any reason or for no reason the full Available Amount under this Agreement has not been purchased as provided for in Section 1 of this Agreement, by the Buyer without any liability or payment to the Company. (v) At any time after the Commencement Date, the Company shall have the option to terminate this Agreement for any reason or for no reason by delivering notice (a "Company Termination Notice") to the Buyer electing to terminate this Agreement without any liability or payment to the Buyer. The Company Termination Notice shall not be effective until one (1) Trading Day after it has been received by the Buyer. (vi) This Agreement shall automatically terminate on the date that the Company sells and the Buyer purchases Ten Million Dollars ($10,000,000) as provided herein, without any action or notice on the part of any party. Except as set forth in Sections 11(k)(i) and 11(k)(vi), any termination of this Agreement pursuant to this Section 11(k) shall be effected by written notice from the Company to the Buyer, or the Buyer to the Company, as the case may be, setting forth the basis for the termination hereof. The representations and warranties of the Company and the Buyer contained in Sections 2 and 3 hereof, the indemnification provisions set forth in Section 8 hereof and the agreements and covenants set forth in Section 11, shall survive the Commencement and any termination of this Agreement. No termination of this Agreement shall affect the Company's or the Buyer's obligations under this Agreement with respect to pending purchases and the Company and the Buyer shall complete their respective obligations with respect to any pending purchases under this Agreement. (l) NO FINANCIAL ADVISOR, PLACEMENT AGENT, BROKER OR FINDER. The Company acknowledges that it has retained Dutchess Advisors, Ltd., as financial advisor in connection with the transactions contemplated hereby. The Company represents and warrants to the Buyer that it has not engaged any other financial advisor, placement agent, broker or finder in connection with the transactions contemplated hereby. The Buyer represents and warrants to the Company that it has not engaged any financial advisor, placement agent, broker or finder in 21 connection with the transactions contemplated hereby. The Company shall be responsible for the payment of any fees or commissions, if any, of any financial advisor, placement agent, broker or finder relating to or arising out of the transactions contemplated hereby. The Company shall pay, and hold the Buyer harmless against, any liability, loss or expense (including, without limitation, attorneys' fees and out of pocket expenses) arising in connection with any such claim. (m) NO STRICT CONSTRUCTION. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party. (n) REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The Buyer's remedies provided in this Agreement shall be cumulative and in addition to all other remedies available to the Buyer under this Agreement, at law or in equity (including a decree of specific performance and/or other injunctive relief), no remedy of the Buyer contained herein shall be deemed a waiver of compliance with the provisions giving rise to such remedy and nothing herein shall limit the Buyer's right to pursue actual damages for any failure by the Company to comply with the terms of this Agreement. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Buyer and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the Buyer shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required. (o) CHANGES TO THE TERMS OF THIS AGREEMENT. This Agreement and any provision hereof may only be amended by an instrument in writing signed by the Company and the Buyer. The term "Agreement" and all reference thereto, as used throughout this instrument, shall mean this instrument as originally executed, or if later amended or supplemented, then as so amended or supplemented. (p) ENFORCEMENT COSTS. If: (i) this Agreement is placed by the Buyer in the hands of an attorney for enforcement or is enforced by the Buyer through any legal proceeding; or (ii) an attorney is retained to represent the Buyer in any bankruptcy, reorganization, receivership or other proceedings affecting creditors' rights and involving a claim under this Agreement; or (iii) an attorney is retained to represent the Buyer in any other proceedings whatsoever in connection with this Agreement, then the Company shall pay to the Buyer, as incurred by the Buyer, all reasonable costs and expenses including attorneys' fees incurred in connection therewith, in addition to all other amounts due hereunder. (q) FAILURE OR INDULGENCE NOT WAIVER. No failure or delay in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. * * * * * 22 IN WITNESS WHEREOF, the Buyer and the Company have caused this Common Stock Purchase Agreement to be duly executed as of the date first written above. THE COMPANY: TSET, INC. By:____________________________________ Name: Title: BUYER: FUSION CAPITAL FUND II, LLC BY: FUSION CAPITAL PARTNERS, LLC BY: SGM HOLDINGS CORP. By:____________________________________ Name: Steven G. Martin Title: President EX-10.45 51 exhibit10-45.txt Exhibit 10.45 REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of ________, 2001, by and between TSET, INC. a Nevada corporation, (the "COMPANY"), and FUSION CAPITAL FUND II, LLC (together with it permitted assigns, the "BUYER"). Capitalized terms used herein and not otherwise defined herein shall have the respective meanings set forth in the Common Stock Purchase Agreement by and between the parties hereto dated as of June 19, 2001 (as amended, restated, supplemented or otherwise modified from time to time, the "PURCHASE AGREEMENT"). WHEREAS: A. The Company has agreed, upon the terms and subject to the conditions of the Purchase Agreement, to issue to the Buyer up to Ten Million Dollars ($10,000,000) of the Company's common stock, par value $0.001 per share (the "COMMON STOCK") (the "PURCHASE Shares"); and B. In connection with the Purchase Agreement, the Company has issued to the Buyer 640,000 shares of its Common Stock (the "Commitment Shares"); and C. To induce the Buyer to enter into the Purchase Agreement, the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations thereunder, or any similar successor statute (collectively, the "1933 ACT"), and applicable state securities laws. NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Buyer hereby agree as follows: 1. DEFINITIONS. ----------- As used in this Agreement, the following terms shall have the following meanings: a. "INVESTOR" means the Buyer, any transferee or assignee thereof to whom a Buyer assigns its rights under this Agreement and who agrees to become bound by the provisions of this Agreement in accordance with Section 9 and any transferee or assignee thereof to whom a transferee or assignee assigns its rights under this Agreement and who agrees to become bound by the provisions of this Agreement in accordance with Section 9. b. "PERSON" means any person or entity including any corporation, a limited liability company, an association, a partnership, an organization, a business, an individual, a governmental or political subdivision thereof or a governmental agency. c. "REGISTER," "REGISTERED," and "REGISTRATION" refer to a registration effected by preparing and filing one or more registration statements of the Company in compliance with the 1933 Act and pursuant to Rule 415 under the 1933 Act or any successor rule providing for offering securities on a continuous basis ("RULE 415"), and the declaration or ordering of effectiveness of such registration statement(s) by the United States Securities and Exchange Commission (the "SEC"). d. "REGISTRABLE SECURITIES" means (1) the Purchase Shares which have been, or which may from time to time be, issued or issuable upon purchases of the Available Amount under the Purchase Agreement (without regard to any limitation or restriction on purchases), and (2) the Commitment Shares issued to the Investor at or prior to the Commencement and any shares of capital stock issued or issuable with respect to the Purchase Shares, the Commitment Shares or the Purchase Agreement as a result of any stock split, stock dividend, recapitalization, exchange or similar event or otherwise, without regard to any limitation on purchases under the Purchase Agreement. e. "REGISTRATION STATEMENT" means the registration statement of the Company which the Company has agreed to file pursuant to Section 4(a) of the Purchase Agreement with respect to the sale of the Registrable Securities. 2. REGISTRATION. ------------ a. MANDATORY REGISTRATION. The Company shall use best efforts to keep the Registration Statement effective pursuant to Rule 415 promulgated under the 1933 Act and available for sales of all of the Registrable Securities at all times until the earlier of (i) the date as of which the Investor may sell all of the Registrable Securities without restriction pursuant to Rule 144(k) promulgated under the 1933 Act (or successor thereto) or (ii) the date on which (A) the Investor shall have sold all the Registrable Securities and no Available Amount remains under the Purchase Agreement (the "REGISTRATION PERIOD"). The Registration Statement (including any amendments or supplements thereto and prospectuses contained therein) shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein, or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading. b. RULE 424 PROSPECTUS. The Company shall, as required by applicable securities regulations, from time to time file with the SEC, pursuant to Rule 424 promulgated under the 1933 Act, the prospectus and prospectus supplements, if any, to be used in connection with sales of the Registrable Securities under the Registration Statement. The Investor and its counsel shall have a reasonable opportunity to review and comment upon such prospectus prior to its filing with the SEC. The Investor shall use its reasonable best efforts to comment upon such prospectus within one (1) Trading Day from the date the Investor receives the final version of such prospectus. c. SUFFICIENT NUMBER OF SHARES REGISTERED. In the event the number of shares available under the Registration Statement is insufficient to cover all of the Registrable Securities, the Company shall amend the Registration Statement or file a new registration statement (a "NEW REGISTRATION STATEMENT"), so as to cover all of such Registrable Securities as soon as practicable, but in any event not later than ten (10) Trading Days after the necessity therefor arises. The Company shall use it best efforts to cause such amendment and/or New Registration Statement to become effective as soon as practicable following the filing thereof. The Investor and its counsel shall have a reasonable opportunity to review and comment upon any such amendment and/or New Registration Statement prior to its filing with the SEC. The Investor shall use its reasonable best efforts to comment upon any such amendment and/or New Registration Statement within two (2) Trading Days from the date the Investor receives the final version of any such amendment and/or New Registration Statement. -2- 3. RELATED OBLIGATIONS. ------------------- With respect to the Registration Statement and whenever any Registrable Securities are to be registered pursuant to Section 2 including on any New Registration Statement, the Company shall use its reasonable best efforts to effect the registration of the Registrable Securities in accordance with the intended method of disposition thereof and, pursuant thereto, the Company shall have the following obligations: a. The Company shall prepare and file with the SEC such amendments (including post-effective amendments) and supplements to any registration statement and the prospectus used in connection with such registration statement, which prospectus is to be filed pursuant to Rule 424 promulgated under the 1933 Act, as may be necessary to keep the Registration Statement or any New Registration Statement effective at all times during the Registration Period, and, during such period, comply with the provisions of the 1933 Act with respect to the disposition of all Registrable Securities of the Company covered by the Registration Statement or any New Registration Statement until such time as all of such Registrable Securities shall have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof as set forth in such registration statement. b. The Company shall permit the Investor to review and comment upon the Registration Statement or any New Registration Statement and all amendments and supplements thereto at least two (2) Trading Days prior to their filing with the SEC, and not file any document in a form to which Investor reasonably objects. The Investor shall use its reasonable best efforts to comment upon the Registration Statement or any New Registration Statement and any amendments or supplements thereto within two (2) Trading Days from the date the Investor receives the final version thereof. The Company shall furnish to the Investor, without charge any correspondence from the SEC or the staff of the SEC to the Company or its representatives relating to the Registration Statement or any New Registration Statement. c. The Company shall furnish to the Investor, (i) promptly after the same is prepared and filed with the SEC, at least one copy of such registration statement and any amendment(s) thereto, including financial statements and schedules, all documents incorporated therein by reference and all exhibits, (ii) upon the effectiveness of any registration statement, ten (10) copies of the prospectus included in such registration statement and all amendments and supplements thereto (or such other number of copies as the Investor may reasonably request) and (iii) such other documents, including copies of any preliminary or final prospectus, as the Investor may reasonably request from time to time in order to facilitate the disposition of the Registrable Securities owned by the Investor. d. The Company shall use reasonable best efforts to (i) register and qualify the Registrable Securities covered by a registration statement under such other securities or "blue sky" laws of such jurisdictions in the United States as the Investor reasonably requests, (ii) prepare and file in those jurisdictions, such amendments (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof during the Registration Period, (iii) take such other actions as may be necessary to maintain such registrations and qualifications in effect at all times during the Registration Period, and (iv) take all other actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to (x) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(d), (y) subject itself to general taxation in any such jurisdiction, or (z) file a general consent to service of process in any such jurisdiction. The Company shall promptly notify the Investor who holds Registrable Securities of the receipt by the Company of -3- any notification with respect to the suspension of the registration or qualification of any of the Registrable Securities for sale under the securities or "blue sky" laws of any jurisdiction in the United States or its receipt of actual notice of the initiation or threatening of any proceeding for such purpose. e. As promptly as practicable after becoming aware of such event or facts, the Company shall notify the Investor in writing of the happening of any event or existence of such facts as a result of which the prospectus included in any registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and promptly prepare a supplement or amendment to such registration statement to correct such untrue statement or omission, and deliver ten (10) copies of such supplement or amendment to the Investor (or such other number of copies as the Investor may reasonably request). The Company shall also promptly notify the Investor in writing (i) when a prospectus or any prospectus supplement or post-effective amendment has been filed, and when a registration statement or any post-effective amendment has become effective (notification of such effectiveness shall be delivered to the Investor by facsimile on the same day of such effectiveness and by overnight mail), (ii) of any request by the SEC for amendments or supplements to any registration statement or related prospectus or related information, and (iii) of the Company's reasonable determination that a post-effective amendment to a registration statement would be appropriate. f. The Company shall use its reasonable best efforts to prevent the issuance of any stop order or other suspension of effectiveness of any registration statement, or the suspension of the qualification of any Registrable Securities for sale in any jurisdiction and, if such an order or suspension is issued, to obtain the withdrawal of such order or suspension at the earliest possible moment and to notify the Investor of the issuance of such order and the resolution thereof or its receipt of actual notice of the initiation or threat of any proceeding for such purpose. g. The Company shall (i) cause all the Registrable Securities to be listed on each securities exchange or trading system on which securities of the same class or series issued by the Company are then listed, if any, if the listing of such Registrable Securities is then permitted under the rules of such exchange, or (ii) secure designation and quotation of all the Registrable Securities on the Principal Market. The Company shall pay all fees and expenses in connection with satisfying its obligation under this Section. h. The Company shall cooperate with the Investor to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legend) representing the Registrable Securities to be offered pursuant to any registration statement and enable such certificates to be in such denominations or amounts as the Investor may reasonably request and registered in such names as the Investor may request. i. The Company shall at all times provide a transfer agent and registrar with respect to its Common Stock. j. If reasonably requested by the Investor, the Company shall (i) immediately incorporate in a prospectus supplement or post-effective amendment such information as the Investor believes should be included therein relating to the sale and distribution of Registrable Securities, including, without limitation, information with respect to the number of Registrable Securities being sold, the purchase price being paid therefor and any other terms of the offering of the Registrable Securities; (ii) make all required filings of such prospectus supplement or post-effective amendment as soon as -4- notified of the matters to be incorporated in such prospectus supplement or post-effective amendment; and (iii) supplement or make amendments to any registration statement. k. The Company shall use its reasonable best efforts to cause the Registrable Securities covered by any registration statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to consummate the disposition of such Registrable Securities. l. Within one (1) Trading Day after any registration statement which includes the Registrable Securities is ordered effective by the SEC, the Company shall deliver, and shall cause legal counsel for the Company to deliver, to the transfer agent for such Registrable Securities (with copies to the Investor) confirmation that such registration statement has been declared effective by the SEC in the form attached hereto as EXHIBIT A. m. The Company shall take all other reasonable actions reasonably requested by the Investor to expedite and facilitate disposition by the Investor of Registrable Securities pursuant to any registration statement. 4. OBLIGATIONS OF THE INVESTOR. --------------------------- a. The Company shall notify the Investor in writing of the information the Company reasonably requires from the Investor in connection with any registration statement hereunder. The Investor shall furnish to the Company such information regarding itself, the Registrable Securities held by it and the intended method of disposition of the Registrable Securities held by it as shall be reasonably required to effect the registration of such Registrable Securities and shall execute such documents in connection with such registration as the Company may reasonably request. b. The Investor agrees to cooperate with the Company as reasonably requested by the Company in connection with the preparation and filing of any registration statement hereunder. c. The Investor agrees that, upon receipt of any notice from the Company of the happening of any event or existence of facts of the kind described in Section 3(f) or the first sentence of 3(e), the Investor will immediately discontinue disposition of Registrable Securities pursuant to any registration statement(s) covering such Registrable Securities until the Investor's receipt of the copies of the supplemented or amended prospectus contemplated by Section 3(f) or the first sentence of 3(e). Notwithstanding anything to the contrary, the Company shall cause its transfer agent to promptly deliver shares of Common Stock without any restrictive legend in accordance with the terms of the Purchase Agreement in connection with any sale of Registrable Securities with respect to which an Investor has entered into a contract for sale prior to the Investor's receipt of a notice from the Company of the happening of any event of the kind described in Section 3(f) or the first sentence of 3(e) and for which the Investor has not yet settled. 5. EXPENSES OF REGISTRATION. ------------------------ All reasonable expenses, other than sales or brokerage commissions and legal fees and disbursements of counsel to the Investor, incurred in connection with registrations, filings or qualifications pursuant to Sections 2 and 3, including, without limitation, all registration, listing and qualifications fees, printers and accounting fees, and fees and disbursements of counsel for the Company, shall be paid by the Company. -5- 6. INDEMNIFICATION --------------- a. To the fullest extent permitted by law, the Company shall, and hereby does, indemnify, hold harmless and defend the Investor, each Person, if any, who controls the Investor, the members, the directors, officers, partners, employees, agents, representatives of the Investor and each Person, if any, who controls the Investor within the meaning of the 1933 Act or the Securities Exchange Act of 1934, as amended (the "1934 ACT") (each, an "INDEMNIFIED PERSON"), against any losses, claims, damages, liabilities, judgments, fines, penalties, charges, costs, attorneys' fees, amounts paid in settlement or expenses, joint or several, (collectively, "CLAIMS") incurred in investigating, preparing or defending any action, claim, suit, inquiry, proceeding, investigation or appeal taken from the foregoing by or before any court or governmental, administrative or other regulatory agency, body or the SEC, whether pending or threatened, whether or not an indemnified party is or may be a party thereto ("INDEMNIFIED DAMAGES"), to which any of them may become subject insofar as such Claims (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement of a material fact in the Registration Statement, any New Registration Statement or any post-effective amendment thereto or in any filing made in connection with the qualification of the offering under the securities or other "blue sky" laws of any jurisdiction in which Registrable Securities are offered ("BLUE SKY FILING"), or the omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus if used prior to the effective date of such registration statement, or contained in the final prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the SEC) or the omission or alleged omission to state therein any material fact necessary to make the statements made therein, in light of the circumstances under which the statements therein were made, not misleading, (iii) any violation or alleged violation by the Company of the 1933 Act, the 1934 Act, any other law, including, without limitation, any state securities law, or any rule or regulation thereunder relating to the offer or sale of the Registrable Securities pursuant to the Registration Statement or any New Registration Statement or (iv) any material violation of this Agreement (the matters in the foregoing clauses (i) through (iv) being, collectively, "VIOLATIONS"). The Company shall, subject to Section 6(d) reimburse each Indemnified Person for any legal fees or other expenses reasonably incurred by them in connection with investigating or defending any such Claim. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(a): (i) shall not apply to a Claim by an Indemnified Person arising out of or based upon a Violation which occurs in reliance upon and in conformity with information furnished in writing to the Company by such Indemnified Person expressly for use in connection with the preparation of the Registration Statement, any New Registration Statement or any such amendment thereof or supplement thereto, if such prospectus was timely made available by the Company pursuant to Section 3(c) or Section 3(e); (ii) with respect to any preliminary prospectus, shall not inure to the benefit of any Indemnified Person from whom the person asserting a Claim purchased the Registrable Securities that are offered for sale by the preliminary prospectus (or to the benefit of any person controlling such person) if the untrue statement or omission of material fact contained in the preliminary prospectus was corrected in the prospectus, as then amended or supplemented, if such prospectus was timely made available by the Company pursuant to Section 3(c) or Section 3(e), and the Indemnified Person was promptly advised in writing not to use the incorrect prospectus prior to the use giving rise to a violation and such Indemnified Person, notwithstanding such advice, used it; (iii) shall not be available to the extent such Claim is based on a failure of the Investor to deliver or to cause to be delivered the prospectus made available by the Company, if such prospectus was timely made available by the Company pursuant to Section 3(c) or Section 3(e); and (iv) shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Company, which consent shall not be unreasonably withheld. Such indemnity shall remain in full force and -6- effect regardless of any investigation made by or on behalf of the Indemnified Person and shall survive the transfer of the Registrable Securities by the Investor pursuant to Section 9. b. In connection with the Registration Statement or any New Registration Statement, the Investor shall, and hereby does, indemnify, hold harmless and defend, to the same extent and in the same manner as is set forth in Section 6(a), the Company, each of its directors, each of its officers who signs the Registration Statement or any New Registration Statement, each Person, if any, who controls the Company within the meaning of the 1933 Act or the 1934 Act (collectively and together with an Indemnified Person, an "INDEMNIFIED Party"), against any Claim or Indemnified Damages to which any of them may become subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim or Indemnified Damages arise out of or are based upon any Violation, in each case to the extent, and only to the extent, that such Violation occurs in reliance upon and in conformity with written information furnished to the Company by the Investor expressly for use in connection with such registration statement; and, subject to Section 6(d), the Investor will reimburse any legal or other expenses reasonably incurred by them in connection with investigating or defending any such Claim; provided, however, that the indemnity agreement contained in this Section 6(b) and the agreement with respect to contribution contained in Section 7 shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Investor, which consent shall not be unreasonably withheld; provided, further, however, that the Investor shall be liable under this Section 6(b) for only that amount of a Claim or Indemnified Damages as does not exceed the net proceeds to the Investor as a result of the sale of Registrable Securities pursuant to such registration statement. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Indemnified Party and shall survive the transfer of the Registrable Securities by the Investor pursuant to Section 9. c. Promptly after receipt by an Indemnified Person or Indemnified Party under this Section 6 of notice of the commencement of any action or proceeding (including any governmental action or proceeding) involving a Claim, such Indemnified Person or Indemnified Party shall, if a Claim in respect thereof is to be made against any indemnifying party under this Section 6, deliver to the indemnifying party a written notice of the commencement thereof, and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume control of the defense thereof with counsel mutually satisfactory to the indemnifying party and the Indemnified Person or the Indemnified Party, as the case may be; provided, however, that an Indemnified Person or Indemnified Party shall have the right to retain its own counsel with the fees and expenses to be paid by the indemnifying party, if, in the reasonable opinion of counsel retained by the indemnifying party, the representation by such counsel of the Indemnified Person or Indemnified Party and the indemnifying party would be inappropriate due to actual or potential differing interests between such Indemnified Person or Indemnified Party and any other party represented by such counsel in such proceeding. The Indemnified Party or Indemnified Person shall cooperate fully with the indemnifying party in connection with any negotiation or defense of any such action or claim by the indemnifying party and shall furnish to the indemnifying party all information reasonably available to the Indemnified Party or Indemnified Person which relates to such action or claim. The indemnifying party shall keep the Indemnified Party or Indemnified Person fully apprised at all times as to the status of the defense or any settlement negotiations with respect thereto. No indemnifying party shall be liable for any settlement of any action, claim or proceeding effected without its written consent, provided, however, that the indemnifying party shall not unreasonably withhold, delay or condition its consent. No indemnifying party shall, without the consent of the Indemnified Party or Indemnified Person, consent to entry of any judgment or enter into any settlement or other compromise which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party or -7- Indemnified Person of a release from all liability in respect to such claim or litigation. Following indemnification as provided for hereunder, the indemnifying party shall be subrogated to all rights of the Indemnified Party or Indemnified Person with respect to all third parties, firms or corporations relating to the matter for which indemnification has been made. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying party of any liability to the Indemnified Person or Indemnified Party under this Section 6, except to the extent that the indemnifying party is prejudiced in its ability to defend such action. d. The indemnification required by this Section 6 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or Indemnified Damages are incurred. e. The indemnity agreements contained herein shall be in addition to (i) any cause of action or similar right of the Indemnified Party or Indemnified Person against the indemnifying party or others, and (ii) any liabilities the indemnifying party may be subject to pursuant to the law. 7. CONTRIBUTION. ------------ To the extent any indemnification by an indemnifying party is prohibited or limited by law, the indemnifying party agrees to make the maximum contribution with respect to any amounts for which it would otherwise be liable under Section 6 to the fullest extent permitted by law; provided, however, that: (i) no seller of Registrable Securities guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any seller of Registrable Securities who was not guilty of fraudulent misrepresentation; and (ii) contribution by any seller of Registrable Securities shall be limited in amount to the net amount of proceeds received by such seller from the sale of such Registrable Securities. 8. REPORTS AND DISCLOSURE UNDER THE SECURITIES ACTS. ------------------------------------------------ With a view to making available to the Investor the benefits of Rule 144 promulgated under the 1933 Act or any other similar rule or regulation of the SEC that may at any time permit the Investor to sell the Registrable Securities to the public without registration ("RULE 144"), the Company agrees to: a. make and keep public information available, as those terms are understood and defined in Rule 144; b. file with the SEC in a timely manner all reports and other documents required of the Company under the 1933 Act and the 1934 Act so long as the Company remains subject to such requirements and the filing of such reports and other documents is required for the applicable provisions of Rule 144; and c. furnish to the Investor so long as the Investor owns Registrable Securities, promptly upon request, (i) a written statement by the Company that it has complied with the reporting and or disclosure provisions of Rule 144, the 1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested to permit the Investor to sell such securities pursuant to Rule 144 without registration. -8- 9. ASSIGNMENT OF REGISTRATION RIGHTS. --------------------------------- The Company shall not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Investor, including by merger or consolidation. The Investor may not assign its rights under this Agreement without the written consent of the Company, other than to an affiliate of the Investor controlled by Steven G. Martin or Joshua B. Scheinfeld. 10. AMENDMENT OF REGISTRATION RIGHTS. -------------------------------- Provisions of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the Investor. 11. MISCELLANEOUS. ------------- a. A Person is deemed to be a holder of Registrable Securities whenever such Person owns or is deemed to own of record such Registrable Securities. If the Company receives conflicting instructions, notices or elections from two or more Persons with respect to the same Registrable Securities, the Company shall act upon the basis of instructions, notice or election received from the registered owner of such Registrable Securities. b. Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one (1) Trading Day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be: If to the Company: TSET, Inc. 333 South State Street, PMB 111 Lake Oswego, Oregon 97034 Telephone: 503-293-1270 Facsimile: 503-293-7233 Attention: _______________ With a copy to: Kirkpatrick & Lockhart LLP 201 South Biscayne Boulevard, Suite 2000 Miami, FL 33131 Telephone: 305-539-3300 Facsimile: 305-358-7095 Attention: Clayton E. Parker, Esq. -9- If to the Investor: Fusion Capital Fund II, LLC 222 Merchandise Mart Plaza, Suite 9-112 Chicago, IL 60654 Telephone: 312-644-6644 Facsimile: 312-644-6244 Attention: Steven G. Martin or at such other address and/or facsimile number and/or to the attention of such other person as the recipient party has specified by written notice given to each other party three (3) Trading Days prior to the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender's facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission or (C) provided by a nationally recognized overnight delivery service, shall be rebuttable evidence of personal service, receipt by facsimile or receipt from a nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above, respectively. c. Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof. d. Except for the corporate laws of the State of Nevada which shall govern all issues concerning the relative rights of the Company and its stockholders, all questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by the internal laws of the State of Illinois, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Illinois or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of Illinois. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting the City of Chicago, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address for such notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY. e. This Agreement, and the Purchase Agreement constitute the entire agreement among the parties hereto with respect to the subject matter hereof and thereof. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein and therein. This Agreement and the Purchase Agreement supersede all prior agreements and understandings among the parties hereto with respect to the subject matter hereof and thereof. -10- f. Subject to the requirements of Section 9, this Agreement shall inure to the benefit of and be binding upon the permitted successors and assigns of each of the parties hereto. g. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. h. This Agreement may be executed in identical counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement. This Agreement, once executed by a party, may be delivered to the other party hereto by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement. i. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. j. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent and no rules of strict construction will be applied against any party. k. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other Person. * * * * * * -11- IN WITNESS WHEREOF, the parties have caused this Registration Rights Agreement to be duly executed as of day and year first above written. THE COMPANY: ------------ TSET, INC. By: ----------------------- Name: Title: BUYER: ------ FUSION CAPITAL FUND II, LLC BY: FUSION CAPITAL PARTNERS, LLC BY: SGM HOLDINGS CORP. By: ----------------------- Name: Steven G. Martin Title: President EX-10.46 52 exhibit10-46.txt Exhibit 10.46 MUTUAL RELEASE AND SETTLEMENT AGREEMENT THIS MUTUAL RELEASE AND SETTLEMENT AGREEMENT is entered into effective as of July 7, 2001, by and among TSET, Inc., a Nevada corporation ("TSET"), Foster & Price Ltd., a corporation organized and existing under the laws of the Isle of Man ("FPL"), and Alex D. Saenz, an individual residing in the State of California ("Saenz"). TSET. FPL, and Saenz are collectively referred to herein as "the Parties." WHEREAS, TSET and FPL entered into that certain Term Sheet, dated as of May 28, 1999 (the "Term Sheet"); WHEREAS, a dispute has arisen among the Parties involving, among other things, certain terms and conditions set forth in the Term Sheet; and WHEREAS, the Parties intend, individually and collectively, that this Agreement memorialize the terms and conditions upon which they shall release and settle any and all claims, counterclaims, cross-claims, and causes of action between or among them that have been, could have been, or could be asserted against each other (hereinafter collectively referred to as "claims") including, without limitation, any and all claims arising out of the Term Sheet and relating to that certain lawsuit filed by TSET in Clackamas County, Oregon, captioned TSET, Inc. v. Foster & Price Ltd., civil case no. CCV-0001304 (the "Lawsuit"); NOW, THEREFORE, for and in consideration of the mutual covenants and promises set forth herein and for other good and valuable consideration, the delivery, receipt, and sufficiency of which is hereby acknowledged, the Parties agree as follows: 1. MUTUAL RELEASE AND SETTLEMENT. ------------------------------ (a) FPL and Saenz individually, collectively, mutually, fully, completely, comprehensively, and forever relinquish, waive, and release TSET and all parents, subsidiaries, affiliated corporations, directors, officers, employees, shareholders, representatives, attorneys, insurers, agents, accountants, successors, and assigns, individually, jointly, and collectively ("the Released Parties"), from and against any and all claims whatsoever, now existing or hereafter arising, including, without limitation, any and all claims related to the Term Sheet and/or the Lawsuit, known or unknown, now existing or hereafter arising, based upon intentional or unintentional conduct, acts of omission or commission, statutory provisions or common law, or otherwise. (b) TSET fully, completely, comprehensively, and forever relinquishes, waives, and releases FPL and Saenz and all parents, subsidiaries, affiliated corporations, directors, officers, employees, shareholders, representatives, attorneys, insurers, agents, accountants, successors, and assigns, individually, jointly, and collectively ("the Released Parties"), from and against any and all claims whatsoever, now existing or hereafter arising, including, without limitation, any and all claims related to the Term Sheet and/or the Lawsuit, known or unknown, now existing or hereafter arising, based upon intentional or unintentional conduct, acts of omission or commission, statutory provisions or common law, or otherwise. (c) TSET agrees to dismiss with prejudice and without costs to any party the claims asserted by it in the Lawsuit, and FPL and Saenz agree to dismiss with prejudice and without costs to any party the claims asserted by FPL and Saenz in the Lawsuit, and the Parties mutually agree not to directly or indirectly prosecute or hereafter maintain or institute, or cause to be prosecuted, maintained, or instituted against each other, any action at law, suit, or proceeding in equity, or administrative proceeding, for any claim, counterclaim, or cross-claim released pursuant to this Agreement, or otherwise. Notwithstanding the foregoing, nothing in this Section 1 shall prevent any Party from bringing a legal or equitable action seeking to enforce the terms hereof. The execution and delivery of this Agreement by the Parties shall effect and constitute a comprehensive, complete, and final waiver, relinquishment and release of the Released Parties from and against any and all claims of the Parties against each other (and in any combination of Parties with respect thereto) relating to any aspect of any obligation under the Term Sheet. Except as otherwise provided herein, upon execution and delivery of this Agreement, the Parties shall have no further, continuing, or additional performance obligations of any nature whatsoever under the Term Sheet to each other or any other person. 2. RELEASE AND SETTLEMENT CONSIDERATION. ------------------------------------- In consideration of the release, settlement, and covenants set forth herein, the Parties agree as follows: (a) Within 10 business days after receipt of a copy of this Agreement showing execution by a duly authorized representative of FPL and by Saenz, TSET shall authorize the issuance to FPL of 375,000 restricted shares of TSET's common stock, par value $0.001 per share (the "TSET Shares"), to a mutually agreeable third party escrow agent (the "Escrow Agent"), to be held as set forth herein for the benefit of FPL and Saenz. TSET shall instruct its Transfer Agent to prepare and deliver to the Escrow Agent certificates representing the TSET Shares as soon as practicable thereafter. The TSET Shares shall bear the customary legend restricting transferability, to be affixed by the Transfer Agent. (b) FPL and Saenz acknowledge that TSET intends in good faith to file a registration statement on Form S-1 (the "Registration Statement") with the Securities and Exchange Commission (the "SEC"), such filing being anticipated to occur within the 30-business day period next following the date hereof, and intends to include the TSET Shares in the Registration Statement. FPL and Saenz acknowledge and agree that declaring the effectiveness of the Registration Statement is within the sole discretion of the SEC, that there can be no assurance that the SEC will declare effective the Registration Statement, and that the number of TSET Shares that may be registered pursuant to the Registration Statement may be less than the total number of TSET Shares mentioned in Subsection (a) above. TSET agrees that it shall use its best efforts to obtain registration of the TSET Shares. TSET's inability to obtain registration for all or any of the TSET Shares mentioned in Subsection (a) shall not constitute a breach of this Agreement or give rise to any claim of liability of TSET in favor of FPL or Saenz or any other person. Upon the declaration of effectiveness of the Registration Statement by the SEC, the Escrow Agent shall deliver the TSET Shares to the Transfer Agent to enable removal of any restrictive legends thereon. (c) Notwithstanding any registration of the TSET Shares pursuant to Subsection (b) above, FPL and Saenz each agree that they shall not, individually or collectively, sell, assign, transfer, pledge, encumber, or convey (in any case, "transfer") a total of more than 5,000 TSET Shares on any trading day, and agree that in no case shall they transfer a total of more than 12,500 TSET Shares during any 5 consecutive trading days or more than a total of 50,000 TSET Shares during any 30 day period. The Parties agree that the first permitted transfer of any TSET Shares shall not occur before the lapse of 30 days following receipt by the Escrow Agent of the stock certificates mentioned in the last sentence of Subsection (a) above. The Parties further agree that the Escrow Agent shall be instructed that it can release a maximum of 50,000 TSET Shares for transfer by FPL and Saenz in any given 30 day period. Furthermore, the Escrow Agent shall notify TSET of the date and quantity of any such releases. The provisions of this Subsection (c), including the limitation on transfer of shares during any given trading period described in this Subsection (c), shall continue in full force and effect until all TSET Shares received by FPL and Saenz pursuant to this Agreement have been transferred. (d) In addition to ensuring compliance with the provisions of Subsection (c) above, FPL and Saenz shall each be responsible for ensuring that any transfer of the TSET Shares by them is effected in compliance with all applicable federal and state securities laws. FPL and Saenz shall be each responsible for the declaration and payment of any and all taxes applicable to receipt of the TSET Shares pursuant to this Agreement and any transfer thereof. TSET shall bear no responsibility for FPL's and Saenz' compliance with law or payment of any tax liabilities. 3. ALLOCATION OF TSET SHARES. -------------------------- TSET's sole responsibility with respect to the TSET Shares shall be the delivery of the TSET Shares to the Escrow Agent. FPL and Saenz agree that any allocation of ownership of the TSET Shares between them shall be their sole responsibility, and that neither FPL nor Saenz will require TSET or its representatives to intervene in or become a witness or a stakeholder in connection with any dispute with respect to questions of such allocation. Accordingly, unless otherwise instructed in a writing signed by both FPL and Saenz, as to the number of shares to be allocated to FPL and to Saenz, respectively, certificates representing the TSET Shares shall be prepared in the name and for the benefit of FPL and its attorney, Gregg A. Johnson. The indemnification provisions of Section 4 hereof shall apply with respect to any dispute between FPL and Saenz regarding the allocation of the TSET Shares. 4. INDEMNIFICATION OF TSET. ------------------------ FPL and Saenz, jointly and severally (in either case, the "Indemnifying Parties"), shall indemnify, protect, defend, and hold harmless TSET and its directors, officers, shareholders, employees, agents, attorneys, accountants, representatives, successors, and assigns (hereinafter collectively referred to as the "Indemnified Parties") from and against any and all known or unknown now existing or hereafter arising actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities, damages, and expenses, irrespective of whether the Indemnified Party is a party to the action for which indemnification is sought hereunder, and including reasonable attorneys' fees and disbursements (collectively, the "Indemnified Liabilities"), incurred or suffered by the Indemnified Parties or any of them relating to or arising from the Term Sheet, the Lawsuit and the allegations contained or that could have been contained therein, and/or the relationship among the Parties to this Agreement. To the extent the foregoing indemnification may be unenforceable for any reason, the Indemnifying Parties shall make the maximum contribution to the satisfaction of the Indemnified Liabilities which is permissible under applicable law. The Indemnifying Parties acknowledge and agree that the Indemnified Liabilities shall include, without limitation, any legal or equitable claims threatened or instituted by any person not a party to this Agreement relating directly or indirectly to the Term Sheet, the Lawsuit, or any combination thereof. 5. SECTION 1542 WAIVER. -------------------- The Parties, whether or not residents of the State of California, each expressly waives and relinquishes, to the fullest extent permitted by law, the provisions, rights, and benefits of Section 1542 of the California Civil Code (and all other similar statutes of any state or territory), which provides: A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor. Each of the Parties may hereafter discover facts in addition to or different from those which he or it now knows or believes to be true, but each Party hereby waives any and all provisions, rights and benefits conferred by any law of any state or territory of the United States, or principle of common law that is similar, comparable or equivalent to Section 1542 of the California Civil Code. Except as otherwise provided herein, the Parties and each of them fully, finally, and forever settle and release any and all claims, known or unknown, suspected or unsuspected, contingent or noncontingent, whether or not concealed or hidden, that now exist or heretofore have existed upon any theory of law or equity now existing or coming into existence in the future, including, but not limited to, conduct that is negligent, intentional, with or without malice, or a breach of any duty, law or rule, without regard to the subsequent discovery or existence of such different or additional facts. 6. NO ADMISSION OF LIABILITY. -------------------------- This Agreement is being entered into solely for the purpose of releasing, settling, and compromising the claims and the Lawsuit described herein and is not intended to be, and shall not be construed as constituting, any admission of any liability by any of the Parties. In addition, without limiting the foregoing, TSET denies any contractual relationship or other liability to Saenz. 7. CONFIDENTIALITY OF SETTLEMENT. ------------------------------ FPL and Saenz agree that they will keep each of the terms of this Agreement confidential, and that such confidentiality is a material term of this Agreement. Except as required by law or court order, neither FPL nor Saenz shall directly or indirectly make, publish, or cause to be made or published any statement to any third party regarding the subject matter of this Agreement. Such obligation of confidentiality shall not in any way be diminished by, and shall continue in full force and effect regardless of, any obligation of TSET, as a publicly-held company, to make disclosures with respect thereto in fulfillment of the reporting requirements to which TSET is subject under applicable federal and state securities laws. If inquiries are made of FPL or Saenz by any third party regarding the transactions set forth herein, FPL and Saenz shall state only that the dispute between the Parties has been amicably resolved on mutually agreeable terms. 8. REPRESENTATIONS AND WARRANTIES. ------------------------------- FPL and Saenz each represent and warrant to TSET that to the best of their knowledge, no other person or entity has any interest in, right to, or claim with respect to this Agreement, including the TSET Shares. 9. LEGAL FEES. ----------- Each Party shall bear and be responsible for the payment of its own respective legal fees, costs, and disbursements, including those incurred in connection with this Agreement. Notwithstanding the foregoing, the parties agree that, in any action for breach of this Settlement Agreement, or enforcement of this Settlement Agreement, the prevailing party shall be entitled to its reasonable attorney fees incurred in connection with such action. 10. REPRESENTATION AND WARRANTY AS TO AUTHORITY, EXECUTION, -------------------------------------------------------- DELIVERY, AND PERFORMANCE. -------------------------- The Parties represent and warrant to each other that (a) each has the requisite power and authority to enter into and perform its obligations under this Agreement, (b) the execution and delivery of this Agreement and the consummation by each of them of the transactions contemplated herein have been duly authorized by the appropriate managing authority of TSET and FPL, and no further consent or authorization is required, (c) this Agreement constitutes and upon its execution shall constitute the valid and binding obligations of the Parties enforceable against each of them in accordance with the terms hereof, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of creditors' rights and remedies, and (d) the person executing and delivering this Agreement on behalf of TSET and FPL has been lawfully and fully authorized to do so. 11. COUNTERPARTS. ------------- This Agreement may be executed in two or more identical counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each Party and delivered to the other Party; provided that a facsimile signature shall be considered due execution and shall be binding upon the signatory thereto with the same force and effect as if the signature were an original, not a facsimile signature. 12. HEADINGS. --------- The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement. 13. SEVERABILITY. ------------- If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction. 14. INTEGRATION; AMENDMENT. ----------------------- This Agreement supersedes all other prior oral or written agreements between the Parties with respect to the subject matter hereof, and contains the entire understanding of the Parties with respect to the matters covered herein and, except as specifically set forth herein or therein, none of the Parties hereto makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be amended other than by an instrument in writing signed by all of the Parties hereto, stating that such instrument is intended to amend the provisions hereof, and no provision hereof may be waived other than by an instrument in writing signed by the Party against whom enforcement is sought. The term "Agreement" and all reference thereto, as used herein, shall mean this Agreement as originally executed or, if later amended or supplemented, then as so amended or supplemented. 15. MISCELLANEOUS. -------------- This Agreement shall be binding upon and inure to the benefit of the Parties and their respective heirs, successors, and assigns. Neither FPL nor Saenz shall assign this Agreement or any rights, duties, or obligations hereunder, including by merger or consolidation, without TSET's prior written consent. This Agreement is intended for the benefit of the Parties and the Released Parties, and is not for the benefit of, nor may any provision hereof be enforced by, any other person. The language used in this Agreement shall be deemed to be the language chosen by the Parties to express their mutual intent, and no rules of strict construction will be applied against any Party. 16. 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. 17. REPRESENTATION BY COUNSEL. -------------------------- Each of the Parties hereto represents that it has had the full opportunity to consult with counsel with respect to the significance of this Agreement, and that each fully understands this Agreement and the terms hereof. IN WITNESS WHEREOF, the Parties have executed and delivered this Agreement effective as of the date first written above. TSET, Inc. By: /s/ Jeffrey D. Wilson ------------------------------- Jeffrey D. Wilson Chairman and Chief Executive Officer FOSTER & PRICE LTD. By: /s/ Samir Mahallawy ------------------------------- Samir Mahallawy Title: President as authorized signatory /s/ Alex D. Saenz ---------------------------------- Alex D. Saenz EX-10.47 53 exhibit10-47.txt Exhibit 10.47 [GRAPHIC OMITTED] July 09, 2001 Mr. Richard Tusing Member - Board of Directors TSET, Inc. Two Centerpointe Drive, Suite 580 Lake Oswego, Oregon 97035 Dear Rich: Bill Poster and I have thoroughly enjoyed our past few meetings. Those meetings, in addition to our own analysis, have provided a strong baseline understanding of the "Kronos" business opportunity. We have had an opportunity to forward along certain information and brief the other partners of The Eagle Rock Group ("Eagle Rock") on Kronos. There is a strong interest on Eagle Rock's behalf to work with the Kronos team to fully comprehend and capitalize on the Kronos technology. We are very confident that Eagle Rock can assist TSET, Inc. in unlocking the potential value of the Kronos technology. Most likely, dramatically accelerating TSET, Inc.'s Kronos opportunities versus the timing and development if TSET, Inc. were to continue on a go-it-alone strategy or if it were to work and coordinate with the myriad of groups necessary to duplicate the Eagle Rock team. Specifically, Eagle Rock initially envisions working to augment and enhance the efforts of TSET, Inc.'s Board of Directors and management in the following areas (i) capital raising and allocation (ii) strategic partner introduction and evaluation (iii) distribution channel development (iv) product focus and brand development (v) human resource placement and (vi) capital market introduction and awareness (items (i) - (vi) above define as the "Engagement"). However, due to our compensation structure (see below), I can assure you that Eagle Rock commits broadly to ensure the success of each of our clients. As we have discussed with you, Eagle Rock not only differentiates itself based on the talent and skill sets of each of the partners, but on our collective commitment to the toughest challenge of all for businesses - execution. During our past discussions we have provided examples of ways in which we work with organizations to build and harvest value. Our goal is to always link the direct results of Eagle Rock's participation with an organization to Eagle Rock's compensation. As a Board Member, Investor and potentially as part of management, I am sure that you will find this mutuality of interest refreshingly different. In helping to define our aligned interests, I have attached "a framework" for TSET, Inc. to consider in its ongoing relationship with Eagle Rock. This is 7918 Jones Branch drive, suite 600 o McLean Va. o 22102 Telephone: 703.287.8718 * Cellular PHone 703.625.6172 e-mail: j_mcdermott@Theeaglerockgroup.com 07/09/01 a framework of an understanding of what is necessary to make TSET, Inc. - Kronos a joint success. As you are already aware, Eagle Rock will require continued due diligence and fulsome investigation of TSET, Inc., its Board of Directors and management. We believe that we can complete such work no later than the date in which TSET, Inc. initially files its Registration Statement associated with the Fusion Capital equity line of credit (such date is anticipated to be on or around July 12, 2001). Although satisfactory results of Eagle Rock's additional due diligence will be required, this letter and the terms of attached "Relationship Outline" are intended to provide an agreement between Eagle Rock and TSET, Inc. Please indicate your concurrence in the space provided below. Eagle Rock looks forward to our relationship. Please call Bill Poster or me at your earliest convenience to discuss. Sincerely, James P. McDermott, Managing Director Eagle Rock Advisors, LLC Manager for The Eagle Rock Group, LLC - ------------------------ Richard Tusing TSET, Inc. - ------------------------ Date TSET, Inc. Kronos - Eagle Rock Relationship Outline STRUCTURE - - ----------- Six-month "evergreen" independent contractor relationship with a 30-day prior notice cancellation provision. PURPOSE AND MISSION - - --------------------- Eagle Rock anticipates providing the following support to TSET, Inc.'s Board of Directors and management: - capital raising and allocation - strategic partner introduction and evaluation - distribution channel development - product focus and brand development - human resource placement and - capital market introduction and awareness. COMPENSATION AND EXPENSES - - --------------------------- TSET, Inc. will issue to Eagle Rock a 10-year warrant for 1,400,000 shares of TSET, Inc. common stock that will fully vest and be exercisable on January 01, 2002. TSET, Inc. shall not have any obligation to issue the warrant if Eagle Rock elects on or before July 06, 2001 not to proceed with this agreement. A formal warrant agreement acceptable to Eagle Rock will be issued within thirty (30) days of this agreement. Termination of this agreement by TSET, Inc. shall not effect the vesting of the warrant. The option exercise price is based upon the date of this agreement. In the event TSET, Inc. seeks additional equity or debt financing, Eagle Rock shall be given an opportunity to participate in such financing upon the terms to be offered to third parties provided that Eagle Rock must definitively state its intention to so invest within the reasonable time periods imposed by TSET, Inc.. TSET, Inc. reserves the right to accept equity or debt financing from any source if, at the time such financing is made available to TSET, Inc., Eagle Rock has not definitively indicated its intent to so participate. Eagle Rock does not bill for out of pocket or incidental expenses, but does require a $20,000.00 per month expense fee payable at the beginning of each month to cover such costs. Should the expense costs of Eagle Rock extend beyond those initially estimated by Eagle Rock, TSET, Inc. and Eagle Rock will negotiate in good faith for a new monthly expense allowance. INDEMNIFICATION - - ----------------- Because of the importance of TSET, Inc.'s management's and Board of Directors cooperation and guidance to the effective performance of the completion of the Engagement, TSET, Inc. will release Eagle Rock and hold harmless and indemnify Eagle Rock and its affiliates from any claims, liabilities, damages, awards, judgments, claims costs and expenses (in any case, a "claim") relating to the services provided under this letter or any addendum thereto which are brought by TSET, Inc., its officers, directors, subsidiaries or affiliates or by any third party based upon information, documentation, disclosures, and the like provided to Eagle Rock by TSET, Inc.; provided, however, that such indemnification shall not apply in connection with any claim arising out of Eagle Rock's gross negligence or willful misconduct. Additionally, TSET, Inc. will take whatever corporate action is necessary to name Eagle Rock and its affiliates as "Indemnitees" and hence be insured on a basis no different than the management or the Board of Directors of TSET, Inc. OTHER TERMS AND CONDITIONS - - ---------------------------- Eagle Rock shall have certain vesting rights associated with the warrant, as well as tag along rights, put rights, and change of control rights, that are the same as current advisors/management (i.e., Richard Tusing and Dan Dwight) except Eagle Rock's rights shall not include restrictions generally required of management as a result of their status as current or future employees. For example, management's rights may be triggered only if there is a change of control and termination of employment - Eagle Rock would not be subject to the termination of employment requirement. Additionally, Eagle Rock will have the right to nominate one seat on the Board of Directors of TSET, Inc. and if elected, compensation commensurate with other outside Board Members. Both parties hereto agree that neither party shall make any public statements regarding the other party without prior written approval including, without limitation, statements in public securities documents. EX-10.48 54 exhibit10-48.txt Exhibit 10.48 FINDERS AGREEMENT This Finders Agreement (the "AGREEMENT") is made and entered into as of the effective date below between TSET, INC., a Nevada corporation and /S/ JOHN S. BOWLES (hereinafter collectively referred to as the "FINDER"). RECITALS TSET is interested in being introduced by Finder to prospective Investors for the purpose of soliciting investments in the company. For such service, TSET is willing to compensate Finder, subject to the covenants, conditions and limitations set forth in this Agreement. Finder is willing to provide the services contemplated by and in accordance with the covenants, conditions and limitations of this Agreement. AGREEMENT In consideration of the foregoing recitals, the mutual covenants hereinafter provided, and for other good and valuable considerations, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound and equitably bound, hereby agree as follows: I. DEFINITIONS. For purposes of this Agreement, the following terms shall have the following meanings: 1. TSET shall mean TSET, Inc. and its subsidiaries. 2. ACT shall mean the Investment Advisers Act of 1940, as amended; 3. APPLICABLE LAW shall mean and include any law enacted by the Congress of the United States (including, without limitations, the Act), by any legislature of any of the states comprising the United States of America, by any parliament, congress or legislature of any country, province or state outside of the United States of America. 4. AUTHORIZED FINDER INVESTOR shall have the meaning ascribed thereto in paragraph 2 below; 5. FINDERS FEE shall have the meaning ascribed thereto in paragraph 3 below; 6. PERSON shall mean and include any individual, partnership, limited liability company, corporation, trust or other entity; 7. INVESTOR shall mean Person whom shall make an investment into TSET by any form including debt or equity. 8. REGULATOR shall mean and include the Securities and Exchange Commission, or any agency which regulates the purchase and sale of securities within one of the states of the United States of America, and any similar governmental agency of any country, province or state outside of the United States. II. SCOPE AND LIMITATIONS OF ENGAGEMENT. 1. FINDERS AUTHORIZATION TO INTRODUCE TSET TO PROSPECTIVE AUTHORIZED FINDER INVESTORS. TSET hereby appoints Finder and Finder hereby accepts such appointment, on a non-exclusive basis, to contact and introduce TSET to Persons believed by Finder to be Authorized Finder Investors that may provide debt and/or equity based financing to TSET upon terms and conditions agreeable to TSET. Finder shall not contact or otherwise initiate any effort to contact, directly or indirectly, any Person for the purpose of making an introduction on behalf of the TSET without the express written consent of the TSET. Following execution of this Agreement, and periodically thereafter, Finder shall inform TSET of Persons believed by Finder to be prospective Authorized Finder Investors whom Finder desires to introduce to TSET. By execution of this Agreement, all Persons in Attachment A are authorized by TSET as Authorized Finder Investors. TSET shall in good faith notify Finder in writing whether any Authorized Finder Investor proposed to be contracted or introduced by Finder to TSET hereunder has previously been contacted by, or previously introduced to, TSET, in which case such proposed Authorized Finder Investor shall be excluded from the list of approved Persons in Attachment A. In connection with the execution of this Agreement and for purposes of establishing the compensation payable to Finder hereunder, Finder shall designate those Persons that are to be deemed Authorized Finder Investor hereunder. Such designation shall be a condition of acceptance of those Persons listed in Attachment A. 2. AVOIDING DISPUTES REGARDING FINDERS RIGHTS. If, for any reason, as to any specific prospective investor, Finder fails to strictly comply with the procedure described in this section 2 or fails to comply with any other provision of this Agreement, Finder shall have no rights to compensation pursuant to paragraph 3 with regard to such prospective investor. 3. FINDERS FUNCTIONS LIMITED. The sole function of Finder shall be to provide impersonal advisory services by bringing together Authorized Finder Investors and TSET. Finder shall not, in any manner, offer or sell any investment in TSET. Finder shall provide such assistance as TSET may request from time to time regarding the structure, evaluation, negotiation of definitive terms of investment proposed by an Authorized Finder Investor. The parties understanding that final approval of all such terms shall be the sole responsibility of TSET. 4. INDEPENDENT STATUS OF FINDER. Finder shall, at all times, be an independent contractor hereunder, rather than a co-venturer, agent, employee, or representative of TSET. Finder shall work independently, without supervision or training by TSET, shall be responsible for Finder's taxes, shall not be required to work on a continuing daily basis or any specific work schedule, and shall not 2 be provided with office space or administrative support by the TSET. Finder is permitted to engage in other businesses and ventures. Finder shall be solely responsible for complying with all laws, rules, and regulations applicable to its services hereunder. 5. TSET RETAINS ABSOLUTE DISCRETION. Notwithstanding any other provisions of this Agreement, in accordance with TSET's fiduciary duties, TSET, may, in its sole and absolute discretion, refuse to meet with or admit any prospective investor, and TSET shall be under no obligation to accept as an investor any Authorized Finder Investor. 6. CONFIDENTIALITY. Finder shall assist TSET in obtaining execution by Authorized Finder Investors of any confidentiality agreements deemed necessary or property by TSET to protect non-public, confidential, or proprietary information. III. COMPENSATION. 1. FINDER'S FEE. TSET shall pay to Finder and Finder shall receive from TSET a Finder's Fee based upon the Total Investment Value by Authorized Finder Investors. Finder's Fee will be calculated according to the following: 5% of Total Investment Value from $0-$10M 3% of Total Investment Value above $10M Compensation will be paid in cash via Finder's wire transfer instructions within 72 hours from receipt of funds. Total Investment Value includes total value of all investments including equity and debt. Finder shall be solely responsible for paying any and all federal, state or local income and other taxes arising out of payment of any compensation to Finder by TSET hereunder. Any compensation payable to any person other than the consultant in connection with the provision of the Finder's services hereunder shall be paid out of the compensation described in this Section 3, such that such compensation shall be the sole compensation to be paid by TSET in connection therewith. 2. TRAVEL REIMBURSEMENT. TSET shall reimburse pre-approved travel or other pre-approved expenses incurred by Finder in connection with services to be rendered by Finder pursuant to this Agreement, as expressly agreed in writing by TSET. Pre-approved travel and pre-approved other expenses will be reimbursed within five business days from receipt of expense documentation. Expenses incurred by Finder pursuant to this Agreement shall not exceed an aggregate of $5,000 without TSET's prior written consent. 3. NON-CIRCUMVENTION. TSET warrants to Finder that TSET shall not seek to circumvent Finder or contact directly any Authorized Finder Investor not excluded by TSET in Attachment A or seek to consummate any investment of any nature without paying to Finder the compensation described in this section 3. 3 IV. FINDERS WARRANTIES, REPRESENTATIONS AND ADDITIONAL COVENANTS. 1. FULL AUTHORITY. Finder warrants and represents to TSET that: (i) Finder has the full unrestricted right to enter into this Agreement, (ii) by entering into this Agreement, Finder is not violating or otherwise contravening any agreement to which Finder is bound or any Applicable Law; and (iii) no Person must consent to the execution and performance of this Agreement by Finder. 2. RECEIPT OF TSET BUSINESS PLAN. Finder acknowledges receipt of the TSET BUSINESS PLAN and represents that Finder ahs carefully reviewed the TSET BUSINESS PLAN as well as public information proved by TSET pursuant to its reporting obligations under the Securities Exchange Act of 1934, as amended, and has been afforded an opportunity to fully inform himself as to the contents thereof. 3. FRAUD AND BAD ACTS. Finder represents and warrants to TSET that Finder is not now, and convents that Finder shall not in the future be, a Person (i) subject to an order of any Regulator under Applicable Law, or (ii) convicted within the previous ten (10) years of any felony or misdemeanor involving conduct described Section 203(e)(2)(A)-(D) of the Act or any similar Applicable Law, or (iii) who has been found by any Regulator to have engaged, or been convicted of engaging, in any conduct specified in paragraph (1), (4) or 5 of Section 203(f) of the Act or of any other similar Applicable Law, or (iv) is subject to an order, judgment or decree described in Section 203(e)(3) of the Act or any similar Applicable Law. 4. COMPLIANCE WITH ALL LAWS. Finder covenants with TSET that Finder shall comply with all Applicable Laws in connection with the execution and performance of this Agreement. 5. FULL DISCLOSURE TO TSET. Without limiting any other provision of this Agreement, Finder agrees to fully disclose all activities in which Finder is engaged pursuant to this Agreement and fully, fairly and accurately report the results of all contacts with Authorized Finder Investors. V. TERMINATION. 1. This Agreement may be terminated immediately by TSET, without notice, in the event that Finder commits a material breach of this Agreement, in which event, Finder shall have no further entitlement to compensation hereunder. 2. In the absence of breach by the Finder, TSET may terminate this Agreement upon ten (10) days prior written notice to Finder. In this event, Finder shall be entitled to all compensation pursuant to Paragraph 3 of this Agreement with regard to investments made by an Authorized Finder Investor, as if this Agreement had not been terminated. 3. Finder may terminate this Agreement upon ten (10) days prior written notice. In this event, Finder shall be entitled to all compensation pursuant to Paragraph 3 of this Agreement with regard to investments made by an Authorized Finder Investor, as if this Agreement had not been terminated; provided, 4 however, if TSET later determines that Finder committed a material breach of this Agreement prior to such termination, Finder shall have no entitlement to compensation hereunder following the occurrence of such breach. VI. MISCELLANEOUS. 1. BINDING EFFECT AND SURVIVAL OF RIGHTS. This Agreement will benefit and bind the parties and their respective personal representatives, executors, administrators, heirs, legatees, devisees, successors and assigns. 2. NOTICES. All notices, demands, requests and other communications required or permitted to be given by any provision of this Agreement will be in writing addressed as follows: IF TO TSET: TSET, Inc. 333 South Sate Street, PMB 111 Lake Oswego, OR 97034 503.968.1547 Attn: Jeffrey D. Wilson, Chairman and Chief Executive Officer IF TO FINDER: /s/ John S. Bowles /s/ 3426 D Street, N.W. /s/ Washington, DC 20007 Any such notice, demand, request or communication will be deemed to have been given and received for all purposes under this Agreement: (a) on the date of delivery when delivered in person; (b) on the date of transmission when delivered by facsimile transmission (provided such transmission is confirmed by transmission receipt and such notice is promptly confirmed by some other means described herein); and/or (c) the next business day after the same is deposited with a nationally recognized overnight delivery service that guarantees overnight delivery; provided, however, if the days such notice, demand, request or communication will be deemed to have been given and received as aforesaid is not a business day, such notice, demand, request or communication will be deemed to have been given and received on the next business day. Any party to this Agreement may change such parties address for the purpose of notice, demands, requests and communications required or permitted under this Agreement by providing written notice of such change of address to all of the parties by written notice as provided herein. 3. INTERPRETATION. The parties acknowledge to each other than each party has reviewed and participated in the negotiation of this Agreement. Accordingly, the normal rule of construction to the effect that any ambiguities are resolved against the drafting party will not be employed in the interpretation of this Agreement. 5 4. INCORPORATION. The Recitals, all exhibits and schedules attache hereto, or to be attached hereto, and all other agreements and instruments referred to herein are hereby incorporated by reference into this Agreement as fully as if copied herein verbatim. 5. FURTHER ASSURANCES. The parties further agree that, upon request, they will do such further acts and deeds and will executive, acknowledge, deliver and record such other documents and instruments as may be reasonably necessary from time to time to evidence, confirm or carry out the intent and purpose of this Agreement. 6. LAWFUL AUTHORITY. If any party executing this Agreement is a corporation or limited liability company, the individual executing on behalf of the corporation or limited liability company hereby personally represents and warrants to all other parties that he/she has been fully authorized to execute and deliver this Agreement on behalf of: (a) the corporation pursuant to a duly adopted resolution of its Board of Directors, or by virtue of its bylaws; or (b) the limited liability company pursuant to a duly adopted resolution of its members or by virtue of its operation agreement. 7. ATTORNEYS FEES. If any legal action or other proceeding (including arbitration pursuant to this Agreement) is brought for the enforcement of this Agreement, or because of any alleged dispute, breach, default or misrepresentation in connection with any provisions of this Agreement, the prevailing party will be entitled to recover reasonable attorneys fees, court costs and all reasonable expenses, even if not taxable or assessable as court costs (including, without limitation, all such fees, costs and expenses incident to appeal) incurred in that action or proceeding in addition to any other relief to which such party may be entitled. 8. WAIVERS AND CONSENTS. (1) Each and every waiver of any provision of this Agreement must be in writing and signed by each party whose interests are adversely affected by such waiver. (2) Unless otherwise expressly provided in a waiver, no such waiver granted in any one instance will be construed as a continuing waiver applicable in any other instance. (3) No waiver by any party to this Agreement to or of any breach or default by any other party to this Agreement in the performance by such other party of its obligations hereunder will be deemed or construed to be a waiver of any breach or default of any other party of the same or any subsequent obligations hereunder. (4) Subject to applicable statutes of limitation, the failure on the part of any party to this Agreement to complain of any act or failure to act of any other party to this Agreement or to declare such other party in default, irrespective of how long such failure continues, shall not constitute a waiver by the non-defaulting party of its rights hereunder. 6 (5) Each and every consent by any party to this Agreement must be in writing signed by the party to be bound thereby. No consent will be deemed or construed to be a consent to any action except as described in such writing. 9. SECTION HEADINGS. The Section headings contained in this Agreement are for reference purposes only and will not affect the interpretation of this Agreement. 10. GOVERNING LAW. This Agreement will be governed in all respects, including validity, interpretation and effect by, and will be enforceable in accordance with, the internal laws of the State of Oregon without regard to conflicts of laws principles. 11. SEVERABILITY. If any provision of this Agreement is held to be unlawful, invalid or unenforceable under present or future laws effective during the term hereof, such provision will be fully severable, and this Agreement will be construed and enforced without giving effect to such unlawful, invalid or unenforceable provision. Furthermore, if any provision of this Agreement is capable of two (2) constructions, one of which would render the provision void, and the other which would render the provision valid, then the provision will have the meaning which renders it valid. 12. COUNTERPART EXECUTION. This Agreement may be executed in multiple counterparts, each one of which will be deemed an original, but all of which will be considered together as one and the same instrument. Further, in making proof of this Agreement, it will not be necessary to produce or account for more than one (1) such counterpart. Provided all parties have signed at least one counterpart, the execution by a party of a signature page hereto will constitute due execution and will create a valid, binding obligation of the party so signing, and it will not be necessary or required that the signatures of all parties appear on a single signature page hereto. 13. AMENDMENTS. Each and every modification and amendment of this Agreement must be in writing and except as otherwise provided herein, signed by all the parties hereto. 14. ENTIRE AGREEMENT. This Agreement contains the entire agreement between the parties regarding the subject matter hereof. Any prior agreements, discussions or representations not expressly contained in this Agreement will be deemed to be replaced by the provisions hereof, and no party has relied on any such prior agreements, discussions or representations as an inducement to the execution hereof. 15. RULES OF CONSTRUCTION. (a) All terms in this Agreement in the singular and plural will have comparable meanings when used in the plural and vice-versa unless otherwise specified; (b) the words hereof, herein, hereunder and words of similar import when used in this Agreement, will refer to this Agreement as a whole and not any particular provision of this Agreement and all references to articles, section and subdivisions thereof are to this Agreement unless otherwise specified; (c) the words include, includes and including will be deemed to be followed by the phrase without limitation; (d) all pronouns and any variations thereof will be deemed to refer to masculine, feminine or neuter, 7 singular or plural, as the identity of the individual, individuals, entity or entities may require; (e) all references to documents, contracts, agreements or instruments will include any and all supplements and amendments thereto; and (f) all accounting terms not specifically defined herein will be construed in accordance with generally accepted accounting principles or generally accepted auditing standards then applied in the United States. 16. FORUM SELECTION. EXCEPT OT THE EXTENT THE COURTS IN NEVADA DO NOT HAVE SUBJECT MATTER JURISDICTION, FINDER AND TSET DO HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMIT TO THE SOLE AND EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF OREGON AND DO FURTHER IRREVOCABLY AND UNCONDITIONALLY STIPULATE AND AGREE THAT THE FEDERAL COURTS IN THE STATE OF OREGON OR THE STATE COURTS OF OREGON WILL HAVE JURISDICTION TO HEAR AND FINALLY DETERMINE ANY DISPUTE, CLAIM, CONTROVERSY OR ACTION ARISING OUT OF OR CONNECTED (DIRECTLY OR INDIRECTLY) WITH THIS AGREEMENT THAT IS NOT SUBJECT TO ARBITRATION, OR TO ENTER A JUDGMENT CONSISTENT WITH ANY ARBITRATION AWARD. FINDER AND TSET FURTHER HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY AND ALL OBJECTIONS OR DEFENSES TO SAID JURISDICTION. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT SERVICE UPON ANY PARTY HERETO SHALL BE MADE BY DELIVERY VIA PRIORITY OVERNIGHT DELIVERY (E.G., FEDEX) AND BY FACSIMILE OF A COPY OF SUCH PROCESS TO THE ADDRESS OF SUCH PARTY FOR NOTICES TO SUCH PARTY AS SET FORTH IN THIS AGREEMENT LETTER (OR SUCH DIFFERENT ADDRESS AT SUCH PARTY WILL HEREAFTER SPECIFY IN ACCORDANCE WITH THE TERMS OF THIS AGREEMENT). THE FOREGOING CONSENT, IN ADVANCE, TO THE JURISDICTION OF THE AFOREMENTIONED COURTS AND THE AFOREMENTIONED METHOD OF SERVICE ARE MATERIAL INDUCEMENTS FOR THE PARTIES HERETO TO ENTER INTO THIS AGREEMENT. 17. PERSONAL NATURE OF UNDERTAKING. Finder acknowledges that the engagement of Finder's services hereunder by TSET is personal to Finder, and such services shall not be delegated or assigned to any other Person or Finder without TSET's express prior written consent, which may be withheld in TSET's sole and absolute discretion. [COUNTERPART SIGNATURE PAGE() FOLLOW] 8 COUNTERPART SIGNATURE PAGE TO FINDERS AGREEMENT IN WITNESS WHEREOF, the parties have executed this Finders Agreement effective as of the date signed by the parties, as shown below: TSET: By: /S/ JEFFREY D. WILSON -------------------------- Jeffrey D. Wilson, Chairman and Chief Executive Officer Date: /S/ 7/17/01 FINDER: By: /S/ JOHN S. BOWLES ----------------------- Name: /s/ John S. Bowles Date: /S/ 6/27/2001 9 ATTACHMENT A AUTHORIZED FINDER INVESTORS NewEnterprise Associates Edison Venture Capital Tucker Cleary PMG Capital Red Leaf Venture House Allied Capital Corporation ECentury Capital Chartwell Partner The Grosvenor Fund Toucan Capital Corp. Wilson Bennett LLC 10 EX-10.49 55 exhibit10-49.txt Exhibit 10.49 WARRANT AGREEMENT dated as of August __, 2001 between TSET, INC. a Nevada corporation (the "Company") and THE EAGLE ROCK GROUP, LLC ("Holder"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Company proposes to issue to Holder warrants (the "Warrants") to purchase up to an aggregate of one million four hundred thousand (1,400,000) shares (the "Shares") of common stock of the Company, par value $.001 per share (the "Common Stock"); and WHEREAS, Holder has agreed pursuant to the letter agreement (the "Letter Agreement") dated as of the date hereof between the the Company and Holder, to provide certain support and services to the Company, as set forth in the Letter Agreement; and WHEREAS, the Warrants issued pursuant to this Agreement are being issued by the Company to Holder, in consideration for, and as part of the Holder's compensation in connection with the services to be rendered to the Company pursuant to the Letter Agreement; NOW, THEREFORE, in consideration of the foregoing premises, the agreements herein set forth and other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. GRANT. Holder, and its designees, successors and assigns, are hereby granted the right to purchase, at any time from January 1, 2002 until 5:00 P.M., New York City time, on January 1, 2012 (the "Warrant Exercise Term"), up to an aggregate of one million four hundred thousand (1,400,000) Shares at an initial exercise price (subject to adjustment as provided in Article 8 hereof) of [$0.68] per Share subject to the terms and conditions of this Agreement. 2. WARRANT CERTIFICATES. The warrant certificates (the "Warrant Certificates") delivered and to be delivered pursuant to this Agreement shall be in the form set forth as Exhibit A attached hereto and made a part hereof, with such appropriate insertions, omissions, substitutions and other variations as required or permitted by this Agreement. 3. EXERCISE OF WARRANTS. 3.1 CASH EXERCISE. The Warrants initially are exercisable at a price of $.68 per Share, payable in cash or by certified check to the order of the Company, or any combination of cash or certified check, subject to adjustment as provided in Article 8 hereof. Upon surrender of the Warrant Certificate with the annexed Form of Election to Purchase duly executed, together with payment of the Exercise Price (as hereinafter defined) for the Shares purchased at the Company's principal offices, the Holder shall be entitled to receive a certificate or certificates for the Shares so purchased. The purchase rights represented by each Warrant Certificate are exercisable at the option of the Holder hereof, in whole or in part (but not as to fractional shares of the Common Stock underlying the Warrants). In the case of the purchase of less than all the Shares purchasable under any Warrant Certificate, the Company shall cancel said Warrant Certificate upon the surrender thereof and shall execute and deliver a new Warrant Certificate of like tenor for the balance of the Shares purchasable thereunder. 3.2 CASHLESS EXERCISE. At any time during the Warrant Exercise Term, the Holder may, at its option, exchange this Warrant, in whole or in part (a "Warrant Exchange") and/or shares of the Company's Common Stock held by Holder (a "Share Exchange"), into the number of Shares determined in accordance with this Section 3.2, by surrendering this Warrant, and/or certificates representing the shares of Common Stock to be exchanged, at the principal office of the Company or at the office of its transfer agent, accompanied by a notice stating (i) such Holder's intent to effect such exchange, (ii) the number of Shares to be exchanged and (iii) the date on which the Holder requests that such Warrant Exchange and/or Share Exchange occur (the "Notice of Exchange"). The Warrant Exchange and/or Share Exchange shall take place on the date specified in the Notice of Exchange or, if later, the date the Notice of Exchange is received by the Company (the "Exchange Date"). Certificates for the Shares issuable upon such Warrant Exchange and/or Share Exchange and, if applicable, a new Warrant of like tenor evidencing the balance of the Shares remaining subject to this Warrant, shall be issued as of the Exchange Date and delivered to the Holder within five (5) business days following the Exchange Date. In connection with any Warrant Exchange and/or Share Exchange, this Warrant shall represent the right to subscribe for and acquire the number of Shares (rounded to the next highest integer) equal to (i) the number of Shares specified by the Holder in its Notice of Exchange (the "Total Number") less (ii) the number of Shares equal to the quotient obtained by dividing (A) the product of the Total Number and the existing Exercise Price (as hereinafter defined) by (B) the current market value of a share of Common Stock. For purposes of this Section 3.2, the term "current market value" shall mean the (i) last reported sale price on the last trading day or, in case no such reported sale takes place on such day, the average last reported sale price for the last three (3) trading days, in either case as officially reported by the principal securities exchange on which the Common Stock is listed or admitted to trading, or by the Nasdaq National Market or SmallCap Market (referred to hereinafter as "NASDAQ") if the Common Stock is not listed or admitted to trading on any national securities exchange but is listed or quoted upon NASDAQ, or (ii) if the Common Stock is not traded on a national securities exchange or NASDAQ, the closing bid price on the last trading day, or, in case no such reported bid takes place on such day, the average closing bid price for the last three (3) trading days, as furnished by NASDAQ or similar organization if NASDAQ is no longer reporting such information, or (iii) if the Common Stock is not listed upon a principal exchange or quoted on NASDAQ, but quotes for the Common Stock are available in the OTC Bulletin Board or "pink sheets", the average closing bid price for the last three (3) trading days as furnished on the OTC Bulletin Board or (iv) in the event the Common Stock is not traded upon a principal exchange and not listed on NASDAQ and quotes are not available on the OTC Bulletin Board, the price as determined in good faith by resolution of the Board of Directors of the Company, based on the best information available to it. 2 4. ISSUANCE OF CERTIFICATES. 4.1 ISSUANCE. Upon the exercise of the Warrants, the issuance of certificates for the Shares shall be made forthwith (and in any event within five (5) business days thereafter) without charge to the Holder thereof including, without limitation, any tax which may be payable in respect of the issuance thereof, and such certificates shall (subject to the provisions of Article 5 hereof) be issued in the name of, or in such names as may be directed in writing by, the Holder thereof; provided however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any such certificates in a name other than that of the Holder and the Company shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. 4.2 FORM OF CERTIFICATES. The Warrant Certificates and certificates representing the Shares shall be executed on behalf of the Company by the manual or facsimile signature of the then present Chairman or Vice Chairman of the Board of Directors or President or Vice president of the Company under its corporate seal reproduced thereon, attested to by the manual or facsimile signature of the then present Secretary or Assistant Secretary of the Company. Warrant Certificates shall be dated the date of execution by the Company upon initial issuance, division, exchange, substitution or transfer. The Warrant Certificates and, upon exercise of the Warrants, in part or in whole, certificates representing the Shares shall bear a legend substantially similar to the following: "The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended (the "Act"), and may not be offered or sold except (i) pursuant to an effective registration statement under the Act, (ii) to the extent applicable, pursuant to Rule 144 under the Act (or any similar rule under such Act relating to the disposition of securities), or (iii) upon the delivery by the holder to the Company of an opinion of counsel, reasonably satisfactory to counsel to the Company, stating that an exemption from registration under such Act is available." 5. TRANSFER OF WARRANTS. The Holder of a Warrant Certificate may sell, transfer, assign, hypothecate or otherwise dispose of, in whole or in part, a Warrant Certificate, in which case such designee, assignee or transferee shall be entitled to receive a replacement Warrant Certificate in accordance with Section 9 hereof upon presentment of a properly executed Form of Assignment in the form set forth on Exhibit A attached to the Warrant Certificate. In connection with the transfer or exercise of Warrants, the purchaser and Holder agree to execute any documents which may be reasonably required by counsel to the Company to comply with the provisions of the Act and applicable state securities laws. 3 6. PRICE. 6.1 INITIAL AND ADJUSTED EXERCISE PRICE. The initial exercise price of each Warrant shall be [$.68] per Share. The adjusted exercise price shall be the price which shall result from time to time from any and all adjustments of the initial exercise price in accordance with the provisions of Article 8 hereof. 6.2 EXERCISE PRICE. The term "Exercise Price" herein shall mean the initial exercise price or the adjusted exercise price, depending upon the context. 7. REGISTRATION RIGHTS. 7.1 REGISTRATION UNDER THE SECURITIES ACT OF 1933. The Warrants and the Shares have not been registered for purposes of public distribution under the Securities Act of 1933, as amended (the "Act"). 7.2 REGISTRABLE SECURITIES. As used herein the term "Registrable Security" means each of the Shares and any shares of Common Stock issued upon any stock split or stock dividend in respect of such Shares; provided, however, that with respect to any particular Registrable Security, such security shall cease to be a Registrable Security when, as of the date of determination, (i) it has been effectively registered under the Act and disposed of pursuant thereto, or (ii) it has ceased to be outstanding. The term "Registrable Securities" means any and/or all of the securities falling within the foregoing definition of a "Registrable Security. " In the event of any merger, reorganization, consolidation, recapitalization or other change in corporate structure affecting the Common Stock, such adjustment shall be made in the definition of "Registrable Security" as is appropriate in order to prevent any dilution or enlargement of the rights granted pursuant to this Article 7. 7.3 PIGGYBACK REGISTRATION. (a) Except with respect to the S-1 Registration Statement to be filed by the Company with respect to the transaction with Fusion Capital Fund II LLC, if, at any time during the ten (10) years following the date of this Agreement, the Company proposes to prepare and file any new registration statement or post-effective amendments thereto covering equity or debt securities of the Company, or any such securities of the Company held by its shareholders (other than in connection with a merger or pursuant to a Form S-8 or a successor form) (for purposes of this Article 7, collectively, a "Registration Statement"), it will give written notice of its intention to do so by registered mail ("Notice"), at least thirty (30) days prior to the filing of each such Registration Statement, to all holders of the Registrable Securities. Upon the written request of such a holder (a "Requesting Holder"), made within twenty (20) days after receipt of the Notice, that the Company include any of the Requesting Holder's Registrable Securities in the proposed Registration Statement, the Company shall, as to each such Requesting Holder, use its best efforts to effect the registration under the Act of the Registrable Securities which it has been so requested to register ("Piggyback Registration"), at the Company's sole cost and expense and at no cost or expense to the Requesting Holders (other than underwriting discounts and commissions applicable to the sale of such Registrable Securities and the fees and disbursements, if any, of counsel or any advisor to the Requesting Holders), provided that, if such Registration Statement relates to an underwritten public 4 offering and the managing underwriter advises the Company and the Requesting Holders in writing that the number of Registrable Securities which can be included in such offering must be limited, the Requesting Holders will agree to reduce the number of Registrable Securities included in such Registration Statement on a pro rata basis with any other selling security holder on whose behalf other securities of the Company may be included therein for registration. Notwithstanding the provisions of this Section 7.3(a), the Company shall have the right at any time after it shall have given written notice pursuant to this Section 7.3(a) (irrespective of whether any written request for inclusion of Registrable Securities shall have already been made) to elect not to file any such proposed Registration Statement, or to withdraw the same after the filing but prior to the effective date thereof. 7.4 DEMAND REGISTRATION (a) At any time during the Warrant Exercise Term, any "Demand Holder" (as such term is defined in Section 7.4(d) below) of the Registrable Securities shall have the right (which right is in addition to the piggyback registration rights provided for under Section 7.3 hereof), exercisable by written notice to the Company (the "Demand Registration Request"), to have the Company prepare and file with the Securities and Exchange Commission (the "Commission"), on two occasions, at the sole expense of the Company, a Registration Statement and such other documents, including a prospectus, as may be necessary (in the opinion of both counsel for the Company and counsel for such Demand Holders), in order to comply with the provisions of the Act, so as to permit a public offering and sale of the Registrable Securities by such Demand Holders and any other Holders of the Warrants and/or Shares who notify the Company within twenty (20) days after receiving notice from the Company of such request. (b) The Company covenants and agrees to give written notice of any Demand Registration Request to all holders of the Registrable Securities within ten (10) days from the date of the Company's receipt of any such Demand Registration Request. After receiving notice from the Company as provided in this Section 7.4(b), holders of Registrable Securities may request the Company to include their Registrable Securities in the Registration Statement to be filed pursuant to Section 7.4(a) hereof by notifying the Company of their decision to have such securities included within ten (10) days of their receipt of the Company's notice. (c) In addition to the registration rights provided for under Section 7.3 hereof and subsection (a) of this Section 7.4, at any time during the Warrant Exercise Term, any Demand Holder (as defined below in Section 7.4(d)) of Registrable Securities shall have the right, exercisable by written request to the Company, to have the Company prepare and file with the Commission, on one occasion in respect of all holders of Registrable Securities, a Registration Statement so as to permit a public offering and sale of such Registrable Securities; provided, however, that all costs incident thereto shall be at the expense of the holders of the Registrable Securities included in such Registration Statement; and, provided, further, that a Demand Holder shall not be entitled to exercise any registration right pursuant to this Section 7.4(c) without the prior written consent of Holder. If a Demand Holder shall give notice to the Company at any time of its or their desire to exercise the registration right granted pursuant to this Section 7.4(c), then within ten (10) days after the Company's receipt of such notice, the Company shall give notice 5 to the other holders of Registrable Securities advising them that the Company is proceeding with such registration and offering to include therein the Registrable Securities of such holders, provided they furnish the Company with such appropriate information in connection therewith as the Company shall reasonably request in writing. Nothing contained herein shall require the Company to undergo an audit of its financial statements other than in the ordinary course of business. (d) The term "Demand Holder" as used in this Section 7.4 shall mean any holder or any combination of holders of Registrable Securities, if included in such holders' Registrable Securities are that aggregate number of Shares (including Shares already issued and Shares issuable pursuant to the exercise of outstanding Warrants) as would constitute 50% or more of the aggregate number of Shares (including Shares already issued and Shares issuable pursuant to the exercise of outstanding Warrants) included in all of the Registrable Securities, but in any event not less than 100,000 Shares. (e) No right of any Demand Holder under this Section 7.4 shall be deemed to have been exercised if with respect to such right: (A) the requisite notice given by Demand Holders pursuant to this Section 7.4 is withdrawn prior to the date of filing of a Registration Statement or if a Registration Statement filed by the Company under the Securities Act pursuant to this Section 7.4 is withdrawn prior to its effective date, in either case, by written notice to the Company from the Holders of fifty percent (50%) or more of the Warrants and/or Shares to be included or which are included in such Registration Statement stating that such Holders have elected not to proceed with the offering contemplated by such registration statement because (i) a development in the Company's affairs has occurred or has become known to such Demand Holders subsequent to the date of the notice by the Demand Holders to the Company requesting registration of the Warrants and/or Shares of the filing of such Registration Statement which, in the judgment of such Demand Holders or the managing underwriter of the proposed public offering, adversely affects the market price of such Shares or (ii) a Registration Statement filed by the Company pursuant to this Section 7.4, in the reasonable opinion of counsel for such Demand Holders or the managing underwriter of the proposed public offering, contains an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances under which made (other than any such statement or omission relating to such Demand Holders and based on information supplied or failed to be supplied by such Demand Holders) and the Company has not, promptly after written notice thereof, corrected such statement or omission in an amendment filed to such registration statement; or 6 (B) a Registration Statement pursuant to this Section 7.4 shall have become effective under the Securities Act and (i) the underwriters shall not purchase any Shares because of a failure of condition contained in the underwriting agreement (other than a condition to be performed by or within the control of the Demand Holders) relating to the offering covered by such Registration Statement or (ii) less than 85% of the Shares included therein shall have been sold as a result of any stop order, injunction or other order or requirement of the Commission or other governmental agency or court. 7.5 SHELF REGISTRATION. Within thirty (30) days after filing the Company's Form 10-Q for the period ended December 31, 2001, the Company shall prepare and file with the Commission, at the sole expense of the Company, a Registration Statement and such other documents, including a prospectus, as may be necessary (in the opinion of both counsel for the Company and counsel for such the Holders of the Warrants), in order to comply with the provisions of the Act, so as to permit a public offering and sale of the Registrable Securities by any Holders of the Warrants and/or Shares. The registration effected pursuant to this Section 7.5 shall not be counted as demands for registration or registrations effected pursuant to Sections 7.3 or 7.4, respectively. 7.6 COVENANTS OF THE COMPANY WITH RESPECT TO REGISTRATION. The Company covenants and agrees as follows: (a) In connection with any registration under Section 7.4 hereof, the Company shall file the Registration Statement as expeditiously as possible, but in no event later than thirty (30) days (except during the first quarter of any fiscal year of the Company, in which case any such Registration Statement shall be filed within ten (10) days after the date that is the earlier of the date (i) the Company's Form 10-K was filed or (ii) was required to be filed without reference to any requested extension for filing, delay in filing or the like) following receipt of any demand therefor (unless delayed by the failure of a holder of Registrable Securities to promptly furnish such information necessary to complete such registration statement), shall use its best efforts to have any such Registration Statement declared effective at the earliest possible time and shall furnish each holder of Registrable Securities such number of prospectuses as shall reasonably be requested. (b) The Company shall pay all costs, fees and expenses in connection with all Registration Statements filed pursuant to Sections 7.3, 7.4(a) and 7.5 hereof (excluding any underwriting discounts and commissions which may be incurred in connection with the sale of any Registrable Securities) including, without limitation, the Company's legal and accounting fees, printing expenses, and blue sky fees and expenses. (c) The Company will take all reasonably necessary action which may be required in qualifying or registering the Registrable Securities included in a Registration Statement for offering and sale under the securities or blue sky laws of such states as are reasonably requested by the holders of such securities, provided that the Company shall not be obligated to execute or 7 file any general consent to service of process or to qualify as a foreign corporation to do business under the laws of any such jurisdiction. (d) The Company shall indemnify any holder of the Registrable Securities to be sold pursuant to any Registration Statement and any underwriter or person deemed to be an underwriter under the Act and each person, if any, who controls such holder or underwriter or person deemed to be an underwriter within the meaning of Section 15 of the Act or Section 20(a) of the Securities Exchange Act of 1934, as amended ("Exchange Act"), against all loss, claim, damage, expense or liability (including all expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which any of them may become subject under the Act, the Exchange Act or otherwise, arising from such Registration Statement. (e) Any holder of Registrable Securities to be sold pursuant to a Registration Statement, and its successors and assigns, shall severally, and not jointly, indemnify, the Company, its officers and directors and each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, against all loss, claim, damage or expense or liability (including all expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which they may become subject under the Act, the Exchange Act or otherwise, arising from information furnished in writing by or on behalf of such holder, or its successors or assigns, for specific inclusion in such Registration Statement. (f) Nothing contained in this Agreement shall be construed as requiring any Holder to exercise its Warrants prior to the initial filing of any Registration Statement or the effectiveness thereof. (g) The Company shall deliver promptly to each holder of Registrable Securities participating in the offering copies of all correspondence between the Commission and the Company, its counsel or auditors and all memoranda relating to discussions with the Commission or its staff with respect to the Registration Statement and permit each holder of Registrable Securities and underwriters to do such investigation, upon reasonable advance notice, with respect to information contained in or omitted from the Registration Statement as it deems reasonably necessary to comply with applicable securities laws or rules of the National Association of Securities Dealers, Inc. ("NASD"); provided that each such holder of Registrable Securities agrees not to disclose such information without the prior consent of the Company. Such investigation shall include access to books, records and properties and opportunities to discuss the business of the Company with its officers and independent auditors, all to such reasonable extent and at such reasonable times and as often as any such holder of Registrable Securities or underwriter shall reasonably request. (h) If required by the underwriter in connection with an underwritten offering which includes Registrable Securities pursuant to Article 7, the Company shall enter into an underwriting agreement with one or more underwriters selected for such underwriting, such agreement shall contain such representations, warranties and covenants by the Company and such other terms as are customarily contained in agreements of that type used by the underwriters. If required by the underwriter, the holders of Registrable Securities shall be parties to any underwriting agreement relating to an underwritten sale of their Registrable Securities and may, at their option, require that any or all the 8 representations and warranties of the Company to or for the benefit of such underwriters shall, to the extent that they may be applicable, also be made to and for the benefit of such holders of Registrable Securities. Such holders of Registrable Securities shall not be required to make any representations or warranties to or agreements with the Company or the underwriters except as they may relate to such holders of Registrable Securities and their intended methods of distribution. (i) In connection with any Registration Statement filed pursuant to Section 7.3 hereof, the Company shall furnish to each Holder participating in any underwritten offering and to each underwriter, a signed counterpart, addressed to such Holder or underwriter, of (i) an opinion of counsel to the Company, dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, an opinion dated the date of the closing under the underwriting agreement), and (ii) a "cold comfort" letter, dated the effective date of such Registration Statement (and, if such registration includes an underwritten public offering, a letter dated the date of the closing under the underwriting agreement), signed by the independent public accountants who have issued a report on the Company's financial statements included in such registration statement, in each case covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of such accountants' letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer's counsel and in accountants' letters delivered to underwriters in underwritten public offerings of securities. (j) The Company shall promptly notify each Holder of Warrants and/or Warrants Shares covered by such registration statement, at any time when a prospectus relating thereto is required to be delivered under the Act, upon the Company's discovery that, or upon the happening of any event as a result of which, the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made, and at the request of any such Holder promptly prepare and furnish to such Holder and each underwriter, if any, a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made. (k) Whenever required to effect the registration of any Registrable Securities, the Company shall use all reasonable efforts to cause such Registration Statement to become effective and keep such Registration Statement effective until the holders of the Registrable Securities have completed the distribution with respect thereto. In connection with Section 7.5, the Company shall be required to file, cause to become effective and maintain the effectiveness of a Registration Statement that contemplates a distribution of securities on a delayed or continuous basis pursuant to Rule 415 under the Securities Act. The Company shall prepare and file with the Commission such amendments and supplements to any Registration Statement and the prospectus used 9 in connection with such Registration Statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such Registration Statement. 8. ADJUSTMENTS OF EXERCISE PRICE AND NUMBER OF SHARES. 8.1 COMPUTATION OF ADJUSTED PRICE. In case the Company shall at any time after the date hereof pay a dividend in shares of Common Stock or make a distribution in shares of Common Stock, then upon such dividend or distribution the Exercise Price in effect immediately prior to such dividend or distribution shall forthwith be reduced to a price determined by dividing: (a) an amount equal to the total number of shares of Common Stock outstanding immediately prior to such dividend or distribution multiplied by the Exercise Price in effect immediately prior to such dividend or distribution, by (b) the total number of shares of Common Stock outstanding immediately after such issuance or sale. For the purposes of any computation to be made in accordance with the provisions of this Section 8.1, the following provisions shall be applicable: Common Stock issuable by way of dividend or other distribution on any stock of the Company shall be deemed to have been issued immediately after the opening of business on the date following the date fixed for the determination of stockholders entitled to receive such dividend or other distribution. 8.2 SUBDIVISION AND COMBINATION. In case the Company shall at any time subdivide or combine the outstanding shares of Common Stock, the Exercise Price shall forthwith be proportionately decreased in the case of subdivision or increased in the case of combination. 8.3 ADJUSTMENT IN NUMBER OF SHARES. Upon each adjustment of the Exercise Price pursuant to the provisions of this Article 8, the number of Shares issuable upon the exercise of each Warrant shall be adjusted to the nearest full Share, by multiplying a number equal to the Exercise Price in effect immediately prior to such adjustment by the number of Shares issuable upon exercise of the Warrants immediately prior to such adjustment and dividing the product so obtained by the adjusted Exercise Price. 8.4 RECLASSIFICATION CONSOLIDATION MERGER ETC. In the event of a Change of Control (defined below), then, except as provided in Section 8.8 below, proper provision shall be made so that, upon the basis and the terms and in the manner provided in this Agreement and the Warrants, the Holders of the Warrants, upon the exercise thereof at any time after the consummation of a Change of Control, shall be entitled to receive (at the aggregate Exercise Price in effect at the time of such consummation for all Common Stock issuable upon such exercise immediately prior to such Change of Control), in lieu of the Common Stock or other securities issuable upon such exercise prior to such Change of Control, the highest amount of securities, cash or other property to which such Holders would actually have been entitled as stockholders upon such 10 Change of Control if such Holders had exercised the rights represented by the Warrants immediately prior thereto, subject to adjustments (subsequent to such Change of Control) as nearly equivalent as possible to the adjustments provided for in Section 8; PROVIDED that if a purchase, tender or exchange offer shall have been made to and accepted by the holders of more than 50% of the outstanding shares of Common Stock, and if a Holder of Warrants so designates in a notice given to the Company on or before the date immediately preceding the date of the consummation of a Change of Control, such Holder of such Warrants shall be entitled to receive the highest amount of securities, cash or other property to which such Holder would actually have been entitled as a stockholder if such Holder of such Warrants had exercised such Warrants prior to the expiration of such purchase, tender or exchange offer and accepted such offer, subject to adjustments (from and after the consummation of such purchase, tender or exchange offer) as nearly equivalent as possible to the adjustments provided for in Section 8. Notwithstanding anything contained in the Warrants to the contrary, the Company will not effect a Change of Control unless, prior to the consummation thereof, each person (other than the Company) which may be required to deliver any stock, securities, cash or property upon the exercise of the Warrants as provided herein shall assume, by written instrument delivered to, and reasonably satisfactory to, the Holders of the Warrants, (a) the obligations of the Company under this Agreement and the Warrants (and if the Company shall survive the consummation of such Change of Control, such assumption shall be in addition to, and shall not release the Company from, any continuing obligations of the Company under this Agreement and the Warrants) and (b) the obligation to deliver to such Holders such shares of stock, securities, cash or property as, in accordance with the foregoing provisions of this Section, such Holders may be entitled to receive, and such person shall have similarly delivered to such Holders an opinion of counsel for such person, which counsel shall be reasonably satisfactory to such Holders, stating that this Agreement and the Warrants shall thereafter continue in full force and effect and the terms hereof (including, without limitation, all of the provisions of this Section 8) shall be applicable to the stock, securities, cash or property which such person may be required to deliver upon any exercise of the Warrants or the exercise of any rights pursuant hereto. For purposes of this Agreement, a "Change in Control" shall mean the happening of any of the following events: (i) an acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act of 1934, as amended) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act of 1934, as amended) of 20% or more of either (1) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (2) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); or (ii) the approval by the stockholders of the Company of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company ("Corporate Transaction"); excluding, however, such a Corporate Transaction pursuant to which (1) all or substantially all of the individuals and entities who are the beneficial owners, respectively, of the outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Corporate Transaction will beneficially own, directly or indirectly, more than 50% of, respectively, the outstanding shares of Common Stock, and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Corporate Transaction (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets, either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Corporate Transaction, of the outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (2) no Person (other than the Company; any employee benefit plan (or related trust) sponsored or maintained by the Company, by any corporation controlled by the Company, or by such corporation resulting from such Corporate Transaction) will beneficially own, directly or indirectly, more than 20% of, respectively, the outstanding shares of Common Stock of the corporation resulting from such Corporate Transaction or the combined voting power of the outstanding voting securities of such corporation entitled to vote generally in the election of directors, except to the extent that such ownership existed with respect to the Company prior to the 11 Corporate Transaction, and (3) individuals who were members of the board of directors of the Company immediately prior to the approval by the stockholders of the Corporation of such Corporate Transaction will constitute at least a majority of the members of the board of directors of the Company resulting from such Corporate Transaction; or (iii) the approval by the stockholders of the Company of a complete liquidation or dissolution of the Company, other than to a corporation pursuant to a transaction which would comply with clauses (1), (2) and (3) of subsection (ii) above, assuming for this purpose that such transaction were a Corporate Transaction; or (iv) during any consecutive 36 month period, individuals who at the beginning of such period constituted the members of the board of directors of the Company or equivalent body of any successor of the Company (together with any new directors whose election was approved by a vote of the majority of the directors then still in office who were directors at the beginning of such period or whose election was previously so approved) cease for any reason (other than by action of the Holders) to constitute a majority of the board of directors then in office of the Company or equivalent body of any successor of the Company; or (v) shall effect a capital reorganization or reclassification of the Common Stock (other than a capital reorganization or reclassification resulting in the issue of additional shares of Common Stock for which adjustment in the Exercise Price is provided in Section 8). 8.5 DETERMINATION OF OUTSTANDING SHARES OF COMMON STOCK. The number of shares of Common Stock at any one time outstanding shall include the aggregate number of shares issued or issuable upon the exercise of options, rights, warrants and upon the conversion or exchange of convertible or exchangeable securities (excluding shares issuable upon the exercise of options and warrants outstanding on the date hereof). 8.6 DIVIDENDS AND OTHER DISTRIBUTIONS WITH RESPECT TO OUTSTANDING SECURITIES. In the event that the Company shall at any time prior to the exercise of all Warrants declare a dividend (other than a dividend consisting solely of shares of Common Stock or a cash dividend or distribution payable out of current or retained earnings) or otherwise distribute to its shareholders any monies, assets, property, rights, evidences of indebtedness, securities (other than shares of Common Stock), whether issued by the Company or by another person or entity, or any other thing of value, the Holder or Holders of the unexercised Warrants shall thereafter be entitled, in addition to the shares of Common Stock or other securities receivable upon the exercise thereof, to receive, upon the exercise of such Warrants, the same monies, property, assets, rights, evidences of indebtedness, securities or any other thing of value that they would have been entitled to receive at the time of such dividend or distribution. At the time of any such dividend or distribution, the Company shall make appropriate reserves to ensure the timely performance of the provisions of this Section 8.6. 12 8.7 SUBSCRIPTION RIGHTS FOR SHARES OF COMMON STOCK OR OTHER SECURITIES. In the case the Company or an affiliate of the Company shall at any time after the date hereof and prior to the exercise of all the Warrants issue any rights to subscribe for shares of Common Stock or any other securities of the Company or of such affiliate to all the shareholders of the Company, the Holders of the unexercised Warrants shall be entitled, in addition to the shares of Common Stock or other securities receivable upon the exercise of the Warrants, to receive such rights at the time such rights are distributed to the other shareholders of the Company. 8.8 REDEMPTION RIGHTS. Notwithstanding anything to the contrary contained in Section 8.4 above, within twenty (20) days after the Holders have been provided notice by the Company that the Company has entered into a transaction that will result in a Change of Control (which such notice must be provided to the Company within ten (10) days after the Company has entered into such transaction), the Holder shall have the option to have the Company repurchase any or all of the Warrants and/or the Shares at the difference between the Exercise Price and the average closing bid price of the Shares for the last ten (10) trading days prior to the date of the consummation of the Change of Control. Such repurchase, if elected by the Holders, shall be in immediately available funds and shall close simultaneously with the closing of the Change of Control. 9. EXCHANGE AND REPLACEMENT OF WARRANT CERTIFICATES. 9.1 EXCHANGE. Each Warrant Certificate is exchangeable without expense, upon the surrender hereof by the registered Holder at the principal executive office of the Company, for a new Warrant Certificate of like tenor and date representing in the aggregate the right to purchase the same number of Shares in such denominations as shall be designated by the Holder thereof at the time of such surrender. 9.2 REPLACEMENT. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of any Warrant Certificate, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it, and reimbursement to the Company of all reasonable expenses incidental thereto, and upon surrender and cancellation of the Warrants, if mutilated, the Company will make and deliver a new Warrant Certificate of like tenor, in lieu thereof. 10. ELIMINATION OF FRACTIONAL INTERESTS. The Company shall not be required to issue certificates representing fractions of shares of Common Stock and shall not be required to issue scrip or pay cash in lieu of fractional interests, it being the intent of the parties that all fractional interests shall be eliminated by rounding any fraction up to the nearest whole number of shares of Common Stock. 11. RESERVATION AND LISTING OF SECURITIES. The Company shall at all times reserve and keep available out of its authorized shares of Common Stock, solely for the purpose of issuance upon the exercise of the Warrants, 13 such number of shares of Common Stock as shall be issuable upon the exercise thereof. The Company covenants and agrees that, upon exercise of the Warrants and payment of the Exercise Price thereof, all shares of Common Stock issuable upon such exercise shall be duly and validly issued, fully paid, non-assessable and not subject to the preemptive rights of any shareholder. As long as the Warrants shall be outstanding, the Company shall use its best efforts to cause all shares of Common Stock issuable upon the exercise of the Warrants to be listed on or quoted by the exchange upon which the Company's Common Stock is then listed or quoted. 12. NOTICES TO WARRANT HOLDERS. Nothing contained in this Agreement shall be construed as conferring upon the Holder or Holders the right to vote or to consent or to receive notice as a shareholder in respect of any meetings of shareholders for the election of directors or any other matter, or as having any rights whatsoever as a shareholder of the Company. If, however, at any time prior to the expiration of the Warrants and their exercise, any of the following events shall occur: (a) the Company shall take a record of the holders of its shares of Common Stock for the purpose of entitling them to receive a dividend or distribution payable otherwise than in cash, or a cash dividend or distribution payable otherwise than out of current or retained earnings, as indicated by the accounting treatment of such dividend or distribution on the books of the Company; or (b) the Company shall offer to all the holders of its Common Stock any additional shares of capital stock of the Company or securities convertible into or exchangeable for shares of capital stock of the Company, or any option, right or warrant to subscribe therefor; or (c) a dissolution, liquidation or winding up of the Company (other than in connection with a consolidation or merger) or a sale of all or substantially all of its property, assets and business as an entirety shall be proposed; then, in any one or more of said events, the Company shall give written notice of such event at least twenty (20) days prior to the date fixed as a record date or the date of closing the transfer books for the determination of the shareholders entitled to such dividend, distribution, convertible or exchangeable securities or subscription rights, options or warrants, or entitled to vote on such proposed dissolution, liquidation, winding up or sale. Such notice shall specify such record date or the date of closing of the transfer books, as the case may be. Failure to give such notice or any defect therein shall not affect the validity of any action taken in connection with the declaration or payment of any such dividend or distribution, or the issuance of any convertible or exchangeable securities or subscription rights, options or warrants, or any proposed dissolution, liquidation, winding up or sale. 13. NOTICES. All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed to have been duly made when delivered, telecopied or mailed by registered or certified mail, return receipt requested: (a) If to a registered Holder of the Warrants, to the address of such Holder as shown on the books of the Company; or 14 (b) If to the Company, to the address of the principal office of the Company or to such other address as the Company may designate by notice to the Holders. 14. SUPPLEMENTS AND AMENDMENTS. The Company and Holder may from time to time supplement or amend this Agreement without the approval of any Holders of Warrant Certificates in order to cure any ambiguity, to correct or supplement any provision contained herein which may be defective or inconsistent with any provisions herein, or to make any other provisions in regard to matters or questions arising hereunder which the Company and Holder may deem necessary or desirable and which the Company and Holder deem not to adversely affect the interests of the Holders of Warrant Certificates. 15. SUCCESSORS. All the covenants and provisions of this Agreement by or for the benefit of the Company and the Holders inure to the benefit of their respective successors and assigns hereunder. 16. GOVERNING LAW. This Agreement and each Warrant Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of Oregon with respect to contracts made and to be wholly performed in said State and for all purposes shall be construed in accordance with the laws of said State. The Company, the Holder and any other registered holder or holders agree of the Warrant Certificates (a) agree that any legal suit, action or proceeding arising out of or relating to this Agreement shall be instituted exclusively in a federal or state court located in Clackamas County, Oregon (b) waive any objection which the they may have now or hereafter to the venue of any such suit, action or proceeding, and (c) irrevocably consent to the jurisdiction of a any federal or state court located in Clackamas County, Oregon in any such suit, action or procedure. In the event of litigation between the parties arising hereunder, the prevailing party shall be entitled to costs and reasonable attorney's fees. 17. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be construed to give to any person or corporation, other than the Company and Holder and any other registered holder or holders of the Warrant Certificates, Warrants or the Shares, any legal or equitable right, remedy or claim under this Agreement; and this Agreement shall be for the sole and exclusive benefit of the Company and Holder and any other holder or holders of the Warrant Certificates, Warrants or the Shares. 19. PRESERVATION OF RIGHTS. The Company will not, by amendment of its certificate of incorporation or through any consolidation, merger, reorganization, transfer of assets, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Agreement or the Warrants or the rights represented thereby, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holders of the Warrants against dilution or other impairment. 20. COUNTERPARTS. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and such counterparts shall together constitute but one and the same instrument. 15 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, as of the day and year first above written. [SEAL] TSET, INC. By: ---------------------------------- Name: Title: Attest: Name: Title: THE EAGLE ROCK GROUP, LLC By: ---------------------------------- Name: Title: 16 EXHIBIT A THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT (I) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (II) TO THE EXTENT APPLICABLE, PURSUANT TO RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (III) UPON THE DELIVERY BY THE HOLDER TO THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE COMPANY, STATING THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE. THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN. EXERCISABLE ON OR BEFORE 5:00 P.M., NEW YORK TIME, JANUARY 1, 2012 No. W- 1,400,000 Warrants WARRANT CERTIFICATE This Warrant Certificate certifies that THE EAGLE ROCK GROUP, LLC or registered assigns is the registered holder of one million four hundred thousand (1,400,000) Warrants to purchase, at any time from January 1, 2002 until 5:00 P.M. New York City time on January 1, 2012 ("Expiration Date") up to one million four hundred thousand (1,400,000) shares ("Shares") of fully-paid and nonassessable common stock, par value $.001 per share ("Common Stock"), of TSET, INC., a Nevada corporation (the "Company"), at the initial exercise price, subject to adjustment in certain events (the "Exercise Price"), of [$.68] per Share upon surrender of this Warrant Certificate and payment of the Exercise Price at an office or agency of the Company, but subject to the conditions set forth herein and in the warrant agreement dated as of August __, 2001 ("Warrant Agreement") between the Company and The Eagle Rock Group, LLC. Payment of the Exercise Price may be made in cash, or by certified or official bank check in New York Clearing House funds payable to the order of the Company, or any combination of cash or certified check, or in accordance with Section 3.2 of the Warrant Agreement. No Warrant may be exercised after 5:00 P.M., New York City time, on the Expiration Date, at which time all Warrants evidenced hereby, unless exercised prior thereto, shall thereafter be void. The Warrants evidenced by this Warrant Certificate are part of a duly authorized issue of Warrants issued pursuant to the Warrant Agreement, which Warrant Agreement is hereby incorporated by reference in and made a part of this instrument and is hereby referred to in a description of the rights, limitation of rights, obligations, duties and immunities thereunder of the Company and the holders (the words "holders" or "holder" meaning the registered holders or registered holder) of the Warrants. The Warrant Agreement provides that upon the occurrence of certain events, the Exercise Price and/or number of the Company's securities issuable thereupon may, subject to certain conditions, be adjusted. In such event, the Company will, at the request of the holder, issue a new Warrant Certificate evidencing the adjustment in the Exercise Price and the number and/or type of securities issuable upon the exercise of the Warrants; provided, however, that the failure of the Company to issue such new Warrant Certificates shall not in any way change, alter, or otherwise impair, the rights of the holder as set forth in the Warrant Agreement. Upon due presentment for registration of transfer of this Warrant Certificate at an office or agency of the Company, a new Warrant Certificate or Warrant Certificates of like tenor and evidencing in the aggregate a like number of Warrants shall be issued to the transferee(s) in exchange for this Warrant Certificate, subject to the limitations provided herein and in the Warrant Agreement, without any charge except for any tax, or other governmental charge imposed in connection therewith. Upon the exercise of less than all of the Warrants evidenced by this Certificate, the Company shall forthwith issue to the holder hereof a new Warrant Certificate representing such number of unexercised Warrants. The Company may deem and treat the registered holder(s) hereof as the absolute owner(s) of this Warrant Certificate (notwithstanding any notation of ownership or other writing hereon made by anyone), for the purpose of any exercise hereof, and of any distribution to the holder(s) hereof, and for all other purposes, and the Company shall not be affected by any notice to the contrary. 2 All terms used in this Warrant Certificate which are defined in the Warrant Agreement shall have the meanings assigned to them in the Warrant Agreement. IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly executed under its corporate seal. Dated: July __, 2001 TSET, INC. [SEAL] By: _________________________________ Name: Title: Attest: Name: Title: 3 [FORM OF ELECTION TO PURCHASE] The undersigned hereby irrevocably elects to exercise the right, represented by this Warrant Certificate, to purchase Shares and herewith tenders in payment for such Shares cash or a certified or official bank check payable in New York Clearing House Funds to the order of _____________________ in the amount of $_______ all in accordance with the terms hereof. The undersigned requests that a certificate for such Shares be registered in the name of ____________________, whose address is _____________________ and that such Certificate be delivered to whose address is ___________________________. |_| The Undersigned hereby elects to exercise of the Warrants held by it in accordance with Section 3.2 of the Warrant Agreement dated August _____, 2001. Dated: Signature: ------------------------------------- (Signature must conform in all respects to name of holder as specified on the face of the Warrant Certificate.) --------------------------------- (Insert Social Security or Other Identifying Number of Holder) [FORM OF ASSIGNMENT] (To be executed by the registered holder if such holder desires to transfer the Warrant Certificate.) FOR VALUE RECEIVED _________________________________ hereby sells, assigns and transfers unto ________________________________________________________________________________ (Please print name and address of transferee) this Warrant Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint __________________________, Attorney, to transfer the within Warrant Certificate on the books of the within-named Company, with full power of substitution. Dated: Signature: ------------------------------------- (Signature must conform in all respects to name of holder as specified on the face of the Warrant Certificate.) -------------------------------- (Insert Social Security or Other Identifying Number of Holder) EX-23.1 56 exhibit23-1.txt Exhibit 23.1 Consent of Kirkpatrick & Lockhart LLP Kirkpatrick & Lockhart LLP's consent to include its opinion to the Registration Statement on Form S-1 of TSET, Inc. is contained in its opinion attached hereto as Exhibit 5.1 EX-23.2 57 a118966.txt EXHIBIT 23.2 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We have issued our report dated October 18, 2000 (except for Note 14, as to which the date is July 6, 2001) accompanying the financial statements of TSET, Inc. contained in the Registration Statement on Form S-1. We consent to the use of the aforementioned report in the Registration Statement, and to the use of our name as it appears under the caption "Experts." /S/ Grant Thornton LLP Portland, Oregon August 6, 2001 EX-23.3 58 exhibit23-3.txt Exhibit 23.3 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We hereby consent to the use in the Registration Statement on Form S-1 of TSET, Inc. of our report dated March 17, 2000 relating to the consolidated financial statements, which appears in such Registration Statement. We also consent to the reference to us under the heading "Expert" in such Registration Statement. /s/Randy Simpson, C.P.A., P.C. - ------------------------------ Randy Simpson, C.P.A., P.C. Salt Lake City, Utah July 13, 2001 -----END PRIVACY-ENHANCED MESSAGE-----