TSET, INC.
464 COMMON STREET, SUITE 301
BELMONT, MASSACHUSETTS 02478
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
TSET, Inc. On November 20, 2002, the Board of Directors of the Company adjourned
the originally scheduled annual shareholder meeting and voted to reconvene the
annual shareholder meeting on Monday, December 30, 2002, at 10:00 a.m., local
time, at the offices of Kirkpatrick & Lockhart, LLP, 75 State Street, Boston,
Massachusetts.
ALL SHAREHOLDERS ARE URGED TO VOTE OR RECAST THEIR VOTE. NO PRIOR PROXIES
WILL BE COUNTED AT THE RECONVENED MEETING. ACCORDINGLY, FOR YOUR VOTE TO COUNT
YOU MUST VOTE YOUR SHARES BY THE ENCLOSED PROXY OR IN PERSON. TO VOTE BY PROXY,
PLEASE FOLLOW THE INSTRUCTIONS IN THE FOLLOWING PARAGRAPH AND ON THE PROXY CARD.
Your vote is important and I urge you to vote your shares by proxy,
whether or not you plan to attend the reconvened meeting. After you read this
proxy statement, please indicate on the proxy card the manner in which you want
to have your shares voted. Then date, sign and mail the proxy card in the
postage-paid envelope that is provided. If you sign and return your proxy card
without indicating your choices, it will be understood that you wish to have
your shares voted in accordance with the recommendations of the Company's Board
of Directors.
We hope to see you at the reconvened meeting.
Sincerely,
/s/ Daniel R. Dwight
-------------------------------------
Daniel R. Dwight
President and Chief Executive Officer
December 2, 2002
TSET, INC.
464 COMMON STREET, SUITE 301
BELMONT, MASSACHUSETTS 02478
NOTICE OF RECONVENED ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 30, 2002
NOTICE IS HEREBY GIVEN that the reconvened Annual Meeting of Shareholders
(the "ANNUAL MEETING") of TSET, Inc. (the "COMPANY"), will be held on Monday,
December 30, 2002, at 10:00 a.m., local time, at the offices of Kirkpatrick &
Lockhart, LLP, 75 State Street, Boston, Massachusetts, for the following
purposes, as more fully described in the attached Proxy Statement:
1. To elect five directors, each until the next annual meeting of the
Company's shareholders or until their successors are duly elected and qualified;
2. To approve an amendment to the Company's Articles of Incorporation
to change the name of the Company to "Kronos Advanced Technologies, Inc."; and
3. To consider any other matters that may properly come before the
Annual Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on October 22,
2002, as the record date for determining the shareholders entitled to notice of
and to vote at the Annual Meeting or at any adjournment thereof. A complete list
of the shareholders entitled to vote at the reconvened Annual Meeting will be
open for examination by any shareholder during ordinary business hours for a
period of ten days prior to the reconvened Annual Meeting at the offices of the
Company's transfer agent and registrar, Merit Transfer Company, at 68 South Main
Street, Suite 708, Salt Lake City, Utah 84101.
IMPORTANT
You are cordially invited to attend the reconvened Annual Meeting in
person. In order to ensure your representation at the meeting, however, please
promptly complete, date, sign and return the enclosed proxy in the accompanying
envelope. If you should decide to attend the reconvened Annual Meeting and vote
your shares in person, you may revoke your proxy at that time.
By Order of the Board of Directors,
Daniel R. Dwight
President and Chief Executive Officer
December 2, 2002
TABLE OF CONTENTS
-----------------
PAGE NO.
--------
ABOUT THE MEETING...........................................................1
WHAT IS THE PURPOSE OF THE ANNUAL MEETING?......................1
WHO IS ENTITLED TO VOTE?........................................1
WHO CAN ATTEND THE MEETING?.....................................1
WHAT CONSTITUTES A QUORUM?......................................1
HOW DO I VOTE?..................................................1
WHAT IF I DO NOT SPECIFY HOW MY SHARES ARE TO BE VOTED?.........2
CAN I CHANGE MY VOTE AFTER I RETURN MY PROXY CARD?..............2
WHAT ARE THE BOARD'S RECOMMENDATIONS?...........................2
WHAT VOTE IS REQUIRED TO APPROVE EACH ITEM?.....................2
STOCK OWNERSHIP.............................................................3
BENEFICIAL OWNERS...............................................3
PROPOSAL 1 - ELECTION OF DIRECTORS..........................................4
DIRECTORS STANDING FOR ELECTION.................................4
RECOMMENDATION OF THE BOARD OF DIRECTORS........................4
DIRECTORS - PRESENT TERM EXPIRES AT THE ANNUAL MEETING..........4
MEETINGS........................................................7
COMMITTEES OF THE BOARD OF DIRECTORS............................7
COMPENSATION OF DIRECTORS.......................................8
EXECUTIVE COMPENSATION..........................................8
STOCK OPTION PLAN..............................................11
EMPLOYMENT AGREEMENTS..........................................11
EXECUTIVE SEVERANCE AGREEMENTS.................................13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................13
PROPOSAL 2 - AMENDMENT TO THE ARTICLES OF INCORPORATION....................15
RECOMMENDATION OF THE BOARD OF DIRECTORS......................15
DESCRIPTION OF CAPITAL STOCK...............................................16
COMMON STOCK..................................................16
PREFERRED STOCK...............................................16
OPTIONS.......................................................16
WARRANTS......................................................18
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE ARTICLES OF
INCORPORATION, BYLAWS AND FLORIDA LAW.......................18
TRANSFER AGENT AND REGISTRAR...................................18
OTHER MATTERS..................................................19
INDEPENDENT ACCOUNTANTS........................................19
ADDITIONAL INFORMATION.........................................19
i
TSET, INC.
464 COMMON STREET, SUITE 301
BELMONT, MASSACHUSETTS 02478
---------------------
PROXY STATEMENT
DECEMBER 2, 2002
-------------------------
This proxy statement contains information related to the reconvened annual
meeting of shareholders of TSET, Inc., to be held on Monday, December 30, 2002,
at 10:00 a.m., local time, at 75 State Street, Boston, Massachusetts, and any
postponements or adjournments thereof. The Company is making this proxy
solicitation.
ABOUT THE MEETING
WHAT IS THE PURPOSE OF THE ANNUAL MEETING?
At the Company's annual meeting, shareholders will act upon the matters
outlined in the notice of meeting on the cover page of this proxy statement,
including the election of directors and the approval of an amendment to the
Company's Articles of Incorporation to change the name of the Company to Kronos
Advanced Technologies, Inc. In addition, the Company's management will report on
the performance of the Company during fiscal 2002 and respond to questions from
shareholders.
WHO IS ENTITLED TO VOTE?
Only shareholders of record on the close of business on the record date,
October 22, 2002, are entitled to receive notice of the annual meeting and to
vote the shares of common stock that they held on that date at the meeting, or
any postponements or adjournments of the meeting. Each outstanding share of
common stock will be entitled to one vote on each matter to be voted upon at the
meeting.
WHO CAN ATTEND THE MEETING?
All shareholders as of the record date, or their duly appointed proxies,
may attend the meeting, and each may be accompanied by one guest. Seating,
however, is limited. Admission to the meeting will be on a first-come,
first-serve basis. Registration will begin at 9:00 a.m., and seating will begin
at 9:30 a.m. Each shareholder may be asked to present valid picture
identification, such as a driver's license or passport. Cameras, recording
devices and other electronic devices will not be permitted at the meeting.
Please note that if you hold your shares in "street name" (that is,
through a broker or other nominee), you will need to bring a copy of a brokerage
statement reflecting your stock ownership as of the record date and check in at
the registration desk at the meeting.
WHAT CONSTITUTES A QUORUM?
The presence at the meeting, in person or by proxy, of the holders of a
majority of the shares of common stock outstanding on the record date will
constitute a quorum, permitting the meeting to conduct its business. As of the
record date, 46,891,293 shares of common stock of the Company were outstanding.
Proxies received but marked as abstentions and broker non-votes will be included
in the calculation of the number of shares considered to be present at the
meeting.
HOW DO I VOTE?
If you complete and properly sign the accompanying proxy card and return
it to the Company, it will be voted as you direct. If you are a registered
1
shareholder and attend the meeting, you may deliver your completed proxy card in
person or vote by ballot at the meeting. "Street name" shareholders who wish to
vote at the meeting will need to obtain a proxy form from the institution that
holds their shares.
WHAT IF I DO NOT SPECIFY HOW MY SHARES ARE TO BE VOTED?
If you submit a proxy but do not indicate any voting instructions, then
your shares will be voted in accordance with the Board's recommendations.
CAN I CHANGE MY VOTE AFTER I RETURN MY PROXY CARD?
Yes. Even after you have submitted your proxy card, you may change your
vote at any time before the proxy is exercised by filing with the Secretary of
the Company either a notice of revocation or a duly executed proxy bearing a
later date. The powers of the proxy holders will be suspended if you attend the
meeting in person and so request, although attendance at the meeting will not by
itself revoke a previously granted proxy.
WHAT ARE THE BOARD'S RECOMMENDATIONS?
Unless you give other instructions on your proxy card, the persons named
as proxy holders on the proxy card will vote in accordance with the
recommendation of the Board of Directors. The Board's recommendation is set
forth together with the description of each item in this proxy statement. In
summary, the Board recommends a vote:
o FOR the election of the nominated slate of directors (see page 4);
o FOR the approval of an amendment to the Company's Articles of
Incorporation to change the name of the Company to Kronos Advanced
Technologies, Inc. (see page 16).
With respect to any other matter that properly comes before the meeting,
the proxy holders will vote as recommended by the Board of Directors or, if no
recommendation is given, in their own discretion.
WHAT VOTE IS REQUIRED TO APPROVE EACH ITEM?
ELECTION OF DIRECTORS. The affirmative vote of a plurality of the votes
cast at the meeting is required for the election of directors. This means that
the five nominees will be elected if they receive more affirmative votes than
any other person. A properly executed proxy marked "Withheld" with respect to
the election of any director will not be voted with respect to such director
indicated, although it will be counted for purposes of determining whether there
is a quorum.
COMPANY NAME CHANGE. For the approval of an amendment to the Company's
Articles of Incorporation to change the name of the Company to Kronos Advanced
Technologies, Inc. and any other item that properly comes before the meeting,
the affirmative vote of the holders of a majority of the outstanding shares, as
of the record date, will be required for approval. A properly executed proxy
marked "Abstain" with respect to any such matter will not be voted, although it
will be counted for purposes of determining whether there is a quorum.
Accordingly, an abstention will have the effect of a negative vote.
If you hold your shares in "street name" through a broker or other
nominee, your broker or nominee may not be permitted to exercise voting
discretion with respect to some of the matters to be acted upon. Thus, if you do
not give your broker or nominee specific instructions, your shares may not be
voted on those matters and will not be counted in determining the number of
shares necessary for approval. Shares represented by such "broker non-votes,"
however, will be counted in determining whether there is a quorum.
2
STOCK OWNERSHIP
BENEFICIAL OWNERS
The following table presents certain information regarding the beneficial
ownership of all shares of common stock at October 14, 2002 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 46,891,293 common
shares issued and outstanding at October 14, 2002 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 October 14, 2002 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
----------------------------------------- --------------- ----------
Daniel R. Dwight 3,215,818(1) 6.9%
464 Common Street
Suite 301
Belmont, MA 02478
Richard F. Tusing 1,717,118(2) 3.8%
464 Common Street
Suite 301
Belmont, MA 02478
Richard A. Papworth 822,114(3) 1.8%
464 Common Street
Suite 301
Belmont, MA 02478
Jeffrey D. Wilson 310,000(4) *
464 Common Street
Suite 301
Belmont, MA 02478
Erik Black 272,983(5) *
464 Common Street
Suite 301
Belmont, MA 02478
Charles D. Strang 100,000(6) *
464 Common Street
Suite 301
Belmont, MA 02478
James P. McDermott 294,118 *
464 Common Street
Suite 301
Belmont, MA 02478
All Officers and Directors of 6,732,151(7) 14.1%
TSET
---------------
* Less than 1%.
(1) Includes options to purchase 1,321,700 shares of common stock that can be
acquired within sixty days of October 14, 2002
(2) Includes options to purchase 473,000 shares of common stock that can be
acquired within sixty days of October 14, 2002.
(3) Includes options to purchase 448,475 shares of common stock that can be
acquired within sixty days of October 14, 2002.
(4) Includes options to purchase 310,000 shares of common stock that can be
acquired within sixty days of October 14, 2002.
(5) Includes options to purchase 50,000 shares of common stock that can be
acquired within sixty days of October 14, 2002.
(6) Includes options to purchase 100,000 shares of common stock that can be
acquired within sixty days of October 14, 2002.
(7) Includes options to purchase 2,703,175 shares of common stock that can be
acquired within sixty days of October 14, 2002.
3
PROPOSAL 1 - ELECTION OF DIRECTORS
DIRECTORS STANDING FOR ELECTION
The Board of Directors of the Company consists of eight seats. Each
director holds office until the first annual meeting of shareholders following
their election or appointment and until their successors have been duly elected
and qualified.
The Board of Directors has nominated Daniel R. Dwight, Richard A.
Papworth, Richard F. Tusing, James P. McDermott and Erik W. Black for election
as directors. The accompanying proxy will be voted for the election of these
nominees, unless authority to vote for one or more nominees is withheld. In the
event that any of the nominees is unable or unwilling to serve as a director for
any reason (which is not anticipated), the proxy will be voted for the election
of any substitute nominee designated by the Board of Directors. The nominees for
directors have previously served as members of the Board of Directors of the
Company and have consented to serve such term.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION OF
EACH OF THE NOMINEES
DIRECTORS - PRESENT TERM EXPIRES AT THE ANNUAL MEETING
DANIEL R. DWIGHT Daniel R. Dwight has served as a Director of TSET since
PRESIDENT AND CHIEF November 2000, and as a Director and Chief Executive
EXECUTIVE OFFICER Officer of Kronos Air Technologies since January 2001.
AGE 42 Effective October 16, 2001, Mr. Dwight was appointed
President and Chief Executive Officer of the Company.
He has extensive experience in private equity and
operations in a wide variety of high growth and core
industrial businesses. From February 2000 to October
2001, Mr. Dwight was an independent management
consultant who provided 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 $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.
4
RICHARD A. PAPWORTH Richard A. Papworth became a Director of the Company in
CHIEF FINANCIAL OFFICER June 2001, was appointed Chief Financial Officer of the
AGE 44 Company 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 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.
5
RICHARD F. TUSING Richard F. Tusing has served as a Director of TSET
CHIEF OPERATING OFFICER since October 2000 and as a Director of Kronos Air
AGE 45 Technologies since January 2001 and was appointed Chief
Operating Officer on January 1, 2002. 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.
6
ERIK W. BLACK Erik W. Black became a Director of the Company in June
AGE 32 2001, was appointed Executive Vice-President - Business
Development of the Company 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. Mr. Black resigned as Executive
Vice-President - Business Development of the Company
effective December 31, 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 James P. McDermott became a Director of the Company in
AGE 40 July 2001. Mr. McDermott has over 18 years of financial
and operational problem-solving experience. Mr.
McDermott is a co-founder and is currently a Managing
Director of Eagle Rock Advisors, LLC, the Manager for
The Eagle Rock Group, LLC. 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.
MEETINGS
During the Company's fiscal year ending June 30, 2002 ("FISCAL 2002") the
Board of Directors met on 10 occasions. Each director attended more than 75% of
the total number of meetings of the Board and Committees on which he served.
COMMITTEES OF THE BOARD OF DIRECTORS
AUDIT COMMITTEE. We currently do not have an Audit Committee.
7
COMPENSATION. On September 11, 2001, the Board of Directors established a
Compensation Committee consisting of two independent members of the Board of
Directors. The Compensation Committee currently consists of James P. McDermott
and Charles D. Strang. The Compensation Committee and Chairman will be
designated annually by the Board of Directors. The Compensation Committee is
charged with reviewing and making recommendations concerning the Company's
general compensation strategy, reviewing salaries for officers, reviewing
employee benefit plans, and administering TSET's stock incentive plan.
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.
EXECUTIVE COMPENSATION
The following table sets forth compensation for the fiscal year ended June
30, 2002 for our executive officers:
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------------------------------ ----------------------------------------------------
AWARDS PAYOUTS
----------------------------------------------------
RESTRICTED SECURITIES ALL
NAME AND OTHER STOCK UNDERLYING LTIP OTHER
PRINCIPAL SALARY BONUS COMPENSATION AWARDS OPTIONS/SARS PAYOUTS COMPENSATION
FISCAL POSITION YEAR $ $ $ $ # $ $
--------------- ----- -------- ---------- -------------- ----------- ------------ ------- ------------
(A) (B) (C) (D) (E) (F) (G) (H) (I)
--------------- ----- -------- ---------- -------------- ----------- ------------ ------- ------------
Daniel R. Dwight, 2002 112,500 -- 7,620 -- 2,600,000 -- --
President and 2001 -- -- -- -- -- -- --
Chief Executive 2000 -- -- -- -- -- -- --
Officer(1)
Richard F. Tusing, 2002 -- -- -- -- -- -- --
Chief Operating 2001 -- -- -- -- -- -- --
Officer(2) 2000 -- -- -- -- -- -- --
Richard A. Papworth, 2002 120,000(3) -- -- -- 300,000 -- --
Chief Financial 2001 120,000 -- 2,000 -- 448,475(4) -- --
Officer 2000 10,000(5) -- -- 50,000(6) -- -- --
Jeffrey D. Wilson, 2002 70,000 -- 3,500 -- 50,000 -- --
Former Chairman of 2001 180,000 -- 12,000 -- 600,000(8) -- --
the Board of 2000 155,000(9) 30,000(10) 2,670(11) 700,000(12) -- -- --
Directors and Chief
Executive Officer(7)
8
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------------------------------ ----------------------------------------------------
AWARDS PAYOUTS
----------------------------------------------------
RESTRICTED SECURITIES ALL
NAME AND OTHER STOCK UNDERLYING LTIP OTHER
PRINCIPAL SALARY BONUS COMPENSATION AWARDS OPTIONS/SARS PAYOUTS COMPENSATION
FISCAL POSITION YEAR $ $ $ $ # $ $
--------------- ----- -------- ---------- -------------- ----------- ------------ ------- ------------
(A) (B) (C) (D) (E) (F) (G) (H) (I)
--------------- ----- -------- ---------- -------------- ----------- ------------ ------- ------------
Erik W. Black, 2002 60,000(14) -- 6,000 -- -- -- --
Former Executive 2001 100,000 -- 6,000 -- 50,000(15) -- --
Vice-President - 2000 4,167(16) -- 4,500(17) -- -- -- --
Business Development(13)
--------------------
(1) Mr. Dwight became President and Chief Executive Officer of TSET effective
October 16, 2001.
(2) Mr. Tusing became Chief Operating Officer of TSET effective January 1,
2002. Mr. Tusing continues to be compensated pursuant to his consulting
agreement with TSET until an employment agreement is entered into by the
parties.
(3) TSET accrued $45,000 of Mr. Papworth's 2002 salary.
(4) 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 May 19, 2000. 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.
(5) Mr. Papworth joined our Company in May 2000. He is compensated $120,000
annually.
(6) 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).
(7) Effective October 10, 2001, Mr. Wilson resigned as Chairman of the Board
of Directors and Chief Executive Officer of TSET pursuant to a mutual
agreement between TSET and Mr. Wilson.
(8) 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 were to vest upon the achievement of certain
performance objectives. The exercise price was 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. TSET has determined that
the options to purchase 350,000 shares of common stock granted to Mr.
Wilson pursuant to the letter agreement are void as of April 10, 2001, the
effective date of the letter agreement. Mr. Wilson 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. 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.
(9) 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
years 1999 and 2000 and was entitled to receive 12% annual interest on all
deferred amounts. Pursuant to an agreement between TSET and Mr. Wilson
effective October 10, 2001, TSET issued a promissory note in the amount of
$350,000 and will pay $30,000 in cash within sixty days of October 15,
2001, which represents all of Mr. Wilson's accrued salary, bonus and
interest. In addition, TSET will also pay Mr. Wilson his unpaid
reimbursable expenses.
(10) 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 was entitled to
receive 12% annual interest on all deferred compensation. Pursuant to an
agreement between TSET and Mr. Wilson dated October 10, 2001, TSET issued
a promissory note in the amount of $350,000 and will pay $30,000 in cash
within sixty days of October 15, 2001, which represents all of Mr.
Wilson's accrued salary, bonus and interest. In addition, TSET will pay
Mr. Wilson his unpaid reimbursable expenses.
(11) Mr. Wilson was entitled to an automobile allowance of $1,000 per month, of
which $2,670 was received in fiscal year 2000.
(12) 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 was 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. TSET has determined that the issuance of the
1,000,000 shares of common stock is void as of April 16, 1999, the
effective date of Mr. Wilson's employment agreement.
(13) Mr. Black resigned as Executive Vice-President - Business Development of
TSET effective December 31, 2001.
(14) TSET accrued $60,000 of Mr. Black's 2002 salary.
(15) 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.
(16) Mr. Black joined our Company in May 2000. He was compensated $100,000
annually, of which $4,167 was received in fiscal year 2000.
(17) Mr. Black was entitled to an automobile allowance of $500 per month, and a
one-time relocation allowance of $5,000, of which $4,500 was received in
fiscal year 2000.
9
AGGREGATED OPTIONS/SAR EXERCISES
IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTIONS/SAR VALUES(1)
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY
ACQUIRED ON VALUE OPTIONS/SAR'S AT OPTIONS/SAR'S AT
NAME EXERCISE REALIZED ($) FISCAL YEAR END(1) FISCAL YEAR END(2)
---------------- ---- ----------- ------------ ----------------------- -----------------------
Daniel R. Dwight -0- -0- Exercisable: 1,321,700 $0
President and Unexercisa1e: 1,600,000 $0
Chief Executive
Officer(3)
Richard F. Tusing -0- -0- Exercisable: 473,000 $0
Chief Operating Unexercisable: 950,000 $0
Officer(4)
Richard A. Papworth -0- -0- Exercisable: 448,475 $0
Chief Financial Unexercisable: 300,000 $0
Officer
Jeffrey D. Wilson -0- -0- Exercisable: 310,000(6) $0
Former Chairman of the Unexercisable: 350,000(6) $0
the Board
of Directors and
Chief Executive
Officer(5)
Erik W. Black -0- -0- Exercisable: 50,000 $0
Former Executive Unexercisable: 0 $0
Vice-President
Business Development(7)
---------------------------
(1) These grants represent options to purchase common stock. No SAR's have
been granted.
(2) The value of the unexercised in-the-money options were calculated by
determining the difference between the fair market value of the common
stock underlying the options and the exercise price of the options as of
June 30, 2002.
(3) Mr. Dwight became President and Chief Executive Officer of TSET effective
November 15, 2001.
(4) Mr. Tusing became Chief Operating Officer of TSET effective January 1,
2002.
(5) Effective October 10, 2001, Mr. Wilson resigned as Chairman of the Board
of Directors and Chief Executive Officer of TSET pursuant to a mutual
agreement between TSET and Mr. Wilson.
(6) TSET has determined that the options to purchase 350,000 shares of common
stock granted to Mr. Wilson pursuant to a letter agreement dated April 10,
2001 are void as of April 10, 2001, the effective date of the letter
agreement. Of these options to purchase 350,000 shares of common stock,
options to purchase 125,000 shares of common stock were exercisable at
fiscal year end 2001 and 225,000 options were unexercisable at fiscal year
end 2001.
(7) Mr. Black resigned as Executive Vice President - Business Development of
TSET effective as of December 31, 2001.
10
OPTION/SAR GRANTS TABLE
% TOTAL
NO. OF SECURITIES OPTIONS/SAR'S
UNDERLYING GRANTED TO
OPTIONS/SAR'S EMPLOYEES IN EXERCISE OR BASE PRICE
NAME GRANTED (#) FISCAL YEAR (%) ($ PER SHARE) EXPIRATION DATE
---- ------------------ --------------- ---------------------- ---------------
Daniel R. Dwight 93,600(2) 1.5% $0.960 November 15, 2004
President and 1,000,000 16.4% $0.680 February 12, 2012
Chief Executive Officer(1) 600,000 9.9% $0.250 February 12, 2012
500,000(3) 8.2% $0.420 November 15, 2011
250,000(3) 4.1% $0.660 November 15, 2011
250,000(3) 4.1% $0.560 November 15, 2011
Richard F. Tusing 246,500(5) 4.1% $0.960 June 30, 2005
Chief Operating Officer(4) 600,000 9.9% $0.680 February 12, 2012
350,000 5.8% $0.250 February 12, 2012
Jeffrey D. Wilson 50,000 0.8% $0.885 April 9, 2006
Former Chairman of the Board 10,000 0.1% $0.210 March 31, 2005
of Directors and
Chief Executive Officer(6)
Richard A. Papworth 100,000 1.6% $0.680 February 12, 2012
Chief Financial Officer 200,000 3.3% $0.250 February 12, 2012
---------------------------------
(1) Mr. Dwight became President and Chief Executive Officer of TSET effective
October 16, 2001.
(2) Represents options granted pursuant to Mr. Dwight's Consulting Agreements
dated August 11, 2000 (individual agreement) and January 1, 2001 (Dwight
Tusing & Associates' agreement), as amended April 12, 2001.
(3) Represents options granted pursuant to Mr. Dwight's Employment Agreement
effective November 15, 2001 and Stock Option Agreement dated April 1,
2002.
(4) Mr. Tusing became Chief Operating Officer of TSET effective January 1,
2002.
(5) Represents options granted pursuant to Mr. Tusing's Consulting Agreements
dated August 11, 2000 (individual agreement) and January 1, 2001 (Dwight
Tusing & Associates' agreement), as amended April 12, 2001.
(6) Effective October 10, 2001, Mr. Wilson resigned as Chairman of the Board
of Directors and Chief Executive Officer of TSET pursuant to a mutual
agreement between TSET and Mr. Wilson.
STOCK OPTION PLAN
On February 12, 2002, the Board of Directors approved the TSET, Inc. Stock
Option Plan under which the Company's key employees, consultants, independent
contractors, officers and directors are eligible to receive grants of stock
options. The Company has reserved a total of 6,250,000 shares of common stock
under the Stock Option Plan. It is presently administered by the Company's Board
of Directors. Subject to the provisions of the Stock Option Plan, the Board of
Directors has full and final authority to select the individuals to whom options
will be granted, to grant the options and to determine the terms and conditions
and the number of shares issued pursuant thereto.
EMPLOYMENT AGREEMENTS
The Employment Agreement of Jeffrey D. Wilson, our former Chairman and
Chief Executive Officer, was dated as of April 20, 1999 and continued for an
"evergreen" term of five years unless Mr. Wilson provided at least 60 days'
prior written notice of his resignation. Such agreement provided 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 was to increase to $15,000 per month, and during the third 12-month
period such base cash compensation was to increase to $20,000 per month. Mr.
Wilson 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
were 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
11
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 following Mr. Wilson's acceptance of the terms of his employment
agreement. Mr. Wilson was 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 had "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 was to be borne by us. As of the date of this
prospectus, Mr. Wilson had 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 was to vest upon the
achievement of certain performance objectives. The exercise price of these
options was 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 September 2001, we determined that, among other things, our Board of
Directors never validly approved Mr. Wilson's Employment Agreement. Accordingly,
we determined that Mr. Wilson's Employment Agreement and the Letter Agreement
are null and void from their inception. As a consequence, we have determined
that the issuance of 1,000,000 shares of common stock pursuant to Mr. Wilson's
Employment Agreement and the grant of options to purchase 350,000 shares of
common stock pursuant to the Letter Agreement were void as of the effective
dates of the Employment Agreement and Letter Agreement, respectively, and that
these shares of common stock and options are treated as if they were never
issued or granted, as the case may be. Effective October 10, 2001, Mr. Wilson
resigned as Chairman of the Board of Directors and Chief Executive Officer of
the Company. Mr. Wilson remains as a director of the Company.
Daniel R. Dwight, our President and Chief Executive Officer, and our
company entered into an Employment agreement effective as of November 15, 2001.
The initial term of Mr. Dwight's Employment Agreement is for 2 years and will
automatically renew for successive 1 year terms unless the Company or Mr. Dwight
provide the other party with written notice within 3 months of the end of the
initial term or any subsequent renewal term. Mr. Dwight's Employment Agreement
provides for base cash compensation of $180,000 per year. Mr. Dwight is eligible
for annual incentive bonus compensation in an amount equal to Mr. Dwight's
annual salary based on the achievement of certain bonus objectives. In addition,
the Company granted Mr. Dwight 1,000,000 immediately vested and exercisable,
ten-year stock options at various exercise prices. Mr. Dwight 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.
Mr. Dwight 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 Executive Officer.
Richard A. Papworth, our Chief Financial Officer, has an Employment
Agreement dated 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.
12
EXECUTIVE SEVERANCE AGREEMENTS
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
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.
The Employment Agreement of Daniel R. Dwight, our Chief Executive Officer,
provides that, upon the occurrence of any transaction as defined as a "change of
control" of TSET, Mr. Dwight shall receive his salary and benefits for a period
of time that is the greater of (i) one year or (ii) the remainder of Mr.
Dwight's employment term.
As of the record date, we have not adopted any separate executive
severance agreements.
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. In September 2001, the Company
determined that, among other things, our Board of Directors never validly
approved Mr. Wilson's Employment Agreement. Accordingly, the Company has
determined that Mr. Wilson's Employment agreement was null and void from its
inception. As a consequence, the Company has determined that the issuance of
1,000,000 shares of common stock pursuant to Mr. Wilson's Employment Agreement
is void as of the effective date of the Employment Agreement, and that these
shares of common stock are treated as if they were never issued.
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.
Pursuant to the Company and Mr. Dwight entering into his Employment Agreement,
effective November 15, 2001, Mr. Dwight's Consulting Agreement is no longer in
effect. Pursuant to his Consulting Agreement, Mr. Dwight earned $208,400 and
$179,600, respectively, in the years ended June 30, 2001 and 2002, respectively.
Of the aggregate amount of $388,000, we have paid $202,400 to Mr. Dwight and the
balance of $185,600 remains payable. Mr. Tusing's Consulting Agreement is
currently in effect. The initial term of Mr. Tusing's Consulting Agreement was
six months and is automatically renewed for successive terms of six months,
unless our company or Mr. Tusing terminate the agreement upon 30 days' prior
written notice. Mr. Tusing performs management and business consulting services
under the Consulting Agreement. Pursuant to the agreement, Mr. Tusing is
compensated $150 per hour for his services and the number of hours worked is
mutually determined by our company and Mr. Tusing. At Mr. Tusing's discretion,
he may elect to convert his unpaid hourly cash compensation for an option to
purchase restricted shares of the Company's common stock at one hundred option
shares for each hour of consulting services. Such option, once elected, is
exercisable for three years at an exercise price of $2.00 per share. Pursuant to
his Consulting Agreement, Mr. Tusing earned $207,400 and $377,750, respectively,
in the years ended June 30, 2001 and 2002 and $30,750 through July 31, 2002. Of
the aggregate amount of $615,900, we have paid $294,000 to Mr. Tusing and the
balance of $331,900 remains payable.
13
Effective October 10, 2001, we entered into a Consulting Agreement with
Jeffrey D. Wilson, pursuant to which Mr. Wilson will provide thirty-five hours
per month of management and other consulting services to us in exchange for
consulting fees payable in cash and options of our common stock. The term of Mr.
Wilson's Consulting Agreement is one year. Mr. Wilson is compensated $150 per
hour for his services. Pursuant to his Consulting Agreement, Mr. Wilson earned
$51,200 in the year ended June 30, 2002 and $8,700 through October 15, 2002. Of
the aggregate amount of $56,500, we have paid $5,200 to Mr. Wilson and the
balance of $51,300 remains payable. In addition, our company granted Mr. Wilson
an option to purchase 100,000 shares of the Company's common stock upon the
successful conclusion of the Company's legal proceedings against W. Alan
Thompson, Ingrid T. Fuhriman, Robert L. Fuhriman II and Weihao Long. The option
is for three years and fully vests and becomes exercisable immediately upon the
grant thereof. The exercise price of the option will be the closing price of the
Company's common stock on the option's date of grant. Out-of-pocket expenses
incurred by Mr. Wilson in connection with provision of his services under the
Consulting Agreement will also be reimbursed by us. The Consulting Agreement 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. Mr. Wilson's Consulting Agreement is currently in effect until
October 15, 2002.
Pursuant to Daniel R. Dwight's Employment Agreement, effective November
15, 2001, our company and Mr. Dwight agreed that the Consulting Agreement, dated
January 1, 2001, between our company and Mr. Dwight and the Finders Agreement,
dated August 11, 2000, between our company and Mr. Dwight were terminated
effective November 15, 2001. We acknowledged and agreed that pursuant to the
terms of the Consulting Agreement, we owe Mr. Dwight past-due amounts equal to
$250,582. We agreed that this past-due amount will accrue interest at 1% per
month until paid in full. Payments from our company to Mr. Dwight shall be
allocated first to out-of-pocket expenses, second to salary, and third to
repayment of the past-due amount. In addition, we acknowledged and agreed that,
pursuant to the Consulting Agreement and the Finders Agreement, Mr. Dwight has
earned 271,700 options that are fully vested and exercisable under the terms and
conditions of the Consulting Agreement, the Finders Agreement and a Letter
Agreement, dated April 12, 2001 between our company and Mr. Dwight.
14
PROPOSAL 2 - AMENDMENT TO THE ARTICLES OF INCORPORATION
Our Company's Board of Directors proposes an amendment to our Company's
Articles of Incorporation to change the name of our Company to Kronos Advanced
Technologies, Inc.
If the amendment to our Company's Articles of Incorporation is adopted,
Articles of Amendment shall be filed with the Nevada Secretary of State so that
the first paragraph of Article I of the Articles of Incorporation shall be as
follows:
"That the name of said corporation shall be Kronos Advanced
Technologies, Inc."
Our Company is focused on the development and commercialization of the
air-movement and purification technology known as KronosTM. Our Company's Board
of Directors believes that it is desirable to change the name of our Company to
Kronos Advanced Technologies, Inc., as it more directly associates our Company
with our KronosTM technology.
RECOMMENDATION OF THE BOARD OF DIRECTORS
Our Board of Directors unanimously recommends a vote "FOR" the approval of
an amendment to our Company's Articles of Incorporation to change the name of
our Company to Kronos Advanced Technologies, Inc.
15
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 October 14, 2002, 46,891,293 shares of common stock were issued
and outstanding; no shares of our preferred stock are issued and outstanding.
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 filed on August 7,
2001 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 the Company, 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 the Company 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.
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, 2001, 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. We have determined that
the options to purchase 350,000 shares of common stock granted to Mr. Wilson on
April 10, 2001 are void as of that date, and these options are treated as if
they were never granted. 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. On February 12, 2002, eight employees of the
Company were granted stock options for 4,580,000 shares of common stock. On
November 15, 2001, Daniel R. Dwight was granted stock options for 1,000,000
shares of common stock as a signing bonus in connection with Mr. Dwight's
Employment Agreement.
As of October 9, 2002, the following options had been granted in the
amounts and to the individuals shown below; as of the date hereof, none of such
options has been exercised:
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--------------------------------------------------------------------------------
NUMBER DATE OF
NAME OF OPTIONS STRIKE PRICE GRANT EXPIRATION
--------------------------------------------------------------------------------
Daniel R. Dwight 50,000 $0.885 04/09/01 04/09/06
178,100(1) $0.960 05/07/01 05/07/04
93,600(1) $0.960 11/15/01 11/15/04
1,000,000 $0.680 02/12/02 02/12/12
600,000 $0.250 12/12/02 02/12/12
500,000(2) $0.420 11/15/01 11/15/11
250,000(2) $0.560 11/15/01 11/15/11
250,000(2) $0.660 11/15/01 11/15/11
Richard F. Tusing 50,000 $0.885 04/09/01 04/09/06
176,500(3) $0.960 05/07/01 05/07/04
246,500(3) $0.960 06/30/02 06/30/05
600,000 $0.680 02/12/02 02/12/12
350,000 $0.250 02/12/02 02/12/12
Richard A. Papworth 50,000 $0.885 04/09/01 04/09/06
398,475 $0.885 04/09/01 04/09/11
100,000 $0.680 02/12/02 02/12/12
200,000 $0.250 02/12/02 02/12/12
Igor Krichtafovitch 50,000 $0.885 04/09/01 04/09/06
600,000 $0.680 02/12/02 02/12/12
400,000 $0.250 02/12/02 02/12/12
J. Alexander Chriss 50,000 $0.885 04/09/01 04/09/06
104,000(4) $1.120 04/30/01 04/30/04
104,800(4) $1.120 12/31/01 12/31/04
350,000 $0.680 02/12/02 02/12/12
300,000 $0.250 02/12/02 02/12/12
Jeffrey D. Wilson 50,000 $0.885 04/09/01 04/09/06
200,000(5) $0.710 05/03/01 05/03/11
50,000(6) $0.360 10/10/01 10/10/04
10,000 $0.210 03/31/02 03/31/05
Charles D. Strang 50,000 $0.885 04/09/01 04/09/06
50,000(7) $0.710 05/03/01 05/03/11
Erik W. Black 50,000 $0.885 04/09/01 04/09/06
Charles H. Wellington, Jr. 50,000 $0.885 04/09/01 04/09/06
Vladimir Gorobets 30,000 $0.250 02/12/02 02/12/12
17
--------------------------------------------------------------------------------
NUMBER DATE OF
NAME OF OPTIONS STRIKE PRICE GRANT EXPIRATION
--------------------------------------------------------------------------------
Bruce Long 20,000 $0.250 02/12/02 02/12/12
Jacob Oharah 30,000 $0.250 02/12/02 02/12/12
---------------
(1) Pursuant to consulting agreements dated as of August 11, 2000
(individually) and January 1, 2001 (as Dwight Tusing & Associates), as
amended April 12, 2001.
(2) Pursuant to an employment agreement dated November 15, 2001 and a
corresponding stock option agreement dated November 15, 2001.
(3) Pursuant to consulting agreements dated as of August 11, 2000
(individually) and January 1, 2001 (as Dwight Tusing & Associates), as
amended April 12, 2001.
(4) Pursuant to a consulting agreement dated as of March 18, 2001; option
grant effective as of April 30, 2001.
(5) Mr. Wilson was granted options to purchase 100,000 shares of common stock
annually for his service as Chairman of TSET's Board of Directors. Options
shown reflect such options for such service for years 1999 and 2000,
respectively.
(6) Pursuant to an agreement dated October 10, 2001 between TSET and Mr.
Wilson, Mr. Wilson was granted an option to purchase 50,000 shares of
common stock in consideration of Mr. Wilson's service in year 2001, prior
to his resignation, as Chairman of TSET's Board of Directors.
(7) Mr. Strang is entitled to receive 50,000 restricted shares of common stock
annually for his service as a member of TSET's Board of Directors.
WARRANTS
On August 7, 2001, we entered into a Warrant Agreement with The Eagle Rock
Group, LLC, pursuant to which The Eagle Rock Group was granted a ten-year
warrant to acquire 1,400,000 shares of our common stock at an exercise price of
$0.68 per share (the fair market value on the date of grant). The shares
underlying the warrant have piggyback 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. We registered all of the
shares underlying The Eagle Rock Group's warrant in a Form S-1 Registration
Statement filed with the U.S. Securities & Exchange Commission on August 16,
2002.
Effective March 11, 2002, we entered into an agreement with The Eagle Rock
Group extending our relationship with The Eagle Rock Group until March 1, 2003.
Pursuant to the agreement, we agreed to grant to The Eagle Rock Group a ten-year
warrant for the right to purchase 2,000,000 shares of our common stock. Five
hundred thousand (500,000) warrant shares are earned over a 12-month period and
will fully vest on March 1, 2003. The remainder of the shares may be earned,
contingent upon the occurrence of various events, including a successful capital
raise, securing contracts with the U.S. military, securing contracts with
consumer-oriented distribution organizations, and the adoption of a
branding/marketing campaign principally developed by The Eagle Rock Group. The
exercise price of these warrant shares will be equal to our common stock's
closing price as of the day an initial letter of intent or term sheet related to
such transaction is executed.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE ARTICLES OF INCORPORATION, BYLAWS AND
FLORIDA LAW
The following provisions of the Articles of Incorporation and Bylaws of
our Company could discourage potential acquisition proposals and could delay or
prevent a change in control of our Company. Such provisions may also have the
effect of preventing changes in the management of our Company, and preventing
shareholders from receiving a premium on their common stock.
AUTHORIZED BUT UNISSUED STOCK. The authorized but unissued shares of
common stock and preferred stock are available for future issuance without
shareholder approval. These additional shares may be utilized for a variety of
corporate purposes, including future public offerings to raise additional
capital, corporate acquisitions and employee benefit plans.
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.
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OTHER MATTERS
As of the date of this proxy statement, our Company knows of no business
that will be presented for consideration at the meeting other than the items
referred to above. If any other matter is properly brought before the meeting
for action by shareholders, proxies in the enclosed form returned to our Company
will be voted in accordance with the recommendation of our Board of Directors
or, in the absence of such a recommendation, in accordance with the judgment of
the proxy holder.
INDEPENDENT ACCOUNTANTS
The firm of Grant Thornton, LLP served as our Company's independent
accountants for Fiscal 2002. Representatives of the firm will be available by
telephone to respond to questions at the Annual Meeting of the Shareholders.
These representatives will have an opportunity to make a statement if they
desire to do so. The Company has not selected its independent accounts for
Fiscal 2003.
AUDIT FEES. The aggregate fees billed for professional services rendered
was $62,400 for the audit of the Company's annual financial statements for the
year ended June 30, 2002 and the reviews of the financial statements included in
the Company's Forms 10-Q for that fiscal year.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES. None of the
professional services described in Paragraphs (c)(4)(ii) of Rule 2-01 of
Regulation S-X were rendered by the principal accountant for the year ended June
30, 2002.
ALL OTHER FEES. Other than the services described above under the captions
"Audit Fees" and "Financial Information Systems Design and Implementation Fees,"
the aggregate fees billed for services rendered by the principal accountant was
$105,000 for the year ended June 30, 2002. These fees related to the review of
the Company's Registration Statements and the preparation of federal and state
income-tax returns.
ADDITIONAL INFORMATION
ADVANCE NOTICE PROCEDURES. Under our Company's Bylaws, no business may be
brought before an annual meeting unless it is specified in the notice of the
meeting (which includes shareholder proposals that our Company is required to
include in its proxy statement pursuant to Rule 14a-8 under the Securities
Exchange Act of 1934) or is otherwise brought before the meeting by or at the
discretion of the Board or by a shareholder entitled to vote who has delivered
notice to the Company (containing certain information specified in the bylaws)
not less than 120 days nor more than 180 days prior to the first anniversary of
the preceding year's annual meeting. These requirements are separate from and in
addition to the SEC's requirements that a shareholder must meet in order to have
a shareholder proposal included in our Company's proxy statement.
SHAREHOLDER PROPOSALS FOR THE 2003 ANNUAL MEETING. Shareholders interested
in submitting a proposal for inclusion in the proxy materials for our 2003
Annual Meeting of the Shareholders may do so by following the procedures
prescribed in SEC Rule 14a-8. To be eligible for inclusion, shareholder
proposals must be received by our Company's Secretary no later than July 1,
2003. Any shareholder proposals should be addressed to our Company's Secretary,
464 Common Street, Suite 301, Belmont, Massachusetts 02478.
PROXY SOLICITATION COSTS. Our Company is soliciting the enclosed proxies.
The cost of soliciting proxies in the enclosed form will be borne by our
Company. Officers and regular employees of our Company may, but without
compensation other than their regular compensation, solicit proxies by further
mailing or personal conversations, or by telephone, telex, facsimile or
electronic means. Our Company will, upon request, reimburse brokerage firms for
their reasonable expenses in forwarding solicitation materials to the beneficial
owners of stock.
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INCORPORATION BY REFERENCE. Certain financial and other information
required pursuant to Item 13 of the Proxy Rules is incorporated by reference to
the Company's Annual Report, which is being delivered to the shareholders with
this proxy statement. In order to facilitate compliance with Rule 2-02(a) of
Regulation S-X, one copy of the definitive proxy statement will include a
manually signed copy of the accountant's report.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Daniel R. Dwight
-------------------------------------
Daniel R. Dwight
President and
Chief Executive Officer
Belmont, Massachusetts
December 2, 2002
20