Exhibit 10.2
Abstract Enterprises Corp.
Suite 1095, 555 Burrard Street
Vancouver, B.C.
V7X 1M8
Auteo Media Inc. April 3, 2000
16700, 198th Avenue N.E.
Woodinville, WA U.S.A.
98072
Dear Sirs:
Re: Merger Proposal
-------------------
This letter outlines our understanding of the basic terms and condi-
tions of the proposed merger by way of plan of arrangement of Auteo Media Inc.
("AMI") and Abstract Enterprises Corp. ("Abstract"). All dollar amounts referred
to herein are in Canadian dollars, unless otherwise specified.
STRUCTURE
---------
1. Abstract is a company which is incorporated under the laws of the
province of British Columbia. AMI is a corporation which is
incorporated under the laws of Nevada.
2. Abstract is a public company whose shares are listed for trading on
the Canadian Venture Exchange ("CDNX"), is a reporting issuer in
British Columbia and, on a fully diluted basis (i.e. after giving
effect to the conversion or exercise of all outstanding convertible
securities including debentures, warrants, options or other right)
currently has outstanding 11,216,730 million common shares. Abstract
owns 5% of the outstanding shares of Tysa Corporation ("Tysa"), a
Washington corporation. Abstract does not have any other subsidiaries
or any material interest in any other corporation.
3. AMI is a public company whose shares are listed on Over The Counter
Bulletin Board ("OTCBB"). On a fully diluted basis (i.e. after giving
effect to the conversion or exercise of all outstanding convertible
securities including debentures, warrants, options or other rights),
AMI currently has outstanding 8,325,000 common shares.
4. AMI owns 82.5% of the outstanding shares of Tysa. Other than the
foregoing, AMI does not have any material interest in any other
corporation.
ARRANGEMENT
-----------
5. Subject to the terms and conditions contained herein and to the
negotiation, settlement and execution of a definitive arrangement
agreement (the "Arrangement Agreement"), it is proposed that AMI and
Abstract will under take and complete a corporate capital
reorganization and restructuring by way of an arrangement (the
"Arrangement) under sections 252-253 of the COMPANY ACT (British
Columbia) having the material terms
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described on the Term Sheet attached hereto as Schedule "B", and
involving the following steps:
(a) AMI will reorganize its capital structure pursuant to the laws
of Nevada so that it has no more than 8.75 million shares
outstanding after the Arrangement has been completed, but
prior to additional financing(s);
(b) the exchange of all the outstanding shares of Abstract for AMI
Shares on the basis that every one common share of Abstract
will be exchanged for 0.25 common share of AMI;
(c) Abstract will cancel the 750,000 performance escrow shares
currently issued and outstanding;
(d) Abstract will use its best efforts to isolate the non Tysa
assets and liabilities into a separate corporate entity which
shall survive the Arrangement, and which entity shall have the
same shareholders as Abstract had before the Arrangement was
completed. This new entity will not be a reporting issuer; and
(e) the common shares of Abstract listed on the CDNX will be
delisted from the CDNX after the closing of the Arrangement,
and the ownership of Tysa shall be consolidated so that Tysa
is a wholly owned subsidiary of AMI.
On completion of the Arrangement, any Shares of AMI or Abstract owned
by the other will be automatically cancelled.It is our intention that
immediately following the Arrangement, AMI will have approximately
8.75 million common shares outstanding of which approximately 70%
(i.e. 6,000,000) will be held by the former shareholders of AMI and
approximately 30% (i.e. 2,616,682) will be held by the Abstract
shareholders (being the former shareholders of Abstract, other than
AMI), on a fully diluted basis, after having given effect to the
issuance of any outstanding convertible securities, including
debentures, warrants, options or other rights.
6. It is recognized that to the extent that any outstanding convertible
securities, including debentures, warrants, options or other rights
of Abstract, have not been converted into shares of Abstract prior to
the closing of the Arrangement, such convertible securities will
thereafter be cancelled.
ARRANGEMENT AGREEMENT
---------------------
7. In addition to the usual representations, warranties, terms and con-
ditions commonly contained in such agreements, the Arrangement Agree-
ment shall provide:
(i) the board of directors of AMI shall consist of five members,
two of whom shall be nominated by AMI and one by Abstract
management with the remaining two nominated by the initial
three;
(ii) any outstanding convertible securities of Abstract (including
debentures, warrants options or other rights), which have not
been converted into shares of Abstract prior to the closing of
the Arrangement, shall, on completion of the Arrangement, be
cancelled;
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(iii) following the Arrangement, Abstract's current Vancouver office
will be closed;
(iv) notwithstanding any other agreements made prior to the com-
pletion of the Arrangement, the Abstract shareholders and
management shall at any time, and from time to time, be
entitled to sell, option or otherwise dispose of, any
Abstract common shares owned thereby;
(v) at any time, AMI shall be entitled to establish an employee
stock option plan pursuant to which options may be issued to
employees of AMI to purchase up to that number of AMI common
shares set forth below at an exercise price not less than
the price of US$6.00 per common share of AMI, as per AMI's
February proposed private placement of 225,000 common shares.
The number of AMI common shares available in respect of such
stock option plan shall not exceed, after the exchange
contemplated under the Arrangement, 10% of the outstanding
common shares of AMI on a fully diluted basis calculated
immediately prior to the completion of the Arrangement pro-
vided that such options shall not vest prior to completion of
the Arrangement;
(vi) except as otherwise provided herein, all shareholders' agree-
ments made in respect of the securities of Abstract or AMI
shall terminate and be of no further force and effect on
completion of the Arrangement;
(vii) Abstract may issue to its directors and officers, at any time
prior to the completion of the Arrangement, pursuant to
options previously approved by the board of Abstract, and
exercised by option holders, up to an additional 200,000
common shares of Abstract;
(viii) immediately prior to completion of the Arrangement, Abstract
will provide an indemnity to its then directors and officers,
such indemnity to be mutually satisfactory to the parties
hereto; and
(ix) if Abstract is unable to isolate the non Tysa assets and lia-
bilities into a separate corporate entity which shall survive
the Arrangement as contemplated in 5. (a) above, Abstract
shall indemnify and hold AMI harmless from any excess of
Abstract's non Tysa liabilities over non Tysa assets (the
"Excess") as disclosed on Abstract's audited financial
statements or in the Arrangement Agreement, and agree to
execute a definitive indemnity agreement, said agreement to be
specific to and limited to the Excess, and such indemnity
agreement to be mutually satisfactory to the parties hereto.
On closing of the Arrangement, if there is any Excess,
Abstract will agree to post collateral, such collateral agree-
able to both parties, having a fair market value equivalent
to or greater than the Excess, so that such collateral may be
used to satisfy the Excess within ninety days of closing.
CONDITIONS PRECEDENT TO THE ARRANGEMENT
---------------------------------------
8. The proposed Arrangement is conditional on the following conditions
being satisfied on or before the earlier of the Arrangement date or
the specific date set forth herein and the parties hereto agree
to cooperate and use their respective best efforts to satisfy such
conditions:
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(i) execution of the definitive Arrangement Agreement on or before
April 21, 2000, unless otherwise agreed;
(ii) obtaining all necessary approvals for the Arrangement includ-
ing approval by the directors and shareholders of each of
AMI and Abstract and all necessary court and regulatory
approvals;
(iii) notices of dissent given by Abstract shareholders with respect
to the Arrangement do not in the aggregate exceed 2,500,000
Abstract shares;
(iv) each of AMI and Abstract agree to use their best efforts and
to cooperate and assist each other with their due diligence,
and shall have completed and be satisfied with its due
diligence review of the other on or before April 21, 2000,
unless otherwise agreed;
(v) Abstract shall have obtained conditional approval of the
Arrangement, if required, by the CDNX;
(vi) except for the conversion of any currently outstanding
convertible preferred shares or debentures or the exercise
of any currently outstanding options or warrants or similar
rights, except for AMI's planned issuance of 1,000,000
additional shares via a Registration 506 offering, and except
for the issue and exercise of the additional stock options
permitted to be issued by AMI pursuant to paragraph 7(v), and
by Abstract pursuant to paragraph 7(vii), no additional
shares of any class in the capital of Abstract or AMI
(or any securities including convertible debentures, warrants,
options or other rights to acquire any shares in the capital
of Abstract or AMI) shall be issued prior to the completion of
the Arrangement;
(vii) there shall not have occurred any material adverse change in
the finances, operations or business of Abstract or AMI and
the audited financial results of their respective operations,
for the fiscal years ended January 31, 2000 and December 31,
1999, respectively, shall not vary materially adversely from
the draft financial results as set out in the form attached
as Schedule A, and the actual financial results for the period
up to the date of the Arrangement shall not vary materially
adversely from the pro forma financial plans as set out in
Schedule A;
(viii) if required as a result of its due diligence, Abstract
shall have received from its financial advisors, on or before
April 21, 2000, or such other date as is acceptable to
Abstract, a satisfactory valuation/fairness opinion with
respect to the Arrangement;
(ix) AMI shall have obtained all necessary approvals including
but not limited to shareholder and regulatory upon completion
of the Arrangement;
(x) AMI and Abstract shall have received from their respective tax
and legal advisors satisfactory opinions with respect to the
Arrangement;
(xi) all other consents, orders and approvals, including
regulatory and judicial, required for the completion of
the Arrangement shall have been obtained or received from
the persons, authorities or bodies having jurisdiction in the
circumstances;
(xii) neither of Abstract nor AMI nor any of their subsidiaries
shall be a party to any ACTIONS, SUITS or proceedings which
could materially adversely affect their
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business or financial condition, and no such actions, suits or
proceedings shall be contemplated or shall have been
threatened; and
(xiii) the shareholders of AMI and Abstract shall have approved the
arrangement.
TIMETABLE
---------
9. AMI and Abstract shall cooperate and use their respective best
efforts to complete various steps to effect the Arrangement in
accordance with the timetable set out below.
<TABLE>
<S> <C> <C>
(i) approval of this letter of intent by the board of directors April 7, 2000
of each of AMI and Abstract and appropriate press
release
(ii) completion of valuation/fairness opinion April 21, 2000
(iii) completion of due diligence April 21, 2000
(iv) approval by directors of AMI and Abstract and April 21, 2000
execution of Arrangement Agreement
(v) mailing of information circular to Abstract April 21, 2000 + 33
Shareholders days
(vi) meetings of AMI and Abstract Shareholders to approve April 21, 2000 + 56
Arrangement days
(vii) court and regulatory approvals of Arrangement April 21, 2000 + 56
days + 1 week
(viii) effective date of Arrangement June 30, 2000
</TABLE>
PRESS RELEASES
--------------
10. Abstract and AMI will consult with respect to the content and timing
of any press releases relating to the transactions contemplated
hereby, however no press releases shall be issued without the other
parties' consent.
If you are in agreement with the foregoing outline of the terms and conditions
relating to the proposed Arrangement of our companies, please so indicate by
executing the enclosed copy of this agreement in the space indicated below and
returning it to us.
Yours truly,
Abstract Enterprises Corp.
Per: /s/ MICHAEL W. KINLEY
--------------------------------
Michael W. Kinley, President
The undersigned hereby agrees to the foregoing.
Auteo Media Inc.
Per: /s/ STEVEN VAN LEEUWEN
---------------------------------
Steven van Leeuwen, President
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