MUSIC TONES LTD.
12146 East Amherst Circle
Aurora, Colorado 80014
February 20, 1997
Dr. Nicholas Levandoski, Director
Simplex Medical Systems, Inc.
430 Ansin Boulevard, Suite G
Hallandale, Florida 33009
Re: Proposed Exchange of Shares of Music Tones Ltd. ("Music
Tones") for one hundred percent (100%) of the outstanding
shares of Simplex Medical Systems, Inc. ("Simplex")
Dear Dr. Levandoski:
This letter will confirm the recent discussions we have had with you and
your representatives relative to the proposed exchange of shares of the common
stock of Music Tones for all of the issued and outstanding common stock of
Simplex. The objective of our discussions has been the execution and
consummation, as soon as feasible, of a formal agreement between Music Tones and
Simplex (the "Agreement"), which among other things, would provide for the
various matters set forth below:
1. Music Tones will acquire all of the issued and outstanding common
stock of Simplex from the shareholders of Simplex in exchange for 3,453,000
restricted shares of $.0001 par value common stock of Music Tones ("Music
Tones Common Stock"), which will be delivered upon the closing of this
transaction (the "Closing Date"). This exchange is intended to qualify as a
tax-free reorganization under Section 368 of the Internal Revenue Code of
1986, as amended, and the shares of Music Tones received by Simplex share-
holders will be received on a tax-free basis. The shares to be issued by
Music Tones will be "restricted securities" as defined in Rule 144 under the
Securities Act of 1933, and an appropriate legend will be placed on the
certificates representing such shares, and stop transfer orders placed
against them.
2. There are currently 36,000,000 shares of Music Tones Common Stock
outstanding. Prior to the Closing, Music Tones will cancel 32,250,000 shares so
that the number of shares outstanding just prior to Closing will be approx-
imately 3,750,000. After the Closing of this transaction, there will be
approximately 7,203,000 shares outstanding and the current shareholders of
Simplex will own approximately 47.9% of the shares outstanding. These
numbers do not reflect any shares which Simplex shareholders or associates
buy directly from Music Tones shareholders. Upon Closing, Simplex will
become a wholly-owned subsidiary of Music Tones.
3. There are no outstanding subscriptions, options, rights, warrants,
convertible securities or other agreements or commitments obligating Music Tones
to issue or transfer from treasury any additional shares of its capital stock of
any class.
4. At the Closing, the present Music Tones officers and directors shall
deliver to Simplex their respective letters of resignation, along with minutes
of the Music Tones Board of Directors accepting such resignations and appointing
to the Music Tones Board those persons designated by Simplex to be directors of
Music Tones.
5. Prior to Closing, Simplex will provide an unaudited consolidated
balance sheet and income statement for the period ended October 31, 1996. Music
Tones must be satisfied that the financials which will be required for Music
Tones's SEC filings can be audited within 75 days after the Closing.
6. Music Tones is a fully reporting company under Section 12(g) of the
Securities Exchange Act of 1934. In addition, Music Tones's common stock is
quoted on the NASD's OTC Bulletin Board under the symbol MTLE.
7. On the Closing, Music Tones will have no assets and it will have no
liabilities except for its costs of completing this transaction which will not
exceed $10,000. These costs will be paid out of the $10,000 which has been
escrowed with Krys Boyle Freedman Scott & Sawyer, P.C.
8. Each party shall warrant in the Agreement that no finders fees are
owed and further, shall indemnify and hold harmless the other party from such
obligation.
9. Once this letter is executed, all parties hereto, in reliance upon the
agreement represented herein, shall not, for a period of 30 days from the date
of execution hereof, negotiate with any other public company with respect to
undertaking any merger or stock or asset acquisition. Both parties hereto agree
to proceed diligently with the completion of all necessary due diligence and the
drafting of all necessary documentation and agreements.
10. Music Tones and Simplex will take all necessary steps to call meetings
of their respective directors as soon as possible to approve the terms of this
Letter of Intent.
11. Upon the signing of this Letter of Intent, Music Tones and Simplex
will provide to each other full access to their books and records and will
furnish financials and operating data and such other information with respect
to their business and assets as may reasonably be requested from time to
time. If the proposed transaction is not consummated, all parties shall keep
confidential any information (unless ascertainable from public filings or
published information) obtained concerning the other's operations, assets and
business.
12. Simplex will pay the legal expenses reasonably incurred in connection
with this transaction whether or not the transaction is consummated. Such fees
will not exceed the $10,000 which has been deposited by Simplex or its as-
sociates in the trust account of Krys Boyle Freedman Scott & Sawyer, P.C.
If the transaction is completed, the $10,000 will be credited toward Simplex's
obligation to pay the expenses of this transaction.
13. This Letter of Intent 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.
14. Upon the execution by you and return to us of this Letter of Intent,
counsel for Simplex and Music Tones will prepare an Exchange Agreement which
shall contain provisions in accordance with this Letter together with such
further appropriate terms and conditions as legal counsel and the parties may
mutually determine. The Exchange Agreement shall be subject, in all respects,
to the approval of the respective Boards of Directors of Music Tones and
Simplex.
15. It is understood that the terms set forth in this Letter may not
constitute all of the major terms which will be included in the Exchange
Agreement, that the terms set forth herein are subject to further discussion and
negotiation, and that this Letter is an expression of intent only and is not to
create or result in any legally binding obligation upon the parties hereto
except with respect to paragraphs 8, 10 and 11 and the obligation to pursue
negotiations in good faith.
If the foregoing accurately reflects our discussions, please execute and
return to the undersigned one copy of this Letter.
MUSIC TONES LTD. SIMPLEX MEDICAL SYSTEMS, INC.
By:/s/ Daniel C. Steinberg By:/s/ Nicholas Levandoski
Daniel C. Steinberg, President Dr. Nicholas Levandoski, Director