<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
Commission file number 0-28088
MODACAD, INC.
--------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
California 95-4145930
- ---------------------------------------- ------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
3861 Sepulveda Blvd., Culver City CA 90230
- ---------------------------------------- ------------------------------------
(Address of principal executive offices) (Zip Code)
(310) 751-2100
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicated by check mark whether the registrant (1) has filed all reports
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter periods that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
The number of outstanding shares of the registrant's common stock, as of May 21,
1999, was 7,401,515.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ModaCAD, Inc.
Condensed Balance Sheets
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------- ------------
(Unaudited) (Note 1)
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,496,765 $ 6,343,599
Accounts receivable, net of allowance for 1,190,598 752,487
doubtful account of $147,500 at March 31,
1999 and $132,500 at December 31, 1998
Prepaid expenses and other current assets 587,897 397,101
------------ ------------
Total current assets 8,275,260 7,493,187
Capitalized computer software development costs, 2,663,835 3,014,043
net of accumulated amortization of
$6,662,275 at March 31, 1999 and $6,039,105
at December 31, 1998 (Note 2)
Furniture and equipment, net of accumulated 2,584,458 2,459,656
depreciation of $1,242,545 at March 31, 1999
and $6,039,105 at December 31, 1998
Other assets 174,704 83,055
------------ ------------
Total assets $13,648,257 $13,049,941
============ ============
</TABLE>
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses $ 1,537,258 $ 503,198
Deferred income 483,399 237,052
------------ ------------
Total current liabilities 2,020,657 740,250
------------ ------------
Commitments (Note 3)
Stockholders' equity:
Common stock; No par value; authorized 26,878,877 26,575,627
15,000,000 shares; Issued and outstanding
6,164,874 shares at March 31, 1999 and
6,143,374 at December 31, 1998 (Note 4)
Accumulated deficit (15,251,277) (14,265,936)
------------ ------------
Total stockholders' equity 11,627,600 13,409,691
------------ ------------
Total liabilities and stockholders' equity $13,648,257 $13,049,941
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
<TABLE>
<CAPTION>
ModaCAD, Inc.
Condensed Statements Of Operations
(Unaudited)
Three Months Ended March 31,
1999 1998
------------- ------------
<S> <C> <C>
Net sales $ 3,789,877 $ 964,253
------------- ------------
Cost of sales 119,011 7,946
Selling, general and administrative 2,420,061 1,545,472
Research and development 1,661,086 1,215,294
Amortization of capitalized software 623,170 244,526
development costs ------------- ------------
Total expenses 4,823,328 3,013,238
------------- ------------
Loss from operations (1,033,451) (2,048,985)
Investment income 48,113 122,882
------------- ------------
Net loss $ (985,338) $(1,926,103)
============= ============
Basic loss per share (Note 5) $ (0.16) $ (0.32)
============= ============
Diluted loss per share (Note 5) $ (0.16) $ (0.32)
============= ============
Weighted average common shares outstanding 6,156,502 6,049,085
============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
ModaCAD, Inc.
Condensed Statements Of Cash Flows
(Unaudited)
Three Months Ended March 31,
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (985,338) $(1,926,103)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation 172,712 73,371
Amortization of capitalized 623,170 244,526
software development costs
Provision for loss an accounts receivable 15,000 6,000
Issuance of warrants for services rendered 99,000 3,000
(Increase) decrease in:
Accounts receivable (453,111) (506,339)
Inventories 375 2,963
Prepaid expenses and other current assets (191,169) 241,807
Other assets (41,654) (3,800)
Increase (decrease) in:
Accounts payable and accrued expenses 1,034,059 658,396
Deferred income 246,347 717,525
------------ ------------
Net cash provided by (used in) operating activities 519,391 (488,654)
------------ ------------
Cash flows from investing activities:
Purchase of furniture and equipment (297,514) (573,170)
Capitalized computer software development cost (272,961) (263,276)
------------ ------------
Net cash used in investing activities (570,475) (836,446)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock 204,250 202,000
------------ ------------
Net cash provided by financing activities 204,250 202,000
------------ ------------
Net increase (decrease) in cash 153,166 (1,123,100)
Cash and cash equivalents, beginning of period 6,343,599 12,419,992
------------ ------------
Cash and cash equivalents, end of period $ 6,496,765 $11,296,892
============ ============
</TABLE>
<TABLE>
<CAPTION>
Supplemental Cash Flow Information
<S> <C> <C>
$ 0 $ 0
Interest paid ============ ============
Income taxes paid $ 1,070 $ 13,263
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
ModaCAD, Inc.
Notes to Condensed Financial Statements
Note 1: BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements of ModaCAD, Inc.
("ModaCAD" or the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments considered necessary for a fair presentation have
been included. These adjustments consisted of normal recurring accruals with the
exception of a $249,808 write-off of capitalized software development cost in
relation to products sold in the first quarter of 1999. Operating results for
the first quarter of 1999 are not necessarily indicative of the results that may
be expected for the year ended December 31, 1999.
The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the financial statements and footnotes thereto
included in the Company's annual report on Form 10-KSB for the year ended
December 31, 1998, as amended.
Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Adoption of Statement of Position 98-1
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants ("AICPA") issued Statement of Position
("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." The SOP, which has been adopted prospectively as of
January 1, 1999, requires the capitalization of certain costs incurred in
connection with developing or obtaining internal use software. During the first
quarter of 1999, the Company capitalized $272,960 of internal use software
development costs.
Revenue Recognition
The Company recognizes revenue generated from vendor participation in the
Company's on-line shopping Internet web-sites ("project participation fees")
over the terms of the corresponding contracts in a manner that matches revenue
with the related cost incurred to set up and manage vendor web-site content.
Revenue generated from services provided to customers in the development and
maintenance of their Internet web-sites ("web-site development and maintenance
fees") is recognized over the terms of the corresponding contracts in a manner
that matches revenue with the related cost incurred to develop and maintain the
web-sites. Revenue generated from advertising on the Company's on-line shopping
web-sites ("on-line advertising revenue") is recognized over the terms of the
corresponding contracts on a straight-line basis. Revenue generated from the
Company's fulfillment services provided to the Company's on-line shopping
Internet web-site participant vendors ("transactional revenue") is recognized
upon notification of shipment of the vendors' products by the Company's
fulfillment warehouse. Revenue generated from referral of vendors' products to
Internet consumers through the Company's on-line shopping Internet web-sites
("product referral fees") are similarly recognized upon notification of shipment
of the products by the vendors.
4
<PAGE>
ModaCAD, Inc.
Notes to Condensed Financial Statements
Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The Company recognizes revenues related to software licenses and software
maintenance in accordance with the AICPA SOP 97-2, "Software Revenue
Recognition." Product revenue is recorded at the time of shipment, net of
estimated allowances and returns. Revenue generated from Post Contract Customer
Support is recognized on a straight-line basis over the term of the
corresponding contract, which is generally twelve months.
Comprehensive Income
Statement of Financial Accounting Standard No. 130, "Reporting Comprehensive
Income," establishes standards for reporting comprehensive income and its
components in a financial statement. Comprehensive income as defined includes
all changes in equity (net assets) during a period from non-owner sources.
Examples of items to be included in comprehensive income, which are excluded
from net income, include foreign currency translation adjustments and unrealized
gains and losses on available-for-sale securities. Comprehensive income is not
presented in the Company's financial statements since the Company did not have
any of the items of comprehensive income in any period presented.
Note 3: COMMITMENTS
Employment Agreements
In 1998, the Company entered into two new employment agreements, expiring on
December 31, 2005, with two key officers of the Company. Under the agreements,
these officers receive aggregate annual salaries of $400,000 and a monthly
aggregate automobile allowance of $1,200. In addition, these officers received
aggregate signing bonuses of $200,000. Further, the Company shall pay an annual
performance bonus to each officer for each calendar year of the employment term
in an amount determined by the Compensation Committee of the Board.
In connection with the employment agreements, the same key officers were granted
five-year options to purchase up to an aggregate 400,000 shares of the Company's
common stock. Such options vest and become exercisable as follows: if the
closing sale price of the Company's common stock is greater than $10 per share
for a period of 20 consecutive trading days in any fiscal year during the term
of the employee agreements, options to purchase 50 shares of common stock for
each $1,000 of net income (before deductions for taxes and executive bonuses) of
the Company in such calendar year vest and become exercisable at an exercise
price equal to the market value per share on the grant date. The option exercise
price at execution of the agreement was $15.875 per share, which is not less
than the fair market value on the date of grant. As of March 31, 1999, no
granted shares were vested.
5
<PAGE>
ModaCAD, Inc.
Notes to Condensed Financial Statements
Note 3: COMMITMENTS (Continued)
Line of Credit
In October 1998, the Company entered into a line of credit agreement with a
bank, expiring in September 1999, which provides for borrowings of up to
$1,000,000. Borrowings under the agreement are secured by the Company's accounts
receivable and bear interest at the bank's prime rate (7.75% at March 31, 1999).
Terms of the agreement require the Company to maintain certain minimum financial
ratios. The Company is in compliance with those financial ratios. As of March
31, 1999, no amounts have been drawn against the line of credit.
Note 4: STOCKHOLDERS' EQUITY
Warrants
In connection with the IPO in March 1996, the Company issued to the principal
underwriter in the IPO, for $1,400, unit purchase warrants to purchase 140,000
units, at a per unit exercise price of $6.00, each unit consisting of one share
of common stock and one redeemable warrant exercisable to purchase one share of
common stock at an exercise price of $9.10 per share. Such unit purchase
warrants are exercisable for a four-year period, which began March 27, 1997. As
of March 31, 1999, the underwriter (or assignees of the underwriter) exercised a
portion of the warrants to purchase an aggregate of 114,700 shares of the
Company's common stock and 114,700 redeemable common stock purchase warrants.
Additionally, 30,800 of 114,700 redeemable common stock purchase warrants were
further exercised to purchase 30,800 shares of the Company's common stock.
In December 1996, the Company issued to an outside consultant for services
provided to the Company warrants, expiring in December 1999, to purchase 250,000
shares of common stock at an exercise price of $5.00 per share. As of March 31,
1999, these warrants have not been exercised.
In July 1997, the Company issued to a financial advisor for services provided to
the Company warrants, expiring in July 2002, to purchase 100,000 shares of
common stock at an exercise price of $14.38 per share. As of March 31, 1999,
these warrants have not been exercised.
In November 1997, the Company issued to its project co-developer for services
provided to the Company warrants, expiring in November 2002, to purchase 126,316
shares of common stock at an exercise price of $19.00 per share. As of March 31,
1999, these warrants have not been exercised.
6
<PAGE>
ModaCAD, Inc.
Notes to Condensed Financial Statements
Note 4: STOCKHOLDERS' EQUITY (Continued)
In June 1998, the Company issued to an outside promotion agency for services
provided to the Company warrants, expiring in May 2003, to purchase 50,000
shares of common stock at an exercise price of $17.75 per share. In December
1998, the Company issued to the same agency for services provided to the Company
additional warrants, expiring in November 2003, to purchase 8,333 shares of
common stock at an exercise price of $20.00 per share. In the first quarter of
1999, the Company issued to the same agency for services provided to the Company
warrants to purchase a total of 24,999 shares of common stock warrants, expiring
in December 2003, to purchase 8,333 shares of common stock at an exercise price
of $16.68 per share; warrants, expiring January 2004, to purchase 8,333 shares
of common stock at an exercise price of $20.00 per share; warrants, expiring
February 2004, to purchase 8,333 shares of common stock at an exercise price of
$16.00 per share. As of March 31, 1999, these warrants have not been exercised.
In March 1999, the Company issued warrants, expiring in March 2004, to purchase
250,000 shares of common stock at an exercise price of $16.80 per share in
consideration of business promotion services to be provided to the Company. As
of March 31, 1999, these warrants have not been exercised.
In May 1996, the Company granted to one of its non-employee directors for
services provided to the Company warrants, expiring in May 2001, to purchase
2,000 shares of common stock at an exercise price of $4.25 per share. In October
1998, in consideration for services provided to the Company, the Company
repriced to $9.50 a five-year warrant, expiring July 2002, to purchase 8,000
shares of common stock that was granted to a non-employee director in July 1997
and two ten-year warrants, expiring October 2007, to purchase a total of 4,000
shares that were granted to two non-employee directors in October 1997. In
October 1998, the Company granted to three non-employee directors in
consideration of services rendered to the Company ten-year warrants, expiring
October 2008, to purchase a total of 18,000 shares of common stock at an
exercise price of $9.50 per share.
Stock Option Plan
In 1995, the Company adopted the 1995 Stock Option Plan (the "Plan") which
expires in 2006. In June 1997, the Plan was amended, upon receipt of shareholder
approval, to increase the number of shares of common stock authorized for
issuance pursuant to the exercise of stock options granted under the Plan from
300,000 to 750,000 shares. In June 1998, the Plan was further amended, upon
receipt of shareholder approval, to increase the number of shares of common
stock authorized for issuance pursuant to the exercise of stock options granted
under the Plan from 750,000 to 1,650,000 shares. As of March 31, 1999, 144,500
shares had been issued upon the exercise of options granted under the Plan;
1,397,954 shares were issuable upon the exercise of outstanding options with
exercise prices ranging from $4.69 to $20.06 per share and 107,546 shares
remained available for additional option grants under the Plan.
7
<PAGE>
ModaCAD, Inc.
Notes to Condensed Financial Statements
Note 5: NET LOSS PER SHARE
Basic and diluted net loss per common shares are presented in conformity with
Statement of Financial Accounting Standard No. 128, "Earnings per Share" ("FAS
128"), for all periods presented. In accordance with FAS 128, basic and diluted
net loss per share has been computed using the weighted average number of
outstanding common stock shares during the period. The Company has excluded all
warrants and outstanding stock options from the calculation of diluted per share
because all such securities are antidilutive for all period presented.
Note 6: SUBSEQUENT EVENTS
In November 1997, the Company entered into a Project Development Agreement with
a project co-developer ("Co-developer"). Under the agreement, the Company had an
obligation to the Co-developer for certain royalty payments in the form of cash
and common stock purchase warrants in consideration of the Co-developer's
contribution to the project development. In April 1999, the Company entered into
a Stock and Warrant Purchase and Investor Rights Agreement with this
Co-developer. Under the agreement, the Company issued to the Co-developer
455,218 shares of common stock and warrants to purchase 538,674 shares of common
stock. The exercise of such warrants is subject to shareholder approval at the
Company's 1999 Annual Meeting of Shareholders. In return, the Company's royalty
obligation stated in the Project Development Agreement was terminated.
Concurrently with this agreement, the Company entered into a Securities Purchase
Agreement with each of four investors. Under such agreement, the investors
purchased an aggregate of 776,827 shares of the Company's common stock and
warrants to purchase an aggregate of 919,243 common stock shares of common
stock. The exercise of such warrants is subject to shareholder approval at the
Company's 1999 Annual Meeting of Shareholders. As a result of this offering, the
Company received approximately $7,800,000 in net proceeds after paying costs
associated with the offering.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with the financial
statements and the notes thereto appearing elsewhere in this Form 10-Q.
General
The Company is in the business of developing, marketing, and supporting
electronic commerce Internet sites, Internet enabled applications and business
and consumer software products based on its proprietary technology for content
management, including modeling and rendering technology. The Company's products
utilize its proprietary modeling and rendering technology, operate on standard
personal computers running Macintosh or Windows operating systems and are
grouped into three principal product groups: Internet applications for
e-commerce, consumer software (including Internet enabled software applications)
and business-to-business applications (CAD and electronic merchandising
products).
The Company is focusing its technology to build and deploy e-commerce Internet
sites and Internet enabled applications, such as comparative search and shopping
solutions aimed at facilitating businesses' use of electronic commerce to reach
consumers in the apparel, footwear, accessories, cosmetics and home furnishing
industries.
Results of Operations
The following table sets forth selected items from the Company's statements of
operations for the periods ended March 31, 1999 and March 31, 1998 (in
thousands) and the percentages that such items bear to net sales:
<TABLE>
<CAPTION>
Three Months Ended March 31,
-------------------------------------
1999 1998
----------------- -----------------
<S> <C> <C> <C> <C>
Net sales $ 3,790 100.0% $ 964 100.0%
Cost of sales 119 3.1 8 0.8
Selling, general and administrative 2,420 63.9 1,545 160.3
Research and development 1,661 43.8 1,215 126.1
Amortization of software development costs 623 16.5 245 25.4
-------- ------- ------- -------
Total expenses 4,823 127.3 3,013 312.6
-------- ------- ------- -------
Loss from operations (1,033) (27.3) (2,049) (212.6)
Investment income 48 1.3 123 12.8
-------- ------- ------- -------
Net loss $( 985) (26.0%) $(1,926) (119.8%)
======== ======= ======= =======
</TABLE>
9
<PAGE>
Comparison of Three Months Ended March 31, 1999 and 1998
Net Sales
Net sales increased $2,826,000, or 293%, to $3,790,000 in the first quarter of
1999 from $964,000 in the first quarter of 1998 due to an increase of $2,829,000
in sales of the Company's business-to-business products (electronic
merchandising and CAD products) and an increase of $124,000 in revenue from
consulting services. These increases were offset by a decrease of $103,000 in
revenues from the Company's consumer products, a decrease of $6,000 in revenues
from training services and a decrease of $18,000 in maintenance fees.
Sales of business-to-business products increased $2,829,000, or 925%, to
$3,135,000 in the first quarter of 1999 from $306,000 in the first quarter of
1998 primarily due to the sale of two of the Company's business-to-business
product lines and the license of certain related technologies for an up-front
fee of $3,000,000 during the first quarter of 1999. In March 1999, the Company
entered into an agreement with one of its major competitors. Under the
agreement, the Company sold two of its business-to-business product lines and
licensed its cataloging software to such buyer for an up-front fee of $3,000,000
and additional support fees of up to $1,000,000 and a contingent payment up to
$1,000,000 depending on future sales of the product lines sold to the buyer over
the next 24 months. Except for the services related to the support services, the
Company has no further obligations to this buyer (including further development
of the products sold or the software licensed, as all development had been
completed on such products and software). The sale of such product lines is part
of the overall shift in ModaCAD's primary business focus from the
business-to-business marketplace to the emerging consumer Internet electronic
commerce market. As such, the revenues recognized from such sale did not arise
from, and are not necessarily representative of, ModaCAD's ongoing business, and
the Company expects future revenues from business-to-business products to
decrease as a result of such sale.
Revenues generated from consumer products decreased $103,000, or 17%, to
$488,000 in the first quarter of 1999 from $591,000 in the first quarter of 1998
due to lower project participation fees offered to its vendors in the first
quarter of 1999 as compared to the first quarter of 1998. During the first
quarter of 1999, the Company, as part of its strategy to develop its e-commerce
model, has begun entering into Revenue Sharing and/or Product Referral
agreements with its project participants. These agreements provide the Company
to receive transactional revenues (shared with its project participants) and
product referral fees (from its project participants) during the period of the
agreements. No significant transactional revenues and product referral fees were
generated during the first quarter of 1999 since most of the agreements were
signed toward the end of the first quarter of 1999.
Consulting services increased $124,000 to $125,000 in the first quarter of 1999
from $1,000 in the first quarter of 1998 primarily due to $125,000 in revenue
generated from one of the Company's major customers in connection with its
purchase of the Company's business-to-business product lines in the first
quarter of 1999. No such revenue was generated in the first quarter of 1998.
The training services decreased $6,000, or 27%, to $16,000 in the first quarter
of 1999 from $22,000 in the first quarter of 1998 and maintenance fees decreased
$18,000, or 41%, to $26,000 in the first quarter of 1999 from $44,000 the first
quarter of 1998 primarily due to the Company's exit from its
business-to-business marketplace (in connection with the Company's overall shift
in its primary business focus, as discussed above), from which most training and
maintenance fees were generated.
10
<PAGE>
Cost of Sales
Cost of sales increased $111,000 to $119,000 in the first quarter of 1999 from
$8,000 in the first quarter of 1998 due primarily to $117,000 in cost of sales
related to the $3,000,000 sales and license of the Company's
business-to-business products in the first quarter of 1999. No such cost of
sales was incurred in the first quarter of 1998.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $875,000, or 57%, to
$2,420,000 in the first quarter of 1999 from $1,545,000 in the first quarter of
1998 due to the following factors. Personnel costs increased $94,000, or 11%, to
$955,000 in the first quarter of 1999 from $862,000 in the first quarter of
1998. The increase in personnel costs resulted from the hiring of additional
personnel in late 1998 to support the Company's increased operating activities.
Additionally, certain related costs including travel, marketing, telephone,
office supplies expenses, taxes and licenses, repair and maintenance and
depreciation expense increased $513,000, or 104%, to $1,006,000 in the first
quarter of 1999 from $493,000 in the first quarter of 1998. $505,000 of such
increase was related to the Company's increasing marketing activities in the
first quarter of 1999 to support its new e-commerce products. Also, professional
services including accounting, legal and consulting services increased $236,000,
or 152%, to $391,000 in the first quarter of 1999 from $155,000 in the first
quarter of 1998. The increase in professional services was primarily due to the
Company's increased requirements for these services in the first quarter of 1999
compared to the first quarter of 1998 resulting from the Company's increased
operating activities. Finally, rent and lease expense increased $21,000, or 70%,
to $51,000 in the first quarter of 1999 from $30,000 in the first quarter of
1998 as a result of the Company's relocation to a larger facility in March 1998.
Research and Development
The Company incurred $1,934,000 of research and development costs during the
first quarter of 1999, of which $273,000 was capitalized and $1,661,000 was
expensed, compared to $1,486,000 for the first quarter of 1998, of which
$271,000 was capitalized and $1,215,000 was expensed. The 30% increase in
research and development expenditures from the first quarter of 1998 to the
first quarter of 1999 was primarily due to the hiring of additional personnel in
connection with the further development of the Company's Internet application
projects.
Amortization of Software Development Costs
The amortization of software development costs increased $378,000, or 154%, to
$623,000 in the first quarter of 1999 from $245,000 in the first quarter of 1998
due primarily to a $250,000 write-off of the software capitalized cost related
to the product lines sold to one of the Company's major customers in the first
quarter of 1999. The remaining $128,000 increase is due to higher capitalized
project costs being amortized in the first quarter of 1999 as compared to the
first quarter of 1998.
Investment Income
Investment income decreased $75,000, or 61%, to $48,000 in the first quarter of
1999 from $123,000 in the first quarter of 1998 due to the decrease in income
generated from a money market account in which the Company's fund are
maintained. The decrease resulted from a lower average cash balance maintained
in this account in the first quarter of 1999 as compared to the first quarter of
1998.
11
<PAGE>
Income Taxes
The Company recorded no provision for income taxes during the first quarters of
1999 and 1998 due to the utilization of net operating loss carryforwards.
12
<PAGE>
Liquidity and Resources of Capital
The Company's cash balance increased $153,166, or 2%, to $6,496,765 at March
31,1999 from $6,343,599 at December 31, 1998 primarily due to an increase of
$519,391 in cash provided by the Company's operating activities and proceeds of
$204,250 received by the Company in connection with stock options exercised by
the Company's employees during the first quarter of 1999. These increases were
offset by a decrease of $297,514 from cash used in purchase of furniture and
equipment and a decrease of $272,961 from cash used in development of internal
use computer software.
The Company's accounts receivable balance increased $453,112, or 51%, to
$1,338,099 at March 31, 1999 from $884,987 at December 31, 1998. This increase
(representing the total amount of sales generated in excess of the total amount
of cash received from the Company's customers during the first quarter of 1999)
was primarily due to greater revenues generated toward the end of the first
quarter of 1999 compared to the prior quarter. The fees in the amount of
$3,000,000 relating to the sale of the Company's two business-to-business
product lines and the license of its technologies was collected in full in the
first quarter of 1999.
The Company's prepaid expense and other current assets balance increased
$190,796, or 48%, to $587,897 at March 31, 1999 from $397,101 at December 31,
1998 primarily due to $128,349 recorded at March 31, 1999 as a prepayment of the
Company's advertising expense. No such prepayment was recorded at December 31,
1998.
The Company's accounts payable and accrued expenses balance increased
$1,034,060, or 205%, to $1,537,258 at March 31, 1999 from $503,198 at December
31, 1998 primarily due to $405,093 of accrued payroll and related taxes and
$225,000 of accrued advertising expense recorded as of March 31, 1999. No such
accruals were recorded as of December 31, 1999. Additionally, accounts payable
increased by $391,757 due to increased operating activities during the first
quarter of 1999 compared to the prior quarter.
The Company's total shareholders' equity balance decreased $682,091, or 6%, to
$11,627,600 at March 31, 1999 from $12,309,691 at December 31, 1998 primarily
due to a net operating loss in the amount of $985,338 during the first quarter
of 1999. The decrease was offset by proceeds in the amount of $204,250 received
from the exercise of stock options to purchase a total of 21,500 shares of the
Company's common stock by 13 employees during the first quarter of 1999. An
increase of $99,000 resulted from the Company's issuance of warrants, valued at
a total of $99,000, to purchase a total of 274,999 shares of common stock in the
first quarter of 1999 in consideration of business promotion services provided
(or to be provided) to the Company.
The Company anticipates continuing to use its capital primarily to fund the
activities related to the design, development, marketing, sales and support of
the Company's products. Together with its receipt of approximately $7,800,000 in
capital raised during April 1999 (as stated in Item 1: Financial Statement Note
6 under Part I in this report) and anticipated funds from operations, the
Company believes that its capital resources will be sufficient to provide its
anticipated cash needs for working capital and capital expenditure for at least
the next 18 months although the Company may seek to raise additional capital
before then, depending on various considerations and developments. Thereafter,
if cash generated from operations is insufficient to satisfy the Company's
capital requirements, the Company may have to sell additional equity or debt
securities or obtain credit facilities, assuming the Company can do so on
acceptable terms.
13
<PAGE>
Forward-Looking Information
Certain statements in this Section and elsewhere in this report are
forward-looking in nature and relate to trends and events that may affect the
Company's future financial position and operating results. Such statements are
made pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. The terms "believe," "expect," "anticipate," "intend," and
"project" and similar words or expressions are intended to identify
forward-looking statements. These statements speak only as of the date of this
report. The statements are based on current expectations, are inherently
uncertain, are subject to risks, and should be reviewed with caution. Actual
results and experience may differ materially from the forward-looking statements
as a result of many factors, including changes in economic conditions in the
markets served by the Company, increasing competition, fluctuations in raw
materials and energy prices, and other unanticipated events and conditions. It
is not possible to foresee or identify all such factors. The Company makes no
commitment to update any forward-looking statement or to disclose any facts,
events, or circumstances after the date hereof that may affect the accuracy of
any forward-looking statement.
14
<PAGE>
Item 3. Quantitative and Qualitative Disclosure of Market Risk
None.
15
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
(c) Unregistered sales of equity securities.
Reference is made to the information on issuance during
the period covered by this report of warrants to purchase
24,999 warrants, which reference appears in Note 4 under
the heading "ModaCAD, Inc. Notes to Condensed Financial
Statements" in Part I, Item 1 hereof, and which reference is
incorporated herein. All such transactions are exempt from
registration under Section 4(2)of the Securities Act of 1933.
Each transaction was privately negotiated and each offeree
and purchaser was an accredited investor. No public offering
or public solicitation was used by the registrant in the
placement of these securities.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
*2.1 Agreement dated as of March 3, 1999 by and between
Lectra Systems, Inc. and ModaCAD, Inc.1
27.1 Financial Data Schedule.1
(b) Reports on Form 8-K
ModaCAD filed a report on Form 8-K, dated March 5, 1999,
relating to the Agreement dated as of March 3, 1999 by and
between Lectra Systems, Inc. and ModaCAD, Inc.1
* Confidential treatment is being requested with respect to portions of this
exhibit, and such confidential portions have been deleted and separately filed
with the Securities Exchange Commission pursuant to Rule 24b-2 promulgated under
the Exchange Act of 1934. This exhibit does not include certain schedules and
similar attachments. A list briefly identifying the contents of all omitted
schedules has been provided in this exhibit. The Company will furnish
supplementally to the Securities and Exchange Commission upon request a copy of
any omitted schedule.
- ----------
1 This exhibit is being filed electronically in the electronic format specified
by EDGAR.
16
<PAGE>
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ModaCAD, INC.
Date: May 24, 1999 By: /s/ MAURIZIO VECCHIONE
-----------------------
Maurizio Vecchione
President and
Chief Operating Officer
/s/ LEE FREEDMAN
-----------------------
Lee Freedman
Vice President, Finance and
Chief Financial Officer
17
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit Number Description Numbered Page
<S> <C>
*2.1 Agreement dated as of March 3, 1999 by and between Lectra
Systems, Inc. and ModaCAD, Inc.1
27.1 Financial Data Schedule.1
</TABLE>
* Confidential treatment is being requested with respect to portions of this
exhibit, and such confidential portions have been deleted and separately filed
with the Securities Exchange Commission pursuant to Rule 24b-2 promulgated under
the Exchange Act of 1934. This exhibit does not include certain schedules and
similar attachments. A list briefly identifying the contents of all omitted
schedules has been provided in this exhibit. The Company will furnish
supplementally to the Securities and Exchange Commission upon request a copy of
any omitted schedule.
- ----------
1 This exhibit is being filed electronically in the electronic format specified
by EDGAR.
18
<PAGE>
AGREEMENT
dated as of
March 3, 1999
by and between
LECTRA SYSTEMS INC.
and
MODACAD, INC.
<PAGE>
AGREEMENT
AGREEMENT, dated and entered into this 3rd day of March, 1999 and made
effective as of the Effective Date (this "Agreement"), by and between Lectra
Systems Inc., a New York corporation ("Buyer"), and ModaCAD, Inc., a California
corporation ("Seller").
RECITALS:
WHEREAS, Seller develops, markets and services CAD/CAM software
applications (the "ModaCAD CAD Markets");
WHEREAS, Seller desires to divest its product lines relating to the ModaCAD
CAD Markets; and
WHEREAS, Buyer desires to acquire, and Seller desires to transfer, sell
and/or license substantially all of Seller's assets relating to the ModaCAD CAD
Markets and all related products, technology and business.
NOW, THEREFORE, in consideration of the mutual covenants, representations
and agreements made herein, and of the mutual benefits to be derived hereby, the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS
The following terms shall have the following respective meanings for all
purposes of this Agreement:
"Acquisition" shall mean the purchase and sale of the Assets pursuant to
the terms of this Agreement.
"Adverse Consequences" shall mean all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands, injunctions,
judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs,
amounts paid in settlement, Liabilities, obligations, Taxes, liens, losses,
expenses and fees, including court costs and reasonable attorneys' fees and
expenses incurred in investigation or defense of any of the same or asserting
its rights hereunder.
"Affiliate" or "affiliate" shall mean, with respect to any Person, any
other Person that, directly or indirectly, controls or is controlled by or is
under common control with such Person. As used in this definition of
"Affiliate", the term "control" and any derivatives thereof mean the possession,
<PAGE>
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through ownership of voting
securities, by contract, or otherwise.
"Agreement" shall mean this Asset Purchase Agreement, as it may be from
time to time amended.
"Assets" has the meaning set forth in Section 2.01.
"Assumed Contracts" has the meaning set forth in Section 2.01(d).
"Assumed Liabilities" has the meaning set forth in Section 2.03(a).
"Basis" shall mean any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act or transaction that forms or could form the basis for any
specified consequence.
"Business Day" shall mean any day, other than a Saturday, Sunday or legal
holiday under the Federal laws of the United States.
"Cataloguing License" has the meaning set forth in Section 2.04.
"Cataloguing Royalty" shall mean the royalty payable to Seller under the
Cataloguing License.
"Closing" shall mean the completion of the Acquisition pursuant to this
Agreement.
"Closing Date" shall mean the date the Closing takes place.
"Collateral Agreements" has the meaning set forth in Section 3.02.
"Confidential Information" shall mean any information concerning the
Assets, the ModaCAD CAD Core Technology, the ModaCAD Cataloguing Products and
the Lectra Group products that is not already generally available to the public.
"Core Technology License" has the meaning set forth in Section 2.05.
"Disclosure Schedule" has the meaning set forth in the preamble to Article
III.
"Distribution Agreement" shall mean that certain Distribution Agreement,
dated as of June 23, 1994, between Seller and ModaCAD Europe ApS (the
"Distributor").
"Effective Date" has the meaning set forth in Section 2.01.
<PAGE>
"Excluded Assets" has the meaning set forth in Section 2.02.
"Governmental Entity" shall mean any foreign or domestic court,
administrative agency or commission or other governmental authority or
instrumentality.
"Intellectual Property" shall mean (a) all inventions (whether patentable
or unpatentable and whether or not reduced to practice), all improvements
thereto, and all patents, patent applications and patent disclosures, together
with all reissuances, continuations, continuations-in-part, revisions,
extensions and reexaminations thereof, (b) all trademarks, service marks, trade
dress, logos, trade names and corporate names, together with all translations,
adaptations, derivations and combinations thereof and including all goodwill
associated therewith, and all applications, registrations and renewals in
connection therewith, (c) all copyrightable works, all copyrights, and all
applications, registrations and renewals in connection therewith, (d) all mask
works and all applications, registrations and renewals in connection therewith,
(e) all trade secrets and confidential business information (including ideas,
research and development, know-how, formulas, compositions, manufacturing and
production processes and techniques, technical data, designs, drawings,
specifications, customer and supplier lists, pricing and cost information, and
business and marketing plans and proposals), (f) all Software, (g) all other
proprietary rights, and (h) all copies and tangible embodiments thereof (in
whatever form or medium).
"Intellectual Property Assets" has the meaning set forth in Section
2.01(b).
"Knowledge" shall mean, with respect to a Person, actual knowledge after
reasonable investigation, including the knowledge of such Person's directors and
officers and employees with responsibility for the particular matters referred
to.
"Lectra Competitor" has the meaning set forth in Section 6.03(e).
"Lectra Exclusive Markets" shall mean ** . For purposes of this definition,
** . For purposes of this definition (but not the definition of Lectra Markets),
the following are not ** .
- -------------------------------
**The material deleted has been omitted pursuant to a request for confidential
treatment pursuant to Rule 24b-2 promulgated under the Securities Exchange Act
of 1934, as amended, and has been filed separately with the Commission.
<PAGE>
"Lectra Markets" shall mean ** . For purposes of this definition it is
understood that (i) ** , and (ii) this definition includes (a) ** .
"Lectra Group" shall mean Lectra SA, Buyer and their respective Affiliates.
"Lectra SA" shall mean Lectra Systemes SA, the parent company of Buyer.
"Liability" shall mean any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"Material Adverse Change" shall mean an occurrence, event or development
which has had or is reasonably likely to have a Material Adverse Effect.
"Material Adverse Effect" shall mean a material adverse effect on the
Assets, the ModaCAD CAD Core Technology or the ModaCAD Cataloguing Products or
the ability of Buyer to own and use the Assets or to use the ModaCAD CAD Core
Technology pursuant to the Core Technology License or the ModaCAD Cataloguing
Products pursuant to the Cataloguing License after the Closing in substantially
the same manner as Seller on the date hereof. In determining whether any
individual event would result in a Material Adverse Effect, notwithstanding that
such event does not of itself have such effect, a Material Adverse Effect shall
be deemed to have occurred if the cumulative effect of such event and all other
then existing events would result in a Material Adverse Effect.
"Maximum Liability" has the meaning set forth in Section 8.02(a).
"ModaCAD CAD Core Technology" has the meaning set forth in Section 2.02.
"ModaCAD CAD Products" has the meaning set forth in Section 2.01(a).
"ModaCAD CAD Product Copyrights" has the meaning set forth in Section
2.01(b).
- -------------------------------
**The material deleted has been omitted pursuant to a request for confidential
treatment pursuant to Rule 24b-2 promulgated under the Securities Exchange Act
of 1934, as amended, and has been filed separately with the Commission.
<PAGE>
"ModaCAD CAD Product Trademarks" has the meaning set forth in Section
2.01(b).
"ModaCAD Cataloguing Products" has the meaning set forth in Section 2.04.
"ModaCAD Markets" shall mean ** . For purposes of this definition it is
understood that this definition includes (i) ** . Notwithstanding the foregoing,
ModaCAD Markets shall not include any applications which fall within the
definition of the Lectra Exclusive Markets.
"Ordinary Course of Business" shall mean the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Parties" shall mean collectively Buyer and Seller.
"Person" shall mean an individual, partnership, corporation, limited
liability company, joint venture, unincorporated organization, cooperative or a
governmental entity or agency thereof.
"Purchase Price" has the meaning set forth in Section 2.07.
"Regulatory Authority" shall mean any foreign, United States Federal or
state government or governmental authority the approval of which, or filing
with, is legally required or permitted for consummation of the transactions
contemplated by this Agreement and the Collateral Agreements.
"Security Interest" shall mean any mortgage, pledge, lien, encumbrance,
charge or other security interest.
"Software" means any computer program, operating system, applications
system, firmware or software of any nature, whether operational, under
development or inactive, including all object code, source code, technical
manuals, user manuals and other documentation therefor, whether in
machine-readable form, programming language or any other language or symbols,
and whether stored, encoded, recorded or written on disk, tape, film, memory
device, paper or other media of any nature.
"Support Team" has the meaning set forth in Section 6.01(a).
"Tax" shall mean any United States federal, state, local, or foreign
income, gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under
Section 59A of the Internal Revenue Code of 1986, as amended), customs duties,
capital stock, franchise, profits, withholding, social security (or similar),
unemployment, disability, real property, personal property, sales, use,
transfer, registration, value added, alternative or add-on minimum, estimated,
or other tax of any kind whatsoever, including any interest, penalty or addition
thereto, whether disputed or not.
- -------------------------------
**The material deleted has been omitted pursuant to a request for confidential
treatment pursuant to Rule 24b-2 promulgated under the Securities Exchange Act
of 1934, as amended, and has been filed separately with the Commission.
<PAGE>
"Tax Return" shall mean any return, declaration, report, claim for refund
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Technical Support Period" has the meaning set forth in Section 6.01.
"Warrant" has the meaning set forth in Section 6.03(c).
ARTICLE II
PURCHASE AND SALE OF ASSETS
Section 2.01. Purchase and sale of assets. At the closing, upon the terms
and subject to the conditions contained herein, seller shall sell, transfer,
convey, assign and deliver to buyer, effective as of december 31, 1998 (the
"effective date"), and buyer shall purchase and accept from seller, all right,
title and interest of seller, in and to all of the assets and rights of seller
listed below as the same may exist on the closing date, free and clear of all
security interests of every kind (collectively, the "assets"):
(a) the source code and any available documentation of the 3D Visual
Merchant product and the ModaCAD Textile Suite product (including such products
as known under all previous names and all translations thereof (including
translations pursuant to the Distribution Agreement), all as listed on Schedule
2.01(a) hereto) (the "ModaCAD CAD Products") and, if any, all pending and future
sales, including software, services and maintenance fees in respect of such
products and all amounts due to Seller under the Distribution Agreement,
received or arising after the Effective Date;
(b) Seller's trademark rights (the "ModaCAD CAD Product Trademarks") and
Seller's copyright rights (the "ModaCAD CAD Product Copyrights") in the "3D
Visual Merchant" product (regardless of the name under which marketed, all as
listed on Schedule 2.01(a) hereto) and name (and all previous names for "3D
Visual Merchant" as listed on Schedule 2.01(a) hereto, other than any names
including "Moda") and the "Textile Suite" product, including, without
limitation, rights to sue for and remedies against past, present and future
infringements thereof, and rights of priority and protection of interests
therein under the laws of any jurisdiction worldwide and all tangible
embodiments thereof (together with all Intellectual Property rights included in
the other clauses of this Section 2.01, the "Intellectual Property Assets");
(c) all marketing materials prepared prior to the Closing Date by Seller in
support of the ModaCAD CAD Products, including but not limited to documentation,
literature, demo materials, video materials, interactive CD-ROM, packaging,
testimonials, customer lists, marketing/business plans, prospect lists, customer
proposals and account management methodology;
<PAGE>
(d) all of the rights and benefits accruing to Seller under all contracts,
arrangements, licenses and software, service and maintenance agreements, written
or oral, relating to the ModaCAD CAD Products and listed on Schedule 2.01(d)
hereto, including without limitation any right to receive payment for products
sold or services rendered after the Effective Date, and to receive goods and
services, pursuant to such agreements and to assert claims and take other
rightful actions in respect of breaches, defaults and other violations of such
contracts, arrangements, licenses and other agreements (the "Assumed
Contracts"), provided, however, that the Assumed Contracts shall exclude the
Distribution Agreement (other than the right to receive payments thereunder in
respect of the Textile Suite as set forth in Section 2.01(a) above);
(e) all operating data and records of Seller relating to the ModaCAD CAD
Products, including without limitation customer lists and records, production
reports and records, equipment logs, operating guides and manuals, purchasing
materials and records, research and development files, customer installed base
and related information, correspondence and other similar documents and records;
(f) all Intellectual Property and all rights thereunder or in respect
thereof primarily relating to or used or held for use in connection with the
Assets, except (i) all Intellectual Property and all rights thereunder or in
respect thereof relating solely to or used or held for use solely in connection
with the Excluded Assets set forth in Section 2.02 and (ii) all Intellectual
Property rights subject to the Cataloguing License or the Core Technology
License; and
(g) all cash and accounts receivable in respect of sales (including by way
of license) of the ModaCAD CAD Products subsequent to the Effective Date.
Section 2.02. Excluded Assets. Anything to the contrary in Section 2.01
notwithstanding, the Assets shall exclude and Buyer shall not acquire (a) any
assets, properties, claims, rights and interests of Seller not described in
Section 2.01, whether tangible or intangible, (b) the source code and any
available documentation, and all copyrights thereto, of the 3D Rendering
component, the 2 1/2D rendering component (ModaDRAPE), and their related
Intellectual Properties, including but not limited to US patents number
5,333,245 and 5,504,845 and patent pending Ser. No. ** and all enhancements
thereto developed by ModaCAD after the Closing Date (the "ModaCAD CAD Core
Technology"), (c) Seller's continued exclusive ownership of all rights to
exclusive use of "Moda," "ModaCAD" and any other names and trademarks not
licensed or sold to Buyer, (d) that portion of customer lists, research and
development files, marketing business plans, prospect lists, customer proposals
and account management methodology that do not relate to the ModaCAD CAD
Products or (e) the Distribution Agreement (other than the right to receive
payments thereunder in respect of the Textile Suite as set forth in Section
2.01(a) above (collectively, the "Excluded Assets").
Section 2.03. Assumption of Liabilities.
(a) At the Closing, upon the terms and subject to the conditions contained
herein, Buyer shall assume, effective as of the Effective Date, and discharge in
accordance with their terms, Seller's obligations under the Assumed Contracts
- -------------------------------
**The material deleted has been omitted pursuant to a request for confidential
treatment pursuant to Rule 24b-2 promulgated under the Securities Exchange Act
of 1934, as amended, and has been filed separately with the Commission.
<PAGE>
arising after the Effective Date other than Liabilities under Seller's product
warranties and all Liabilities under the Assumed Contracts for customer support
obligations for which Seller recognized revenue prior to the Effective Date (the
"Assumed Liabilities"). Schedule 2.03 sets forth all Liabilities for customer
support or other obligations under the Assumed Contracts for which Seller
recognized revenue prior to the Effective Date and for which Seller shall remain
liable.
(b) The parties hereto agree that Buyer shall not assume, pay, discharge,
become liable for or perform when due, and Seller shall not cause Buyer so to
assume, pay, discharge, become liable for or perform, any, and Seller shall pay,
discharge or perform when due all, Liabilities (contingent or otherwise), debts,
contracts, commitments and other obligations of Seller of any nature whatsoever
except the Assumed Liabilities.
Section 2.04. ModaCAD Cataloguing Products License. Effective as of the
Closing Date, Seller shall grant to Buyer, and Buyer shall accept, a license,
substantially in the form of the license agreement attached hereto as Exhibit
2.04 (the "Cataloguing License"), to market, sell and service the source code
and any available documentation of the ModaFINITY and ModaCATALOG products (the
"ModaCAD Cataloguing Products"), which license shall be exclusive as to the
Lectra Exclusive Markets and non-exclusive as to the Lectra Markets which are
not Lectra Exclusive Markets; provided, however, that Seller retains the
exclusive right to market, sell (or license to end users) and service the
ModaCAD Cataloguing Products for the ModaCAD Markets and all markets other than
the Lectra Markets and the Lectra Exclusive Markets, all as more fully set forth
in the Cataloguing License.
Section 2.05. ModaCAD CAD Core Technology License. Effective as of the
Closing Date, Seller shall grant to Buyer, and Buyer shall accept, a license,
substantially in the form of the license agreement attached hereto as Exhibit
2.05 (the "Core Technology License"), to use the ModaCAD CAD Core Technology for
all of the Lectra Group's products, including the ModaCAD CAD Products and the
ModaCAD Cataloguing Products, in the Lectra Markets, which license shall be
exclusive as to the Lectra Exclusive Markets and non-exclusive as to the Lectra
Markets which are not Lectra Exclusive Markets; provided, however, that Seller
retains the exclusive right to use the ModaCAD CAD Core Technology for the
ModaCAD Markets and all markets other than the Lectra Markets and the Lectra
Exclusive Markets, all as more fully set forth in the Core Technology License.
Section 2.06. Closing. The Closing shall take place at the offices of
Fulbright & Jaworski L.L.P., 666 Fifth Avenue, New York, New York 10103,
commencing at 9:00 a.m. on the second Business Day following the satisfaction or
waiver of all conditions to the obligations of the Parties to consummate the
transactions contemplated hereby (other than conditions with respect to the
certificates, opinions and agreements to be delivered at the Closing) or such
other date as the Parties may mutually determine. Each party hereto agrees to
use its reasonable efforts to satisfy promptly the conditions to the obligations
of the respective parties hereto in order to expedite the Closing.
Section 2.07. Purchase Price. The purchase price (the "Purchase Price") for
the Assets, the Cataloguing License and the Core Technology License shall
consist of (i) $3,000,000 in cash and (ii) the assumption of the Assumed
Liabilities.
<PAGE>
Section 2.08. Delivery of Purchase Price and Transfer of Assets.
(a) On the Closing Date, Buyer shall pay to Seller $3,000,000 by wire
transfer of immediately available funds to such bank account as Seller shall
specify in writing to Buyer, at least five Business Days prior to the Closing
Date.
(b) At the Closing, Seller shall deliver to Buyer such bills of sale,
endorsements, assignments and other instruments of sale, conveyance, transfer
and assignment, reasonably satisfactory in form and substance to Buyer and its
counsel, as may be reasonably requested by Buyer, in order to convey to Buyer
good and marketable title to the Assets, free and clear of all Security
Interests and encumbrances except as permitted by this Agreement.
Section 2.09. Allocation of Purchase Price. The Purchase Price (and all
other capitalizable costs, including the amount of any Assumed Liabilities)
shall be allocated in its entirety among the Assets, the Cataloguing License and
the Core Technology License in accordance with Schedule 2.09 hereto. Seller and
Buyer shall file all information and Tax returns (and any amendments thereto) in
a manner consistent with this Section 2.09. If, contrary to the intent of the
Parties hereto as expressed in this Section 2.09, any taxing authority makes or
proposes an allocation different from that contained in this Section 2.09,
Seller and Buyer shall cooperate with each other in good faith to contest such
taxing authority's allocation (or proposed allocation); provided, however, that,
after consultation with the Party adversely affected by such allocation (or
proposed allocation), the other Party hereto may file such protective claims or
returns as may reasonably be required to protect its interests.
Section 2.10. Consent of Third Parties. Notwithstanding anything to the
contrary in this Agreement, this Agreement shall not constitute an agreement to
assign or transfer any instrument, contract, lease, permit, license or other
agreement or arrangement or any claim, right or benefit arising thereunder or
resulting therefrom if an assignment or transfer or an attempt to make such an
assignment or transfer without the consent of a third party would constitute a
breach or violation thereof or affect adversely the rights of Buyer or Seller
thereunder; and any transfer or assignment to Buyer by Seller of any interest
under any such instrument, contract, lease, permit, license or other agreement
or arrangement that requires the consent of a third party shall be made subject
to such consent or approval being obtained. In the event any such consent or
approval is not obtained on or prior to the Closing Date, Seller shall continue
to use all reasonable efforts to obtain any such approval or consent after the
Closing Date until such time as such consent or approval has been obtained and
Seller will cooperate with Buyer in any lawful and economically feasible
arrangement to provide that Buyer shall receive the interest of Seller in the
benefits under any such instrument, contract, lease, permit, license or other
agreement or arrangement, including performance by Seller, as agent, if
economically feasible, provided that Buyer shall undertake to pay or satisfy the
corresponding liabilities for the enjoyment of such benefit to the extent Buyer
would have been responsible therefor hereunder if such consent or approval had
been obtained. Seller shall pay and discharge, and shall indemnify and hold
Buyer harmless from and against, any and all out-of-pocket costs of seeking to
obtain or obtaining any such consent or approval whether before or after the
Closing Date. Nothing in this Section 2.10 shall be deemed a waiver by Buyer of
its right, pursuant to Section 7.01(d), to have received on or before the
Closing an effective assignment of all of the Assets nor shall this Section 2.10
be deemed to constitute an agreement to exclude from the Assets any assets
described under Section 2.01.
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES
CONCERNING SELLER
Seller represents and warrants to Buyer that the statements contained in
this Article III are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Article III), except as set forth in the disclosure schedule
delivered by Seller to Buyer on the date hereof and initialed by the Parties
(the "Disclosure Schedule"). Nothing in the Disclosure Schedule shall be deemed
adequate to disclose an exception to a representation or warranty made herein,
however, unless the Disclosure Schedule identifies the exception with reasonable
particularity and describes the relevant facts in reasonable detail. Without
limiting the generality of the foregoing, the mere listing (or inclusion of a
copy) of a document or other item shall not be deemed adequate to disclose an
exception to a representation or warranty made herein (unless the representation
or warranty has to do with the existence of the document or other item itself).
The Disclosure Schedule will be arranged in paragraphs corresponding to the
lettered and numbered paragraphs contained in this Article III.
Section 3.01. Organization, Etc. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of California,
and has full corporate power and authority to conduct its business as it is now
being conducted and to own, operate or lease the properties and assets it
currently owns, operates or holds under lease.
Section 3.02. Authorization. Seller has all requisite corporate power and
authority to enter into this Agreement and each of the other agreements and
instruments contemplated hereby (the "Collateral Agreements"), to carry out its
obligations under this Agreement and each of the Collateral Agreements and to
consummate the transactions contemplated hereby and thereby. The execution and
delivery of this Agreement and the Collateral Agreements, the consummation of
the transactions contemplated hereby and thereby and the performance by Seller
of its obligations hereunder and thereunder have been duly authorized by all
necessary corporate action on the part of Seller. This Agreement has been, and
each Collateral Agreement will be, duly executed and delivered by Seller. This
Agreement is, and each Collateral Agreement, when duly executed and delivered,
will be, the legal, valid and binding obligation of Seller enforceable against
Seller in accordance with its terms (except as the enforceability thereof may be
limited by any applicable bankruptcy, insolvency or other laws affecting
creditors' rights generally or by general principles of equity, regardless of
whether such enforceability is considered in equity or at law).
Section 3.03. No Violation. The execution and delivery by Seller of this
Agreement and each Collateral Agreement and the consummation by Seller of the
transactions contemplated hereby and thereby and compliance with the terms
<PAGE>
hereof and thereof will not, (a) conflict with, or result in any violation of or
default under, any provision of Seller's Articles of Incorporation, By-laws or
other organizational documents; (b) conflict with, or result in any violation of
or default under, any permit, concession, grant, franchise, law, rule or
regulation, judgment, decree, order of any court or other Governmental Entity,
agreement, contract, indenture or other instrument (including without limitation
the Assumed Contracts) to which Seller is a party or to which any of its
property or assets is subject; (c) terminate or modify, or give any Person the
right to terminate or modify, the provisions or terms of any Assumed Contract;
or (d) result in the creation of, or give any Person the right to create, a
Security Interest in the Assets.
Section 3.04. Approvals. The execution and delivery of this Agreement and
each Collateral Agreement and the consummation of the transactions contemplated
hereby and thereby by Seller will not require the consent, approval, order or
authorization of any Governmental Entity, Regulatory Authority or other Person
under any statute, law, rule, regulation, permit, license, agreement, indenture
or other instrument to which Seller is a party or to which any of its properties
or assets are subject, and no declaration, filing or registration with any
Governmental Entity or Regulatory Authority is required or advisable by Seller
in connection with the execution and delivery of this Agreement and each
Collateral Agreement, the consummation of the transactions contemplated hereby
and thereby, or the performance by Seller of its obligations hereunder and
thereunder, except for Intellectual Property filings and recordations, including
but not limited to recordations of assignment, necessary to transfer to Buyer
the Intellectual Property Assets.
Section 3.05. Title to Assets. Seller has, and upon payment therefor Buyer
will have, good and marketable title to, or valid and subsisting leasehold
interests in or valid licenses to use, all of the Assets, free and clear of any
Security Interests of any nature, options to purchase or lease, easements,
restrictions, covenants, conditions, or imperfections of title, whether existing
or proposed.
Section 3.06. Litigation. There is no action, suit, investigation,
arbitration or proceeding pending or, to Seller's Knowledge, threatened against
or affecting Seller's rights in and to, or otherwise involving, the Assets, the
ModaCAD CAD Core Technology or the ModaCAD Cataloguing Products (including
without limitation no charge of patent, copyright and/or trademark
infringement), by or before any Governmental Entity, or any Basis in fact
therefor known to Seller, whether at law or in equity. None of the actions,
suits, proceedings, hearings and investigations set forth in the Disclosure
Schedule could reasonably be expected to result in any Material Adverse Effect.
With respect to each litigation or claim described in the Disclosure Schedule,
copies of all pleadings, filings, correspondence with opposing parties and their
counsel, opinions of counsel, results of studies, judgments, orders,
attachments, impositions of or recordings of Security Interests and other
documents have been furnished to Buyer. Seller is not subject to any outstanding
injunction, judgment, order, decree, ruling or charge which could reasonably be
expected to have a Material Adverse Effect.
Section 3.07. Contracts. The Disclosure Schedule contains a complete list
of all currently effective written or oral agreements, contracts, commitments
and other instruments and arrangements relating to the ModaCAD CAD Products, the
ModaCAD CAD Core Technology or the ModaCAD Cataloguing Products or by which any
of the Assets are bound or affected, other than (i) licenses of the Textile
<PAGE>
Suite to end-users pursuant to the Distribution Agreement, (ii) licenses of
ModaCAD Cataloguing Products to end-users and (iii) licenses to end-users of
ModaCAD products (other than the ModaCAD CAD Products) which utilize the ModaCAD
CAD Core Technology. Except as indicated on the Disclosure Schedule, all of the
foregoing agreements, contracts, commitments and other instruments and
arrangements are Assumed Contracts. True and correct copies of all the Assumed
Contracts, all of which are listed on Schedule 2.01(d), have been furnished to
Buyer. The Disclosure Schedule sets forth a complete list of all obligations to
provide customers with new releases, updates and/or enhancements of the ModaCAD
CAD Products. With respect to each Assumed Contract (whether or not listed on
the Disclosure Schedule): (i) the agreement is legal, valid, binding,
enforceable and in full force and effect; (ii) the agreement will continue to be
legal, valid, binding, enforceable and in full force and effect on identical
terms immediately following the consummation of the transactions contemplated
hereby; (iii) neither Seller nor, to Seller's Knowledge, any other party
thereto, is in breach or default in any material respect, and no event has
occurred which with notice or lapse of time would constitute a breach or default
in any material respect, or permit termination, modification or acceleration,
under the agreement; and (iv) neither Seller nor, to Seller's Knowledge, any
other party thereto has repudiated any provision of the agreement. There are no
material Liabilities of Seller or, to Seller's Knowledge, any other party to any
of the Assumed Contracts arising from any breach of or default in any provision
thereof, nor has there occurred any breach or default thereof by Seller which
would permit the acceleration of any obligation of any party thereto or the
creation of a Security Interest upon any of the Assets. There are no
negotiations pending or in progress to revise any material terms of such Assumed
Contracts. The Disclosure Schedule contains a complete list of all Persons
currently using the ModaCAD CAD Products (other than end-users of the Textile
Suite and the ModaFINITY product pursuant to the Distribution Agreement), as
well as a listing of (i) total sales pursuant to the Distribution Agreement,
(ii) sales pursuant to the Distribution Agreement during each of the years ended
December 31, 1997 and 1998 and (iii) all customers of the Distributor pursuant
to such Distribution Agreement which are known to ModaCAD. Except as set forth
on Schedule 2.03, there are no Liabilities for customer support or other
obligations (other than warranty obligations for which Seller remains liable)
under the Assumed Contracts for which Seller recognized revenue prior to the
Effective Date. The Distributor under the Distribution Agreement did not meet
the Renewal Minimum (as defined in Section 2.3 of the Distribution Agreement)
for the June 23, 1997 - June 22, 1998 annual period and, accordingly, the
Distribution Agreement will terminate in accordance with its terms at 11:59 p.m.
on June 22, 1999.
Section 3.08. Brokerage Fees. Neither Seller nor any of its Affiliates has
retained any financial advisor, broker, agent or finder or paid or agreed to pay
any financial advisor, broker, agent or finder on account of this Agreement or
any transaction contemplated hereby or any transaction of like nature that would
be required to be paid by Seller.
Section 3.09. No Product Liabilities; Product Warranties. (a) Seller has
not incurred, nor does Seller know of or have any reason to believe there is any
Basis for alleging, any liability, damage, loss, cost or expense as a result of
any defect or other deficiency ("Product Liability") with respect to any of the
ModaCAD CAD Products or the ModaCAD Cataloguing Products or service rendered by
Seller in connection therewith, whether such Product Liability is incurred by
reason of any express or implied warranty (including, without limitation, any
warranty of merchantability or fitness), any doctrine of common law (tort,
contract or other), any statutory provision or otherwise and irrespective of
whether such Product Liability is covered by insurance.
<PAGE>
(b) Seller has furnished Buyer with the standard forms of warranties or
guarantees of Seller's services that are in effect or proposed to be used by it
in connection with the ModaCAD CAD Products and the ModaCAD Cataloguing
Products, which forms contain all warranties and guarantees given by Seller to
their customers with respect to their services, except for those warranties
imposed by law. There are no pending or, to Seller's Knowledge, threatened
claims under any warranty or guaranty against Seller. The Disclosure Schedule
lists all payments or settlements made in respect of any such warranty or
guaranty (including without limitation any returns or allowances) in excess of
$10,000 individually or $100,000 in the aggregate since January 1, 1997,
indicating the name of each customer, the amount of each payment and a brief
description of the facts relating thereto.
Section 3.10. Intellectual Properties. (a) Seller owns or has the exclusive
right to use pursuant to license, sublicense, agreement or permission all
Intellectual Property necessary or desirable in connection with the Assets, the
ModaCAD Cataloguing Products as licensed to Buyer in the Cataloguing License and
the ModaCAD CAD Core Technology as licensed to Buyer in the Core Technology
License. The Intellectual Property Assets owned or used by Seller immediately
prior to the Closing hereunder will be owned or available for use by Buyer on
identical terms and conditions immediately subsequent to the Closing hereunder.
Seller has taken all necessary and desirable action to maintain and protect each
item of Intellectual Property necessary or desirable in connection with the
Assets, the ModaCAD Cataloguing Products as licensed to Buyer in the Cataloguing
License and the ModaCAD CAD Core Technology as licensed to Buyer in the Core
Technology License. The Intellectual Property Assets, together with all
Intellectual Property rights subject to the Cataloguing License and the Core
Technology License, comprise all the Intellectual Property necessary and
desirable for Buyer to develop, market and service CAD/CAM software applications
as now done by Seller in the ModaCAD CAD Markets.
(b) To Seller's Knowledge, the ModaCAD CAD Products, the ModaCAD CAD Core
Technology as licensed to Buyer in the Core Technology License, the ModaCAD
Cataloguing Products as licensed to Buyer in the Cataloguing License and the
conduct of Seller's business in the ModaCAD CAD Markets do not interfere with,
infringe upon, misappropriate or otherwise come into conflict with any
Intellectual Property rights of third parties, and neither Seller nor its
directors or officers (or employees with responsibility for Intellectual
Property matters) has ever received any charge, complaint, claim, demand or
notice alleging any such interference, infringement, misappropriation or
violation (including any claim that Seller must license or refrain from using
any Intellectual Property rights of any third party). To Seller's Knowledge, no
third party has interfered with, infringed upon, misappropriated, or otherwise
come into conflict with any Intellectual Property rights of Seller relating to
the ModaCAD CAD Products, the ModaCAD Cataloguing Products as licensed to Buyer
in the Cataloguing License, the ModaCAD CAD Core Technology as licensed to Buyer
in the Core Technology License, the ModaCAD CAD Product Copyrights and the
ModaCAD CAD Product Trademarks.
<PAGE>
(c) The Disclosure Schedule contains an accurate and complete list
(including a short, clear description) of all Software owned, marketed,
licensed, used or under development by Seller in connection with the Assets, the
ModaCAD Cataloguing Products as licensed to Buyer in the Cataloguing License and
the ModaCAD CAD Core Technology as licensed to Buyer in the Core Technology
License other than (i) general business third-party Software which is readily
commercially available and is not embedded in or necessary to run any of the
ModaCAD CAD Products, the Moda CAD Cataloguing Products as licensed to Buyer in
the Cataloguing License and the ModaCAD CAD Core Technology as licensed to Buyer
in the Core Technology License and (ii) Microsoft utilities programs for which
no further royalties are owed (the "ModaCAD Software") and a product
description, the language in which it is written, the operating system(s) on
which it runs and the type of hardware platform(s) on which it runs. Except for
the (i) general business third-party Software which is readily commercially
available and is not embedded in or necessary to run any of the ModaCAD CAD
Products, the ModaCAD Cataloguing Products as licensed to Buyer in the
Cataloguing License and the ModaCAD CAD Core Technology as licensed to Buyer in
the Core Technology License and (ii) Microsoft utilities programs for which no
further royalties are owed, no other Software is required for use and operation
of the Assets or the use of the ModaCAD Cataloguing Products or the ModaCAD CAD
Core Technology. Seller has good and marketable title to, or has the full right
to use, all of the ModaCAD Software free and clear of any Security Interest. No
rights of any third party are necessary to market, license, sell, modify, update
and/or create derivative works for the ModaCAD Software. With respect to the
ModaCAD Software (i) Seller maintains machine-readable master-reproducible
copies, source code listings, technical documentation and user manuals for the
most current releases or versions thereof and for all earlier releases or
versions thereof currently being supported by Seller, (ii) in each case, the
machine-readable copy substantially conforms to the corresponding source code
listing, (iii) such Software is written in the language set forth on the
Disclosure Schedule, for use on the hardware set forth on the Disclosure
Schedule with standard operating systems set forth on the Disclosure Schedule,
(iv) such Software can be maintained and modified by reasonably competent
programmers familiar with such language, hardware and operating systems that
have access to Seller's proprietary information, and (v) in each case, the
ModaCAD Software operates in accordance with the user manual therefor without
material operating defects. None of the ModaCAD Software, or its past or current
uses, has violated or infringed upon, or is violating or infringing upon, any
Software, patent, copyright, trade secret or other Intellectual Property of any
Person. To Seller's Knowledge, no Person is violating or infringing upon, or has
violated or infringed upon at any time, any of the ModaCAD Software. All of the
ModaCAD Software was internally developed by employees of Seller, and the
Disclosure Schedule sets forth Seller's research and development costs in
respect of each of the 3D Visual Merchant product, the ModaCAD Textile Suite and
the ModaCAD CAD Core Technology (to the extent it relates to the ModaCAD CAD
Products) in aggregate and for each of the years ended December 31, 1997 and
1998. None of the ModaCAD Software is owned by or registered in the name of any
current or former owner, shareholder, partner, director, executive, officer,
employee, salesman, agent, customer, representative or contractor of Seller, no
such Person is obligated under any agreement (including licenses, covenants or
commitments of any nature) or subject to any judgment, decree or order of any
court or administrative agency or any other restriction that would interfere
with Buyer's use of the ModaCAD Software, and no such Person has any interest
therein or right thereto, including but not limited to the right to royalty
<PAGE>
payments. The Disclosure Schedule sets forth all commitments of Seller to any
customer or third party for ModaCAD Software product improvements or
developments.
(d) The Disclosure Schedule identifies each patent or registration which
has been issued to Seller with respect to any of the Intellectual Property
Assets, the ModaCAD CAD Products, the ModaCAD Cataloguing Products and the
ModaCAD CAD Core Technology, identifies each pending patent application or
application for registration which Seller has made with respect to any of the
Intellectual Property Assets, the ModaCAD CAD Products, the ModaCAD Cataloguing
Products and the ModaCAD CAD Core Technology, and identifies each license,
agreement or other permission which Seller has granted to any third party with
respect to any of the Intellectual Property Assets, the ModaCAD CAD Products,
the ModaCAD Cataloguing Products and the ModaCAD CAD Core Technology (together
with any exceptions), other than (i) licenses of the Textile Suite and the
ModaFINITY product to end-users pursuant to the Distribution Agreement, (ii)
licenses of ModaCAD Cataloguing Products to end-users and (iii) licenses to
end-users of ModaCAD products (other than the ModaCAD CAD Products) which
utilize the ModaCAD CAD Core Technology. Seller has delivered to Buyer correct
and complete copies of all such patents, registrations, applications, licenses,
agreements and permissions (as amended to date) and has made available to Buyer
correct and complete copies of all other written documentation evidencing
ownership and prosecution (if applicable) of each such item and all opinions of
counsel pertaining to, or investigating the validity or infringement of, the
Intellectual Property rights of any third party, including clearance, validity
or "freedom to operate" opinions. The Disclosure Schedule also identifies each
trade name, unregistered copyright or unregistered trademark used by Seller in
connection with the Intellectual Property Assets, the ModaCAD CAD Products, the
ModaCAD Cataloguing Products and the ModaCAD CAD Core Technology. With respect
to each item of Intellectual Property required to be identified in the
Disclosure Schedule:
(i) Seller possesses all right, title and interest in and to the item,
free and clear of any Security Interest, license or other restriction;
(ii) the item is not subject to any outstanding injunction, judgment,
order, decree, ruling or charge;
(iii) no action, suit, proceeding, hearing, investigation, charge,
complaint, claim or demand is pending or, to Seller's Knowledge, is
threatened which challenges the legality, validity, enforceability, use or
ownership of the item; and
(iv) Seller has not agreed to indemnify any Person for or against any
interference, infringement, misappropriation or other conflict with respect
to the item.
(e) The Disclosure Schedule identifies each item of Intellectual Property
that any third party owns and that Seller uses pursuant to license, sublicense,
agreement or permission in connection with the ModaCAD CAD Products, the ModaCAD
Cataloguing Products and the ModaCAD CAD Core Technology. Seller has delivered
to Buyer correct and complete copies of all such licenses, sublicenses,
agreements and permissions (as amended to date). With respect to each item of
Intellectual Property required to be identified in the Disclosure Schedule:
<PAGE>
(i) the license, sublicense, agreement or permission covering the item
is legal, valid, binding, enforceable and in full force and effect;
(ii) the license, sublicense, agreement or permission will continue to
be legal, valid, binding, enforceable and in full force and effect on
identical terms following the Closing;
(iii) no party to the license, sublicense, agreement or permission is
in breach or default, and no event has occurred which with notice or lapse
of time would constitute a breach or default or permit termination,
modification or acceleration thereunder;
(iv) no party to the license, sublicense, agreement or permission has
repudiated any provision thereof;
(v) with respect to each sublicense, to Seller's Knowledge the
representations and warranties set forth in subsections (i) through (iv)
above are true and correct with respect to the underlying license;
(vi) the underlying item of Intellectual Property is not subject to
any outstanding injunction, judgment, order, decree, ruling or charge;
(vii) no action, suit, proceeding, hearing, investigation, charge,
complaint, claim or demand is pending or, to Seller's Knowledge, is
threatened which challenges the legality, validity, use or enforceability
of the underlying item of Intellectual Property; and
(viii) Seller has not granted any sublicense or similar right with
respect to the license, sublicense, agreement or permission.
(f) To Seller's Knowledge, Buyer will not interfere with, infringe upon,
misappropriate, or otherwise come into conflict with, any Intellectual Property
rights of third parties as a result of the continued use of the Assets, the
ModaCAD Cataloguing Products (as licensed to Buyer in the Cataloguing License)
or the ModaCAD CAD Core Technology (as licensed to Buyer in the Core Technology
License) as presently used.
Section 3.11. Year 2000 Compliance and Localization in Foreign Languages.
(a) The ModaCAD CAD Products, the ModaCAD Cataloguing Products, the ModaCAD
CAD Core Technology and all other Software operated by Seller which is material
to the use of the ModaCAD CAD Products and the ModaCAD Cataloguing Products are
capable of providing uninterrupted millennium functionality to record, store,
process and present calendar dates falling on or after January 1, 2000 in
substantially the same manner and with the same functionality as such Software
records, stores, processes and presents such calendar dates falling on or before
December 31, 1999.
<PAGE>
(b) The ModaCAD CAD Products, the ModaCAD Cataloguing Products and all
other Software included in the Assets which is material to the use of the
ModaCAD CAD Products and the ModaCAD Cataloguing Products are capable of being
localized in all the foreign languages used by the Lectra Group listed on
Schedule 6.02 hereto and such localization requires only translation tasks and
minimal programming, except that Seller makes no representation with respect to
the ability to localize such products into languages or characters not supported
by the Microsoft operating systems commonly used in the United States.
Section 3.12. Restrictive Documents and Territorial Restrictions. Seller is
not subject to, or a party to, any charter, by-law, mortgage, Security Interest,
lease, license, permit, agreement, contract, instrument, law, rule, ordinance,
regulation, order, judgment or decree, or any other restriction of any kind or
character, which has, or could reasonably be expected to have, a Material
Adverse Effect, or which would prevent consummation of the transactions
contemplated hereby or the continued use or operation of the Assets, the ModaCAD
Cataloguing Products as licensed to Buyer in the Cataloguing License or the
ModaCAD CAD Core Technology as licensed to Buyer in the Core Technology License
after the date hereof on substantially the same basis as heretofore used or
operated or which would restrict the ability of Buyer to acquire any property or
conduct business in any area.
Section 3.13. No Misleading Statements. This Agreement, the information and
schedules referred to herein and the information that has been furnished to
Buyer in connection with the transactions contemplated hereby do not include any
untrue statement of a material fact and do not omit to state any material fact
necessary to make the statements contained herein or therein, in light of the
circumstances under which they were made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller that the statements contained in
this Article IV are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Article IV).
Section 4.01. Organization. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of New York, with full
corporate power and authority to own or lease its properties and carry on its
business as presently conducted.
Section 4.02. Due Authorization. Buyer has all requisite corporate power
and authority to execute and deliver this Agreement and each of the Collateral
Agreements, to perform fully its obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby. The execution and
delivery by Buyer of this Agreement and each of the Collateral Agreements, the
performance by Buyer of its obligations hereunder and thereunder, and the
<PAGE>
consummation of the transactions contemplated hereby and thereby have been duly
and validly authorized by all necessary corporate action on the part of Buyer.
This Agreement has been, and each of the Collateral Agreements will be, duly
executed by Buyer, and this Agreement is, and each of the Collateral Agreements
will be, upon execution and delivery thereof by Buyer, a legal, valid and
binding obligation of Buyer enforceable against Buyer in accordance with its
terms (except as the enforceability thereof may be limited by any applicable
bankruptcy, insolvency or other laws affecting creditors' rights generally or by
general principles of equity, regardless of whether such enforceability is
considered in equity or at law).
Section 4.03. No Conflict. Neither the execution and delivery by Buyer of
this Agreement or any of the Collateral Agreements nor the consummation of the
transactions contemplated hereby or thereby by Buyer will (i) conflict with,
result in a breach or violation of or constitute (or with notice or lapse of
time or both constitute) a default under, (A) the Certificate of Incorporation,
By-Laws or other organizational documents of Buyer, or (B) any law, statute,
regulation, order, judgment or decree or any instrument, contract or other
agreement to which Buyer is a party or by which it (or any of its properties or
assets) is subject or bound; or (ii) require Buyer to obtain any authorization,
consent, approval or waiver from, to give notification to, or to make any filing
(other than filing to qualify as a foreign corporation where necessary) with,
any Governmental Entity or Regulatory Authority, or to obtain the approval or
consent of any other Person.
ARTICLE V
PRE-CLOSING COVENANTS
The Parties agree as follows with respect to the period between the
execution of this Agreement and the Closing:
Section 5.01. General. Each of the Parties will use its reasonable best
efforts to take all action and to do all things necessary, proper, or advisable
in order to consummate and make effective the transactions contemplated by this
Agreement (including satisfaction, but not waiver, of the closing conditions set
forth in Article VII below).
Section 5.02. Conduct and Preservation of Business. Except as contemplated
by this Agreement, during the period from the date of this Agreement to the
Closing Date, Seller shall (i) conduct business with respect to the ModaCAD CAD
Products and ModaCAD CAD Cataloguing Products in the usual manner and not enter
into any transactions outside the Ordinary Course of Business; (ii) use its best
efforts to maintain, preserve and protect the Assets, the ModaCAD Cataloguing
Products and the ModaCAD CAD Core Technology, including, without limitation, to
preserve its relationship with its employees constituting the Support Team and
its suppliers and customers and to preserve its goodwill; (iii) comply in all
material respects with all laws, ordinances, rules, regulations and orders
applicable to the Assets, the ModaCAD Cataloguing Products and the ModaCAD CAD
Core Technology; (iv) continue to maintain and service the Assets, the ModaCAD
Cataloguing Products and the ModaCAD CAD Core Technology in the same manner as
has been its consistent past practice; (vi) perform in all material respects all
of its obligations under all Assumed Contracts and other agreements and
instruments relating to or affecting the Assets, the ModaCAD Cataloguing
Products and the ModaCAD CAD Core Technology; and (vii) not take any action or
<PAGE>
omit to take any action which act or omission would result in the inaccuracy of
any of its representations and warranties set forth herein if such
representations or warranties were to be made immediately after the occurrence
of such act or omission.
Section 5.03. Access to Information; Confidentiality. Between the date of
this Agreement and the Closing Date, Seller will (i) permit Buyer's authorized
representatives reasonable access during normal business hours to all of the
books, records, offices and other facilities and properties of Seller pertaining
to the Assets, the ModaCAD Cataloguing Products as licensed to Buyer in the
Cataloguing License and the ModaCAD CAD Core Technology as licensed to Buyer in
the Core Technology License; (ii) permit Buyer to make such inspections thereof
as Buyer may reasonably request; and (iii) furnish Buyer with such financial and
operating data (including without limitation the work papers of Seller's
independent accountants) and other information with respect to the Assets, the
ModaCAD Cataloguing Products as licensed to Buyer in the Cataloguing License and
the ModaCAD CAD Core Technology as licensed to Buyer in the Core Technology
License as Buyer may from time to time reasonably request; provided, however,
that any such investigation shall be conducted in such a manner as not to
interfere unreasonably with the operations of Seller. Each of Buyer and Seller
will hold, and shall cause their counsel, independent certified public
accountants, appraisers and investment bankers to hold in confidence any
confidential data or information made available to it by the other in connection
with this Agreement as provided in the Confidentiality Agreement dated as of
December 12, 1998 by and between Seller and Lectra SA.
Section 5.04. Filings and Authorizations. Each of Seller and Buyer, as
promptly as practicable, (i) will make, or cause to be made, all filings and
submissions required under laws, rules and regulations applicable to it, or to
its subsidiaries and Affiliates, as may be required for it to consummate the
transactions contemplated hereby; (ii) will use their respective reasonable
efforts to obtain, or cause to be obtained, all authorizations, approvals,
consents and waivers from all Persons and governmental or public authorities or
bodies necessary to be obtained by each of them, or any of their respective
subsidiaries or Affiliates, in order for each of them, respectively, so to
consummate such transactions; and (iii) will use their respective best efforts
to take, or cause to be taken, all other actions necessary, proper or advisable
in order for each of them to fulfill their respective obligations hereunder. In
particular, Seller shall (i) seek and use its reasonable best efforts to obtain
all consents necessary to any assignment to Buyer of the Assumed Contracts and
necessary to the use of the Assets, the ModaCAD Cataloguing Products as licensed
to Buyer in the Cataloguing License and the ModaCAD CAD Core Technology as
licensed to Buyer in the Core Technology License and (ii) file all recordations
of assignment and any other Intellectual Property filings necessary to transfer
to Buyer the Intellectual Property Assets. Seller and Buyer will coordinate and
cooperate with one another in exchanging information and supplying such
reasonable assistance as may be reasonably requested by each in connection with
the foregoing. Buyer shall use its reasonable efforts to assist Seller in
obtaining all consents required under the Assumed Contracts as a result of this
Agreement and the transactions contemplated hereby.
Section 5.05. Distribution Agreement. Prior to the Closing Date, Buyer and
Seller shall review and discuss the terms of the Distribution Agreement to
decide whether such Distribution Agreement shall be renewed by Seller and/or
<PAGE>
shall become an Assumed Contract. The Distribution Agreement shall not be
renewed by Seller without the written consent of Buyer, but all communications
with the Distributor prior to the Closing Date shall be handled by Seller after
consultation with Buyer. Seller agrees to hold Buyer harmless from any Adverse
Consequences resulting from Seller's termination, if any, of the Distribution
Agreement. In addition, the Parties agree that Buyer shall have no Liability to
Seller as a result of Buyer's decision to consent, or to withhold consent, to
Seller's renewal of the Distribution Agreement.
Section 5.06. Public Announcements. Unless and to the extent required by
law, each Party hereto will agree in advance prior to the issuance by either of
any press release or the making of any public statement with respect to this
Agreement and the transactions contemplated hereby and shall not issue any such
press release or make any such public statement without the agreement of the
other Party. In the event that either Party is required to issue a press release
or make a public statement by law, it will notify the other Party of the
contents thereof in advance of the issuance or making thereof. The Parties agree
that a press release with respect to the transactions contemplated hereby, in
substantially the form of Exhibit 5.06, will be issued at or about the Closing
Date.
Section 5.07. Notice of Developments. Each Party will give prompt written
notice to the others of any material adverse development causing a breach of any
of its own representations and warranties in Articles III or IV or above. No
disclosure by any Party pursuant to this Section 5.07, however, shall be deemed
to amend or supplement the Disclosure Schedule or to prevent or cure any
misrepresentation, breach of warranty or breach of covenant.
Section 5.08. No Shopping. (a) From and after the date hereof until the
termination of this Agreement, without the express written consent of Buyer,
Seller shall not, directly or indirectly, (i) solicit, initiate discussions or
engage in negotiations with any Person, other than Buyer, relating to the
possible acquisition, whether by way of merger, reorganization, purchase of
shares of capital stock, purchase of assets, management agreement, license or
distribution agreement with respect to any of the Assets, the ModaCAD
Cataloguing Products (except as permitted by the Cataloguing License) or the
ModaCAD CAD Core Technology (to the extent Seller would not thereafter be able
to perform all its obligations under the Core Technology License), or otherwise
(any such acquisition or other transaction or agreement being referred to herein
as an "Acquisition Transaction"), of any interest in any of the Assets, the
ModaCAD Cataloguing Products (except as permitted by the Cataloguing License) or
the ModaCAD CAD Core Technology (to the extent Seller would not thereafter be
able to perform all its obligations under the Core Technology License), (ii)
provide information with respect to the Assets, the ModaCAD Cataloguing Products
(except as permitted by the Cataloguing License) or the ModaCAD CAD Core
Technology (to the extent Seller would not thereafter be able to perform all its
obligations under the Core Technology License), to any Person, other than Buyer,
in connection with a possible Acquisition Transaction or (iii) enter into a
transaction with any Person, other than Buyer, concerning a possible Acquisition
Transaction. Prior to the termination of this Agreement, if after the date of
this Agreement Seller receives an unsolicited offer or proposal relating to a
possible Acquisition Transaction, Seller shall immediately notify Buyer and
provide information to Buyer as to the identity of the party making any such
offer or proposal and the specific terms of such offer or proposal (including,
without limitation, the proposed price and financing therefor).
<PAGE>
(b) From and after the date hereof until the termination of this Agreement,
without the express written consent of Seller, Buyer, shall not, directly or
indirectly, (i) solicit, initiate discussions or engage in negotiations with any
Person, other than Seller, relating to the possible acquisition, whether by way
of merger, reorganization, purchase of shares of capital stock, purchase of
assets, license or distribution agreement, or otherwise, which would result in
Buyer not purchasing the Assets (any such acquisition or other transaction or
agreement being referred to herein as a "Buyer Acquisition Transaction") or (ii)
enter into a transaction with any Person, other than Seller, concerning a
possible Buyer Acquisition Transaction.
(c) Each of Buyer and Seller hereby recognizes and acknowledges that a
breach by it of its obligations under this Section 5.08 will cause irreparable
and material loss and damage to the other as to which such Party will not have
an adequate remedy at law or in damages. Accordingly, each Party acknowledges
and agrees that the issuance of an injunction or other equitable remedy is an
appropriate remedy for any such breach. In addition, in the event of any breach
of the foregoing, the breaching Party shall promptly reimburse the non-breaching
Party for the reasonable expenses incurred by the non-breaching Party in
connection with the transactions contemplated by this Agreement.
Section 5.09. Schedules. From time to time prior to the Closing, Seller
will promptly supplement or amend the Disclosure Schedule with respect to any
matter hereafter arising which, if existing or occurring at the date of this
Agreement, would have been required to be set forth or described in such
Disclosure Schedule. No supplement or amendment of the Disclosure Schedule made
pursuant to this Section shall be deemed to cure any breach of, affect or
otherwise diminish any representation or warranty made in this Agreement unless
Buyer specifically agrees thereto in writing.
ARTICLE VI
POST-CLOSING COVENANTS
The Parties agree as follows with respect to the period following the
Closing:
Section 6.01. Technical Support Services. For a period of ** following the
Closing Date (the "Technical Support Period"), Seller shall provide Buyer with
technical development support and marketing and sales assistance pursuant to the
following terms and subject to the following conditions:
(a) Seller shall make available to the Lectra Group a support team (the
"Support Team") consisting of the individuals listed on Schedule 6.01 hereto
(which schedule includes the current position held by each such individual, the
length of time in the current position and the length of time such individual
has worked with the ModaCAD CAD Products), or individuals with substantially
similar expertise and otherwise reasonably acceptable to Buyer, who shall
provide technical development support and marketing and sales assistance on a **
basis to the Lectra Group, subject to paragraph (b) of this Section 6.01. In
exchange for the services of the Support Team, Buyer shall pay to Seller (i) **
, payable in quarterly installments of ** on the date each Contingent Payment,
- -------------------------------
**The material deleted has been omitted pursuant to a request for confidential
treatment pursuant to Rule 24b-2 promulgated under the Securities Exchange Act
of 1934, as amended, and has been filed separately with the Commission.
<PAGE>
if any, is due pursuant to Section 6.01(f), plus (ii) a contingent payment (the
"Contingent Payment") equal to ** of the quarterly 3D Visual Merchant Software
Revenues (as defined below) of the Lectra Group exceeding (x) ** per quarter for
the year ended ** and (y) ** per quarter for the year ended ** . The Contingent
Payment shall be calculated and paid as set forth in clause (f) below.
Notwithstanding anything in this paragraph (a) to the contrary, in no event
shall the total Contingent Payment to Seller for the services of the Support
Team exceed ** . "Software Revenues" means gross receipts received by, credited
to, or otherwise recognized by the Lectra Group, in accordance with United
States generally accepted accounting practices, consistently applied, from
whatever source, whether now known or hereafter devised, resulting from sales,
licenses, sublicenses and other transfers to third parties of the 3D Visual
Merchant product, less only (i) credits, refunds and discounts actually offered
and made by the Lectra Group member concerned in the ordinary course of
business, and (ii) any sales, use or excise taxes and shipping charges actually
included in those revenues; provided, however, that "Software Revenues" shall
not include revenues in respect of general business third-party software,
hardware, software services, hardware services, consulting, training and rental
services related to or provided in connection with the 3D Visual Merchant
Product. In the event the 3D Visual Merchant product is bundled with other
products and sold for a single price, the portion of such price allocated to the
3D Visual Merchant product shall be determined by multiplying the total price by
a fraction, the numerator of which is Buyer's then current price for the 3D
Visual Merchant product in the country in which the bundled product is sold, and
the denominator of which is the sum of Buyer's then current price for each of
the products included in the bundled product in the country in which the bundled
product is sold.
(b) For the first ** of the Technical Support Period, Seller will use all
commercially reasonable efforts to maintain the existing management of the
Support Team as set forth on Schedule 6.01 hereto. If at any time during the
Technical Support Period any such manager shall resign, be terminated or request
a transfer by Seller to other responsibility, Seller shall promptly notify Buyer
and provide a replacement for such manager with substantially similar levels of
expertise and management skills. Seller agrees, and shall cause the applicable
members of the Support Team to agree, that (i) the Business Development Manager
of the Support Team set forth on Schedule 6.01 will dedicate at least ** of his
or her time to assisting the Lectra Group during the first ** of the Technical
Support Period and ** of his or her time to assisting the Lectra Group for the
remainder of Technical Support Period; and (ii) the 3D Visual Merchant Product
Manager of the Support Team set forth on Schedule 6.01 will dedicate at least **
of his or her time to assisting the Lectra Group during the ** of the Technical
Support Period and ** of his or her time to assisting the Lectra Group for the
remainder of the Technical Support Period.
(c) Seller shall require each member of the Support Team, and each
individual who may replace a member of the Support Team during the Technical
Support Period, to execute a non-disclosure and confidentiality agreement,
substantially in the form of Exhibit 6.01 hereto, relating to the Lectra Group's
business operations and products and the Support Team's services to the Lectra
Group. The non-disclosure and confidentiality agreement shall be executed by
each member of the Support Team as of the Closing Date on or before the Closing
Date and by each replacement person on or about the date such person becomes a
member of the Support Team.
- -------------------------------
**The material deleted has been omitted pursuant to a request for confidential
treatment pursuant to Rule 24b-2 promulgated under the Securities Exchange Act
of 1934, as amended, and has been filed separately with the Commission.
<PAGE>
(d) Buyer agrees that during the Technical Support Period, neither Buyer
nor any of its Affiliates shall, directly or indirectly, solicit or offer
employment to any member of the Support Team; provided, however, that in the
event any member of the Support Team initiates discussions with Buyer or any of
its Affiliates regarding employment of such Person by Buyer or any of its
Affiliates, Buyer or such Affiliate may proceed to recruit such Person and shall
not be in violation of this clause (d).
(e) Buyer shall reimburse Seller for all travel and other out-of-pocket
expenses, other than Seller's usual overhead expenses, incurred by the members
of the Support Team in connection with services to Buyer hereunder, provided
that Buyer has approved such expenses in advance in writing.
(f) Within thirty days after the end of each calendar quarter, commencing
with the calendar quarter ended ** and ending with the calendar quarter ending
** , Buyer shall render to Seller a written statement showing the dollar amount
of 3D Visual Merchant Software Revenues of the Lectra Group during such fiscal
quarter and calendar year to date, together with a calculation of any amounts
due Seller pursuant to clause (ii) of the second sentence of Section 6.01(a).
Such statement shall be accompanied by the payments due Seller under Section
6.01(a). Buyer shall keep, and shall cause each member of the Lectra Group to
keep, full, true and accurate books of accounts and other records containing all
particulars which may be necessary to properly ascertain and verify the
Contingent Payment payable by it pursuant to clause (ii) of the second sentence
of Section 6.01(a). Upon Seller's written request, Buyer shall permit Seller to
examine at reasonable times during regular business hours, but no more than once
each calendar year, such records as may be necessary to determine the accuracy
of any report and/or payment made under this Section 6.01. In addition, Seller
shall have the right, at its own expense and no more than once each calendar
year, to have Buyer's records relating to 3D Visual Merchant Software Revenues
for the prior calendar year reviewed by an independent auditor reasonably
acceptable to Buyer. Such auditor examining books and records hereunder shall
not disclose to Seller any information relating to the business of the Buyer
except that which should properly have been disclosed in any report required
hereunder. The basis for any determination of such accountant shall be made
available for review and comment by Buyer and reconsidered if Buyer so requests,
and if the parties still do not agree as to the determination of 3D Visual
Merchant Software Revenues a further determination shall be made by another
nationally recognized independent certified public accountant selected by Seller
from among three proposed by Buyer (none of whom shall have rendered services to
the Lectra Group or Seller within the three year period prior thereto) and such
accountant shall make a final determination. Such final determination shall be
binding upon the Parties hereto. ** shall bear the cost of such accountant
unless it is finally determined that ** underpaid the Contingent Payment due
hereunder by more than ** , in which case ** shall bear the cost of such
accountant.
(g) Buyer and Seller shall perform a review of Buyer's current product
development plans and marketing plans in connection with the ModaCAD CAD
Products and the ModaCAD Cataloguing Products and shall jointly develop a plan
to be implemented by the Support Team incorporating the Lectra Group's
requirements, including software localization and maintenance, and ** .
- -------------------------------
**The material deleted has been omitted pursuant to a request for confidential
treatment pursuant to Rule 24b-2 promulgated under the Securities Exchange Act
of 1934, as amended, and has been filed separately with the Commission.
<PAGE>
(h) In the event Seller has breached any term of this Section 6.01 in any
material respect, Buyer has notified Seller of the breach and the breach has
continued without cure for a period of 30 days after the notice of breach, Buyer
shall have the right to cease any payments remaining due pursuant to paragraph
(a) of this Section 6.01 and Seller shall immediately, upon notice from Buyer to
Seller that such breach has not been remedied, pay to Buyer an amount equal to
the higher of (x) ** of the fees paid to Buyer prior to the breach or (y) ** of
the fees remaining to be paid pursuant to this Section 6.01 (with Software
Revenues for the remaining period being determined by assuming that the monthly
Software Revenues for the remaining period will be equal to the Software
Revenues for the month immediately preceding the breach). The amount payable to
Buyer pursuant to this clause (h) shall be payable as liquidated damages for
damages to the Lectra Group as a result of Seller's failure to perform its
obligations under this Section 6.01 and not as a penalty. In the event Buyer
ceases to make payments pursuant to this Section 6.01(h) but it is thereafter
finally determined in a non-appealable judgment that Seller had not breached
this Section 6.01 in any material respect, then Buyer shall promptly pay to
Seller all unpaid amounts for each calendar quarter when Seller has performed
its obligations under this Section 6.01, together with interest on such unpaid
amounts from the date such payment(s) were originally due to the date paid at a
rate per annum as announced in The Wall Street Journal as the prime rate.
Section 6.02. Localization Services. During the Technical Support Period,
Seller shall, ** , provide programming services to Buyer as necessary to
localize the ModaCAD CAD Products and the ModaCAD Cataloguing Products in the
foreign languages listed on Schedule 6.02 hereto to the extent such languages or
characters are supported by Microsoft operating systems commonly in use in the
United States. The initial schedule for completion of such localization is set
forth on Schedule 6.02 hereto. ** shall be responsible for all translation
expenses in connection with Seller's localization of the ModaCAD CAD Products
and the ModaCAD Cataloguing Products. Seller acknowledges that the Lectra Group
markets its products on a worldwide basis and that the ability to localize the
ModaCAD CAD Products and the ModaCAD Cataloguing Products is a material
inducement to Buyer's purchase of the Assets.
Section 6.03. Cooperative Development and Marketing Efforts. Buyer and
Seller agree to the following cooperative development and marketing efforts:
(a) Buyer and Seller shall cooperate in the development and marketing of
strategies associated with linking CAD/CAM data formats for electronic commerce
("e-commerce") solutions on the Internet for business-to-business and
business-to-consumer applications. In furtherance of such strategies, Buyer and
Seller shall:
(i) jointly develop a ** that contains complete ** ;
(ii) optimize the performance of both ** ;
- -------------------------------
**The material deleted has been omitted pursuant to a request for confidential
treatment pursuant to Rule 24b-2 promulgated under the Securities Exchange Act
of 1934, as amended, and has been filed separately with the Commission.
<PAGE>
(iii) maintain and enhance the ** ; and
(iv) retain such ** as part of their respective products or (y) **
agree to be bound by the terms of this Section 6.03.
(b) Buyer and Seller agree to promote each other's ** . In connection with
such promotional cooperation, if Seller decides to offer ** not conflict with
Seller's non-compete obligations set forth in Section 6.05.
(c) Buyer shall promote Seller's e-commerce solutions in the Lectra Markets
in a manner as may be mutually agreed upon. In consideration for these
promotional activities, Buyer shall issue to Lectra at the Closing a warrant
(the "Warrant"), substantially in the form attached hereto as Exhibit 6.03(c),
to purchase 250,000 shares of Seller's Common Stock.
(d) If on or before ** . For purposes hereof, a "Lectra Competitor" shall
mean any of the following direct competitors (including their subsidiaries and
Affiliates) of the Lectra Group: ** .
Section 6.04. Maintenance of Books and Records. Each of Seller and Buyer
shall preserve until the seventh anniversary of the Closing Date all records
possessed or to be possessed by such Party relating to any of the Assets, the
ModaCAD Cataloguing Products and the ModaCAD CAD Core Technology prior to the
Closing Date. After the Closing Date, where there is a legitimate purpose, such
Party shall provide the other Party with access, upon prior reasonable written
request specifying the need therefor, during regular business hours, to (i) the
officers and employees of such Party and (ii) the books of account and records
of such Party, but, in each case, only to the extent relating to the Assets, the
ModaCAD Cataloguing Products as licensed to Buyer in the Cataloguing License,
the ModaCAD CAD Core Technology as licensed to Buyer in the Core Technology
License or Assumed Liabilities prior to the Closing Date, and the other Party
and its representatives shall have the right to make copies of such books and
records; provided, however, that the foregoing right of access shall not be
exercisable in such a manner as to interfere unreasonably with the normal
operations and business of such Party; and further, provided, that, as to so
much of such information as constitutes trade secrets or confidential business
information of such Party, the requesting Party and its officers, directors and
representatives will use due care to not disclose such information except (i) as
required by law, (ii) with the prior written consent of such Party, which
consent shall not be unreasonably withheld, or (iii) where such information
becomes available to the public generally, or becomes generally known to
competitors of such Party, through sources other than the requesting Party, its
Affiliates or its officers, directors or representatives. Such records may
nevertheless be destroyed by a Party if such Party sends to the other Party
written notice of its intent to destroy records, specifying with particularity
the contents of the records to be destroyed. Such records may then be destroyed
after the 30th day after such notice is given unless another Party objects to
the destruction in which case the Party seeking to destroy the records shall
deliver such records to the objecting Party.
Section 6.05. Non-Competition. (a) Each of Buyer and Seller agrees that it
and each of its Affiliates will, for a period of ** from the date hereof,
restrict the operation of its business to the Lectra Markets and the ModaCAD
Markets, respectively, it being understood by Buyer and Seller that certain
activities are included in both markets and, unless otherwise prohibited in
another provision of this Agreement, the Core Technology License or the
Cataloguing License, are not prohibited by this Section 6.05(a).
(b) Seller agrees that prior to ** neither it nor any of its Affiliates
will, directly or indirectly, (i) use the ModaCAD CAD Core Technology to
develop, market or service products that are functionally equivalent or similar
to (x) the ModaCAD CAD Products or (y) the CAD/CAM tools and other software
applications and related services developed and marketed by the Lectra Group in
the Lectra Exclusive Markets, or (ii) interfere with, disrupt or attempt to
disrupt the relationship between the Lectra Group and any of its lessors,
lessees, licensors, licensees, customers or suppliers. Nothing in this Section
6.05(b) is, however, intended to, and nothing in this Section shall, limit the
- -------------------------------
**The material deleted has been omitted pursuant to a request for confidential
treatment pursuant to Rule 24b-2 promulgated under the Securities Exchange Act
of 1934, as amended, and has been filed separately with the Commission.
<PAGE>
ability of Seller to use the ModaCAD CAD Core Technology and the ModaCAD
Cataloguing Products in the ModaCAD Markets.
(c) Seller acknowledges and agrees that the agreements and covenants
contained in this Section 6.05 are essential to protect the Assets and licenses
being acquired by Buyer hereunder, that Buyer would not consummate the
transactions contemplated hereby but for such agreements and covenants, and that
a substantial and legally sufficient portion of Purchase Price is attributable
to the non-competition provisions of this Section 6.05 and Seller expressly
waives any right to assert inadequacy of consideration as a defense to
enforcement of the non-competition provisions of this Section 6.05 should such
enforcement ever become necessary. Seller acknowledges that a remedy at law for
any breach or attempted breach of this Section 6.05 will be inadequate and
further agrees that any breach of this Section 6.05 will result in irreparable
harm to the Assets and the licenses; and Seller covenants and agrees not to
oppose any demand for specific performance and injunctive and other equitable
relief in case of any such breach or attempted breach. Whenever possible, each
provision of this Section 6.05 shall be interpreted in such manner as to be
effective and valid under applicable law but if any provision of this
Section 6.05 shall be prohibited by or invalid under applicable law, such
provision shall be ineffective to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or the remaining provisions
of this Section 6.05. If any provision of this Section 6.05 shall, for any
reason, be judged by any court of competent jurisdiction to be invalid or
unenforceable, such judgment shall not affect, impair or invalidate the
remainder of this Section 6.05 but shall be confined in its operation to the
provision of this Section 6.05 directly involved in the controversy in which
such judgment shall have been rendered. In the event that the provisions of this
Section 6.05 should ever be deemed to exceed the time or geographic limitations
permitted by the applicable laws, then such provision shall be reformed to the
maximum time or geographic limitations permitted by applicable law.
Section 6.06. Confidentiality. (a) Seller will, and will cause its
Affiliates to, treat and hold as such all of the Confidential Information, and
not disclose any of the Confidential Information to any Person (other than its
employees, consultants and advisors who need to know such information in the
performance of their duties) except (i) in connection with this Agreement, (ii)
as permitted by the Core Technology License or the Cataloguing License or (iii)
to licensees of ModaCAD's products (other than the MocaCAD CAD Products) to the
extent necessary for such licensee to use such products, subject to Seller's
obligations set forth in Section 6.05. In the event that Seller or its
Affiliates is requested or required (by oral question or request for information
or documents in any legal proceeding, interrogatory, subpoena, civil
investigative demand or similar process) to disclose any Confidential
Information, Seller will notify Buyer promptly of the request or requirement so
that Buyer may seek an appropriate protective order or waive compliance with the
provisions of this Section 6.06. If, in the absence of a protective order or the
receipt of a waiver hereunder, Seller or its Affiliates is, on the advice of
counsel, compelled to disclose any Confidential Information to any tribunal or
else stand liable for contempt, Seller or its Affiliates may disclose the
Confidential Information to the tribunal; provided, however, that Seller shall
use its reasonable best efforts to obtain, at the request of Buyer, an order or
other assurance that confidential treatment will be accorded to such portion of
the Confidential Information required to be disclosed as Buyer shall designate.
The foregoing provisions shall not apply to any Confidential Information which
is generally available to the public immediately prior to the time of
disclosure.
<PAGE>
(b) Buyer will, and will cause its Affiliates to, treat and hold as such
all of the Confidential Information, and not disclose any of the Confidential
Information to any Person (other than its employees, consultants and advisors
who need to know such information in the performance of their duties) except (i)
in connection with this Agreement, (ii) as permitted by the Core Technology
License or the Cataloguing License or (iii) to licensees of the Cataloguing
Products and the Lectra Group products (including without limitation the MocaCAD
CAD Products) to the extent necessary for such licensee to use such products. In
the event that Buyer or its Affiliates is requested or required (by oral
question or request for information or documents in any legal proceeding,
interrogatory, subpoena, civil investigative demand or similar process) to
disclose any Confidential Information, Buyer will notify Seller promptly of the
request or requirement so that Seller may seek an appropriate protective order
or waive compliance with the provisions of this Section 6.06. If, in the absence
of a protective order or the receipt of a waiver hereunder, Buyer or its
Affiliates is, on the advice of counsel, compelled to disclose any Confidential
Information to any tribunal or else stand liable for contempt, Buyer or its
Affiliates may disclose the Confidential Information to the tribunal; provided,
however, that Buyer shall use its reasonable best efforts to obtain, at the
request of Seller, an order or other assurance that confidential treatment will
be accorded to such portion of the Confidential Information required to be
disclosed as Seller shall designate. The foregoing provisions shall not apply to
any Confidential Information which is generally available to the public
immediately prior to the time of disclosure.
Section 6.07. Discharge of Liabilities. Following the Closing Date, Buyer
agrees to discharge in accordance with their terms the Assumed Liabilities and
Seller agrees to discharge in accordance with their terms all Liabilities
relating to the Assets, the ModaCAD Cataloguing Products and the ModaCAD CAD
Core Technology which are not Assumed Liabilities.
Section 6.08. Further Assurances. In case at any time after the Closing any
further action is necessary or desirable to carry out the purposes of this
Agreement, each of the Parties will cooperate with the other and take such
further action (including the execution and delivery of such further instruments
and documents) as any other Party reasonably may request, all at the sole cost
and expense of the requesting Party (unless the requesting Party is entitled to
indemnification therefor under Article VIII below). In addition, Seller from
time to time after the Closing, at Buyer's request, will execute, acknowledge
and deliver to Buyer such other instruments of conveyance and transfer and will
take such other actions and execute and deliver such other documents,
certifications and further assurances as Buyer may reasonably require in order
to vest more effectively in Buyer, or to put Buyer more fully in possession of,
any of the Assets, or to better enable Buyer to complete, perform or discharge
any of the Assumed Liabilities.
Section 6.09. Termination of Covenants. In the event Seller enters into (i)
any merger or consolidation with or into a Lectra Competitor (whether or not the
Seller is the surviving corporation), (ii) any sale or transfer of all or
substantially all of its assets to a Lectra Competitor, (iii) any sale or
transfer (including by way of exclusive license) of all or substantially all the
ModaCAD CAD Core Technology or the ModaCAD Cataloguing Products to a Lectra
Competitor, or (iv) any transaction to which ** , then in any such event Buyer
may, upon written notice to Seller, terminate any or all of Buyer's obligations
under Sections 6.01 (except that if Buyer elects to terminate its payment
- -------------------------------
**The material deleted has been omitted pursuant to a request for confidential
treatment pursuant to Rule 24b-2 promulgated under the Securities Exchange Act
of 1934, as amended, and has been filed separately with the Commission.
<PAGE>
obligations under Section 6.01, then Seller shall have no obligation to continue
to provide the Technical Support Team) or 6.03 (but Buyer's termination of its
obligations under Section 6.03 shall not affect the Warrant).
Section 6.10. Distribution Agreement. Seller shall promptly pay over to
Buyer all amounts (other than amounts in respect of the ModaCAD Cataloguing
Products) due to Seller in respect of the Distribution Agreement from and after
the Effective Date. Seller shall perform all its obligations under the
Distribution Agreement, including all obligations which may arise after
termination of the Distribution Agreement. Upon expiration of the Distribution
Agreement in ** , Seller shall assist Buyer in transitioning the licensees under
the Distribution Agreement to Buyer's products. Buyer will not sell, license or
cause to be sold or licensed, in the Territory (as defined in the Distribution
Agreement) any Textile Suite (or any "ModaFINITY") product prior to the date of
expiration of the Distribution Agreement.
Section 6.11. Maintenance Services. Seller represents and warrants that the
only Assumed Contract for which Seller recognized revenues prior to the Closing
Date which relate in part to customer support obligations after the Effective
Date is the Software License Agreement dated May 1, 1998, between Seller and **
. Seller represents that it has received payment for maintenance services
thereunder through April 30, 1999, and agrees to perform all maintenance
obligations (including without limitation those set forth in Sections 11 and 12
of such agreement) through April 30, 1999. Notwithstanding the foregoing, Buyer
agrees to make available to ** at no charge promptly upon general commercial
release the Program Updates and Program Upgrades required to be provided by
Section11.2.2 of the ** .
ARTICLE VII
CONDITIONS TO OBLIGATION TO CLOSE
Section 7.01. Conditions to Obligation of Buyer. The obligation of Buyer to
consummate the transactions contemplated hereby is subject to satisfaction (or
waiver by Buyer) on or prior to the Closing Date of the following conditions:
(a) all representations and warranties of Seller contained in this
Agreement (including the Schedules hereto), and all written information
delivered to Buyer by Seller on or prior to the Closing Date pursuant to
this Agreement, (i) that are qualified as to materiality shall be true in
all respects on and as of the Closing Date and (ii) that are not qualified
as to materiality shall be true in all material respects on and as of the
Closing Date, with the same force and effect as though such representations
and warranties were made, and such written information was delivered, on
and as of the Closing Date;
(b) Seller shall have performed and complied with all of its covenants
hereunder in all material respects through the Closing;
- -------------------------------
**The material deleted has been omitted pursuant to a request for confidential
treatment pursuant to Rule 24b-2 promulgated under the Securities Exchange Act
of 1934, as amended, and has been filed separately with the Commission.
<PAGE>
(c) there shall have been no Material Adverse Change in the Assets,
the ModaCAD Cataloguing Products or the ModaCAD CAD Core Technology from
the Effective Date to the Closing Date not consented to by Buyer in
writing;
(d) Seller shall have procured and delivered to Buyer all of the third
party consents (including consents under the Assumed Contracts) and
Intellectual Property recordations and filings necessary to be obtained to
consummate the transactions contemplated hereby and by the Collateral
Agreements.
(e) no action, suit or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling or charge would (i)
prevent consummation of any of the transactions contemplated by this
Agreement, (ii) cause any of the transactions contemplated by this
Agreement to be rescinded following consummation, (iii) affect adversely
the right of Buyer to own or use the Assets or use the ModaCAD Cataloguing
Products or the ModaCAD CAD Core Technology, (iv) require or could
reasonably be expected to require any divestiture by Buyer of a portion of
the Assets or its current business or (v) imposes any condition upon Buyer
that in Buyer's reasonable judgment (x) would be materially burdensome to
the ownership or use of the Assets or use of the ModaCAD Cataloguing
Products or the ModaCAD CAD Core Technology or (y) would materially
increase the costs incurred or that will be incurred by Buyer as a result
of consummating the Acquisition and the other transactions contemplated
hereby (and no such injunction, judgment, order, decree, ruling or charge
shall be in effect);
(f) Seller shall have delivered to Buyer a certificate to the effect
that each of the conditions specified in Section 7.01(a) through (d) is
satisfied in all respects.
(g) Buyer and Seller shall have entered into the Core Technology
License and the Cataloguing License;
(h) Seller shall have delivered to Buyer the Warrant;
(i) Buyer shall have received from Coudert Brothers, counsel to
Seller, an opinion in form and substance as set forth in Exhibit 7.01(i)
attached hereto, addressed to Buyer, and dated as of the Closing Date;
(j) all actions to be taken by Seller in connection with consummation
of the transactions contemplated hereby and all certificates, opinions,
instruments and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance
to Buyer.
Buyer may waive any condition specified in this Section 7.01 if it executes a
writing so stating at or prior to the Closing.
<PAGE>
Section 7.02. Conditions to Obligation of Seller. The obligation of Seller
to consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction of the following conditions:
(a) all representations and warranties of Buyer contained in this
Agreement, and all written information delivered to Seller by Buyer on or
prior to the Closing Date pursuant to this Agreement, (i) that are
qualified as to materiality shall be true in all respects on and as of the
Closing Date and (ii) that are not qualified as to materiality shall be
true in all material respects on and as of the Closing Date, with the same
force and effect as though such representations and warranties were made,
and such written information was delivered, on and as of the Closing Date;
(b) Buyer shall have performed and complied with all of its covenants
hereunder in all material respects through the Closing;
(c) no action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any federal,
state, local or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling or charge would (A)
prevent consummation of any of the transactions contemplated by this
Agreement or (B) cause any of the transactions contemplated by this
Agreement to be rescinded following consummation (and no such injunction,
judgment, order, decree, ruling or charge shall be in effect);
(d) Buyer shall have delivered to Seller a certificate to the effect
that each of the conditions specified above in Section 7.02(a) and (b) is
satisfied in all respects;
(e) Seller and Buyer shall have entered into the Core Technology
License and the Cataloguing License;
(f) Seller shall have received from Fulbright & Jaworski L.L.P.,
counsel to Buyer, an opinion in form and substance as set forth in
Exhibit 7.02(f) attached hereto, addressed to Seller, and dated as of the
Closing Date;
(g) ** , and Seller shall have executed and delivered a release
substantially in the form of Exhibit 7.02(g) attached hereto; and
(h) all actions to be taken by Buyer in connection with consummation
of the transactions contemplated hereby and all certificates, opinions,
instruments and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance
to Seller.
Seller may waive any condition specified in this Section 7.02 if they execute a
writing so stating at or prior to the Closing.
- -------------------------------
**The material deleted has been omitted pursuant to a request for confidential
treatment pursuant to Rule 24b-2 promulgated under the Securities Exchange Act
of 1934, as amended, and has been filed separately with the Commission.
<PAGE>
ARTICLE VIII
INDEMNIFICATION
Section 8.01. Survival of Representations and Warranties. All of the
representations and warranties contained in this Agreement shall survive the
Closing hereunder (even if the other Party knew or had reason to know of any
misrepresentation or breach of warranty at the time of Closing) and continue in
full force and effect for a period of ** thereafter, regardless of any
investigation made by Buyer or Seller or on their behalf, except as to any
matters with respect to which a bona fide written claim shall have been made or
an action at law or in equity shall have commenced before such date, in which
event survival shall continue (but only with respect to, and to the extent of,
such claim) until the final resolution of such claim or action, including all
applicable periods for appeal; provided, however, that the representations and
warranties set forth in Section 3.10 shall survive and remain in force and
effect for a period of ** .
Section 8.02. Indemnification Provisions for Benefit of Buyer. (a) In the
event Seller breaches (or in the event any third party alleges facts that, if
true, would mean Seller has breached) any of its representations, warranties and
covenants contained herein, and, if there is an applicable survival period
pursuant to Section 8.01 above, provided that Buyer makes a written claim for
indemnification against Seller within such survival period, then Seller agrees
to indemnify Buyer from and against the entirety of any Adverse Consequences
Buyer may suffer through and after the date of the claim for indemnification
(including any Adverse Consequences Buyer may suffer after the end of any
applicable survival period) resulting from, arising out of, relating to, in the
nature of or caused by the breach (or the alleged breach); provided, however,
that Seller shall have no obligation to indemnify Buyer from and against any
Adverse Consequences resulting from, arising out of, relating to, in the nature
of or caused by the breach (or alleged breach) of any representation or warranty
of Seller until Buyer has, in the aggregate, suffered Adverse Consequences by
reason of all such breaches (or alleged breaches) in excess of a $50,000
aggregate threshold (at which point Seller will be obligated to indemnify Buyer
from and against all Adverse Consequences relating back to the first dollar),
and provided further that Seller's maximum liability hereunder shall not exceed
the Purchase Price (the "Maximum Liability"). Notwithstanding anything herein to
the contrary, the $50,000 and the Maximum Liability limitations shall not apply
to any Adverse Consequences resulting from breaches of the representations and
warranties contained in Sections 3.10 hereof.
(b) Seller agrees to indemnify Buyer from and against the entirety of
any Adverse Consequences Buyer may suffer resulting from, arising out of,
relating to, in the nature of or caused by (i) any Liability of Seller
which is not an Assumed Liability (including any Liability of Buyer under
any bulk transfer law of any jurisdiction, under any common law doctrine of
de facto merger or successor liability, or otherwise by operation of law),
or (ii) any of the ModaCAD CAD Products, the ModaCAD CAD Core Technology or
the ModaCAD Cataloguing Products interfering with, infringing upon,
misappropriating or otherwise coming into conflict with any Intellectual
Property rights of third parties, whether or not a breach of any
representation or warranty of Seller hereunder.
Section 8.03. Indemnification Provisions for Benefit of Seller. (a) In the
event Buyer breaches (or in the event any third party alleges facts that, if
- -------------------------------
**The material deleted has been omitted pursuant to a request for confidential
treatment pursuant to Rule 24b-2 promulgated under the Securities Exchange Act
of 1934, as amended, and has been filed separately with the Commission.
<PAGE>
true, would mean Buyer has breached) any of its representations, warranties and
covenants contained herein, and, if there is an applicable survival period
pursuant to Section 8.01 above, provided that Seller makes a written claim for
indemnification against Buyer within such survival period, then Buyer agrees to
indemnify Seller from and against the entirety of any Adverse Consequences
Seller may suffer through and after the date of the claim for indemnification
(including any Adverse Consequences Seller may suffer after the end of any
applicable survival period) resulting from, arising out of, relating to, in the
nature of or caused by the breach (or the alleged breach); provided, however,
that Buyer shall not have any obligation to indemnify Seller from and against
any Adverse Consequences resulting from, arising out of, relating to, in the
nature of or caused by the breach (or alleged breach) of any representation or
warranty of Buyer until Seller has, in the aggregate, suffered Adverse
Consequences by reason of all such breaches (or alleged breaches) in excess of a
$50,000 aggregate threshold (at which point Buyer will be obligated to indemnify
Seller from and against all Adverse Consequences relating back to the first
dollar), and provided further that Buyer's maximum liability hereunder shall not
exceed the Maximum Liability.
(b) Buyer agrees to indemnify Seller from and against the entirety of
any Adverse Consequences Seller may suffer resulting from, arising out of,
relating to, in the nature of or caused by any Assumed Liability.
Section 8.04. Matters Involving Third Parties. (a) If any third party shall
notify any Party (the "Indemnified Party") with respect to any matter (a "Third
Party Claim") which may give rise to a claim for indemnification against any
other Party (the "Indemnifying Party") under this Article VIII, then the
Indemnified Party shall promptly notify each Indemnifying Party thereof in
writing; provided, however, that no delay on the part of the Indemnified Party
in notifying any Indemnifying Party shall relieve the Indemnifying Party from
any obligation hereunder unless (and then solely to the extent) the Indemnifying
Party thereby is prejudiced or if, in the interim, the survival period set forth
in Section 8.01 shall have expired.
(b) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its choice
reasonably satisfactory to the Indemnified Party so long as (i) the
Indemnifying Party notifies the Indemnified Party in writing within fifteen
(15) days after the Indemnified Party has given notice of the Third Party
Claim that the Indemnifying Party will indemnify the Indemnified Party from
and against the entirety of any Adverse Consequences the Indemnified Party
may suffer resulting from, arising out of, relating to, in the nature of or
caused by the Third Party Claim, (ii) the Indemnifying Party provides the
Indemnified Party with evidence reasonably acceptable to the Indemnified
Party that the Indemnifying Party will have the financial resources to
defend against the Third Party Claim and fulfill its indemnification
obligations hereunder, (iii) the Third Party Claim involves only money
damages and does not seek an injunction or other equitable relief, (iv)
settlement of, or an adverse judgment with respect to, the Third Party
Claim is not, in the good faith judgment of the Indemnified Party, likely
to establish a precedential custom or practice adverse to the continuing
business interests of the Indemnified Party, and (v) the Indemnifying Party
conducts the defense of the Third Party Claim actively and diligently.
(c) So long as the Indemnifying Party is conducting the defense of the
Third Party Claim in accordance with Section 8.04(b) above, (i) the
<PAGE>
Indemnified Party may retain separate co-counsel at its sole cost and
expense and participate in the defense of the Third Party Claim, (ii) the
Indemnified Party will not consent to the entry of any judgment or enter
into any settlement with respect to the Third Party Claim without the prior
written consent of the Indemnifying Party (not to be withheld, delayed or
conditioned unreasonably), and (iii) the Indemnifying Party will not
consent to the entry of any judgment or enter into any settlement with
respect to the Third Party Claim without the prior written consent of the
Indemnified Party (not to be withheld, delayed or conditioned
unreasonably).
(d) In the event any of the conditions in Section 8.04(b) above is or
becomes unsatisfied, however, (i) the Indemnified Party may defend against,
and consent to the entry of any judgment or enter into any settlement with
respect to, the Third Party Claim in any manner it reasonably may deem
appropriate (and the Indemnified Party need not consult with, or obtain any
consent from, any Indemnifying Party in connection therewith), (ii) the
Indemnifying Party will reimburse the Indemnified Party promptly and
periodically for the costs of defending against the Third Party Claim
(including reasonable attorneys' fees and expenses), and (iii) the
Indemnifying Party will remain responsible for any Adverse Consequences the
Indemnified Party may suffer resulting from, arising out of, relating to,
in the nature of, or caused by the Third Party Claim to the fullest extent
provided in this Article VIII.
Section 8.05. Adjustments to Indemnification Payments. Any payment made by
one Party to another Party pursuant to this Article VIII in respect of any claim
(i) shall be net of any insurance proceeds realized by and paid to the
indemnified Party in respect of such claim and (ii) shall be (A) reduced by an
amount equal to any Tax benefits attributable to such claim and (B) increased by
an amount equal to any Taxes attributable to the receipt of such payment, but
only to the extent that such Tax benefits are actually realized, or such Taxes
are actually paid, as the case may be, by Seller or by Buyer or by any
consolidated, combined or unitary group of which Buyer or Seller is a member.
The indemnified Party shall use its reasonable efforts to make insurance claims
relating to any claim for which it is seeking indemnification pursuant to this
Article VIII; provided that the indemnified Party shall not be obligated to make
such an insurance claim if the indemnified Party in its reasonable judgment
believes that the cost of pursuing such an insurance claim together with any
corresponding increase in insurance premiums or other chargebacks to the
indemnified Party, as the case may be, would exceed the value of the claim for
which the indemnified Party is seeking indemnification.
Section 8.06. Other Indemnification Provisions. (a) The remedies provided
herein shall be the exclusive remedies of each of the Parties hereto with
respect to any Adverse Consequences arising out of the transactions contemplated
hereby; provided, however, that (i) the Parties hereto shall be entitled to an
injunction or other equitable relief to prevent breaches of this Agreement, to
enforce specifically the terms and provisions of this Agreement or to seek any
other remedy to which they are entitled in equity; (ii) nothing herein shall
preclude a Party from bringing an action for fraud; and (iii) nothing herein
shall limit Buyer's rights of setoff. In addition to all other rights and
remedies that Buyer may have, Buyer shall have the right to setoff, against any
amounts due to Seller, whether due under this Agreement, the Cataloguing License
or otherwise, any sums for which Buyer is entitled to indemnification under this
Article VIII, subject to compliance with the provisions of this Section 8.06 and
provided that no amounts setoff by Buyer, when combined with all other
indemnification payments made by Seller pursuant to this Article VIII, shall
exceed the Maximum Liability. Buyer's rights to indemnification under this
Article VIII shall not be in any manner limited by or to this right of setoff.
<PAGE>
If any indemnification claim is pending at a time when Buyer is required to pay
any amount due to Seller, then Buyer shall have the right, upon notice to
Seller, to withhold from such payment, until final determination of such pending
indemnification claim, the total amount for which Seller may become liable as a
result thereof, as determined by Buyer reasonably and in good faith.
(b) If Buyer elects to setoff against amounts due Seller, Buyer shall
give Seller ten (10) days prior written notice of its intent to set off and
Buyer shall deposit the amount of the setoff with Citibank, N.A. or other
mutually agreed upon Person (the "Escrow Agent") pursuant to an escrow
agreement mutually agreed to by Buyer and Seller if Buyer receives notice
in writing from Seller, within fifteen (15) days after Buyer's delivery of
notice to Seller of its election to setoff against amounts due Seller, that
Seller disputes such setoff; provided, however, that if Seller does not
dispute the entire setoff, then Buyer shall only be obligated to deposit in
escrow that portion of the setoff amount disputed by Seller.
(c) (i) In case Seller shall so object in writing to any setoff,
Seller and Buyer shall attempt in good faith for thirty (30) days to agree
upon the rights of the respective parties with respect to the claims upon
which Buyer based the setoff. If Seller and Buyer should so agree, a
memorandum setting forth such agreement shall be prepared and signed by
both parties and shall be furnished to the Escrow Agent. The Escrow Agent
shall be entitled to rely on any such memorandum and shall distribute any
payment in accordance with the terms thereof.
(ii) If no such agreement can be reached after good faith
negotiation, either Buyer or Seller may, by written notice to the
other, demand arbitration of the matter pursuant to Section 8.07
unless the amount of the damage or loss is at issue in pending
litigation with a third party, in which event arbitration shall not be
commenced until such amount is ascertained or both parties agree to
arbitration.
Section 8.07. Arbitration. Any dispute between the Parties with respect to
this Article VIII shall be settled by arbitration conducted by three
arbitrators. Within fifteen (15) days after written demand for arbitration is
sent by one Party to the other, Buyer and Seller shall each select one
arbitrator, and the two arbitrators so selected shall select a third arbitrator.
The Parties shall endeavor to complete arbitration within 60 days after delivery
of written notice demanding arbitration. The decision of the arbitrators shall
be binding and conclusive upon the Parties, and notwithstanding anything in
Section 8.06(c) hereof, the Escrow Agent shall be entitled to act in accordance
with such decision and make or withhold payments in accordance therewith.
Judgment upon any award rendered by the arbitrators may be entered in any court
having jurisdiction. Any such arbitration shall be held in New York County,
State of New York under the commercial rules then in effect of the American
Arbitration Association. For purposes of this Section 8.07, in any arbitration
hereunder in which any claim or the amount thereof is at issue, Buyer shall be
deemed to be the non-prevailing Party unless the arbitrators award Buyer more
than one-half (1/2) of the amount in dispute, plus any amounts not in dispute;
otherwise, Seller shall be deemed to be the non-prevailing Party. The
non-prevailing Party to an arbitration shall pay its own expenses, the fees of
each arbitrator, the administrative fee of the American Arbitration Association,
and the expenses, including without limitation attorneys' fees and costs,
<PAGE>
reasonably incurred by the other party to the arbitration. This agreement to
arbitrate shall not be construed to deprive any court of its jurisdiction to
grant provisional relief (including injunctive relief) in aid of arbitration
proceedings.
ARTICLE IX
TERMINATION
Section 9.01. Termination of Agreement. The Parties may terminate this
Agreement as provided below:
(a) Buyer and Seller may terminate this Agreement by mutual written
consent at any time prior to the Closing;
(b) Buyer may terminate this Agreement by giving written notice to
Seller at any time prior to the Closing (a) in the event Seller has
breached any representation, warranty or covenant contained in this
Agreement in any respect (in the case of any representation or warranty
qualified by materiality) or in any material respect (in the case of any
representation or warranty without any materiality qualification), Buyer
has notified Seller of the breach, and the breach has continued without
cure for a period of 20 days after the notice of breach or (b) if the
Closing shall not have occurred on or before February 28, 1999, or such
later date as the Parties may agree, other than through a failure of Buyer
to fulfill its obligations hereunder.
(c) Seller may terminate this Agreement by giving written notice to
Buyer at any time prior to the Closing (a) in the event Buyer has breached
any representation, warranty or covenant contained in this Agreement in any
respect (in the case of any representation or warranty qualified by
materiality) or in any material respect (in the case of any representation
or warranty without a materiality qualifier), Seller has notified Buyer of
the breach, and the breach has continued without cure for a period of 20
days after the notice of breach or (b) if the Closing shall not have
occurred on or before February 28, 1999, or such later date as the Parties
may agree, other than through a failure of Seller to fulfill its
obligations hereunder.
Section 9.02. Effect of Termination. If any Party terminates this Agreement
pursuant to Section 9.01 above, all rights and obligations of the Parties
hereunder shall terminate without any Liability of any Party to any other Party
(except for any Liability of any Party then in breach).
ARTICLE X
MISCELLANEOUS
Section 10.01. Effect of Due Diligence. No investigation by or on behalf of
Buyer into the business, operations, prospects, assets or condition (financial
or otherwise) of the Assets, the ModaCAD Cataloguing Products and the ModaCAD
<PAGE>
CAD Core Technology shall diminish in any way the effect of any representations
or warranties made by Seller in this Agreement or shall relieve Seller of any of
its obligations under this Agreement.
Section 10.02. No Third Party Beneficiaries. This Agreement shall not
confer any rights or remedies upon any Person other than the Parties and their
respective successors and permitted assigns.
Section 10.03. Entire Agreement. This Agreement (including the documents
referred to herein) constitutes the entire agreement among the Parties and
supersedes any prior understandings, agreements or representations by or among
the Parties, written or oral, to the extent they related in any way to the
subject matter hereof, including without limitation that certain Letter of
Intent, effective as of December 31, 1998, by and between Lectra SA and Seller.
Section 10.04. Succession and Assignment. This Agreement shall be binding
upon and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of its rights, interests, or obligations hereunder without the prior written
approval of Buyer and Seller; provided, however, that Buyer may (i) assign any
or all of its rights and interests hereunder to one or more of its Affiliates
and (ii) designate one or more of its Affiliates to perform its obligations
hereunder (in any or all of which cases Buyer nonetheless shall remain
responsible for the performance of all of its obligations hereunder).
Section 10.05. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
Section 10.06. Headings. The section headings contained in this Agreement
are inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 10.07. Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim
or other communication hereunder shall be deemed duly given (a) on the date of
delivery, if delivered to the persons identified below, (b) five Business Days
after it is sent by registered or certified mail, return receipt requested,
postage prepaid, and addressed to the intended recipient as set forth below:
If to Seller: ModaCAD, Inc.
3861 Sepulveda Blvd.
Culver City, CA 90230
Attn: President
<PAGE>
Copy to: Coudert Brothers
1055 West Seventh Street
Los Angeles, CA 90017
Attn: John A. St. Clair, Esq.
If to Buyer: Lectra Systems Inc.
844 Livingston Court
Marietta, GA 30067
Attn: President
Copies to: Lectra Systemes SA
16-18, rue Chalgrin
75016 PARIS FRANCE
Attn: Daniel Harari
Fulbright & Jaworski L.L.P.
666 Fifth Avenue
New York, New York 10103
Attn: Paul Jacobs, Esq.
(c) on the date of receipt if sent by telecopy and confirmed in writing in the
manner set forth in (b) above on or before the next day after the sending of the
telecopy and (d) one Business Day after delivery to a nationally recognized
overnight delivery service marked for overnight delivery. Any Party may change
the address to which notices, requests, demands, claims, and other
communications hereunder are to be delivered by giving the other Parties notice
in the manner herein set forth.
Section 10.08. Governing Law. This Agreement shall be governed in all
respects, including as to validity, interpretation and effect, by and construed
in accordance with the domestic laws of the State of New York without giving
effect to any choice or conflict of law provision or rule (whether of the State
of New York or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of New York. Except as provided in
Section 8.07 hereof, Buyer and Seller hereby irrevocably submit to the
jurisdiction of the courts of the State of New York and the Federal courts of
the United States of America located in the State, City and County of New York
solely in respect of the interpretation and enforcement of the provisions of
this Agreement and of the documents referred to in this Agreement, and hereby
waive, and agree not to assert, as a defense in any action, suit or proceeding
for the interpretation or enforcement hereof or of any such document, that is
not subject thereto or that such action, suit or proceeding may not be brought
or is not maintainable in said courts or that the venue thereof may not be
appropriate or that this Agreement or any of such documents may not be enforced
in or by said courts, and the Parties hereto irrevocably agree that all claims
with respect to such action or proceeding shall be heard and determined in such
a New York State or Federal court. Buyer and Seller hereby consent to and grant
any such court jurisdiction over the person of such parties and over the subject
matter of any such dispute and agree that mailing of process or other papers in
connection with any such action or proceeding in the manner provided in Section
10.07, or in such other manner as may be permitted by law, shall be valid and
sufficient service thereof.
<PAGE>
Section 10.09. Amendments and Waivers. No amendment of any provision of
this Agreement shall be valid unless the same shall be in writing and signed by
Buyer and Seller. No waiver by any Party of any default, misrepresentation or
breach of warranty or covenant hereunder, whether intentional or not, shall be
deemed to extend to any prior or subsequent default, misrepresentation or breach
of warranty or covenant hereunder or affect in any way any rights arising by
virtue of any prior or subsequent such occurrence.
Section 10.10. Severability. Any term or provision of this Agreement that
is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction.
Section 10.11. Expenses. Each of Buyer and Seller will bear his or its own
costs and expenses (including legal fees and expenses) incurred in connection
with this Agreement and the transactions contemplated hereby.
Section 10.12. Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty and covenant contained herein shall have
independent significance. If any Party has breached any representation, warranty
or covenant contained herein in any respect, the fact that there exists another
representation, warranty or covenant relating to the same subject matter
(regardless of the relative levels of specificity) which the Party has not
breached shall not detract from or mitigate the fact that the Party is in breach
of the first representation, warranty or covenant.
Section 10.13. Incorporation of Exhibits, Annexes, and Schedules. The
Exhibits, Annexes and Schedules identified in this Agreement are incorporated
herein by reference and made a part hereof.
Section 10.14. Specific Performance. Each Party acknowledges and agrees
that the other Party would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each Party agrees that the other
Party shall be entitled to an injunction or injunctions to prevent breaches of
the provisions of this Agreement and to enforce specifically this Agreement and
the terms and provisions hereof in any action instituted in any court of the
United States or any state thereof having jurisdiction over the Parties and the
matter, in addition to any other remedy to which they may be entitled, at law or
in equity.
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as of
the date set forth above.
LECTRA SYSTEMS INC.
By: /s/ DAVID J. SIEGELMAN
Title: President
MODACAD, INC.
By: /s/ MAURIZIO VECCHIONE
Title: President
<PAGE>
Exhibit 2.04
Catalog Products
License Agreement
<PAGE>
CATALOG PRODUCTS LICENSE AGREEMENT
THIS AGREEMENT is entered into this 3rd day of March, 1999, and made
effective as of December 31, 1998 (the "Effective Date"), by and between
ModaCAD, Inc., a California corporation ("Licensor"), and Lectra Systems, Inc.,
a New York corporation ("Licensee").
RECITALS:
A. Pursuant to the Agreement dated this date and made effective as of the
Effective Date between Licensee and Licensor (the "Basic Agreement") Licensee
has simultaneously herewith purchased from Licensor the "Assets" (as defined in
the Basic Agreement) and Licensor has agreed to grant to Licensee a license (as
hereinafter defined, the "CP License") for the distribution of the "Catalog
Products" (as hereinafter defined).
B. Licensor and Licensee desire to set forth in this Agreement the terms
and conditions of the CP License and their rights and obligations in connection
therewith.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally bound
hereby, Licensor and Licensee hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Affiliate. "Affiliate" has the definition thereof set forth in the
Basic Agreement.
1.2 Catalog Products. "Catalog Products" means the software products, now
having the names "ModaFINITY" and "ModaCATALOG," and the source code,
documentation and technology related to those software products, including all
translations thereof, if any, into languages other than English, provided that
the Catalog Products shall not mean or include the "ModaCAD CAD Core Technology"
(as defined in the Basic Agreement), which is expressly excluded from this
Agreement and covered by the "Core Technology License" (as defined in the Basic
Agreement), and provided further that the Catalog Products shall not include any
rights whatever to the names "ModaFINITY," "ModaCATALOG," "Moda" or "ModaCAD."
1.3 Confidential Information. "Confidential Information" shall have the
definition thereof set forth in the Basic Agreement.
1.4 CP License. "CP License" has the meaning set forth in Section 2.1.
1.5 Intellectual Property. "Intellectual Property" has the definition
thereof set forth in the Basic Agreement.
<PAGE>
1.6 Lectra Exclusive Markets. "Lectra Exclusive Markets" has the definition
thereof set forth in the Basic Agreement.
1.7 Lectra Group. "Lectra Group" means Licensee and Lectra Systemes SA, the
parent of Licensee, and their respective Affiliates.
1.8 Net Revenues. "Net Revenues" means gross receipts received by, credited
to, or otherwise recognized by the Lectra Group, in accordance with United
States generally accepted accounting practices, consistently applied, from
whatever source, whether now known or hereafter devised, resulting from sales,
licenses, sublicenses and other transfers to third parties of the Catalog
Products, less only (i) credits, refunds and discounts actually offered and made
by the Lectra Group member concerned in the ordinary course of business, and
(ii) any sales, use or excise taxes and shipping charges actually included in
those revenues; provided, however, that "Net Revenues" shall not include
revenues in respect of general business third-party software, hardware, software
services, hardware services, consulting, training and rental services related to
or provided in connection with the Catalog Products so long as the fees and
prices charged for such products or services, when related to or provided in
connection with Catalog Products, are established in good faith without
intention to reduce Net Revenues arising from Catalog Products and documented
for purposes of audit pursuant to Section 3.3.
ARTICLE II
LICENSE
2.1 License Grant. On and subject to the terms and conditions of this
Agreement, Licensor grants during the Term of this Agreement to Licensee, and
Licensee accepts, a ** , ** (subject to the rights of Licensee under Section
2.2), ** (subject to ** of Licensor under Section 2.3) license to distribute the
Catalog Products, but in all instances excluding any right to the names
"ModaFINITY," "ModaCATALOG," "Moda" or "ModaCAD" (the "CP License").
2.2 Right to Sublicense. Licensee may grant sublicenses of its rights under
the CP License, including sublicenses to end-users through Licensee's
distributors, provided that Licensee's right to grant sublicenses under the CP
License shall be subject to the limitations that (i) any sublicense granted by
Licensee shall contain, and Licensee shall ensure that any sublicense effected
through any distributor or representative contains, Licensor's current warranty
and license terms to the extent not inconsistent with Licensee's standard
software warranty and license terms in regard to the Catalog Products then in
effect (as notified to Licensee in writing by Licensor); and (ii) Licensee shall
include and cause to be included in each sublicense of the Catalog Products an
exclusion and limitation of Licensee's warranty obligation in regard to the
Catalog Products not less favorable to Licensee than Licensor's standard
warranty terms in regard to the Catalog Products as then in effect (as notified
to Licensee in writing by Licensor), unless such exclusion and limitation shall
in a particular instance contravene mandatory applicable law governing
Licensee's sublicense, in which instance such sublicense shall provide for
similar exclusions and limitations to the extent permissible by such law;
- -------------------------------
**The material deleted has been omitted pursuant to a request for confidential
treatment pursuant to Rule 24b-2 promulgated under the Securities Exchange Act
of 1934, as amended, and has been filed separately with the Commission.
<PAGE>
2.3 Licensor's Retained Rights and Exclusion. Licensee acknowledges and
agrees that Licensor has and shall retain ownership of all right, title and
interest throughout the world in and to the Catalog Products, including without
limitation all Intellectual Property rights in or related thereto. Without
limitation of the immediately preceding sentence, Licensee acknowledges and
agrees that Licensor expressly retains, and the CP License shall not limit or
restrict, the right of Licensor to design, develop, market, publish, reproduce,
distribute, sell, license and sub-license, support, transfer and exploit to the
fullest extent possible by any means whether now known or hereafter devised,
without any obligation to Licensee, the Catalog Products and the Intellectual
Property therein, including any enhancements, derivatives, adaptions and
upgrades of the Catalog Products hereafter developed or invented by or for
Licensor, subject only to the provisions of Section 6.05 of the Basic Agreement.
The definition of Lectra Exclusive Markets is intended by Licensor and Licensee
not to include, and shall not be construed to include, the Catalog Products;
provided, however, that, without limitation of any other provision of this
Agreement, Licensor shall not license, sub-license or transfer the Catalog
Products to any company which competes with Lectra in the Lectra Exclusive
Markets, including without limitation any "Lectra Competitor" as defined in the
Basic Agreement.
ARTICLE III
ROYALTY
3.1 Royalties. During the period beginning with the ** through the close of
business ** (the "Royalty Period"), Licensee shall pay to Licensee on a
quarterly basis royalties ("Royalties") in an amount equal to ** percent ( ** )
of all Licensee's Net Revenues for the applicable calendar quarter, without
set-off except as permitted by the Basic Agreement. Quarterly payments of
Royalties, together with supporting documentation setting forth in reasonable
detail the basis for and calculation of the amount of Royalties due, shall be
delivered to Licensee on or before the thirtieth (30th) calendar day following
the completion of each calendar quarter during the Royalty Period. Following
payment of the Royalties due for the final calendar quarter of the Royalty
Period, and provided that Licensee is in compliance with the terms of this
Agreement, the CP License shall fully-paid and no further Royalties shall be
due.
3.2 Mode of Payment. Licensee shall make all payments required under this
Agreement in United States Dollars. The royalty payments due on Net Revenues
realized outside the United States shall be translated at the average rate of
exchange at which United States Dollars are listed in the Wall Street Journal
for the currency of the country in which the revenue was received for the
calendar quarter in which such revenue was realized. All transfers of money due
under this Article to Licensor shall be made by wire transfer of immediately
available funds to a bank account of Licensor designated from time to time by
Licensor in accordance with Section 9.2.
3.3 Inspection and Audit. Licensee shall keep, and shall cause each member
of the Lectra Group to keep, full, true and accurate books of accounts and other
records containing all particulars which may be necessary to properly ascertain
and verify the Royalties payable by it pursuant to this Agreement. Upon
Licensee's written request, Licensee shall permit Licensor to examine at
reasonable times during regular business hours, but no more than once in any
six-month period, such records as may be necessary to determine the accuracy of
any report with respect to, or payment made of, Royalties. In addition, Licensor
- -------------------------------
**The material deleted has been omitted pursuant to a request for confidential
treatment pursuant to Rule 24b-2 promulgated under the Securities Exchange Act
of 1934, as amended, and has been filed separately with the Commission.
<PAGE>
shall have the right, at its own expense and no more that once each calendar
year, to have Licensee's records relating to Royalties, and the basis of
calculation thereof, for the prior calendar year reviewed by an independent
auditor reasonably acceptable to Licensee. Such auditor examining books and
records hereunder shall not disclose to Licensor any information relating to the
business of Licensee except that which should properly have been disclosed in
any report required with respect to Royalties. The basis for any determination
of such accountant shall be made available for review and comment by Licensee
and reconsidered if Licensee so requests, and if Licensee and Licensor still do
not agree as to the determination of Royalties a further determination shall be
made by another nationally recognized independent certified public accountant
selected by Licensor from among three proposed by Licensee (none of whom shall
have rendered services to the Lectra Group or Licensor within the three year
period prior thereto) and such accountant shall make a final determination of
the amount of Royalties at issue. Such final determination shall be binding upon
Licensor and Licensee. Licensor shall bear the cost of such accountant unless it
is finally determined that Licensee underpaid the Royalties due hereunder by
more than ** , in which case Licensee shall bear the cost of such
accountant.
ARTICLE IV
LICENSEE'S COVENANTS AND OTHER GENERAL PROVISIONS
4.1 Export/import Licenses. Licensee shall comply and shall require all
sublicensees and distributors to comply with all then-current applicable laws,
rules and regulations relating to the import and export of technology, software
and technical data, including, but not limited to, any regulations of the United
States Office of Export Administration and other applicable governmental
agencies, and shall not export or re-export any Catalog Products to any
proscribed country listed in such applicable laws, regulations and rules unless
properly authorized. To Licensor's knowledge, except as set forth on Schedule
4.1 hereto, there are no laws, rules or regulations restricting the export or
re-export of the Catalog Products.
4.2 No Right to Challenge. To the extent permitted by law, Licensee agrees
that neither it nor any Affiliate or sublicensee will take any action to attack
the title to or validity of the Intellectual Property rights which make up the
Catalog Products, including without limitation, by challenging or opposing
Licensor's applications or registrations therefor. Licensee agrees to use and
cause to be used the proper copyright and patent notices required by Licensor in
connection with the use of the Catalog Products.
4.3 Licensee Indemnification. Licensee shall indemnify, defend and hold
harmless Licensor, its affiliates and their respective directors, stockholders,
officers, and employees from and against any and all claims, demands, actions,
suits, losses, damages, judgments, costs and expenses (including reasonable
attorneys' fees) arising out of (i) any breach of Licensee's representations,
warranties or covenants contained in this Agreement and (ii) claims by third
parties arising from the distribution or sale by Licensee, its Affiliates and
their sublicensees after the date hereof of Catalog Products, other than those
claims that, if proven, would constitute a breach of Licensor's warranties or
its covenants set forth in this Agreement or in the Basic Agreement.
- -------------------------------
**The material deleted has been omitted pursuant to a request for confidential
treatment pursuant to Rule 24b-2 promulgated under the Securities Exchange Act
of 1934, as amended, and has been filed separately with the Commission.
<PAGE>
ARTICLE V
LICENSOR'S COVENANTS AND OTHER PROVISIONS
5.1 No Representations and Warranties. Nothing contained in this Agreement
shall be construed as a representation or warranty by Licensor as to the scope,
validity or enforceability or lack of defects or errors as to the Catalog
Products, any representations as to the Catalog Products being set forth in the
Basic Agreement. The foregoing shall not in any way limit Licensor's
representations or warranties set forth in the Basic Agreement.
5.2 Licensor Indemnification. Licensor shall indemnify, defend and hold
harmless Licensee, its Affiliates and their permitted sublicensees, and their
respective directors, stockholders, officers, and employees from and against any
and all claims, demands, actions, suits, losses, damages, judgments, costs and
expenses (including reasonable attorneys' fees) arising out of any breach of
Licensor's representations and warranties or its covenants contained in this
Agreement or any claim that the Catalog Products infringe the rights of third
parties, excluding from such indemnity claims of infringement based on any
modifications made to, or trademarks added to, the Catalog Products by Licensee.
ARTICLE VI
PROTECTION AND MAINTENANCE OF RIGHTS
6.1 Infringement. (a) Each party will promptly notify the other party in
writing if it knows or has reason to know that the Catalog Products are being
infringed by a third party. If such alleged infringement has or is occurring,
then within sixty days of such notice Licensor will either (i) elect to
prosecute such alleged infringement, or (ii) decline to prosecute such alleged
infringement. In the event that Licensor elects to prosecute an infringement,
Licensor will have the exclusive right to prosecute the infringement and to
bring action under its direction and control. Licensee shall reasonably assist
Licensor in such action if so requested at Licensor's expense, and shall lend
its name to such action if requested by Licensor or required by law. All costs
and expenses incurred in an action brought by Licensor shall be borne by
Licensor, and all recoveries in such an action shall be for the benefit of
Licensor. In the event that Licensor elects not to prosecute an infringement,
Licensee may prosecute the infringement, and Licensor shall expressly consent
thereto. Licensor shall reasonably assist Licensee in such action if so
requested at Licensee's expense, and shall lend its name to such action if
requested by Licensee or required by law. Licensee shall bear all costs and
expenses incurred in connection with such prosecution and shall be entitled to
all recoveries in such action.
(b) Each party will promptly notify the other party in writing if it knows
or has reason to believe that the Catalog Products are infringing rights of a
third party.
<PAGE>
ARTICLE VII
TERM AND TERMINATION
7.1 Term. ** the CP License shall remain in effect indefinitely unless
terminated pursuant to the terms of 7.2 hereof.
7.2 Termination. This Agreement may be terminated:
(a) by Licensor if Licensee fails to pay the Royalty due hereunder and
Licensee has failed to remedy such breach within ten (10) days after
written notice thereof is given by the Licensor; or
(b) (i) by Licensor immediately in the event that during the Royalty
Period (A) Licensee shall be the subject of a voluntary or involuntary
bankruptcy proceeding, or any other proceeding under any reorganization,
arrangement, adjustment of debt, relief of debtors, dissolution, insolvency
or liquidation or similar law of any jurisdiction whether now or hereafter
in effect; (B) a custodian or receiver shall be appointed for, or take
charge of, all or any substantial part of the property of Licensee; or
(C) Licensee shall make a general assignment for the benefit of creditors,
shall fail to pay, or be unable to pay its debts generally as they become
due, shall call a meeting of its creditors with a view to arranging a
composition or adjustment of its debts, shall by any act or failure to act
indicate its consent to, approval of or acquiescence in any of the
foregoing, or take any corporate action for the purpose of effecting any of
the foregoing.
(ii) by Licensee immediately in the event that (A) Licensor shall
be the subject of a voluntary or involuntary bankruptcy proceeding, or
any other proceeding under any reorganization, arrangement, adjustment
of debt, relief of debtors, dissolution, insolvency or liquidation or
similar law of any jurisdiction whether now or hereafter in effect;
(B) a custodian or receiver shall be appointed for, or take charge of,
all or any substantial part of the property of Licensor; or (C)
Licensor shall make a general assignment for the benefit of creditors,
shall fail to pay, or be unable to pay its debts generally as they
become due, shall call a meeting of its creditors with a view to
arranging a composition or adjustment of its debts, shall by any act
or failure to act indicate its consent to, approval of or acquiescence
in any of the foregoing, or take any corporate action for the purpose
of effecting any of the foregoing.
7.3 Certain Rights Upon Termination. Upon the termination of this Agreement
pursuant to Section 7.2 each party shall forthwith return to the other all
materials of the other party held by it constituting or including Confidential
Information of the other which relates solely to the Catalog Products and does
not relate in any manner to the Assets (as defined in the Basic Agreement) or
the ModaCAD CAD Core Technology; provided, however, that if Licensee terminates
this Agreement after the Royalty Period, it may retain and continue to use the
Confidential Information (including without limitation the source code and
documentation of the Catalog Products). Notwithstanding the immediately
preceding sentence, the termination for any reason of this Agreement will not
- -------------------------------
**The material deleted has been omitted pursuant to a request for confidential
treatment pursuant to Rule 24b-2 promulgated under the Securities Exchange Act
of 1934, as amended, and has been filed separately with the Commission.
<PAGE>
relieve Licensee from its obligation to pay to Licensor any and all Royalties or
other amounts due under this Agreement for any period through the date of such
termination, nor affect any rights or remedies any party may have resulting from
any breach of this Agreement by the other prior to such termination.
7.4 Effect of Termination. The provisions of Section 2.3 shall survive the
termination of this Agreement Except as otherwise set forth in the surviving
sections, upon the termination of this Agreement, the parties shall have no
further rights or obligations under this Agreement.
ARTICLE VIII
APPLICABLE LAW
8.1 Applicable Law. This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of New York, United States of
America.
8.2 Dispute Resolution. The dispute resolution provisions of Section 8.07
of the Basic Agreement are incorporated herein by reference in their entirely.
8.3 Injunction. Notwithstanding the foregoing, each party acknowledges and
agrees that the other party would suffer irreparable harm as a result of any
breach by such party of this Agreement and that damages at law would not be an
adequate or proper remedy and therefore, in addition to any damages and other
remedies that the non-breaching party may be entitled to at law or in equity as
a result of such breach, the non-breaching party and its successors or assigns,
shall be entitled to seek in any court of competent jurisdiction and obtain a
temporary or permanent injunction or other order restraining the breaching
party, its Affiliates their sublicensees and any of their officers, directors,
employees, and agents from breaching or continuing to breach any provision of
this Agreement.
ARTICLE IX
GENERAL PROVISIONS
9.1 Assignment. This Agreement shall be binding on the parties and their
successors and permitted assigns (if any). Neither Licensor nor Licensee may
assign any of their respective rights or obligations under this Agreement
without the prior written consent of the other party thereto, which consent
shall not be unreasonably withheld; provided, however, that Licensee may,
without Licensor's consent, assign this Agreement or any of its rights or
obligations hereunder to any member of the "Lectra Group" (as such term is
defined in the Basic Agreement) or in connection with the sale of substantially
all the "Assets" (as defined in the Basic Agreement), and provided further that
any transfer or transfers of shares of Licensor shall not constitute an
assignment of this Agreement.
<PAGE>
9.2 Notices. All notices, requests, demands and other communications under
this Agreement shall be in writing and shall be deemed to have been duly given
if given in accordance with the terms of Section 10.07 of the Basic Agreement.
9.3 Waiver and Modification. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification, or discharge is
agreed to in writing and signed by the party to be charged. No waiver or failure
to insist upon strict compliance with any provisions hereof shall be deemed a
waiver of any other or further breach of or noncompliance with any provision
hereof. A failure of either party hereto to insist upon strict compliance by the
other party with any provision of this Agreement shall not be deemed a waiver of
such provision.
9.4 Independent Contractor. The parties hereby agree that no agency, joint
venture or partnership is created by this Agreement. The legal relationship of
any person or entity performing services for Licensee shall be one solely
between such parties. Neither party shall incur any obligation in the name of
the other party without the prior written consent of that party.
9.5 Severability. If any term or provision of this Agreement or the
application thereof to any person or circumstances shall, to any extent, be
invalid or unenforceable, the remainder of this Agreement, or the application of
such term or provision to persons or circumstances other than those as to which
it is held invalid or unenforceable, shall not be affected thereby, and each
term and provision of this Agreement shall be valid and be enforced to the
fullest extent permitted by law.
9.6 Entire Agreement. This Agreement, the Core Technology License
Agreement, the "Warrant" (as defined in the Basic Agreement) and the Basic
Agreement contain the entire agreement between the parties with respect to the
subject matter hereof, and supersede any and all other previous agreements
between the parties with respect to the subject matter hereof, including without
limitation that certain letter of intent effective as of December 31, 1998,
between Lectra Systemes S.A. and Licensor.
9.7 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original but all of which together shall
constitute one and the same instrument.
9.8 Headings. The paragraph headings used in this Agreement are included
herein for convenience of reference only and shall not constitute a part of this
Agreement for any purpose or in any way affect the construction of this
Agreement.
9.9 No Adverse Construction. The parties acknowledge that each participated
in drafting this Agreement, and agree that there shall be no presumption against
any party on the ground that such party was responsible for preparing this
Agreement or any part thereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their duly authorized representatives as of the date
first above written.
LECTRA SYSTEMS, INC. MODACAD, INC.
By: By:
Name: Name:
Title: Title:
<PAGE>
Exhibit 2.05
Core Technology
License Agreement
<PAGE>
CORE TECHNOLOGY LICENSE AGREEMENT
THIS AGREEMENT is entered into this 3rd day of March, 1999, and made
effective as of December 31, 1998 (the "Effective Date"), by and between
ModaCAD, Inc., a California corporation ("Licensor"), and Lectra Systems, Inc.,
a New York corporation ("Licensee").
RECITALS:
A. Pursuant to the Agreement dated this date and made effective as of the
Effective Date between Licensee and Licensor (the "Basic Agreement") Licensee
has simultaneously herewith purchased from Licensor the "Assets" (as defined in
the Basic Agreement) and Licensor has agreed to grant to Licensee a license (as
hereinafter defined, the "Core Technology License") of the "ModaCAD CAD Core
Technology" (as hereinafter defined).
B. Licensor and Licensee desire to set forth in this Agreement the terms
and conditions of the Core Technology License and their rights and obligations
in connection therewith.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally bound
hereby, Licensor and Licensee hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Affiliate. "Affiliate" has the definition thereof set forth in the
Basic Agreement.
1.2 ModaCAD CAD Products. "ModaCAD CAD Products" has the definition thereof
set forth in the Basic Agreement.
1.3 Catalog Products. "Catalog Products" has the definition thereof set
forth in that certain Catalog Products License Agreement, entered into as of the
date hereof, between Licensor and Licensee.
1.4 Confidential Information. "Confidential Information" shall have the
definition thereof set forth in the Basic Agreement.
1.5 Core Technology License. "Core Technology License" shall have the
meaning set forth in Section 2.1 below.
1.6 Intellectual Property. "Intellectual Property" has the definition
thereof set forth in the Basic Agreement.
<PAGE>
1.7 Lectra Core Technology Enhancements. "Lectra Core Technology
Enhancements" shall mean future enhancements made by Lectra of the ModaCAD CAD
Core Technology.
1.8 Lectra Group. "Lectra Group" means Licensee and Lectra Systemes SA, the
parent of Licensee, and their respective Affiliates.
1.9 Lectra Products. "Lectra Products" means the ModaCAD CAD Products and
Catalog Products, as in existence on the Effective Date and including any
enhancements, derivatives, adaptions and upgrades of the ModaCAD CAD Products
hereafter invented or created by or for Licensee as well as any other products
of the Lectra Group in development or use on or after the Effective Date.
1.10 ModaCAD CAD Core Technology. "ModaCAD CAD Core Technology" means
ModaCAD CAD Core Technology as defined in the Basic Agreement, together with all
ModaCAD CAD Core Technology Enhancements developed during the Enhancement
License Period (as defined in Section 3.2 hereof) or as may be licensed
thereafter to Licensee pursuant to Section 3.3.
1.11 ModaCAD CAD Core Technology Enhancements. "ModaCAD CAD Core Technology
Enhancements" means future updates of and enhancements to the ModaCAD CAD Core
Technology developed by or for Licensor.
1.11 ModaCAD Markets. "ModaCAD Markets" has the definition thereof set
forth in the Basic Agreement.
ARTICLE II
LICENSE OF MODACAD CAD CORE TECHNOLOGY
2.1 License Grant. On and subject to the terms and conditions of this
Agreement, Licensor grants to Licensee, and Licensee accepts, a ** (subject to
the rights of Licensee in Section 2.3 hereof), irrevocable, ** (subject to the
rights of Licensee under Section 2.2. hereof) license of the ModaCAD CAD Core
Technology solely for use in Lectra Products, which license shall be ** as to
the Lectra Exclusive Markets (as defined in the Basic Agreement) and ** as to
the Lectra Markets (as defined in the Basic Agreement) which are not Lectra
Exclusive Markets, but in all instances ** any right or license to any
trademarks, tradenames or service marks Licensor has used, or may in the future
use, with respect to the ModaCAD CAD Core Technology or any application or part
thereof (the "Core Technology License").
2.2 Right to Sublicense. Licensee may grant sublicenses of its rights under
the Core Technology License, including sublicenses to end-users through
Licensee's distributors.
2.3 Licensor's Retained Rights. Licensee acknowledges and agrees that
Licensor has and shall retain ownership of all right, title and interest
throughout the world in and to the ModaCAD CAD Core Technology (whether or not
incorporated in the Catalog Products or the ModaCAD CAD Products), including
without limitation all Intellectual Property rights in and to the ModaCAD Core
- -------------------------------
**The material deleted has been omitted pursuant to a request for confidential
treatment pursuant to Rule 24b-2 promulgated under the Securities Exchange Act
of 1934, as amended, and has been filed separately with the Commission.
<PAGE>
Technology. Without limitation of the immediately preceding sentence, Licensee
acknowledges and agrees that Licensor expressly retains, and the Core Technology
License shall not limit or restrict, the right of Licensor throughout the world
to design, develop, market, publish, reproduce, distribute, sell, license and
sub-license, support, transfer and exploit to the fullest extent possible by any
means whether now known or hereafter devised, without any obligation to
Licensee, the ModaCAD CAD Core Technology and the Intellectual Property therein,
including any enhancements, derivatives, adaptions and upgrades of the ModaCAD
CAD Core Technology hereafter developed or invented by or for Licensor, subject
only to the provisions of Section 6.05 of the Basic Agreement. Notwithstanding
anything herein to the contrary, Licensor shall have no rights to market,
publish, reproduce, distribute, sell, license or sublicense support, transfer or
exploit the ModaCAD CAD Core Technology in the Lectra Exclusive Markets.
ARTICLE III
LICENSE OF MODACAD CAD CORE TECHNOLOGY ENHANCEMENTS
3.1 Enhancements. The entire right and title in any and all ModaCAD CAD
Core Technology Enhancements shall be owned solely by Licensor. The entire right
and title in any and all Lectra Core Technology Enhancements shall be owned
solely by Licensee.
3.2 License Rights to Certain Enhancements. During the period beginning
with the Effective Date through the close of business ** (the "Enhancements
License Period"), Licensor shall (i) keep Licensee informed on a frequent basis,
through at least quarterly reviews of Licensor's research and development
projects, if any, relating to ModaCAD CAD Core Technology Enhancements in order
for Licensee to incorporate such enhancements in Licensee's products on a timely
basis; (ii) provide Licensee with sufficient information in order for Licensee
to plan the incorporation of such enhancements in Lectra Products and notify
Licensee promptly (and in any event before announcement of release to the
public) of all ModaCAD CAD Core Technology Enhancements constituting an upgrade
version to be embodied in software products released to the public during such
period; and (iii) deliver updated source code and documentation in respect
thereof as and when completed, provided that in no event shall Licensor have any
obligation whatsoever to develop any ModaCAD CAD Core Technology Enhancements.
Licensor shall notify Licensee within 30 days after the end of each quarter
during the Enhancements License Period of all ModaCAD CAD Core Technology
Enhancements, if any, developed during the previous quarter which do not
constitute an upgrade version, and together with such notification, deliver
updated source code and documentation.
3.3 Future Negotiations. Licensor shall, not less frequently than
quarterly, notify Licensee of each ModaCAD CAD Core Technology Enhancement (if
any) developed within ** after the Enhancements License Period. If Licensee
desires to obtain any rights of use in and to any such ModaCAD CAD Core
Technology Enhancements after expiration of the Enhancements License Period,
Licensee shall so notify Licensor within thirty (30) days after receiving notice
of such enhancement, and Licensor and Licensee shall commence good faith
negotiations with respect to whether, and if so, the terms and conditions on
which, the rights to any such ModaCAD CAD Core Technology Enhancement developed
- -------------------------------
**The material deleted has been omitted pursuant to a request for confidential
treatment pursuant to Rule 24b-2 promulgated under the Securities Exchange Act
of 1934, as amended, and has been filed separately with the Commission.
<PAGE>
by or for Licensor after the Enhancements License Period may be licensed to
Licensee; provided, that Licensor shall have no obligation whatsoever to develop
any ModaCAD CAD Core Technology Enhancements. Licensor shall not enter into any
agreement which would preclude Licensor from licensing such ModaCAD CAD Core
Technology Enhancements to Licensee in accordance with the provisions of this
Section 3.3. The parties agree to negotiate in good faith for a period of three
months from the date Licensee notifies Licensor that it desires to obtain a
license to such ModaCAD CAD Core Technology. In the event that the parties do
not reach an agreement within such three-month period, the Licensor will have
the exclusive right to use and to license to others, exclusively or otherwise
but not on terms materially more favorably to such licensee than the terms
offered to Licensee, such ModaCAD CAD Core Technology Enhancement, subject only
to Section 6.05 of the Basic Agreement and the last sentence of Section 2.3 of
this Agreement.
ARTICLE IV
LICENSEE'S COVENANTS AND OTHER GENERAL PROVISIONS
4.1 Export/import Licenses. Licensee shall comply and shall require all of
its sublicensees and distributors to comply with all then-current applicable
laws, rules and regulations relating to the import and export of technology,
software and technical data, including, but not limited to, any regulations of
the United States Office of Export Administration and other applicable
governmental agencies, and shall not export or re-export any ModaCAD CAD Core
Technology or ModaCAD CAD CAD Core Technology Enhancements or the direct product
of such technology, software, technical data to any proscribed country listed in
such applicable laws, regulations and rules unless properly authorized. To
Licensor's knowledge, except as set forth on Schedule 4.1 hereto, there are no
laws, rules or regulations restricting the export or re-export of the ModaCAD
CAD Core Technology and/or the ModaCAD CAD Core Technology Enhancements.
4.2 No Right to Challenge. To the extent permitted by law, Licensee agrees
that neither it nor any Affiliate or sublicensee will take any action to attack
the title to or validity of the Intellectual Property rights which make up the
Licensed Core Technology, including without limitation, by challenging or
opposing Licensor's applications or registrations therefor. Licensee agrees to
use and cause to be used the proper copyright and patent notices required by
Licensor in connection with the use of the ModaCAD CAD Core Technology.
4.3 Licensee Indemnification. Licensee shall indemnify, defend and hold
harmless Licensor, its affiliates and their respective directors, stockholders,
officers, and employees from and against any and all claims, demands, actions,
suits, losses, damages, judgments, costs and expenses (including reasonable
attorneys' fees) arising out of (i) any breach of Licensee's representations,
warranties or covenants contained in this Agreement and (ii) claims by third
parties arising from the manufacture, distribution or sale by Licensee, its
Affiliates and their sublicensees after the date hereof of products or services
utilizing the ModaCAD CAD Core Technology, other than those claims that, if
proven, would constitute a breach of Licensor's warranties or its covenants set
forth in this Agreement or in the Basic Agreement.
<PAGE>
ARTICLE V
LICENSOR'S COVENANTS AND OTHER PROVISIONS
5.1 No Representations and Warranties. Nothing contained in this Agreement
shall be construed as a representation or warranty by Licensor as to the scope,
validity or enforceability or lack of defects or errors as to the ModaCAD CAD
Core Technology, any representations as to the ModaCAD CAD Core Technology being
set forth in the Basic Agreement. The foregoing shall not in any way limit
Licensor's representations or warranties set forth in the Basic Agreement.
5.2 Error Correction. Notwithstanding the foregoing, if, during the
Enhancements License Period or a period of two years thereafter, Licensee (i)
notifies Licensor of errors in content or technical defects in the program code
of the ModaCAD CAD Core Technology or the ModaCAD CAD Core Technology
Enhancements, which errors or defects impair the proper functioning of the
ModaCAD CAD Core Technology or the ModaCAD CAD Core Technology Enhancements but
do not result directly or indirectly from Licensee's modifications of, or
integration into other products of, the ModaCAD CAD Core Technology, and (ii)
provides with such notice all relevant information Licensee has in regard to the
error or defect disclosed in that notice, then Licensor shall use reasonable
commercial efforts to repair or remedy (by additional code or otherwise in
Licensor's discretion) such errors or defects within a reasonable time after
such notice at Licensor's expense.
5.3 Licensor Indemnification. Licensor shall indemnify, defend and hold
harmless Licensee, its Affiliates and their permitted sublicensees, and their
respective directors, stockholders, officers, and employees from and against any
and all claims, demands, actions, suits, losses, damages, judgments, costs and
expenses (including reasonable attorneys' fees) arising out of any breach of
Licensor's representations and warranties or its covenants contained in this
Agreement or any claim that ModaCAD CAD Core Technology and/or ModaCAD CAD Core
Technology Enhancements infringe the rights of third parties, excluding from
such indemnity claims of infringement based on any modifications made to, or
trademarks added to, the ModaCAD CAD Core Technology by Licensee.
ARTICLE VI
PROTECTION AND MAINTENANCE OF RIGHTS
6.1 Infringement. (a) Each party will promptly notify the other party in
writing if it knows or has reason to know that the ModaCAD CAD Core Technology
or ModaCAD CAD Core Technology Enhancements are being infringed by a third
party. If such alleged infringement has or is occurring, then within sixty days
of such notice Licensor will either (i) elect to prosecute such alleged
infringement, or (ii) decline to prosecute such alleged infringement. In the
event that Licensor elects to prosecute an infringement, Licensor will have the
exclusive right to prosecute the infringement and to bring action under its
direction and control. Licensee shall reasonably assist Licensor in such action
if so requested at Licensor's expense, and shall lend its name to such action if
requested by Licensor or required by law. All costs and expenses incurred in an
action brought by Licensor shall be borne by Licensor, and all recoveries in
such an action shall be for the benefit of Licensor. In the event that Licensor
<PAGE>
elects not to prosecute an infringement, Licensee may prosecute the
infringement, and Licensor shall expressly consent thereto. Licensor shall
reasonably assist Licensee in such action if so requested at Licensee's expense,
and shall lend its name to such action if requested by Licensee or required by
law. Licensee shall bear all costs and expenses incurred in connection with such
prosecution and shall be entitled to all recoveries in such action.
(b) Each party will promptly notify the other party in writing if it
knows or has reason to believe that the ModaCAD CAD Core Technology or
ModaCAD CAD Core Technology Enhancements are infringing rights of a third
party.
ARTICLE VII
TERM AND TERMINATION
7.1 Term. ** the Core Technology License shall remain in effect
indefinitely.
ARTICLE VIII
APPLICABLE LAW
8.1 Applicable Law. This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of New York, United States of
America.
8.2 Dispute Resolution. The dispute resolution provisions of Section 8.07
of the Basic Agreement are incorporated herein by reference in their entirely.
8.3 Injunction. Notwithstanding the foregoing, each party acknowledges and
agrees that the other party would suffer irreparable harm as a result of any
breach by such party of this Agreement and that damages at law would not be an
adequate or proper remedy and therefore, in addition to any damages and other
remedies that the non-breaching party may be entitled to at law or in equity as
a result of such breach, the non-breaching party and its successors or assigns,
shall be entitled to seek in any court of competent jurisdiction and obtain a
temporary or permanent injunction or other order restraining the breaching
party, its Affiliates their sublicensees and any of their officers, directors,
employees, and agents from breaching or continuing to breach any provision of
this Agreement.
ARTICLE IX
GENERAL PROVISIONS
9.1 Assignment. This Agreement shall be binding on the parties and their
successors and permitted assigns (if any). Neither Licensor nor Licensee may
assign any of their respective rights or obligations under this Agreement
without the prior written consent of the other party hereto, which consent shall
not be unreasonably withheld; provided, however, that Licensee may, without
Licensor's consent, assign this Agreement or any of its rights or obligations
- -------------------------------
**The material deleted has been omitted pursuant to a request for confidential
treatment pursuant to Rule 24b-2 promulgated under the Securities Exchange Act
of 1934, as amended, and has been filed separately with the Commission.
<PAGE>
hereunder to any member of the Lectra Group (as such term is defined in the
Basic Agreement) or in connection with the sale of substantially all the Assets
(as defined in the Basic Agreement); and provided, further, that any transfer or
transfers of shares of Licensor shall not constitute an assignment of this
Agreement. Nothing herein shall prevent Licensee or any member of the Lectra
Group from including, without Licensor's consent, the ModaCAD CAD Core
Technology in any Lectra Product.
9.2 Notices. All notices, requests, demands and other communications under
this Agreement shall be in writing and shall be deemed to have been duly given
if given in accordance with the terms of Section 10.07 of the Basic Agreement.
9.3 Waiver and Modification. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification, or discharge is
agreed to in writing and signed by the party to be charged. No waiver or failure
to insist upon strict compliance with any provisions hereof shall be deemed a
waiver of any other or further breach of or noncompliance with any provision
hereof. A failure of either party hereto to insist upon strict compliance by the
other party with any provision of this Agreement shall not be deemed a waiver of
such provision.
9.4 Independent Contractor. The parties hereby agree that no agency, joint
venture or partnership is created by this Agreement. The legal relationship of
any person or entity performing services for Licensee shall be one solely
between such parties. Neither party shall incur any obligation in the name of
the other party without the prior written consent of that party.
9.5 Severability. If any term or provision of this Agreement or the
application thereof to any person or circumstances shall, to any extent, be
invalid or unenforceable, the remainder of this Agreement, or the application of
such term or provision to persons or circumstances other than those as to which
it is held invalid or unenforceable, shall not be affected thereby, and each
term and provision of this Agreement shall be valid and be enforced to the
fullest extent permitted by law.
9.6 Entire Agreement. This Agreement, the Catalog Products License
Agreement, the Warrant (as defined in the Basic Agreement) and the Basic
Agreement contain the entire agreement between the parties with respect to the
subject matter hereof, and supersede any and all other previous agreements
between the parties with respect to the subject matter hereof, including without
limitation that certain letter of intent effective as of December 31, 1998,
between Lectra Systemes S.A. and Licensor.
9.7 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original but all of which together shall
constitute one and the same instrument.
9.8 Headings. The paragraph headings used in this Agreement are included
herein for convenience of reference only and shall not constitute a part of this
Agreement for any purpose or in any way affect the construction of this
Agreement.
<PAGE>
9.9 No Adverse Construction. The parties acknowledge that each participated
in drafting this Agreement, and agree that there shall be no presumption against
any party on the ground that such party was responsible for preparing this
Agreement or any part thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their duly authorized representatives as of the date
first above written.
LECTRA SYSTEMS, INC. MODACAD, INC.
By: By:
Name: Name:
Title: Title:
<PAGE>
Exhibit 6.02
Seller's Standard
Employee Confidentiality and
Invention Assignment Agreement
<PAGE>
AMENDED AND RESTATED
EMPLOYEE CONFIDENTIALITY AND INVENTION ASSIGNMENT
AGREEMENT
In consideration of my employment by ModaCAD Inc. (ModaCAD), and as a condition
of such employment and any compensation paid therefore:
1. CONFIDENTIALITY
I understand certain information relating to the business, products, processes,
or developments of ModaCAD, its parent, subsidiaries, vendors or customers, is
considered by such persons or organizations to be confidential or proprietary. I
will maintain in confidence for ModaCAD and its parent and subsidiaries all such
information that is identified as confidential at the time of this disclosure to
me or that is developed or acquired by me under circumstances that may be
reasonably interpreted as imposing an obligation of confidentiality. I will not
disclose such information to anyone outside the employ of ModaCAD or its parent
and subsidiaries, nor use such information in any activity outside the business
of ModaCAD without the prior written consent of ModaCAD. The confidentiality
shall be maintained by me during my full time of employment with ModaCAD and for
a period of three years after my employment by ModaCAD ends. My obligations of
confidentiality and non-disclosure under this Agreement shall extend to and
include any information which may be disclosed to me relating to the business
operations and products of Lectra Systemes SA, Lectra Systems Inc. and their
affiliates (collectively, the "Lectra Group") in connection with my services as
a member of the Support Team (the "Support Team") provided to the Lectra Group
pursuant to Section 6.01 of that certain Agreement dated as of March 3, 1999, by
and between ModaCAD and Lectra Systems Inc. All references herein to
"confidential information" are deemed to include information relating to the
Lectra Group, and all references herein to my employment with ModaCAD are deemed
to include services provided by me as a member of the Support Team.
2. CONFIDENTIAL INFORMATION OF OTHERS
I will not disclose to ModaCAD nor induce ModaCAD to use any confidential
information received from another under an agreement or understanding
prohibiting such use or disclosure. I have disclosed to ModaCAD the terms of any
agreements to which I am or have been a party regarding such information of
others. I understand that my employment by ModaCAD will not require me to breach
any such agreements.
3. DISCLOSURE AND ASSIGNMENTS OF INVENTIONS AND IMPROVEMENTS
I will disclose promptly to ModaCAD all inventions or improvements, whether
considered by me patentable or not, that are made or conceived by me, alone or
jointly with others, during my employment with ModaCAD or within six months
after my employment by ModaCAD ends, that:
a) relate to the business of ModaCAD or to the actual demonstrably
anticipated research or development of ModaCAD; or
b) result form any work performed by me for ModaCAD; or
c) result from any use by me of any equipment, supplies, facilities, or
confidential information of ModaCAD.
4. DISCLOSURE OF OWNERSHIP OF WORKS OF AUTHORSHIP AND MASK WORKS
I will disclose promptly to ModaCAD all original works of authorship and mask
works produced by me, alone or jointly with others, during my employment by
ModaCAD or within six months after my employment by ModaCAD ends, that:
a) relate to the business of ModaCAD or to the actual demonstrably
anticipated research or development of ModaCAD; or
b) result from any work performed by me for ModaCAD; or
c) result from any use by me of any confidential information of ModaCAD.
I agree that all such works shall be works made for hire and the property of
ModaCAD. Upon request of ModaCAD and without further consideration, I will
provide such cooperation and assistance, during my employment and thereafter, as
may be reasonably necessary to permit ModaCAD, at its expense, to establish,
perfect, and maintain its interest in such works in the United States and
elsewhere.
5. RECORDS AND MATERIALS
Any written records that I may produce relating to any inventions or original
works of authorship made by me, alone or jointly with others, in the course of
my employment with ModaCAD, and all records and other materials, whether
prepared by me or others, relating to the confidential business, products,
processes or developments of ModaCAD, shall be and remain the property of
ModaCAD. Upon termination of my employment with ModaCAD or upon earlier request
by ModaCAD, I will deliver to ModaCAD all such records and materials, and all
copies thereof, then in my possession.
6. OUTSIDE EMPLOYMENT
During my employment at ModaCAD, I will not engage in any outside employment,
activity or occupation in direct competition with ModaCAD. In particular I will
not perform services for a competitor of ModaCAD. Furthermore, as a material
condition of ModaCAD offering me employment and my accepting employment with
ModaCAD, in the event of my termination for any reason, I agree that for a
period of one (1) year after termination I shall not accept employment with any
competitor or perform services for a competitor in any capacity such as an
independent contractor or consultant.
7. LIMITATION OF AGREEMENT
I understand that this Agreement is not an agreement of employment for any
particular period of time, and that my employment and compensation may be
terminated at any time, with or without cause, by myself or by ModaCAD. I
understand further that no manager or representative of ModaCAD, other than the
president, the executive vice president or the financial vice president has any
authority to offer me employment for any specific period of time or to make any
agreements contrary to this provision, and I acknowledge that no such offer or
agreement has been made.
8. REPLACEMENT OF OTHER AGREEMENTS
This Agreement replaces all previous agreements relating to the same or similar
matters which I may have entered into with ModaCAD or its parent or its parent's
subsidiaries. This agreement may not be modified except by written agreement
signed by an officer of ModaCAD.
UNDERSTOOD & AGREED
___________________________________ Dated:___________
___________________________________
Print Name
___________________________________
Address
<PAGE>
Exhibit 6.03(c)
Warrants to Purchase Shares
of Common Stock
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND HAVE BEEN ACQUIRED
FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATING THERETO OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO MODACAD, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.
Warrants to Purchase
Shares of Common Stock
MODACAD, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF CALIFORNIA
Void after **(or such later date
as determined in accordance with the provisions below)
No. 1
THE WARRANTS evidenced by this Warrant Certificate have been issued as of
this 3rd day of March, 1999, for good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged.
THIS CERTIFICATE evidences the right of Lectra Systems Inc. ("Lectra") to
purchase, for the Exercise Price (as defined below), during the Exercise Term
(as defined below), 250,000 shares of Common Stock (the "Shares") of ModaCAD,
Inc., a California corporation ("ModaCAD"), subject to the terms and conditions
hereinafter set forth.
1. Definitions. As used in this Certificate:
(a) "Aggregate Exercise Price" shall mean with respect to any exercise
under this Warrant Certificate the Exercise Price multiplied by the number
of shares of Common Stock as to which the Warrant Certificate is exercised,
as set forth in the Subscription Agreement.
(b) "Date of Issuance" shall mean the date set forth in the preamble
of this Warrant Certificate.
(c) "Exercise Price" shall mean ** per Share.
(d) "Exercise Term" shall mean the ** year period commencing on the
Date of Issuance and ending on ** , subject to extension as provided in
Section 2(e).
- -------------------------------
**The material deleted has been omitted pursuant to a request for confidential
treatment pursuant to Rule 24b-2 promulgated under the Securities Exchange Act
of 1934, as amended, and has been filed separately with the Commission.
<PAGE>
(e) "Subscription Agreement" shall mean the Subscription Agreement
attached hereto as Exhibit A.
(f) "Warrants" shall mean the rights evidenced by this Warrant
Certificate.
2. Exercise of Warrants.
(a) Right to Exercise. The Warrants may be exercised at any time or
from time to time during the Exercise Term.
(b) Method of Exercise. The Warrants may be exercised by Lectra during
the Exercise Term by the surrender of this Warrant Certificate at the
principal office of ModaCAD, along with the properly completed and executed
Subscription Agreement for the Exercise of Warrants indicating the election
of Lectra to effect a cash exercise, and the payment to ModaCAD by
certified or cashier's check of the Aggregate Exercise Price.
(c) "Easy Sale" Exercise. In lieu of the payment methods set forth in
Section 2(b) above, when permitted by law and applicable regulations
(including Nasdaq and NASD rules), Lectra may pay the Aggregate Exercise
Price through a "same day sale" commitment from Lectra (and if applicable a
broker-dealer that is a member of the National Association of Securities
Dealers (a "NASD Dealer")), whereby Lectra elects to exercise this Warrant
and to sell a portion of the Warrant Shares so purchased to pay for the
Aggregate Exercise Price and Lectra (or, if applicable, the NASD Dealer)
commits upon sale (or, in the case of the NASD Dealer, upon receipt) of
such Warrant Shares to forward the Aggregate Exercise Price directly to the
Company.
(d) Issuance of Share Certificate and/or New Warrant Certificate. In
the event of any exercise of the Warrants, certificates for the Shares so
purchased shall be delivered to Lectra within a reasonable time but no
later than 5 business days after the Warrants shall have been so exercised,
and unless the Warrants have expired, a new certificate representing the
right to purchase the number of Shares, if any, with respect to which this
Warrant Certificate shall not then have been exercised shall also be issued
to Lectra within such time. All such new warrant certificates shall be
dated the date hereof and shall be identical to this Warrant Certificate
except as to the number of Shares issuable pursuant thereto. ModaCAD shall
pay all documentary, stamp or other transactional taxes (other than
transfer taxes), if any, attributable to the issuance or delivery of shares
of Common Stock of ModaCAD upon exercise of the Warrants.
(e) Restrictions on Exercise. The Warrants may not be exercised if the
issuance of the Shares upon such exercise would constitute a violation of
any applicable federal or state securities laws or other laws or
regulations, in which event the Exercise Term shall be extended by the
number of days the Warrants may not be exercised. As a condition to the
exercise of the Warrants, ModaCAD may require Lectra to make such
representations and warranties to ModaCAD as may be required by applicable
law or regulation.
3. Stock Fully Paid; Reservation of Shares. ModaCAD covenants and agrees
that all Shares will, upon issuance and payment in accordance herewith, be fully
<PAGE>
paid, validly issued and nonassessable. ModaCAD further covenants and agrees
that during the Exercise Term ModaCAD will at all times have authorized and
reserved for the purpose of the issue upon exercise of the Warrants at least the
maximum number of shares of ModaCAD's Common Stock as are issuable upon the
exercise of the Warrants. ModaCAD will list, and will maintain the listing of,
the Shares and any other securities which the Holder of this Warrant shall be
entitled to receive upon the exercise of this Warrant on each securities
exchange on which such Shares or other securities are listed by ModaCAD from
time to time.
4. Adjustment of Purchase Price and Number of Shares. The number and kind
of securities purchasable upon the exercise of the Warrants and the Exercise
Price shall be subject to adjustment from time to time upon the happening of
certain events, as follows:
(a) Consolidation, Merger or Reclassification. If ModaCAD at any time
while the Warrants remain outstanding and unexpired shall consolidate with
or merge into any other corporation, or sell all or substantially all of
its assets to another corporation, or reclassify or in any manner change
the securities then purchasable upon the exercise of the Warrants (any of
which shall constitute a "Reorganization"), then lawful and adequate
provision shall be made whereby this Warrant Certificate shall thereafter
evidence the right to purchase such number and kind of securities and other
property as would have been issuable or distributable on account of such
Reorganization upon or with respect to the securities which were
purchasable under the Warrants immediately prior to the Reorganization.
ModaCAD shall not effect any such Reorganization unless prior to or
simultaneously with the consummation thereof the successor corporation (if
other than ModaCAD) resulting from such Reorganization shall assume by
written instrument executed and mailed or delivered to Lectra, at the last
address of Lectra appearing on the books of ModaCAD, the obligation to
deliver to Lectra such shares of stock, securities or assets as, in
accordance with the foregoing provisions, Lectra may be entitled to
purchase, all subject to further adjustment as provided in this Section 4.
The foregoing provisions of this Section 4(a) shall similarly apply to
successive reorganizations, consolidations, mergers, sales and transfers
and to the stock or securities of any other corporation that are at the
time receivable upon exercise of this Warrant.
(b) Subdivision or Combination of Shares. If ModaCAD at any time while
the Warrants remain outstanding and unexpired shall subdivide or combine
its Common Stock, the Exercise Price shall be adjusted to that price
determined by multiplying the Exercise Price in effect immediately prior to
such subdivision or combination by a fraction (i) the numerator of which
shall be the total number of shares of Common Stock outstanding immediately
prior to such subdivision or combination and (ii) the denominator of which
shall be the total number of shares of Common Stock outstanding immediately
after such subdivision or combination.
(c) Certain Dividends and Distributions. If ModaCAD at any time while
the Warrants are outstanding and unexpired shall take a record of the
holders of its Common Stock for the purpose of:
(i) Stock Dividends. Entitling them to receive a dividend payable
in, or other distribution without consideration of, Common Stock, then
the Exercise Price shall be adjusted to that price determined by
<PAGE>
multiplying the Exercise Price in effect immediately prior to each
dividend or distribution by a fraction (A) the numerator of which
shall be the total number of shares of Common Stock outstanding
immediately prior to such dividend or distribution, and (B) the
denominator of which shall be the total number of shares of Common
Stock outstanding immediately after such dividend or distribution;
or
(ii) Distribution of Assets, Securities, etc. Making any
distribution without consideration with respect to its Common Stock
(other than a cash dividend paid or payable solely out of retained
earnings) payable otherwise than in its Common Stock, Lectra shall,
upon the exercise of the Warrants, be entitled to receive, in addition
to the number of Shares receivable thereupon, and without payment of
any additional consideration therefor, such assets or securities as
would have been payable to it as owner of that number of Shares
receivable by exercise of the Warrants had it been the holder of
record of such Shares on the record date for such distribution, and an
appropriate provision therefor shall be made a part of any such
distribution.
(d) Adjustment of Number of Shares. Upon each adjustment in the
Exercise Price pursuant to Subsections (b) or (c) (i) of this Section 4,
the number of Shares purchasable hereunder shall be adjusted to that number
determined by multiplying the number of such Shares purchasable upon the
exercise of the Warrants immediately prior to such adjustment by a
fraction, the numerator of which shall be the Exercise Price immediately
prior to such adjustment and the denominator of which shall be the Exercise
Price immediately following such adjustment.
(e) Notice. In case at any time:
(i) ModaCAD shall pay any dividend payable in stock upon its
Common Stock or make any distribution, excluding a cash dividend
payable solely out of retained earnings, to the holders of its Common
Stock;
(ii) ModaCAD shall offer for subscription pro rata to the holders
of its Common Stock any additional shares of stock of any class or
other rights;
(iii) There shall be any reclassification of the Common Stock of
ModaCAD, or consolidation or merger of ModaCAD with, or sale of all or
substantially all of its assets to, another corporation; or
(iv) There shall be a voluntary or involuntary dissolution,
liquidation or winding up of ModaCAD;
then, in any one or more of such cases, ModaCAD shall give to Lectra at least 10
days' prior written notice (or, in the event of notice pursuant to Section 4(e)
(ii), (iii) or (iv), at least 30 days' prior written notice) of the date on
which the books of ModaCAD shall close or a record shall be taken for such
dividend, distribution or subscription rights or for determining rights to vote
in respect to any such reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up. Such notice in accordance with the
foregoing clause shall also specify, in the case of any such dividend,
distribution or subscription rights, the date on which the holders of Common
Stock shall be entitled thereto, and such notice in accordance with the
foregoing clause shall also specify the date on which the holders of Common
<PAGE>
Stock shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up, as the case may be. Each such written
notice shall be given by first-class mail, postage prepaid, addressed to Lectra
at the address of Lectra as shown on the books of ModaCAD.
(f) No Change in Warrant Certificate. The form of this Warrant
Certificate need not be changed because of any adjustment in the Exercise
Price or in the number of Shares purchasable on its exercise. The Exercise
Price or the number of Shares shall be considered to have been so changed
as of the close of business on the date of adjustment.
5. Fractional Shares. No fractional Shares will be issued in connection
with any subscription hereunder but, in lieu of such fractional Shares, ModaCAD
shall make a cash payment therefor upon the basis of the Market Price per Share.
As used herein, the "Market Price Per Share" with respect to any class or series
of Common Stock on any date shall mean the closing price per share of ModaCAD's
Common Stock for the trading day immediately preceding such date. The closing
price for each such day shall be the last sale price regular way or, in case no
such sale takes place on such day, the average of the closing bid and asked
prices regular way, in either case on the principal securities exchange on which
the shares of such Common Stock of ModaCAD are listed or admitted to trading or,
if applicable, the last sale price, or in case no sale takes place on such day,
the average of the closing bid and asked prices of such Common Stock on Nasdaq
or any comparable system, or if such Common Stock is not reported on Nasdaq, or
a comparable system, the average of the closing bid and asked prices as
furnished by two members of the National Association of Securities Dealers, Inc.
selected from time to time by ModaCAD for that purpose. If such bid and asked
prices are not available, then "Market Price Per Share" shall be equal to the
fair market value of such Common Stock as determined by a nationally recognized
investment banking firm chosen by ModaCAD from among three such firms specified
by Lectra. The "Market Price Per Share" with respect to any class or series of
capital stock other than Common Stock shall, if such capital stock is
convertible into or exchangeable for Common Stock, be determined by reference to
the "Market Price Per Share" for the Common Stock and adjusted based on the
conversion or exchange price, as the case may be. If such capital stock is not
convertible into or exchangeable for Common Stock, the "Market Price Per Share"
shall be determined by a nationally recognized investment banking firm chosen by
ModaCAD from among three such firms specified by Lectra.
6. Restrictions on Transfer. The Warrants are restricted from sale,
transfer, assignment or hypothecation by operation of law. The Warrants have not
been registered under the Act or any applicable state securities laws, and may
not be offered for sale, sold, transferred, pledged or hypothecated without an
effective registration statement under the Act and under any applicable state
securities law, or an opinion of counsel, reasonably satisfactory to ModaCAD,
that an exemption from such registration is available; provided that Lectra may
transfer this Warrant to Lectra Systemes SA, its parent, without an opinion of
counsel. By accepting this Warrant Certificate, Lectra acknowledges its
understanding that because the Warrants are not registered, Lectra must hold the
Warrants indefinitely unless they are registered under the Act and any
applicable state securities laws or must obtain exemptions from registration. In
addition, by accepting this Warrant Certificate, Lectra represents and warrants
(i) that Lectra is acquiring the Warrants for its own account for investment and
not with the view to distribution, assignment, resale or other transfer of the
<PAGE>
Warrants and (ii) Lectra is an "accredited investor" as such term in defined in
Rule 501 of Regulation D promulgated under the United States Securities Act of
1933, as amended (the "Act"), and that Lectra is able to bear the economic risk
of its investment in the Warrants and any shares issued upon exercise of any of
the Warrants. Except as specifically stated herein, no other person has a direct
or indirect beneficial interest in the Warrants.
7. Registration Under Securities Act of 1933.
(a) For purposes of this Section, the following definitions shall
apply:
(i) The terms "register," "registered," and "registration" refer
to a registration under the United States Securities Act of 1933, as
amended (the "Act"), effected by preparing and filing a registration
statement in compliance with the Act, and the declaration or ordering
of effectiveness of such registration statement or amendment thereto.
(ii) The term "Registrable Shares" means any Shares issued or
issuable upon exercise of the Warrants and owned of record and
beneficially by Lectra that may not be resold pursuant to Rule 144
under the Act in one transaction without any limitation with respect
to offerees, manner of offering or the size of the transaction as of
the date on which Lectra exercises the Warrants pursuant to Section
7(b) of this Warrant Certificate.
(iii) The term "SEC" means the United States Securities and
Exchange Commission.
(b) (i) ModaCAD shall, as expeditiously as possible following its
receipt from Lectra of an executed Notice of Commitment to Exercise
Warrants and Request for Registration of Underlying Shares, in the
form and with the content of Exhibit B attached hereto ("Notice of
Commitment"), which Notice of Commitment shall cover some or all
Warrants evidenced hereby, file a registration statement on Form S-3
(or other applicable SEC Form as ModaCAD in its absolute discretion
may elect to use for such purpose) covering the resale of all the
Registrable Shares under Rule 415 and, to the extent applicable, Rule
416. ModaCAD shall use its best efforts to cause such registration
statement to become effective by the 60th calendar day after the date
it shall have been filed. ModaCAD shall provide Lectra reasonable
opportunity to review any such registration statement, or any
amendment or supplement thereto, prior to the filing thereof. The
Notice of Commitment shall be binding and irrevocable unless the price
of ModaCAD Common Stock on the date of effectiveness of such
registration statement is either (A) below the Exercise Price or (B)
equal to or less than eighty percent (80%) of the closing sale price
of the Common Stock for the trading day on which ModaCAD received the
Notice of Commitment (or if the day of receipt is not a trading day,
the immediately preceding such trading day), as reported by the Nasdaq
Stock Market or other national trading exchange on which the ModaCAD
Common Stock is listed for trading. If Lectra delivers to ModaCAD the
one-time Notice of Commitment and subsequently revokes such Notice of
Commitment pursuant to the foregoing provisions of this Section
7(b)(i), ModaCAD shall have no obligation to maintain the
effectiveness of such registration statement, and Lectra shall again
have the right to require registration pursuant to this Section
7(b)(i). In the event Lectra's Notice of Commitment covers less than
all the Warrant Shares and such Notice of Commitment is not revoked in
accordance with this Section 7(b)(i), then ModaCAD shall have no
<PAGE>
further obligation to register any remaining Registrable Shares
pursuant to this Section 7(b).
(ii) ModaCAD shall, as expeditiously as possible following the
exercise of some or all Warrants evidenced hereby, file a registration
statement on Form S-3 (or other applicable SEC Form as ModaCAD in its
absolute discretion may elect to use for such purpose) covering the
resale of all the Registrable Securities under Rule 415 and, to the
extent applicable, Rule 416; provided that ModaCAD shall not be
required to file a registration statement pursuant to this Section
7(b)(ii) if it has filed a registration statement pursuant to Section
7(b)(i) which has been declared effective by the SEC and Lectra has
not revoked its Notice of Commitment pursuant to Section 7(b)(i).
ModaCAD shall use its best efforts to cause such registration
statement to become effective by the 60th calendar day after the date
it shall have been filed. ModaCAD shall provide Lectra reasonable
opportunity to review any such registration statement, or any
amendment or supplement thereto, prior to the filing thereof.
(iii) ModaCAD may suspend the effectiveness of any such
registration effected pursuant to this Subsection (b) in the event,
and for such period of time as, such a suspension is required by the
rules and regulations of the SEC, and may suspend use of the
prospectus included in the Registration Statement if such prospectus
ceases to meet the requirements of Section 10 of the Act. ModaCAD will
immediately advise Lectra of any such suspension, and will use its
best efforts to cause such suspension to terminate at the earliest
possible date. Lectra agrees that following receipt of any such
notice, and until such suspension is terminated, Lectra will not make
use of the suspended prospectus and will make no sales requiring
delivery of such prospectus.
(c) Whenever required under this Section to effect the registration of
any Registrable Shares, ModaCAD shall, as expeditiously as reasonably
possible:
(i) Prepare and file with the SEC a registration statement with
respect to such Registrable Shares and use its best efforts to cause
such registration to become effective as provided in Section 7(b)(i)
or (ii), as applicable, and keep such registration statement effective
for so long as Lectra as owner of Registrable Shares desires to
dispose of the securities covered by such registration statement, or,
if earlier, only until all of such Registrable Shares may be sold
under Rule 144 (provided that ModaCAD's transfer agent has accepted an
instruction from ModaCAD to such effect) in one transaction without
any limitation with respect to offerees, manner of offering or the
size of the transaction.
(ii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to
comply with the provisions of the Act with respect to the disposition
of all securities covered by such registration statement and notify
Lectra of the filing and effectiveness of such Registration Statement
and any amendments thereof or supplements thereto.
(iii) Furnish to Lectra as owner of Registrable Shares such
numbers of copies of a current prospectus conforming with the
requirements of the Act, copies of the registration statement, any
amendment or supplement thereto and any documents incorporated by
reference therein and such other documents as Lectra may reasonably
<PAGE>
require in order to facilitate the disposition of Registrable Shares
owned by Lectra.
(iv) Notify Lectra immediately of the happening of any event as a
result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of material
fact or omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in light of
the circumstances then existing, and use its best efforts to promptly
update and/or correct such prospectus.
(v) Furnish, at the request of Lectra, on the date or promptly
following the date the registration statement is declared effective,
(i) an opinion, dated as of such date, of counsel representing ModaCAD
for the purposes of such registration, in form and substance as is
customarily given to underwriters in an underwritten public offering
and reasonably satisfactory to Lectra, addressed to Lectra, and (ii) a
"comfort" letter, dated as of such date, from the independent
certified public accountants of the Company, in form and substance as
is customarily given by independent certified public accountants to
underwriters in an underwritten public offering and reasonably
satisfactory to Lectra.
(d) Lectra as owner of Registrable Shares will furnish to ModaCAD in
connection with any registration under this Section such information
regarding itself, the Registrable Shares and other securities of ModaCAD
held by it, and the intended method of disposition of such securities, as
shall be reasonably required to effect the registration of the Registrable
Shares held by Lectra. Lectra shall provide such data as of a specified
date within fifteen (15) days of receipt of such request from ModaCAD and
shall provide any applicable changes or amendments to such data as of the
date of filing of any applicable registration statement. The intended
method of disposition (Plan of Distribution) of such securities as so
provided by Lectra shall be included without alteration in the Registration
Statement covering the Registrable Shares and shall not be changed without
the prior written consent of Lectra.
(e) (i) ModaCAD shall indemnify, defend and hold harmless Lectra and
each of its officers, directors, employees, agents, partners or controlling
persons (within the meaning of the Act) (each, an "indemnified party") from
and against, and shall reimburse such indemnified party with respect to,
any and all claims, suits, demands, causes of action, losses, damages,
liabilities, costs or expenses ("Liabilities") to which such indemnified
party may become subject under the Act or otherwise, arising from or
relating to (A) any untrue statement or alleged untrue statement of any
material fact contained in such registration statement, any prospectus
contained therein or any amendment or supplement thereto, or (B) the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading; provided,
however, that ModaCAD shall not be liable in any such case to the extent
that any such Liability arises out of or is based upon an untrue statement
or omission so made in conformity with information furnished by an
indemnified party; provided further, that ModaCAD shall not be liable in
any such case to the extent that such Liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in any preliminary prospectus if (i) Lectra was subject to an
obligation to send or deliver a copy of the prospectus with or prior to the
delivery of written confirmation of the sale of Registrable Securities to
the person asserting such Liability who purchased such Registrable
Securities which are the subject matter thereof from Lectra and Lectra
failed to do so, (ii) the prospectus would have corrected such untrue
statement or omission and (iii) ModaCAD has delivered to Lectra sufficient
copies of such final prospectus; and provided further, that ModaCAD shall
<PAGE>
not be liable in any such case to the extent that any Liability arises out
of or is based upon an untrue statement or alleged untrue statement,
omission or alleged omission is corrected in an amendment or supplement to
the prospectus and if, having previously been furnished by or on behalf of
ModaCAD with copies of the prospectuses so amended or supplemented and
having been obligated to deliver such prospectuses, Lectra thereafter
failed to deliver such prospectus as so amended or supplemented, prior to
or concurrently with the sale of Registrable Securities to the person
asserting such Liability who purchased such Registrable Securities which
are the subject thereof from Lectra.
(ii) In the event of any registration under the Act of Registrable
Securities pursuant to Subsection (b), Lectra hereby agrees to indemnify,
defend and hold harmless ModaCAD, and its officers, directors, employees,
agents, partners, or controlling persons (within the meaning of the Act)
(each, an "indemnified party") from and against, and shall reimburse such
indemnified party with respect to, any and all Liabilities to which such
indemnified party may become subject under the Act or otherwise, arising
from or relating to (A) any untrue statement or alleged untrue statement of
any material fact contained in such registration statement, any prospectus
contained therein or any amendment or supplement thereto, or (B) the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading; provided, that
Lectra will be liable in any such case to the extent, and only to the
extent, that any such Liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made
in such registration statement, prospectus or amendment or supplement
thereto in reliance upon and in conformity with information furnished by
Lectra for use in the registration statement, and provided further that the
total amounts payable in indemnity by Lectra pursuant to this clause (ii)
shall not exceed the net proceeds received by Lectra under the registration
giving rise to the liability.
(iii) Promptly after receipt by any indemnified party of notice of the
commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against another party (the "indemnifying
party") hereunder, notify such party in writing thereof, but the omission
so to notify shall not relieve the indemnifying party from any Liability
which it may have to the indemnified party other than under this section
and shall only relieve it from any Liability which it may have to the
indemnified party under this section if and to the extent it is actually
prejudiced by such omission. In case any such action shall be brought
against any indemnified party and such indemnified party shall notify the
indemnifying party of the commencement thereof, the indemnifying party
shall be entitled to participate in and, to the extent it shall wish, to
assume and undertake the defense thereof with counsel reasonably
satisfactory to such indemnified party, and, after notice from the
indemnifying party to the indemnified party of its election so to assume
and undertake the defense thereof, the indemnifying party shall not be
liable to the indemnified party under this section for any legal expenses
subsequently incurred by the indemnified party in connection with the
defense thereof other than reasonable costs of investigation and of liaison
with counsel so selected, provided, however, that if the defendants in any
such action include both the indemnifying party and the indemnified party
and the indemnified party shall have reasonably concluded that there may be
reasonable defenses available to it which are different from or additional
to those available to the indemnifying party or if the interests of the
<PAGE>
indemnified party reasonably may be deemed to conflict with the interests
of the indemnifying party, the indemnified party shall have the right to
select a separate counsel and to assume such legal defenses and otherwise
to participate in the defense of such action, with the reasonable expenses
and fees of such separate counsel and other reasonable expenses related to
such participation to be reimbursed by the indemnifying party as incurred.
(iv) If the indemnification provided for in this Section 7(e) shall
for any reason be unenforceable by an indemnified party, although otherwise
available in accordance with its terms, then each indemnifying party shall,
in lieu of indemnifying such indemnified party, contribute to the amount
paid or payable by such indemnified party as a result of the losses,
claims, damages, liabilities or expenses with respect to which such
indemnified party has claimed indemnification, in such proportion as to
appropriate to reflect the relative fault of the indemnified party on the
one hand and the indemnifying party on the other in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable
considerations. The relative fault, in the case of an untrue statement,
alleged untrue statement, omission or alleged omission, shall be determined
by, among other things, whether such statement, alleged statement, omission
or alleged omission relates to information supplied by the indemnifying
party or the indemnified party, and such parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement, alleged statement, omission or alleged omission. The Company and
Lectra agree that it would not be just and equitable if contribution
pursuant hereto were to be determined by pro rata allocation or by any
other method of allocation which does not take into account such equitable
considerations. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities or expenses referred to
herein shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or
defending against any action or claim which in the subject hereof. In no
case, however, shall Lectra be responsible for a portion of the
contribution obligation in excess of the net proceeds to it of securities
sold as contemplated herein. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities
Act) shall be entitled to contribution from any person who is not guilty of
such fraudulent misrepresentation.
(f) (i) With respect to the inclusion of Registrable Securities in a
registration statement pursuant to Subsection (b), all fees, costs and
expenses of and incidental to such registration shall be borne by ModaCAD;
provided, however, that Lectra shall bear Lectra's own expenses and share
of the underwriting discounts and commissions, and transfer taxes, if any,
incurred by Lectra in connection with such registration.
(ii) The fees, costs and expenses of registration to be borne by
ModaCAD as provided in this Subsection (f) shall include, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel and accountants for ModaCAD. Fees and
disbursements of counsel and accountants for Lectra shall be borne by
Lectra."
8. No Rights as Shareholder. Lectra, as holder of the Warrants, shall not
be entitled to vote or receive dividends or be considered a shareholder of
ModaCAD for any purpose, nor shall anything in this Warrant Certificate be
<PAGE>
construed to confer on Lectra, as such, any rights of a shareholder of ModaCAD
or any right to vote, give or withhold consent to any corporate action, to
receive notice of meetings of shareholders (except to the extent provided in
Section 4(e)), to receive dividends or subscription rights or otherwise.
9. Notices. All demands, notices, consents and other communications to be
given hereunder shall be in writing and shall be deemed duly given when
delivered personally or five days after being mailed by first class mail,
postage prepaid, properly addressed, if to ModaCAD at ModaCAD, Inc., 3861
Sepulveda Boulevard, Culver City, California 90230, or if to Lectra at the last
address appearing on the records of ModaCAD. ModaCAD and Lectra may change such
address at any time or times by notice hereunder to the other.
10. Representations and Warranties of ModaCAD. ModaCAD hereby represents
and warrants to Lectra that:
(a) All corporate action on the part of ModaCAD, its officers,
directors and shareholders necessary for (a) the authorization, execution
and delivery of, and the performance of all obligations of ModaCAD under,
this Warrant, and (b) the authorization, issuance, reservation for issuance
and delivery of all of the Common Stock issuable upon exercise of the
Warrants, has been duly taken. This Warrant Certificate constitutes a valid
and binding obligation of ModaCAD enforceable in accordance with its terms,
subject, as to enforcement of remedies, to applicable bankruptcy,
insolvency, moratorium, reorganization and similar laws affecting
creditors' rights generally and to general equitable principles. All
consents, approvals and authorizations of, and registrations,
qualifications and filings with, any federal or state governmental agency,
authority or body, or any third party, required in connection with the
execution, delivery and performance of this Warrant and the consummation of
the transactions contemplated hereby and thereby have been obtained, except
for filings and related actions to be taken as provided in Section 7
hereof.
(b) ModaCAD is a corporation duly organized, validly existing and in
good standing under the laws of the State of California and has all
requisite corporate power to own, lease and operate its property and to
carry on its business as now being conducted and as currently proposed to
be conducted.
(c) ModaCAD has duly filed with the SEC ModaCAD's annual report on
Form 10-K for the year ended December 31, 1997 and its quarterly reports on
Form 10-Q for the quarters ended March 31, June 30, and September 30, 1998
(collectively, the "ModaCAD, Inc. SEC Reports"). As of their respective
filing dates, the ModaCAD, Inc. SEC Reports complied in all material
respects with the requirements of the Securities Exchange Act of 1934, as
amended, and none of the SEC ModaCAD SEC Reports contained any untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements made therein, in
light of the circumstances in which they were made, not misleading, except
to the extent corrected by a subsequently filed document with the SEC.
(d) Each of the consolidated financial statements (including, in each
case, any related notes) contained in the ModaCAD, Inc. SEC Reports
complied as to form in all material respects with the applicable published
rules and regulations of the SEC with respect thereto, was prepared in
<PAGE>
accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods involved (except as may be
indicated in the notes to such financial statements or, in the case of
unaudited statements, as permitted by SEC Form 10-Q) and presented fairly,
in all material respects, the consolidated financial position of the
Company and its subsidiaries as at the respective dates and the
consolidated results of its operations and cash flows for the periods
indicated, except that the unaudited interim financial statements are
subject to normal and recurring year-end adjustments which are not expected
to be material in amount.
(e) The authorized capital stock of the Company consists of 15,000,000
shares of Common Stock. As of December 31, 1998: (i) 6,143,374 shares of
common stock of the Company were issued and outstanding, all of which are
validly issued, fully paid and nonassessable; (ii) 1,459,454 shares of
Common Stock of the Company were reserved for issuance under the Company's
1995 Stock Option Plan, 467,454 shares of which were subject to options
outstanding on such date; (iii) 643,849 shares of the Common Stock of the
Company were reserved for issuance upon exercise of outstanding warrants.
No material change in such capitalization has occurred between December 31,
1998 and the issuance date of this Warrant.
(f) The execution and delivery by ModaCAD of this Warrant and
compliance with the terms hereof will not, (a) conflict with, or result in
any violation of or default under, any provision of ModaCAD's Articles of
Incorporation or By-laws; or (b) conflict with, or result in any violation
of or default under, any permit, concession, grant, franchise, law, rule or
regulation, judgment, decree, order of any court or other governmental
entity, agreement, contract, indenture or other instrument to which ModaCAD
is a party or to which any of its property or assets is subject.
11. Amendments; Waivers, Terminations, Governing Law; Headings. The
Warrants and any term hereof may be changed, waived, discharged or terminated
only by an instrument in writing signed by the party against which enforcement
of such change, waiver, discharge or termination is sought. The Warrants shall
be governed by and construed and interpreted in accordance with the laws of the
State of California. The headings in this Warrant Certificate are for
convenience of reference only and are not part of the Warrants.
Dated, March 3, 1999.
MODACAD, INC.
By:
Name: Maurizio Vecchione
Title: President and Chief Operating Officer
Attest:
- --------------------------------
RECEIPT ACKNOWLEDGED BY LECTRA:
By:
Name:
Title:
<PAGE>
EXHIBIT A
MODACAD, INC.
3861 Sepulveda Boulevard
Culver City, California 90230
Subscription Agreement for the Exercise of Warrants
(To be completed and signed only upon exercise of the Warrants)
The undersigned, the holder and registered owner of the attached
Warrants, hereby irrevocably and unconditionally elects to exercise such
Warrants and subscribes for the purchase of ________* shares of ModaCAD,
Inc. (the "Company") common stock (the "Common Stock") pursuant to and in
accordance with the terms and conditions of the Warrant Certificate
attached hereto, and elects to effect a cash exercise and herewith tenders
a check in the amount of $_________, in exchange for the Common Stock which
should be delivered to the undersigned at the address stated below, and, if
said number of shares of Common Stock shall not be all of the Common Stock
purchasable hereunder, a new Warrant of like tenor for the balance of the
remaining Common Stock purchasable hereunder should be delivered to the
undersigned at the address stated below.
The undersigned agrees that:
(1) the undersigned will not offer, sell, transfer or otherwise
dispose of any Common Stock unless either (a) a registration statement, or
post-effective amendment thereto, covering Common Stock has been filed with
the Securities and Exchange Commission pursuant to the Securities Act of
1933, as amended (the "Act"), such sale, transfer or other disposition is
accompanied by a prospectus meeting the requirements of Section 10 of the
Act forming a part of such registration statement, or post-effective
amendment thereto, which is in effect under the Act covering the Common
Stock to be so sold, transferred or otherwise disposed of, and all
applicable state securities laws have been complied with, or (b) the
undersigned has delivered to the Company a written opinion of counsel,
addressed to the Company, which opinion is reasonably acceptable to the
Company and its counsel, that such proposed offer, sale, transfer or other
disposition of the Common Stock is exempt from the provisions of Section 5
of the Act in view of the circumstances of such proposed offer, sale,
transfer or other disposition;
(2) The Company may notify the transfer agent for Common Stock that
the certificates for the Common Stock acquired by the undersigned are not
to be transferred unless the transfer agent receives advice from the
Company that one or both of the conditions referred to in (1)(a) and (1)(b)
above have been satisfied; and
(3) The Company may affix the following legend to the certificates for
the Common Stock hereby subscribed for, if such legend is applicable:
*Insert here the number of shares called for on the face of the Warrants
(or in the case of partial exercise, that number of shares for which the
Warrants are being exercised), without making any adjustment for additional
Common Stock or any other securities or property which, under the adjustment
provisions of the Warrants, may be deliverable upon exercise.
<PAGE>
THIS SECURITY HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES OR BLUE SKY LAWS OF ANY
STATE AND MAY NOT BE OFFERED AND SOLD UNLESS REGISTERED AND/OR QUALIFIED
PURSUANT TO THE RELEVANT PROVISIONS OF FEDERAL AND STATE SECURITIES OR BLUE
SKY LAWS OR AN EXEMPTION FROM SUCH REGISTRATION OR QUALIFICATION IS
APPLICABLE. THEREFORE, NO SALE OR TRANSFER OF THIS SECURITY SHALL BE MADE,
NO ATTEMPTED SALE OR TRANSFER SHALL BE VALID, AND THE ISSUER SHALL NOT BE
REQUIRED TO GIVE ANY EFFECT TO ANY SUCH TRANSACTION UNLESS (A) SUCH
TRANSACTION SHALL HAVE BEEN DULY REGISTERED UNDER THE ACT AND QUALIFIED OR
APPROVED UNDER APPROPRIATE STATE OR BLUE SKY LAWS, OR (B) THE ISSUER SHALL
HAVE FIRST RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT
THAT SUCH REGISTRATION, QUALIFICATION OR APPROVAL IS NOT REQUIRED.
Dated:
LECTRA
By:
Name:
Title:
<PAGE>
EXHIBIT B
MODACAD, INC.
3861 Sepulveda Boulevard
Culver City, California 90230
Notice of Commitment to Exercise Warrants
and
Request for Registration of Underlying Shares
The undersigned, the holder and registered owner of the attached Warrants,
hereby (i) tenders to ModaCAD, Inc. (the "Company") its notice of commitment to
exercise such Warrants and subscribe for the purchase of ____________* shares of
the Company's common stock (the "Common Stock") pursuant to and in accordance
with the terms and provisions of the Warrant Certificate attached hereto (the
"Warrant Certificate"), (ii) requests that the Company file a registration
statement on Form S-3 (or other applicable SEC Form as the Company in its
absolute discretion may elect to use for such purpose) covering the resale of
all Registrable Shares (as such term is defined in the Warrant Certificate) and
(iii) agrees to, upon effectiveness of such registration statement, deliver to
the Company an executed Subscription Agreement attached as Exhibit A to the
Warrant Certificate, and the Aggregate Exercise Price (as such term is defined
in the Warrant Certificate), subject to the revocability provisions of Section
7(b)(i) of the Warrant Certificate as set forth in the following paragraph.
This Notice of Commitment to Exercise Warrants and Request for Registration
of Underlying Shares ("Notice of Commitment") shall be binding and irrevocable
unless the price of the Company's Common Stock on the date of effectiveness of
such registration statement is either (A) below the Exercise Price (as such term
is defined in the Warrant Certificate attached hereto) or (B) equal to or less
than eighty percent (80%) of the closing sale price of the Common Stock for the
trading day on which the Company receives this Notice of Commitment (or if the
day of receipt is not a trading day, the immediately preceding such trading
day), as reported by the Nasdaq Stock Market or other national trading exchange
on which the ModaCAD Common Stock is listed for trading.
Dated:
LECTRA
By:
Name:
Title:
*Insert here the number of shares called for on the face of the Warrants
(or in the case of partial exercise, that number of shares for which the
Warrants are being exercised), without making any adjustment for additional
Common Stock or any other securities or property which, under the adjustment
provisions of the Warrants, may be deliverable upon exercise.
<PAGE>
Exhibit 7.01(i)
Form of Opinion of Counsel to Seller
1. Seller is a corporation duly organized, validly existing and in good standing
under the laws of the State of California.
2. Seller has all requisite corporate power and authority to enter into the
Agreement and each of the Collateral Agreements, to carry out its obligations
under the Agreement and each of the Collateral Agreements and to consummate the
transactions contemplated thereby. The execution and delivery of the Agreement
and the Collateral Agreements, the consummation of the transactions contemplated
thereby and the performance by Seller of its obligations thereunder have been
duly authorized by all necessary corporate action on the part of Seller. The
Agreement and each Collateral Agreement constitute the legal, valid and binding
obligations of Seller enforceable against Seller in accordance with their terms
(except as the enforceability thereof may be limited by any applicable
bankruptcy, insolvency or other laws affecting creditors' rights generally or by
general principles of equity, regardless of whether such enforceability is
considered in equity or at law).
3. The execution and delivery by Seller of the Agreement and each Collateral
Agreement, and the consummation by Seller of the transactions contemplated
thereby and compliance with the terms thereof will not, (a) conflict with, or
result in any violation of or default under, any provision of Seller's Articles
of Incorporation, By-laws or other organizational documents; (b) conflict with,
or result in any violation of or default under, (i) any law, rule or regulation,
(ii) any permit, judgment, decree, order of any court or other Governmental
Entity, agreement, contract, indenture or other instrument known to such counsel
(including without limitation the Assumed Contracts) to which Seller is a party
or to which any of its property or assets is subject; (c) terminate or modify,
or give any Person the right to terminate or modify, the provisions or terms of
any Assumed Contract; or (d) to such counsel's knowledge, result in the creation
of, or give any Person the right to create, a Security Interest in the Assets.
4. The execution and delivery of the Agreement and each Collateral Agreement and
the consummation of the transactions contemplated thereby by Seller will not
require the consent, approval, order or authorization of any Governmental
Entity, Regulatory Authority or other Person under any statute, law, rule or
regulation, or under any permit, license, agreement, indenture or other
instrument known to such counsel to which Seller is a party or to which any of
its properties or assets are subject, and no declaration, filing or registration
with any Governmental Entity or Regulatory Authority is required or advisable by
Seller in connection with the execution and delivery of the Agreement and each
Collateral Agreement, the consummation of the transactions contemplated thereby,
or the performance by Seller of its obligations thereunder.
<PAGE>
5. To the knowledge of such counsel, there is no action, suit, investigation,
arbitration or proceeding pending or threatened against or affecting Seller's
rights in and to, or otherwise involving, the Assets, the ModaCAD CAD Core
Technology or the ModaCAD Cataloguing Products (including without limitation no
charge of patent, copyright and/or trademark infringement), by or before any
Governmental Entity, or any Basis in fact therefor known to such counsel,
whether at law or in equity. To the knowledge of such counsel, Seller is not
subject to any outstanding injunction, judgment, order, decree, ruling or charge
which could reasonably be expected to have a Material Adverse Effect.
<PAGE>
Exhibit 7.02(f)
Form of Opinion of Counsel to Buyer
1. Buyer is a corporation duly organized, validly existing and in good standing
under the laws of the State of New York.
2. Buyer has all requisite corporate power and authority to execute and deliver
the Agreement and each of the Collateral Agreements, to perform fully its
obligations thereunder and to consummate the transactions contemplated thereby.
The execution and delivery by Buyer of the Agreement and each of the Collateral
Agreements, the performance by Buyer of its obligations thereunder, and the
consummation of the transactions contemplated thereby have been duly and validly
authorized by all necessary corporate action on the part of Buyer. The Agreement
and each Collateral Agreement constitute legal, valid and binding obligations of
Buyer enforceable against Buyer in accordance with their terms (except as the
enforceability thereof may be limited by any applicable bankruptcy, insolvency
or other laws affecting creditors' rights generally or by general principles of
equity, regardless of whether such enforceability is considered in equity or at
law).
3. Neither the execution and delivery by Buyer of the Agreement or any of the
Collateral Agreements nor the consummation of the transactions contemplated
thereby by Buyer will (i) conflict with, result in a breach or violation of or
constitute (or with notice or lapse of time or both constitute) a default under,
(A) the Certificate of Incorporation, By-Laws of Buyer, (B) any law or statute
or (C) any regulation, order, judgment or decree applicable to Buyer and known
to us; or (ii) require Buyer to obtain any authorization, consent, approval or
waiver from, to give notification to, or to make any filing (other than filing
to qualify as a foreign corporation where necessary) with, any Governmental
Entity or Regulatory Authority.
<PAGE>
Exhibit 7.02(g)
MUTUAL GENERAL RELEASE
WHEREAS, Lectra Systems Inc., a New York corporation ("Lectra") is
purchasing certain assets (the "Assets") from ModaCAD, Inc., a California
corporation ("ModaCAD"), pursuant to the terms of an Agreement entered into as
of March 3, 1999 and made effective as of December 31, 1998 (the "Basic
Agreement"); and
WHEREAS, ** is ** of ** , a Michigan corporation ( ** ); and
WHEREAS, ** has made certain assertions concerning acts by ModaCAD, its
officers and employees that might give rise to a claim by ** against ModaCAD
relating to United States Patents Nos. ** , (the "Patents"); and
WHEREAS, ModaCAD has denied that there is any basis for any claim by **
against ModaCAD, it officers and employees for patent infringement; and
WHEREAS, ModaCAD has made certain assertions concerning acts by ** and its
affiliates, their officers and employees that might give rise to a claim by
ModaCAD against ** and its affiliates, their officers and employees relating to
certain patents owned by ModaCAD; and
WHEREAS, ** has denied that there is any basis for any claim by ModaCAD
against ** and its affiliates, officers and employees for patent infringement;
and
WHEREAS, pursuant to the ** , ** is purchasing and/or licensing assets used
by ** in the conduct of the business which ** asserted violated the Patents; and
WHEREAS, ModaCAD has requested, in connection with the transactions
contemplated by the Basic Agreement, that ** release it from any claims that
ModaCAD's use of the ** (as such term is defined in the Basic Agreement, but
excluding any enhancements thereto after the date hereof) prior to the date
hereof violated the Patents;
- -------------------------------
**The material deleted has been omitted pursuant to a request for confidential
treatment pursuant to Rule 24b-2 promulgated under the Securities Exchange Act
of 1934, as amended, and has been filed separately with the Commission.
<PAGE>
NOW, in consideration of the premises set forth above and the promises set
forth below and other good and valuable consideration, the receipt of which is
hereby acknowledged, the parties agree as follows:
1. ** , on behalf of itself and its parents and subsidiaries (including,
but not limited to, ** ) (herein collectively referred to as " ** Releasor")
hereby releases ModaCAD and the officers, directors, employees and agents of
ModaCAD (herein collectively referred to as "ModaCAD Releasee") from any and all
causes of action, suits, demands, damages, liabilities and claims that ModaCAD's
use of the ** (excluding any enhancements thereto after the date hereof) as it
exists on the date hereof violates the Patents which any ** Releasor ever had,
now has or hereafter may have against any ModaCAD Releasee, whether presently
known or unknown. Each ** Releasor acknowledges that it may have sustained, and
may in the future sustain, damages, expenses or losses which are presently
unknown or not suspected and that such damages, expenses or losses, if any, may
give rise to additional damages, expenses or losses in the future which are not
now anticipated. Each ** Releasor hereby expressly waives any and all rights
that it may have had under any statute or common law principle which would limit
the effect of the foregoing release to those claims actually known or suspected
to exist at the time of execution of this General Release.
2. ModaCAD, on behalf of itself (including its predecessors in interest)
and its parents, subsidiaries and affiliates (herein collectively referred to as
"ModaCAD Releasor") hereby releases ** , its parents, subsidiaries and
affiliates (including but not limited to ** ) and the officers, directors,
employees and agents of each such entity (herein collectively referred to as "
** Releasee") from any and all causes of action, suits, demands, damages,
liabilities and claims which any ModaCAD Releasor ever had, now has or hereafter
may have against any ** Releasee, whether presently known or unknown (i)
relating to the assertion that the use of the ** violated the Patents or any
assertion of patent infringement or (ii) that the conduct by any ** Releasee of
its business infringed any of the ** as in effect as of the date hereof. Each
ModaCAD Releasor acknowledges that it may have sustained, and may in the future
sustain, damages, expenses or losses which are presently unknown or not
suspected and that such damages, expenses or losses, if any, may give rise to
additional damages, expenses or losses in the future which are not now
anticipated. Each ModaCAD Releasor hereby expressly waives any and all rights
that it may have had under any statute or common law principle which would limit
the effect of the foregoing release to those claims actually known or suspected
to exist at the time of execution of this General Release.
3. Each party represents and warrants that:
(i) the person executing this Mutual General Release on its behalf is
an officer of the party with authority to execute this document;
(ii) the party has not assigned or transferred any claim against the
other party;
(iii) no person or entity other than the party hereto giving the
release has any interest in any claim that is released; and
(iv) the party has had an opportunity to consult with and be advised
by counsel in connection with its execution of this Mutual General Release.
- -------------------------------
**The material deleted has been omitted pursuant to a request for confidential
treatment pursuant to Rule 24b-2 promulgated under the Securities Exchange Act
of 1934, as amended, and has been filed separately with the Commission.
<PAGE>
4. This Mutual General Release will be governed by the substantive laws of
the State of New York without regard to its conflict of laws principles.
5. This Mutual General Release may be executed in counterparts and will
become effective on the exchange of such counterparts and such exchange may
occur by FAX.
6. This Mutual General Release shall be binding on any and all successors
and assigns of, and successors in interest to, the parties hereto.
Dated: March 3, 1999
MODACAD, INC.
By:
---------------------------------------
An Authorized Officer Thereof
By:
---------------------------------------
An Authorized Officer Thereof
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET AND STATEMENT OF OPERATIONS AS OF MARCH 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH 10-QSB FOR QUARTER ENDED MARCH 31,1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 6,496,765
<SECURITIES> 0
<RECEIVABLES> 1,338,098
<ALLOWANCES> 147,500
<INVENTORY> 2,100
<CURRENT-ASSETS> 8,275,260
<PP&E> 3,827,003
<DEPRECIATION> 1,242,545
<TOTAL-ASSETS> 13,648,257
<CURRENT-LIABILITIES> 2,020,657
<BONDS> 0
0
0
<COMMON> 26,878,877
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 13,648,257
<SALES> 3,789,877
<TOTAL-REVENUES> 3,789,877
<CGS> 119,011
<TOTAL-COSTS> 119,011
<OTHER-EXPENSES> 4,704,317
<LOSS-PROVISION> 15,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (985,338)
<INCOME-TAX> 0
<INCOME-CONTINUING> (985,338)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (985,338)
<EPS-PRIMARY> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
