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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-KSB/A
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended March 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission file number 033-23138-D
HEARTSOFT, INC.
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(Name of small business issuer in its charter)
Delaware 87-0456766
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
or organization)
3101 North Hemlock Circle, Broken Arrow, Oklahoma 74012
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(Address of principal executive offices)
(918) 251-1066
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(Issuer's Telephone Number)
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange
on which registered
None None
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Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.0005
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(Title of class)
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Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period 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
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
The issuer's revenue for the year ended March 31, 1999 was $ 527,915.
The aggregate market value of the voting stock held by non-affiliates at
March 31, 1999 was $12,124,104. This amount was computed using the average
bid and ask price as of March 31, 1999. For purposes of this computation, all
officers, directors and 5% beneficial owners of Registrant are deemed to be
affiliates.
As of March 31, 1999, the issuer had outstanding a total of 9,157,214 shares
of its $.0005 par value Common Stock.
Transitional Small Business Disclosure Format (Check one): Yes No X
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HEARTSOFT, INC.
FORM 10-KSB
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION PAGE NUMBER
<S> <C>
PART I
Cautionary Statement Regarding Forward-Looking Information 4
Risk Factors 4
1. Description of Business 9
2. Description of Property 13
3. Legal Proceedings 14
4. Submission of Matters to a Vote of Security Holders 14
PART II
5. Market for Common Equity and Related Stockholder Matters 14
6. Management's Discussion and Analysis or Plan of Operation 15
7. Financial Statements F-1 to F-16
8. Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure 18
PART III
9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act 18
10. Executive Compensation 19
11. Security Ownership of Certain Beneficial Owners and Management 19
12. Certain Relationships and Related Transactions 20
13. Exhibit and Reports on Form 8-K 20
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PART I
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This annual report on Form 10-KSB contains "forward-looking" statements
regarding potential future events and developments affecting the business of
Heartsoft, Inc., a Delaware corporation ("Heartsoft," or the "Company,"
including its subsidiary described in Item 1). Such statements relate to, among
other things:
- - future operations of Heartsoft, including the impact of any year 2000
issues encountered by Heartsoft;
- - the development of new products and distribution channels and product
sales;
- - competition for customers for Heartsoft's products;
- - the uncertainty of developing or obtaining rights to new products that
will be accepted by the market;
- - the timing of the introduction of new products into the market; o the
limited market life of Heartsoft's products; and
- - other statements about Heartsoft or the educational software market.
Forward-looking statements may be indicated by the words "expects,"
"estimates," "anticipates," "intends," "predicts," "believes" or other
similar expressions. Forward-looking statements appear in a number of places
in this Form 10-KSB and may address the intent, belief or current
expectations of Heartsoft and its Board of Directors and Management with
respect to Heartsoft and its business. Heartsoft's ability to predict results
or the effect of any future events on Heartsoft's operating results is
subject to various risks and uncertainties. Some of these risks and
uncertainties include competition for products and customers, the Company's
ability to develop or obtain rights to new products and the limited market
life of Heartsoft's current products. See also "Management's Discussion and
Analysis or Plan of Operation."
RISK FACTORS
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS; SEASONALITY
The Company's quarterly revenues and operating results have varied
significantly in the past and are likely to vary substantially in the future.
Quarterly revenues and operating results may fluctuate as a result of a
variety of factors, including:
- - changes in the level of operating expenses;
- - demand for the Company's products;
- - the introduction of new products and product enhancements by the Company
or its competitors;
- - changes in customer budgets;
- - competitive conditions in the industry; and
- - general economic conditions.
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Further, the Company's customers often experience delays associated with
internal authorization procedures when purchasing the Company's products. For
these and other reasons, the sales cycles for the Company's products are
typically lengthy and subject to a number of significant risks outside the
Company's control including customers' budgetary constraints and internal
authorization reviews. The Company historically has operated with little
backlog because its software products are generally shipped as orders are
received. The Company cannot ensure that it will be profitable in future
quarters.
RAPID TECHNOLOGICAL CHANGE
The educational software market is subject to rapid technological change, new
product introductions, evolving industry standards and changes in customer
demands. The introduction of new technologies and the emergence of new
industry standards can render existing products obsolete and unmarketable.
The Company's future success will depend in part on its ability to enhance
existing products and to develop new products that meet changing client
requirements. The Company is in the process of developing a secure Internet
browser for children. The development of any new products utilizing the
Internet involves significant technical risks. The Company may not be
successful in developing and marketing product enhancements or new products.
The Company could experience difficulties that delay or prevent the
successful development and marketing of product enhancements or new products.
The Company cannot guarantee that any new products and product enhancements
it may introduce will achieve market acceptance.
INTENSE COMPETITION
The educational software market is highly competitive and rapidly changing. A
number of companies offer products similar to the Company's products and
target the same customers as the Company. The Company believes its ability to
compete depends upon many factors including:
- - the timely development and introduction of new products and product
enhancements;
- - product functionality;
- - product performance;
- - price;
- - product reliability;
- - customer service and support;
- - sales and marketing efforts; and
- - product distribution.
Some of the Company's primary and potential competitors are substantially
larger than the Company and have significantly greater financial, technical
and marketing resources as well as established channels of distribution. As a
result, these competitors may be able to respond more quickly to emerging
technologies and changes in customer requirements and can devote greater
resources to their businesses. The Company also expects that competition will
increase as a result of software industry consolidation. In addition, current
and potential competitors have established or may establish cooperative
relationships among themselves or prospective customers. Accordingly, new
competitors or alliances among competitors may emerge and
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rapidly acquire significant market share. Increased competition may result in
price reductions, reduced gross margins and loss of market share, any of
which would have a material adverse effect on the Company's business,
operating results and financial condition. The Company cannot ensure it will
be able to compete successfully against current or future competitors.
MANAGEMENT OF CHANGING BUSINESS; DEPENDENCE ON MANAGEMENT AND KEY EMPLOYEES
The Company has experienced significant changes in its business, including an
expansion in the Company's staff and customer base, and the expansion of its
product lines. Such changes have placed and may continue to place a
significant strain on the Company's management and operations. In order to
manage such change in the future, the Company must continue to enhance its
operational, financial and management information systems and to hire, train
and manage employees. If the Company is unable to implement these systems and
manage such changes effectively, the Company's business, operating results
and financial condition could be materially and adversely affected.
The Company believes that its future success will also depend in large part
upon its ability to attract and retain highly skilled technical, managerial
and marketing personnel. Competition for such personnel is intense. The
Company cannot ensure that it will be successful in attracting and retaining
the personnel it requires to continue growing. Because of the Broken Arrow,
Oklahoma (Tulsa Metropolitan area) location of the Company's headquarters,
the Company may have difficulty in attracting and retaining qualified
management and technical employees who may be required to move to become
employed by the Company.
The Company's success depends to a significant extent on the performance and
continued services of its senior management and certain other key employees.
The loss of one or more of senior management and key employees could have a
material adverse effect upon the Company. In October 1999, the Company began
entering into employment agreements with its executive officers in order to
reduce the risk of loss of key employees.
PROTECTION OF INTELLECTUAL PROPERTY
The Company's success is heavily dependent upon its confidential and
proprietary intellectual property. The Company presently has no patents or
patent applications pending. Rather, the Company relies primarily on a
combination of copyright, trademark and trade secrets laws, confidentiality
procedures and contractual provisions to protect its proprietary rights.
Trade secret and copyright laws afford only limited protection. Despite the
Company's efforts to protect its proprietary rights, unauthorized parties may
attempt to copy aspects of the Company's products or to obtain and use
information that the Company regards as proprietary. In addition, the laws of
some foreign countries do not protect the Company's proprietary rights as
well as the laws of the United States. The Company cannot guarantee that its
means of protecting its proprietary rights will be adequate or that the
Company's competitors will not independently develop similar technology.
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The Company does not believe that any of its products infringe upon the
proprietary rights of third parties. However, third parties could claim
infringement by the Company with respect to current or future products. The
Company expects that software product developers such as itself will
increasingly be subject to infringement claims as the number of products in
the educational software market increase and the functionality of such
products overlap. Defense of any such claims, with or without merit, could be
time-consuming, result in costly litigation, cause product shipment delays or
require the Company to enter into royalty or licensing agreements. Such
royalty or licensing agreements, if required, may not be available on terms
acceptable to the Company or at all. Any dispute regarding the proprietary
rights of third parties could have a material adverse effect upon the
Company's business, operating results and financial condition.
MANAGEMENT OF GROWTH
The Company is experiencing a period of transition and product introductions
that has and may continue to place a significant strain on its resources.
Expansion of the Company's product lines, additional product development and
product introductions, or acquisitions of other technologies, will further
place a strain on the Company's resources and personnel when added to the
day-to-day activities of the Company. In particular, the Company is currently
developing a new secure Internet browser for children, INTERNET
SAFARI-Registered Trademark-, scheduled to be released during the first
quarter of the calendar year 2000.
RISK OF PRODUCT DEFECTS
Prior to release of new products or upgrades to existing products, the
Company conducts exhaustive testing of those products. However, despite
testing, new products or enhancements may contain undetected errors or "bugs"
that are discovered only after a product has been installed and used by
customers. There can be no assurance that such errors will not be discovered
in the future. Such errors can cause delays in shipments that materially and
adversely affect the Company's competitive position and operating results.
Although the Company has not experienced material adverse effects resulting
from any such errors to date, the Company cannot ensure that its new products
or releases will be error free even after commencement of commercial
shipments. Discovery of errors in the Company's products after the
commencement of commercial shipping could result in the following:
- - loss of revenues;
- - delays in market acceptance;
- - diversion of development resources;
- - damage to the Company's reputation; and
- - increased service and warranty costs.
Any of these occurrences could have a material adverse effect upon the Company's
business, financial condition and results of operations.
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DEPENDENCE ON PRINCIPAL PRODUCTS
To date, the Company has derived substantially all of its revenue from the
sale of its 40 educational products. Accordingly, the Company's results will
depend on continued market acceptance of these existing products and
acceptance of its new products, including INTERNET SAFARI-Registered
Trademark-. Failure to achieve such acceptance could have a material adverse
effect on the Company's financial condition and results of operations.
DEVELOPMENT OF NEW PRODUCTS AND ENHANCEMENT OF EXISTING PRODUCTS
In order to remain competitive in the educational software market, the
Company must develop and introduce new products and product enhancements on a
timely basis. If the Company fails to develop and introduce new products and
enhancements on a timely basis, it could have a material adverse effect on
the Company's financial condition and results of operations.
YEAR 2000 ISSUES
Many existing computer systems and software products do not properly
recognize dates after December 31, 1999. This "Year 2000" problem could
result in miscalculations, data corruption, system failures or disruptions of
operations. The Company has reviewed its internal systems and believes that
such systems are Year 2000 compliant. However, the Company cannot ensure
that Year 2000 errors or defects will not be discovered in the Company's
internal software systems. If such errors or defects are discovered, the
costs of making the Company's internal systems Year 2000 compliant could be
material.
The Company is subject to potential Year 2000 problems affecting the systems
of its customers and the systems of its vendors. Additionally, changing
purchasing patterns of customers impacted by Year 2000 issues may result in
reduced resources available for purchases of educational software. These
problems could also have a material adverse effect on the Company's financial
condition and results of operations.
Year 2000 errors or defects in the internal systems maintained by the
Company's vendors could require the Company to incur significant
unanticipated expenses to remedy any problems or replace affected vendors. In
order to limit its exposure to potential Year 2000 inventory problems, the
Company has established relationships with various different sources of raw
materials. The Company is also prepared to increase its inventory of critical
raw materials to offset any unexpected delays in receiving such inventories.
See "Item 6. Management's Discussion and Analysis or Plan of Operation - Year
2000 Issues"
LIMITED RESOURCES
Although the Company believes that its current cash reserves and cash flows
from operations will be adequate to fund its operations for at least the next
twelve months, such resources may be inadequate. Consequently, the Company
may require additional operating funds during or after such period.
Additional financing may not be available on favorable terms or at all. The
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Company is currently planning a private placement of equity to be completed
by the first calendar quarter of 2000. If the Company raises additional funds
by selling stock, the percentage ownership of the Company's current
shareholders will be reduced. If the Company cannot raise adequate funds to
satisfy its capital requirements, the Company may have to limit its
operations significantly. The Company's future capital requirements depend
upon many factors, including:
- - the rate at which the Company expands its sales and marketing
operations;
- - the extent to which the Company develops its products;
- - the rate at which the Company updates its technology;
- - the Company's ability to complete its planned private placement;
- - the rate at which the Company expands; and
- - the response of competitors to the Company's product and service
offerings.
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL DEVELOPMENT OF BUSINESS
Heartsoft, Inc. was incorporated in the State of Delaware on June 2, 1988,
under the name "Davenport Company". In July, 1988, Davenport made a public
offering of its stock in furtherance of the objective of seeking and
acquiring an interest in a prospective business opportunity. In May, 1989,
Davenport acquired all of the issued and outstanding stock of Heartsoft,
Inc., a Delaware corporation ("Heartsoft - Delaware"). As part of such
acquisition Davenport caused Heartsoft - Delaware to be merged into Davenport
on June 21, 1989. Davenport then changed its corporate name to Heartsoft, Inc.
Heartsoft is engaged in the design and publishing its own proprietary
educational software products for distribution to the education market and
consumer market. On August 16, 1991, Heartsoft formed Heartsoft Software,
Inc., an Oklahoma corporation and a wholly owned subsidiary of Heartsoft.
Heartsoft Software, Inc. conducts the actual day-to-day operations of the
Company.
PRODUCTS AND MARKETS
The Company believes that there are two basic markets for educational
software technology - the education market and the consumer or retail market.
The education market consists of both school systems and individual educators
requiring core curriculum materials and supplemental materials for use in the
classroom. The consumer market consists of individuals who purchase
educational software for use in the home. Sales to the consumer market are
generally made through retail outlets such as:
- - computer and software specialty stores;
- - warehouse clubs;
- - general merchandise outlets;
- - Internet service providers (ISPs);
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- - original equipment manufacturers (OEMs) such as Dell, Compaq, Gateway,
Apple, etc.; and
- - on-line Internet stores, also known as e-commerce solutions.
Because the Company perceived the competition and barriers to entry into the
consumer market to be extremely high, it has chosen to concentrate first on
the educational market, then to expand into the consumer market.
During the first calendar quarter of 1999, the Company began development of
INTERNET SAFARI-Registered Trademark-, a secure Internet browser for
children. This proprietary product has been under in-house development and is
expected to be available during the first calendar quarter of 2000. INTERNET
SAFARI-Registered Trademark- is designed for children ages 4 through 12 years
to help simplify their use of the Internet. INTERNET SAFARI-Registered
Trademark- will offer its young users access to the Internet with an exciting
cartoon interface built around a safari theme with jungle sounds, music and
animation. The new browser will also utilize artificial intelligence combined
with advanced image detection and analysis software to protect users from
inappropriate Internet content such as adult content, pornography, violence,
hate crimes, etc. INTERNET SAFARI-Registered Trademark- will be distributed
to both the consumer and educational markets.
With respect to products created for the education market, the Company's
primary emphasis during product development is on content and instructional
methodology. In the education market, as opposed to the consumer market,
products enjoy a longer life span and obsolescence is less of a concern. This
difference can be attributed, in part, to the fact that users in the
education market tend to upgrade hardware much less frequently than users in
the consumer market. Additionally, products in the education market often
have life-spans as long as 7 years because such products are based on core
curriculum concepts that do not change significantly from year to year.
The consumer market tends to be much more volatile than the education market.
Advances in computer technology spur the introduction of newer and faster
computers almost on a monthly basis. As a result, publishers are constantly
introducing new software to take advantage of these improved technologies and
consumer software products become obsolete much sooner than education
software, often on the order of two to three years. Educational software
publishers who cater to the consumer market incur substantially increased
development costs associated with more frequent product introduction or
upgrades to existing products in order to remain competitive.
While the Company currently receives nearly all of its income from sales to
the education market, the introduction of INTERNET SAFARI-Registered
Trademark- in early 2000 will mark the beginning of the Company's move into
the consumer market.
The Company is not aware of a dominant company or companies that offer
curriculum materials of the type the Company offers in the education market.
The majority of the companies offering products to the education market focus
on large network solutions or integrated learning systems, which result in a
comprehensive curriculum-based solutions. While such building-wide
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curriculum solutions are comprehensive in nature, they are very expensive,
often costing between $50,000 to $100,000 per building.
One of the Company's best selling proprietary titles is THINKOLOGY-Registered
Trademark-, a software series that teaches young children the skills of
critical thinking and higher order reasoning skills. Released in late 1998,
THINKOLOGY-Registered Trademark- has garnered the prestigious Media & Methods
Portfolio Award for 1999. THINKOLOGY-Registered Trademark- has also received
several favorable reviews in top educational and consumer magazines,
including FamilyPC and Multimedia Schools.
Other popular Heartsoft titles include:
- - TOMMY THE TIME TURTLE, an animated turtle that teaches children ages 5-7
how to tell time;
- - COIN CHANGER, which introduces children ages 5-7 to the denominations of
coins; and
- - the HEARTSOFT BESTSELLER SITE LICENSE, which consists of 12 of the
Company's top selling titles under a license allowing the teacher to copy
the software for every computer in the school.
The Company relies on a professional sales staff with many years of
experience and extensive contacts in the education software market to sell
the Company's proprietary titles. With respect to its publishing activities,
the Company's development staff oversees the development of the software.
Additionally, the Company assembles its raw materials creating a final
package at its Broken Arrow, Oklahoma facilities. All of the proprietary
software titles developed by the Company have been copyrighted. All of the
Company's products currently in development will be copyrighted prior to
release.
MAJOR CUSTOMERS
Heartsoft markets its products nationwide to many diverse groups that are
governed by unrelated buying decisions. No single customer represents a
significant portion of the Company's revenues. Heartsoft most effectively
strengthens relationships with existing customers by additional and upgrade
sales in situations where customers can add to their Heartsoft library.
SOURCES AND AVAILABILITY OF RAW MATERIALS
The most important raw materials purchased by the Company are computer
diskettes and pre-duplicated CD-ROMs, both of which are obtained from
domestic suppliers. The Company also purchases certain components from
domestic manufacturers and printers for its packaging materials. The Company
endeavors to obtain the lowest possible cost when purchasing raw materials
and components while meeting specified quality standards. The Company is not
dependent upon any one source for its raw material or the major components of
its manufactured products. The Company anticipates that it will have adequate
sources of supplies to meet its manufacturing requirements for the
foreseeable future.
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MARKETING AND DISTRIBUTION
At November 1, 1999, the Company utilized a sales staff of 5 inside sales
people to market its products in the United States and abroad. The Company
anticipates hiring 4 additional people in the sales area by December 31, 1999
and 2 full-time outside sales representatives by March 31, 2000. From time to
time, the Company also conducts focused direct mail marketing campaigns that
support the efforts of its inside sales team. Sales are made directly to
individual teachers and to regional school systems and districts, with
shipments being made from the Company's Broken Arrow office to the purchaser.
The Company's products and sales strategy focus on a "niche" market within
the consumer and educational markets. Three of the Company's best selling
products, HEARTSOFT BESTSELLER SITE LICENSE (covering 12 software titles) and
HEARTSOFT K-8 LIBRARY (containing all 38 titles in the current product line)
and its most recent release, THINKOLOGY-Registered Trademark-, sell from
prices ranging from approximately $400 to $1,400, depending on the
configuration. Further, each product license allows multiple use of the
software throughout the school. Within the consumer, or home market, the
Company's products sell in the price range from approximately $10 to over
$100 depending on configuration and educational support materials.
To support and service its customers, the Company supplies technical support
through its in-house technical support team.
The Company's warranty on its products is lifetime for content, and one year
for disc errors.
RESEARCH AND DEVELOPMENT
All research and development activities of the Company are company-sponsored,
rather than customer-sponsored. Research and development costs are
capitalized as incurred once technological feasibility has been established.
Ongoing work includes completion of its new secure Internet browser for
children, INTERNET SAFARI-Registered Trademark-, as well as two additional
titles in its critical thinking skill series, THINKOLOGY-Registered
Trademark-.
BACKLOG
The Company has no current order backlog and has experienced minimal
occurrences in the past. Each order is filled on demand with sophisticated,
high-speed diskette duplicators that can duplicate a disk in as little as 25
seconds. The Company utilizes companies that provide CD-ROM duplication
services in five to fifteen business days. Any production delays are most
frequently caused by delays in raw material receipt. These delays rarely
exceed 24-48 hours.
WORKING CAPITAL PRACTICES
Working capital practices in the industry software center on inventories and
accounts receivable. The Company regularly reviews its working capital
components in order to maintain the lowest level necessary in light of
anticipated needs. The Company's working capital requirements are
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generally met through a bank revolving credit facility, which currently
permits allowable borrowings up to $100,000. In anticipation of continuing
the Company's policy of growth, the Company is planning a private placement
of equity securities in the first quarter of the calendar year 2000. The
Company anticipates that the combination of the proceeds received upon
completion of its private placement of equity and its available bank credit
will be sufficient to meet its working capital needs through the fiscal year
ended 2000.
SEASONALITY
The Company experiences mild seasonality in its sales patterns, with the peak
buying periods in the October through December quarter and the April through
June quarter.
COMPETITION
The Company competes with approximately two dozen other educational software
developers. These competitors have sales ranging from less than $1 million to
over $100 million. Heartsoft differentiates itself on the basis of price,
total value and quality of product.
EMPLOYEES
At November 1, 1999, the Company had 18 full-time employees and 3 part-time
employees, none of whom are represented by unions. Management considers its
relations with its employees to be good.
COPYRIGHTS, PATENTS, TRADEMARKS, LICENSES AND CONCESSIONS
The Company routinely copyrights its proprietary software titles. All of its
proprietary titles developed to date have been copyrighted. Further, the
Company has filed registered trademarks on its corporate name, and its
leading-edge proprietary products. As of November 1, 1999, the Company holds
the following registered trademarks, Heartsoft, Inc.-Registered Trademark-,
INTERNET SAFARI-Registered Trademark-, and THINKOLOGY-Registered Trademark-.
ENVIRONMENTAL MATTERS
The Company's operations are of a nature that laws concerning the environment
do not substantially affect the Company's domestic operations. The Company
believes that it presently complies with these laws and that future
compliance will not materially adversely affect the Company's earnings or
competitive position.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company leases its principal office location in Broken Arrow, Oklahoma, a
suburb of Tulsa. The Broken Arrow office, which includes both executive
offices and production space, contains 4,350 square feet (1,200 sq. ft. of
production/warehouse space and 3,150 sq. ft. of office space), located in a
business office park at 3101 N. Hemlock Circle, Broken Arrow, Oklahoma. The
lease is for a five-year term expiring October of 2000. As of November 1,
1999, the Company
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was in negotiations with its landlord to increase its office space by
approximately 30% within the same facility. Further, the Company is currently
considering a new five-year lease that would expire on November 30, 2004.
This new lease would provide that the Company become the building's anchor
tenant with first right-of-refusal of all additional space totaling over
10,000 square feet, and options to purchase the building should it become
available through sale or auction.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders, through solicitation
of proxies or otherwise, during the period from March 31, 1998 through March
31, 1999.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is traded over the counter (symbol: HTSF). The
range of high and low bid information for the Company's Common Stock during
the last two years, as reported by the NASDAQ Stock Market, Inc., was as
follows:
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Quarter Ended High Bid Low Bid
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June 30, 1997 $0.84375 $0.4375
September 30, 1997 $0.7500 $0.3750
December 31, 1997 $0.6875 $0.34375
March 31, 1998 $0.5000 $0.34375
June 30, 1998 $0.53125 $0.40625
September 30, 1998 $0.4375 $0.1500
December 31, 1998 $0.2500 $0.1250
March 31, 1999 $5.9375 $0.1700
</TABLE>
The above quotes reflect inter-dealer prices without retail mark-up or
markdown or commissions, and may not represent actual transactions.
As of March 31, 1999, there were 462 holders of record, and approximately
3,000 beneficial owners, of the Company's Common Stock.
Since its inception, no cash dividends have been paid on the Company's Common
Stock and the Company does not anticipate paying cash dividends in the
foreseeable future.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
YEAR 2000 ISSUES
The Year 2000 issue developed because most computer systems and programs were
designed to record years (e.g. "1998") as two-digit fields (e.g. "98"). When
the year 2000 begins, these systems may interpret "00" as the year 1900 and
may stop processing date-related computations or process them incorrectly. To
prevent this occurrence, Heartsoft has examined its computer systems and
programs and determined that the Company's internal information systems and
software applications will manage dates beyond December 31, 1999. While the
Company believes that it has allocated sufficient time and resources to
identify any potential Year 2000 issues, no absolute assurances can be given
that these efforts have been successful.
The Company updates its computer hardware and software on a regular basis. As
updates have occurred, the Company has taken steps to ensure that such
updates are Year 2000 compliant. The Company does not expect to incur any
material costs in the future related to Year 2000 issues. However, this
expectation is based, in part, upon using various assumptions about future
events including the third party modification plans to their operating
systems. The Company does not expect the cost of addressing any Year 2000
issue to be a material event or uncertainty that would have a material
adverse effect on future results of operations or financial condition.
The Company's operations are also dependent on the Year 2000 readiness of
third parties that do business with Heartsoft. The Company is dependent on
third-party suppliers of such infrastructure elements as, but not limited to,
telephone services, electric power, and water. The Company has identified and
initiated formal communications with key suppliers and service providers to
determine the extent to which it will be vulnerable to such parties' failures
to address and resolve their Year 2000 issues. Although the Company is not
aware of any known third party problem that will not be corrected, it has
limited information concerning the Year 2000 readiness of third parties. If
the Company's suppliers' systems are not modified to become Year 2000
compliant, the Year 2000 issue may have a material impact on the results of
operations and financial condition of the Company. The Company is presently
unable to assess the likelihood that it will experience significant
operational problems due to unresolved Year 2000 problems of third parties.
The Company believes the worst-case scenarios that it may be confronted with
respect to the Year 2000 issues have to do with the possible failure of third
party systems over which it has no control. Some of these third parties
include power and telephone providers, and vendors that supply manufactured
products and services.
The Company also believes that it has created a reasonable contingency plan
with regards to Year 2000 issues under its control, namely the identification
of back-up suppliers for its inventory needs as discussed earlier.
RESULTS OF OPERATIONS
The Company derives revenue from product sales which are published by
Heartsoft, Inc. on a proprietary basis. The Company sells its products in
North America primarily to the education
15
<PAGE>
market through an in-house sales team and a network of educational software
resellers, many of whom do large direct mail campaigns of software catalogs
to schools throughout the U.S. and Canada.
The Company's top selling products during fiscal 1998, were titles from the
THINKOLOGY-Registered Trademark- series and products in THE HEARTSOFT
BESTSELLERS SITE LICENSE SERIES. Each of these products are seeing increased
unit sales to the education market as the Company is gaining greater market
penetration and expertise in selling to educators.
The Company's most recent product release, THINKOLOGY-Registered Trademark-
which teaches critical thinking skills to early learning students was
introduced by the Company as a complete solution in mid-1998. Software
technology products introduced to the education market often see at least a 1
year ramp-up period or more before significant revenues gains can be
realized. An average software title such as THINKOLOGY-Registered
Trademark-will see a 5 year life-span or longer in the education market:
PRODUCT LIFE SPANS
<TABLE>
<CAPTION>
Year 1 Year 2 Year 3 Year 4 Year 5
<S> <C> <C> <C> <C>
% of Revenues: 10% 20% 30% 25% 15%
</TABLE>
While the revenue life-span model denoted herein represents an average often
seen in the education market, many software products will see a much longer
life span with longer-delays during the initial 1-3 years. Factors affecting
a slower ramp-up of revenues from new product introductions to the
educational software market can be:
- - Availability of experienced sales and marketing management personnel
familiar with immediate introduction of new products quickly to the education
market.
- - Availability of capital resources to fully leverage the many sales and
marketing channels within the education market which can include a mature
inside sales team, an outside sales team, direct channel marketing, reseller
sales and marketing channel, and an active trade-show and conference schedule.
- - Overall awareness by the education market of a software publisher.
Obviously, a company who has seen vast sales of its previous products to the
education market will see faster acceptance of new products than a newer
publisher who must first establish a corporate identity and product awareness.
During fiscal 1998, Company conducted numerous maintenance upgrades to its 37
curriculum based titles and introduced THINKOLOGY-Registered Trademark-, a 3
CD-ROM series, which increased sales opportunities across the board.
Over the last few years, as the company focused a substantial portion of its
operating budgets to new product development, revenue growth rates from sales
of the Company's products have fluctuated substantially.
During the year ended March 31, 1999, total sales decreased 9%, as compared
to 1998. Net sales were 6.1% lower for the year ended March 31, 1999 compared
to March 31, 1998, levels mainly due to small fluctuations in advertising
campaigns and changes in internal sales staff personnel.
OPERATING EXPENSES
Total G&A expenses decreased 20%, for the year ended March 31,1999, as
compared to the year ended March 31, 1998. Total payroll expense increased 2%
compared with payroll expense for the year ended March 31, 1998. With the
completion of the Company's new critical thinking skills product,
THINKOLOGY-Registered Trademark-, the Company began to focus a substantial
portion of its resources to building an inside sales team. This enhanced
focus on sales is reflected in an increase in sales payroll expense which
rose 35% in the year ended March 31, 1999, as compared to the year ended
March 31, 1998.
Total cost of production decreased during the year ending March 31, 1999 by
$24,285, or 19%, when compared to figures for the year ending March 31, 1998.
This decrease was attributed to changes in product packaging that allowed the
Company to maintain a lessor number of master CD-ROMs and floppy-diskettes,
which in-turn decreased the number of those items shipped in final product
packaging. The decrease in cost of production can also be associated with an
increase in the number of building license sales of the Company's products
which generally deliver fewer CD-ROMs of floppy diskettes of a product, while
granting a customer the right to install multiple-copies of an original
CD-ROM or floppy diskette.
Interest expense paid by the Company during the fiscal year ending March 31,
1999 decreased by $40,905, or 25%, when compared to the period ending one
year earlier. This decrease in interest expense was associated to a
substantial decrease of borrowings by the Company during the period.
During the year ending March 31, 1999, the Company was able to decrease
administrative payroll expense by 16% when compared to the year earlier
figures. This decrease was attributable to increased efficiencies within the
organization's administrative office and the
16
<PAGE>
implementation of job cross training which allowed redundant administrative
positions to be eliminated.
Finally, in expenses associated to the closure of a Dallas, Texas based sales
and marketing division first established in 1996, the Company saw a decrease
in costs of $89,022 for the year ending March 31, 1998, to $6,964 in the year
ending March 31, 1999. The final expenses associated with the closing of the
Dallas office were seen in fiscal 1999, and the Company anticipates no
remaining expenses to be incurred in connection to the closure.
GAIN ON SALE OF AN ASSET VS. LICENSING INCOME
During fiscal year ended March 31, 1997, the Company entered into an
agreement with three Canadian Limited Partnerships to sell a 45% minority
interest in its HEARTSOFT K-8 LIBRARY product line. In turn the Canadian
Limited Partnerships licensed back to Heartsoft the exclusive marketing and
sales rights to their 45% interest in the K-8 Library.
The net cash proceeds from these transactions to the Company were $485,895 in
fiscal 1998, and $153,277 in fiscal 1999. As a part of the sale transactions,
the Company also received Notes Receivable from the Partnerships for
approximately $2,250,000, payable from revenues received by the partnership
for sales of their portion of the K-8 Library.
On or about November 1, 1999, management of the Company became aware of the
possibility that the Company had a potential liability to the Canadian
Limited Partnerships, which could approach $1 million due to certain tax
ramifications for the Partnerships.
However, as a result of management's analysis and discussions with the
Partnership's general manager, management has concluded that there is no
substantial basis for liability in connection with the Canadian Limited
Partnerships. The Company is not contemplating any further sale of its assets
as described above.
In previous public communications of the Company's operating results, the net
proceeds of the Canadian Limited Partnership transactions had been reported
as licensing income, included in operating income. In the accompanying
financial statements, the cash portion of the Canadian Limited Partnership
transactions is being reported as a gain on the sale of an asset, which
appears below operating income.
FINANCIAL CONDITION AND LIQUIDITY
Total assets at March 31, 1999, decreased 29% from the preceding year. The
change can be attributed to reduced accounts receivable. The reduction is due
primarily to better collection efforts associated with sales to the
education market, tighter credit policies, and a stronger emphasis on
qualified sales resulting in less product being sent out for review. The
Company did not incur any major capital expenditures for the year ended March
31, 1999.
The Company's working capital needs are met primarily by its bank revolving
credit facility that is collateralized by accounts receivable and inventory
as well as a personal guarantee by the Company's Chairman. As of March 31,
1999, the Company also relied on a short-term bank loan, secured by the
Company's assets and personal guarantees of the Company's Chairman, which
matures in December 1999.
As of March 31, 1999, the Company was in the process of raising additional
capital through certain stock transactions in the form of a private
placement.
17
<PAGE>
ITEM 7. FINANCIAL STATEMENTS.
The Financial Statements and supplementary data of the Company are set forth
on pages F-1 through F-16 inclusive, found at the end of this report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The following sets forth information as of March 31, 1999 concerning the
Company's executive officers and directors:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
NAME AGE POSITION
-------------------------------------------------------------------------------------
<S> <C> <C>
Benjamin P. Shell, Jr. 36 Chairman of the Board, President and Chief
Executive Officer
-------------------------------------------------------------------------------------
Jimmy L. Butler, Jr. 36 Director, Vice-President of Development, and
Secretary
-------------------------------------------------------------------------------------
</TABLE>
BENJAMIN P. SHELL, CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE
OFFICER
As a co-founder of Heartsoft, Benjamin Shell has played a key role in the
development and growth of the Company since its inception. Since 1989, Mr.
Shell has served as the Company's President, Chief Executive Officer and
Chairman of the Board of Directors. Not only has he overseen the development
of over 60 of the Company's former and current software titles, but he is
also personally responsible for programming more than 50 of those titles
himself. Mr. Shell's insight into the use of educational software by children
and development continues to produce Heartsoft's unique product style.
JIMMY L. BUTLER, DIRECTOR, VICE-PRESIDENT OF DEVELOPMENT, AND SECRETARY
As a co-founder of Heartsoft, Jimmy Butler has more than ten years of
educational software development experience with the Company. Mr. Butler
served as Vice-President of Marketing from 1987 to 1993. His diverse exposure
to the educational and software industry includes:
- - designing and implementing direct mail campaigns;
- - market analysis;
18
<PAGE>
- - telemarketing;
- - direct sales to school administrators;
- - new product design;
- - content writing; and
- - hosting dozens of national trade shows.
Mr. Butler also works in the areas of corporate imaging, marketing position,
new product development, crossover markets, public relations and advertising
campaigns.
Mr. Butler has held the position of Vice-President of Development since 1993.
In this position, Jimmy was recently responsible for the conversion of 40
products to the Macintosh platform, from conceptualization to final release.
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth information with respect to compensation
received by the chief executive officer of the Company. During the past three
calendar years, none of the executive officers of Heartsoft received a total
annual salary and bonus that exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION ALL OTHER
------------------- COMPENSA-
NAME AND PRINCIPAL POSITION YEAR SALARY TION(1)
- --------------------------- ---- ------ -------
<S> <C> <C> <C>
Benjamin P. Shell, 1999 $46,800 $9,444
President and Chief Executive Officer 1998 $46,800 $9,561
1997 $39,000 $9,561
</TABLE>
(1) All Other Compensation consists of car allowance provided by the
Company.
None of the executive officers currently hold options to purchase the
Company's stock. None of the executive officers of the Company were granted
options to purchase the Company's stock or exercised options to purchase the
Company's stock within the last fiscal year.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of March 31, 1999 by (i) each
director, (ii) each of the named executive officers, (iii) all executive
officers and directors of the Company as a group, and (iv) all those known by
the Company to be beneficial owners of more than five percent of the
Company's Common Stock. This table is based upon information supplied by
officers, directors and principal shareholders. Subject to community property
laws where applicable, each of the shareholders named in this table has sole
voting and investment power with respect to the shares indicated as
beneficially owned.
19
<PAGE>
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
--------------------
NAME AND ADDRESS NUMBER PERCENTAGE
OF BENEFICIAL OWNER OF SHARES OF TOTAL
- ------------------- -------------------------------------
<S> <C> <C>
Benjamin P. Shell, Chairman of the Board
President, and Chief Executive Officer
3101 North Hemlock Circle
Broken Arrow, OK 74102 930,564 10.15%
Jimmy L. Butler, Director, Vice-President,
Development, and Secretary
3101 North Hemlock Circle
Broken Arrow, OK 74102 854,249 9.32%
All executive officers and directors
as a group (2 persons) 1,784,813 19.47%
</TABLE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- --------------------------------------------------------------------------------
<C> <S>
3.1 Articles of Incorporation of the Company.
3.2 By-Laws of the Company.
4.1 Specimen of Certificate for Heartsoft, Inc. Common
Stock.
10.1 Corporate Note to Dale Hill dated October 21, 1998.
10.2 Corporate Note to Dale Hill dated February 10, 1998.
10.3 Heartsoft, Inc. Employee Benefit and Stock Option
Plan.
10.4 Promissory Note dated July 16, 1999 to Tulsa
National Bank.
10.5 Promissory Note dated December 16, 1999 to Bank of
Oklahoma.
10.6 Equipment Lease with Auto & Equipment Leasing by
Flex, Inc. dated February 12, 1998.
20
<PAGE>
10.7 Software Agreement dated May 16, 1997 between
Heartsoft, inc. and Heartsoft 1997 Limited
Partnership.
10.8 Acquisition Note dated May 16, 1997 from Heartsoft
1997 Limited Partnership.
10.9 Assumption Agreement dated April 30, 1997 by and
among Heartsoft 1997 Limited Partnership, Heartsoft,
Inc. and Limited Partners.
10.10 Joint Venture Agreement dated May 16, 1997 between
Heartsoft, Inc. and Heartsoft 1997 Limited
Partnership.
10.11 Software Agreement dated July 30, 1997 between
Heartsoft, Inc. and Heartsoft II 1997 Limited
Partnership.
10.12 Acquisition Note dated July 30, 1997 from Heartsoft
II 1997 Limited Partnership.
10.13 Assumption Agreement dated July 30, 1997 by and among
Heartsoft II Limited Partnership, Heartsoft, inc. and
Limited Partners.
10.14 Joint Venture Agreement dated July 30, 1997 between
Heartsoft, Inc. and Heartsoft II 1997 Limited
Partnership.
10.15 Software Agreement dated October 28, 1997 between
Heartsoft, Inc. and Heartsoft III 1997 Limited
Partnership, incorporated by reference to the
Company's Form DEF 14C as of October 4, 19997 (SEC
File # 033-23138-D).
10.16 Acquisition Note dated October 28, 1997 from
Heartsoft III 1997 Limited Partnership, incorporated
by reference to the Company's Form DEF 14C as of
October 4, 19997 (SEC File # 033-23138-D).
10.17 Assumption Agreement dated July 30, 1997 by and among
Heartsoft III 1997 Limited Partnership, Heartsoft,
Inc. and Limited Partners.
10.18 Joint Venture Agreement dated October 28, 1997
between Heartsoft, Iinc. And Heartsoft III 1997
Limited Partnership, incorporated by reference to the
Company's Form DEF 14C as of October 4, 19997 (SEC
File # 033-23138-D).
21
<PAGE>
10.19 Lease dated April 16, 1992, as amended, for
commercial office space in Broken Arrow, Oklahoma.
21.1 Subsidiaries of Heartsoft.
23.1 Consent of Tullius Taylor Sartain & Sartain LLP.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K: The Company did not file any reports on
Form 8-K during the period from December 31, 1998 to March 31,
1999.
22
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
HEARTSOFT, INC.
(Registrant)
Date: 01/27/00 /s/ Benjamin P. Shell
------------ --------------------------------------------------------
Benjamin P. Shell, Chairman of the Board, President, and
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Date: 01/27/00 /S/ Benjamin P. Shell
------------ --------------------------------------------------------
Benjamin P. Shell, Chairman of the Board, President, and
Chief Executive Officer
(Principal Executive Officer and Principal Financial
Officer)
Date: 01/27/00 /S/ James L. Butler, Jr.
------------ --------------------------------------------------------
Jimmy L. Butler, Jr., Vice-President
Date: 01/27/00 /S/ Kathy David
------------ --------------------------------------------------------
Kathy David, Controller
23
<PAGE>
INDEX PAGE
<S> <C>
Report of Independent Auditors...........................................................F-2
Balance Sheet as of March 31, 1999.................................................F-3 - F-4
Statements of Operations for the Fiscal Years Ended March 31, 1999 and 1998..............F-5
Statements of Changes in Stockholders' Equity for the Years Ended
March 31, 1999 and 1998..................................................................F-6
Statements of Cash Flows for the Years Ended
March 31, 1999 and 1998..................................................................F-7
Notes to Financial Statements.....................................................F-8 - F-16
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Heartsoft, Inc.
We have audited the accompanying balance sheet of Heartsoft, Inc., as of
March 31, 1999, and the related statements of operations, changes in
stockholders' equity, and cash flows for the years ended March 31, 1999 and
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Heartsoft, Inc. as of March
31, 1999, and the results of its operations and its cash flows for the two
years then ended, in conformity with generally accepted accounting principles.
TULLIUS TAYLOR SARTAIN & SARTAIN LLP
Tulsa, Oklahoma
November 9, 1999
F-2
<PAGE>
HEARTSOFT, INC.
BALANCE SHEET
March 31, 1999
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash $41,589
Accounts receivable, trade, net of allowances
of $135,256 46,598
Inventories, at cost 20,351
Other 14,599
---------------------
Total current assets 123,137
Property and equipment, at cost:
Property and equipment 145,228
Less accumulated depreciation 92,290
---------------------
Property and equipment, net 52,938
Other assets:
Developed software, net 619,546
Other 2,689
---------------------
Total other assets 622,235
---------------------
Total assets
$798,310
=====================
See notes to financial statements.
F-3
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Accounts payable, trade $193,740
Notes payable, current 281,376
Accrued expenses 92,900
---------------------
Total current liabilities 568,016
Notes payable, noncurrent 213,146
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value, 5,000,000 shares
authorized, 379,875 shares issued 3,799
Common stock, $0.0005 par value, 30,000,000 shares
authorized, 9,157,214 shares issued 4,579
Additional paid-in capital 3,239,478
Deficit (3,230,708)
---------------------
Total stockholders' equity 17,148
---------------------
---------------------
Total liabilities and stockholders' equity $798,310
=====================
</TABLE>
See notes to financial statements.
F-4
<PAGE>
HEARTSOFT, INC.
STATEMENTS OF OPERATIONS
Years ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
-------------------------------------------
<S> <C> <C>
Net sales
$527,915 $560,128
Costs and expenses:
Costs of production 102,600 126,885
Sales and marketing 239,756 233,704
General and administrative 544,751 683,673
Depreciation and amortization 181,697 167,600
-------------------------------------------
Total operating expenses 1,068,804 1,211,862
-------------------------------------------
Operating loss (540,889) (651,734)
Other income and expense:
Gain on sale of interest in software library 153,277 485,895
Interest expense (121,897) (162,802)
Other, net (10,608) (45,785)
-------------------------------------------
277,308
20,772
-------------------------------------------
Loss before income taxes and unusual item (520,117) (374,426)
Income taxes -
-
-------------------------------------------
Loss before unusual item (520,117) (374,426)
Unusual item - costs associated with closing
Dallas sales office (6,964) (89,022)
-------------------------------------------
Net loss
$(527,081) $(463,448)
===========================================
Net loss per common share - basic and diluted
$(0.07) $(0.08)
===========================================
</TABLE>
See notes to financial statements.
F-5
<PAGE>
HEARTSOFT, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
Additional
Preferred Stock Common Stock Paid-in Accumulated
--------------------- ---------------------
Shares Amount Shares Amount Capital Deficit Total
----------- --------- ----------- --------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1997 1,218,500 $12,185 5,396,390 $2,698 $2,517,341 $(2,240,179) $292,045
Common stock issued in
lieu of preferred
dividends - - 51,900 26 (26) - -
Sale of common stock 522,033 261 188,141 - 188,402
Stock issued as
consideration - - 358,834 180 193,081 - 193,261
Net loss - - - - - (463,448) (463,448)
----------- --------- ----------- --------- ------------ -------------- -------------
Balance, March 31, 1998 1,218,500 12,185 6,329,157 3,165 2,898,537 (2,703,627) 210,260
Convert preferred
stock to common (838,625) (8,386) 670,900 336 8,050 - -
Warrant exercise 444,600 222 222
Sale of common stock - - 1,373,730 687 263,555 - 264,242
Stock issued as
consideration - - 338,827 169 69,336 - 69,505
Net loss - - - - - (527,081) (527,081)
----------- --------- ----------- --------- ------------ -------------- -------------
Balance, March 31,1999 379,875 $3,799 9,157,214 $4,579 $3,239,478 $(3,230,708) $ 17,148
=========== ========= =========== ========= ============ ============== =============
</TABLE>
See notes to financial statements.
F-6
<PAGE>
HEARTSOFT, INC.
STATEMENTS OF CASH FLOWS
Years ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
--------------------- ---------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(527,081) $ (463,448)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization 181,697 167,600
Issuance of stock for goods and services 69,505 193,079
Gain on sale of software library (153,277) (485,895)
Changes in:
Accounts receivable 221,498 (205,506)
Prepaid expense (3,234) 61,468
Inventories (10,744) (1,773)
Accounts payable 14,559 58,267
Accrued expenses 69,878 (54,932)
--------------------- ---------------------
Net cash used in operating activities (137,199) (731,140)
CASH FLOWS FROM INVESTING ACTIVITIES
Capitalized software development costs (136,128) (205,228)
Payments for the purchase of property - (42,148)
--------------------- ---------------------
Net cash used in investing activities (136,128) (247,376)
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
Proceeds from sale of software library 165,512 498,130
Proceeds from issuance of long-term debt 345,000 289,678
Proceeds from issuance of common stock 264,465 188,584
Net borrowings (repayments) under line of credit (152,500) 1,378
Principal payments on notes payable (311,972) -
--------------------- ---------------------
Net cash provided by financing activities 310,505 977,770
--------------------- ---------------------
Net increase (decrease) in cash 37,178 (746)
Cash at beginning of year 4,411 5,157
--------------------- ---------------------
Cash at end of year $ 41,589 $ 4,411
===================== =====================
Supplemental disclosures:
Cash paid during the year for interest $ 46,676 $ 50,264
===================== =====================
</TABLE>
HEARTSOFT, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 1999 and 1998
See notes to financial statements.
F-7
<PAGE>
NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Heartsoft, Inc., including its subsidiary described below ("Heartsoft" or the
"Company"), a publicly held Delaware corporation, was formed on January 15,
1988. On August 16, 1991, Heartsoft Software, Inc., an Oklahoma corporation,
was organized as a wholly owned subsidiary of Heartsoft, in which the actual
day-to-day operations of the Company are conducted.
The Company is engaged in publishing its own proprietary educational software
and licensing technological products for distribution to the education
market. The Company sells its products to schools and to end-users through
telephone sales and direct response reseller catalogs. The Company's
principal market is in the United States and Canada.
REVENUE RECOGNITION
Revenues from the sale of software products are recognized upon shipment,
provided that no significant obligations remain outstanding and collection of
the receivable is probable. Shipments of software previews to customers
include the right of return for 45 days. Sales on these shipments are not
recognized until expiration of the preview period. Allowances for estimated
returns are provided at the time of sale. The Company evaluates the adequacy
of allowances for returns and doubtful accounts primarily based upon its
evaluation of historical and expected sales experience. The allowances for
returns and doubtful accounts are based upon information available at the
reporting date. To the extent the future market, customer mix, channels of
distribution, product pricing and general economic and competitive conditions
change, the estimated allowances required for returns and doubtful accounts
may also change.
INVENTORIES
Inventories consist primarily of raw materials such as CD- ROM and floppy
discs and manuals. They are stated at the lower of cost, determined by using
the first-in, first-out method, or market.
ADVERTISING AND MARKETING COSTS
The Company expenses advertising costs, excluding co-operative advertising,
as incurred. Co-operative advertising programs are initially capitalized and
then expensed over the period of the specific contract for services.
Capitalized advertising costs are not material at March 31, 1999. Advertising
costs totaled $125,686 and $130,244 for the years ended March 31, 1999 and
1998, respectively.
DEPRECIATION
The Company's property and equipment is carried at cost and depreciated over
the estimated useful lives of the related assets. Depreciation is computed
using the straight-line method over a seven-year period for both financial
reporting and federal income tax purposes.
F-9
<PAGE>
DEVELOPED SOFTWARE
Costs for new software products and enhancements to existing software
products are expensed as incurred until technological feasibility has been
established. Once the project reaches technological feasibility, all software
development costs are capitalized until the project is ready for release.
Software development costs are amortized on the straight-line method over a
maximum of seven years or the expected life of the product, whichever is
less. Amortization expense of software development costs was $162,533, and
$148,436 for the years ended March 31, 1999, and 1998, respectively.
INCOME TAXES
Deferred tax liabilities and assets are determined based on the differences
between the financial statement basis and tax basis of assets and
liabilities, using enacted tax rates in effect for the year in which the
differences are expected to reverse. Statement of Financial Accounting
Standards ("SFAS") 109, "Accounting for Income Taxes," also requires a
valuation allowance against net deferred tax assets if, based upon the
available evidence, it is more likely than not that some or all of the
deferred tax assets will not be realized.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash, accounts receivable, accounts payable and accrued expense amounts
reported in the accompanying balance sheet approximate fair value. Accounts
receivable are unsecured. Based on the borrowing rates currently available to
the Company, the carrying amounts reported in the accompanying balance sheet
for notes payable approximate fair value.
CONCENTRATIONS OF CREDIT RISK
Heartsoft markets to educators nationwide, which is a large, diverse group
governed by unrelated buying decisions. Thus, no single customer represents a
significant portion of the Company's revenues or accounts receivable. The
education market consists of both school systems and individual educators
requiring core curriculum materials as well as supplemental materials.
EMPLOYEE STOCK OPTIONS
When the exercise price of employee stock options equals or exceeds the
market value of the stock at date of grant, the Company recognizes no
compensation expense.
EARNINGS PER SHARE
The Company follows SFAS No. 128, "Earnings Per Share," ("SFAS 128"), which
requires the presentation of basic and diluted earnings per share. Basic net
loss per share is computed using the weighted average number of common shares
outstanding during the period. Diluted net loss per share is computed using
the weighted average number of common shares outstanding during the period,
plus the dilutive effect of common stock equivalents. As the Company has no
F-10
<PAGE>
common stock equivalents at March 31, 1999 and 1998, basic net loss per share
equals diluted net loss per share.
NEW ACCOUNTING STANDARDS
The Company adopted SFAS No. 130, "Reporting Comprehensive Income" and SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related
Information" during 1998. The Company has no comprehensive income items for
the two years in the period ended March 31, 1999. Therefore, net loss equals
comprehensive income. The Company considers that it operates in only one
business segment. The Company will adopt SFAS No. 133, "Accounting for
Derivative Investments and Hedging Activities" during 2001. Currently, the
Company does not engage in hedging activities or transactions involving
derivatives.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
regarding items such as allowances for sales returns and uncollectible
accounts, and valuation allowances for deferred tax assets that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
NOTE 2 - CANADIAN LIMITED PARTNERSHIPS
During 1997, the Board of Directors of the Company authorized the sale of an
aggregate undivided 45% interest of the Company's "K-8 Library" (the
"Software Library") pursuant to the terms of a Software Agreement ("Software
Agreement") entered into between the Company and Heartsoft 1997 Limited
Partnership, Heartsoft II 1997 Limited Partnership, and Heartsoft III 1997
Limited Partnership, all Ontario, Canada limited partnerships (the
"Partnerships").
The Partnerships were formed by their general partner to acquire the
investment in the Software Library and to take advantage of certain Canadian
tax laws. The general partner of the Partnerships, which is unrelated to
Heartsoft, is responsible for their operation. The Company has no involvement
or association with the Partnerships other than through the Joint Venture
Agreement.
Pursuant to the terms of the Software Agreement, the Company sold 45%
interest in the Software Library for $4,940,000 (Canadian), less related
expenses, which was payable 30% in cash and 70% by promissory notes (the
"Acquisition Notes") bearing interest at 5%, due in 2007. The Acquisition
Notes are payable from funds generated by the Partnerships through a joint
venture with the Company (evidenced by a Joint Venture Agreement).
Pursuant to the Joint Venture Agreement between the Company and the
Partnerships, Heartsoft retained the sole marketing rights, while Heartsoft and
the Partnerships jointly share in the revenues attributable to the future sales
of product utilizing the Software Library. The Partnerships are entitled to 100%
of all "gross sales" each year until all interest owed to the
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<PAGE>
Company under the Acquisition Notes is paid in full. After all interest has
been paid, and until all principal and interest has been paid, the
Partnerships and the Company each are entitled to 50% of the "gross margin"
from sales attributable to the interest in the Software Library. The "gross
margin" is all gross revenues generated from the interest in the Software
Library, less returns, discounts and cost of goods sold. After the
Acquisition Notes have been paid in full (including all accrued interest),
the Company is entitled to 75% of the gross margin, and the Partnerships the
remaining 25%.
As of January 1, 1999, the Company has the option to terminate the Joint
Venture and reacquire the interest in the Software Library at a price to be
negotiated in good faith.
After sales commissions and other expenses, the Company realized U.S.$
663,444. After deducting the allocable cost of the Software Library, the
Company reported gain on sale of $485,895 in fiscal 1998 and $153,277 in
fiscal 1999. The gain associated with the Acquisition Notes has been deferred
because its realization depends on the Company's success in marketing the
Software Library, resulting in no net carrying value for the Acquisition
Notes. Such gain will be recognized as the Acquisition Notes are collected.
In fiscal 1999, interest on the Acquisition Notes amounted to $112,313, and
the principal balances were reduced by $26,800. Since these amounts are
realized through software sales, they are reported in the statements of
operations as such. The principal balance of the Acquisition Notes at March
31, 1999, is approximately $2,250,000.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following at March 31, 1999:
<TABLE>
<S> <C>
Office furniture, fixtures and equipment $ 71,326
Production and development equipment 64,671
Leasehold improvements 9,231
----------------
$ 145,228
================
</TABLE>
Depreciation expense was $19,164 for each of the years ended March 31, 1999
and 1998.
NOTE 4 - NOTES PAYABLE
Notes payable consist of the following at March 31, 1999:
<TABLE>
<S> <C>
Notes payable to individuals at rates ranging
from 5% to 20%, due on demand $ 165,000
Revolving line of credit due April 1999 with
with interest due monthly at National Prime
+ 1.00% (8.75% at March 31, 1999) 97,500
Revolving line of credit due December 1999
F-12
<PAGE>
with interest due monthly at National Prime
+ 1.50% (9.25% at March 31, 1999) 95,530
Note payable to a bank, due $481 monthly including interest at
9.5%, with remaining unpaid principal due October 1999,
secured by a vehicle 4,613
Note payable to a bank, due $1,050 monthly including interest at
National Prime + 2% (9.75% at March 31, 1999), due
November 1999 18,012
Note payable to a finance company, $4,575 monthly including
interest at 14.82%, due February 2001, secured by property
and equipment 113,867
----------------
Total 494,522
Current portion 281,376
----------------
Noncurrent portion $ 213,146
================
</TABLE>
The notes payable to individuals are collateralized by the Company's common
stock. Subsequent to March 31, 1999, several individuals exchanged notes
having a principal balance of $140,000 for shares of common stock. As a
result, such notes are classified as noncurrent. The remaining balance of the
noncurrent portion of $73,146 is due in fiscal 2001.
The revolving line of credit due April 1999 is secured by inventory, accounts
and general intangibles of the Company and is guaranteed by officers of the
Company. The note contains certain restrictive covenants limiting the
Company's ability to incur additional debt or merge with or acquire another
company.
The revolving line of credit due December 1999, provides for maximum
borrowings of $100,000 and is secured by stock, inventory, property and
equipment.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
The Company leases office facilities under an operating lease for $4,805 per
month plus adjustments over the life of the lease. Rental expense was $56,382
and $53,757 for the years ended March 31, 1999 and 1998, respectively. Future
annual payments under operating leases are $57,660 for fiscal 2000 and
$19,220 for fiscal 2001.
The Company's management is concerned about reported operating losses and
cash flow deficits for the year ended March 31, 1999. In order to reverse the
trend of losses, the Company is
F-13
<PAGE>
planning to introduce significant new products during fiscal 2000. In
addition, management intends to add significant strength to the Company's
marketing staff and capabilities. In order to finance continuing operations
while these new business initiatives are being implemented, management
intends to raise capital through private placements of common stock. In
September 1999, the Company sold 1,000,000 shares of common stock for net
proceeds of $828,000 after commissions and placement expenses.
NOTE 6 - STOCKHOLDERS' EQUITY
PREFERRED STOCK
As of March 31, 1997 and 1998, the Company had outstanding 1,218,500 shares
of preferred stock, $0.01 par value. The preferred stock is convertible into
common stock at the rate of .8 shares of common stock per share of preferred
stock. During fiscal 1999, 838,625 preferred shares were converted into
670,900 shares of common stock. Subsequent to March 31, 1999, virtually all
preferred shares have been converted to common.
COMMON STOCK
During the years ended March 31, 1999 and 1998, the Company entered into
various agreements with vendors under which the vendors received shares of
Company common stock in exchange for their services. The Company issued
338,827 and 268,834 shares of its common stock during the years ended March
31, 1999 and 1998, respectively, under these agreements and recognized,
general and administrative expenses of $69,505 and $143,104. The transactions
were valued based on the underlying price of the Company's common stock on
the dates of issuance.
At March 31, 1997 and 1998, the Company had outstanding warrants to purchase
444,600 shares of common stock at par value. Such warrants were exercised in
fiscal 1999.
EMPLOYEE BENEFIT AND STOCK OPTION PLAN
The Heartsoft, Inc. Employee Benefit and Stock Option Plan ("Plan") was
effective June 15, 1997, and terminates June 30, 2005. Awards under the Plan
may be granted by the Heartsoft Board of Directors in the form of stock
issuance, incentive stock options, or nonqualified stock options. The total
number of shares of common stock as to which stock issuances or options may
be granted under the Plan shall be 2,000,000. The option price of incentive
stock options shall not be less than 100% of the fair market value of the
stock on the date of grant. The option price of nonqualified stock options
shall not be less than 25% of the fair market value of the stock on the date
of grant. The duration of each option granted shall not exceed 10 years.
During the years ended March 31, 1999 and 1998, no stock options were issued
under the Plan. However, employees were granted 90,000 shares of stock in
1998 for which general and administrative expenses were charged $49,975.
The weighted-average grant date fair value of shares issued to vendors and
employees during the years ended March 31, 1999 and 1998, was $.21 and $.54,
respectively.
F-14
<PAGE>
NOTE 7 - INCOME TAXES
At March 31, 1999, the Company had approximately $3,250,000 in net operating
loss carryforwards ("NOL's") expiring in 2009 through 2014. Management
believes that the Company does not meet the criteria for recognizing the tax
benefit of net operating loss carryforwards as a deferred tax asset and has
established a valuation allowance for the entire balance of the NOL's.
There are no material temporary differences between the bases of assets and
liabilities for income tax and financial reporting purposes that would give
rise to deferred tax assets and liabilities. Therefore, no provision for
income taxes has been reflected in the Company's statements of operations.
NOTE 8 - UNUSUAL ITEM
In January 1997, the Company's board of directors, by unanimous consent,
agreed to discontinue the Company's Advanced Technologies Division in Dallas,
Texas. Although the division had been in existence for only 18 months, it was
unable to reach profitability, and the Company's board of directors
unanimously agree that continued investment in the division would not cause a
turn-around in the immediate future. In connection with closing the Advanced
Technologies Division, the Company incurred $6,964 and $89,022 in expenses
during the years ended March 31, 1999 and 1998, respectively, and is
reflected as an unusual item in the statements of operations.
F-15
<PAGE>
NOTE 9 -- EARNINGS PER SHARE
Basic and diluted EPS for the years ended March 31, 1999 and 1998, were computed
as follows:
<TABLE>
<CAPTION>
1999 1998
--------------------------- ----------------------------
<S> <C> <C>
Basic EPS computation:
Net loss $(527,081) $(463,448)
=========================== ============================
Weighted average shares outstanding 7,746,136 6,017,327
--------------------------- ----------------------------
Basic and diluted net loss per share
$ (0.07) $ (0.08)
=========================== ============================
</TABLE>
F-16
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
DAVENPORT COMPANY
ARTICLE I
NAME
The name of this Corporation is Davenport Company.
ARTICLE II
REGISTERED OFFICE AND REGISTERED AGENT
The registered office of the Corporation in the State of Delaware is
located at 1209 Orange Street, Wilmington, County of New Castle, Delaware 19801.
The name of its registered agent is The Corporation Trust Company.
ARTICLE III
PURPOSE
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be now or hereafter organized under the
General Corporation Law of Delaware.
ARTICLE IV
CAPITALIZATION
The total number of shares of all classes of capital stock which this
Corporation shall have authority to issue is FIFTY-FIVE MILLION (55,000,000)
shares of par value stock; FIVE MILLION (5,000,000) shares of $0.01 (One Cent)
par value to be preferred shares and FIFTY MILLION (50,000,000) shares of $0.001
(One-Tenth Cent) par value to be common shares. All or any part of the shares of
the preferred or common stock may be issued by the Corporation from time to time
and for such consideration as may be determined and fixed by the Board of
<PAGE>
Directors, as provided by law, with due regard to the interest of the existing
shareholders; and when such consideration has been received by the Corporation,
such shares shall be deemed fully paid and non-assessable.
The Board of Directors is authorized, subject to limitations prescribed
by law and the provisions of this Article, to provide for the issuance of the
shares of preferred stock in series, and by filing a certificate pursuant to the
applicable law of the State of Delaware, to establish from time to time the
number of shares to be included in each such series, and to fix the
designations, powers, preferences and rights of the shares of each such series
and the qualifications, limitations or restrictions thereof.
The authority of the Board with respect to each such series shall
include, but not be limited to, determination of the following:
(a) The number of shares constituting that series and the
distinctive designation of that series;
(b) The dividend rate, if any, on the shares of that series,
whether dividends shall be cumulative, and, if so, from which date or dates, and
the relative rights of priority, if any, of payment of dividends on shares of
that series;
(c) Whether that series shall have voting rights, in addition
to the voting rights provided rights provided by law, and, if so, the terms of
such voting rights;
(d) Whether that series shall have conversion privileges, and
if so, the terms and conditions of such conversion, including provision for
adjustment of the conversion rate in such events as the Board of Directors shall
determine;
(e) Whether or not the shares of that series shall be
redeemable, and, if so, the terms and conditions of such redemption, including
the date or dates upon or after which they shall be redeemable, and the amount
per share payable in case of redemption, which amount may vary under different
conditions and at different redemption dates;
(f) Whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and, if so, the terms and
amount of such sinking fund;
2
<PAGE>
(g) The rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, and the relative rights of priority, if any, of payment of shares
of that series; and
(h) Any other relative rights, preferences and limitations of
that series.
ARTICLE V
INCORPORATOR
The name and mailing address of the incorporator is as follows:
Name Address
------------------- -------------------------------
Richard J. Lawrence 175 South West Temple
Suite 700
Salt Lake City, Utah 84101
ARTICLE VI
DIRECTOR
The names and mailing address of the person who is to serve as the
director until the first annual meeting of the stockholder or until his
successor is elected and qualified is as follows:
Name Address
------------------- -------------------------------
Paul S. Rogers 440 East 400 South
Suite 300
Salt Lake City, Utah 84111
ARTICLE VII
NUMBER OF DIRECTORS
The number of directors constituting the Board of Directors shall be
that number as shall be fixed by, or in the manner provided in, the bylaws of
the Corporation.
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to take, alter and
repeal the bylaws of the Corporation, subject
3
<PAGE>
to such restrictions upon such powers as may be imposed by the stockholders
in any bylaws adopted by them from time to time.
ARTICLE VIII
LIMITATION ON DIRECTORS LIABILITY
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders; (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit. If the Delaware General Corporation Law is amended after
approval by the stockholders of this article to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director of the Corporation shall be eliminated to the fullest
extent permitted by the Delaware General Corporation Law, as so amended.
Any repeals or modifications of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
ARTICLE IX
INDEMNIFICATION
(a) RIGHT TO INDEMNIFICATION. Each person who was or is made a
party or it threatened to be made a party to or is otherwise involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or she
is or was a director, officer or employee of the Corporation or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust or other
enterprise, including service with
4
<PAGE>
respect to employee benefit plans (hereinafter an "indemnitee"), whether the
basis of such proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity while serving
as a director, officer, employee or agent, shall be indemnified and held
harmless by the Corporation to the fullest extent authorized by the Delaware
General Corporation Law, as the same exists or may hereafter be amended (but,
in the case of any such amendment, only to the extent that such amendment
permits the Corporation to provide broader indemnification rights that such
law permitted the Corporation to provide prior to such amendment), against
all expense, liability and loss (including attorneys' fees, judgments, fines,
ERISA excise taxes or penalties and amounts paid in settlement) reasonably
incurred or suffered by such indemnitee in connection therewith and such
indemnification shall continue as to an indemnitee who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
indemnitee's heirs, executors and administrators; provided, however, that,
except as provided in paragraph (b) hereof with respect to proceedings to
enforce rights to indemnification, the Corporation shall indemnify any such
indemnitee in connection with a proceeding (or part thereof) initiated by
such indemnitee only if such proceeding (or part thereof) was authorized by
the Board of Directors of the Corporation. The right to indemnification
conferred in this Article shall be a contract right and shall including the
right to be paid by the Corporation the expenses incurred in defending any
such proceeding in advance of its final disposition (hereinafter as
"advancement of expenses"); provided, however, that, if the Delaware General
Corporation Law requires, an advancement of expenses incurred by an
indemnitee in his or her capacity as a director or officer (and not in any
other capacity in which service was or is rendered by such indemnitee,
including, without limitation, service to an employee benefit plan) shall be
made only upon delivery to the Corporation of an undertaking, by or on behalf
of such indemnitee, to repay all amounts so advanced if it shall ultimately
be determined by final judicial decision from which there is no further right
to appeal that such indemnitee is not entitled to be indemnified for such
expenses under this Article or otherwise (hereinafter an "undertaking").
5
<PAGE>
(b) RIGHT OF INDEMNITEE TO BRING SUIT. If a claim under
paragraph (a) of this Article is not paid in full by the Corporation within
sixty (60) days after a written claim has been received by the Corporation,
except in the case of a claim for an advancement of expenses, in which case the
applicable period shall be twenty days, the indemnitee may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim. If successful in whole or in part in any such suit or in a suit
brought by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the indemnitee shall be entitled to be paid also the
expense of prosecuting or defending such suit. In (i) any suit brought by the
indemnitee to enforce a right to indemnification hereunder (but not in a suit
brought by the indemnitee to enforce a right to an advancement of expenses) it
shall be a defense that, and (ii) any suit by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking the Corporation
shall be entitled to recover such expenses upon a final adjudication that, the
indemnitee has not met the applicable standard of conduct set forth in the
Delaware Corporation Law. Neither the failure of the Corporation (including its
Board of Directors, independent legal counsel, or its stockholders) to have made
a determination prior to the commencement of such suit that indemnification of
the indemnitee is proper in the circumstances because the indemnitee has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that the indemnitee
has not met such applicable standard of conduct, shall create a presumption that
the indemnitee has not met the applicable standard of conduct or, in the case of
such a suit brought by the indemnitee, be a defense to such suit. In any suit
brought by the indemnitee to enforce a right hereunder, or by the Corporation to
recover an advancement of expenses pursuant to the terms of an undertaking, the
burden of proving that the indemnitee is not entitled to be indemnified or to
such advancement of expenses under this Article or otherwise shall be on the
Corporation.
(c) NON-EXCLUSIVITY OF RIGHTS. The rights of indemnification
and to the advancement of expenses conferred in this Article shall not be
exclusive of any other rights
6
<PAGE>
which any person may have or hereafter acquire under any statute, this
Certificate of Incorporation, bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
(d) INSURANCE. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
(e) INDEMNIFICATION OF AGENTS OF THE CORPORATION. The
Corporation may, to the extent authorized from time to time by the Board of
Directors, grant right to indemnification and to the advancement of expenses, to
any agent of the Corporation to the fullest extent of the provisions of this
Article with respect to the indemnification and advancement of expenses of
directors, officers and employees of the Corporation.
ARTICLE X
CONTRACTS
No contract or other transaction between this Corporation and any other
corporation shall be affected by the fact that a Director or officer of this
Corporation is interested in or is a Director or officer of such other
corporation; and any Director, individually or jointly, may be a party to or may
be interested in any corporation or transaction of this Corporation or in which
this Corporation is interested; and no contract or other transaction of this
Corporation with any person, firm or corporation shall be affected by the fact
that any Director of this Corporation is a party to or is interested in such
contract, act or transaction or any way connected with such person, firm or
Corporation, and every person who may become a Director of this Corporation is
hereby relieved from liability that might otherwise exist from contracting with
the Corporation for the benefit of himself or any firm, association or
corporation in which he may be in any way interested, provided said Director
acts in good faith.
7
<PAGE>
ARTICLE XI
AMENDMENT
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by the laws of Delaware, and all rights and powers
conferred herein upon stockholders and directors are granted subject to this
reservation.
I, the undersigned, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, do make this certificate, hereby declaring and certifying
that the facts herein stated are true, and accordingly, have hereunto set my
hand and seal this 31st day of May, 1988.
/s/ Richard J. Lawrence
---------------------------------------
RICHARD J. LAWRENCE
STATE OF UTAH )
) SS.
COUNTY OF SALT LAKE )
On the 31st day of May, 1988, before me personally came Richard J.
Lawrence, the person who signed the foregoing certificate of incorporation,
known to me personally to be such, and acknowledged to me that the said
certificate is his act and deed and that the facts stated therein are true.
/s/ Chantel Cable
---------------------------------------
NOTARY PUBLIC
Residing at: North Salt Lake, Utah
---------------------------
[SEAL]
8
<PAGE>
DAVENPORT COMPANY
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
Davenport Company, a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, does hereby
certify:
First: That the Board of Directors of said Corporation, at a meeting
duly convened and held, adopted a resolution proposing and declaring advisable
the following amendment to the Certificate of Incorporation of said Corporation:
RESOLVED that the Certificate of Incorporation of the Corporation be
amended by changing Article IV thereof so that, as amended, said Article shall
be and read as follows:
ARTICLE IV
CAPITALIZATION
The total number of shares of all classes of capital
stock which this Corporation shall have authority to issue is
THIRTY-FIVE MILLION (35,000,000) shares of par value stock;
FIVE MILLION (5,000,000) shares of $0.01 (One Cent) par value
to be preferred shares and THIRTY MILLION (30,000,000) shares
of $0.0005 (One Twentieth Cent) par value to be common shares.
Upon amendment of this Article as herein stated, each
outstanding share of common stock of the par value of $0.001
is split up and converted into two shares of common stock of
the par value of $0.0005. All or any part of the shares of the
preferred or common stock may be issued by the Corporation
from time to time and for such consideration as may be
determined and fixed by the Board of Directors, as provided by
law, with due regard to the interest of the existing
shareholders; and when such consideration has been received by
the Corporation, such shares shall be deemed fully paid and
non-assessable.
The Board of Directors is authorized, subject to
limitations prescribed by law and the provisions of this
Article, to provide for the issuance of the shares of
preferred stock in series, and by filing a certificate
pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be
included in each such series, and to fix the designations,
powers,
<PAGE>
preferences and rights of the shares of each such series and
the qualifications, limitations or restrictions thereof.
The authority of the Board with respect to each such
series shall including, but not be limited to, determination
of the following:
(a) The number of shares constituting that series and
the distinctive designation of that series;
(b) The dividend rate, if any, on the shares of that
series, whether dividends shall be cumulative, and, if so,
from which date or dates, and the relative rights of priority,
if any, of payment of dividends on shares of that series;
(c) Whether that series shall have voting rights, in
addition to the voting rights provided rights provided by law,
and, if so, the terms of such voting rights;
(d) Whether the series shall have conversion
privileges, and if so, the terms and conditions of such
conversion, including provision for adjustment of the
conversion rate in such events as the Board of Directors shall
determine;
(e) Whether or not the shares of that series shall be
redeemable, and, if so, the terms and conditions of such
redemption, including the date or dates upon or after which
they shall be redeemable, and the amount per share payable in
case of redemption, which amount may vary under different
conditions and at different redemption dates;
(f) Whether that series shall have a sinking fund for
the redemption or purchase of shares of that series, and, if
so, the terms and amount of such sinking fund;
(g) The rights of the shares of that series in the
event of voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, and the relative rights of
priority, if any, of payment of shares of that series; and
(h) Any other relative rights, preferences and
limitations of that series.
Second: That in lieu of a meeting and vote of stockholders, the
stockholders have given written consent to said amendment in accordance with the
provisions of Section 228 of the
2
<PAGE>
General Corporation Law of the State of Delaware, and said written consent
was filed with the Corporation.
Third: That the aforesaid amendment was duly adopted in accordance with
the applicable provisions of Sections 242 and 228 of Title 8 of the Delaware
Code of 1953.
IN WITNESS WHEREOF, Davenport Company has caused its corporate seal to
be affixed hereto, and this Certificate to be signed by Paul S. Rogers, its
president and Harold L. Ricks, its secretary, this 30th day of April, 1989.
DAVENPORT COMPANY
By: /s/ Paul S. Rogers
----------------------------------
Paul S. Rogers, President
By: /s/ Harold L. Ricks
----------------------------------
Harold L. Ricks, Secretary
3
<PAGE>
CERTIFICATE OF OWNERSHIP AND MERGER
On June 20, 1989, the Board of Directors of the surviving corporation,
Davenport Company, a Delaware corporation ("Davenport"), passed a resolution
calling for Davenport's wholly-owned subsidiary, Heartsoft, Inc., a Delaware
corporation, to be merged into Davenport. A true and correct copy of said
resolution is attached hereto as Exhibit "A" and incorporated herein by this
reference. One hundred percent (100%) of the outstanding capital stock of
Heartsoft, Inc. is owned by Davenport.
As of the effective date of this Certificate of Ownership and Merger,
the name of Davenport Company shall be changed and shall become Heartsoft, Inc.
IN WITNESS WHEREOF, this Certificate of Ownership and Merger is hereby
executed on behalf of Davenport Company and attested by officers thereunto duly
authorized.
DAVENPORT COMPANY,
a Delaware corporation
By: /s/ Jimmy L. Butler
---------------------------------------
Jimmy L. Butler, Jr., President
ATTEST:
/s/ Benjamin P. Shell
- ---------------------------------------
Benjamin P. Shell, Jr., Secretary
<PAGE>
UNANIMOUS CONSENT
OF THE
BOARD OF DIRECTORS OF
DAVENPORT COMPANY
IN LIEU OF A SPECIAL MEETING
The undersigned, being all of the directors of Davenport Company, a
Delaware corporation, and pursuant to the provisions of the Delaware Corporation
Law, Section 141(f), hereby consent to the adoption of and hereby unanimously
adopt the following resolutions on behalf of the Corporation.
WHEREAS, Heartsoft, Inc., a Delaware corporation, is a wholly-owned
subsidiary of this Corporation.
WHEREAS, it is deemed to be in the best interest of this Corporation to
merge Heartsoft, Inc. into this Corporation;
NOW, THEREFORE, BE IT RESOLVED, that Heartsoft, Inc. shall be merged
into this Corporation.
FURTHER RESOLVED, that the officers of this Corporation are herby
authorized to take any and all actions necessary or desirable in order to
effectuate said merger, including but not limited to the execution of the
Certificate of Ownership and Merger, filing the Certificate of Ownershp and
Merger, together with necessary filing fees with the State of Delaware, and the
payment of all franchise taxes past and present which may be due to the State of
Delaware in bhalf of Heartsoft, Inc.;
FURTHER RESOLVED, that the name of this Corporation shall be changed to
Heartsoft, Inc.; and
FURTHER RESOLVED, that in accordance with Delaware Corporation Law
Section 253(b), the offices of this Corporation shall cause that the name of
this Corporation shall be changed to Heartsoft, Inc. by inserting the name
change into the Certificate of Ownership and Merger to be filed with the
Delaware Secretary of State.
Dated: June 20, 1989.
/s/ Jimmy L. Butler
---------------------------------------
Jimmy L. Butler, Jr.
/s/ Benjamin P. Shell
---------------------------------------
Benjamin P. Shell, Jr.
<PAGE>
EXHIBIT 3.2
BYLAWS
OF
DAVENPORT COMPANY
<PAGE>
BYLAWS
OF
DAVENPORT COMPANY
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE I
STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Annual Meeting. . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Special Meetings. . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.3 Notice of Meetings. . . . . . . . . . . . . . . . . . . . . . 1
Section 1.4 Quorum. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.5 Organization. . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.6 Conduct of Business . . . . . . . . . . . . . . . . . . . . . 2
Section 1.7 Proxies and Voting. . . . . . . . . . . . . . . . . . . . . . 2
Section 1.8 Stock List. . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE II
BOARD OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.1 Number and Term of Office . . . . . . . . . . . . . . . . . . 3
Section 2.2 Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.3 Regular Meetings. . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.4 Special Meetings. . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.5 Quorum. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.6 Participation in Meetings by Conference Telephone . . . . . . 5
Section 2.7 Conduct of Business . . . . . . . . . . . . . . . . . . . . . 5
Section 2.8 Powers. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.9 Compensation of Directors . . . . . . . . . . . . . . . . . . 6
ARTICLE III
COMMITTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.1 Committees of the Board of Directors. . . . . . . . . . . . . 6
Section 3.2 Conduct of Business . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE IV
OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 4.1 Generally . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 4.2 President . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 4.3 Vice Presidents . . . . . . . . . . . . . . . . . . . . . . . 7
Section 4.4 Treasurer . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 4.5 Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 4.6 Delegation of Authority . . . . . . . . . . . . . . . . . . . 8
Section 4.7 Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 4.8 Action with Respect to Securities of Other Corporations . . . 8
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<PAGE>
ARTICLE V
RIGHT OF INDEMNIFICATION OF DIRECTORS,
OFFICERS AND OTHERS. . . . . . . . . . . . . . . . . . . . . . . . 8
Section 5.1 Right to Indemnification. . . . . . . . . . . . . . . . . . 8
Section 5.2 Right of Claimant to Bring Suit . . . . . . . . . . . . . . 9
Section 5.3 Non-Exclusivity of Rights . . . . . . . . . . . . . . . . . .10
Section 5.4 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . .10
ARTICLE VI
STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Section 6.1 Certificates of Stock . . . . . . . . . . . . . . . . . . . .10
Section 6.2 Transfers of Stock. . . . . . . . . . . . . . . . . . . . . .11
Section 6.3 Record Date . . . . . . . . . . . . . . . . . . . . . . . . .11
Section 6.4 Lost, Stolen or Destroyed Certificates. . . . . . . . . . . .11
Section 6.5 Regulations . . . . . . . . . . . . . . . . . . . . . . . . .11
ARTICLE VII
NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Section 7.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Section 7.2 Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . .12
ARTICLE VIII
MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Section 8.1 Facsimile Signature . . . . . . . . . . . . . . . . . . . . .12
Section 8.2 Corporate Seal. . . . . . . . . . . . . . . . . . . . . . . .12
Section 8.3 Reliance Upon Books, Reports and Records. . . . . . . . . . .13
Section 8.4 Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . .13
Section 8.5 Time Periods. . . . . . . . . . . . . . . . . . . . . . . . .13
ARTICLE IX
AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Section 9.1 Amendments. . . . . . . . . . . . . . . . . . . . . . . . . .13
</TABLE>
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<PAGE>
BYLAWS
OF
DAVENPORT COMPANY
ARTICLE I
STOCKHOLDERS
Section 1.1 ANNUAL MEETING. An annual meeting of the stockholders,
for the election of directors to succeed those whose terms expire and for the
transaction of such other business as may properly come before the meeting,
shall be held at such place, on such date and at such time as the Board of
Directors shall each year fix, which date shall be within thirteen months
subsequent to the later of the date of incorporation or the last annual
meeting of stockholders.
Section 1.2 SPECIAL MEETINGS. Special meetings of the stockholders,
for any purpose or purposes prescribed in the notice of the meeting, may be
called by the Board of Directors or the chief executive officer and shall be
held at such place, on such date, and at such time as they or he shall fix.
Section 1.3 NOTICE OF MEETINGS. Written notice of the place, date,
and time of all meetings of the stockholders shall be given, not less than
ten nor more than sixty days before the date on which the meeting is to be
held, to each stockholder entitled to vote at such meeting, except as
otherwise provided herein or required by law (meaning, here and hereinafter,
as required from time to time by the General Corporation Law of the State of
Delaware or the Certificate of Incorporation).
When a meeting is adjourned to another place, date or time, written
notice need not be given of the adjourned meeting if the place, date, and
time thereof are announced at the meeting at which the adjournment is taken;
provided, however, that if the date of any adjourned meeting is more than
thirty days after the date for which the meeting was originally noticed, or
if a new record date is fixed for the adjourned meeting, written notice of
the place, date, and time of the adjourned meeting shall be given in
conformity herewith. At any adjourned meeting, any business may be transacted
which might have been transacted at the original meeting.
<PAGE>
Section 1.4 QUORUM. At any meeting of the stockholders, the holders
of a majority of all of the shares of the stock entitled to vote at the
meeting, present in person or by proxy, shall constitute a quorum for all
purposes, unless or except to the extent that the presence of a larger number
may be required by law.
If a quorum shall fail to attend any meeting, the chairman of the
meeting or the holders of a majority of the shares of the stock entitled to
vote who are present, in person or by proxy, may adjourn the meeting to
another place, date, or time.
If a notice of any adjourned special meeting of stockholders is sent to
all stockholders entitled to vote thereat, stating that it will be held with
those present constituting a quorum, then except as otherwise required by
law, those present at such adjourned meeting shall constitute a quorum, and
all matters shall be determined by a majority of the votes cast at such
meeting.
Section 1.5 ORGANIZATION. Such person as the Board of Directors may
have designated or, in the absence of such a person, the highest ranking
officer of the corporation who is present shall call to order any meeting of
the stockholders and act as chairman of the meeting. In the absence of the
Secretary of the corporation, the secretary of the meeting shall be such
person as the chairman appoints.
Section 1.6 CONDUCT OF BUSINESS. The chairman of any meeting of
stockholders shall determine the order of business and the procedure at the
meeting, including such regulation of the manner of voting and the conduct of
discussion as seem to him in order. Action may be taken by the shareholders
without a meeting, without prior notice, and without a vote if a consent in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all
shares entitled to vote thereon were present and voted.
Section 1.7 PROXIES AND VOTING. At any meeting of the stockholders,
every stockholder entitled to vote may vote in person or by proxy authorized
by an instrument in writing filed in accordance with the procedure
established for the meeting.
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Each stockholder shall have one vote for every share of stock entitled
to vote which is registered in his name on the record date for the meeting,
except as otherwise provided herein or required by law.
All voting, except on the election of directors and where otherwise
required by law, may be by a voice vote; provided, however, that upon demand
therefor by a stockholder entitled to vote or his proxy, a stock vote shall
be taken. Every stock vote shall be taken by ballots, each of which shall
state the name of the stockholder or proxy voting and such other information
as may be required under the procedure established for the meeting.
All elections shall be determined by a plurality of the votes cast,
except as otherwise required by law, all other matters shall be determined by
a majority of the votes cast.
Section 1.8 STOCK LIST. A complete list of stockholders entitled to
vote at any meeting of stockholders, arranged in alphabetical order for each
class of stock and showing the address of each such stockholder, and the
number of shares registered in his name, shall be open to the examination of
any such stockholder, for any purpose germane to the meeting, during ordinary
business hours for a period of at least ten (10) days prior to the meeting,
either at a place within the city where the meeting is to be held, which
place shall be specified in the notice of the meeting, or if not so
specified, at the place where the meeting is to be held.
The stock list shall also be kept at the place of the meeting during the
whole time thereof and shall be open to the examination of any such
stockholder who is present. This list shall presumptively determine the
identity of the stockholders entitled to vote at the meeting and the number
of shares held by each of them.
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<PAGE>
ARTICLE II
BOARD OF DIRECTORS
Section 2.1 NUMBER AND TERM OF OFFICE. The number of directors who
shall constitute the whole board shall be such number not less than one nor
more than nine as the Board of Directors at the time have designated. Each
director shall be elected for a term of one year and until his successor is
elected and qualified, except as otherwise provided herein or required by law.
Whenever the authorized number of directors is increased between annual
meetings of the stockholders, a majority of the directors then in office
shall have the power to elect such new directors for the balance of a term
and until their successors are elected and qualified. Any decrease in the
authorized number of directors shall not become effective until the
expiration of the term of the directors then in office unless, at the time of
such decrease, there shall be vacancies on the board which are being
eliminated by the decrease.
Section 2.2 VACANCIES. If the office of any director becomes vacant
by reason of death, resignation, disqualification, removal or other cause, a
majority of the directors remaining in office, although less than a quorum,
may elect a successor for the unexpired term and until his successor is
elected and qualified.
Section 2.3 REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held at such. place or places, on such date or dates, or
at such time or times as shall have been established by the Board of
Directors and publicized among all directors. A notice of each regular
meeting shall not be required.
Section 2.4 SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by one-third of the directors then in office or by
the chief executive officer and shall be held at such place, on such date,
and at such time as they or he shall fix. Notice of the place, date, and time
of each such special meeting shall be given each director by whom it is not
waived by mailing written notice not less than three days before the meeting
or by telegraphing the same
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<PAGE>
not less than eighteen hours before the meeting. Unless otherwise indicated
in the notice thereof, any and all business may be transacted at a special
meeting.
Section 2.5 QUORUM. At any meeting of the Board of Directors,
one-third of the total number of the whole board, but not less than one,
shall constitute a quorum for all purposes. If a quorum shall fail to attend
any meeting, a majority of those present may adjourn the meeting to another
place, date, or time, without further notice or waiver thereof.
Section 2.6 PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE.
Members of the Board of Directors, or of any committee thereof, may
participate in a meeting of such board or committee by means of conference
telephone or similar communications equipment that enables all persons
participating in the meeting. to hear each other. Such participation shall
constitute presence in person at such meeting.
Section 2.7 CONDUCT OF BUSINESS. At any meeting of the Board of
Directors, business shall be transacted in such order and manner as the board
may from time to time determine, and all matters shall be determined by the
vote of a majority of the directors present, except as otherwise provided
herein or required by law. Action may be taken by the Board of Directors
without a meeting if all members thereof consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Board of
Directors.
Section 2.8 POWERS. The Board of Directors may, except as otherwise
required by law, exercise all such powers and do all such acts and things as
may be exercised or done by the corporation, including, without limiting the
generality of the foregoing, the unqualified power:
(1) To declare dividends from time to time in accordance with law;
(2) To purchase or otherwise acquire any property, rights or privileges
on such terms as it shall determine.
(3) To authorize creation, making and issuance, in such form as it may
determine, of written obligations of every kind, negotiable or
non-negotiable, secured or unsecured, and to do all things necessary in
connection therewith;
5
<PAGE>
(4) To remove any officer of the corporation with or without cause, and
from time to time to devolve the powers and duties of any officer upon any
other person for the time being;
(5) To confer upon any officer of the corporation the power to appoint,
remove and suspend subordinate officers and agents;
(6) To adopt from time to time such stock, option, stock purchase,
bonus or other compensation plans for directors, officers and agents of the
corporation and its subsidiaries as it may determine;
(7) To adopt from time to time such insurance, retirement or other
benefit plans for directors, officers and agents of the corporation and its
subsidiaries as it may determine; and
(8) To adopt from time to time regulations, not inconsistent with these
Bylaws, for the management of the corporation's business and affairs.
Section 2.9 COMPENSATION OF DIRECTORS. Directors, as such, may
receive, pursuant to resolution of the Board of Directors, fees and other
compensation for their services as directors, including, without limitation,
their services as members of committees of the directors.
ARTICLE III
COMMITTEES
Section 3.1 COMMITTEES OF THE BOARD OF DIRECTORS. The Board of
Directors, by a vote of a majority of the whole board, may from time to time
designate committees of the board, with such lawfully delegable powers and
duties as it thereby confers, to serve at the pleasure of the board and
shall, for those committees and any others provided for herein, elect a
director or directors to serve as the member or members, designating, if it
desires, other directors as alternative members who may replace any absent or
disqualified member at any meeting of the committee. Any committee so
designated may exercise the power and authority of the Board of Directors to
declare a dividend or to authorize the issuance of stock if the resolution
which designates the committee or a supplemental resolution of the Board of
Directors shall so provide. In the absence or disqualification of any member
of any committee and any alternate member in
6
<PAGE>
his place, the member or members of the committee present at the meeting and
not disqualified from voting, whether or not he or they constitute a quorum,
may by unanimous vote appoint another member of the Board of Directors to act
at the meeting in the place of the absent or disqualified member.
Section 3.2 CONDUCT OF BUSINESS. Each committee may determine the
procedural rules for meeting and CONDUCTING ITS business and shall act in
accordance therewith, except as otherwise provided herein or required by law.
Adequate provision shall be made for notice to members of all meetings;
one-third of the members shall constitute a quorum unless the committee shall
consist of one or two members, in which event one member shall constitute a
quorum; and all matters shall be determined by a majority vote of the members
present. Action may be taken by any committee without a meeting if all
members thereof consent thereto in writing, and the writing or writings are
filed with the minutes of the proceedings of such committee.
ARTICLE IV
OFFICERS
Section 4.1 GENERALLY. The officers of the corporation shall consist
of president, one or more vice presidents, a secretary, a treasurer and such
other subordinate officers as may from time to time be appointed by the Board
of Directors. Officers shall be elected by the Board of Directors, which
shall consider that subject at its first meeting after every annual meeting
of stockholders. Each officer shall hold his office until his successor is
elected and qualified or until his earlier resignation or removal. The
President shall be a member of the Board of Directors. Any number of offices
may be held by the same person.
Section 4.2 PRESIDENT. The President shall be the chief executive
officer of the corporation. Subject to the provisions of these Bylaws and to
the direction of the Board of Directors, he shall have the responsibility for
the general management and control of the affairs and business of the
corporation and shall perform all duties and have all powers which are
7
<PAGE>
commonly incident to the office of chief executive or which are delegated to
him by the Board of Directors. He shall have power to sign all stock
certificates, contracts and other instruments of the corporation which are
authorized. He shall have general supervision and direction of all of the
other officers and agents of the corporation.
Section 4.3 VICE PRESIDENTS. Each Vice President shall perform such
duties as the Board of Directors shall prescribe. In the absence or
disability of the President, the Vice President who has served in such
capacity for the longest time shall perform the duties and exercise the
powers of the President.
Section 4.4 TREASURER. The Treasurer shall have the custody of all
monies and securities of the corporation and shall keep regular books of
account. He shall make such disbursements of the funds of the corporation as
are proper and shall render from time to time an account of all such
transactions and of the final condition of the corporation.
Section 4.5 SECRETARY. The Secretary shall issue all authorized
notices for, and shall keep minutes of, all meetings of the stockholders and
the Board of Directors. He shall have charge of the corporate books.
Section 4.6 DELEGATION OF AUTHORITY. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other
officers or agents, notwithstanding any provision hereof.
Section 4.7 REMOVAL. Any officer of the corporation may be removed at
any time, with or without cause, by the Board of Directors.
Section 4.8 ACTION WITH RESPECT TO SECURITIES OF OTHER CORPORATIONS.
Unless otherwise directed by the Board of Directors, the President shall have
power to vote and otherwise act on behalf of the corporation, in person or by
proxy, at any meeting of stockholders of or with respect to any action of
stockholders of any other corporation in which this corporation may hold
securities and otherwise to exercise any and all rights and powers which this
corporation may possess by reason of its ownership of securities in such
other corporation.
8
<PAGE>
ARTICLE V
RIGHT OF INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS
Section 5.1 RIGHT TO INDEMNIFICATION. Each person who was or is made
a party or is threatened to be made a party to or is involved in any action,
suit or proceeding, whether civil, criminal, administrative or investigative
("proceeding"), by reason of the fact that he or she or a person for whom he
or she is the legal representative is or was a director or officer, employee
or agent of the corporation or is or was serving at the request of the
corporation as a director or officer, employee or agent of another
corporation, or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether the basis
of such proceeding is alleged action in an official capacity as a director,
officer, employee or agent or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless
by the corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment only to the extent such amendment permits the
corporation to provide broader indemnification rights than said law permitted
the corporation to provide prior to such amendment) against all expenses,
liability and loss (including attorney's fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid or to be paid in settlement) reasonably
incurred or suffered by such person in connection therewith. Such right shall
be a contract right and shall include the right to be paid by the corporation
expenses incurred in defending any such proceeding in advance of its final
disposition; provided, however, that the payment of such expenses incurred by
a director or officer of the corporation in his or her capacity as a director
or officer (and not in any other capacity in which service was or is rendered
by such person while a director or officer, including, without limitation,
service to an employee benefit plan) in advance of the final disposition of
such proceeding, shall be made only upon deliery to the corporation of an
undertaking, by or on behalf of such director or officer, to repay all
amounts so advanced if it should be determined ultimately that such director
or officer is not entitled to be indemnified under this section or otherwise.
9
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Section 5.2 RIGHT OF CLAIMANT TO BRING SUIT. If a claim under
Section 5.1 is not paid in full by the corporation within 60 days after a
written claim has been received by the corporation, the claimant may at any
time thereafter bring suit against the corporation to recover the unpaid
amount of the claim, and if successful in whole or in part, the claimant
shall be entitled to be paid also the expense of prosecuting such claim. It
shall be a defense to any such action (other than an action brought to
enforce a claim for expenses incurred in defending any proceeding in advance
of its final disposition where the required undertaking has been tendered to
the corporation) that the claimant has not met the standards of conduct which
make it permissible under the Delaware General Corporation Law for the
corporation to indemnify the claimant for the amount claimed, but the burden
of proving such defense shall be on the corporation. Neither the failure of
the corporation (including its Board of Directors, independent legal counsel,
or its stockholders) to have made a determination prior to the commencement
of such action that indemnification of the claimant is proper in the
circumstances because he or she has met the applicable standard of conduct
set forth in the Delaware General Corporation Law, nor an actual
determination by the corporation (including its Board of Directors,
independent legal counsel, or its stockholders) that the claimant had not met
such applicable standard of conduct, shall be a defense to the action or
create a presumption that claimant had not met the applicable standard of
conduct.
Section 5.3 NON-EXCLUSIVITY OF RIGHTS. The rights conferred by
Sections 5. 1 and 5. 2 shall not be exclusive of any other right which such
person may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
Section 5.4 INSURANCE. The corporation may maintain insurance, at its
expense, to protect itself and any such director, officer, employee or agent
of the corporation or another corporation, partnership, joint venture, trust
or other enterprise against any such expense, liability or loss, whether or
not the corporation would have the power to indemnify such person against
such expense, liability or loss under the Delaware General Corporation Law.
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ARTICLE VI
STOCK
Section 6.1 CERTIFICATES OF STOCK. Each stockholder shall be entitled
to a certificate signed by, or in the name of the corporation by, the
President or a vice president, and by the secretary or an assistant
secretary, or the treasurer or an assistant treasurer, certifying the number
of shares owned by hi m. Any of or all the signatures on the certificate may
be facsimile.
Section 6.2 TRANSFERS OF STOCK. Transfers of stock shall be made only
upon the transfer books of the corporation kept at an office of the
corporation or by transfer agents designated to transfer shares of the stock
of the corporation. Except where a certificate is issued in accordance with
Section 6. 4 of Article VI of these Bylaws, an outstanding certificate for
the number of shares involved shall be surrendered for cancellation before a
new certificate is issued therefor.
Section 6.3 RECORD DATE. The Board of Directors may fix a record
date, which shall not be more. than 60 nor less than 10 days before the date
of any meeting of stockholders, nor more than 60 days prior to the time for
the other action hereinafter described, as of which there shall be determined
the stockholders who are entitled: to notice of or to vote at any meeting of
stockholders or any adjournment thereof; to express consent to corporate
action in writing without a meeting; to receive payment of any dividend or
other distribution or allotment of any rights; or to exercise any rights with
respect to any change, conversion or exchange of stock or with respect to any
other lawful action.
Section 6.4 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event of
the loss, theft or destruction of any certificate of stock, another may be
issued in its place pursuant to such regulations as the Board of Directors
may establish concerning proof of such loss, theft or destruction and
concerning the giving of a satisfactory bond or bonds of indemnity.
Section 6.5 REGULATIONS. The issue, transfer, conversion and
registration of certificates of stock shall be governed by such other
regulations as the Board of Directors may establish.
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ARTICLE VII
NOTICES
Section 7.1 NOTICES. Whenever notice is required to be given to any
stockholder, director, officer, or agent, such requirement shall not be
construed to mean personal notice. Such notice may in every instance be
effectively given by deposing a writing in post office or letter box, in a
postpaid, sealed wrapper, or by dispatching a prepaid telegram, addressed to
such stockholder, director, officer, or agent at his or her address as the
same appears on the books of the corporation. The time when such notice is
dispatched shall be the time of the giving of the notice.
Section 7.2 WAIVERS. A written waiver of any notice, signed by a
stockholder, director, officer, or agent, whether before or a ter the time of
the event for which notice is to be given, shall be deemed equivalent to the
notice required to be given to such stockholder, director, officer, or agent.
Neither the business nor the purpose of any meeting need be specified in such
a waiver.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 FACSIMILE SIGNATURE. In addition to the provisions for
the use of facsimile signatures elsewhere specifically authorized by these
Bylaws, facsimile signatures of any officer or officers of the corporation
may be used whenever and as authorized by the Board of Directors or a
committee thereof.
Section 8.2 CORPORATE SEAL. The Board of Directors may provide a
suitable seal, containing the name of the corporation, which seal shall be in
the custody of the secretary. If and when so directed by the Board of
Directors or a committee thereof, duplicates of the seal may be kept and used
by the treasurer or by the assistant secretary or assistant treasurer.
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Section 8.3 RELIANCE UPON BOOKS, REPORTS AND RECORDS. Each director,
each member of any committee designated by the Board of Directors, and each
officer of the corporation shall, in the performance of his duties, be fully
protected in relying in good faith upon the books of account or other records
of the corporation, including reports made to the corporation by any of its
officers, by an independent certified public accountant, or by an appraiser
selected with reasonable care.
Section 8.4 FISCAL YEAR. The fiscal year of the corporation shall be
as fixed by the Board of Directors.
Section 8.5 TIME PERIODS. In applying any provision of these Bylaws
which requires that an act be done or not done a specified number of days
prior to an event or that an act be done during a period of a specified
number of days prior to an event calendar days shall be used, the day of the
doing of the act shall be excluded, and the day of the event shall be
included.
ARTICLE IX
AMENDMENT
Section 9.1 AMENDMENTS. These Bylaws may be amended or repealed by
the Board of Directors at any meeting or by the stockholders at any meeting.
Adopted this 3rd day of June, 1988.
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EXHIBIT 4.1
[CUSIP No. 42236C 40 8]
NUMBER SHARES
HEARTSOFT, INC.
Authorized Common Stock: 30,000,000 Shares
Par Value: $.0005 Per Share
THIS CERTIFIES THAT
SPECIMEN
IS THE RECORD HOLDER OF
Shares of HEARTSOFT, INC., Common Stock -
Transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This
Certificate is not valid until countersigned by the Transfer Agent and
registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
[SEAL]
- --------------------------------- ---------------------------
Secretary President
Countersigned and Registered: Interwest Transfer Co. Inc.
P.O. Box 17136
Salt Lake City, Utah 84117
By:
----------------------------------------
Transfer Agent - Authorized Signature
<PAGE>
NOTICE: Signature must be guaranteed by a firm which is a member of a
registered national stock exchange, or by a bank (other than a saving bank),
or a trust company. The following abbreviations, when used in the inscription
on the face of this certificate, shall be construed as though they were
written out in full according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian
----------------------
(Cus) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gift to
Minors Act
JT TEN - as joint tenants with right of
Survivorship and not as tenants in common ----------------------
(State)
Additional abbreviations may also be used though not in the above list.
For Value Received, _________ hereby sell, assign and transfer unto
- -------------------------------------
[Please insert Social Security or
other identifying number of assignee]
- --------------------------------------------------------------------------------
[Please print or typewrite name and address, including zip code, of assignee]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
_________________________________________________________________________ Shares
of the capital stock represented by the within certificate, and do hereby
irrevocably constitue and appoint
____________________________________________________________________ Attorney to
transfer the said stock on the books of the within named Corporation with full
power of substitution in the premises.
Dated:
--------------------
------------------------------------------------------------
NOTICE: The signature to this assignment must correspond
with the name as written upon the face of the Certificate in
every particular without alteration or enlargement or any
change whatever
[SPECIMEN]
<PAGE>
Exhibit 10.1
[Heartsoft Logo] [Animated Picture of Heartsoft
Inc.'s Chief Executive Officer]
Heartsoft
CORPORATE NOTE
October 21, 1998
FOR VALUE RECEIVED, the undersigned Maker promises to pay to the order of
(Issuer):
Dale Hill
5056 Westgrove Drive
Dallas, Texas 752248
The sum of $50,000 (fifty thousand dollars), with interest from the date written
above until paid, at the rate of twenty percent (20%) per annum.
This Note, together with all interest due, is payable in full ninety (90) days
from the date written above.
As inducement for the purchase of this Note, the undersigned Maker hereby grants
to Issuer one-hundred thousand (100,000) shares of the Maker's restricted common
stock to be issued within 14 days of the date of this Note.
Maker shall reserve the right to prepay the principle of this Note, together
with all such accrued interest at the time of prepayment in whole or in part
prior to its due date without premium or penalty.
If this Note is not paid in full upon Maturity, Issuer has sole option of
converting said Note into 250,000 shares of Maker's common stock anytime 30 days
after default.
The Makers, signers, and endorsers of this note severally waive demand,
presentment, notice of dishonor, diligence in collection and notice of protest
and agree to all extensions and partial payments before or after maturity,
without prejudice to the holder. This written Note represents the final
agreement between the parties and may not be contradicted by evidence of prior,
contemporaneous, or subsequent oral agreements of the parties.
MAKER: Heartsoft, Inc. ISSUER: Dale Hill
By: /s/ Benjamin P. Shell By: /s/ Dale Hill
-------------------------- ---------------------
Benjamin P. Shell Dale Hill
Chief Executive Officer
H E A R T S O F T, I N C O R P O R A T E D
- --------------------------------------------------------------------------------
3101 North Hemlock Circle, Broken Bow, Oklahoma 74012 -
(918) 251-1066 - (800) 285-3475
Fax: (918) 251-4018 - Web: www.heartsoft.com
<PAGE>
Exhibit 10.2
[Heartsoft Logo] [Animated Picture of Heartsoft
Inc. Characters]
HEARTSOFT
CORPORATE NOTE
February 10, 1998
FOR VALUE RECEIVED, the undersigned Maker promises to pay to the order of
(Issuer):
Dale Hill
5056 Westgrove Drive
Dallas, Texas 752248
the sum of $100,000 (one hundred thousand dollars), with interest from the
date written above until paid; at the rate of ten percent (10%) per annum.
This Note, together with all interest due, is payable in full ninety (90)
days from the date written above. At the Maker's sole discretion, this Note
and all interest due hereunder may be extended for an additional ninety (90)
days causing this Note's due date to be one hundred and eighty days (180)
from the date written above, (herein after Maturity).
As consideration and collateral for this Note, Maker hereby grants to Issuer
a secured working interest in all funds held in trust by Paul Bain, Attorney
at Law. Said funds totaling $400,000 are designated by terms of Heartsoft
1997 Limited Partnerships I, II, and III, to be released in full and
unencumbered by Mr. Bain directly to Heartsoft on May 15, 1998. (See Exhibit
"A").
As inducement for the purchase of this Note, the undersigned Maker hereby
grants to Issuer fifty thousand (50,000) shares of the Maker's restricted
common stock to be issued within 14 days of the date of this Note. Further,
if Note is extended beyond May 30, 1998, Maker will issue and deliver to
Issuer an additional fifty thousand (50,000) shares of the Maker's restricted
common stock.
In the event this Note is not paid in full upon Maturity (hereinafter
Default), Issuer, at its sole discretion, shall have the option of converting
Note into 200,000 shares of the Maker's restricted common stock.
Maker shall reserve the right to repay the principle of this Note, together
with all such accrued interest at the time of prepayment in whole or in part
prior to its due date without premium or penalty.
<PAGE>
Corporate Note
February 10, 1998
If this Note is placed in an attorney's hands for collection, or collected by
a suit or through a bankruptcy, probate, or any other court, either before or
after Maturity, then there shall be paid to the holder of this Note,
reasonable attorney's fees and all costs and other expenses (including,
without limitation, such fees, costs, and expenses of litigation) incurred by
said holder in enforcing the terms of this Note.
The Makers, signers, and endorsers of this Note severally waive demand,
presentment, notice of dishonor, diligence in collection and notice of
protest and agree to all extensions and partial payments before or after
maturity, without prejudice to the holder.
This written Note represents the final agreement between the parties and may
not be contradicted by evidence of prior, contemporaneous, or subsequent oral
agreements of the parties.
MAKER: HEARTSOFT, INC.
By: /s/ Benjamin P. Shell
----------------------------------------
Benjamin P. Shell
Chief Executive Officer
ISSUER: DALE HILL
By: /s/ Dale Hill
----------------------------------------
Dale Hill
<PAGE>
Exhibit 10.3
HEARTSOFT, INC. EMPLOYEE BENEFIT
AND STOCK OPTION PLAN
SECTION I
PURPOSE
1.1 This Employee Benefit and Stock Option Plan (the "Plan") is
intended to provide a means for the granting of awards (each such award (the
"Award") of stock and/or options to selected employees of and consultants to
Heartsoft, Inc. (the "Company") and such of its domestic or foreign, present
or future, affiliated companies as shall be designated from time to time by
the Company's Board of Directors (the "Board") (each such employee or
consultant, upon receipt of an Award, shall be deemed to be a "Participant"
in the Plan). This Plan is designed to: (a) provide incentives and rewards to
those employees who are in a position to contribute to the long term growth
and profitability of the Company; (b) assist the Company and such affiliated
companies (the "Affiliates") to attract, retain, and motivate personnel with
experience and ability; and (c) make the Company's compensation program more
competitive with those of other major employers. The Company expects that by
providing such Awards it will benefit from the added interest which such
personnel will have in the success of the Company and/or the Affiliates as a
result of their proprietary interest.
1.2 For purposes of this Plan, an Affiliate shall mean any
corporation defined as a subsidiary corporation under Section 424(f) of the
United States Internal Revenue Code of 1986 (the "Code").
SECTION II
ADMINISTRATION
2.1 This Plan shall be administered by the Board. Subject to the
express provisions of this Plan, the Board shall have full power and
authority, in its discretion, to grant Awards; to determine to whom and the
time when Awards will be granted; to designate Awards as payment for services
rendered to the Company, incentive stock options, nonqualified stock options,
or stock appreciation rights; to determine the purchase price of the common
stock covered by each option and the term of each option; to determine the
terms and provisions of the option agreements (which need not be identical)
entered into in connection with Awards under this Plan, to interpret this
Plan; to supervise the administration of this Plan, to prescribe, amend, and
rescind rules and regulations relating to this Plan; and to make all other
proper determinations and take any other action deemed necessary or desirable
to the proper operation or administration of this Plan. The Board may
authorize such of the Company's officers or other persons to perform such
functions with respect to the execution and administration of this Plan
(other than the interpretation of this Plan and the adoption of rules
governing, its execution and administration) as the Board shall determine
from time to time.
<PAGE>
2.2 All decisions made by the Board pursuant to the powers vested in
it by this Plan document shall be final and binding on all persons (including
Participants, the Company, and any shareholder and/or employee of the Company
or an Affiliate). No member of the Board shall be liable for any action or
determination made in good faith with respect to this Plan or any Award
granted under it.
2.3 Neither the Board, the Company, nor any officers or employees of
the Company shall have any duty to advise Participants of any rules,
interpretations, or determinations by the Board, and each Participant shall
be bound by such rules, interpretations, or determinations upon communication
thereof to such Participant, effective as of such date (prior to, subsequent
to, or concurrent with such communication) that each such rule,
interpretation, or determination shall have been intended to be effective by
the Board.
SECTION III
SCOPE AND DURATION
3.1 Awards under this Plan may be granted in the form of stock
issuances, incentive stock options (the "ISOs") as provided in Section 422 of
the Code, or in the form of nonqualified stock options (the "NQSOs").
3.2 The total number of shares of common stock of the Company (the
"Stock") as to which stock issuances or Options may be granted under this
Plan shall be 2,000,000, subject to adjustment as provided in Section XII
hereof. The total number of shares of Stock which may be awarded under the
Plan to any single Participant in any one year shall not exceed twenty-five
per cent (25%) of the total shares of Stock allotted to the Plan. Issuance of
Stock for services rendered to the Company or upon exercise of an Option
shall reduce the total number of shares of Stock available under this Plan.
There shall not be counted against this total any shares of Stock covered by
an Option that has lapsed unexercised or has been forfeited as hereinafter
provided.
3.3 Subject to adjustments provided for in Section M hereof, shares
of Stock as to which issuances may be made or Options under this Plan may be
granted may be made available by the Company from authorized but unissued
shares of Stock or from shares reacquired by the Company (including shares
purchased in the open market).
SECTION IV
ELIGIBLE EMPLOYEES
The persons who shall be eligible to receive Awards under this Plan
shall be limited to such employees or consultants (including officers and
directors who are employees) of the Company or an Affiliate, without
limitation as to length of service, who are from time to time recommended to,
and authorized by, the Board for Awards under this Plan. The directors of the
Company shall not be eligible to participate in the Plan as directors, but
directors otherwise
2
<PAGE>
qualified shall be eligible to participate. An employee who has been granted
an Option hereunder may be granted an additional Option or Options, if the
Board shall so determine.
SECTION V
GRANTING AWARDS
5.1 Subject to the limitations of this Plan, the Board, at any time
and from time to time, and after such consultation with and consideration of
the recommendations of management as the Board deems desirable, shall select
from the eligible employees and/or consultants those persons to be granted
Awards and determine the time when each award shall be granted, the number of
shares of Stock to be subject to an issuance or an Option and the terms and
conditions, consistent with this Plan, upon which Stock issuances are to be
made or Options are to be awarded. The Board shall make Awards to the
employees and/or consultants so selected for the number of shares of Stock or
Options and upon the terms and conditions so determined. No Stock or Options
shall be issued or distributed under this Plan unless and until all legal
requirements applicable to the issuance or transfer of such Options and/or
Stock have been complied with to the satisfaction of the Board.
5.2 No Awards shall be granted under this Plan after its termination
on June 30, 2005, but Awards granted prior to such termination may extend
beyond that date, and the terms of this Plan shall continue to apply to such
Awards.
SECTION VI
TERMS AND CONDITIONS OF OPTION
6.1 GENERAL. Each Option granted pursuant to this Plan shall be
subject to all of the terms and conditions hereinafter provided in this
Section VI, all other terms and conditions as may be provided in any other
Section of this Plan, and such other terms and conditions ("Discretionary
Conditions") as may be specified by the Board with respect to the Option and
the Stock covered thereby at the time of the making of the Award or as may be
specified thereafter by the Board in the exercise of its powers under this
Plan. Without limiting the foregoing, it is understood that the Board may, at
any time and from time to time after the granting of an Award under this
Plan, specify such additional terms and conditions with respect to such Award
as maybe deemed necessary or appropriate to ensure compliance with any and
all applicable laws and regulations, including, but not limited to, terms and
conditions for compliance with Federal and state securities laws, methods of
withholding or providing for the payment of required taxes, and approvals by
any governmental agencies or national securities exchanges as maybe required.
The terms and conditions with respect to any Award, or with respect to any
Award to any Participant, need not be identical with the terms and conditions
with respect to any Award to that Participant or to any other Participant.
6.2 OPTION AGREEMENT. Receipt of an Option shall be subject to
execution of a written agreement (the "Option Agreement") between the Company
and the Participant, in a form approved by the Board, which shall set forth
the number of Options Awarded, the number
3
<PAGE>
of shares of Stock that may be purchased pursuant to such Options, the
applicable Option Price (as defined herein) and such other terms and
conditions provided in this Plan as may be deemed appropriate by the Board,
including, but not limited to, any Discretionary Conditions. The Option
Agreement shall be subject to, and shall be deemed amended to include, such
additional Discretionary Conditions as the Board may thereafter specify in
the exercise of its powers under this Plan. A fully executed original
counterpart of such Option Agreement shall be provided to the Company and the
Participant. Each Option Agreement shall identify the Options represented
thereby as ISOs or NQSOs.
6.3 OPTION PRICE. The purchase price of the Stock covered by each
Option shall be determined by the Board, but in no event shall the Option
Price of ISOs be less than 100% of the Fair Market Value of such Stock on the
date the Option is granted, nor shall the Option Price of NQSOs be less than
25% of the Fair Market Value of such Stock on the date the Option is granted.
For this purpose, "Fair Market Value" of a share shall be the closing "Bid"
price as reported in the Wall Street Journal (or if not so reported, as
otherwise reported by the National Association of Securities Dealers
Automated Quotation (NASDAQ) system on the applicable date (the "Valuation
Date") if the shares were traded on a stock exchange on the Valuation Date;
if the shares were not so traded, Fair Market Value shall be the mean of
closing Bid price on the valuation Date. If there were no sales or reported
Bid prices on the Valuation Date, the Board shall determine the Fair Market
Value as of the last trading day preceding the Valuation Date for which there
was a sale or reported Bid prices or if no such prices are available, then
such other appropriate method for determining fair market value.
6.4 TERM OF OPTION.
A. The duration of each Option granted under this Plan shall
be for not more than 10 years from the date of grant, as the Board shall
determine, subject to earlier termination as provided in Sections VIII, IX,
and X hereof The Board may, in its discretion, extend the period within which
any particular Option may be exercised beyond the expiration date originally
provided in said Option even if any such extension may cause an ISO to become
treated as a NQSO. However, no Option shall, in any event, be exercised after
the expiration of the full term of the Option as may be specified in the
Option.
B. Subject to the provisions of this Plan, an Option may be
exercised, at any time or from time to time (subject, in the case of ISOs, to
such restrictions as may be imposed from time to time by the Code), as and
when determined by the Board by giving written notice to the Company of the
exercise of the Option. Except as provided in Sections VIII and IX hereof, no
Option may be exercised at any time unless the Participant is then a
consultant to or a regular full-time employee of the Company or an Affiliate.
To the extent an Option is not exercised within its term, the Option shall
automatically terminate at the end of such term. Notwithstanding the
foregoing provisions, failure to exercise an ISO within the periods of time
prescribed under Sections 421 and 422 of the Code shall cause an ISO to cease
to be treated as an "Incentive Stock Option" for the purposes of Section 422
of the Code. In the Option Agreement or after an Option is granted the Board
may, on such terms and conditions as it may determine to be appropriate and
notwithstanding the provisions of this paragraph 6.413, extend the time at
which the Option or any portion thereof may be exercised.
4
<PAGE>
C. The Option Price for the shares as to which an Option is
exercised shall be paid to the Company in full on the date of exercise. A
Participant shall pay for such shares of Stock (i) in cash, (ii) by certified
or cashier's check payable to the order of the Company, or (iii) by such
other mode of payment as the Board may approve, including payment through a
broker in accordance with procedures permitted by Regulation T of the Federal
Reserve Board. Furthermore, the Board may provide in an Option Agreement that
payment may be made in whole or in part in shares of Stock held by the
Participant, unless otherwise provided in the Option Agreement, for more than
six months (or such shorter period of time as shall not, in the Board's sole
discretion, have an adverse effect on the Company's financial statements),
provided, however, that the Option Price may not be paid for with shares of
Stock if such method of payment would result in liability under Section 16(b)
of the Exchange Act to the Participant. If payment is made in whole or in
part in shares of Stock, then the Participant shall deliver to the Company
certificates owned by such Participant, free of all liens, claims, and
encumbrances of every kind and have an aggregate Fair Market Value on the
date of delivery that is at least as great as the Option Price of the shares
of Stock (or relevant portion thereof) with respect to which such Option is
to be exercised by payment in shares of Stock, endorsed in blank or
accompanied by stock powers duly endorsed in blank by the Participant. In the
event that certificates for shares of Stock delivered to the Company
represent a number of shares of Stock in excess of the number of shares of
Stock required to make payment for the Option Price of the shares of Stock
(or relevant portion thereof) with respect to which such Option is to be
exercised by payment in shares of Stock, the stock certificate issued to the
Participant shall represent (iii) the shares of Stock in respect of which
payment is made, and (ii) such excess number of shares of Stock.
Notwithstanding the foregoing, the Board may impose from time to time such
limitations and prohibitions on the use of shares of Stock to exercise an
Option as it deems appropriate. Stock acquired by the Participant which is
identified as having been obtained through an ISO under this Plan and still
subject to ISO holding requirements as defined in Section 422 of the Code,
may not be tendered in payment of the Option Price.
6.5 DATE OF GRANT. The date on which an Award shall be deemed to have
been granted under this Plan shall be the date of the Board's authorization
of the Award or such later date as may be determined by the Board at the time
the Award is authorized. Notice of the determination shall be given to each
Participant to whom an Award is so granted within a reasonable time after the
date of such grant.
6.6 RIGHTS AS A SHAREHOLDER. No Participant shall have any rights to
dividends or other rights of a shareholder with respect to shares of Stock
subject to an Option until the Participant has given notice of exercise of
the Option, has paid in full the Option Price for such shares of Stock, and
has otherwise complied with this Plan, the Option Agreement, and such rules
and regulations as may be established by the Board.
6.7 INCENTIVE STOCK OPTIONS.
A. In the case of an ISO, each Option Agreement shall contain
such other terms, conditions, and provisions as the Board determines
necessary or desirable in order to qualify such Option as a tax favored
option (within the meaning of Section 422 of the Code or
5
<PAGE>
any amendment or substitute thereto or regulation thereunder) including
without limitation, each of the following, except that any of these
provisions maybe omitted or modified if it is no longer required in order to
have an option qualify as a tax-favored option within the meaning of Section
422 of the Code or any substitute therefor:
i, The Option must be expressly designated as an ISO by
the Board and in the Option Agreement; and
ii. The aggregate fair market value (determined as of the
date the Option is granted) of the shares of Stock with respect to which ISOs
are first exercisable under the terms of the Option Agreement by any
Participant during any calendar year (under all plans of the Company shall
not exceed $100,000.
B. ISOs shall also comply with any other restrictions and
limitations imposed by Section 422 of the Code not otherwise provided in the
Plan.
C. In the event of amendments to the Code or applicable rules or
regulations relating to ISOs awarded subsequent to the date hereof, the
Company may amend the provisions of this Plan and the Company and the
Participants holding ISOs may agree to amend outstanding Option Agreements to
conform to such amendments.
6.8 SUBSTITUTE OPTIONS. Options may be granted under the Plan from
time to time in substitution for stock options held by employees of other
corporations who are about to become and who do concurrently with the grant
of such Options become employees of the Company or a subsidiary as a result
of a merger or consolidation of the employing corporation with the Company or
a subsidiary, or the acquisition by the Company or a subsidiary of the assets
of the employing corporation, or the acquisition by the Company, or a
subsidiary of stock of the subsidiary. The terms and conditions of the
substitute Options so granted may vary from the terms and conditions set
forth in this Section VI of the Plan to such extent as the Board at the time
of grant may deem appropriate to conform, in whole or in part, to the
provisions of the stock options in substitution for which they are granted.
6.9 INVESTMENT PURPOSE.
A. Each Option under this Plan shall be granted on the
condition that the purchases of shares of Stock hereunder shall be for
investment purposes, and not with a view toward resale or distribution,
except that in the event that Stock subject to such Option is registered
under the Securities Act of 1933, as amended, or in the event of a resale of
such Stock without registration thereunder would otherwise be permissible,
such condition shall be inoperative if in the opinion of counsel for the
Company such condition is not required under the Securities Act of 1933 or
any other applicable law, regulation, or rule of any governmental agency,
B. The Board may require each person purchasing shares of
Stock pursuant to exercise of an Option to represent to and agree with the
Company in writing that such shares are being acquired for investment and
without a view to distribution thereof. The certificates for
6
<PAGE>
shares of Stock so purchased may include any legend which the Board deems
appropriate to reflect any restriction on transfer. The Board also may
impose, in its discretion, as a condition of any Option, any restrictions on
the transferability of shares of Stock acquired through the exercise of such
Option as it may deem fit. Without limiting the generality of the foregoing,
the Board may impose conditions restricting absolutely the transferability of
shares of Stock acquired through the exercise of Options for such periods as
the Board may determine and, further, in the event a Participant's employment
by the Company or an Affiliate terminates during the period in which such
shares of Stock are nontransferable, the Participant may be required, if
required by the related Option Agreement, to sell such Stock back to the
Company at such price and on such other terms as the Board may have specified
in the Option Agreement.
C. A Participant shall give prompt notice to the Company of
any disposition of shares of Stock acquired upon exercise of an ISO if such
disposition occurs within either two (2)years after grant or one (I) year
after receipt of such shares by the Participant.
6.10 REPLACEMENT OPTIONS. The Board, in its absolute discretion, may
grant to holders of outstanding Options, in exchange for the surrender and
cancellation of such Options, new Options having Option Prices lower (or
higher) than the Option Price provided in the Options so surrendered and
canceled and containing such other terms and conditions as the Board may deem
appropriate.
SECTION VII
NONTRANSFER-ABILITY OF AWARDS. GOVERNMENT REGULATIONS
7.1 AWARDS NOT TRANSFERABLE. Options granted under this Plan shall
not be assignable or transferable by the Participant other than by will or by
the laws of descent and distribution. During the lifetime of a Participant,
Options may be exercised only by the Participant. Options exercisable after
the death of a Participant may be exercised by the legatees, personal
representatives, or distributees of the Participant. However, if an Option is
originally granted to a business entity such as a corporation, partnership,
limited liability company, or trust, then such Option shall be transferable
by the Participant.
7.2 GOVERNMENT REGULATIONS. This Plan, the granting of Awards under
this Plan, and the issuance or transfer of shares of Stock (and/or the
payment of money) pursuant thereto are subject to all applicable Federal and
state laws, rules, and regulations (including without limitation the law,
rules, and regulations of the Exchange Act) and to such approvals by any
regulatory or governmental agency (including without limitation "no action"
positions of the Securities and Exchange Commission) which may, in the
opinion of counsel for the Company, be necessary or advisable in connection
therewith. Without limiting the generality of the foregoing, no Awards may be
granted under this Plan, and no shares of Stock shall be issued by the
Company, nor cash payments made by the Company, pursuant to or in connection
with any such Award, unless and until, in each such case, all legal
requirements applicable to the issuance or payment have, in the opinion of
counsel to the Company, been complied with in full. In connection with any
Stock issuance or transfer, the person acquiring the Stock shall, if
requested by the Company, give assurances satisfactory to COUNSEL TO THE
company in respect of such
7
<PAGE>
matters as the Company may deem desirable to assure compliance with all
applicable legal requirements. The Company shall not be required to deliver
any shares of Stock under the Plan prior to:
i. The admission of such shares to listing or for
quotation on any stock exchange or automated quotation system on which shares
of Stock may then be listed or quoted; and
ii. The completion and effectiveness of such registration
or other qualification of such shares under any state or Federal law, rule,
or regulation, as the Board shall determine to be necessary or advisable.
SECTION VIII
RIGHTS UPON TERMINATION OF EMPLOYMENT
In the event that a Participant ceases to be an employee of or
consultant to the Company or any subsidiary for any reason other than death
or disability (within the meaning of Section 22(e)(3) of the Code or any
substitute therefore), the Participant shall have the right to exercise the
Option during its term or within such other period, and subject to such terms
and conditions, as may be specified by the Board.
SECTION IX
DEATH OR DISABILITY OF PARTICIPANT
If, prior to the end of the Option Period, the Participant shall cease
to be employed by the Company or an affiliate by reason of death or
disability, each Option shall remain exercisable for a period of one year
from the date of cessation of employment to the extent that it was
exercisable at the time of cessation of employment, or within such other
period, and subject to such terms and conditions, as may be specified by the
Board. As used in this Section IX and elsewhere in this Plan, the term
"disability" means a physical or mental impairment sufficient to make the
individual eligible for benefits under the Long-Term Disability Plan of
Heartsoft, Inc., or an Affiliate (whether or not a participant in such plan),
so long as such impairment also constitutes a disability within the meaning
of Section 22(e)(3) of the Code.
SECTION X
FORFEITURE UPON OCCURRENCE OF CERTAIN ACTS
Notwithstanding any other provision of this Plan, no payment of any
Award shall be made, and all rights of the Participant who received such
Award (or his designated beneficiary or legal representatives) to the payment
thereof under this Plan, shall be forfeited if, prior to the time of such
payment, the Participant (i) shall be employed without the Company's or
Affiliate's consent by a competitor of, or shall be engaged in any activity
in competition with, the Company or an Affiliate; (ii) divulges without the
consent of the Company any secret or confidential
8
<PAGE>
information belonging to the Company or any subsidiary; (iii) has engaged in
fraud, embezzlement, theft, commission of a felony, or other dishonest
conduct in the course of his employment with the Company or any subsidiary;
or (iv) has committed any act which, in the sole judgment of the Board, has
been substantially detrimental to the interests of the Company or any
subsidiary. The Company shall give a Participant written notice of the
occurrence of any such event prior to making any such forfeiture. The
determination of the Board as to the occurrence of any of the events
specified in the foregoing clauses (i), (ii), (iii), and (iv) of this Section
X shall be exclusive and binding upon all persons for all purposes. Any Award
shall be subject to forfeiture for the reasons provided in this Section in
such manner as shall be provided by the Board.
SECTION X1
STOCK ADJUSTMENTS UPON CHANGES
11.1 In the event that the shares of Stock shall be changed into or
exchanged for a different number or kind of shares of Stock of the Company or
of shares of another corporation (whether by reason of merger, consolidation,
recapitalization, reclassification, stock split, combination of shares, or
otherwise), or if the number of such shares of Stock shall be increased
through the payment of a stock dividend, then there shall be substituted for
or added to each share of Stock subject to, or which may become subject to,
an Option under this Plan, the number and kind of shares into which each
outstanding share of Stock shall be exchanged, or to which each such share
shall be entitled, as the case may be. Outstanding Options shall also be
appropriately amended as to option Price and other terms as may be necessary
to reflect the foregoing events. In the event there shall be any other change
in the number or kind of outstanding shares of the Stock, or of any shares
into which such shares shall have been changed, or for which the Board shall,
in its sole discretion, determine that such change equitably requires an
adjustment in any Option theretofore granted or which may be granted under
this Plan, such adjustments shall be made in accordance with such
determination.
Subject to any required action by the shareholders of the Company, the
number of shares of Stock covered by each outstanding Option and the number
of shares of Stock which have been authorized for issuance under the Plan but
as to which no Options have yet been granted or which have been returned to
the Plan upon cancellation or expiration of an Option, as well as the price
per share of Stock covered by each such outstanding Option, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Stock resulting from a stock split (forward or reverse), stock
dividend, combination or reclassification of the Stock, or any other increase
or decrease in the number of issued shares of Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration." Such adjustment shall be made by
the Board, whose determination in that respect shall be final, binding, and
conclusive. Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of
stock of any class, shall affect, and no adjustment by reason thereof shall
be made, with respect to the number or price of shares of Stock subject to an
Option.
9
<PAGE>
11.2 Fractional shares resulting from any adjustment in Options
pursuant to this Section XI may be settled in cash or otherwise as the Board
shall determine. Notice of any adjustment shall be given by the Company to
each holder of an Option which shall have been so adjusted and such
adjustment (whether or not such notice is given) shall be effective and
binding for all purposes of this Plan,
11.3 The Board shall have the power, in the event of any merger or
consolidation of the Company with or into any other corporation, or the
merger or consolidation of any other corporation with or into the Company or
the sale of all or substantially all of the assets of the Company, or an
offer to purchase made by a party other than the Company to all shareholders
of the Company for all or any substantial portion of the outstanding Stock,
to amend all Outstanding Options to permit the exercise of all such options
prior to the effectiveness of any such merger, consolidation, or sale or the
expiration of any such offer to purchase and to terminate such Options as of
such effectiveness or expiration.
11.4 In making the adjustments provided for by this Section X1,
consideration shall be given to applicable tax laws in order to avoid a
premature lapse or disqualifying disposition of an Option due solely to such
adjustment.
SECTION XII
EFFECTIVE DATE. TERMINATION. AND AMENDMENT OF THE PLAN
12.1 This Plan shall become effective on June 15,1997, provided that
the Company's shareholders shall have adopted and ratified the Plan at the
Company's next occurring Annual Meeting of Shareholders or at a prior
meeting. Once effective, this Plan shall terminate on June 3, 2005, but
Awards theretofore granted may extend beyond that date in accordance with
their terms. No Option granted pursuant to this Plan may be exercised before
the Plan is approved by the shareholders of the Company. However, Stock
issuances for services rendered to the Company, prior to ratification of the
Plan by the shareholders, shall be valid.
12.2 The Board may, insofar as permitted by law from time to time and
at any time, with respect to any shares of Stock at the time not subject to
Options, terminate, suspend, alter, amend, or discontinue this Plan, in whole
or in part, except that no such modification, alteration, amendment, or
discontinuation shall, without the Participant's consent, impair the rights
of any Participant under any Award granted to such Participant except in
accordance with the provisions of this Plan and/or the Option Agreement
applicable to any such Award and except, further, that no modification,
alteration, or amendment shall, without the approval by the holders of a
majority of the then-outstanding voting stock of the Company represented and
entitled to vote at a shareholders' meeting:
i. Increase the total number of shares of Stock reserved
for the purposes of this Plan, except as provided in Section XI of this Plan;
ii. Decrease the Option Price of any ISO to less than
100% of Fair Market Value on the date of grant of any Option;
10
<PAGE>
iii. Decrease the Option Price of any NQSO to less than
25% of Fair Market Value on the date of grant of any Option; or
iv. Materially increase the benefits accruing to
Participants under this Plan.
SECTION XIII
MISCELLANEOUS
13.1 NO RIGHTS TO CONTINUED EMPLOYMENT OR AWARD. This Plan does not,
directly or indirectly, create any right for the benefit of any employee or
class of employees to receive any Awards under this Plan, or create in any
employee or class of employees any right with respect to continuation of
employment by the Company or an Affiliate, and it shall not be deemed to
interfere in any way with the Company's or an Affiliate's right to terminate
or otherwise modify an employee's employment at any time,
13.2 FAILURE TO COMPLY WITH TERMS AND CONDITIONS. Notwithstanding
any other provision of this Plan, no payment or delivery with respect to any
Award shall be made, and all rights of the Participant who receives such
Award (or his designated beneficiary or legal representative) to such payment
or delivery under this Plan shall be forfeited, at the discretion of the
Board, if, prior to the time of such payment or delivery, the Participant
breaches a restriction or any of the terms, restrictions, and/or conditions
of this Plan and/or Agreement.
13.3 NO PROHIBITION ON CORPORATE ACTION. No provision of this Plan
shall be construed to prevent the Company or any officer or director thereof
from taking any corporate action deemed by the Company or such officer or
director to be appropriate or in the Company's best interest, whether or not
such action could have an adverse effect on the Plan or any options granted
hereunder, and no Participant or Participant's estate, personal
representative, or beneficiary shall have any claim against the Company or
any officer or director thereof as a result of the taking, of such action.
13.4 PARTIES IN INTEREST. The provisions of this Plan and the terms
and conditions of any Award shall, in accordance with their terms, be binding
upon, and inure to the benefit of, all successors of each Participant,
including. without limitation, such Participant's estate and the executors,
administrators or trustees thereof, heirs and legatees, and any receiver.
13.5 DESIGNATION OF BENEFICIARY. Each Participant may designate a
beneficiary or beneficiaries (on a form supplied by the Company) to exercise
his Award(s) in the event of his death, and may change such designation from
time to time and at any time prior to the death of such Participant.
13.6 NON-UNIFORM DETERMINATION. THE Board's determinations under the
Plan (including without limitation determinations of the persons to receive
Awards, the form, amount, and timing of such Awards, the terms and provisions
of such Awards, and the
11
<PAGE>
agreements evidencing same) need not be uniform and may be made selectively
among persons who receive, or are eligible to receive, Awards under the Plan
whether or not such persons are similarly situated.
13.7 USE OF PROCEEDS. The proceeds received by the Company from the
exercise of any Option issued pursuant to the Plan or from the grant of any
other Award under the Plan shall be used for the general corporate purposes
of the Company.
13.8 GOVERNING LAW. All questions pertaining to construction,
validity, and effect of the provisions of under this Plan and the rights of
all persons hereunder shall be governed by and construed in accordance with
the laws of the State of Oklahoma, without consideration of conflict of laws
principles.
13.9 OTHER PROVISIONS.
A. No Participant or other person shall have any right with
respect to the Plan, the Stock reserved for issuance under the Plan, or in
any Award, contingent or otherwise, until written evidence of the Award shall
have been delivered to the recipient and all the terms, conditions, and
provisions of the Plan and the Award applicable to such recipient (and each
person claiming under or through him) have been met.
B. To the extent that Rule 16b-3 under the Exchange Act
applies to Awards granted under this Plan, it is the intent of the Company
that the Plan comply in all respects with the requirements of Rule 16b-3,
that any ambiguities or inconsistencies in construction of the Plan be
interpreted to give effect to such intention, and that if any provision of
the Plan is found not to be in compliance with Rule l6b-3, such provision
shall be deemed null and void to the extent required to permit the plan to
comply with Rule l6b-3.
C. The Plan shall be unfunded. The Company shall not be
required to establish any special or separate fund or to make any other
segregation of assets to assure the payment of any Award under the Plan, and
rights to the payment of Awards shall be no greater than the rights of the
Company's general creditors.
D. By accepting any Award or other benefit under the Plan,
each Participant and each person claiming under or through him shall be
conclusively deemed to have indicated his acceptance and ratification of, and
consent to, any action taken under the Plan by the Company or the Board.
E. The adoption of the Plan shall not affect any other stock
option, compensation, or inceptive plan in effect for the Company or any
Affiliate and the Plan shall not preclude the Board from establishing any
other forms of incentive or compensation for employees of the Company or any
Affiliate.
F. The masculine pronoun shall include the feminine and
neuter, and the singular shall include the plural, where the context so
indicates.
12
<PAGE>
SECTION XIV
INDEMNIFICATION
With respect to the administration of the Plan, the Company shall
indemnify each present and future member of the Board against, and each
member of the Board shall be entitled without further act on his part to
indemnification from the Company for all expenses (including the amount of
judgments and the amount of approved settlements made with a view to the
curtailment of costs of litigation, other than amounts paid to the Company
itself) reasonably incurred by him in connection with or arising out of, any
action, suit, or proceeding in which he may be involved by reason of his
being or having been a member of the Board, whether or not he continues to be
such a member of the Board at the time of incurring such expenses; provided,
however, that such indemnity shall not include any expenses incurred by any
such member of the Board (i) in respect of matters as to which he shall be
finally adjudged in any such action, suit, or proceeding to have been guilty
of gross negligence or willful misconduct in the performance of his duty as
such member of the Board; or (ii) in respect of any matter in which any
settlement is effected for an amount in excess of the amount approved by the
Company on the advice of its legal counsel; and provided further that no
right of indemnification under the provisions set forth herein shall be
available to or enforceable by any such member of the Board unless within 60
days after institution of any such action, suit, or proceeding he shall have
offered the Company in writing the opportunity to handle and defend same at
its own expense. The foregoing FIGHT of indemnification shall inure to the
benefit of the heirs, executors, or administrators of each such member of the
Board and shall be in addition to all other rights to which such member of
the Board may be entitled as a matter of law, contract, or otherwise.
SECTION XV
TAX WITHHOLDING
The Company shall have the right to withhold from amounts due
Participants or to collect from Participants directly, the amount which the
Company deems necessary to satisfy any taxes required by law to be withheld
at any time by reason of participation in the Plan and the obligations of the
Company under the Plan shall be conditional on payment of such taxes. The
Participant may, prior to the due date of any taxes, pay such amounts to the
Company in cash or, with the consent of the Board, in shares of Stock (which
shall be valued at their Fair Market Value on the date of payment). There is
no obligation under this Plan that any Participant be advised of the
existence of the tax or the amount required to be withheld. Without limiting
the generality of the foregoing, in any case where the Company determines
that a tax is or will be required to be withheld in connection with the
issuance or transfer of shares of Stock under this Plan, the Company may,
pursuant to such rules as the Board may establish, reduce the number of such
shares of Stock so issued or transferred by such number of shares as the
Company may deem appropriate, in its sole discretion, to accomplish such
withholding or make such other arrangements as it deems satisfactory.
Notwithstanding any other provision of this Plan, the Board may impose such
conditions on the payment of any withholding obligation as may be required to
satisfy applicable regulatory requirements, including, without limitation,
Rule 16b-3 ) (or successor provision) under the Exchange Act.
13
<PAGE>
TO RECORD the adoption of this Plan, the Board has caused this
instrument to be executed on this 15th day of June, 1997.
HEARTSOFT, INC.
a Delaware corporation
By: /s/ Benjamin Shell
----------------------------------------
Benjamin Shell
Chairman of the Board of Directors
By: /s/ Jimmy Butler
----------------------------------------
Jimmy L. Butler, President
14
<PAGE>
EXHIBIT 2
<PAGE>
T. ALAN OWEN
Attoney at Law
2017 East Lamar Boulevard
Suite 100
Arlington, Texas 76006
TELEPHONE TELEFAX
(817) 633-3557 (817) 795-0154
(817) 640-2868 - Metro
June 15,1997
The Board of Directors
Heartsoft, Inc.
3101 North Hemlock Circle
Broken Arrow, Oklahoma 74012
RE: Heartsoft, Inc. Employee Benefit and Stock Option Plan
Gentlemen:
I have acted as counsel to Heartsoft, Inc. (the "Company") in
connection with the preparation and filing with the Securities and
Exchange Commission under the Securities Act of 1933, as amended, of a
registration statement on Form S-8 (the "Registration Statement")
relating to the offer and sale by the Company of up to 2,000,000 shares
(the "Shares") of the Company's $0.0005 par value Common Stock, pursuant
to the Heartsoft, Inc. Employee Benefit and Stock Option Plan (the
"Plan").
As counsel to the Company, I have supervised all corporate
proceedings in connection with the preparation and filing of the
Registration Statement. I have also examined the Company's Certificate of
Incorporation and Bylaws, as amended to date, the corporate minutes and
other proceedings, and the records relating to the authorization, sale,
and issuance of the Shares, and such other documents and matters of law as
I deemed necessary or appropriate in order to render this opinion.
Based upon the foregoing, it is my opinion that each of the Shares,
when issued in accordance with the terms and conditions of the Plan, will
be duly authorized, legally and validly issued and outstanding, fully
paid, and nonassessable.
I hereby consent to the use of this opinion in the Registration
Statement.
Sincerely,
/s/ T. Alan Owen
T. Alan Owen
TAO/jac
<PAGE>
EXHIBIT 3
<PAGE>
T. ALAN OWEN
Attorney at Law
2017 East Lamar Boulevard
Suite 100
Arlington, Texas 76006
TELEPHONE TELEFAX
(817) 633-3557 (817) 795-0154
(817) 640-2868 -- METRO
JUNE 15, 1997
The Board of Directors
Heartsoft, Inc.
3101 North Hemlock Circle
Broken Arrow, Oklahoma 74012
RE: Heartsoft, Inc. Employee Benefit and Stock Option Plan
Gentlemen:
I Have acted as counsel to Heartsoft, Inc. (the "Company") in
connection with the preparation and filing with the Securities and
Exchange Commission under the Securities Act of 1933, as amended, of a
registration statement on Form S-8 (the "Registration Statement") relating
to the offer and sale by the Company of up to 2,000,000 shares (the
"Shares") of the Company's $0.0005 par value Common Stock, pursuant to the
Heartsoft, Inc. Employee Benefit and Stock Option Plan (the "Plan").
As counsel to the Company, I have supervised all corporate
proceedings in connection with the preparation and filing of the
Registration Statement. I have also examined the Company's Certificate of
Incorporation and Bylaws, as amended to date, the corporate minutes and
other proceedings, and the records relating to the authorization, sale,
and issuance of the Shares, and such other documents and matters of law as
I deemed necessary or appropriate in order to render this opinion.
Based upon the foregoing, it is my opinion that each of the Shares,
when issued in accordance with the terms and conditions of the Plan, will
be duly authorized, legally and validly issued and outstanding, fully
paid, and nonassessable.
I hereby consent to the use of this opinion in the Registration
Statement.
SINCERELY,
/s/ T. Alan Owen
T. Alan Owen
TAO/JAC
<PAGE>
EXHIBIT 4
<PAGE>
KNOW ALL MEN BY THESE PRESENTS. that each person whose signature appears
below constitutes and appoints Benjamin P. Shell as such person's true and
lawful attorney-in-fact and agent, with full power of substitution, for such
person and in such person's name, place.. and stead, in any and all
capacities, to sign any and all amendments or post-effective amendments to
this Registration Statement, and to file the same with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as such person might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his substitute, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the date indicated.
/s/ Benjamin P. Shell
-----------------------------------------
Benjamin P. Shell, Chairman of the Board of
Directors
Date: June 15, 1997
/s/ Jimmy L. Butler
-----------------------------------------
Jimmy L. Butler, President,
Director, and Chief Financial Officer
Date: June 15. 1997
STATE OF OKLAHOMA )
)
COUNTY OF CREEK )
BEFORE ME, the undersigned authority, on this day personally appeared
Jimmy L. Butler, known to me to be the, person whose name is subscribed to
the foregoing instrument, and acknowledged to me that he executed the same
for the, purposes and consideration therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this 15th day of June. 1997.
/s/ Kathy David
-----------------------------------------
Notary Public in and for
The State of Oklahoma
My Commission Expires:
December 5, 1998
- ---------------------------
<PAGE>
STATE OF OKLAHOMA )
)
COUNTY OF CREEK )
BEFORE ME, the undersigned authority, on this day personally appeared
Benjamin P. Shell, known to me to be the, person whose name is subscribed to
the foregoing instrument,. and acknowledged to me that he executed the same
for the, purposes and consideration therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this 15th day of June. 1997.
/s/ Kathy David
-----------------------------------------
Notary Public in and for
The State of Oklahoma
My Commission Expires:
December 5, 1998
- ---------------------------
<PAGE>
EXHIBIT 10.4
PROMISSORY NOTE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No. Call Collateral Account Office Initial
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$100,000.00 07-16-1999 01-16-2000 3035218 522 522 107799 JIMS
- -----------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability
of this document to any particular loan or item.
Any items above containing """"" has been omitted due to text length limitations.
- -----------------------------------------------------------------------------------------
</TABLE>
Borrower: Heartsoft Software Company Lender: Tulsa National Bank
(TIN: 73-1391467) 7120 S. Lewis
3101 North hemlock Circle P.O. Box 1051
Broken Arrow, OK 74012 Tulsa, Ok 74136
(918) 484-4884
<TABLE>
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Principal Amount: $100,000.00 Initial Rate: 9.250% Date of Note: July 16, 1999
</TABLE>
PROMISE TO PAY: Heartsoft Software Company ("Borrower") promises to pay to
Tulsa National Bank ("Lender"), or order, in lawful money of the United
States of America, the principal amount of One Hundred Thousand & 00/100
Dollar ($100,000.00) or so much as may be outstanding, together with interest
on the unpaid outstanding principal balance of each advance. Interest shall
be calculated from the date of each advance until repayment of each advance.
PAYMENT: Borrower will pay this loan in one payment of all outstanding
principal plus all accrued unpaid interest on January 16, 2000. In addition,
Borrower will regular monthly payments of all accrued unpaid interest due as
of each payment date, beginning August 16, 1999, with all subsequent interest
payments to be due on the same day of each month after that. Unless
otherwise agreed or required by applicable law, payments will be applied
first to accrued unpaid interest, then to principal, and any remaining amount
to any unpaid collection costs. The annual interest rate for this Note is
computed on a 365/360 basis; that is, by applying the ratio of the annual
interest rate over a year of 360 days, multiplied by the outstanding
principal balance, multiplied by the actual number of day the principal
balance is outstanding. Borrower will pay Lender at Lender's address shown
above or at such other place as Lender may designate in writing.
VARIABLE INTEREST RATE: The interest rate on this Note is subject to change
from time to time based on changes in any independent index, which is the
Prime Interest rate as published in the money section of the Wall Street
Journal (the "Index"). The Index is not necessarily the lowest rate charged
by Lender on its loans. If the Index becomes unavailable during the term of
this loan, Lender may designate a substitute index after notice to Borrower.
Lender will tell Borrower the current index rate upon Borrower's request.
The interest rate change will not occur more often than each Day. Borrower
understands that Lender may make loans based on other rates as well. The
Index currently is 8.000% per annum. The interest rate to be applied to the
unpaid principal balance of this Note will be at a rate of 1.250 percentage
points over the Index, resulting in an initial rate of 9.250% per annum.
NOTICE: Under no circumstances will the interest rate on this Note be more
than the maximum rate allowed by applicable law.
PREPAYMENT: Borrower may pay without penalty all or a portion of the amount
owned earlier than it is due. Early payments will not, unless agreed to by
Lender in writing, relieve Borrower or Borrower's obligation to continue to
make payments of accrued unpaid interest. Rather, early payments will reduce
the principal balance due. Borrower agrees not to send Lender payments
marked "paid in full," "without recourse," or similar language. If Borrower
sends such a payment, Lender may accept it without losing any of Lender's
rights under this Note, and Borrower will remain obligated to pay any further
amount owed to Lender. All written communications concerning disputed
amounts, including any check or other payment instrument that indicates that
the payment constitutes "payment in full" of the amount owned or that is
tendered with other
<PAGE>
Page 2
PROMISSORY NOTE
(CONTINUED)
================================================================================
conditions or limitations or as full satisfaction of a disputed amount must
be mailed or delivered to: Tulsa National Bank, 7120 S. Lewis, P.O. Box 1051,
Tulsa, OK 74136.
INTEREST AFTER DEFAULT: Upon default, including failure to pay upon final
maturity, Lender, at its option, may, if permitted under applicable law,
increase the variable interest rate on this Note to 21.000% per annum. The
interest rate will not exceed the maximum rate permitted by applicable law.
DEFAULT: Each of the following shall constitute an event of default ("Event
of Default") under this Note:
Payment Default. Borrower fails to make any payment when due under
this Note.
Other Defaults. Borrower fails to comply with or to perform any other
term, obligations, covenant or condition contained in this Note or in
any of the related documents or to comply with or to perform any term,
obligation, covenant or condition contained in any other agreement
between Lender and Borrower.
False Statements. Any warranty, representation or statement made or
furnished to Lender by Borrower or on Borrower's behalf under this
Note or the related documents is false or misleading in any material
respect, either now or at the time made or furnished or becomes false
or misleading at any time thereafter.
Insolvency. The dissolution or termination of Borrower's existence as
a going business, the insolvency of Borrower, the appointment of a
receiver for any part of Borrower's property, any assignment for the
benefit of creditors, any type of creditor workout, or the
commencement of any proceeding under any bankruptcy or insolvency laws
by or against Borrower.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Borrower or by
any governmental agency against any collateral securing the loan. This
includes a garnishment of any of Borrower's accounts, including
deposit accounts, with Lender. However, this Event of Default shall
not apply if there is a good faith dispute by Borrower as to the
validity or reasonableness of the claim which is the basis of the
creditor or forfeiture proceeding and if Borrower gives Lender written
notice of the creditor or forfeiture proceeding and deposits with
Lender monies or a surety bond for the creditor or forfeiture
proceeding, in an amount determined by Lender, in its sole discretion,
as being an adequate reserve or bond for the dispute.
Events Affecting Guarantor. Any of the preceding events occurs with
respect to any Guarantor of any of the indebtedness or any Guarantor
dies, or becomes incompetent, or revokes or disputes the validity of,
or liability under, any guaranty of the indebtedness.
Change in Ownership. Any change in ownership of twenty-five percent
(25%) or more of the common stock of Borrower.
Adverse Change. A material adverse change occurs in Borrower's
financial condition, or Lender believes the prospect of payment or
performance of this Note is impaired.
Insecurity. Lender in good faith believes itself insecure.
LENDER'S RIGHTS. Upon default, Lender may declare the entire principal
balance on this Note and all accrued unpaid interest immediately due, and
then Borrower will pay that amount.
ATTORNEYS' FEES; EXPENSES. Lender may hire or pay someone else to help
collect the loan if Borrower does not pay. Borrower also will pay Lender
that amount. This includes, subject to any limits under applicable law,
Lender's attorneys' fees and Lender's legal expenses, whether or not there is a
<PAGE>
Page 3
PROMISSORY NOTE
(CONTINUED)
================================================================================
lawsuit, including without limitation all attorneys' fees and legal
expenses for bankruptcy proceedings (including efforts to modify or vacate
any automatic stay or injunction), and appeals. If not prohibited by
applicable law, Borrower also will pay any court costs, in addition to all
other sums provided by law.
GOVERNING LAW. This Note will be governed by, construed and enforced in
accordance with federal law and the laws of the State of Oklahoma. This Note
has been accepted by Lender in the State of Oklahoma.
RIGHT OF SETOFF. Borrower grants to Lender a contractual security interest
in all Borrower's accounts with Lender (whether checking, savings, or some
other account). This includes all accounts Borrower holds jointly with
someone else and all accounts Borrower may open in the future. However, this
does not include any IRA or Keogh accounts, or any trust accounts for which
the grant of a security interest would be prohibited by law. Borrower
authorizes Lender, to the extent permitted by applicable law, to charge or
setoff all sums owing on the indebtedness against any and all such accounts,
and, at Lender's option, to administratively freeze all such accounts to
allow Lender to protect Lender's charge and setoff rights provided in this
paragraph.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances
under this Note, as well as directions for payment from Borrower's accounts,
may be requested orally or in writing by Borrower or by au authorized person.
Lender may, but need not, require that all oral requests be confirmed in
writing. Borrower agrees to be liable for all sums either: (A) advanced in
accordance with the instructions of an authorized person or (B) credited to
any of Borrower's accounts with Lender. The unpaid principal balance owing
on this Note at any time may be evidenced by endorsements on this Note or by
Lender's internal records, including daily computer printouts. Lender will
have no obligation to advance funds under this Note if: (A) Borrower or any
guarantor is in default under the terms of this Note or any agreement that
Borrower or any guarantor has with Lender, including any agreement made in
connection with the signing of this Note; (B) Borrower or any guarantor
ceases doing business or is insolvent; (C) any guarantor seeks, claims or
otherwise attempts to limit, modify or revoke such guarantor's guarantee of
this Note or any other loan with Lender; (D) Borrower has applied funds
provided pursuant to this Note for purposes other than those authorized by
Lender; or (E) Lender in good faith believes itself insecure.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person
who signs, guarantees or endorses this Note, to the extent allowed by law,
waive presentment, demand for payment, and notice of dishonor. Upon any
change in the terms of this Note, and unless otherwise expressly stated in
writing, no party who signs this Note, whether as maker, guarantor,
accommodation maker or endorser, shall be released from liability. All such
parties agree that Lender may renew or extend (repeatedly and for any length
of time) this loan or release any party or guarantor or collateral; or
impair, fail to realize upon or perfect Lender's security interest in the
collateral; and take any other action deemed necessary by Lender without the
consent or of notice to anyone. All such parties also agree that Lender may
modify this loan without the consent of or notice to anyone other than the
party with whom the modification is made. The obligations under this Note
are joint and several.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS
OF THIS NOTE, INCLUDING THE VARIABLE INTERSET RATE PROVISIONS. BORROWER
AGREES TO THE TERMS OF THE NOTE.
<PAGE>
Page 4
PROMISSORY NOTE
(CONTINUED)
================================================================================
BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE.
BORROWER:
HEARTSOFT SOFTWARE COMPANY
By: /s/ Benjamin P. Shell By: /s/ Jimmy Butler
-------------------------------- -------------------------------
Benjamin P. Shell, Chairman of Jimmy Butler, Vice President of
Heartsoft Software Company Heartsoft Software Company
<PAGE>
EXHIBIT 10.5
<TABLE>
<CAPTION>
PROMISSORY NOTE - FIXED OR VARIABLE RATE - COMMERCIAL
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DEBTOR'S NAME AND NOTE NUMBER DATE OF NOTE MATURITY DATE PRINCIPAL AMOUNT
ADDRESS 0101 12/16/98 12/16/99 $100,000.00
- -------------------------------------------------------------------------------------------------------------
Heartsoft Software Company CUSTOMER NUMBER / / NEW LOAN OFFICER
3101 N. Hemlock Circle 6533450 : RENEWAL OF LOAN(S) NUMBER SLW
Broken Arrow, OK 74102
- -------------------------------------------------------------------------------------------------------------
/ / Fixed Interest Rate of _______ Per Annum, Interest Payable: ____________
/ / Variable Interest Rate 1.500% above Chase Manhattan Bank Prime Rate
Initial Rate: 9.250% Interest Payable MONTHLY
- -------------------------------------------------------------------------------------------------------------
COLLATERAL CATEGORIES: Bonds, Stock, Inventory, SOCIAL SECURITY NUMBER:
Equipment, Furniture & Trade Fixtures 73-1391467
- -------------------------------------------------------------------------------------------------------------
PAYMENT TERMS Accrued interest due and payable MONTHLY, beginning PURPOSE
01/16/99 and MONTHLY thereafter, with outstanding Working Capital L.O.C.
principal balance plus unpaid accrued interest due and
payable on 12/16/99.
- -------------------------------------------------------------------------------------------------------------
</TABLE>
FOR VALUE RECEIVED, the undersigned Debtor(s), jointly and severally if more
than one, agree to the terms of this Note and promise to pay to the order of
Lender named below at its place of business as indicated herein or at such
other place as may be designated in writing by holder, the Principal Amount
of this Note together with interest until maturity at the per annum interest
rate or rates stated above. If the writing above indicated that the per
annum interest rate is to vary with changes made from time to time in the
base or prime rate of Lender or other financial institution, each change in
the rate will become effective without notice to Debtor on the same day such
base or prime rate is changed unless a different effective date is specified
above. The base or prime rate set forth above is determined by the named
Financial Institution in its sole discretion primarily on a basis of its cost
of funds, is not necessarily the lowest or highest rate the named Financial
Institution is charging its customers, and is not necessarily a published
rate. In the event the named Financial Institution fixing the base or prime
rate ceases to exist or ceases to announce such a rate, Lender may specify a
new Financial Institution to fix such rate, in its sole discretion. Interest
on this Note is calculated on the actual number of days elapsed on a basis of
a 360 day year unless otherwise indicated herein. For purposes of computing
interest and determining the date principal and interest payments are
received, all payments made under this Note will not be deemed to have been
made until such payments are received in collected funds.
PAYMENTS NOT MADE WHEN DUE. Any principal and/or interest amount not paid
when due shall bear interest at a rate six percent (6%) per annum greater
than the per annum interest rate prevailing on this Note at the time the
unpaid amount became due, but in no event at a rate less than fifteen percent
(15%) per annum. In addition or in the alternative to the interest rate
provided for in this paragraph Lender may assess a charge of ten dollars
($10.00) times the number of days late to cover cost of past due notices and
other expenses. In no event shall the interest rate and related charges
either before or after maturity be greater than permitted by law.
ALL PARTIES PRINCIPALS. All parties liable for payment hereunder shall each
be regarded as a principal and each party agrees that any party hereto with
approval of holder and without notice to other parties may from time to time
renew this Note or consent to one or more extensions or deferrals of Maturity
Date for any term or terms, and all parties shall be liable in same manner as
on original note. All parties liable for payment hereunder waive
presentment, notice of dishonor and protest and consent to partial payments,
substitutions or release of collateral and to addition or release of any
party or guarantor.
<PAGE>
- -------------------------------------------------------------------------------
ADVANCES AND PAYMENTS. It is agreed that the sum of all advances under this
Note may exceed the Principal Amount as shown above, but the unpaid balance
shall never exceed said Principal Amount. Advances and payments on Note
shall be recorded on records of Lender and such records shall be prima facie
evidence of such advances, payments and unpaid principal balance. Lender
reserves the right to apply any payment by Debtor, or for account of Debtor,
toward this Note or any other obligation of Debtor to Lender.
COLLATERAL. This Note and all other obligations of Debtor to Lender, and all
renewals or extensions thereof, are secured by all collateral securing this
Note and by other security interests heretofore or hereafter granted to
Lender as more specifically described in Security Agreements and other
securing documentation.
ACCELERATION. At option of holder, the unpaid balance of this Note and all
other obligations of Debtor to holder, whether direct or indirect, absolute
or contingent, now existing or hereafter arising, shall become immediately
due and payable without notice or demand upon the occurrence or existence of
any of the following events or conditions: (a) Any payment required by this
Note or by any other note or obligation of Debtor to holder or to others is
not made when due or the occurrence or existence of any event which results
in acceleration of the maturity of any obligation of Debtor to holder or to
others under any promissory note, agreement or undertaking; (b) Debtor
defaults in performance of any covenant, obligation, warranty or provision
contained in any loan agreement or in any instrument or document securing or
relating to this Note or any other note or obligation of Debtor to holder or
to others; (c) Any warranty, representation, financial information or
statement made or furnished to Lender by or in behalf of Debtor proves to
have been false in any material respect when made or furnished; (d) The
making of any levy against or seizure, garnishment or attachment of any
collateral; (e) Any time Lender in good faith determines prospect of payment
of this Note is impaired; (f) When in the judgment of Lender the collateral,
if any, becomes unsatisfactory or insufficient either in character or value
and upon request, Debtor fails to provide additional collateral as required
by Lender; (g) Loss, theft, substantial damage or destruction of collateral,
if any; (h) Death, dissolution, change in senior management, or termination
of existence of any Debtor; or (I) Appointment of a receiver over any part of
the property of any Debtor, the assignment of property by any Debtor for the
benefit of creditors, or the commencement of any proceedings under any
bankruptcy or insolvency laws by or against any party liable, directly or
indirectly, hereunder.
WAIVERS. No waiver by holder of any payment or other right under this Note
or any related agreement or documentation shall operate as a waiver of any
other payment or right.
GOVERNING LAW. This Note and the obligations evidenced hereby are made,
entered into, to be construed and governed by the laws of the state indicated
in the address of Lender shown below. Debtor(s) consent to the jurisdiction
and venue of any Court sitting in the State indicated in the address of
Lender.
COLLECTION COSTS. All parties liable for payment hereunder agree to pay
reasonable costs of collection, including an attorney's fee of a minimum of
fifteen percent (15%) of all sums due upon default.
RIGHT OF OFFSET. Any indebtedness due from holder hereof to Debtor or any
party hereto including, but without limitation, any deposits or credit
balances due from holder, is pledged to secure payment of this Note and any
other obligation to holder of Debtor or any party hereto, and may at any time
while the whole or any part of such obligation remains unpaid, either before
or after Maturity hereof, be appropriated, held or applied toward the payment
of this Note or any other obligation to holder of Debtor or any party hereto.
PURPOSE. Debtor affirms that the proceeds of this Note are to be used for a
business or agricultural purpose and not for a personal, family or household
purpose.
2
<PAGE>
- -------------------------------------------------------------------------------
ENTIRE AGREEMENT. All parties acknowledge that this Note and related documents
contain the complete and entire agreement between Debtor and Lender and no
variation, modification, changes or amendments to this Note or related documents
shall be binding unless in writing and signed by all parties. No legal
relationship is created by the execution of this Note and related documents
except that of debtor and creditor or as stated in writing.
<TABLE>
<CAPTION>
LENDER NAME AND ADDRESS DEBTOR(S) SIGNATURE(S)
<S> <C> <C>
Bank of Oklahoma, N.A. Heartsoft Software Company
Private Financial Services
P.O. Box 2300 /s/ Benjamin P. Shell /s/ Jimmy L. Butler
Tulsa, OK 74192-2300 --------------------------- ---------------------------------
Benjamin P. Shell, Chairman Jimmy L. Butler, Jr., President
</TABLE>
3
<PAGE>
EXHIBIT 10.6
AUTO & EQUIPMENT LEASING BY FLEX, INC.
7229 SOUTH 85TH EAST AVENUE, SUITE 100
TULSA, OKLAHOMA 74133
EQUIPMENT LEASE
AUTO EQUIPMENT LEASING BY FLEX, INC. (hereinafter called "Lessor") for
valuable consideration, the receipt of which is hereby acknowledged, hereby
leases to HEARTSOFT SOFTWARE, INC. AND BENJAMIN SHELL, 3101 N. HEMLOCK
CIRCLE, BROKEN ARROW, OK, (hereinafter called "Lessee"), the following
described property, in Schedule "A", attached hereto and made part of this
agreement (hereinafter called the "Equipment"), upon the following terms and
conditions:
1. Lessee agrees that the equipment shall be delivered to Lessee and
shall remain there, and not be removed by Lessee at any time during the term
of this lease without the prior written consent of Lessor.
2. The title to the aforesaid described property in Schedule "A" shall
remain in the Lessor, the Lessee having only the right to possession and the
use thereof during the term of this lease except as otherwise provided herein:
3. The lease of said property shall be for a term of 36 months on the
following basis:
The sum of $4,575.00 shall be paid upon execution of this
lease, as payment of the first month installment. On the
12th day of March , 1998, and on the 12th day of each and
every month during the term of this lease, the sum of
$4,575.00 shall be paid. Should Lessee make all the said
monthly payments as required on or before the due date, with
no default, then at the expiration of said term, the Lessee
shall have the option to purchase the equipment for $500.00
by notifying the Lessor of the same, not less than thirty
(30) days prior to the expiration of the term of this lease.
4. Lessee promises and agrees to pay all specified lease installments
in advance on the date designated for the payment herein without demand.
Said lease installments shall be payable at the office of Lessor, or to such
other person and/or place as Lessor may from time to time designate in
writing.
5. EARLY TERMINATION AND DEFAULT.
(a) Provided the lease is not in default, and has been in effect a
minimum of six months, the lease may be terminated prior to its scheduled
termination by giving a 15-day written notice and purchases the equipment at
the purchase option. Price set forth above under the term described below.
(b) The remaining amount owed is calculated by adding any past due
monthly payments and past due interest owed; any official fees and taxes
imposed in connection with
<PAGE>
lease termination and fixed monthly lease charges for the remaining schedule
lease term, discounted to rebate any unearned lease charges based on
actuarial method which will be figured taking into consideration depreciation
charges and total lease charges.
6. Lessor may inspect the equipment at any time; and Lessee agrees to
keep it is first class condition and repair at Lessee's expense and house the
same in suitable shelter; and not to sell or otherwise dispose of his
interest therein or in any equipment or accessories attached thereto.
7. Lessee assumes the entire risk of loss or damages to the equipment,
whether or not covered by insurance, and no such loss shall relieve the
Lessee of its obligations hereunder. Lessee agrees to keep the equipment
insured to protect all interests of Lessor, at Lessee's expense against all
risks of loss or damage from any cause whatsoever for not less than the
unpaid balance of the lease payments due hereunder or the then current value
of said equipment, whichever is higher, and in addition shall purchase
insurance in an amount reasonable under the circumstances to cover the
liability of Lessor for public liability and property damage. Said insurance
policies and the proceeds therefrom shall be the sole property of Lessor and
Lessor shall be named as an insured in all said policies and as sole loss
payee in the policies insuring the equipment. The proceeds of such
insurance, whether resulting from loss or damage or return premium or
otherwise, shall be hereunder at the option of Lessor.
8. No title or right in said equipment shall pass to Lessee except the
rights herein expressly granted. Plates or other markings will be affixed to
or placed on said equipment by Lessor or at Lessor's request, by Lessee at
Lessee's expense indicating that Lessor is the owner thereof and Lessee will
not remove the same. Said equipment shall always remain and be deemed
personal property even though attached to realty. All replacements,
accessories or capital improvements ________ placed in or upon said equipment
shall become a component part thereof and title thereto shall be immediately
vested in Lessor and shall be included under the terms hereof. The Lessee
agrees that the Lessor is authorized, at its option, to file financing
statement(s) or amendments thereto without the signature of the Lessee with
respect to any or all of the leased property, or if a signature is required
by law, then the Lessee appoints Lessor as Lessee's attorney-in-fact to
execute any such financing statement(s) and further agrees to reimburse the
Lessor for the expense of any such filing(s).
9. LESSOR HAS NOT AND WILL NOT MAKE ANY REPRESENTATION, WARRANTY OR
COVENANT, EXPRESS OR IMPLIED ON WHICH LESSEE MAY RELY, WITH RESPECT TO THE
MERCHANTABILITY, FITNESS, CONDITION, DURABILITY OR SUITABILITY FOR LESSEE'S
PURPOSE OF THE EQUIPMENT IN ANY RESPECT, OR ANY OTHER REPRESENTATION,
WARRANTY OR COVENANT, EXPRESS OR IMPLIED, ALL OF WHICH ARE HEREBY EXPRESSLY
DISCLAIMED BY LESSOR. ALL EQUIPMENT SHALL BE ACCEPTED AND LEASED BY LESSEE
"WHERE IS, AS IS AND WITH ALL FAULTS" AND LESSOR SHALL NOT BE RESPONSIBLE FOR
ANY PATENT OR PATENT DEFECTS THEREIN OR ANY DAMAGES RESULTING THEREFROM.
LESSOR WILL, HOWEVER, TAKE ANY STEPS REASONABLY WITHIN ITS POWER TO MAKE
AVAILABLE TO LESSEE ANY MANUFACTURER'S OR SIMILR WARRANTY APPLICABLE TO THE
EQUIPMENT. IN ANY EVENT, LESSOR SHAL NOT BE LIABLE TO LESSEE FOR ANY
LIABILITY, LOSS OR DAMAGE, INCLUDING CONSEQUENTIAL OR INCIDENTAL DAMAGES,
CAUSED OR ALLEGED TO BE CAUSED, DIRECTLY OR INDIRECTLY, BY THE EQUIPMENT, OR
ANY INADEQUACY THEREOF, OR
<PAGE>
DEFICIENCY OR DEFECT THEREIN, OR BY ANY INCIDENT WHATSOEVER IN CONNECTION
THEREWITH.
10. Lessee shall not assign, mortgage or hypothecate this lease or any
interest herein or sublet said equipment without the prior written consent of
the Lessor. Any assignment, mortgage, hypothecation or sublease by Lessee
without such consent shall be void.
11. Lessee agrees to us, operate and maintain said equipment in
accordance with all laws; to pay all licensing or operating fees for said
equipment; to keep the same free of levies, liens and encumbrances; to show
the equipment as "leased equipment" on Lessee's personal property tax
returns; to pay Lessor a sum equal to all personal property taxes assessed
against the equipment, which sum Lessor shall remit to the taxing authority,
to pay all other taxes, assessments, fees and penalties, which may be levied
or assessed on or in respect to said equipment or its use or any interest
therein, or lease payments thereon, including but not limited to all federal,
state and local taxes, however, designated, levied or assessed upon the
Lessee and Lessor or either of them or said equipment, or upon the sale,
ownership, use or operation thereof. Lessor may pay such taxes and other
amounts and may file such returns on behalf of Lessee if Lessee fails to do
so as herein provided. On written request from Lessor, Lessee agrees to
reimburse Lessor for reasonable costs incurred in collecting any taxes,
assessments or fees for which Lessee is liable hereunder and remitting the
same to the appropriate authorities.
12. In the event the Lessee shall default in the payment of any lease
payments, additional lease payments, or any other sums due hereunder for a
period of ten 910) days, or in the event of any default of breach of terms
and conditions of this lease, or any other lease between the parties hereto,
or if any execution or process shall be issued in any action or proceeding
against the Lessee, whereby the said equipment may be taken or distrained, or
if a proceeding in bankruptcy, receivership or insolvency shall be instituted
by or against the Lessee or its property, or if the Lessee shall enter into
any agreement or composition with its creditors, breach any of the terms of
any loan or credit agreement, or default thereunder or if the condition of
the Lessee's affairs shall so change as to, in the Lessor's opinion, impair
the Lessor's security or increase the credit risk involved, then and in that
event the Lessor shall have the right to (1) retake immediate possession of
its equipment without any Court Order or other process of law and for such
purpose the Lessor may enter the same therefrom with or without notice of its
intention to do same, without being liable to any suit or action or other
proceedings by the Lessee. Lessor may, at its option, sell the equipment at
public or private sale for cash or on credit and may become the purchaser at
such sale. The Lessee shall be liable for arrears or lease payments hereunder
and under any other lease between the parties, if any; for any other charges
due from Lessee hereunder and under any other lease between the parties, for
expense of retaking possession, and the removal of the equipment, and court
costs, in addition to the balance of the lease payments provided for herein,
or in any lease payment hereof, as well as for the balance of lease payments
due and to become due under any other lease between the parties, less the net
proceeds of the sale of said equipment, after deducting all costs of taking,
storage, repair and sale; and/or (2) accelerate the balance of lease pyments
payable hereunder and under any other lease between the parties, thereby
requiring prepayment of this lease and any other lease between the parties
with all such lease payments and charges due and payable forthwith upon such
notice of acceleration and demand for payment, the Lessee nevertheless
remaining and being liable for the return of the equipment and any loss or
destruction of, or injury to, the equipment in the same manner as herein
provided. The foregoing rights shall be in addition to and in limitation of
the
<PAGE>
rights of a Secured Party, as set forth in the Uniform Commercial Code of
the applicable jurisdiction. Should Lessee fail to make such payment after
this notice and demand, Lessor shall be entitled to institute appropriate
legal proceedings against Lessee with the Lessee being responsible for said
lease payments, charges, expenses and attorney fees, if allowed by law. In
the event the Lessor shall exercise any of its rights as above set forth,
Lessee shall be obligated to pay, as interest, a sum equal to
[THERE MAY BE A PAGE MISSING] under any other lease in default by
reason hereof or otherwise, or until all arrears of lease payments are
satisfied, provided said interest payments are allowed by law, and if not
allowed by law, the maximum rate of interest permissible in the applicable
jurisdiction. The rights granted the Lessor herein shall be cumulative and an
action upon one shall not be deemed to constitute an election or waiver of
the other right of action to which Lessor may be entitled. All sums as
hereinabove stated shall become immediately due and payable to be construed
as liquidated damages rather than a penalty provision. Lessee hereby waivers
trial by jury.
14. The omission by the Lessor at any time to enforce any default or
right reserved to it, or to require performance of any of the terms,
covenants or provisions hereof by the Lessee at any time designated, shall
not be a waiver of any such default or right to which the Lessee is entitled,
nor shall it in any way affect the right of the Lessor to enforce such
provisions thereafter. The Lessor may exercise all remedies simultaneously,
pursuant to the terms hereof, and any such action shall not operate to
release the Lessee until the full amount of the lease payments due and to
become due and all other sums to be paid hereunder have been paid.
15. If the Lessee does not exercise its option to purchase the
equipment as provided in number three above, the Lessee shall return the
equipment, freight prepaid to Lessor, at the end of the term hereof, at the
place from which the equipment was shipped, in as good condition as exists at
the commencement of the term, reasonable wear and tear in respect thereto
accepted.
WITNESS our hands and seals this 12th day of February, 1998.
AUTO & EQUIPMENT LEASING BY FLEX, INC. BY: /s/ authorized representative
- -------------------------------------- -------------------------
LESSOR
HEARTSOFT SOFTWARE, INC. BY: /s/ Benjamin Shell
- ------------------------ -----------------------------
BENJAMIN SHELL BY: /s/ Benjamin Shell
- -------------- -----------------------------
<PAGE>
EQUIPMENT Date: 2/12/98
SCHEDULE "A"
The Equipment Schedule "A" is to be attached to and become part of that
Equipment Lease by and between the undersigned lessee and Auto & Equipment
Leasing by Flex, Inc., Tulsa, OK dated:
<TABLE>
<CAPTION>
QUANTITY MODEL NUMBER EQUIPMENT DESCRIPTION
<S> <C> <C>
1 486 SX66Mhz PC w/240 MB Hard Drive, 8MB RAM,
15" SVGA Monitor, 2 Multiplexer Cards, 2 SVGA
Graphics Cards, Controller Card, CD
1 486 DX 120Mhz w/1.3G Hard Drive, 32 MB RAM, Triple
CD Changer, 17" Color Monitor
1 Hewlett Packard 4L Laser Printer
5 Discourse Technologies Studycom Concentrator
20 Discourse Technologies Studycom Student
Workstations
1 Magnavox 2 Head VCR
3 AT&T 3-Line Phones
1 Norstar Meridan 616 KSU w/4 Norstar M7208 Phones
1 Apple Macintosh Performa 630CD Computer
1 Apple Macintosh Performa 630CD Computer
1 Apple Laserwriter Select 360 Laser Printer
1 Apple Computer Speakers
3 Global Village 28.8 v.34 Data/Fax Modem
4 Oak Bookcases
2 Oak Desks
1 Oak 2 Drawer File Cabinet
1 Oak Printer Stand
1 Oak Conference Table
4 Oak Chairs
1 Oak Side Table
20 Black Stack Chairs
6 6' Folding Tables
2 Chair Mats
1 Executive Chair
1 Oak Executive Desk
10 8' Tables
</TABLE>
This Equipment Schedule "A" is hereby verified as correct by the undersigned
Lessee, who acknowledges receipt of a copy.
Lessor: Lessee:
Auto & Equipment Leasing by Flex, Inc. Heartsoft Software, inc.
- -------------------------------------- -----------------------------------
Signature Signature: Benjamin Shell, CEO
<PAGE>
EXHIBIT 10.7
ACKNOWLEDGMENT
TO: Capital Vision Inc.
AND TO: Heartsoft 1997 Limited Partnership
RE: Proceeds from sale of HEARTSOFT K-8 LIBRARY (THE "SOFTWARE")
AND RE: Sale of units (the "Units") in Heartsoft 1997 Limited Partnership
(the "Partnership")
- --------------------------------------------------------------------------------
REFERENCE IS MADE TO A SOFTWARE ACQUISITION AGREEMENT (THE "SOFTWARE
AGREEMENT") DATED MAY 16, 1997, BETWEEN THE PARTNERSHIP AND THE UNDERSIGNED.
The undersigned hereby irrevocably agrees and acknowledges that
notwithstanding the closing of the sale of Units and the terms of the Software
Agreement which contemplates a purchase price of CDN$1,750,000, in the event
that any remaining Units in the Partnership are not subscribed for, the purchase
price for the Software and the Acquisition Note shall each be reduced PRO RATA.
EXECUTED at Tulsa, Oklahoma, the _____ day of May, 1997.
HEARTSOFT INC.
Per: /s/ Benjamin Shell
--------------------------------------
Name: Benjamin Shell
Title: CEO
<PAGE>
SOFTWARE AGREEMENT
THIS AGREEMENT made as of the 16th day of May, 1997
BETWEEN:
HEARTSOFT INC., a Delaware corporation (hereinafter referred to as
"Heartsoft")
OF THE FIRST PART
-and-
HEARTSOFT 1997 LIMITED PARTNERSHIP, an Ontario limited partnership
(hereinafter referred to as the "Partnership")
OF THE SECOND PART
WHEREAS Heartsoft is the exclusive owner of the HEARTSOFT K-8 LIBRARY, a set
of 50 educational software application programs;
AND WHEREAS the Partnership wishes to purchase and Heartsoft wishes to sell
an undivided 15% interest, in perpetuity, in and to the HEARTSOFT K-8 LIBRARY
(such 15% undivided interest hereinafter referred to as the "Computer
Programs");
AND WHEREAS in partial payment of the purchase price for the Computer
Programs, the Partnership intends to execute and deliver to Heartsoft the
Acquisition Note;
AND WHEREAS Heartsoft and the Partnership have agreed to form a joint venture
for the purposes of marketing and exploiting the Computer Programs throughout
the world;
NOW THEREFORE in consideration of the sum of one dollar ($1.00), and other
good consideration, now paid by each of the parties hereto to the other (the
receipt and sufficiency of which is hereby acknowledged), the parties hereto
hereby covenant and agree as follows:
1. DEFINITIONS
1.01 For the purpose of this Agreement, the following terms shall be deemed
to have the following meanings:
"Acquisition Note" means the promissory note given by the Partnership to
Heartsoft pursuant to section 2.02 of this agreement, in the form attached as
Appendix "A" hereto;
"Affiliate" has the meaning ascribed thereto in the SECURITIES ACT (Ontario);
<PAGE>
"Associate" has the meaning ascribed thereto in the SECURITIES ACT (Ontario)
and also includes any person who does not deal at arm's length (as that term
is defined in the INCOME TAX ACT (Canada)) with such associate;
"Bank" means a chartered bank with offices in Tulsa, Oklahoma, as selected
from time to time by the Executive Committee;
"Closing" means the closing of the sale of the Computer Programs, expected to
take place on or about May 16, 1997;
"Computer Programs" means an undivided 15% interest, in perpetuity, in and to
the HEARTSOFT K-8 LIBRARY, a set of 50 educational software application
programs, as more particularly described in Appendix "B" hereto, together
with all Enhancements, Derivative Works and Maintenance Modifications;
"Derivative Work" means a work that (a) is derived from the Computer Programs
or any part thereof, including revisions, modifications, translations,
abridgments, condensations, expansions and any other form in which the
Computer Programs may be duplicated, recast, transformed or adapted, (b) is
created or completed by the Partnership, Heartsoft or any Associate of any of
them, and (c) would, if prepared without authorization from the owner of the
copyright in the Computer Programs, constitute an infringement of copyright;
"Enhancement" means any enhancement, modification, addition or update of the
Computer Programs, made by or on behalf of Heartsoft or the Partnership, and
which accomplish incidental, performance, structural or functional
improvements to the Computer Programs;
"Executive Committee" means the executive committee of the Joint Venture, as
selected by Heartsoft and the Partnership in accordance with the terms of
this agreement.
"General Partner" means CVI LP Management Inc., the general partner of the
Partnership, and any replacement general partner of the Partnership;
"Joint Venture" means the joint venture between the Partnership and Heartsoft
to market and exploit the Computer Programs throughout the world;
"Joint Venture Agreement" means the joint venture agreement entered into as
of May 16, 1997 between the Partnership and Heartsoft;
"Losses" means any and all loss, damage, claim, demand, deficiency, cost and
expense, including interest, compound interest and legal fees on a solicitor
and his or her own client basis;
"Maintenance Modifications" means modifications, updates or revisions made by
Heartsoft to the Computer Programs which correct efforts, support new
releases of operating systems or support new models of the Computer Programs;
<PAGE>
"Partnership" means Heartsoft 1997 Limited Partnership, a limited partnership
formed under the laws of the Province of Ontario;
"Purchase Price" means the purchase price paid by the Partnership to
Heartsoft for the Computer Programs, as determined in accordance with section
2.02 of this agreement;
2. AGREEMENTS OF PURCHASE AND SALE
2.01 In consideration of the payment of the Purchase Price, and of the
fulfillment of the other obligations of the Partnership hereunder, Heartsoft
hereby sells, assigns and transfers all right, title and interest in and to
the Computer Programs to the Partnership in perpetuity.
2.02 The Purchase Price for the Computer Programs shall be $1,750,000 (one
million seven hundred fifty thousand dollars), payable by the Partnership to
Heartsoft as follows:
(a) as to $525,000 (five hundred twenty five thousand dollars), by
certified cheques in two installments of $262,500 each, the first of
at Closing and the second on May 30, 1998; and
(b) as to $1,225,000 (one million two hundred twenty five thousand
dollars), by way of execution and delivery of the Acquisition Note.
2.03 Upon execution of this agreement, Heartsoft shall deliver to the
Partnership four complete copies of the source code of the Computer Programs, of
which:
(a) two shall be in machine readable form on a machine readable storage
medium suitable for long-term storage and compatible with either
Macintosh or IBM PC computer systems; and
(b) two shall be in human readable form with annotations in the English
language on bond paper suitable for long-term archival storage.
3. PROTECTION, MAINTENANCE AND ENHANCEMENT
3.01 Heartsoft shall develop, regenerate and continuously update the
Computer Programs in order to maintain the commercial competitiveness and
effective operation of the Computer Programs.
3.02 The parties hereto acknowledge that the Computer Programs contain
valuable proprietary trading information, and each party hereto shall not
disclose to any other person the source codes of the Computer Programs nor
any other information concerning the Computer Programs without the written
consent of all of the parties hereto.
3.03 Heartsoft hereby acknowledges that all Maintenance Modifications,
Enhancements and Derivative Works shall be considered part of the Computer
Programs and shall become and remain the sole and exclusive property of the
Partnership.
<PAGE>
4. REPRESENTATIONS AND WARRANTIES
4.01 Heartsoft hereby represents and warrants to the Partnership that the
following representations and warranties are true and correct as of the date
hereof, and acknowledges that the Partnership is relying on such
representations and warranties in connection with the performance of its
obligations under this agreement:
(a) Heartsoft is a corporation duly incorporated, organized and validly
subsisting under the laws of the State of Delaware;
(b) This agreement constitutes a valid and binding obligation of
Heartsoft, enforceable against it in accordance with its terms, and
each of the instruments and documents necessary to give effect to
the transactions contemplated herein will, when executed and
delivered, constitute a valid and binding obligation of Heartsoft,
enforceable against it in accordance with its terms;
(c) The entering into of this agreement and the consummation of the
transactions contemplated herein have not resulted and will not
result in the violation of or default under any of the terms and
provisions of any trust deed, hypothecation, indenture, mortgage,
lease, agreement, written or oral, license or pen-nit to which
Heartsoft is a party or by which it may be bound;
(d) The entering into of this agreement and the consummation of the
transactions contemplated herein will not result in the violation of
any statute, regulation, judgment, decree or law to which Heartsoft
may be subject, or any applicable order of any court, arbitrator or
government authority having jurisdiction over Heartsoft or its
property;
(e) Heartsoft is not materially in default or breach of any contract,
agreement, lease or other instrument to which it is a party or by
which it may be bound, nor is Heartsoft aware of any state of facts
which after notice or the passage of time, or both, would constitute
such a material default or breach;
(f) The Computer Programs are an original work of Heartsoft, and
Heartsoft has exclusive right, title and interest in and to and is
the sole owner of the Computer Programs;
(g) Heartsoft has the full right to sell, transfer and assign the
Computer Programs in the manner contemplated in this agreement and
without any restriction, encumbrance, lien, security interest
attaching thereto;
(h) Heartsoft has not granted, transferred, licensed or assigned any
right or interest in or to the Computer Programs to any other
person, and there are no contracts, agreements, licenses or other
commitments or arrangements in effect with respect to the Computer
Programs which might or could permit the manufacture,
<PAGE>
marketing distribution or other exploitation or use of the Computer
Programs by any other person;
(i) The execution and delivery of this agreement, the transfer of the
Computer Programs to the Partnership and the use of the Computer
Programs by the Partnership and Heartsoft as contemplated in this
agreement has not and will not result in the infringement of any
copyright, trademark, trade secret, intellectual property right or
any other proprietary rights of any other person; and
(j) The Computer Programs have been prepared in a workmanlike manner and
with professional diligence and skill, will function efficiently in
the machines and with operating systems for which they are designed,
are free from defect, deficiency, design flaw or bug of any nature
and will otherwise be wholly suitable for the purpose for which the
Partnership intends to use them and for which they have been
designed.
4.02 The representations and warranties set out in section 4.01 above shall
survive and continue in full force and effect for the benefit of the
Partnership until ten years after the expiration or termination of this
agreement, including all amendments, extensions and renewals thereof.
4.03 No claim by the Partnership for breach of representation or warranty by
Heartsoft shall be valid unless Heartsoft has been given notice thereof
before the date on which the representation or warranty shall have terminated
in accordance with section 4.02 above.
4.04 The Partnership hereby represents and warrants to Heartsoft that the
following representations and warranties are true and correct as of the date
hereof, and acknowledges that Heartsoft is relying on such representations
and warranties in connection with the performance of its obligations under
this agreement:
(a) The Partnership is a limited partnership duly registered and in good
standing in the Province of Ontario;
(b) This agreement constitutes a valid and binding obligation of the
Partnership, enforceable against it in accordance with its terms,
and each of the instruments and documents necessary to give effect
to the transactions contemplated herein will, when executed and
delivered by the Partnership, constitute a valid and binding
obligation of the Partnership, enforceable against it in accordance
with its terms;
(c) The entering into of this agreement and the consummation of the
transactions contemplated herein have not resulted and will not
result in the violation of or default under any of the terms and
provisions of any trust deed, hypothecation, indenture, mortgage,
lease, agreement, written or oral, license or permit to which the
Partnership is a party or by which it may be bound;
<PAGE>
(d) The entering into of this agreement and the consummation of the
transactions contemplated herein will not result in the violation of
any statute, regulation, judgment, decree or law to which the
Partnership may be subject, or any applicable order of any court,
arbitrator or government authority having jurisdiction over the
Partnership or its property;
(e) The Partnership is not materially in default or breach of any
contract, agreement, lease or other instrument to which it is a
party or by which it may be bound, nor is it aware of any state of
facts which after notice or the passage of time, or both, would
constitute such a material default or breach; and
(f) The Partnership has taken all such steps and done all such things as
may be necessary in order to allow the Partnership to carry out the
joint venture agreed to herein, including but not limited to
obtaining all such licenses, registrations, authorizations and
permits necessary to carry on business in and from Ontario.
4.05 The representations and warranties set out in section 4.04 above shall
survive and continue in full force and effect for the benefit of Heartsoft
until ten years after the expiry or termination of this agreement, including
all amendments, extensions and renewals thereof.
4.06 No claim by Heartsoft for breach of representation or warranty by the
Partnership shall be valid unless the Partnership has been given notice
thereof before the date on which the representation or warranty shall have
terminated in accordance with section 4.05 above.
5. INDEMNIFICATION
5.01 The general indemnifications set out in this section are in addition to
any specific obligation of either of the parties hereto to indemnify the
other hereunder.
5.02 Heartsoft shall indemnify and save harmless the Partnership for and
from and against any Losses suffered by it as a result of any inaccuracy in
or breach of any representation or warranty by Heartsoft, or the failure of
Heartsoft to fulfill any condition or perform any covenant as provided herein
or in the Joint Venture Agreement.
5.03 The Partnership shall indemnify and save harmless Heartsoft for, from
and against any Losses suffered by it as a result of any inaccuracy in or
breach of any representation or warranty by the Partnership or the failure of
the Partnership to perform any covenant as provided herein.
5.04 Notwithstanding anything else in this section, each of the parties
hereto shall have an obligation to mitigate any Losses which are the subject
of a claim for indemnification.
6. TERMINATION
6.01 Notwithstanding any other term of this agreement, the Partnership may,
but is not obligated to, terminate this agreement upon 30 days written notice
in the event that:
<PAGE>
(a) Heartsoft becomes bankrupt or insolvent or makes an assignment for
the benefit of its creditors;
(b) Heartsoft takes steps to wind-up, dissolve or liquidate, except for
internal corporate reorganizations, mergers or shareholder
reorganizations;
(c) If a trustee, receiver, receiver and manager or other Custodian is
appointed with respect to the assets or undertaking of Heartsoft; or
(d) There is a material breach of a material term of the Software
Agreement by Heartsoft.
6.02 On or after January 1, 1999, but subject to section 6.03 of this
agreement, Heartsoft may, but is not obligated to, terminate this agreement
upon 30 days written notice to the Partnership.
6.03 In the event that Heartsoft elects to terminate this agreement in
accordance with section 6.02 of this agreement, Heartsoft and the Partnership
shall negotiate, in good faith, a price at which the Partnership's interest
in the Computer Programs shall be acquired by Heartsoft. In the event that
Heartsoft and the Partnership cannot in good faith determine that price
within 30 days, then an independent appraiser shall be retained to determine
the price, and the cost of such appraisal shall be borne equally by Heartsoft
and the Partnership.
7. NOTICE
7.01 Any notice, direction or other instrument required or permitted to be
given pursuant to this agreement shall be in writing and may be given by
delivering the same or sending the same by prepaid first-class mail or by
telecopier to the appropriate party as follows:
(a) To Heartsoft:
3101 North Hemlock Circle
Broken Arrow, Oklahoma
74012
Attention: Bryan Reusser
Fax: 918-251-4018
(b) The Partnership:
c/o CVI LP Management Inc.
225 Richmond Street West
Suite 400
Toronto, Ontario
M5V IW2
Attention: Greg Coleman
Fax: 416-593-6157
<PAGE>
7.02 Any such notice, direction or other instrument, if delivered, shall be
deemed to have been given on the date on which it was delivered and, if sent
by mail, shall be deemed to have been given on the seventh (7th) business day
following the date of mailing and, if transmitted by telecopier, shall be
deemed to have been given at the opening of business in the office of the
addressee on the business day next following the transmission thereof.
7.03 Any party hereto may change its address for service or telecopier
number from time to time by notice given to the other parties hereto in
accordance with the foregoing.
8. FURTHER ASSURANCES AND ACTIONS
8.01 Each of the parties hereto shall sign and deliver such further and
other documents, instruments, notices and papers and do and perform and cause
to be done and performed such further and other acts and things as may be
necessary or desirable in order to give full effect to the purpose and intent
of this agreement and all ancillary agreements relating to the transactions
contemplated herein.
9. GENERAL MATTERS
9.01 Unless otherwise expressly stated, all dollar amounts referred to in
this agreement are expressed and shall be payable in Canadian dollars.
9.02 In this agreement, unless the context otherwise requires, words
importing number include the singular and plural, words importing gender
include all genders, and words importing persons shall include firms,
corporations, trusts, estates, government agencies and departments and all
other types of entities, and vice versa.
9.03 In this agreement, any reference to "generally accepted accounting
principles" mean the principles established in and amended from time to time
by the Handbook of the Canadian Institute of Chartered Accountants.
9.04 Each of the provisions contained in this agreement is distinct and
several and a declaration of invalidity of unenforceability of one or mom
provisions of this agreement by any court of competent jurisdiction, shall
not effect the validity or enforceability of any other provision hereof.
9.05 This agreement constitutes the entire agreement between the parties
pertaining to the transaction contemplated herein and supersedes all prior
agreements and there are no other warranties, representations or agreements
between the panics in connection with the transactions contemplated herein.
<PAGE>
9.06 This agreement shall be governed by and interpreted in accordance with
the laws of the Province of Ontario and the laws of Canada as applicable
therein. Each of the parties hereto irrevocably attorns and submits to the
jurisdiction of the courts of the Province of Ontario.
9.07 Headings used in this agreement are for convenience of reference only
and do not form a part of this agreement, nor are they intended to interpret,
define or limit the scope, extent or intent of this agreement or any
provision hereof.
9.08 Any reference in this agreement to a statute shall include and shall be
deemed to be a reference to such statute and the regulations made pursuant
thereto, with amendments made thereto and in force from time to time, and to
any statute or regulation that may be passed which has the effect of
supplementing or superseding the statute so referred to or the regulations
made pursuant thereto.
9.09 Any reference in this agreement to my entity shall include and shall be
deemed to be a reference to any entity that is a successor to such entity.
9.10 Time shall be of the essence in this agreement.
9.11 This agreement may be executed in two (2) or more counterparts, each of
which shall be deemed to be an original and all of which together shall
constitute one and the same agreement.
9.12 This agreement shall enure to the benefit of and be binding upon the
parties hereto and their respective heirs, legal personal representatives,
successors and assigns, but shall not be assignable by any party hereto
without the written consent of the other parties hereto.
9.13 No waiver of any provision of this agreement shall constitute a waiver
of any other provision nor shall any waiver of any provision of this
agreement constitute a continuing waiver unless otherwise expressly provided.
EXECUTED at Toronto this 16th day of May, 1997
HEARTSOFT INC.
Per: /s/ Benjamin P. Shell
--------------------------------------------
Benjamin P. Shell - Chief Executive Officer
HEARTSOFT 1997 LIMITED PARTNERSHIP, BY ITS GENERAL
PARTNER, CVI LP MANAGEMENT INC.
Per: /s/ Greg Coleman
--------------------------------------------
Greg Coleman - President
<PAGE>
APPENDIX "A"
ACQUISITION NOTE
May 16, 1997
Toronto, Ontario
MATURITY DATE: May 1, 2007
FOR VALUE RECEIVED, the undersigned (the "Maker") acknowledges itself
indebted to and promises to pay to Heartsoft Inc. (the "Holder") on the dates
specified below at 225 Richmond Street West, Suite 400, Toronto, Ontario, M5V
I W2 (or at such other place as the Holder may from time to time designate in
writing to the Maker), the principal sum of $1,225,000 (one million two
hundred twenty five thousand dollars) (the "Principal Sum") in lawful money
of Canada, together with interest thereon as set forth herein.
The Principal Sum plus all accrued and unpaid interest thereon shall be due
and payable by the Maker to the Holder in full on May 1, 2007.
The Principal Sum from time to time outstanding shall bear interest from and
after the date hereof at the rate of five percent (5%) per annum, payable in
U.S. dollars, compounded annually both before and after demand, default,
maturity and judgment with interest on overdue principal and interests at the
same rate until the date of payment in full. The Maker shall pay all accrued
and unpaid interest on the principal amount outstanding from time to time,
annually, in arrears, on or before January 30 of each year.
In the event that the Maker defaults in payment of any sum due hereunder, and
fails to correct that default within 30 days of receiving written notice from
the Holder, the Principal Sum then outstanding together with accrued but
unpaid interest may, at the Holder's option, be accelerated and immediately
become due and payable in full, with interest thereon from such date at the
rate as specified herein.
So long as the Maker is not in default in the making of any payment due
hereunder, it shall have the right to prepay at any time and from time to
time all or any part of the Principal Sum then outstanding, and any interest
thereon, without notice, bonus or penalty, provided that the right of the
Maker to make any such prepayments shall be conditional upon payment by the
Maker to the Holder of all accrued and unpaid interest owing in respect of
the Principal Sum to the date of any such prepayment.
The provisions of this promissory note shall enure to the benefit of the
Holder (who may not transfer, assign, pledge or otherwise encumber this
promissory note without the express written consent of the Maker, which
consent may be unreasonably withheld) and shall be binding upon the Maker and
its successors and assigns. The Maker hereby waives presentment, protest,
demand, notice of protest and notice of dishonor of this promissory note and
expressly agrees that this promissory note and any payment due hereunder may
be extended from time to time by the Holder without in any way affecting the
liability of the Maker.
<PAGE>
The Maker agrees to pay to the Holder 100% of Gross Receipts, as defined in
the offering memorandum of the Maker dated March 15, 1997 (the "Offering
Memorandum"), on an annual basis, until all of the interest owing under this
promissory note is paid in fall, and to pay to the Holder 44% of
Distributable Cash (as defined in the Offering Memorandum) until all
principal owing under this promissory note has been paid in full.
This promissory note is issued by the Maker and accepted by the Holder as
partial payment of the consideration due under a software agreement dated May
16, 1997 between the Maker and the Holder, and this promissory note is
subject to the terms and conditions of that agreement.
This promissory note shall be governed by and construed in accordance with
the laws of the Province of Ontario and the laws of Canada applicable therein.
EXECUTED at Toronto, Ontario this 27th day of August, 1997.
HEARTSOFT III LIMITED PARTNERSHIP, BY ITS
GENERAL PARTNER, CVI LP MANAGEMENT INC.
Per: /s/ Greg Coleman
--------------------------------------
Greg Coleman - President
<PAGE>
APPENDIX "B"
COMPUTER PROGRAMS
1. Billiards n' Homonyms
2. Billiards n' Homonyms - Spanish Version
3. Billiards n' Antonyms
4. Billiards n' Synonyms
5. Bubblegum Machine
6. Bubblegum Machine - Spanish Version
7. Coin Changer
8. Coin Changer - Spanish Version
9. Electric Coloring Book
10. Electric Coloring Book - Spanish Version
11. Electric Math Chalkboard
12. Electric Math Chalkboard - Spanish Version
13. Great American States Race
14. Great American States Race - Spanish Version
15. Knowing English (2 titles)
16. Memory Master
17. Memory Master - Spanish Version
18. Reading Comprehension
19. Reading Rodeo
20. Reading Rodeo - Spanish Version
21. Skill Builders Series (16 titles) - English, Health, Science & Social
Studies
22. Sleuth Master
23. Sleuth Master - Spanish Version
24. Spelling Book (5 titles)
25. Spinner's Choice
26. Spinner's Choice - Spanish Version
27. Tommy the Time Turtle
28. Tommy the Time Turtle - Spanish Version
29. Word Capture
30. Word Capture - Spanish Version
<PAGE>
EXHIBIT 10.8
ACQUISITION NOTE
May 16,1997
Toronto, Ontario
MATURITY DATE: May 1, 2007
FOR VALUE RECEIVED, the undersigned (the "Maker") acknowledges itself indebted
to and promises to pay to Heartsoft Inc. (the "Holder") on the dates specified
below at 225 Richmond Street West, Suite 400, Toronto, Ontario, M5V I W2 (or at
such other place as the Holder may from time to time designate in writing to the
Maker), the principal sum of $1,225,000 (one million two hundred twenty five
thousand dollars) (the "Principal Sum") in lawful money of Canada, together with
interest thereon as set forth herein.
The Principal Sum Plus all accrued and unpaid interest thereon shall be due and
payable by the Maker to the Holder in full on May 1, 2007.
The Principal Sum front time to time outstanding shall bear interest from and
after the date hereof at the rate of five percent (5%) per annum, payable in
U.S. dollars, compounded annually both before and after demand, default,
maturity and judgment with interest on overdue principal and interests at the
same rate until the date of payment in full The Maker shall pay all accrued and
unpaid interest on the principal amount outstanding from time to time, annually,
in arrears, on or before January 30 of each year.
In the event that the Maker defaults in payment of any sum due hereunder, and
fails to correct that default within 30 days of receiving written notice from
the Holder, the Principal Sum then outstanding together with accrued but unpaid
interest may, at the Holder's option, be accelerated and immediately become due
and payable in full, with interest thereon from such date at the rate as
specified herein.
So long as the Maker is not in default in the making of any payment due
hereunder, it shall have the right to prepay at any time and from time to time
all or any part of the Principal Sum then outstanding, and any interest thereon,
without notice, bonus or penalty, provided that the right of the Maker to make
any such prepayments shall be conditional upon payment by the Maker to the
Holder of all accrued and unpaid interest owing in respect of the Principal Sum
to the date of any Such prepayment.
The provisions of this promissory note shall entire to the benefit of the I
leader (who may not transfer, assign, pledge or otherwise encumber this
promissory note without the express written consent of the Maker, which consent
may be unreasonably withheld) and shall be binding upon the Maker and its
successors and assigns. The Maker hereby waives presentment, protest, demand,
notice of protest and notice of dishonor of this promissory note and expressly
agrees
<PAGE>
that this promissory note and any payment due hereunder may be extended front
time to time by the Holder without in any way affecting the liability of the
Maker.
The Maker agrees to pay to the Holder 100% of Gross Receipts, as defined in the
offering memorandum of the Maker dated March 15, 1997 (the "Offering
Memorandum"), on an annual basis, until all of the interest owing under this
promissory note is paid in fall, and to pay to the Holder 44% of Distributable
Cash (as defined in the Offering Memorandum) until all principal owing under
this promissory note has been paid in full.
This promissory note is issued by the Maker and accepted by the Holder as
partial payment of the consideration due under a software agreement dated May
16, 1997, between the Maker and the Holder, and this promissory note is subject
to the terms and conditions of that agreement.
This promissory note shall be governed by and construed in accordance with the
laws of the Province of Ontario and the laws of Canada applicable therein.
EXECUTED at Toronto, Ontario this 16th day of May 1997.
HEARTSOFT 1997 LIMITED
PARTNERSHIP, BY ITS GENERAL PARTNER,
CVI LP MANAGEMENT INC.
Per: /s/ Greg Coleman
-------------------------------
Greg Coleman - President
<PAGE>
EXHIBIT 10.9
HEARTSOFT 1997 LIMITED PARTNERSHIP
ASSUMPTION AGREEMENT
THIS AGREEMENT made as of the 30th day of April, 1997
AMONGST:
HEARTSOFT 1997 LIMITED PARTNERSHIP, a limited partnership formed
pursuant to the laws of the Province of Ontario (hereinafter referred
to as the "Partnership")
OF THE FIRST PART
-AND-
HEARTSOFT INCORPORATED, a company formed under the laws of the State
of Delaware (hereinafter referred to as the "Vendor")
OF THE SECOND PART
-AND-
EACH PARTY who has been or from time to time may be accepted as a
limited partner in the Partnership, or who is a successor to any such
party (hereinafter individually referred to as a "'Limited Partner,"
and collectively referred to as "the Limited Partners")
OF THE THIRD PART
WHEREAS the Partnership intends to acquire from the Vendor an undivided 15%
interest in and to the HEARTSOFT K-8 LIBRARY, a set of 50 education software
programs, pursuant to the terms of a software agreement (the "Software
Agreement") dated April 30, 1997;
AND WHEREAS in partial satisfaction of the purchase price for the Computer
Programs, the Partnership intends to execute and deliver to the Vendor an
acquisition note (the "Acquisition Note") in the maximum principal amount of
$1,225,000;
AND WHEREAS the Partnership intends to accept subscriptions for a maximum of
1,750 units (the "Units") in the Partnership;
AND WHEREAS in partial satisfaction of the purchase price for the Units, each
of the Limited Partners has agreed to assume his or her pro rata share of the
Acquisition Note;
<PAGE>
Assumption Agreement Page 2
NOW THEREFORE in consideration of the payment of the sum of One Dollar ($1.00),
and other good and valuable consideration, the receipt of which is hereby
acknowledged, and of the premises and mutual covenants contained herein, the
parties hereto agree as follows:
1. Each of the Limited Partners hereby irrevocably agrees to pay to the
Vendor his or her pro rata share of the Acquisition Note in accordance with
its terms.
2. In consideration of the assumption by the Limited Partners of all of the
obligations of the Partnership under the Acquisition Note, the Vendor hereby
releases and discharges the Partnership from all liability under the
Acquisition Note.
3. Each Limited Partner hereby irrevocably directs the Partnership to pay
to the Vendor 100% of his or her share of Gross Receipts, as defined in the
offering memorandum of the Partnership dated March 15, 1997 (the "Offering
Memorandum"), on a quarterly basis, until all of the interest owing under the
Acquisition Note is paid in full, and to pay to the Vendor 45% of
Distributable Cash (as defined in the Offering Memorandum) until all
principal owing under the Acquisition Note is paid in full.
4. The Vendor may not further assign, transfer, pledge, hypothecate, grant
a security interest in or otherwise encumber the Acquisition Note or this
agreement Without the express written consent of the Partnership and each of
the Limited Partners, which consent may be unreasonably withheld.
5. In the event that a Limited Partner sells, transfers or assigns his or
her units in the Partnership, such Limited Partner shall also be entitled to
assign or transfer his or her obligations under the Acquisition Note,
provided that:
(a) such transfer is made in accordance with the terms of the Partnership
agreement; and
(b) the transferee assumes all of the transferor's obligations under the
Acquisition Note and this agreement.
6. Nothing contained herein shall be construed as making any Limited
Partner liable to the Vendor for any amount greater than such Limited
Partner's pro rata share of the Acquisition Note, nor as releasing or
limiting the liability of the Partnership from any other liabilities to the
Vendor under the Software Agreement.
7. This agreement shall enure to the benefit of and be binding upon the
parties hereto and their respective heirs, executors, administrators and
other legal representatives, successors and assigns.
<PAGE>
Assumption Agreement Page 3
8. This agreement shall be governed by and construed in accordance With the
laws of the Province of Ontario and the laws of Canada applicable therein,
and the parties hereto irrevocably attorn to the jurisdiction of the courts
of the Province of Ontario.
9. This agreement maybe executed in two or more counterparts, with the same
effect as if all parties hereto had signed the same document. This agreement
may also be adopted in any subscription forms, transfer and assignment form
or similar instruments signed by a Limited Partner or his attorney, with the
same effect as If such Limited Partner had executed a counterpart of this
agreement. All counterparts and adopting instruments shall be construed
together and shall constitute one and the same agreement-
IN WITNESS WHEREOF this agreement has been executed as of the date and year
first above written.
HEARTSOFT 1997 LIMITED PARTNERSHIP, by its
General Partner, CVI LP MANAGEMENT INC.
Per: /s/ Greg Coleman
-------------------------------------
Greg Coleman - President
HEARTSOFT INC.
Per: /s/ Benjamin Shell
-------------------------------------
- ------------------------------ -------------------------------------
Signature of Witness Signature of Limited Partner
- ------------------------------ -------------------------------------
Name of Witness Name of Limited Partner
<PAGE>
EXHIBIT 10.10
JOINT VENTURE AGREEMENT
THIS AGREEMENT made as of the 16th day of May, 1997
BETWEEN:
HEARTSOFT INC., a Delaware corporation (hereinafter referred to as
"Heartsoft"),
OF THE FIRST PART
-and-
HEARTSOFT 1997 LIMITED PARTNERSHIP, an Ontario limited partnership
(hereinafter referred to as the "Partnership")
OF THE SECOND PART
WHEREAS the Partnership has acquired from Heartsoft an undivided 15% interest in
and to HEARTSOFT K-8 LIBRARY, a set of 50 educational application software
programs (the "Computer Programs");
AND WHEREAS the Partnership and Heartsoft wish to form and operate a joint
venture to market and exploit the Computer Programs throughout the world;
NOW THEREFORE in consideration of the sum of one dollar ($ 1.00), and other good
consideration, now paid by each of the parties hereto to the other (the receipt
and sufficiency of which is hereby acknowledged), the parties hereto hereby
covenant and agree as follows:
1. DEFINITIONS
1.1 For the purpose of this Agreement, the following terms shall be deemed to
have the following meanings:
(a) "Affiliate" has the meaning ascribed thereto in the Securities Act
(Ontario);
(b) "Associate" has the meaning ascribed thereto in the Securities Act
(Ontario) and also includes any person who does not deal at arm's
length (as that term is defined in the Income Tax Act (Canada)) with
such associate;
(c) "Auditors" means the international firm of licensed auditors to be
engaged by the Executive Committee in order to give effect to section
6 of this agreement;
<PAGE>
(d) "Bank" means a chartered bank selected from time to time by the
Executive Committee;
(e) "Bank Account" means the bank account of the Partnership and Heartsoft
to be opened at a Bank with offices in Tulsa, Oklahoma in accordance
with the terms of Section 4 of this agreement;
(f) "Business Plan" means the business plan of Heartsoft dated October,
1996, a copy of which has been provided to the Partnership, as may be
amended and updated from time to time;
(g) "Computer Programs" means an undivided 15% interest in and to
HEARTSOFT K-8 LIBRARY, a set of 50 educational application software
programs;
(h) "General Partner" means CVI LP Management Inc., the general partner of
the Partnership, and any replacement general partner of the
Partnership;
(i) "Gross Margin" means Gross Sales less returns, discounts to arm's
length parties and the cost of goods sold (all costs associated with
the acquisition of components, assembly of finished products and
shipping);
(j) "Gross Sales" shall mean the aggregate of all gross revenues generated
by the marketing and exploitation of the Computer Programs;
(k) "Joint Venture" means the joint venture between the Partnership and
Heartsoft to market and exploit the Computer Programs, the terms of
which are set out in this agreement;
(1) "Joint Venture Funds" means the maximum of $367,500 to be contributed
by Heartsoft to the Joint Venture pursuant to section 4 of this
agreement;
(m) "Losses" means any and all loss, damage, claim, demand, deficiency,
cost and expense, including interest, compound interest and legal fees
on a solicitor and his or her own client basis;
(n) "Offering" means the offering of a maximum of 1,750 units in the
Partnership pursuant to the terms and conditions set out in the
Offering Memorandum;
(o) "Offering Memorandum" means the offering memorandum of the Partnership
dated March 15, 1997, and any amendments thereto;
(p) "Partnership" means Heartsoft 1997 Limited Partnership, a limited
partnership formed under the laws of the Province of Ontario;
<PAGE>
(q) "Quarterly Report" means the quarterly report prepared by the
Executive Committee and provided to Heartsoft and the Partnership in
accordance with the terms of section 6.1 of this agreement;
(r) "Software Agreement" means the software agreement dated May 16, 1997
between the Partnership and Heartsoft, pursuant to which the
Partnership acquired the Computer Programs;
2. FORMATION OF JOINT VENTURE
2.1 The parties hereto agree to form a joint venture, the purpose of which
shall be to market and exploit the Computer Programs throughout the world, in
accordance with the terms and conditions of this agreement.
2.2 Subject to Section 10 of this agreement, the term of the Joint Venture
shall commence upon the execution of this agreement and continue until March 1,
2012.
2.3 Upon written notice given by the Partnership to Heartsoft not less than 60
days prior to the expiry of the term of the joint venture and any extensions
thereto, the term of this agreement and the joint venture shall be extended for
an additional ten (10) years upon the same terms and conditions as contained
herein.
3. FORMATION OF EXECUTIVE COMMITTEE
3.1 The Partnership and Heartsoft shall form an Executive Committee, the
purpose of which shall be to:
(a) implement the Business Plan with such additions and amendments and
changes as the Executive Committee may determine;
(b) approve the hiring and monitor the performance of the key personnel
necessary to operate the Joint Venture;
(c) prepare or cause to be prepared a detailed budget (the "Budget") for
the Joint Venture;
(d) oversee the long-term planning of the Joint Venture;
(e) approve all expenditures of the Joint Venture in excess of $25,000;
(f) report to the Partnership and Heartsoft in accordance with the terms
of Section 6 of this agreement; and
<PAGE>
(g) do all such other things as may be necessary in order to administer,
manage, control and operate the business of the Joint Venture in
accordance with the terms of the Business Plan.
3.2 The Executive Committee shall be comprised of three persons, the first of
which shall be selected by the Partnership, the second of which shall be
selected by Heartsoft and the third of which shall be selected by the
Partnership and Heartsoft together. In the event that the Partnership and
Heartsoft cannot agree on the third member of the Executive Committee, Heartsoft
shall be entitled to select that member, provided that such member has the
skills and qualifications necessary to fulfill his or her duties as a member of
the Executive Committee.
3.3 The Executive Committee shall meet regularly, and in no event less than
every quarter, either in person or by telephone, in order to carry out its
obligations under this agreement.
3.4 Subject to section 3.5 of this agreement, at any meeting of the Executive
Committee, provided proper notice of such meeting has been given to every member
of the Executive Committee, the approval of any two members of the Executive
Committee shall be sufficient to determine any matter.
3.5 Notwithstanding section 3.4 of this agreement, decisions of the Executive
Committee in respect of the following matters shall require the consent of all
members of the Executive Committee:
(a) changing or selling all or substantially all of the business or assets
of the Joint Venture;
(b) amending this Agreement;
(c) agreeing to any compromise or arrangement with any creditor or class
or classes of creditors;
(d) borrowing money;
(e) dissolving or terminating the Joint Venture except in accordance with
the terms of this agreement; or
(f) approving the settlement of any action against the Joint Venture.
4. FUNDING OF JOINT VENTURE EXPENSES
4.1 Upon execution of this agreement, Heartsoft shall deposit into a bank
account (the "Bank Account") at a Bank the sum of $126,000 (the "Joint Venture
Funds"), which, along with any interest on such deposit, shall be used solely
for the purpose of paying the expenses of the Joint Venture in accordance with
the Budget and the decisions of the Executive Committee.
<PAGE>
4.2 On May 30, 1998, Heartsoft shall deposit into the Bank Account the
additional sum of $161,000 (the "Joint Venture Funds"), which, along with any
interest on such deposit shall be used solely for the purpose of paying the
expenses of the Joint Venture in accordance with the Budget and the decisions of
the Executive Committee.
4.3 The Bank Account shall require:
(a) in the case of individual withdrawals or cheques in an amount less
than $25,000, the consent of any two members of the Committee; and
(b) in the case of individual withdrawals or cheques in an amount greater
than $25,000, the consent of all of the members of the Executive
Committee.
5. TREATMENT OF JOINT VENTURE REVENUES
5.1 The Partnership shall be entitled to receive 100% of Gross Sales each year
until all interest owed by the Partnership to Heartsoft pursuant to the
acquisition note dated May 16, 1997 from the Partnership to Heartsoft in respect
of the acquisition of the Computer Programs has been paid in full.
5.2 After all outstanding interest on the Acquisition Note has been paid in
fall, and until principal and interest on the Acquisition Note have been paid in
full, the Partnership and Heartsoft shall each be entitled to 50% of the Gross
Margin. After the Partnership has received written notice from Heartsoft that
all interest and principal on the Acquisition Note has been paid in full, the
Partnership shall be entitled to 25% of the Gross Margin and Heartsoft shall be
entitled to the balance of Gross Margin.
6. REPORTING AND AUDIT
6.1 Throughout the term of this agreement, the Executive Committee shall
prepare, or cause to be prepared, and shall provide to the Partnership and
Heartsoft, a quarterly report (the "Quarterly Report") setting out:
(a) a summary of the status of the Joint Venture and the activities
carried out during the quarter;
(b) a description of any significant new business developments or changes
in the status of the Joint Venture or of Heartsoft during the quarter;
and
(c) a brief summary of the financial statements prepared for the quarter.
6.2 Each Quarterly Report shall be provided to the Partnership within 30 days
of the end of the quarter in respect of which the report is prepared, and the
last Quarterly Report for each calendar year shall be accompanied by any payment
due to the Partnership from the Joint Venture for the preceding year pursuant to
this agreement.
<PAGE>
6.3 Throughout the term of this agreement, and within 30 days of the end of
each quarter, the Executive Committee shall prepare and provide to the
Partnership and to Heartsoft unaudited quarterly financial statements, prepared
in accordance with generally accepted accounting principles.
6.4 Throughout the term of this agreement, and within 90 days of the end of
each fiscal year of the Joint Venture, the Executive Committee provide to the
Partnership and to Heartsoft audited financial statements, prepared by the
Auditors in accordance with generally accepted accounting principles.
6.5 Once per year, and upon written request, either or both of the Partnership
and Heartsoft shall be entitled, at their own expense, to audit the books and
records of the Joint Venture. In the event that such an audit reveals material
irregularities in the books, records or audited financial statements of the
Joint Venture, the party responsible for conducting such audit shall be
reimbursed by Heartsoft for the cost of such audit.
7. PROTECTION, MAINTENANCE AND ENHANCEMENT
7.1 Heartsoft shall develop, regenerate and continuously update the Computer
Programs in accordance with the terms of the Software Agreement.
7.2 The parties hereto acknowledge that the Computer Programs contain valuable
proprietary trading information, and neither party hereto shall disclose to any
other person the source codes of the Computer Programs nor any other information
concerning the Computer Programs without the written consent of the other,
subject only to the right of Heartsoft, upon receipt of an executed
non-disclosure agreement from other parties, to disclose such information about
the Computer Programs to such parties as may be necessary during the normal
course of business.
8. REPRESENTATIONS AND WARRANTIES
8.1 Heartsoft hereby represents and warrants to the Partnership that the
following representations and warranties are true and correct as of the date
hereof, and acknowledges that the Partnership is relying on such representations
and warranties in connection with the performance of its obligations under this
agreement:
(a) Heartsoft is a corporation duly incorporated, organized and validly
subsisting under the laws of the State of Delaware;
(b) This agreement constitutes a valid and binding obligation of
Heartsoft, enforceable against it in accordance with its terms, and
each of the instruments and documents necessary to give effect to the
transactions contemplated herein will, when executed and delivered by
Heartsoft, constitute a valid and binding obligation of Heartsoft,
enforceable against it in accordance with its terms;
<PAGE>
(c) The entering into of this agreement and the consummation of the
transactions contemplated herein have not resulted and will not result
in the violation of or default under any of the terms and provisions
of any trust deed, hypothecation, indenture, mortgage, lease,
agreement, written or oral, license or permit to which Heartsoft is a
party or by which Heartsoft may be bound;
(d) The entering into of this agreement and the consummation of the
transactions contemplated herein will not result in the violation of
any statute, regulation, judgment, decree or law to which Heartsoft
may be subject, or any applicable order of any court, arbitrator or
government authority having jurisdiction over Heartsoft or its
property;
(e) Heartsoft is not materially in default or breach of any contract,
agreement, lease or other instrument to which it is a party or by
which it may be bound, nor is it aware of any state of facts which
after notice or the passage of time, or both, would constitute such a
material default or breach;
(f) Heartsoft has taken all such steps and done all such things as may be
necessary in order to allow Heartsoft and the Partnership to carry out
the joint venture agreed to herein, including but not limited to
obtaining all such licenses, registrations, authorizations and permits
necessary to carry on business from the State of Delaware and in all
other states in which Heartsoft carries on business; and
(g) the Computer Programs have been prepared in a workmanlike manner and
with professional diligence and skill, will function efficiently in
the machines and with operating systems for which they are designed,
is free from defect, deficiency, design flaw or bug of any nature and
will otherwise be wholly suitable for the purpose for which the Joint
Venture intends to use them and for which they have been designed.
8.2 The representations and warranties set out in section 8.1 above shall
survive and continue in full force and effect for the benefit of the Partnership
until ten years after the expiry or termination of this agreement, including all
amendments, extensions and renewals thereof.
8.3 No claim by the Partnership for breach of representation or warranty by
Heartsoft shall be valid unless Heartsoft has been given notice thereof before
the date on which the representation or warranty shall have terminated in
accordance with section 8.2 above.
8.4 The Partnership hereby represents and warrants to Heartsoft that the
following representations and warranties are true and correct as of the date
hereof, and acknowledges that Heartsoft is relying on such representations and
warranties in connection with the performance of its obligations under this
agreement:
(a) The Partnership is a limited partnership duly registered and in good
standing in the Province of Ontario;
<PAGE>
(b) This agreement constitutes a valid and binding obligation of the
Partnership, enforceable against it in accordance with its terms, and
each of the instruments and documents necessary to give effect to the
transactions contemplated herein will, when executed and delivered by
the Partnership, constitute a valid and binding obligation of the
Partnership, enforceable against it in accordance with its terms;
(c) The entering into of this agreement and the consummation of the
transactions contemplated herein have not resulted and will not result
in the violation of or default under any of the terms and provisions
of any trust deed, hypothecation, indenture, mortgage, lease,
agreement, written or oral, license or permit to which the Partnership
is a party or by which it may be bound;
(d) The entering into of this agreement and the consummation of the
transactions contemplated herein will not result in the violation of
any statute, regulation, judgment, decree or law to which the
Partnership may be subject, or any applicable order of any court,
arbitrator or government authority having jurisdiction over the
Partnership or its property,
(e) The Partnership is not materially in default or breach of any
contract, agreement, lease or other instrument to which it is a party
or by which it may be bound, nor is it aware of any state of facts
which after notice or the passage of time, or both, would constitute
such a material default or breach; and
(f) The Partnership has taken all such steps and done all such things as
may be necessary in order to allow the Partnership to carry out the
joint venture agreed to herein, including but not limited to obtaining
all such licenses, registrations, authorizations and permits necessary
to carry on business in and from Ontario.
8.5 The representations and warranties set out in section 8.4 above shall
survive and continue in full force and effect for the benefit of Heartsoft until
ten years after the expiry or termination of this agreement, including all
amendments, extensions and renewals thereof.
8.6 No claim by Heartsoft for breach of representation or warranty by the
Partnership shall be valid unless the Partnership has been given notice thereof
before the date on which the representation or warranty shall have terminated in
accordance with section 8.5 above.
9. INDEMNIFICATION
9.1 The general indemnifications set out in this section are in addition to
any specific obligation of either of the parties hereto to indemnify the other
hereunder.
9.2 Heartsoft shall indemnify and save harmless the Partnership for and from
and against any Losses suffered by it as a result of any inaccuracy in or breach
of any representation or warranty
<PAGE>
by Heartsoft, or the failure of Heartsoft to fulfill any condition or perform
any covenant as provided herein.
9.3 The Partnership shall indemnify and save harmless Heartsoft for, from and
against any Losses suffered by it as a result of any inaccuracy in or breach of
any representation or warranty by the Partnership or the failure of the
Partnership to perform any covenant as provided herein.
9.4 Notwithstanding anything else in this section, each of the parties hereto
shall have an obligation to mitigate any Losses which are the subject of a claim
for indemnification.
10. TERMINATION
10.1 Notwithstanding any other term of this agreement, the Partnership may, but
is not obligated to, terminate this agreement upon 30 days written notice in the
event that:
(a) Heartsoft becomes bankrupt or insolvent or makes an assignment for the
benefit of its creditors;
(b) either Heartsoft takes steps to wind-up, dissolve or liquidate, except
for internal corporate reorganizations, mergers or shareholder
reorganizations;
(c) if a trustee, receiver, receiver and manager or other custodian is
appointed with respect to the assets or undertaking of Heartsoft; or
(d) there is a material breach of this agreement.
10.2 On or after January 1, 1999, notwithstanding any other term of this
agreement, but subject to section 10.3 of this agreement, Heartsoft may, but is
not obligated to, terminate this agreement upon 30 days written notice to the
Partnership.
10.3 In the event that Heartsoft elects to terminate this agreement in
accordance with section 10.2 of this agreement, Heartsoft and the Partnership
shall negotiate, in good faith, a price at which the Partnership's interest in
the Joint Venture shall be acquired by Heartsoft.
11. NOTICE
11.1 Any notice, direction or other instrument required or permitted to be
given pursuant to this agreement shall be in writing and may be given by
delivering the same or sending the same by prepaid first-class mail or by
telecopier to the appropriate party as follows:
(a) To Heartsoft:
3101 North Hemlock Circle
Broken Arrow, Oklahoma
74012
<PAGE>
ATTENTION: BRYAN REUSSER
Fax: 918-251-4018
(b) The Partnership:
c/o CV1 LP Management Inc.
225 Richmond Street West
Suite 400
Toronto, Ontario
M5V IW2
ATTENTION: GREG COLEMAN
Fax: 416-593-6157
11.2 Any such notice, direction or other instrument, if delivered, shall be
deemed to have been given on the date on which it was delivered and, if sent by
mail, shall be deemed to have been given on the seventh (7th) business day
following the date of mailing and, if transmitted by telecopier, shall be deemed
to have been given at the close of business in the office of the addressee on
the business day next following the transmission thereof.
11.3 Any party hereto may change its address for service or telecopier number
from time to time by notice given to the other parties hereto in accordance with
the foregoing.
12. FURTHER ASSURANCES AND ACTIONS
12.1 Each of the parties hereto shall sign and deliver such further and other
documents, instruments, notices and papers and do and perform and cause to be
done and performed such further and other acts and things as may be necessary or
desirable in order to give full effect to the purpose and intent of this
agreement and all ancillary agreements relating to the transactions contemplated
herein.
13. GENERAL MATTERS
13.1 Unless otherwise expressly stated, all dollar amounts referred to in this
agreement are expressed and shall be payable in Canadian dollars.
13.2 In this agreement, unless the context otherwise requires, words importing
number include the singular and plural, words importing gender include all
genders, and words importing persons
<PAGE>
shall include firms, corporations, trusts, estates, government agencies and
departments and all other types of entities, and vice versa.
13.3 In this agreement, references to "generally accepted accounting
principles" mean the principles established in and amended from time to time by
the Handbook of Canadian Institute of Chartered Accountants.
13.4 Each of the provisions contained in this agreement is distinct and
severable, and a declaration of invalidity of unenforceability of one or more
provisions of this agreement by any court of competent jurisdiction shall not
effect the validity or enforceability of any other provision hereof.
13.5 This agreement constitutes the entire agreement between the parties
pertaining to the transaction contemplated herein and supersedes all prior
agreements, whether written or oral, and there are no other warranties,
representations or agreements between the parties in connection with the
transactions contemplated herein.
13.6 This agreement shall be governed by and interpreted in accordance with the
laws of the Province of Ontario and the laws of Canada as applicable therein.
Each of the parties hereto irrevocably attorns and submits to the jurisdiction
of the courts of the Province of Ontario,
13.7 Headings used in this agreement are for convenience of reference only and
do not form a part of this agreement, nor are they intended to interpret, define
or limit the scope, extent or intent of this agreement or any provision hereof.
13.8 Any reference in this agreement to a statute shall include and shall be
deemed to be a reference to such statute and the regulations made pursuant
thereto, with amendments made thereto and in force from time to time, and to any
statute or regulation that may be passed which has the effect of supplementing
or superseding the statute so referred to or the regulations made pursuant
thereto
13.9 Any reference in this agreement to any entity shall include and shall be
deemed to be a reference to any entity that is a successor to such entity.
13.10 Time shall be of the essence in this agreement.
13.11 This agreement may be executed in two (2) or more counterparts, each of
which shall be deemed to be an original and all of which together shall
constitute one and the same agreement.
13.12 This agreement shall enure to the benefit of and be binding upon the
parties hereto and their respective heirs, legal personal representatives,
successors and assigns, but shall not be assignable by any party hereto without
the written consent of the other parties hereto.
<PAGE>
13.13 No waiver of any provision of this agreement shall constitute a waiver of
any other provision nor shall any waiver of any provision of this agreement
constitute a continuing waiver unless otherwise expressly provided.
<PAGE>
EXECUTED at Toronto this 16th day of May, 1997.
HEARTSOFT INC.
Per: /s/ Benjamin P. Shell
---------------------------------------------
Benjamin P. Shell - Chief Executive Officer
HEARTSOFT 1997 LIMITED PARTNERSHIP, BY ITS GENERAL
PARTNER, CVI LP MANAGEMENT INC.
Per: /s/ Greg Coleman
---------------------------------------------
Greg Coleman -- President
<PAGE>
EXHIBIT 10.11
SOFTWARE AGREEMENT
THIS AGREEMENT made as of the 30th day of July, 1997
BETWEEN:
HEARTSOFT INC., a Delaware corporation (hereinafter referred
to as "Heartsoft")
OF THE FIRST PART
-and-
HEARTSOFT II 1997 LIMITED PARTNERSHIP, an Ontario limited
partnership (hereinafter referred to as the "Partnership")
OF THE SECOND PART
WHEREAS Heartsoft is the exclusive owner of the HEARTSOFT K-8 LIBRARY, a set
of 50 educational software application programs;
AND WHEREAS the Partnership wishes to purchase and Heartsoft wishes to sell
an undivided 15% interest, in perpetuity, in and to the HEARTSOFT K-8 LIBRARY
(such 15% undivided interest hereinafter referred to as the "Computer
Programs");
AND WHEREAS in partial payment of the purchase price for the Computer
Programs, the Partnership intends to execute and deliver to Heartsoft the
Acquisition Note;
AND WHEREAS Heartsoft and the Partnership have agreed to form a joint venture
for the purposes of marketing and exploiting the Computer Programs throughout
the world;
NOW THEREFORE in consideration of the sum of one dollar ($1.00), and other
good consideration, now paid by each of the parties hereto to the other (the
receipt and sufficiency of which is hereby acknowledged), the parties hereto
hereby convenant and agree as follows:
1. DEFINITIONS
1.01 For the purpose of this Agreement, the following terms shall be deemed to
have the following meanings:
"Acquisition Note" means the promissory note given by the Partnership to
Heartsoft pursuant to Section 2.02 of this agreement, in the form attached as
Appendix "A" hereto;
"Affiliate" has the meaning ascribed thereto in the SECURITIES ACT (Ontario);
<PAGE>
"Associate" has the meaning ascribed thereto in the SECURITIES ACT (Ontario)
and also includes any person who does not deal at arm's length (as that term
is defined in the INCOME TAX ACT (Canada)) with such associate;
"Bank" means a chartered bank with offices in Tulsa, Oklahoma, as selected
from time to time by the Executive Committee;
"Closing" means the closing of the sale of the Computer Programs, expected to
take place on or about July 30, 1997;
"Computer Programs" means an undivided 15% interest, in perpetuity, in and to
the HEARTSOFT K-8 LIBRARY, a set of 50 educational software application
programs, as more particularly described in Appendix "B" hereto, together
with all Enhancements, Derivative Works and Maintenance Modifications;
"Derivative Work" means a work that (a) is derived from the Computer Programs
or any part thereof, including revisions, modifications, translations,
abridgments, condensations, expansions and any other form in which the
Computer Programs may be duplicated, recast, transformed or adapted, (b) is
created or completed by the Partnership, Heartsoft or any Associate of any of
them, and (c) would, if prepared without authorization from the owner of the
copyright in the Computer Programs, constitute an infringement of copyright;
"Enhancement" means any enhancement, modification, addition or update of the
Computer Programs, made by or on behalf of Heartsoft or the Partnership, and
which accomplish incidental, performance, structural or functional
improvements to the Computer Programs;
"Executive Committee" means the executive committee of the Joint Venture, as
selected by Heartsoft and the Partnership in accordance with the terms of
this Agreement;
"General Partner" means CVI LP Management Inc., the general partner of the
Partnership, and any replacement general partner of the Partnership;
"Joint Venture" means the joint venture between the Partnership and Heartsoft
to market and exploit the Computer Programs throughout the world;
"Joint Venture Agreement" means the joint venture agreement entered into as
of July 30, 1997 between the Partnership and Heartsoft;
"Losses" means any and all loss, damage, claim demand, deficiency, cost and
expense, including interest, compound interest and legal fees on a solicitor
and his or her own client basis;
"Maintenance Modifications" means modifications, updates or revisions made by
Heartsoft to the Computer Programs which correct errors, support new releases
of operating systems or support new models of the Computer Programs;
<PAGE>
"Offering" means the offering of a minimum of 1,250 and a maximum of 1,750
units in the Partnership at $1,000 per unit pursuant to the offering
memorandum of the Partnership dated May 30, 1997;
"Partnership" means Heartsoft II 1997 Limited Partnership, a limited
partnership formed under the laws of the Province of Ontario;
"Purchase Price" means the purchase price paid by the Partnership to
Heartsoft for the Computer Programs, as determined in accordance with Section
2.02 of this Agreement.
2. AGREEMENTS OF PURCHASE AND SALE
2.01 In consideration of the payment of the Purchase Price, and of the
fulfillment of the other obligations of the Partnership hereunder, Heartsoft
hereby sells, assigns and transfers all right, title and interest in and to
the Computer Programs to the Partnership in perpetuity.
2.02 The Purchase Price for the Computer Programs shall be $1,750,000 (one
million seven hundred fifty thousand dollars), payable by the Partnership
to Heartsoft as follows:
(a) as to $525,000 (five hundred twenty five thousand dollars), by
certified cheques in two installments of $262,500 each, the first of
at Closing and the second on May 30, 1998; and
(b) as to $1,225,000 (one million two hundred twenty five thousand
dollars), by way of execution and delivery of the Acquisition Note.
2.03 Upon execution of this Agreement, Heartsoft shall deliver to the
Partnership four complete copies of the source code of the Computer Programs,
of which:
(a) two shall be in machine readable form on a machine readable storage
medium suitable for long-term storage and compatible with either
MacIntosh or IBM PC computer systems; and
(b) two shall be in human readable form with annotations in the English
language on bond paper suitable for long-term archival storage.
2.04 In the event that less than $1.75 million is raised pursuant to the
Offering, the Purchase Price and the payment schedule set out in Section 2.02
of this Agreement shall be reduced pro rata.
3. PROTECTION, MAINTENANCE AND ENHANCEMENT
3.01 Heartsoft shall develop, regenerate and continuously update the Computer
Programs in order to maintain the commercial competitiveness and effective
operation of the Computer Programs.
<PAGE>
3.02 The parties hereto acknowledge that the Computer Programs contain
valuable proprietary trading information, and each party hereto shall not
disclose to any other person the source codes of the Computer Programs nor
any other information concerning the Computer Programs without the written
consent of all the parties hereto.
3.03 Heartsoft hereby acknowledges that all Maintenance Modifications,
Enhancements and Derivative Works shall be considered part of the Computer
Programs and shall become and remain the sole and exclusive property of the
Partnership.
4. REPRESENTATIONS AND WARRANTIES
4.01 Heartsoft hereby represents and warrants to the Partnership that the
following representations and warranties are true and correct as of the date
hereof, and acknowledges that the Partnership is relying on such
representations and warranties in connection with the performance of its
obligations under this Agreement:
(a) Heartsoft is a corporation duly incorporated, organized and validly
subsisting under the laws of the State of Delaware;
(b) This Agreement constitutes a valid and binding obligation of
Heartsoft, enforceable against it in accordance with its terms, and
each of the instruments and documents necessary to give effect to
the transactions contemplated herein will, when exeucted and
delivered, constitute a valid and binding obligation of Heartsoft,
enforceable against it in accordance with its terms;
(c) The entering into of this Agreement and the consummation of the
transactions contemplated herein have not resulted and will not
result in the violation of or default under any of the terms and
provisions of any trust deed, hypothecation, indenture, mortgage,
lease, agreement, written or oral, license or permit to which
Heartsoft is a party or by which it may be bound;
(d) The entering into of this Agreement and the consummation of the
transactions contemplated herein will not result in the violation of
any statute, regulation, judgment, decree or law to which Heartsoft
may be subject, or any applicable order of any court, arbitrator or
government authority having jurisdiction over Heartsoft or its
property;
(e) Heartsoft is not materially in default or breach of any contract,
agreement, lease or other instrument to which it is a party or by
which it may be bound, nor is Heartsoft aware of any state of facts
which after notice or the passage of time, or both, would constitute
such a material default or breach;
(f) The Computer Programs are an original work of Heartsoft, and
Heartsoft has exclusive right, title and interest in and to and is
the sole owner of the Computer Programs;
<PAGE>
(g) Heartsoft has the full right to sell, transfer and assign the
Computer Programs in the manner contemplated in this Agreement
and without any restriction, encumbrance, lien, security
interest attaching thereto;
(h) Heartsoft has not granted, transferred, licensed or assigned any
right or interest in or to the Computer Programs to any other
person, and there are no contracts, agreements, licenses or
other commitments or arrangements in effect with respect to the
Computer Programs which might or could permit the manufacture,
marketing distribution or other exploitation or use of the
Computer Programs by any other person;
(i) The execution and delivery of this Agreement, the transfer of the
Computer Programs to the Partnership and the use of the Computer
Programs by the Partnership and Heartsoft as contemplated in this
Agreement has not and will not result in the infringement of any
copyright, trademark, trade secret, intellectual property right or
any other proprietary rights of any other person; and
(j) The Computer Programs have been prepared in a workmanlike manner and
with professional diligence and skill, will function efficiently
in the machines and with operating systems for which they are
designed, are free from defect, deficiency, design flaw or bug
of any nature and will otherwise be wholly suitable for the
purpose for which the Partnership intends to use them and for
which they have been designed.
4.02 The representations and warranties set out in Section 4.01 above shall
survive and continue in full force and effect for the benefit of the
Partnership until ten years after the expiry or termination of this
Agreement, including all amendments, extensions and renewals thereof.
4.03 No claim by the Partnership for breach of representation or warranty by
Heartsoft shall be valid unless Heartsoft has been given notice thereof
before the date on which the representation or warranty shall have terminated
in accordance with Section 4.02 above.
4.04 The Partnership hereby represents and warrants to Heartsoft that the
following representations and warranties are true and correct as of the date
hereof, and acknowledges that Heartsoft is relying on such representations
and warranties in connection with the performance of its obligations under
this Agreement:
(a) The Partnership is a limited partnership duly registered and in good
standing in the Province of Ontario;
(b) This Agreement constitutes a valid and binding obligation of the
Partnership, enforeceable against it in accordance with its
terms, and each of the instruments and documents necessary to
give effect to the transactions contemplated herein will, when
executed and delivered by the Partnership, enforceable against
it in accordance with its terms;
<PAGE>
(c) The entering to of this Agreement and the consummation of the
transactions contemplated herein have not resulted and will not
result in the violation of or default under any of the terms and
provisions of any trust deed, hypothecation, indenture,
mortgage, lease, agreement, written or oral, license or permit
to which the Partnership is a party or by which it may be bound;
(d) The entering into of this Agreement and the consummation of the
transactions contemplated herein will not result in the violation
of any statute, regulation, judgment, decree or law to which the
Partnership may be subject, or any applicable order or any court,
arbitrator or government authority having jurisdiction over the
Partnership or its property;
(e) The Partnership is not materially in default or breach of any
contract, agreement, lease or other instrument to which it is a
party or by which it may be bound, nor is it aware of any state
of facts which after notice or the passage of time, or both,
would constitute such a material default or breach; and
(f) The Partnership has taken all such steps and done all such things as
may be necessary in order to allow the Partnership to carry out the
joint venture agreed to herein, including but not limited to
obtaining all such licenses, registrations, authorizations and
permits necessary to carry on business in and from Ontario.
4.05 The representations and warranties set out in Section 4.04 above shall
survive and continue in full force and effect for the benefit of Heartsoft
until ten years after the expiry or termination of this Agreement, including
all amendments, extensions and renewals thereof.
4.06 No claim by Heartsoft for breach of representation or warranty by the
Partnership shall be valid unless the Partnership has been given notice
thereof before the date on which the representation or warranty shall have
terminated in accordance with Section 4.05 above.
5. INDEMNIFICATION
5.01 The general indemnifications set out in this Section are in addition to
any specific obligation of either of the parties hereto to indemnify the
other hereunder.
5.02 Heartsoft shall indemnify and save harmless Heartsoft for, from and
against any Losses suffered by it as a result of any inaccuracy in or breach
of any representation or warranty by the Partnership or the failure of the
Partnership to perform any covenant as provided herein.
5.03 The Partnership shall indemnify and save harmless Heartsoft for, from
and against any Losses suffered by it as a result of any inaccuracy in or
breach of any representation or warranty by the Partnership or the failure of
the Partnership to perform any convenant as provided herein.
5.04 Notwithstanding anything else in this Section, each of the parties
hereto shall have an obligation to mitigate any Losses which are the subject
of a cliam for indemnification.
<PAGE>
6. TERMINATION
6.01 Notwithstanding any other term of this Agreement, the Partnership may,
but is not obligated to, terminate this Agreement upon 30 days written notice
in the event that:
(a) Heartsoft becomes bankrupt or insolvent or makes an assignment for
the benefit of its creditors;
(b) Heartsoft takes steps to wind-up, dissolve or liquidate, except for
internal corporate reorganizations, mergers or shareholder
reorganizations;
(c) If a trustee, receiver, receiver and manager or other Custodian is
appointed with respect to the assets or undertaking of Heartsoft; or
(d) There is a material breach of a material term of the Software
agreement by Heartsoft.
6.02 On or after January 1, 1999, but subject to Section 6.03 of this
Agreement, Heartsoft may, but is not obligated to, terminate this Agreement
upon 30 days written notice to the Partnership.
6.03 In the event that Heartsoft elects to terminate this Agreement in
accordance with Section 6.02 of this Agreement, Heartsoft and the Partnership
shall negotiate, in good faith, a price at which the Partnership's interest
in the Computer Programs shall be acquired by Heartsoft. In the event that
Heartsoft and the Partnership cannot in good faith dtermine that price within
30 days, then an independent appraiser shall be retained to determine the
price, and the cost of such appraisal shall be borne equally by Heartsoft and
the Partnership.
7. NOTICE
7.01 Any notice, direction or other instrument required or permitted to be
given pursuant to this Agreement shall be in writing and may be given by
delivering the same or sending the same by pre-paid first-class mail or by
telecopier to the appropriate party as follows:
(a) To Heartsoft:
3101 North Hemlock Circle
Broken Arrow, Oklahoma 74012
Attention: Bryan Reusser
Fax: 918-251-4018
<PAGE>
(b) The Partnership:
c/o CVI LP Management Inc.
225 Richmond Street West
Suite 400
Toronto, Ontario
M5V IW2
Attention: Greg Coleman
Fax: 416-593-6157
7.02 Any such notice, direction or other instrument, if delivered, shall be
deemed to have been given on the date on which it was delivered and, if sent
by mail, shall be deemed to have been given on the seventh (7th) business day
following the date of mailing and, if transmitted by telecopier, shall be
deemed to have been given at the opening of business in the office of the
addressee on the business day next following the transmission thereof.
7.03 Any party hereto may change its address for service or telecopier
number from time to time by notice given to the other parties hereto in
accordance with the foregoing.
8. FURTHER ASSURANCES AND ACTIONS
9.01 Unless otherwise expressly stated, all dollar amounts referred to in
this Agreement are expressed and shall be payable in Canadian dollars.
9.02 In this Agreement, unless the context otherwise requires, words
importing number include the singular and the plural, words importing gender
include all genders, and words importing persons shall include firms,
corporations trusts, estates, government agencies and departments and all
other types of entities, and vice versa.
9.03 In this Agreement, any reference to "generally accepted accounting
principles" mean the principles established in and amended from time to time
by the Handbook of the Canadian Institute of Chartered Accountants.
9.04 Each of the provisions contained in this Agreement is distinct and
severable, and a declaration of invalidity of unenforceability or one or more
provisions of this Agreement by any court of competent jurisdiction shall not
affect the validity or enforceability of any other provision hereof.
9.05 This Agreement constitutes the entire agreement between the parties
pertaining to the transaction completed herein and supersedes all prior
agreements, and there are no other warranties, representations or agreements
between the parties in connection with the transactions contemplated herein.
9.06 This Agreement shall be governed by and interpreted in accordance with
the laws of the Province of Ontario and the laws of Canada as applicable
herein. Each of the parties hereto irrevocably attorns and submits to the
jurisdiction of the courts of the Province of Ontario.
<PAGE>
9.07 Headings used in this Agreement are for convenience of reference only
and do not form a part of this Agreement, nor are they intended to interpret,
define or limit the scope, extent or intent of this Agreement or any
provision hereof.
9.08 Any reference in this Agreement to a statute shall include and shall be
deemed to be a reference to such statute and regulations made pursuant
thereto, with amendments made thereto and in force from time to time, and to
any statute or regulation that may be passed which has the effect of
supplementing or superseding the statute so referred to or the regulations
made pursuant thereto.
9.09 Any reference in this Agreement to any entity shall include and shall
be deemed to be a reference to any entity that is a successor to such entity.
9.10 Time shall be of the essence in this Agreement.
9.11 This Agreement may be executed in two (2) or more counterparts, each of
which shall be deemed to be an original and all of which together shall
constitute one and the same agreement.
9.12 This Agreement shall enure to the benefit of and be binding upon the
parties hereto and their respective heirs, legal personal representatives,
successors and assigns, but shall not be assignable by any party hereto
without the written consent of the other parties hereto.
9.13 No waiver of any provision of this Agreement shall constitute a waiver
of any other provision nor shall any waiver of any provision of this
Agreement constitute a continuing waiver unless otherwise expressly provided.
EXECUTED at Toronto this 30th day of July, 1997.
HEARTSOFT INC.
Per: /s/ Benjamin P. Shell
-------------------------------------------
Benjamin P. Shell - Chief Executive Officer
HEARTSOFT 1997 LIMITED PARTNERSHIP,
BY ITS GENERAL PARTNER, CVI LP MANAGEMENT
INC.
Per: /s/ Greg Coleman
-------------------------------------------
Greg Coleman - President
<PAGE>
APPENDIX "A"
ACQUISITION NOTE
July 30, 1997
Toronto, Ontario
MATURITY DATE: July 1, 2007
FOR VALUE RECEIVED, the undersigned (the "Maker") acknowledges itself
indebted to and promises to pay to Heartsoft Inc. (the "Holder") on the dates
specified below at 225 Richmond Street West, Suite 400, Toronto, Ontario, M5V
I W2 (or at such other place as the Holder may from time to time designate in
writing to the Maker), the principal sum of $1,225,000 (one million two
hundred twenty-five thousand dollars)(the "Principal Sum") in lawful money
of Canada, together with interest thereon as set forth herein.
The Principal Sum plus all accrued and unpaid interest thereon shall be due
and payable by the Maker to the Holder in full on July 1, 2007.
The Principal Sum from time to time outstanding shall bear interest from and
after the date hereof at the rate of five percent (5%) per annum, payable in
U.S. dollars, compounded annually both before and after demand, default,
maturity and judgment with interest on overdue principal and interests at the
same rate until the date of payment in full. The Maker shall pay all accrued
and unpaid interest on the principal amount outstanding from time to time,
annually, in arrears, on or before January 30 of each year.
In the event that the Maker defaults in payment of any sum due hereunder, and
fails to correct that default within 30 days of receiving written notice from
the Holder, the Principal Sum then outstanding together with accrued but
unpaid interest may, at the Holder's option, be accelerated and immediately
become due and payable in full, with interest thereon from such date at the
rate as specified herein.
So long as the Maker is not in default in the making of any payment due
hereunder, it shall have the right to prepay at any time and from time to
time all or any part of the Principal Sum then outstanding, and any interest
thereon, without notice, bonus or penalty, provided that the right of the
Maker to make any such prepayments shall be conditional upon payment by the
Maker to the Holder of all accrued and unpaid interest owing in respect of
the Principal Sum to the date of any such prepayment.
The provisions of this promissory note shall enure to the benefit of the
Holder (who may not transfer, assign, pledge or otherwise encumber this
promissory note without the express written consent of the Maker, which
consent may be unreasonably withheld) and shall be binding upon the Maker and
its successors and assigns. The Maker hereby waives presentment, protest,
demand, notice of protest and notice of dishonor of this promissory note and
expressly agrees that this promissory note and any payment due hereunder may
be extended from time to time by the Holder without in any way affecting the
liability of the Maker.
<PAGE>
The Maker agrees to pay to the Holder 100% of Gross Receipts, as defined in
the offering memorandum of the Maker dated May 30, 1997 (the "Offering
Memorandum"), on an annual basis, until all of the interest owing under this
promissory note is paid in full, and to pay to the Holder 44% of
Distributable Cash (as defined in the Offering Memorandum) until all
principal owing under this promissory note has been paid in full.
This promissory note is issued by the Maker and accepted by the Holder as
partial payment of the consideration due under a software agreement dated
July 30, 1997 between the Maker and the Holder, and this promissory note is
subject to the terms and conditions of that agreement.
This promissory note shall be governed by and construed in accordance with
the laws of the Province of Ontario and the laws of Canada applicable therein.
EXECUTED at Toronto, Ontario this 30th day of July, 1997.
HEARTSOFT
Per:
--------------------------------------------
Benjamin P. Shell - Chief Executive Officer
HEARTSOFT 1997 LIMITED PARTNERSHIP, BY ITS GENERAL
PARTNER, CVI LP MANAGEMENT INC.
Per:
-------------------------------------------
Greg Coleman - President
<PAGE>
APPENDIX "B"
COMPUTER PROGRAMS
1. Billiards n' Homonyms
2. Billiards n' Homonyms - Spanish Version
3. Billiards n' Antonyms
4. Billiards n' Synonyms
5. Bubblegum Machine
6. Bubblegum Machine - Spanish Version
7. Coin Changer
8. Coin Changer - Spanish Version
9. Electric Coloring Book
10. Electric Coloring Book - Spanish Version
11. Electric Math Chalkboard
12. Electric Math Chalkboard - Spanish Version
13. Great American States Race
14. Great American States Race - Spanish Version
15. Knowing English (2 titles)
16. Memory Master
17. Memory Master - Spanish Version
18. Reading Comprehension
19. Reading Rodeo
20. Reading Rodeo - Spanish Version
21. Skill Builders Series (16 titles) - English, Health, Science & Social
Studies
22. Sleuth Master
23. Sleuth Master - Spanish Version
24. Spelling Book (5 titles)
25. Spinner's Choice
26. Spinner's Choice - Spanish Version
27. Tommy the Time Turtle
28. Tommy the Time Turtle - Spanish Version
29. Word Capture
30. Word Capture - Spanish Version
<PAGE>
EXHIBIT 10.12
ACQUISITION NOTE
July 30, 1997
Toronto, Ontario
MATURITY DATE: July 1, 2007
FOR VALUE RECEIVED, the undersigned (the "Maker") acknowledges itself indebted
to and promises to pay to Heartsoft Inc. (the "Holder") on the dates specified
below at 225 Richmond Street West, Suite 400, Toronto, Ontario, M5V I W2 (or at
such other place as the Holder may from time to time designate in writing to the
Maker), the principal sum of $1,225,000 (one million two hundred twenty five
thousand dollars)(the "Principal Sum") in lawful money of Canada, together with
interest thereon as set forth herein.
The Principal Sum plus all accrued and unpaid interest thereon shall be due and
payable by the Maker to the Holder in full on July 1, 2007.
The Principal Sum from time to time outstanding shall bear interest from and
after the date hereof at the rate of five percent (5%) per annum, payable in
U.S. dollars, compounded annually both before and after demand, default,
maturity and judgment with interest on overdue principal and interests at the
same rate until the date of payment in full. The Maker shall pay all accrued
and unpaid interest on the principal amount outstanding from time to time,
annually, in arrears, on or before January 30 of each year.
In the event that the Maker defaults in payment of any sum due hereunder, and
fails to correct that default within 30 days of receiving written notice from
the Holder, the Principal Sum then outstanding together with accrued but unpaid
interest may, at the Holder's option, be accelerated and immediately become due
and payable in full, with interest thereon from such date at the rate as
specified herein.
So long as the Maker is not in default in the making of any payment due
hereunder, it shall have the right to prepay at any time and from time to time
all or any part of the Principal Sum then outstanding, and any interest thereon,
without notice, bonus or penalty, provided that the right of the Maker to make
any such prepayments shall be conditional upon payment by the Maker to the
Holder of all accrued and unpaid interest owing in respect of the Principal Sum
to the date of any such prepayment.
The provisions of this promissory note shall enure to the benefit of the Holder
(who may not transfer, assign, pledge or otherwise encumber this promissory note
without the express written consent of the Maker, which consent may be
unreasonably withhold) and shall be binding upon the Maker and its successors
and assigns. The Maker hereby waives presentment, protest, demand, notice of
protest and notice of dishonor of this promissory note and expressly agrees that
this promissory note and any payment due hereunder may be extended from time to
time by the Holder without in any way affecting the liability of the Maker.
<PAGE>
The Maker agrees to pay to the Holder 100% of Gross Receipts, as defined in the
offering memorandum of the Maker dated May 30, 1997 (the "Offering Memorandum"),
on an annual basis, until all of the interest owing under this promissory note
is paid in full, and to pay to the Holder 44% of Distributable Cash (as defined
in the Offering Memorandum) until all principal owing under this promissory note
has been paid in full.
This promissory note is issued by the Maker and accepted by the Holder as
partial payment of the consideration due under a software agreement dated July
30, 1997 between the Maker and the Holder, and this promissory note is subject
to the terms and conditions of that agreement.
This promissory note shall be governed by and construed in accordance with the
laws of the Province of Ontario and the laws of Canada applicable therein.
EXECUTED at Toronto, Ontario this 30th day of July, 1997.
HEARTSOFT 1997 LIMITED PARTNERSHIP,
BY ITS GENERAL PARTNER, CVI LP MANAGEMENT
INC.
Per: /s/ Greg Coleman
------------------------------------
Greg Coleman - President
<PAGE>
EXHIBIT 10.13
- --------------------------------------------------------------------------------
HEARTSOFT II 1997 LIMITED PARTNERSHIP
ASSUMPTION AGREEMENT
- --------------------------------------------------------------------------------
THIS AGREEMENT made as of the 30th day of July, 1997
AMONGST:
HEARTSOFT II 1997 LIMITED PARTNERSHIP, a limited partnership formed
pursuant to the laws of the !Province of Ontario (hereinafter referred
to as the "Partnership")
OF THE FIRST PART
-AND-
HEARTSOFT INC., a company formed under the laws of the State of
Delaware (hereinafter referred to as the "Vendor")
OF THE SECOND PART
-AND-
EACH PARTY who has been or from time to time may be accepted as a
limited partner in the Partnership, or who is a successor to any such
parry (hereinafter individually referred to as a "Limited Partner" and
collectively referred to as "the Limited Partners")
OF THE THIRD PART
WHEREAS the Partnership intends to acquire from the Vendor an undivided 15%
interest in and to the HEARTSOFT K:8 LIBRARY, a set of 50 education software
programs, pursuant to the terms of a software agreement (the "Software
Agreement") dated July 30, 1997;
AND WHEREAS in partial satisfaction of the purchase price for the Computer
Programs, the Partnership intends to execute and deliver to the Vendor an
acquisition note (the "Acquisition Note") in the maximum principal amount of
$1,225,000;
AND WHEREAS the Partnership intends to accept subscriptions for a maximum of
1,750 units (the "Units") in the Partnership;
<PAGE>
- --------------------------------------------------------------------------------
Assumption Agreement Page 2
- --------------------------------------------------------------------------------
AND WHEREAS in partial satisfaction of the purchase price for the Units, each of
the Limited Partners has agreed to assume his or her pro rata share of the
Acquisition Note;
NOW THEREFORE in consideration of the payment of the sum of One Dollar ($1.00),
and other good and valuable consideration, the receipt of which is hereby
acknowledged, and of the premises and mutual covenants contained herein, the
parties hereto agree as follows:
1. Each of the Limited Partners hereby irrevocably agrees to pay to the Vendor
his or her pro rata share of the Acquisition Note in accordance with its terms.
2. In consideration of the assumption by the Limited Partners of all of the
obligations of the Partnership under the Acquisition Note, the Vendor hereby
releases and discharges the Partnership from all liability under the Acquisition
Note.
3. Each Limited Partner hereby irrevocably directs the Partnership to pay to
the Vendor 100% of his or her share of Gross Receipts, as defined in the
offering memorandum of the Partnership dated May 30, 1997 (the "Offering
Memorandum"), on a quarterly basis, until all of the interest owing under the
Acquisition Note is paid in full, and to pay to the Vendor 45% of Distributable
Cash (as defined in the Offering Memorandum) until all principal owing under the
Acquisition Note is paid in full.
4. The Vendor may not further assign, transfer, pledge, hypothecate, grant a
security interest in or otherwise encumber the Acquisition Note or this
agreement without the express written consent of the Partnership and each of the
Limited Partners, which consent may be unreasonably withheld.
5. In the event that a Limited Partner sells, transfers or assigns his or her
units in the Partnership, such Limited Partner shall also be entitled to assign
or transfer his or her obligations under the Acquisition Note, provided that:
(a) such transfer is made in accordance with the terms of the Partnership
agreement; and
(b) the transferee assumes all of the transferor's obligations under the
Acquisition Note and this agreement.
6. Nothing contained herein shall be construed as making any Limited Partner
liable to the Vendor for any amount greater than such Limited Partner's pro rata
share of the Acquisition Note, nor as releasing or limiting the liability of the
Partnership from any other liabilities to the Vendor under the Software
Agreement.
7. This agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective heirs, executors, administrators and other
legal representatives, successors and assigns.
<PAGE>
- --------------------------------------------------------------------------------
Assumption Agreement Page 3
- --------------------------------------------------------------------------------
8. This agreement shall be governed by and construed in accordance with the
laws of the Province of Ontario and the laws of Canada applicable therein, and
the parties hereto irrevocably attorn to the jurisdiction of the courts of the
Province of Ontario.
9. This agreement may be executed In two or more counterparts, with the same
effect as If all parties hereto had signed the same document- This agreement may
also be adopted In any subscription forms, transfer and assignment form or
similar instruments signed by a Limited Partner or his attorney, with the same
effect as if such Limited Partner had executed a counterpart of this agreement.
All counterparts and adopting instruments shall be construed together 2nd shall
constitute one and the same agreement.
IN WITNESS WHEREOF this agreement has been executed as of the date and year
first above written.
HEARTSOFT 111997 LIMITED PARTNERSHIP, BY ITS
GENERAL PARTNER,
CVI LP MANAGEMENT INC.
Per: /s/ Greg Coleman
--------------------------------------------
Greg Coleman - President
HEARTSOFT INC.
Per: /s/ Benjamin Shell
--------------------------------------------
- --------------------- --------------------------------------------
Signature of Witness Signature of Limited Partner
- --------------------- --------------------------------------------
Name of Witness Name of Limited Partner
<PAGE>
EXHIBIT 10.14
JOINT VENTURE AGREEMENT
THIS AGREEMENT made as of the 30th day of July, 1997
BETWEEN:
HEARTSOFT INC., a Delaware corporation (hereinafter referred to as
"Heartsoft"),
OF THE FIRST PART
-and-
HEARTSOFT II 1997 LIMITED PARTNERSHIP, an Ontario limited partnership
(hereinafter referred to as the "Partnership")
OF THE SECOND PART
WHEREAS the Partnership has acquired from Heartsoft an undivided 15% interest in
and to HEARTSOFT K-8 LIBRARY, a set of 50 educational application software
programs (the "Computer Programs");
AND WHEREAS the Partnership and Heartsoft wish to form and operate a joint
venture to market and exploit the Computer Programs throughout the world;
NOW THEREFORE in consideration of the sum of one dollar ($1.00), and other good
consideration, now paid by each of the parties hereto to the other (the receipt
and sufficiency of which is hereby acknowledged), the parties hereto hereby
covenant and agree as follows:
1. DEFINITIONS
1.1 For the purpose of this Agreement, the following terms shall be deemed to
have the following meanings:
(a) "Affiliate" has the meaning ascribed thereto in the Securities Act
(Ontario);
(b) "Associate" has the meaning ascribed thereto in the Securities Act
(Ontario) and also includes any person who does not deal at arm's
length (as that term is defined in the Income Tax Act (Canada)) with
such associate;
(c) "Auditors" means the international firm of licensed auditors to be
engaged by the Executive Committee in order to give effect to Section
6 of this agreement;
<PAGE>
(d) "Bank" means a chartered I bank selected from time to time by the
Executive Committee;
(e) "Bank Account" means the bank account of the Partnership and Heartsoft
to be opened at a Bank with offices in Tulsa, Oklahoma in accordance
with the terms of Section 4 of this agreement;
(f) "Business Plan" means the business plan of Heartsoft dated October,
1996, a copy of which has been provided to the Partnership, as may be
amended and updated from time to time;
(g) "Computer Programs" means an undivided 15% interest in and to
HEARTSOFT K-8 LIBRARY, a set of 50 educational application software
programs;
(h) "General Partner" means CVI LP Management Inc., the general partner of
the Partnership, and any replacement general partner of the
Partnership;
(i) "Gross Margin" means Gross Sales less returns, discounts to arm's
length parties and the cost of goods sold (all costs associated with
the acquisition of components, assembly of finished products and
shipping);
(j) "Gross Sales" shall mean the aggregate of all gross revenues generated
by the marketing and exploitation of the Computer Programs;
(k) "Joint Venture" means the joint venture between the Partnership and
Heartsoft to market and exploit the Computer Programs, the terms of
which are set out in this agreement;
(l) "Joint Venture Funds" means the maximum of $367,500 to be contributed
by Heartsoft to the Joint Venture pursuant to Section 4 of this
agreement;
(m) "Losses" means any and all loss, damage, claim, demand, deficiency,
cost and expense, including interest, compound interest and legal fees
on a solicitor and his or her own client basis;
(n) "Offering" means the offering of a maximum of 1,750 units in the
Partnership pursuant to the terms and conditions set out in the
Offering Memorandum;
(o) "Offering Memorandum" means the offering memorandum of the Partnership
dated March 15, 1997, and any amendments thereto;
(p) "Partnership" means Heartsoft II 1997 Limited Partnership, a limited
partnership formed under the laws of the Province of Ontario;
<PAGE>
(q) "Quarterly Report" means the quarterly report prepared by the
Executive Committee and provided to Heartsoft and the Partnership in
accordance with the terms of Section 6.1 of this agreement;
(r) "Software Agreement" means the software agreement dated July 30, 1997
between the Partnership and Heartsoft, pursuant to which the
Partnership acquired the Computer Programs;
2. FORMATION OF JOINT VENTURE
2.1 The parties hereto agree to form a joint venture, the purpose of which
shall be to market and exploit the Computer Programs throughout the world, in
accordance with the terms and conditions of this agreement.
2.2 Subject to Section 10 of this agreement, the term of the Joint Venture
shall commence upon the execution of this agreement and continue until March 1,
2012.
2.3 Upon written notice given by the Partnership to Heartsoft not less than 60
days prior to the expiry of the term of the joint venture and any extensions
thereto, the term of this agreement and the joint venture shall be extended for
an additional ten (10) years upon the same terms and conditions as contained
herein.
3. FORMATION OF EXECUTIVE COMMITTEE
3.1 The Partnership and Heartsoft shall form an Executive Committee, the
purpose of which shall be to:
(a) implement the Business Plan with such additions and amendments and
changes as the Executive Committee may determine;
(b) approve the hiring and monitor the performance of the key personnel
necessary to operate the Joint Venture;
(c) prepare or cause to be prepared a detailed budget (the "Budget") for
the Joint Venture;
(d) oversee the long-term planning of the Joint Venture;
(e) approve all expenditures of the Joint Venture in excess of $25,000;
(f) report to the Partnership and Heartsoft in accordance with the terms
of Section 6 of this agreement; and
<PAGE>
(g) do all such other things as may be necessary in order to administer,
manage, control and operate the business of the Joint Venture in
accordance with the terms of the Business Plan.
3.2 The Executive Committee shall be comprised of three persons, the first of
which shall be selected by the Partnership, the second of which shall be
selected by Heartsoft and the third of which shall be selected by the
Partnership and Heartsoft together. In the event that the Partnership and
Heartsoft cannot agree on the third member of the Executive Committee, Heartsoft
shall be entitled to select that member, provided that such member has the
skills and qualifications necessary to fulfill his or her duties as a member of
the Executive Committee.
3.3 The Executive Committee shall meet regularly, and in no event less than
every quarter, either in person or by telephone, in order to carry out its
obligations under this agreement.
3.4 Subject to Section 3.5 of this agreement, at any meeting of the Executive
Committee, provided proper notice of such meeting has been given to every member
of the Executive Committee, the approval of any two members of the Executive
Committee shall be sufficient to determine any matter.
3.5 Notwithstanding Section 3.4 of this agreement, decisions of the Executive
Committee in respect of the following matters shall require the consent of all
members of the Executive Committee:
(a) changing or selling all or substantially all of the business or assets
of the Joint Venture;
(b) amending this agreement;
(c) agreeing to any compromise or arrangement with any creditor or class
or classes of creditors;
(d) borrowing money;
(e) dissolving or terminating the Joint Venture except in accordance with
the terms of this agreement; or
(f) approving the settlement of any action against the Joint Venture.
4. FUNDING OF JOINT VENTURE EXPENSES
4.1 Upon execution of this agreement, Heartsoft shall deposit into a bank
account (the "Bank Account") at a Bank the sum of $166,250 (the "Joint Venture
Funds"), which, along with any interest on such deposit, shall be used solely
for the purpose of paying the expenses of the Joint Venture in accordance with
the Budget and the decisions of the Executive Committee.
<PAGE>
4.2 On May 30, 1998, Heartsoft shall deposit into the Bank Account the
additional sum of $201,250 (the "Joint Venture Funds"), which, along with any
interest on such deposit, shall be used solely for the purpose of paying the
expenses of the Joint Venture in accordance with the Budget and the decisions of
the Executive Committee.
4.3 Notwithstanding Sections 4.1 and 4.2 of this agreement:
(a) in the event that the Partnership raises less than $1,750,000 pursuant
to the Offering, Heartsoft's obligations to deposit the Joint Venture
Funds shall be reduced pro rata; and
(b) in the event that the terms of the Offering permit the limited
partners of the Partnership to make multiple payments on their units,
Heartsoft's obligation to deposit the Joint Venture Funds shall be
amended to reflect the payment provisions offered to such limited
partners.
4.4 The Bank Account shall require:
(a) in the case of individual withdrawals or cheques in an amount less
than $25,000, the consent of any two members of the Committee; and
(b) in the case of individual withdrawals or cheques in an amount greater
than $25,000, the consent of all of the members of the Executive
Committee.
5. TREATMENT OF JOINT VENTURE REVENUES
5.1 The Partnership shall be entitled to receive 100% of Gross Sales each year
until all interest owed by the Partnership to Heartsoft pursuant to the
acquisition note dated July 30, 1997 from the Partnership to Heartsoft in
respect of the acquisition of the Computer Programs has been paid in full.
5.2 After all outstanding interest on the Acquisition Note has been paid in
full, and until principal and interest on the Acquisition Note have been paid in
full, the Partnership and Heartsoft shall each be entitled to 50% of the Gross
Margin, After the Partnership has received written notice from Heartsoft that
all interest and principal on the Acquisition Note has been paid in full, the
Partnership shall be entitled to 25% of the Gross Margin and Heartsoft shall be
entitled to the balance of Gross Margin.
6. REPORTING AND AUDIT
<PAGE>
6.1 Throughout the term of this agreement, the Executive Committee shall
prepare, or cause to be prepared, and shall provide to the Partnership and
Heartsoft, a quarterly report (the "Quarterly Report") setting out:
(a) a summary of the status of the Joint Venture and the activities
carried out during the quarter;
(b) a description of any significant new business developments or changes
in the status of the Joint Venture or of Heartsoft during the quarter;
and
(c) a brief summary of the financial statements prepared for the quarter.
6.2 Each Quarterly Report shall be provided to the Partnership within 30 days
of the end of the quarter in respect of which the report is prepared, and the
last Quarterly Report for each calendar year shall be accompanied by any payment
due to the Partnership from the Joint Venture for the preceding year pursuant to
this agreement.
6.3 Throughout the term of this agreement, and within 30 days of the end of
each quarter, the Executive Committee shall prepare and provide to the
Partnership and to Heartsoft unaudited quarterly financial statements, prepared
in accordance with generally accepted accounting principles.
6.4 Throughout the term of this agreement, and within 90 days of the end of
each fiscal year of the Joint Venture, the Executive Committee provide to the
Partnership and to Heartsoft audited financial statements, prepared by the
Auditors in accordance with generally accepted accounting principles.
6.5 Once per year, and upon written request, either or both of the Partnership
and Heartsoft shall be entitled, at their own expense, to audit the books and
records of the Joint Venture. In the event that such an audit reveals material
irregularities in the books, records or audited financial statements of the
Joint Venture, the party responsible for conducting such audit shall be
reimbursed by Heartsoft for the cost of such audit.
7. PROTECTION, MAINTENANCE AND ENHANCEMENT
7.1 Heartsoft shall develop, regenerate and continuously update the Computer
Programs in accordance with the terms of the Software Agreement.
7.2 The parties hereto acknowledge that the Computer Programs contain valuable
proprietary trading information, and neither party hereto shall disclose to any
other person the source codes of the Computer Programs nor any other information
concerning the Computer Programs without the written consent of the other,
subject only to the right of Heartsoft, upon receipt of an executed
non-disclosure agreement from other parties, to disclose such information about
the Computer Programs to such parties as may be necessary during the normal
course of business.
<PAGE>
8. REPRESENTATIONS AND WARRANTIES
8.1 Heartsoft hereby represents and warrants to the Partnership that the
following representations and warranties are true and correct as of the date
hereof, and acknowledges that the Partnership is relying on such representations
and warranties in connection with the performance of its obligations under this
agreement:
(a) Heartsoft is a corporation duly incorporated, organized and validly
subsisting under the laws of the State of Delaware;
(b) This agreement constitutes a valid and binding obligation of
Heartsoft, enforceable against it in accordance with its terms, and
each of the instruments and documents necessary to give effect to the
transactions contemplated herein will, when executed and delivered by
Heartsoft, constitute a valid and binding obligation of Heartsoft,
enforceable against it in accordance with its terms;
(c) The entering into of this agreement and the consummation of the
transactions contemplated herein have not resulted and will not result
in the violation of or default under any of the terms and provisions
of any trust deed, hypothecation, indenture, mortgage, lease,
agreement, written or oral, license or permit to which Heartsoft is a
party or by which Heartsoft may be bound;
(d) The entering into of this agreement and the consummation of the
transactions contemplated herein will not result in the violation of
any statute, regulation, judgment, decree or law to which Heartsoft
may be subject, or any applicable order of any court, arbitrator or
government authority having jurisdiction over Heartsoft or its
property;
(e) Heartsoft is not materially in default or breach of any contract,
agreement, lease or other instrument to which it is a party or by
which it may be bound, nor is it aware of any state of facts which
after notice or the passage of time, or both, would constitute such a
material default or breach;
(f) Heartsoft has taken all such steps and done all such things as may be
necessary in order to allow Heartsoft and the Partnership to carry out
the joint venture agreed to herein, including but not limited to
obtaining all such licenses, registrations, authorizations and permits
necessary to carry on business from the State of Delaware' and in all
other states in which Heartsoft carries on business; and
(g) the Computer Programs have been prepared in a workmanlike manner and
with professional diligence and skill, will function efficiently in
the machines and with operating systems for which they are designed,
is free from defect, deficiency, design flaw or bug of any nature and
will otherwise be wholly suitable for the purpose for which the Joint
Venture intends to use them and for which they have been designed.
<PAGE>
8.2 The representations and warranties set out in Section 8.1 above shall
survive and continue in full force and effect for the benefit of the Partnership
until ten years after the expiry or termination of this agreement, including all
amendments, extensions and renewals thereof.
8.3 No claim by the Partnership for breach of representation or warranty by
Heartsoft shall be valid unless Heartsoft has been given notice thereof before
the date on which the representation or warranty shall have terminated in
accordance with Section 8.2 above.
8.4 The Partnership hereby represents and warrants to Heartsoft that the
following representations and warranties are true and correct as of the date
hereof, and acknowledges that Heartsoft is relying on such representations and
warranties in connection with the performance of its obligations under this
agreement:
(a) The Partnership is a limited partnership duly registered and in good
standing in the Province of Ontario;
(b) This agreement constitutes a valid and binding obligation of the
Partnership, enforceable against it in accordance with its terms, and
each of the instruments and documents necessary to give effect to the
transactions contemplated herein will, when executed and delivered by
the Partnership, constitute a valid and binding obligation of the
Partnership, enforceable against it in accordance with its terms;
(c) The entering into of this agreement and the consummation of the
transactions contemplated herein have not resulted and will not result
in the violation of or default under any of the terms and provisions
of any trust deed, hypothecation, indenture, mortgage, lease,
agreement, written or oral, license or permit to which the Partnership
is a party or by which it may be bound;
(d) The entering into of this agreement and the consummation of the
transactions contemplated herein will not result in the violation of
any statute, regulation, judgment, decree or law to which the
Partnership may be subject, or any applicable order of any court,
arbitrator or government authority having jurisdiction over the
Partnership or its property;
(e) The Partnership is not materially in default or breach of any
contract, agreement, lease or other instrument to which it is a party
or by which it may be bound, nor is it aware of any state of facts
which after notice or the passage of time, or both, would constitute
such a material default or breach; and
(f) The Partnership has taken all such steps and done all such things as
may be necessary in order to allow the Partnership to carry out the
joint venture agreed to herein, including but not limited to obtaining
all such licenses, registrations, authorizations and permits necessary
to carry on business in and from Ontario.
<PAGE>
8.5 The representations and warranties set out in Section 8.4 above shall
survive and continue in full force and effect for the benefit of Heartsoft until
ten years after the expiry or termination of this agreement, including all
amendments, extensions and renewals thereof.
8.6 No claim by Heartsoft for breach of representation or warranty by the
Partnership shall be valid unless the Partnership has been given notice thereof
before the date on which the representation or warranty shall have terminated in
accordance with Section 8.5 above.
9. INDEMNIFICATION
9.1 The general indemnifications set out in this Section are in addition to
any specific obligation of either of the parties hereto to indemnify the other
hereunder.
9.2 Heartsoft shall indemnify and save harmless the Partnership for and from
and against any Losses suffered by it as a result of any inaccuracy in or breach
of any representation or warranty by Heartsoft, or the failure of Heartsoft to
fulfill any condition or perform any covenant as provided herein.
9.3 The Partnership shall indemnify and save harmless Heartsoft for, from and
against any Losses suffered by it as a result of any inaccuracy in or breach of
any representation or warranty by the Partnership or the failure of the
Partnership to perform any covenant as provided herein.
9.4 Notwithstanding anything else in this Section, each of the parties hereto
shall have an obligation to mitigate any Losses which are the subject of a claim
for indemnification.
10. TERMINATION
10.1 Notwithstanding any other term of this agreement, the Partnership may, but
is not obligated to, terminate this agreement upon 30 days written notice in the
event that:
(a) Heartsoft becomes bankrupt or insolvent or makes an assignment for the
benefit of its creditors;
(b) Either Heartsoft takes steps to wind-up, dissolve or liquidate, except
for internal corporate reorganizations, mergers or shareholder
reorganizations;
(c) If a trustee, receiver, receiver and manager or other custodian is
appointed with respect to the assets or undertaking of Heartsoft; or
(d) There is a material breach of this agreement.
10.2 On or after January 1, 1999, notwithstanding any other term of this
agreement, but subject to Section 10.3 of this agreement, Heartsoft may, but is
not obligated to, terminate this agreement upon 30 days written notice to the
Partnership.
<PAGE>
10.3 In the event that Heartsoft elects to terminate this agreement in
accordance with Section 10.02 of this agreement, Heartsoft and the Partnership
shall negotiate, in good faith, a price at which the Partnership's interest in
the Joint Venture shall be acquired by Heartsoft.
11. NOTICE
11.1 Any notice, direction or other instrument required or permitted to be
given pursuant to this agreement shall be in writing and may be given by
delivering the same or sending the same by prepaid first-class mail or by
telecopier to the appropriate party as follows:
(a) To Heartsoft:
3101 North Hemlock Circle
Broken Arrow, Oklahoma
74012
ATTENTION: BRYAN REUSSE
Fax: 918-251-4018
(b) The Partnership:
c/o CVI LP Management Inc.
225 Richmond Street West
Suite 400
Toronto, Ontario
'M5V I W2
ATTENTION: GREG COLEMAN
Fax: 416-593-6157
11.2 Any such notice, direction or other instrument, if delivered, shall be
deemed to have been given on the date on which it was delivered and, if sent by
mail, shall be deemed to have been given on the seventh (7th) business day
following the date of mailing and, if transmitted by telecopier, shall be deemed
to have been given at the close of business in the office of the addressee on
the business day next following the transmission thereof.
11.3 Any party hereto may change its address for service or telecopier number
from time to time by notice given to the other parties hereto in accordance with
the foregoing.
12. FURTHER ASSURANCES AND ACTIONS
<PAGE>
12.1 Each of the parties hereto shall sign and deliver such further and other
documents, instruments, notices and papers and do and perform and cause to be
done and performed such further and other acts and things as may be necessary or
desirable in order to give full effect to the purpose and intent of this
agreement and all ancillary agreements relating to the transactions contemplated
herein.
13. GENERAL MATTERS
13.1 Unless otherwise expressly stated, all dollar amounts referred to in this
agreement are expressed and shall be payable in Canadian dollars.
13.2 In this agreement, unless the context otherwise requires, words importing
number include the singular and plural, words importing gender include all
genders, and words importing persons shall include firms, corporations, trusts,
estates, government agencies and departments and all other types of entities,
and vice versa.
13.3 In this agreement, references to "generally accepted accounting
principles" mean the principles established in and amended from time to time by
the Handbook of Canadian Institute of Chartered Accountants.
13.4 Each of the provisions contained in this agreement is distinct and
severable, and a declaration of invalidity of unenforceability of one or more
provisions of this agreement by any court of competent jurisdiction shall not
effect the validity or enforceability of any other provision hereof.
13.5 This agreement constitutes the entire agreement between the parties
pertaining to the transaction contemplated herein and supersedes all prior
agreements, whether written or oral, and there are no other warranties,
representations or agreements between the parties in connection with the
transactions contemplated herein.
13.6 This agreement shall be governed by and interpreted in accordance with the
laws of the Province of Ontario and the laws of Canada as applicable therein.
Each of the parties hereto irrevocably attorns and submits to the jurisdiction
of the courts of the Province of Ontario.
13.7 Headings used in this agreement are for convenience of reference only and
do not form a part of this agreement, nor are they intended to interpret, define
or limit the scope, extent or intent of this agreement or any provision hereof.
13.8 Any reference in this agreement to a statute shall include and shall be
deemed to be a reference to such statute and the regulations made pursuant
thereto, with amendments made thereto and in force from time to time, and to any
statute or regulation that may be passed which has the effect of supplementing
or superseding the statute so referred to or the regulations made pursuant
thereto.
<PAGE>
13.9 Any reference in this agreement to any entity shall include and shall be
deemed to be a reference to any entity that is a successor to such entity.
13.10 Time shall be of the essence in this agreement.
13.11 This agreement may be executed in two (2) or more counterparts, each of
which shall be deemed to be an original and all of which together shall
constitute one and the same agreement.
13.12 This agreement shall enure to the benefit of and be binding upon the
parties hereto and their respective heirs, legal personal representatives,
successors and assigns, but shall not be assignable by any party hereto without
the written consent of the other parties hereto.
13.13 No waiver of any provision of this agreement shall constitute a waiver of
any other provision nor shall any waiver of any provision of this agreement
constitute a continuing waiver unless otherwise expressly provided.
EXECUTED at Toronto this 30th day of July, 1997.
HEARTSOFT INC.
Per: /s/ Benjamin P. Shell
--------------------------------------------
Benjamin P. Shell - Chief Executive Officer
HEARTSOFT 1997 LIMITED PARTNERSHIP, BY ITS GENERAL
PARTNER, CVI LP MANAGEMENT INC.
Per: /s/ Greg Coleman
--------------------------------------------
Greg Coleman - President
<PAGE>
EXHIBIT 10.15
SOFTWARE AGREEMENT
THIS AGREEMENT made as of the 28th day of October, 1997
BETWEEN:
HEARTSOFT INC., a Delaware corporation (hereinafter referred to as
"Heartsoft")
OF THE FIRST PART
-and-
HEARTSOFT III 1997 LIMITED PARTNERSHIP, an Ontario limited partnership
(hereinafter referred to as the "Partnership")
OF THE SECOND PART
WHEREAS Heartsoft is the owner of an 70% undivided interest in HEARTSOFT K-8
LIBRARY, a set of' 50 educational software application programs;
AND WHEREAS the Partnership wishes to purchase and Heartsoft wishes to sell
an undivided 15% interest, in perpetuity, in and to the HEARTSOFT K-8 LIBRARY
(such 15% undivided interest hereinafter referred to as the "Computer
Programs").
AND WHEREAS in partial payment of the purchase price for the Computer
Programs, the Partnership intends to execute and deliver to Heartsoft the
Acquisition Note;
AND WHEREAS Heartsoft and the Partnership have agreed to form a joint venture
for the purposes of marketing and exploiting the Computer programs throughout
the world;
NOW THEREFORE in consideration of the sum of one dollar ($1.00) and other
good consideration, now paid by each of the parties hereto to the other (the
receipt and sufficiency of which is hereby acknowledged), the parties hereto
hereby covenant and agree as follows:
1. DEFINITIONS
1.01 For the purpose of this Agreement, the following, terms shall be deemed
to have the following meanings:
"Acquisition Note" means the promissory note given by the Partnership to
Heartsoft pursuant to section 2.02 of this agreement, in the form attached as
Appendix "A" hereto;
<PAGE>
"Affiliate" has the meaning ascribed thereto in the Securities Act (Ontario);
"Associate" has the meaning ascribed thereto in the Securities Act (Ontario)
and also includes any person who does not deal at arm's length (as that term
is defined in the INCOME TAX ACT (Canada)) with such associate;
"Bank" means a chartered bank with offices in Tulsa, Oklahoma, as selected
from time to time by the Executive Committee;
"Closing" means the closing of the sale of the Computer Programs, expected to
take place on or about July 30, 1997, and in any event no later than the
Final Closing Date;
"Computer Programs" means an undivided 15% interest, in perpetuity, in and to
the HEARTSOFT K-8 LIBRARY, a set of 50 educational software application
programs, as more particularly described in Appendix "B" hereto, together
with all Enhancements, Derivative Works and Maintenance Modifications;
"Derivative Work" means a work that (a) is derived from the Computer Programs
or any part thereof, including revisions, modifications, translations,
abridgments, condensations, expansions and any other form in which the
Computer Programs may be duplicated, recast, transformed or adapted, (b) is
created or completed by the Partnership, Heartsoft or any Associate of any of
them, and (c) would, if prepared without authorization from the owner of the
copyright in the Computer Programs, constitute an infringement of copyright;
"Enhancement" means any enhancement, modification, addition or update of the
Computer Programs, made by or on behalf of Heartsoft or the Partnership, and
which accomplish incidental, performance, structural or functional
improvements to the Computer Programs;
"Executive Committee" means the executive committee of the Joint Venture, as
selected by Heartsoft and the Partnership in accordance with the terms of
this agreement;
"Final Closing Date" means December 31, 1997;
"General Partner" means CVI LP Management Inc., the general partner of the
Partnership, and any replacement general partner of the Partnership;
"Joint Venture" means the joint venture between the Partnership and Heartsoft
to market and exploit the Computer Programs throughout the world;
"Joint Venture Agreement" means the joint venture agreement entered into as
of October 28, 1997 between the Partnership and Heartsoft;
"Losses" means any and all loss, damage, claim, demand, deficiency, cost and
expense, including interest, compound interest and legal fees on a solicitor
and his or her own client basis;
<PAGE>
"Maintenance Modifications" means modifications, updates or revisions made by
Heartsoft to the Computer Programs which correct errors, support new releases
of operating systems or support new models of the Computer Programs;
"Offering" means the offering of a minimum of 1,250 and a maximum of 1,750
units in the Partnership at $1,000 per unit pursuant to the offering
memorandum of the Partnership dated May 30, 1997;
"Partnership" means Heartsoft III 1997 Limited Partnership, a limited
partnership formed under the laws of the Province of Ontario;
"Purchase Price" means the purchase price paid by the Partnership to
Heartsoft for the Computer Programs, as determined in accordance with Section
2.02 of this Agreement.
2. AGREEMENTS OF PURCHASE AND SALE
2.01 In consideration of the payment of the Purchase Price, and of the
fulfillment of the other obligations of the Partnership hereunder, Heartsoft
hereby sells, assigns and transfers all right, title and interest in and to
the Computer Programs to the Partnership in perpetuity.
2.02 The Purchase Price for the Computer Programs shall be $1,750,000 (one
million seven hundred fifty thousand dollars), payable by the Partnership to
Heartsoft as follows:
(a) as to $525,000 (five hundred twenty five thousand dollars), by
certified cheques in two installments of $262,500 each, the
first of at Closing and the second on May 30, 1998; and
(b) as to $1,225,000 (one million two hundred twenty five thousand
dollars), by way of execution and delivery of the Acquisition
Note.
2.03 Upon execution of this agreement, Heartsoft shall deliver to the
Partnership four complete copies of the source code of the Computer Programs,
of which:
(a) two shall be in machine readable form on a machine readable
storage medium suitable for long-term storage and compatible
with either Macintosh or IBM PC computer systems; and
(b) two shall be in human readable form with annotations in the
English language on bond paper suitable for long-term archival
storage.
2.04 In the event that less than $1.75 million is raised pursuant to the
Offering, the Purchase Price and the payment schedule set out in section 2.02
of this agreement shall be reduced pro rata.
3. PROTECTION, MAINTENANCE AND ENHANCEMENT
<PAGE>
3.01 Heartsoft shall develop, regenerate and continuously update the Computer
Programs in order to maintain the commercial competitiveness and effective
operation of the Computer Programs.
3.02 The parties hereto acknowledge that the Computer Programs contain
valuable proprietary trading information, and each party hereto shall not
disclose to any other person the source codes of the Computer Programs nor
any other information concerning the Computer Programs without the written
consent of all of the parties hereto.
3.03 Heartsoft hereby acknowledges that all Maintenance Modifications,
Enhancements and Derivative Works shall be considered part of the Computer
Programs and shall become and remain the sole and exclusive property of the
Partnership.
4. REPRESENTATIONS AND WARRANTIES
4.01 Heartsoft hereby represents and warrants to the Partnership that the
following representations and warranties are true and correct as of the date
hereof, and acknowledges that the Partnership is relying on such
representations and warranties in connection with the performance of its
obligations under this agreement:
(a) Heartsoft is a corporation duly incorporated, organized and
validly subsisting under the laws of the State of Delaware;
(b) This agreement constitutes a valid and binding obligation of
Heartsoft, enforceable against it in accordance with its
terms, and each of the instruments and documents necessary to
give effect to the transactions contemplated herein will, when
executed and delivered, constitute a valid and binding
obligation of Heartsoft, enforceable against it in accordance
with its terms;
(c) The entering into of this agreement and the consummation of
the transactions contemplated herein have not resulted and
will not result in the violation of or default under any of
the terms and provisions of any trust deed, hypothecation,
indenture, mortgage, lease, agreement, written or oral,
license or permit to which Heartsoft is a party or by which it
may be bound;
(d) The entering into of this agreement and the consummation of
the transactions contemplated herein will not result in the
violation of any statute, regulation, judgment, decree or law
to which Heartsoft may be subject, or any applicable order of
any court, arbitrator or government authority having
jurisdiction over Heartsoft or its property;
(e) Heartsoft is not materially in default or breach of any
contract, agreement, lease or other instrument to which it is
a party or by which it may be bound, nor is
<PAGE>
Heartsoft aware of any state of facts which after notice or
the passage of time, or both, would constitute such a material
default or breach;
(f) The Computer Programs are an original work of Heartsoft, and
Heartsoft has exclusive right, title and interest in and to
and is the sole owner of the Computer Programs;
(g) Heartsoft has the full right to sell, transfer and assign the
Computer Programs in the manner contemplated in this agreement
and without any restriction, encumbrance, lien, security
interest attaching thereto;
(h) Heartsoft has not granted, transferred, licensed or assigned
any right or interest in or to the Computer Programs to any
other person, and there are no contracts, agreements, licenses
or other commitments or arrangements in effect with respect to
the Computer Programs which might or could permit the
manufacture, marketing distribution or other exploitation or
use of the Computer Programs by any other person;
(i) The execution and delivery of this agreement, the transfer of
the Computer Programs to the Partnership and the use of the
Computer Programs by the Partnership and Heartsoft as
contemplated in this agreement has not and will not result in
the infringement of any copyright, trademark, trade secret,
intellectual property right or any other proprietary rights of
any other person; and
(j) The Computer Programs have been prepared in a workmanlike
manner and with professional diligence and skill, will
function efficiently in the machines and with operating
systems for which they are designed, are free from defect,
deficiency, design flaw or bug of any nature and will
otherwise be wholly suitable for the purpose for which the
Partnership intends to use them and for which they have been
designed.
4.02 The representations and warranties set out in section 4.01 above shall
survive and continue in full force and effect for the benefit of the
Partnership until ten years after the expiry or termination of this
agreement, including all amendments, extensions and renewals thereof.
4.03 No claim by the Partnership for breach of representation or warranty by
Heartsoft shall be valid unless Heartsoft has been given notice thereof
before the date on which the representation or warranty shall have terminated
in accordance with section 4.02 above.
4.04 The Partnership hereby represents and warrants to Heartsoft that the
following representations and warranties are true and correct as of the date
hereof, and acknowledges that Heartsoft is relying on such representations
and warranties in connection with the performance of its obligations under
this agreement:
<PAGE>
(a) The Partnership is a limited partnership duly registered and
in good standing in the Province of Ontario;
(b) This agreement constitutes a valid and binding obligation of
the Partnership, enforceable against it in accordance with its
terms, and each of the instruments and documents necessary to
give effect to the transactions contemplated herein will, when
executed and delivered by the Partnership, constitute a valid
and binding obligation of the Partnership, enforceable against
it in accordance with its terms;
(c) The entering into of this agreement and the consummation of
the transactions contemplated herein have not resulted and
will not result in the violation of or default under any of
the terms and provisions of any trust deed, hypothecation,
indenture, mortgage, lease, agreement, written or oral,
license or permit to which the Partnership is a party or by
which it may be bound;
(d) The entering into of this agreement and the consummation of
the transactions contemplated herein will not result in the
violation of any statute, regulation, judgment, decree or law
to which the Partnership may be subject, or any applicable
order of any court, arbitrator or government authority having
jurisdiction over the Partnership or its property;
(e) The Partnership is not materially in default or breach of any
contract, agreement, lease or other instrument to which it is
a party or by which it may be bound, nor is it aware of any
state of facts which after notice or the passage of time, or
both, would constitute such a material default or breach; and
(f) The Partnership has taken all such steps and done all such
things as may be necessary in order to allow the Partnership
to carry out the joint venture agreed to herein, including but
not limited to obtaining all such licenses, registrations,
authorizations and permits necessary to carry on business in
and from Ontario;
4.05 The representations and warranties set out in section 4.04 above shall
survive and continue in full force and effect for the benefit of Heartsoft
until ten years after the expiry or termination of this agreement, including
all amendments, extensions and renewals thereof.
4.06 No claim by Heartsoft for breach of representation or warranty by the
Partnership shall be valid unless the Partnership has been given notice
thereof before the date on which the representation or warranty shall have
terminated in accordance with section 4.05 above.
5. INDEMNIFICATION
5.01 The general indemnifications set out in this section are in addition to
any specific obligation of either of the parties hereto to indemnify the
other hereunder.
<PAGE>
5.02 Heartsoft shall indemnify and save harmless the Partnership for and from
and against any Losses suffered by it as a result of any inaccuracy in or
breach of any representation or warranty by Heartsoft, or the failure of
Heartsoft to fulfill any condition or perform any covenant as provided herein
or in the Joint Venture Agreement.
5.03 The Partnership shall indemnify and save harmless Heartsoft for, from
and against any Losses suffered by it as a result of any inaccuracy in or
breach of any representation or warranty by the Partnership or the failure of
the Partnership to perform any covenant as provided herein.
5.04 Notwithstanding anything else in this section, each of the parties
hereto shall have an obligation to mitigate any Losses which are the subject
of a claim for indemnification.
6. TERMINATION
6.01 Notwithstanding any other term of this agreement, the Partnership may,
but is not obligated to, terminate this agreement upon 30 days written notice
in the event that:
(a) Heartsoft becomes bankrupt or insolvent or makes an assignment
for the benefit of its creditors;
(b) Heartsoft takes steps to wind-up, dissolve or liquidate,
except for internal corporate reorganizations, mergers or
shareholder reorganizations;
(c) If a trustee, receiver, receiver and manager or other
Custodian is appointed with respect to the assets or
undertaking of Heartsoft; or
(d) There is a material breach of a material term of the Software
Agreement by Heartsoft.
6.02 On or after January 1, 1999, but subject to section 6.03 of this
agreement, Heartsoft may, but is not obligated to, terminate this agreement
upon 30 days written notice to the Partnership.
6.03 In the event that Heartsoft elects to terminate this agreement in
accordance with section 6.02 of this agreement, Heartsoft and the Partnership
shall negotiate, in good faith, a price at which the Partnership's interest
in the Computer Programs shall be acquired by Heartsoft. In the event that
Heartsoft and the Partnership cannot in good faith determine that price
within 30 days, then an independent appraiser shall be retained to determine
the price, and the cost of such appraisal shall be borne equally by Heartsoft
and the Partnership.
7. NOTICE
7.01 Any notice, direction or other instrument required or permitted to be
given pursuant to this agreement shall be in writing and may be given by
delivering the same or sending the same by pre-paid first-class mail or by
telecopier to the appropriate party as follows:
<PAGE>
(a) To Heartsoft:
3101 North Hemlock Circle
Broken Arrow, Oklahoma
74012
Attention: Bryan Reusser
Fax: 918-251-4018
(b) The Partnership:
c/o CVI LP Management Inc.
225 Richmond Street West
Suite 400
Toronto, Ontario
M5V I W2
Attention: Greg Coleman
Fax: 416-593-6157
7.02 Any such notice, direction or other instrument, if delivered, shall be
deemed to have been given on the date on which it was delivered and, if sent
by mail, shall be deemed to have been given on the seventh (7th) business day
following the date of mailing and, if transmitted by telecopier, shall be
deemed to have been given at the opening of business in the office of the
addressee on the business day next following the transmission thereof.
7.03 Any party hereto may change its address for service or telecopier number
from time to time by notice given to the other parties hereto in accordance
with the foregoing.
8. FURTHER ASSURANCES AND ACTIONS
8.01 Each of the parties hereto shall sign and deliver such further and other
documents, instruments, notices and papers and do and perform and cause to be
done and performed such further and other acts and things as may be necessary
or desirable in order to give full effect to the purpose and intent of this
agreement and all ancillary agreements relating to the transactions
contemplated herein.
9. GENERAL MATTERS
9.01 Unless otherwise expressly stated, all dollar amounts referred to in
this agreement are expressed and shall be payable in Canadian dollars.
9.02 In this agreement, unless the context otherwise requires, words
importing number include the singular and plural, words importing gender
include all genders, and words importing persons
<PAGE>
shall include firms, corporations, trusts, estates, government agencies and
departments and all other types of entities, and vice versa.
9.03 In this agreement, any reference to "generally accepted accounting
principles" mean the principles established in and amended from time to time
by the Handbook of the Canadian Institute of Chartered Accountants.
9.04 Each of the provisions contained in this agreement is distinct and
severable, and a declaration of invalidity of unenforceability of one or more
provisions of this agreement by any court of competent jurisdiction shall not
effect the validity or enforceability of any other provision hereof.
9.05 This agreement constitutes the entire agreement between the parties
pertaining to the transaction contemplated herein and supersedes all prior
agreements, and there are no other warranties, representations or agreements
between the parties in connection with the transactions contemplated herein.
9.06 This agreement shall be governed by and interpreted in accordance with
the laws of the Province of Ontario and the laws of Canada as applicable
therein. Each of the parties hereto irrevocably attorns and submits to the
jurisdiction of the courts of the Province of Ontario.
9.07 Headings used in this agreement are for convenience of reference only
and do not form a part of this agreement, nor are they intended to interpret,
define or limit the scope, extent or intent of this agreement or any
provision hereof.
9.08 Any reference in this agreement to a statute shall include and shall be
deemed to be a reference to such statute and the regulations made pursuant
thereto, with amendments made thereto and in force from time to time, and to
any statute or regulation that may be passed which has the effect of
supplementing or superseding the statute so referred to or the regulations
made pursuant thereto.
9.09 Any reference in this agreement to any entity shall include and shall be
deemed to be a reference to any entity that is a successor to such entity.
9.10 Time shall be of the essence in this agreement.
9.11 This agreement may be executed in two (2) or more counterparts, each of
which shall be deemed to be an original and all of which together shall
constitute one and the same agreement.
9.12 This agreement shall enure to the benefit of and be binding upon the
parties hereto and their respective heirs, legal personal representatives,
successors and assigns, but shall not be assignable by any party hereto
without the written consent of the other parties hereto.
<PAGE>
9.13 No waiver of any provision of this agreement shall constitute a waiver
of any other provision nor shall any waiver of any provision of this
agreement constitute a continuing waiver unless otherwise expressly provided.
<PAGE>
EXECUTED at Toronto this 28th day of October, 1997
HEARTSOFT INC.
Per: /s/ Benjamin P. Shell
---------------------------------------------
Benjamin P. Shell - Chief Executive Officer
HEARTSOFT III 1997 LIMITED
PARTNERSHIP, BY ITS GENERAL PARTNER, CVI LP
MANAGEMENT INC.
Per: /s/ Greg Coleman
---------------------------------------------
Greg Coleman - President
<PAGE>
APPENDIX "A"
ACQUISITION NOTE
October 28, 1997
Toronto, Ontario
MATURITY DATE: October 1, 2007
FOR VALUE RECEIVED, the undersigned (the "Maker") acknowledges itself
indebted to and promises to pay to Heartsoft Inc. (the "Holder") on the dates
specified below at 225 Richmond Street West, Suite 400, Toronto, Ontario, M5V
I W2 (or at such other place as the Holder may from time to time designate in
writing to the Maker), the principal sum of $1,225,000 (one million two
hundred twenty five thousand dollars) (the "Principal Sum") in lawful money
of Canada, together with interest thereon as set forth herein.
The Principal Sum plus all accrued and unpaid interest thereon shall be due
and payable by the Maker to the Holder in full on October 1, 2007.
The Principal Sum from time to time outstanding shall bear interest from and
after the date hereof at the rate of five percent (5%) per annum, payable in
U.S. dollars, compounded annually both before and after demand, default,
maturity and judgment with interest on overdue principal and interests at the
same rate until the date of payment in full. The Maker shall pay all accrued
and unpaid interest on the principal amount outstanding from time to time,
annually, in arrears, on or before January 30 of each year.
In the event that the Maker defaults in payment of any sum due hereunder, and
fails to correct that default within 30 days of receiving written notice from
the Holder, the Principal Sum then outstanding together with accrued but
unpaid interest may, at the Holder's option, be accelerated and immediately
become due and payable in full, with interest thereon from such date at the
rate as specified herein.
So long as the Maker is not in default in the making of any payment due
hereunder, it shall have the right to prepay at any time and from time to
time all or any part of the Principal Sum then outstanding, and any interest
thereon, without notice, bonus or penalty, provided that the right of the
Maker to make any such prepayments shall be conditional upon payment by the
Maker to the Holder of all accrued and unpaid interest owing in respect of
the Principal Sum to the date of any such prepayment.
The provisions of this promissory note shall enure to the benefit of the
Holder (who may not transfer, assign, pledge or otherwise encumber this
promissory note without the express written consent of the Maker, which
consent may be unreasonably withheld) and shall be binding upon the Maker and
its successors and assigns. The Maker hereby waives presentment, protest,
demand, notice of protest and notice of dishonor of this promissory note and
expressly agrees
<PAGE>
that this promissory note and any payment due hereunder may be extended from
time to time by the Holder without in any way affecting the liability of the
Maker.
The Maker agrees to pay to the Holder 100% of Gross Receipts, as defined in
the offering memorandum of the Maker dated May 30, 1997 (the "Offering
Memorandum"), on an annual basis, until all of the interest owing under this
promissory note is paid in full, and to pay to the Holder 44% of
Distributable Cash (as defined in the Offering Memorandum) until all
principal owing under this promissory note has been paid in full.
This promissory note is issued by the Maker and accepted by the Holder as
partial payment of the consideration due under a software agreement dated
October 28, 1997 between the Maker and the Holder, and this promissory note
is subject to the terms and conditions of that agreement.
This promissory note shall be governed by and construed in accordance with
the laws of the Province of Ontario and the laws of Canada applicable therein.
EXECUTED at Toronto, Ontario this 28th day of October, 1997.
HEARTSOFT III 1997 LIMITED PARTNERSHIP, BY ITS
GENERAL PARTNER, CVI LP MANAGEMENT INC.
Per:
-------------------------------------
Greg Coleman - President
<PAGE>
APPENDIX "B"
COMPUTER PROGRAMS
1. Billiards n' Homonyms
2. Billiards n' Homonyms - Spanish Version
3. Billiards n' Antonyms
4. Billiards n' Synonyms
5. Bubblegum Machine
6. Bubblegum. Machine - Spanish Version
7. Coin Changer
8. Coin Changer - Spanish Version
9. Electric Coloring Book
10. Electric Coloring Book - Spanish Version
11. Electric Math Chalkboard
12. Electric Math Chalkboard - Spanish Version
13. Great American States Race
14. Great American States Race - Spanish Version
15. Knowing English (2 titles)
16. Memory Master
17. Memory Master - Spanish Version
18. Reading Comprehension
19. Reading Rodeo
20. Reading Rodeo - Spanish Version
21. Skill Builders Series (16 titles) - English, Health, Science & Social
Studies
22. Sleuth Master
23. Sleuth Master - Spanish Version
24. Spelling Book (5 titles)
25. Spinner's Choice
26. Spinner's Choice - Spanish Version
27. Tommy the Time Turtle
28. Tommy the Time Turtle - Spanish Version
29. Word Capture
30. Word Capture - Spanish Version
<PAGE>
EXHIBIT 10.16
ACQUISITION NOTE
October 28, 1997
Toronto, Ontario
MATURITY DATE: October 1, 2007
FOR VALUE RECEIVED, the undersigned (the "Maker") acknowledges itself indebted
to arid promises to pay to Heartsoft Inc. (the "Holder") on the dates specified
below at 225 Richmond Street West, Suite 400, Toronto, Ontario, M5V I W2 (or at
such other place as the Holder may from time to time designate in writing to the
Maker), the principal sum of $1,225,000 (one million two hundred twenty five
thousand dollars) (the "Principal Sum") in lawful money of Canada, together with
interest thereon as set forth herein.
The Principal Sum plus all accrued and unpaid interest thereon shall be due arid
payable by the Maker to the Holder in full on October 1, 2007.
The Principal Sum from time to time Outstanding shall bear interest from and
after the date hereof at the rate of five percent (5%) per annum, payable in
U.S. dollars, compounded annually both before arid after demand, default,
maturity and judgment with interest on overdue principal and interests at the
same rate until the date of payment in full. The Maker shall pay all accrued and
unpaid interest on the principal amount outstanding from time to time, annually,
in arrears, on or before January 30 of each year.
In the event that the Maker defaults in payment of any sum due hereunder, and
fails to correct that default within 30 days of receiving written notice from
the Holder, the Principal Sum then outstanding together with accrued but unpaid
interest may, at the Holder's option, be accelerated and immediately become due
and payable in full, with interest thereon from such date at the rate as
specified herein.
So long as the Maker is not in default in the making of any payment due
hereunder, it shall have the right to prepay at any time and from time to time
all or any part of the Principal Sum then outstanding, and any interest thereon,
without notice, bonus or penalty, provided that the right of the Maker to make
any such prepayments shall be conditional upon payment by the Maker to the
Holder of all accrued and unpaid interest owing in respect of the Principal Sum
to the date of any Such prepayment.
The provisions of this promissory note shall inure to the benefit of the Holder
(who may not transfer, assign, pledge or otherwise encumber this promissory
note without the express written consent of the Maker, which consent may be
unreasonably withheld) and shall be binding upon the Maker and its successors
and assigns. The Maker hereby waives presentment, protest, demand, notice of
protest arid notice of dishonor of this promissory note and expressly agrees
<PAGE>
that this promissory note and any payment due hereunder may The extended from
time to time by the Holder without in any way affecting the liability of the
Maker.
The Maker agrees to pay to the Holder 100% of Gross Receipts, as defined in the
offering memorandum of the Maker dated July 25, 1997 (the "Offering
Memorandum"), on an annual basis, until all of the interest owing under this
promissory note is paid in full, and to pay to the Holder 44% of Distributable
Cash (as defined in the Offering Memorandum) until all principal owing under
this promissory note has been paid in full.
This promissory note is issued by the Maker arid accepted by the Holder as
partial payment of the consideration due under a software agreement dated
October 28, 1997 between the Maker and the Holder, and this promissory note is
subject to the terms and conditions of that agreement.
This promissory note shall be governed by and construed in accordance with the
laws of the Province of Ontario and the laws of Canada applicable therein.
Executed at Toronto, Ontario this 28th day of October, 1997.
HEARTSOFT 1111997 LIMITED PARTNERSHIP,
BY ITS GENERAL PARTNER, CVI LP
MANAGEMENT INC.
Per: /s/ Greg Coleman
--------------------------------------
Greg Coleman - President
2
<PAGE>
EXHIBIT 10.17
- --------------------------------------------------------------------------------
HEARTSOFT III 1997 LIMITED PARTNERSHIP
ASSUMPTION AGREEMENT
- --------------------------------------------------------------------------------
THIS AGREEMENT made as of the 30th day of July, 1997
AMONGST:
WHEREAS the Partnership intends to acquire from the Vendor an undivided 15%
interest in and to the HEARTSOFT K-8 LIBRARY, a set of 50 education software
programs, pursuant to the terms of a software agreement (the "Software
Agreement") dated July 30, 1997;
HEARTSOFT III 1997 LIMITED PARTNERSHIP, a limited partnership
formed pursuant to the laws of the Province of Ontario
(hereinafter referred to as the "Partnership")
OF THE FIRST PART
-AND-
HEARTSOFT INC., a company formed under the laws of the State of
Delaware (hereinafter referred to as the "Vendor")
OF THE SECOND PART
-AND-
EACH PARTY who has been or from time to time may be accepted as a
limited partner in the Partnership, or who is -a successor to any
such party (hereinafter individually referred to as a "Limited
Partner" and collectively referred to as "the Limited Partners")
OF THE THIRD PART
AND WHEREAS in partial satisfaction of the purchase price for the Computer
Programs the Partnership intends to execute and deliver to the Vendor an
acquisition note (the "Acquisition Note") in the maximum principal amount of
$1,225,000;
AND WHEREAS the Partnership intends to accept subscriptions for a maximum of
1,750 units (the "Units") in the Partnership;
AND WHEREAS in partial satisfaction of the purchase price for the Units, each of
the Limited Partners has agreed to assume his or her pro rata share of the
Acquisition Note;
<PAGE>
- --------------------------------------------------------------------------------
Assumption Agreement Page 2
- --------------------------------------------------------------------------------
NOW THEREFORE in consideration of the payment of the sum of One Dollar ($1.00),
and other good and valuable consideration, the receipt of which is hereby
acknowledged, and of the premises and mutual covenants contained herein, the
parties hereto agree as follows:
1. Each of the Limited Partners hereby irrevocably agrees to pay to the Vendor
his or her pro rata share of the Acquisition Note in accordance with its terms.
2. In consideration of the assumption by the Limited Partners of all of the
obligations of the Partnership under the Acquisition Note, the Vendor hereby
releases and discharges the Partnership from all liability under the
Acquisition Note.
3. Each Limited Partner hereby irrevocably directs the Partnership to pay to
the Vendor 100% of his or her share of Gross Receipts, as defined in the
offering memorandum of the Partnership dated June 25, 1997 (the "Offering
Memorandum"), on a quarterly basis, until all of the interest owing under the
Acquisition Note is paid in full, and to pay to the Vendor 45% of Distributable
Cash (as defined in the Offering Memorandum) until all principal owing under the
Acquisition Note is paid in full.
4. The Vendor may not further assign, transfer, pledge, hypothecate, grant a
security interest in or otherwise encumber the Acquisition Note or this
agreement without the express written consent of the Partnership and each of the
Limited Partners, which consent may be unreasonably withheld.
5. In the event that a Limited Partner sells, transfers or assigns his or her
units in the Partnership, such Limited Partner shall also be entitled to assign
or transfer his or her obligations under the Acquisition Note, provided that:
(a) such transfer is made in accordance with the terms of the Partnership
agreement; and
(b) the transferee assumes all of the transferor's obligations under the
Acquisition Note and this agreement.
6. Nothing contained herein shall be construed as making any Limited Partner
liable to the Vendor for any amount greater than such Limited Partner's pro rata
share of the Acquisition Note, nor as releasing or limiting the liability of the
Partnership from any other liabilities to the Vendor under the Software
Agreement.
7. This agreement shall enure to the benefit of and be binding upon the
parties hereto and their respective heirs, executors, administrators and
other legal representatives, successors and assigns.
8. This agreement shall be governed by and construed in accordance with the
laws of the Province of Ontario and the laws of Canada applicable therein, and
the parties hereto irrevocably attorn to the jurisdiction of the courts of the
Province of Ontario.
<PAGE>
- --------------------------------------------------------------------------------
Assumption Agreement Page 3
- --------------------------------------------------------------------------------
9. This agreement may be executed in two or more counterparts, with the same
effect as if all parties hereto had signed the same document. This agreement
may also be adopted in any subscription forms, transfer and assignment forms or
similar instruments signed by a Limited Partner or his attorney, with the same
effect as if such Limited Partner had executed a counterpart of this agreement.
All counterparts and adopting instruments shall be construed together and shall
constitute one and the same agreement.
IN WITNESS WHEREOF this agreement has been executed as of the date and year
first above written.
HEARTSOFT II 1997 LIMITED PARTNERSHIP, by
ITS GENERAL PARTNER, CVI LP MANAGEMENT INC.
Per: /s/ Greg Coleman
-------------------------------------
Greg Coleman - President
HEARTSOFT INC.
Per: /s/ Benjamin Shell
-------------------------------------
- ------------------------------ -------------------------------------------
Signature of Witness Signature of Limited Partner
- ------------------------------ -------------------------------------------
Name of Witness Name of Limited Partner
<PAGE>
EXHIBIT 10.18
JOINT VENTURE AGREEMENT
THIS AGREEMENT made as of the 28th day of October, 1997
BETWEEN-
HEARTSOFT INC., a Delaware corporation (hereinafter referred to as
"Heartsoft"),
OF THE FIRST PART
-and-
HEARTSOFT III 1997 LIMITED PARTNERSHIP, an Ontario limited partnership
(hereinafter referred to as the "Partnership")
OF THE SECOND PART
WHEREAS the Partnership has acquired from Heartsoft an undivided 15% interest in
and to Heartsoft K-8 Library, a set of 50 educational application software
programs (the "Computer Programs");
AND WHEREAS the Partnership and Heartsoft wish to form and operate a joint
venture to market and exploit the Computer Programs throughout the world;
NOW THEREFORE in consideration of the sum of one dollar ($1.00), and other good
consideration, now paid by each of the parties hereto to the other (the receipt
and sufficiency of which is hereby acknowledged), the parties hereto hereby
covenant and agree as follows:
1. DEFINITIONS
1.1 For the purpose of this Agreement, the following terms shall be deemed to
have the following meanings:
(a) "Affiliate" has the meaning ascribed thereto in the Securities Act
(Ontario);
(b) "Associate" has the meaning ascribed thereto in the Securities Act
(Ontario) and also includes any person who does not deal at arm's
length (as that term is defined in the Income Tax Act (Canada)) with
such associate;
(c) "Auditors" means the international firm of licensed auditors to be
engaged by the Executive Committee in order to give effect to section
6 of this agreement;
(d) "Bank" means a chartered bank selected from time to time by the
Executive Committee;
<PAGE>
(e) "Bank Account" means the bank account of the Partnership and Heartsoft
to be opened at a Bank with offices in Tulsa, Oklahoma in accordance
with the terms of section 4 of this agreement;
(f) "Business Plan" means the business plan of Heartsoft dated October,
1996, a copy of which has been provided to the Partnership, as may be
amended and updated from time to time;
(g) "Computer Programs" means an undivided 15% interest in and to
HEARTSOFT K-8 LIBRARY, a set of 50 educational application software
programs;
(k) "General Partner" means CVI LP Management Inc., the general partner of
the Partnership, and any replacement general partner of the
Partnership;
(l) "Gross Margin" means Gross Sales less returns, discounts to arm's
length parties and the cost of goods sold (all costs associated with
the acquisition of components, assembly of finished products and
shipping);
(m) "Gross Sales" shall mean the aggregate of all gross revenues generated
by the marketing and exploitation of the Computer Programs;
(n) "Joint Venture" means the joint venture between the Partnership and
Heartsoft to market and exploit the Computer Programs, the terms of
which are set out in this agreement;
(o) "Joint Venture Funds" means the maximum of $367,500 to be contributed
by Heartsoft to the Joint Venture pursuant to section 4 of this
agreement;
(p) "Losses" means any and all loss, damage, claim, demand, deficiency,
cost and expense, including interest, compound interest and legal
fees on a solicitor and his or her own client basis;
(q) "Offering" means the offering of a maximum of 1,750 units in the
Partnership pursuant to the terms and conditions set out in the
Offering Memorandum;
(r) "Offering Memorandum" means the offering memorandum of the Partnership
dated June 25, 1997, and any amendments thereto;
(s) "Partnership" means Heartsoft III 1997 Limited Partnership, a limited
partnership formed under the laws of the Province of Ontario;
(t) "Quarterly Report" means the quarterly report prepared by the
Executive Committee and provided to Heartsoft and the Partnership in
accordance with the terms of section 6.1 of this agreement;
(u) "Software Agreement" means the software agreement dated October 28,
1997 between the Partnership and Heartsoft, pursuant to which the
Partnership acquired the Computer Programs;
2
<PAGE>
2. FORMATION OF JOINT VENTURE
2.1 The parties hereto agree to form a joint venture, the purpose of which
shall be to market and exploit the Computer Programs throughout the world, in
accordance with the terms and conditions of this agreement.
2.2 Subject to Section 10 of this agreement, the term of the Joint Venture
shall commence upon the execution of this agreement and continue until March
1, 2012.
2.3 Upon written notice given by the Partnership to Heartsoft not less than
60 days prior to the expiry of the term of the joint venture and any
extensions thereto, the term of this agreement and the joint venture shall be
extended for an additional ten (10) years upon the same terms and conditions
as contained herein.
3. FORMATION OF EXECUTIVE COMMITTEE
3.1 The Partnership and Heartsoft shall form an Executive Committee, the
purpose of which shall be to:
(a) implement the Business Plan with such additions and amendments and
changes as the Executive Committee may determine;
(b) approve the hiring and monitor the performance of the key personnel
necessary to operate the Joint Venture;
(c) prepare or cause to be prepared a detailed budget (the "Budget") for
the Joint Venture;
(d) oversee the long term planning of the Joint Venture;
(e) approve all expenditures of the Joint Venture in excess of $25,000;
(f) report to the Partnership and Heartsoft in accordance with the terms
of section 6 of this agreement; and
(g) do all such other things as may be necessary in order to administer,
manage, control and operate the business of the Joint Venture in
accordance with the terms of the Business Plan.
3.2 The Executive Committee shall be comprised of three persons, the first
of which shall be selected by the Partnership, the second of which shall be
selected by Heartsoft and the third of which shall be selected by the
Partnership and Heartsoft together. In the event that the Partnership and
Heartsoft cannot agree on the third member of the Executive Committee,
Heartsoft shall be entitled to select that member, provided that such member
has the skills and qualifications necessary to fulfil his or her duties as a
member of the Executive Committee.
3.3 The Executive Committee shall meet regularly, and in no event less than
every quarter, either in person or by telephone, in order to carry out its
obligations under this agreement.
3.4 Subject to section 3.5 of this agreement, at any meeting of the
Executive Committee, provided proper notice of such meeting has been given to
every member of the Executive Committee, the approval of any two members of
the Executive Committee shall be sufficient to determine any matter.
3
<PAGE>
3.5 Notwithstanding section 3.4 of this agreement, decisions of the
Executive Committee in respect of the following matters shall require the
consent of all members of the Executive Committee:
(a) changing or selling all or substantially all of the business or assets
of the Joint Venture;
(b) amending this agreement;
(c) agreeing to any compromise or arrangement with any creditor or class
or classes of creditors;
(d) borrowing money;
(e) dissolving or terminating the Joint Venture except in accordance with
the terms of this agreement; or
(f) approving the settlement of any action against the Joint Venture.
4. FUNDING OF JOINT VENTURE EXPENSES
4.1 Upon execution of this agreement, Heartsoft shall deposit into a bank
account (the "Bank Account") at a Bank the sum of $166,250 (the "Joint
Venture Funds"), which, along with any interest on such deposit, shall be
used solely for the purpose of paying the expenses of the Joint Venture in
accordance with the Budget and the decisions of the Executive Committee.
4.2 On May 30, 1998, Heartsoft shall deposit into the Bank Account the
additional sum of $201,250 (the "Joint Venture Funds"), which, along with any
interest on such deposit, shall be used solely for the purpose of paying the
expenses of the Joint Venture in accordance with the Budget and the decisions
of the Executive Committee.
4.3 Notwithstanding sections 4.1 and 4.2 of this agreement:
(a) in the event that the Partnership raises less than $1,750,000 pursuant
to the Offering, Heartsoft's obligations to deposit the Joint Venture
Funds shall be reduced pro rata; and
(b) in the event that the terms of the Offering permit the limited
partners of the Partnership to make multiple payments on their
units, Heartsoft's obligation to deposit the Joint Venture Funds shall
be amended to reflect the payment provisions offered to such limited
partners.
4.4 The Bank Account shall require:
(a) in the case of individual withdrawals or cheques in an amount less
than $25,000, the consent of any two members of the Committee; and
(b) in the case of individual withdrawals or cheques in an amount greater
than $25,000, the consent of all of the members of the Executive
Committee.
4
<PAGE>
5. TREATMENT OF JOINT VENTURE REVENUES
5.1 The Partnership shall be entitled to receive 100% of Gross Sales each
year until all interest owed by the Partnership to Heartsoft pursuant to the
acquisition note dated October 28, 1997 from the Partnership to Heartsoft in
respect of the acquisition of the Computer Programs has been paid in full.
5.2 After all outstanding interest on the Acquisition Note has been paid in
full, and until principal and interest on the Acquisition Note have been paid
in full, the Partnership and Heartsoft shall each be entitled to 50% of the
Gross Margin. After the Partnership has received written notice from
Heartsoft that all interest and principal on the Acquisition Note has been
paid in full, the Partnership shall be entitled to 25% of the Gross Margin
and Heartsoft shall be entitled to the balance of Gross Margin.
6. REPORTING AND AUDIT
6.1 Throughout the term of this agreement, the Executive Committee, shall
prepare, or cause to be prepared, and shall provide to the Partnership and
Heartsoft, a quarterly report (the "Quarterly Report") setting out:
(a) a summary of the status of the Joint Venture and the activities
carried out during the quarter;
(b) a description of any significant new business developments or changes
in the status of the Joint Venture or of Heartsoft during the quarter;
and
(c) a brief summary of the financial statements prepared for the quarter.
6.2 Each Quarterly Report shall be provided to the Partnership within 30
days of the end of the quarter in respect of which the report is prepared,
and the last Quarterly Report for each calendar year shall be accompanied by
any payment due to the Partnership from the Joint Venture for the preceding
year pursuant to this agreement.
6.3 Throughout the term of this agreement, and within 30 days of the end of
each quarter, the Executive Committee shall prepare and provide to the
Partnership and to Heartsoft unaudited quarterly financial statements,
prepared in accordance with generally accepted accounting principles.
6.4 Throughout the term of this agreement, and within 90 days of the end of
each fiscal year of the Joint Venture, the Executive Committee provide to the
Partnership and to Heartsoft audited financial statements, prepared by the
Auditors in accordance with generally accepted accounting principles.
6.5 Once per year, and upon written request, either or both of the
Partnership and Heartsoft shall be entitled, at their own expense, to audit
the books and records of the Joint Venture. In the event that such an audit
reveals material irregularities in the books, records or audited financial
statements of the Joint Venture, the party responsible for conducting such
audit shall be reimbursed by Heartsoft for the cost of such audit.
5
<PAGE>
7. PROTECTION, MAINTENANCE AND ENHANCEMENT
7.1 Heartsoft shall develop, regenerate and continuously update the
Computer Programs in accordance with the terms of the Software Agreement.
7.2 The parties hereto acknowledge that the Computer Programs contain
valuable proprietary trading information, and neither party hereto shall
disclose to any other person the source codes of the Computer Programs nor
any other information concerning the Computer Programs without the written
consent of the other, subject only to the right of Heartsoft, upon receipt of
an executed non-disclosure agreement from other parties, to disclose such
information about the Computer Programs to such parties as may be necessary
during the normal course of business.
8. REPRESENTATIONS AND WARRANTIES
8.1 Heartsoft hereby represents and warrants to the Partnership that the
following representations and warranties are true and correct as of the date
hereof, and acknowledges that the Partnership is relying on such
representations and warranties in connection with the performance of its
obligations under this agreement:
(a) Heartsoft is a corporation duly incorporated, organized and validly
subsisting under the laws of the State of Delaware;
(b) This agreement constitutes a valid and binding obligation of
Heartsoft, enforceable against it in accordance with its terms, and
each of the instruments and documents necessary to give effect to the
transactions contemplated herein will, when executed and delivered by
Heartsoft, constitute a valid and binding obligation of Heartsoft,
enforceable against it in accordance with its terms;
(c) The entering into of this agreement and the consummation of the
transactions contemplated herein have not resulted and will not
result in the violation of or default under any of the terms and
provisions of any trust deed, hypothecation, indenture, mortgage,
lease, agreement, written or oral, license or permit to which
Heartsoft is a party or by which Heartsoft may be bound;
(d) The entering into of this agreement and the consummation of the
transactions contemplated herein will not result in the violation
of any statute, regulation, judgment, decree or law to which Heartsoft
may be subject, or any applicable order of any court, arbitrator or
government authority having jurisdiction over Heartsoft or its
property;
(e) Heartsoft is not materially in default or breach of any contract,
agreement, lease or other instrument to which it is a party or by
which it may be bound, nor is it aware of any state of facts which
after notice or the passage of time, or both, would constitute such a
material default or breach;
(f) Heartsoft has taken all such steps and done all such things as may be
necessary in order to allow Heartsoft and the Partnership to carry out
the joint venture agreed to herein, including but not limited to
obtaining all such licenses, registrations, authorizations and
permits necessary to carry on business from the State of Delaware and
in all other states in which Heartsoft carries on business; and
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(h) the Computer Programs have been prepared in a workmanlike manner and
with professional diligence and skill, will function efficiently in
the machines and with operating systems for which they are designed,
is free from defect, deficiency, design flaw or bug of any nature
and will otherwise be wholly suitable for the purpose for which the
Joint Venture intends to use them and for which they have been
designed.
8.2 The representations and warranties set out in section 8.1 above shall
survive and continue in full force and effect for the benefit of the
Partnership until ten years after the expiry or termination of this
agreement, including all amendments, extensions and renewals thereof.
8.3 No claim by the Partnership for breach of representation or warranty by
Heartsoft shall be valid unless Heartsoft has been given notice thereof
before the date on which the representation or warranty shall have terminated
in accordance with section 8.2 above.
8.4 The Partnership hereby represents and warrants to Heartsoft that the
following representations and warranties are true and correct as of the date
hereof, and acknowledges that Heartsoft is relying on such representations
and warranties in connection with the performance of its obligations under
this agreement:
(a) The Partnership is a limited partnership duly registered and in good
standing in the Province of Ontario;
(b) This agreement constitutes a valid and binding obligation of the
Partnership, enforceable against it in accordance with its terms, and
each of the instruments and documents necessary to give effect to the
transactions contemplated herein will, when executed and delivered by
the Partnership, constitute a valid and binding obligation of the
Partnership, enforceable against it in accordance with its terms;
(c) The entering into of this agreement and the consummation of the
transactions contemplated herein have not resulted and will not
result in the violation of or default under any of the terms and
provisions of any trust deed, hypothecation, indenture, mortgage,
lease, agreement, written or oral, license or permit to which the
Partnership is a party or by which it may be bound;
(d) The entering into of this agreement and the consummation of the
transactions contemplated herein will not result in the violation
of any statute, regulation, judgment, decree or law to which the
Partnership may be subject, or any applicable order of any court,
arbitrator or government authority having jurisdiction over the
Partnership or its property;
(e) the Partnership is not materially in default or breach of any
contract, agreement, lease or other instrument to which it is a party
or by which it may be bound, nor is it aware of any state of facts
which after notice or the passage of time, or both, would
constitute such a material default or breach; and
(f) the Partnership has taken all such steps and done all such things as
may be necessary in order to allow the Partnership to carry out the
joint venture agreed to
7
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herein, including but not limited to obtaining all such licenses,
registrations, authorizations and permits necessary to carry on
business in and from Ontario;
8.5 The representations and warranties set out in section 8.4 above shall
survive and continue in full force and effect for the benefit of Heartsoft
until ten years after the expiry or termination of this agreement, including
all amendments, extensions and renewals thereof.
8.6 No claim by Heartsoft for breach of representation or warranty by the
Partnership shall be valid unless the Partnership has been given notice
thereof before the date on which the representation or warranty shall have
terminated in accordance with section 8.5 above.
9. INDEMNIFICATION
9.1 The general indemnifications set out in this section are in addition to
any specific obligation of either of the parties hereto to indemnify the
other hereunder.
9.2 Heartsoft shall indemnify and save harmless the Partnership for and
from and against any Losses suffered by it as a result of any inaccuracy in
or breach of any representation or warranty by Heartsoft, or the failure of
Heartsoft to fulfill any condition or perform any covenant as provided herein.
9.3 The Partnership shall indemnify and save harmless Heartsoft for, from
and against any Losses suffered by it as a result of any inaccuracy in or
breach of any representation or warranty by the Partnership or the failure of
the Partnership to perform any covenant as provided herein.
9.4 Notwithstanding anything else in this section, each of the parties
hereto shall have an obligation to mitigate any Losses which are the subject
of a claim for indemnification.
10. TERMINATION
10.1 Notwithstanding any other term of this agreement, the Partnership may,
but is not obligated to, terminate this agreement upon 30 days written notice
in the event that:
(a) Heartsoft becomes bankrupt or insolvent or makes an assignment for the
benefit of its creditors;
(b) either Heartsoft takes steps to wind-up, dissolve or liquidate, except
for internal corporate reorganizations, mergers or shareholder
reorganizations;
(c) if a trustee, receiver, receiver and manager or other custodian is
appointed with respect to the assets or undertaking of Heartsoft; or
(d) there is a material breach of this agreement.
10.2 On or after January 1, 1999, notwithstanding any other term of this
agreement, but subject to section 10.3 of this agreement, Heartsoft may, but
is not obligated to, terminate this agreement upon 30 days written notice to
the Partnership.
10.3 In the event that Heartsoft elects to terminate this agreement in
accordance with section 10.02 of this agreement, Heartsoft and the
Partnership shall negotiate, in good faith, a price at which the
Partnership's interest in the Joint Venture shall be acquired by Heartsoft.
8
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11. NOTICE
11.1 Any notice, direction or other instrument required or permitted to be
given pursuant to this agreement shall be in writing and may be given by
delivering the same or sending the same by prepaid first class mail or by
telecopier to the appropriate party as follows:
(a) To Heartsoft:
3101 North Hemlock Circle
Broken Arrow, Oklahoma 74012
Attention: Bryan Reusser
Fax: 918-251-4018
(b) The Partnership:
c/o CVI LP Management Inc.
225 Richmond Street West, Suite 400
Toronto, Ontario M5V I W2
Attention: Greg Coleman
Fax: 416-593-6157
11.2 Any such notice, direction or other instrument, if delivered, shall be
deemed to have been given on the date on which it was delivered and, if sent
by mail, shall be deemed to have been given on the seventh (7th) business day
following the date of mailing and, if transmitted by telecopier, shall be
deemed to have been given at the close of business in the office of the
addressee on the business day next following the transmission thereof.
11.3 Any party hereto may change its address for service or telecopier
number from time to time by notice given to the other parties hereto in
accordance with the foregoing.
12. FURTHER ASSURANCES AND ACTIONS
12.1 Each of the parties hereto shall sign and deliver such further and
other documents, instruments, notices and papers and do and perform and cause
to be done and performed such further and other acts and things as may be
necessary or desirable in order to give full effect to the purpose and intent
of this agreement and all ancillary agreements relating to the transactions
contemplated herein.
13. GENERAL MATTERS
13.1 Unless otherwise expressly stated, all dollar amounts referred to in
this agreement are expressed and shall be payable in Canadian dollars.
13.2 In this agreement, unless the context otherwise requires, words
importing number include the singular and plural, words importing gender
include all genders, and words importing persons shall include firms,
corporations, trusts, estates, government agencies and departments and all
other types of entities, and vice versa.
13.3 In this agreement, references to "generally accepted accounting
principles" mean the principles established in and amended from time to time
by the Handbook of Canadian Institute of Chartered Accountants.
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13.4 Each of the provisions contained in this agreement is distinct and
severable, and a declaration of invalidity of unenforceability of one or more
provisions of this agreement by any court of competent jurisdiction shall not
effect the validity or enforceability of any other provision hereof.
13.5 This agreement constitutes the entire agreement between the parties
pertaining to the transaction contemplated herein and supersedes all prior
agreements, whether written or oral, and there are no other warranties,
representations or agreements between the parties in connection with the
transactions contemplated herein.
13.6 This agreement shall be governed by and interpreted in accordance with
the laws of the Province of Ontario and the laws of Canada as applicable
therein. Each of the parties hereto irrevocably attorns and submits to the
jurisdiction of the courts of the Province of Ontario.
13.7 Headings used in this agreement are for convenience of reference only
and do not form a part of this agreement, nor are they intended to interpret,
define or limit the scope, extent or intent of this agreement or any
provision hereof.
13.8 Any reference in this agreement to a statute shall include and shall be
deemed to be a reference to such statute and the regulations made pursuant
thereto, with amendments made thereto and in force from time to time, and to
any statute or regulation that may be passed which has the effect of
supplementing or superseding the statute so referred to or the regulations
made pursuant thereto.
13.9 Any reference in this agreement to any entity shall include and shall
be deemed to be a reference to any entity that is a successor to such entity.
13.10 Time shall be of the essence in this agreement.
13.11 This agreement may be executed in two (2) or more counterparts, each of
which shall be deemed to be an original and all of which together shall
constitute one and the same agreement.
13.12 This agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective heirs, legal personal representatives,
successors and assigns, but shall not be assignable by any party hereto
without the written consent of the other parties hereto.
13.13 No waiver of any provision of this agreement shall constitute a waiver
of any other Provision nor shall any waiver of any provision of this
agreement constitute a continuing waiver unless otherwise expressly provided.
EXECUTED at Toronto this 28th day of October, 1991.
HEARTSOFT INC.
Per: /s/ Benjamin P. Shell
---------------------------------------------
Benjamin P. Shell - Chief Executive Officer
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HEARTSOFT III 1997 LIMITED PARTNERSHIP, by
ITS GENERAL PARTNER, CVI LP MANAGEMENT INC.
Per: /s/ Greg Coleman
---------------------------------------------
Greg Coleman - President
11
<PAGE>
EXHIBIT 10.19
STANDARD
OFFICE BUILDING LEASE AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Title Page
- --------------------------------------------------------------------------
<S> <C> <C>
1 Cover Page (Lease Terms) 2
2 Parties 4
3 Term 4
4 Premises 4
5 Possession 4
6 Rent 4
7 Use 6
8 Assignment; Sublet; Subordination, Estoppel;
Notice to Mortgagee 8
9 Maintenance and Repair; Right of Entry;
Alternations; Lines; Signs; 9
10 Insurance; Indemnity; Subrogation; Damage
and Destruction 10
11 Condemnation 12
12 Surrender of Premises 13
13 Default; Events; Remedies 13
14 Miscellaneous Provisions 15
</TABLE>
1
<PAGE>
COVER PAGE
1. LEASE TERMS Dated this 16th day of April, 19_____
For reference purposes only
1.1 PARTIES AND NOTICE ADDRESSES:
Landlord: N. D. Henshaw
2700 North Hemlock Court
Broken Arrow, Oklahoma 74012
Tenant: Heartsoft Software Co.
P.O. Box 691381
Tulsa, Oklahoma 74169
State of Incorporation: Oklahoma (Section 2.1)
1.2 PREMISES: 100A and 100B
3101 North Hemlock Circle
Broken Arrow, Oklahoma
Approximate square feet rentable: 2983
1.3 TERM: Commencement Date: May 1, 1992
Expiration Date: April 30, 1993 (Section 3.1)
Renewal Option: 1 years
Commencement Date: May 1, 1993
Expiration Date: April 30, 1994
Date option must be exercised in writing: January 31, 1993
(Section 5.4)
1.4 RENT:
Base Rent: Monthly $2361.00; Annual $28,332.00
Due: 1st day of month. Late payment charge of $25.00 for
rent received after 10th. Interest at 18% per annum on
delinquencies. $1,180.00 paid on execution of lease,
constituting rent for balance of April, 1992. $ N/A per
diem for early occupancy.
Rent Adjustment: Based on CPI for all urban consumers all items,
Dallas-Ft. Worth, Texas.
Base Period: October 1991 133.6
------- ---- ---------------
Month year CPI Base Number
Rental Adjustment: Tax and Insurance Increases
Base Year Tax Calendar
Insurance X
-------- -----
Calendar Fiscal
2
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<PAGE>
Pro-Rata Percentage:
Approximate rentable feet in building: 11,500
Approximate rentable feet of premises: 2983
Pro-rata percentage attributable to premises
N/A % operating costs
----------
25.9 % taxes
----------
25.9 % insurance
----------
(Section 6.5.2)
1.5 USE OF PREMISES:
Solely for: Office and light assembly purposes (Section 7)
1.6 INSURANCE REQUIREMENTS:
Tenant: Fire: N/A Extended Coverage: N/A
------ -------
Business Interruption: N/A Liability Limits: N/A
----- -------
$100,000 per occurrence Other: N/A
-------
Landlord: Fire: N/A Extended Coverage: N/A
------- -------
Rental Income: N/A Liability Limits: N/A
-------- -------
$500,000 per occurrence Other: N/A
-------- -------
(Section 10)
1.7 GUARANTOR:
Name: Ben Shell
----------------------------------------------
Address:
----------------------------------------------
----------------------------------------------
1.8 CONTENTS:
This lease consists of:
Page 1 through
Sections 1.1 through _________
Exhibits: A Legal Description
B Plot of floor plan
C Construction obligations, if any
D Landlord acknowledgment of commencement date
Addenda: _______________________________
__________________________
THESE COVER PAGES ARE INCORPORATED AS PART OF THIS LEASE AND EXECUTED BY
LANDLORD AND TENANT.
N. D. Henshaw HEARTSOFT SOFTWARE CO.
- ------------------------------- ----------------------------------
By: /s/ N.D. Henshaw By: /s/ Benjamin P. Shell
- ------------------------------- ------------------------------
President
- ------------------------------- ----------------------------------
Landlord Tenant
Tax Identification # 73-1102444
3
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/s/ NDH /s/ BPS
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<PAGE>
Date : April 16, 1992
2. PARTIES
2.1 The parties to this lease are as shown on the cover page of this
lease.
3. TERM
3.1 The terms of this lease is as shown on the cover page of this lease.
4. PREMISES
4.1 Landlord leases to Tenant and Tenant leases from Landlord the Premises
identified on the cover page of this lease situated in the Building named
on the cover page. The approximately square footage of the Premises and
the percentage that the Premises represent of the rentable area of the
Building are shown on the cover page. The Premises are outlined on Exhibit
B attached.
5. POSSESSION
5.1 DELAYED DELIVERY. Written notice from Landlord to Tenant that
Premises are available for occupancy on a specific date shall constitute
delivery of possession of Premises to Tenant. If possession is not
delivered to Tenant by commencement date and cause for delay is not the
fault of Tenant or its agents, the commencement date shall be extended to
the date possession is delivered to Tenant. If cause for the delay is the
fault of Tenant or its agents, Landlord may cancel this Lease by notice to
Tenant fifteen (15) days prior to effective date of cancellation.
5.2 EARLY OCCUPANCY. The commencement date of this Lease shall be the
earlier of the date possession of the Premises is delivered to Tenant or
the date Tenant occupies, commences alterations to or conducts business in
all or a part of the Premises.
5.3 ACCPETANCE OF PREMISES. Occupying all or any portion of the Premises
by Tenant shall be conclusive that the Premises are in satisfactory
condition and acceptable Tenant subject to latent defects and
deficiencies listed in writing by Tenant to Landlord within ten (10) days
after Tenant's occupancy.
5.4 RENEWAL OPTION. If not in default, Tenant shall have option to renew
this Lease for 1 years commencing on expiration date. Option must be
exercised by written notice to Landlord by January 31, 1993 and once
exercised, is irrevocable. Base Rent during renewal term shall be
determined by the formula used for the original term of the lease. Tenant
shall have no further renewal option. All other provisions of this Lease
remain the same during renewal term.
6. RENT
6.1 RENT. WHEN DUE; WHERE PAID. All monies payable by Tenant to Landlord
under this Lease shall be deemed to be rent and shall be payable and
recoverable as rent in the manner herein provided and Landlord shall have
all rights against Tenant for default in
4
Landlord Tenant
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<PAGE>
any such payment. Rent shall be paid to Landlord in advance, on the
first day of each calendar month, during the entire term of this Lease,
without deduction or set-off, in legal tender of the jurisdiction in
which the Building is located at the address of Landlord as set forth,
or to such other person or entity or to such other address as Landlord
may designate in writing. Tenant's obligation to pay all rent due under
this Lease shall survive the expiration or earlier termination of this
Lease. Should this Lease commence on a day other than the first day of
the month or terminate on a day other than the last day of the month, the
rent for such partial month shall be pro-rated based on a 365-day year.
6.2 BASIC RENT: Tenant agrees to pay to Landlord the rent as shown on
the cover page of this Lease.
6.3 INTEREST ON DELINQUENCIES: If Tenant shall fail to pay any rent when
due, such unpaid amounts shall bear interest at the rate shown on the cover
page of this Lease.
6.4 LATE PAYMENT CHARGE: If Tenant shall fail to pay any rent when due,
Tenant shall pay to Landlord, in addition to the interest provided for in
Section 6.3, a late payment charge for each occurrence of an amount as
shown on the cover page of this Lease.
6.5 ADJUSTMENTS TO RENT:
6.5.1 Property Taxes Caused By Tenant Improvements: In the event
that an increase in Real Property Taxes is caused by the Tenant's
improvements made to the Premises, Tenant shall pay the increase
attributable to such improvements.
6.5.2 Pro-Rata Definition: Tenant's pro-rata share is defined as
the ratio of the square footage of the Premises to the total rentable
square footage of the Building. In this Lease Tenant's pro-rata share
is shown on cover page subject to increase or decrease due to any
increase in the square footage of the premises.
6.5.3 Insurance: Tenant shall pay its pro-rata share of increased
cost of insurance maintained by Landlord on the Building or the
operation thereof.
6.5.4 Taxes: Tenant shall pay its pro-rata share of all Real
Property Taxes levied and assessed upon the Building and the land upon
which the Building is situated which are in excess of the Real
Property Taxes assessed for the tax year in which the commencement
date of this Lease occurs.
6.5.5 Cost of Living: Annual adjustment to rent according to the
following formula:
CPI All Urban Consumers, All Items Index Number,
Dallas-Ft. Worth for most recent anniversary date
of CPI Base Number date on Cover Page
Divided by
CPI Base Number shown on Cover Page
5
Landlord Tenant
/s/ NDH /s/ BPS
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<PAGE>
6.6 Landlord Lien: To secure payment of said rent, Landlord is hereby
given lien on all movable property of Tenant placed in the premises, but
the statutory landlord's lien for rent is not waived, the express lien
herein grated being in addition thereto.
7. USE
7.1 GENERAL: Premises shall be used only for the use specified on the
cover page of this Lease and for no other use. Tenant shall, at Tenant's
expense, comply with all laws, rules, regulations, requirements, and
ordinances enacted or imposed by any governmental unit having jurisdiction
over the Building, Premises, Landlord or Tenant.
7.2 RESTRICTIONS ON USE:
Tenant shall not:
7.2.1 Do or permit to be done anything which will invalidate or
increase the cost of any insurance coverage on the Building and the
Premises;
7.2.2 Do or permit anything to be done in the Building or on the
Premises which will obstruct or interfere with the rights of other
tenants or occupants of the Building;
7.2.3 Use, allow or permit the Premises to be used for any
improper or objectionable purpose;
7.2.4 Cause, maintain or permit any nuisance in or about the
Premises;
7.2.5 Commit or permit any waste to be committed in the Premises;
7.2.6 Use or occupy Premises in violation of any law, rule,
regulation, requirement or ordinance enacted or imposed by any
governmental unit having jurisdiction over the Building, Premises,
Landlord or Tenant;
7.2.7 Overload, damage or obstruct any utility lines providing
services to the Building or Premises;
7.2.8 Install any fixtures or equipment which will overload the
floors in the Premises or in any way affect the structural capacity or
design of the premises or the Building.
7.3 BUILDING REGULATIONS: Tenant shall obey all rules and regulations of
the Building if set forth by the Landlord. In such cases rules will be
attached to and incorporated as a part of this lease. Landlord shall have
the right to make changes or additions to such
6
Landlord Tenant
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<PAGE>
rules and regulations provided such changes or additions, except those
affecting the safety and operation of the Building or Premises, do not
unreasonably affect Tenant's use of the Premises. Landlord shall not be
liable for failure of any tenant to obey such rules and regulations.
Failure by Landlord to enforce any current or subsequent rules or
regulations against any tenant of the Building shall not constitute a
waiver thereof.
7.4 QUIET ENJOYMENT: Landlord agrees that, subject to terms, covenants
and conditions of this Lease, Tenant may, upon observing and complying with
all terms, covenants and conditions of this Lease, peaceably and quietly
occupy the Premises.
7.5 LANDLORD SERVICES: Landlord shall furnish Tenant those services
hereafter described. Janitor service and refuse removal service shall be
furnished following normal business hours. All other services shall be
furnished during the hours of 7:00 a.m. to 6:00 p.m. on weekdays and 7:00
a.m. to 1:00 p.m. on Saturdays (except holidays). If any services to be
provided are suspended or interrupted by strikes, repairs, alternations,
orders from any governmental authority or any cause beyond Landlord's
reasonable control, Landlord shall not be liable for any costs or damages
incurred by Tenant. Suspension or interruption shall not result in any
abatement of rent, be deemed an eviction or relieve Tenant of performance
of Tenant's obligations under this Lease.
Services furnished:
7.5.1 Elevator service in common with others, where applicable.
7.5.2 Men's and women's restrooms situated on the floor in which
the Premises are located together with hot and cold water for use in
said restrooms;
7.5.3 One refrigerated drinking fountain on the floor on which the
Premises are located;
7.5.4 A clean, street-level lobby, entrance way, elevator lobbies,
public corridor and other public portions of the Building for use in
common with others;
7.5.5 Electric current sufficient to operate the Building's
standard fluorescent lighting fixtures and to provide for wall or
floor duplex receptacles installed in Premises;
7.5.6 Relamping and maintaining building standard fluorescent
lighting fixtures installed in Premises;
7.5.7 Heating, ventilating and air conditioning sufficient to
provide, in Landlord's judgment, reasonable comfort for normal office
use in Premises having a maximum occupancy loan of one person per 100
square feet.
7
Landlord Tenant
/s/ NDH /s/ BPS
- ------- -------
<PAGE>
7.5.8 Janitor service and refuse removal Monday through Friday
(exclusive of holidays). The level of janitor service and refuse
removal provided shall not include cleaning, maintenance and providing
supplies for eating facilities, computer centers or special equipment
areas.
8. ASSIGNMENT; SUBLET; SUBORDINATION; ESTOPPEL; NOTICE TO MORTGAGEE; SALE BY
LANDLORD
8.1 ASSIGNMENT, SUBLET: Tenant shall not assign this Lease or any part
thereof or sublet all or any part of the Premises without prior written
consent of Landlord, which shall not be unreasonably withheld. Any
assignment or subletting consented to by Landlord shall be evidenced in
writing in a form acceptable to Landlord. This Lease shall not be
assignable by operation of law. Any transfer of this Lease by merger,
consolidation, liquidation or change in ownership of or power to vote the
majority of outstanding stock shall constitute an assignment. Any
assignment or subletting shall not diminish the liability of the Tenant.
Consent by Landlord shall not relive Tenant from obtaining written consent
to any subsequent assignment.
8.2 SUBORDINATION: This Lease is subject and subordinated to all present
and future mortgages, deeds of trust and other encumbrances affecting the
Premises or the property of which the Premises are a part. Within fifteen
(15) days after written request from Landlord, Tenant agrees to execute, at
no expense to Landlord, any instrument which may be deemed necessary or
desirable by Landlord to further effect the subordination of this Lease to
any mortgage, deed of trust or encumbrance. Tenant hereby irrevocably
appoints Landlord as attorney-in-fact of Tenant at any time for Tenant, and
in Tenant's name, to execute proper subordination agreements to this
effect.
8.3 ATTORNMENT: If the interest of the Landlord is transferred to any
person or entity by reason of foreclosure or other proceedings for
enforcement of any mortgage, deed of trust or security interest or by
delivery of a deed in lieu of foreclosure or other proceedings, Tenant
shall immediately and automatically attorn to such person or entity. In
event of such transfer, this Lease and tenant's right hereunder shall
continue undisturbed so long as Tenant is not in default.
8.4 ESTOPPEL CERTIFICATE: Tenant will at any time and from time to time,
upon not less than twenty (20) days prior request by Landlord, execute,
acknowledge and delivery to Landlord a statement in writing executed by
Tenant certifying that this Lease is unmodified and in full effect or if
there have been modifications, that this Lease is in full effect as
modified, setting forth such modifications; the dates to which the rent has
been paid, and either stating that to the knowledge of the signer of said
statement that no default exists or specifying each such default of which
the signer may have knowledge.
8
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<PAGE>
It is intended that any such statement executed by Tenant maybe relied
upon by any prospective purchaser or mortgagee or existing mortgagee of
the Building.
8.5 NOTICE TO MORTGAGEE: In the event of any act or omission by Landlord
which would give Tenant the right to damages or terminate this Lease by
reason of a constructive or actual eviction from all or part of the
Premises, Tenant shall not commence action or terminate until it shall have
given written notice to Landlord and the holder of the indebtedness or
other obligation secured by a first mortgage or first deed of trust
affecting the Building, if the name and address of such holder has
previously been furnished Tenant, and until a reasonable period of time for
remedying such act or omission shall have elapsed following the giving of
such notice, during which time Landlord and such holder, or either of them,
their agents or employees, shall be entitled to enter the Premises and do
whatever may be necessary to remedy such act or omission. During the
period following the giving of such notice and during the remedying of such
act or omission, the rent shall be abated and apportioned only to the
extent that any part of the Premises shall be untenable.
8.6 SALE BY LANDLORD: A sale, conveyance or assignment of the Building
shall operate to release Landlord from liability and after the effective
date thereof upon all of the covenants, terms and conditions of this Lease,
express or implied, except as such may relate to the period prior to such
effective date and Tenant shall thereafter look solely to Landlord's
successor in interest in and to this Lease. This Lease shall not be
affected by any such sale, conveyance or assignment, and Tenant shall
attorn to Landlord's successor in interest thereunder.
9. MAINTENANCE AND REPAIRS; RIGHT OF ENTRY; ALTERATIONS; LIENS; SIGNS
9.1 MAINTENANCE OR REPAIRS BY TENANT: Tenant shall maintain the Premises
in good condition. Tenant shall repair or replace any damage or injury to
the Premises or the Building caused by Tenant, its agents, employees or
invitees. All maintenance and repairs made by Tenant shall be performed
only by licensed contractors first approved by Landlord. Tenant shall
require the contractor to comply with Landlord's regulations regarding all
work to be performed.
9.2 LANDLORD'S RIGHT TO MAINTAIN OR REPAIR: If, within ten days following
occurrence, Tenant fails to repair or replace any damage to the Premises or
Building caused by Tenant, its agents, employees or invitees Landlord may,
at its option, cause all required maintenance, repairs or replacements to
be made. Tenant shall promptly pay Landlord all costs incurred plus an
administrative fee of 20 percent of such costs.
9.3 LANDLORD'S RIGHT OF ENTRY: Landlord, its agents or employees shall
have the right to enter the premises at reasonable hours to make
inspections, alterations, or repairs to the
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Building or the Premises. In event of emergency Landlord, its agents or
employees shall have the right of entry at any time and may perform any
acts related to safety, protection, preservation or improvement of the
Building or the Premises. Except for repair of casualty damage, Tenant
shall not be entitled to any abatement or reduction of rent because of
work performed within the Building or Premises by Landlord.
9.4 MAINTENANCE BY LANDLORD: Landlord shall repair, replace and maintain
the external and structural parts of the Building which do not comprise a
part of the Premises and are not leased to others. Landlord shall perform
such repairs, replacements and maintenance with reasonable dispatch, in a
good and workmanlike manner, but Landlord shall not be liable for any
damages, direct, indirect or consequential, or for damages for personal
discomfort, illness or inconvenience of Tenant by reason of failure of such
equipment, facilities or systems or reasonable delays in the performance of
such repairs, replacements and maintenance, unless caused by the deliberate
act or omission, or the negligence of Landlord, its servants, agents or
employees.
9.5 ALTERATIONS BY TENANT: Tenant shall make no changes, additions,
alterations or improvements to the Premises without the prior written
consent of Landlord and subject to all rules, requirements and conditions
imposed by Landlord at the time such consent is given. Landlord shall have
the right to withhold its consent.
9.6 ALTERATIONS BY LANDLORD: Landlord may make any repairs, alterations
or improvements which Landlord deems necessary or advisable for the
preservation, safety or improvement of the Building or the Premises.
9.7 LIENS: Tenant shall cause no liens of any kind, including but not
limited to mechanics liens, liens for materials, wages, labor or services,
to be placed against the Premises or Building in which the Premises are
situated.
9.8 SIGNS: Tenants shall not inscribe any inscription or post, place, or
in any manner display any sign, notice, picture, placard, poster or
advertising matter anywhere in or about the Building or Premises at places
visible (either directly or indirectly as an outline or shadow on a glass
pane) from anywhere outside the Premises without Landlord's prior written
consent. Upon expiration or sooner termination of this Lease Tenant shall
remove all signs or advertising consented to by Landlord and shall repair
any damaged caused by such removal.
10. INSURANCE, INDEMNITY, SUBROGATION, DAMAGE AND DESTRUCTION
10.1 INSURANCE BY LANDLORD: Landlord may maintain insurance for those
perils and in amounts which would be considered prudent for similar income
type property situated in the general area of the Building or which is
required by any mortgagee or creditor of
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Landlord. Cost of all insurance maintained by Landlord shall be considered
as a part of the Operating Costs of the Building.
10.2 Insurance by Tenant: Tenant shall maintain at Tenant's expense:
10.2.1 Fire insurance with extended coverage endorsement for lot
less than 80% of the current replacement cost of Tenant improvements,
trade fixtures, furniture and equipment situated in the Premises.
10.2.2 Comprehensive public liability insurance on an occurrence
basis with respect to Tenant's business and occupancy of the Premises
for any one occurrence or claim of not less than $100,000 or such
other amount as Landlord may reasonably require in writing from time
to time.
10.2.3 Insurance against such other perils and in such amounts as
Landlord may from to time reasonably require in writing. Such request
shall be made on the basis that the insurance coverage requested is
customary at the time for prudent tenants.
10.2.4 All policies of insurance maintained by Tenant shall be in a
form acceptable to Landlord, issued by an insurer licensed to do
business in the state or province in which the Building is situated,
require at least 15 days written notice to Landlord of termination or
material alteration and waive, to the extent available, any right of
subrogation against Landlord. If requested by Landlord, Tenant shall
promptly deliver to Landlord certified copies or other evidence of
such policies and evidence satisfactory to Landlord that all premiums
have been paid and policies are in effect.
10.3 INDEMNITY: Tenant shall indemnify and hold harmless Landlord from all
loss, damage, liability or expense, including attorney fees, resulting from
any injury to any person or loss of or damage to any property caused by or
resulting from any act, omission or negligence of Tenant or any officer,
employee, agent, contractor, invitee or visitor of Tenant in or about the
Premises or the Building, but the foregoing provision shall not be
construed to make Tenant responsible for loss, damage, liability or expense
resulting from injuries to third parties caused by any act, omission or
negligence of Landlord or of any officer, employee, agent, contractor,
invitee or visitor of Landlord. Landlord shall not be liable for any loss
or damage to person or property sustained by Tenant, or other persons,
which may be caused by the Building or the Premises, or any appurtenances
thereto, being out of repair or by the bursting or leakage of any water,
gas, sewer or steam pipe, or by theft or by any act of neglect of any
tenant or occupant of the Building, or of any other person, or by any other
cause whatsoever, unless caused by the negligence of Landlord.
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10.4 WAIVER OF SUBROGATION: To the extent that a loss is covered by
insurance in force and recovery is made for such loss, the Landlord and
Tenant hereby mutually release each other from liability and waive all
right of recovery against each other for any loss from perils insured
against under their respective fire insurance policies (including extended
coverage), provided that this waiver shall not be applicable if it has the
effect of invalidating any insurance coverage of Landlord or Tenant.
10.5 DAMAGE AND DESTRUCTION: In the event the Building or the Premises
shall be destroyed or rendered untenantable, either in whole or in part, by
fire or other casualty, Landlord may, at its option, restore the Building
or Premises to as near their previous condition as is reasonably possible,
and in the meantime the rent shall be abated in the same proportion as the
untenantable portion of the Premises bears to the whole thereof; but unless
Landlord, within sixty days after the happening of any such casualty, shall
notify Tenant of its election to so restore, this Lease shall thereupon
terminate and Tenant shall vacate the Premises. Such restoration by
Landlord shall not include replacement of furniture, equipment or other
items that do not become part of the Building or any improvements to the
Premises in excess of those provided for in the allowance for building
standard items as of the commencement date of this Lease. Restoration of
the Premises required beyond Landlord's obligation shall be performed by
the Tenant at no cost to the Landlord.
10.6 DELAY BEYOND LANDLORD'S CONTROL: No penalty shall accrue to Landlord
for delay in commencing or completing repairs caused by adjustment of
insurance claims, governmental requirements or any cause beyond Landlord's
reasonable control.
11. CONDEMNATION
11.1 CONDEMNATION; AWARD; TERMINATION: If the Building or Premises shall
be taken or condemned for any public purpose, or for any reason whatsoever,
to such an extent as to render either or both untenantable, either Landlord
or Tenant shall have the option to terminate this Lease effective as of the
date of taking or condemnation. If the taking or condemnation does not
render the Building and the Premises untenantable, this Lease shall
continue in effect and Landlord shall promptly restore the portion not
taken to the extent possible to the condition existing prior to the taking.
If, as a result of such restoration, the area of the Premises is reduced,
the rental shall be reduced proportionately. All proceeds from any taking
or condemnation shall be paid to Landlord. Tenant waives all claim against
such proceeds. A voluntary sale or conveyance in lieu of but under the
threat of condemnation shall be considered a taking or condemnation for
public purpose.
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12. SURRENDER OF PREMISES
12.1 Surrender at Expiration: Upon expiration or other termination of this
Lease, Tenant shall immediately surrender possession of the Premises to
Landlord in substantially the condition in which Tenant is required to
maintain the Premises except for reasonable wear and tear and damage by
fire or casualty. All keys which Tenant has been furnished for any locks
within the Building and the Premises shall be delivered to Landlord. Upon
surrender, all right, title and interest of Tenant in the Premises shall
cease. All property remaining in the Premises following surrender shall be
considered to have been abandoned by Tenant and Landlord may dispose of it
in any manner Landlord wishes. Tenant shall reimburse Landlord for all
costs incurred for disposal together with all costs for repairs required
because of removal of all or any of such abandoned property.
13. DEFAULT; EVENTS; REMEDIES
13.1 The occurrence of any one of the following events shall constitute a
default of this Lease by Tenant:
13.1.1 Failure of Tenant to make any payment of rent or other
required payment when due, and such failure continues for a period of
five days after mailing of written notice by Landlord to Tenant;
13.1.2 Vacating or abandonment of all or a substantial portion of
the Premises;
13.1.3 Failure of Tenant to comply with any provisions of this
Lease, other than payment of rent, and such failure shall continue for
fifteen days after mailing of written notice by Landlord to Tenant;
provided however, that if the nature of Tenant's default is such that
more than fifteen days are reasonably required for its cure, Tenant
shall not be default if Tenant commence such cure to completion;
13.1.4 The making of an assignment or general arrangement for the
benefit of creditors by Tenant or guarantors of Tenant's obligations;
13.1.5 The filing by Tenant or a guarantor of Tenant's obligations
of a petition under any section or chapter of the present Federal
Bankruptcy Act (or Canadian equivalent) or amendment thereto or under
any similar law or statute of the United States (or Canada) or any
state or province thereof, or the adjudication of Tenant or guarantor
of Tenant's obligations as a bankrupt or insolvent in proceedings
filed against Tenant or guarantor, and such adjudication shall not
have been vacated, set aside or stayed within the time permitted by
law;
13.1.6 The appointment of a receiver or trustee for all or
substantially all of the assets of Tenant or any guarantor of Tenant's
obligations and such receivership
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shall not have been terminated or stayed within the time permitted by
law;
13.1.7 The attachment, execution or other judicial seizure of
substantially all of Tenant's assets located in the Premises or of
Tenant's interest in this Lease where such seizure is not discharged
within thirty (30) days.
13.2 REMEDIES IN EVENT OF DEFAULT: Upon the occurrence of any event of
default, Landlord shall have the option to do any one or more of the
following without any notice or demand, in addition to and not in
limitation of any other remedy permitted by law or this Lease:
13.2.1 Terminate this Lease, in which event Tenant shall
immediately surrender the Premises to Landlord. If Tenant shall fail
to do so, Landlord may without notice and prejudice to any other
remedy available, enter and take possession of the Premises and remove
Tenant or anyone occupying the Premises and its effects without being
liable to prosecution or any claim for damages. Tenant agrees to
indemnify Landlord for all loss and damage suffered by Landlord
because of such termination whether through inability to relet the
Premises or otherwise, including any loss of rent for the remainder of
the term of this Lease.
13.2.2 Declare the entire amount of all rent which would have
become due and payable during the remainder of the term of this Lease
to be due and payable immediately, in which event Tenant agrees to pay
the same to Landlord immediately. Such payment shall constitute
payment in advance of the rent stipulated for the remainder of the
Lease term. Acceptance by Landlord of the payment of such rent shall
not constitute a waiver of any then existing default thereafter
occurring.
13.2.3 Enter upon and take possession of the Premises as agent of
Tenant without terminating this Lease and without being liable to
prosecution or any claim for damages. Landlord may relet all or any
portion of the Premises as the agent of Tenant for such term and upon
such terms as Landlord sees fit and receive the rent, in which event
Tenant shall pay to Landlord on demand the cost of renovating,
repairing and altering the Premises for a new tenant or tenants, plus
all costs of reletting the Premises and any deficiency arising by
reason of such reletting; provided however, that Landlord shall have
not duty to relet the Premises and Landlord's failure to do so shall
not release Tenant's liability for rent or damages. If Landlord
elects to enter and relet the Premises the Landlord may at any time
thereafter elect to terminate this Lease for Tenant's default. If
Landlord takes possession of the Premises, Landlord shall have the
right to rent any other available space in the Building before
reletting or attempting to relet the Premises.
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13.2.4 Landlord may do whatever Tenant is obliged to do by the
provisions of this Lease and may enter the Premises without being
liable to prosecution or claim for damages in order to accomplish this
purpose. Tenant agrees to reimburse Landlord immediately upon demand
for any expenses which Landlord may incur in complying with the terms
of this Lease on behalf of Tenant. Tenant agrees that Landlord shall
not be liable for any damages to Tenant from such action, whether
caused by negligence of Landlord or otherwise.
14. MISCELLANEOUS PROVISIONS
14.1 WAIVER: No provisions of this Lease shall be deemed to have been
waived by Landlord unless such waiver is in writing signed by Landlord.
Landlord's waiver of a breach of any term or condition of this Lease shall
not prevent a subsequent act, which would have originally constituted a
breach, from having the effect of any original breach. Landlord's receipt
of rent with knowledge of a breach by Tenant of any term or condition of
this Lease shall not be deemed a waiver of such breach. Landlord's failure
to enforce against Tenant or any other tenant of the Building any of the
rules or regulations made by Landlord shall not be deemed a waiver of such
rules or regulations. No act or thin done by Landlord, its agent or
employees during the Lease term shall be deemed an acceptance of a
surrender of the Premises and no agreement to accept a surrender of the
Premises shall be valid unless in writing signed by Landlord. The delivery
of keys to any of Landlord's agents or employee shall not operate as a
termination of this Lease or a surrender of the Premises. No payment by
Tenant, or receipt of Landlord, of a lesser amount than the rent due shall
be deemed to bother than on account of the earliest stipulated rent, nor
shall any endorsement or statement on any check or any letter accompanying
or payment as rent be deemed an accord and satisfaction and Landlord may
accept such check or payment without prejudice to Landlord's right to
recover the balance of such rent or pursue any other remedy available to
Landlord.
14.2 HOLDING OVER: If Tenant shall fail to vacate the Premises upon
expiration or sooner termination of this Lease, Tenant shall be a
month-to-month Tenant and subject to all laws of the state or province
in which the Building is situated applicable to such tenancy. The rent
to be paid Landlord by tenant during such continued occupancy shall be the
same being paid by Tenant as of the date of expiration or sooner
termination.
14.3 REMOVAL OF PROPERTY: If Tenant shall fail to remove any of its
property of any nature from the Premises or Building at the termination of
this Lease or when Landlord has the right or re-entry, Landlord may, at its
option immediately remove and store said property without liability for
loss or damage, such storage to be for the account and at the expense of
Tenant. In the event that Tenant shall not pay the cost of storing any
such property after it has been stored for a period of third days or more,
Landlord may, at its option, sell, or permit to be sold, any or all of such
property at public or private sale, in such manner and at such times and
places as Landlord in its sole discretion may deem
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property, without notice to Tenant, and shall apply the proceeds of such
sale, first to the cost and expense of such sale, including reasonable
attorney fees actually incurred; second to the payment of costs for
storing such property; third to the payment of any other money which may
then be or thereafter become due Landlord from Tenant under any of the
terms of this Lease; and fourth, the balance, if any, to Tenant.
14.4 NOTICES: All notices under this Lease shall be in writing and
delivered in person or sent by prepaid registered or certified mail to
Landlord at the place designated on the cover page, and to the Tenant at
the place designated on the cover page, or to the addresses as hereafter
may be designated by either party in writing. Notices mailed shall be
deemed given on the date of mailing.
14.5 CONSENT NOT UNREASONABLY WITHHELD: Unless otherwise specifically
provided, whenever consent or approval of Landlord or Tenant is required
under the terms of this Lease, such consent or approval shall not be
unreasonably withheld or delayed. Tenant's sole remedy if Landlord
unreasonably withholds or delays consent or approval shall be an action for
specific performance and Landlord shall not be liable for damages. If
either party withholds any consent or approval, such party shall on written
request deliver to the other party a written statement giving the reasons
therefor.
14.6 ATTORNEY FEES: If, on account of any breach or default by either
Landlord or Tenant of their respective obligations under this Lease, it
shall become necessary to employ an attorney to enforce or defend any of
its rights or remedies hereunder, and should such party prevail, it shall
be entitled to reasonable attorney fees incurred.
14.7 SUCCESSORS: Subject to the provisions pertaining to assignment and
subletting, the covenants and agreements of this Lease shall be binding
upon the heirs, legal representatives, successors and assigns of any or all
of the parties hereto.
14.8 RELATIONSHIP OF PARTIES: Nothing contained in this Lease shall create
any relationship between the Landlord and Tenant other than that of
Landlord and Tenant, and it is acknowledged and agreed that Landlord does
not in any way or for any purpose become a partner of Tenant in the conduct
of Tenant's business, or a joint venturer or a member of a joint or common
enterprise with Tenant.
14.9 ENTIRE AGREEMENT; CAPTIONS: Tenant acknowledges and agrees that it
has not relied upon any statement, representation, agreement or warranty
except such as may be expressly set forth in this Lease and it is agreed by
Landlord and Tenant that no amendment or modification of this Lease shall
be valid or binding unless in writing executed by Landlord and Tenant. No
provisions of this Lease shall be altered, waived, amended or extended
except in writing executed by Landlord and Tenant. The paragraph headings
contained in this Lease are for convenience only and shall in no way
enlarge or limit the scope or meaning of the provisions of this Lease.
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14.10 SEVERABILITY: Each and every covenant and agreement contained in
this Lease is, and shall be construed to be, a separate and independent
covenant and agreement. If any term or provision of this Lease or the
application thereof to any person or circumstance shall to any extent be
invalid or unenforceable, the remainder of this Lease, or the application
of such term or provision to persons or circumstances other than those as
to which it is invalid or unenforceable, shall not be affected.
14.11 GENDER: Words of any gender used in this Lease shall be held and
construed to include any other gender and words in the singular number
shall be held to include the plural, unless the context otherwise requires.
14.12 BROKERAGE COMMISSIONS: Tenant warrants that it has had no
dealings with any broker or agent in connection with the negotiation or
execution of this Lease and tenant agrees to indemnify Landlord and hold
Landlord harmless from and against any and all costs, expenses or liability
for commissions or other compensation or charges claimed by or awarded to
any broker or agent with respect to this Lease.
14.13 CORPORATE AUTHORITY: If Tenant is a corporation, Tenant warrants
that it has legal authority to operate and is authorized to do business in
the state (province) in which the Premises are situated. Tenant also
warrants that the person executing this Lease on behalf of Tenant has
authority to do so and fully obligate Tenant to all terms and provisions of
this Lease. Tenant shall, upon request from Landlord, furnish Landlord
with a certified copy of resolutions of the board of Directors authorizing
this Lease and granting authority to execute it to the person or persons
who have executed it on Tenant's behalf.
Heartsoft Software Co.
--------------------------- -----------------------------------
by: /s/ N. D. Henshaw /s/ Benjamin P. Shell
----------------------- -----------------------------------
President
--------------------------- -----------------------------------
Landlord Tenant
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<PAGE>
State of Oklahoma ) CORPORATION
)ss.
County of Tulsa )
Before me, the undersigned, a Notary Public, in and for said County
and State, on this 16th day of April, 1992, personally appeared Benjamin
Shell to me know to be the identical person who subscribed the name of the
maker thereof to the foregoing instrument as its ______ and acknowledged to
me that he executed the same as his free and voluntary act and deed and as
the free and voluntary act and deed of such corporation, for the uses and
purposes therein set forth.
Given under my hand and seal of office the day and year last above
written.
/s/ Beverly Gravitt
------------------------------
Notary Public
My Commission Expires: November 21, 1993
-----------------
State of Oklahoma ) INDIVIDUAL
)ss. ----------
County of Tulsa )
Before me, the undersigned, a Notary Public, in and for said County
and State, on this 16th day of April, 1992, personally appeared N.D.
Henshaw to me know to be the identical person who executed the foregoing
instrument and acknowledged to me that he executed the same as his free and
voluntary act and deed for the uses and purposes therein set forth.
Given under my hand and seal of office the day and year last above
written.
/s/ Beverly Gravitt
------------------------------
Notary Public
My Commission Expires: November 21, 1993
-----------------
<PAGE>
GUARANTY
This addendum to the foregoing lease dated April 16, 1992 by and between
N. D. Henshaw as Landlord and Heartsoft Software Co. as Tenant.
In consideration of N. D. Henshaw, Landlord in the foregoing lease entering
into the covenants of said lease, the undersigned hereby jointly and severally
guarantee to the said N. D. Henshaw (landlord) his heirs, successors, executor
or assigns, the full, prompt and faithful payment, performance and discharge by
Heartsoft Software Co., (tenant) the Tenant in said lease, of each of the
provisions and conditions in the foregoing lease or any other instrument given
or executed in pursuant thereof.
We further jointly and severally waive all notice of default by the Tenant
in the foregoing lease and waive notice of acceptance of this Guaranty.
IN WITNESS WHEREOF, we have hereunto set our hands this 16th day of April,
1992.
/s/ Benjamin P. Shell
------------------------------
State of Oklahoma )
)ss.
County of Tulsa )
Before me, the undersigned, a Notary Public, in and for said County
and State, on this 16th day of April, 1992, personally appeared Benjamin
Shell to me know to be the identical person who executed the foregoing
instrument and acknowledged to me that he executed the same as his free and
voluntary act and deed for the uses and purposes therein set forth.
Given under my hand and seal of office the day and year last above
written.
/s/ Beverly Gravitt
------------------------------
Notary Public
My Commission Expires: November 21, 1992
-----------------
<PAGE>
ADDENDUM
This addendum to a lease between N. D. Henshaw as LANDLORD and Heartsoft
Software Co. as TENANT covering the premises identified as:
Suite 100A and 100B
3101 North Hemlock Circle
Broken Arrow, Oklahoma
and executed on April 16, 1992.
It is the intent of this addendum to add premises identified as:
Suite 110D
3101 North Hemlock Circle
Broken Arrow, Oklahoma
to the base lease. The term of the addendum will run concurrently with the term
of the base lease, the addendum will have option of renewal for the same period
as the base lease, and the rental for the option period will be calculated using
the same formula as the base lease. Initial additional rental for Suite 110D
will be $430.00 per month beginning August 1, 1992.
All other terms of the base lease will remain.
Executed this 30 day of July, 1992.
N. D. HENSHAW HEARTSOFT SOFTWARE CO.
by /s/ N. D. Henshaw by /s/ Benjamin Shell
-------------------------- -----------------------------
Landlord Tenant
<PAGE>
ADDENDUM
This addendum to a lease between N. D. Henshaw as Landlord and Heartsoft
Software Co. as Tenant, dated April 16, 1992, for premises designated as Suites
100A and 100B, 3103 North Hemlock Circle, Broken Arrow, Oklahoma 74012.
Whereas Tenant is desirous of leasing additional space under conditions set out
below, and Landlord is willing to perform certain construction obligations in
consideration therefor,
Now, Therefore, Landlord and Tenant agree to the following:
1. The attached floorplan, Exhibit A, delineates the increased area which
will be included in the revised leased space.
2. Rental is to be paid upon 3 bases:
A. Base rent on 4109 sq ft rentable $3,253 per month
B. Rent which amortizes plumbing
& deck to be installed by Landlord 136
C. Variable rent on "Graduated Rent
Space" 172 month, first yr
------
Monthly rent, first year** $3,361
** For graduated rent space, following years are scheduled thusly:
2nd year $183 per month
3rd year 195
4th year 206
5th year 218
3. Rental adjustment based upon the CPI will affect only item A above.
The amortization, Item B, will be dropped after 5 years. Item C will
not be subject to the CPI adjustment during the 5 year term of this
addendum.
4. Construction obligations as set forth in the memorandum of Intent
dated June 9, 1995 between the parties hereto, attached to this
addendum and marked Exhibit B, remain valid except for the plumbing
and deck, costs for which have been determined and provisions for
payment of which are outlined above.
5. Term of this addendum will be for 5 years beginning August 1, 1995 and
ending July 31, 2000.
<PAGE>
ADDENDUM
page 2
6. On execution of this addendum, Tenant has paid to Landlord $3,362
which is designated as a security deposit, the receipt of which is
acknowledged by Landlord.
7. Landlord agrees to start on the work required under this agreement
promptly, and to pursue the completion in a diligent manner. Landlord
agrees to do the work in a manner which gives as much consideration as
is reasonably possible to the problems of performing major
construction in an area where people are carrying on normal business
activities.
8. All other terms and conditions of the base lease remain unchanged.
Executed this 30th day of June, 1995.
LANDLORD TENANT
N. D. Henshaw Heartsoft Software Co.
/s/ N. D. Henshaw /s/ Benjamin Shell
- ------------------------------ -------------------------------------
<PAGE>
ADDENDUM #2
This Addendum to a lease between N. D. Henshaw as Landlord and Heartsoft
Software Co. as Tenant, dated April 16, 1992, for premises designated as Suites
100A and 100B, 3103 North Hemlock Circle, Broken Arrow, Oklahoma 74012 and to
the Addendum to that lease, executed by the Parties to the Lease on June 30,
1995.
Whereas Landlord and Tenant have agreed to correct a mathematical error
contained in the Addendum executed on June 30, 1995,
Now, Therefore, Landlord and Tenant agree as follows:
Item #2 of the June 30, 1995 Addendum names 3 bases composing the total
monthly rent to be paid by Tenant, but the total noted as "Monthly rent,
first year" is $3,361, whereas the total of the 3 bases is actually $3,561.
The $3,561 amount is the correct amount, and it is the intent of this
Addendum #2 to effect that change.
Tenant agrees to pay the increased monthly payment, beginning with the
September 1995 rent.
Landlord agrees to leave the security deposit as designated in the 6-30-95
Addendum.
All other terms and conditions of the base lease and the June 30, 1995 Addendum
remain in full force and effect.
Executed this 5th day of October, 1995.
LANDLORD TENANT
N. D. Henshaw Heartsoft Software Co.
/s/ N. D. Henshaw /s/ Benjamin Shell
- ------------------------------ -------------------------------------
<PAGE>
ADDENDUM #3
This Addendum to a lease between N. D. Henshaw as Landlord and Heartsoft
Software Co. as Tenant, dated April 16, 1992, for premises designated as Suites
100A and 100B, 3103 North Hemlock Circle, Broken Arrow, Oklahoma 74012 and to
the Addendum dated July 30, 1992, and the Addendum dated June 30, 1995 and
Addendum #2 to that lease, executed by the Parties to the lease on October 5,
1995.
Whereas Tenant desires additional space, which has been designated as Suite
100D, of approximately 936 feet, and wishes to enclose additional space,
formerly hall space of approximately 202 square feet, and
Whereas Landlord in consideration for the rental of that space was willing to,
and has, replaced the carpet in the subject area, painted walls, removed and
replaced walls and doors where desired by Tenant,
Now, Therefore, Tenant has agree to rent the additional space for an additional
rental of $901.00 per month payable beginning July 1, 1996, and continuing until
July 31, 2000. The annual CPI adjustment will apply to this portion of the
rental rate.
All other terms and conditions of the base lease and prior addenda remain in
full force and effect.
Rental including that called for in this Addendum will be:
<TABLE>
<S> <C> <C> <C>
July 1, 1996 Prior rental $3,561
This Addendum 901 $4,462
------
August 1, 1996 Prior rental $4,462
thru July, 1997 Graduated rent 11 $4,473
------
</TABLE>
Executed this 17th day of July, 1996.
LANDLORD TENANT
N. D. Henshaw Heartsoft Software Co.
/s/ N. D. Henshaw /s/ Benjamin Shell
- ------------------------------ -------------------------------------
<PAGE>
N.D. HENSHAW
2700 NORTH HEMLOCK COURT
BROKEN ARROW, OKLAHOMA 74012
August 18, 1998
Heartsoft Software Company
3101 North Hemlock Circle
Broken Arrow, Oklahoma 74012
Gentlemen:
Increasing utility and maintenance expenses have contributed to the need of
rental adjustments which are called for on an annual basis in our lease for
premises at 3101.
You are currently paying $4,483 per month, which is made up of the following
components:
1. Base rent $4,513
2. Amortization of expense 136
3. Graduated rent 194
For August, 1998, the revised rent will be as follows:
<TABLE>
<S> <C> <C> <C>
1. Base rent $4,563*
2. Amortization of expense 136
3. Graduated rent 206 $4,805
*Base rent calculation : CPI 12-97 152.5
-----
CPI 12-94 141.9 X $4.153 = $4,463
</TABLE>
We appreciate your business, and feel sure you will understand that this annual
formality has not been observed since 1995 or earlier.
Sincerely,
/s/ N. D. Henshaw
N. D. Henshaw
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
1. The only subsidiary of the Registrant is Heartsoft Software, Inc., an
Oklahoma corporation.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation of our report dated November 9, 1999, on
the financial statements of Heartsoft, Inc. (the "Company") at March 31, 1999
and 1998, included in this Annual Report on Form 10-KSB for the year ended March
31, 1999, into the Company's previously filed Registration Statement on Form S-8
(File No. 33-23138D).
TULLIUS TAYLOR SARTAIN & SARTAIN LLP
Tulsa, Oklahoma
November 12, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 41,589
<SECURITIES> 0
<RECEIVABLES> 46,598
<ALLOWANCES> 135,256
<INVENTORY> 20,351
<CURRENT-ASSETS> 123,137
<PP&E> 145,228
<DEPRECIATION> 92,290
<TOTAL-ASSETS> 798,310
<CURRENT-LIABILITIES> 568,016
<BONDS> 0
3,799
0
<COMMON> 4,579
<OTHER-SE> 3,239,478
<TOTAL-LIABILITY-AND-EQUITY> 798,310
<SALES> 527,915
<TOTAL-REVENUES> 527,915
<CGS> 102,600
<TOTAL-COSTS> 342,356
<OTHER-EXPENSES> 726,448
<LOSS-PROVISION> 135,256
<INTEREST-EXPENSE> 121,897
<INCOME-PRETAX> (520,117)
<INCOME-TAX> 0
<INCOME-CONTINUING> (520,117)
<DISCONTINUED> (6,964)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (527,081)
<EPS-BASIC> (.07)
<EPS-DILUTED> (.07)
</TABLE>
