SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
January 27, 1999 (November 18, 1998)
MAGNITUDE INFORMATION SYSTEMS, INC. f/k/a PROFORMIX SYSTEMS, INC.
(Exact name of Registrant as specified in charter)
Delaware 33-20432-FW 75-2228828
(State or other jurisdic- (Commission (IRS Employer
tion of incorporation) File Number) Identification No.)
50 Tannery Road, Branchburg, NJ 08876
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (908) 534-6400
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Item 2. Disposition of Assets
On November 18, 1998, Proformix Systems, Inc. ("Registrant") and its
approximately 98% owned subsidiary Proformix, Inc. entered into an Asset
Purchase Agreement and a Marketing and Development Agreement with 1320236
Ontario, Inc., d/b/a Office Specialty ("OS"), a publicly traded Canadian
designer, manufacturer and distributor of office furniture. Pursuant to the
agreements, OS acquires Proformix, Inc.'s hardware product line comprised of
ergonomic keyboard platform products and accessories, and all related inventory
and production tooling and warehousing assets, and all intellectual property
rights including the Proformix name. This sale represents a large portion of
Proformix, Inc.'s and the Registrant's assets. In consideration for the sale and
certain ongoing support services, the Registrant will receive (i) $1,266,000 in
cash; (ii) a contingent payment of 18% of the net revenue realized by OS from
the acquired assets between the closing date and April 30, 1999; and (iii)
subsequent to April 30, 1999, an annual contingent payment calculated at 10% of
net annual revenue realized by OS from the acquired assets. Should OS not attain
target sales of $8.2 million from the acquired assets for the year ending April
30, 2000, OS shall pay the Registrant 6% of net revenue for that year. Should OS
again not meet the target sales amount ($10,660,000) from the acquired assets
for the year ending April 30, 2001, OS will not owe the Registrant any payment
and the Registrant's right to future contingent payments shall cease. Further,
OS will grant the Registrant a ten year royalty-free license to use the
Proformix name in connection with the sales and marketing of Registrant's
proprietary ergonomic software products. The Registrant will continue to market
its proprietary software under the Proformix label.
Item 5. Other Events
On December 3, 1998, the Registrant filed an amendment to its certificate
of incorporation thereby changing its name to Magnitude Information Systems,
Inc.
Item 7. Financial Statements and Exhibits
2.1 Asset Purchase Agreement among the Registrant, Proformix, Inc. and OS.
2.2 Marketing and Development Agreement among Registrant, Proformix, Inc. and
OS.
99.1 Annexed as Exhibit B are the Registrant's Pro-Forma condensed balance
sheet and statement of operations and explanatory notes, giving effect to
all material events that are directly attributable to the agreements with
OS.
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PROFORMIX SYSTEMS, INC.
(Registrant)
January 22, 1999 By:s/Steven Rudnik
--------------------------------
Steven Rudnik, President
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EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT, dated as of November 18, 1998 (this
"Agreement"), by and between PROFORMIX, INC., a Delaware corporation (the
"Seller"), 1320236 ONTARIO INC., an Ontario corporation (the "Buyer") and
PROFORMIX SYSTEMS, INC., a Delaware corporation (the "Principal").
WITNESSETH:
WHEREAS, the Seller is engaged in the design, development, manufacture,
distribution and sale of hardware products and the distribution and sale of
software products;
AND WHEREAS, the Buyer desires to purchase from the Seller, and the Seller
desires to sell, assign and transfer to the Buyer all right, title and interest
of the Seller in and to all of the Seller's hardware products (but expressly
excluding computer software products), the products being sold notably including
ergonomic hardware products including, without limitation, keyboard platforms,
mouse platforms, mouse glidepoints, corner bridges, workstations, document
holders and mounting products, all subject to the terms and conditions set forth
in this Agreement;
AND WHEREAS, the Principal has a substantial beneficial interest in the
Seller and has agreed to join as a party hereto to provide certain
representations, warranties, covenants and indemnities hereunder.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, covenants and agreements hereinafter contained, the parties
hereby agree as follows:
ARTICLE I - DEFINITIONS AND PRINCIPLES OF INTERPRETATION
SECTION 1.1 - Definitions. For purposes of this Agreement, unless the
context clearly indicates otherwise, the following terms shall have the
following meanings:
"Accounts Payable" means all amounts due and owing by the Seller to
traders, suppliers and other Persons.
"Aetna Obligation" means the obligation of the Seller to repair and rework
certain Products sold to the end user, Aetna Insurance, prior to Closing,
the details of which are known to the parties;
"Affiliate" as to any Person means any other Person that directly, or
indirectly through one or more intermediaries, controls, or is controlled
by, or is under common control with, such Person. The term "control"
(including, with correlative meanings, the terms "controlled by" and
"under common control with" as used with respect to any Person) means the
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possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person whether through
ownership of voting securities, by contract or otherwise.
"Annual Financial Statements" has the meaning set forth in Section 5.5.
"Assumed Liabilities" has the meaning set forth in Section 2.4;
"Books and Records" means all books, records, sales and purchase records,
lists of suppliers and customers, formal business plans and projections,
files and records relating to Intellectual Property and all other
documents, files, records, correspondence and other data relating to the
Purchased Assets or the Business, whether in hard copy, magnetic or other
format, other than financial and accounting records.
"Business" means the business currently and heretofore carried on by the
Seller consisting of the design, development, manufacture, distribution
and sale of the Products.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banking institutions in the State of New Jersey are
authorized by law or executive order to close.
"Claims" means, whether or not formally asserted, all demands, claims,
actions or causes of action, threatened or actual seizure proceedings,
assessments, Losses, damages, costs, expenses, liabilities, judgments,
awards, fines, sanctions, penalties, charges, and/or amounts paid in
settlement, including without limitation costs (including court costs),
and fees and expenses of non-employee attorneys, experts, accountants,
appraisers, consultants, witnesses, investigators and/or any other Persons
retained in connection with any of the foregoing.
"Closing" means the completion of the sale to, and purchase by the Buyer
of, the Purchased Assets hereunder.
"Closing Date" means the 18th day of November, 1998, or such other date as
the parties may agree in writing as the date upon which the Closing shall
take place.
"Closing Time" means 10:00 a.m., New Jersey time, on the Closing Date or
such other time as the parties may agree in writing as the time at which
the Closing shall take place.
"Confidential Intellectual Property" means confidential information in
oral, written, graphic, machine readable or physical form which the Seller
in the normal course of its business has kept confidential or has treated
as
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confidential which may have been modified, amended or improved from time
to time including, without limitation, all confidential Technical
Information and, confidential Industrial Property rights. Confidential
Intellectual Property shall not include information which is in the public
domain.
"Contracts" means all contracts, licences, leases, agreements,
commitments, entitlements and engagements of the Seller whether written or
oral.
"Copyrights" means any copyright in writings, designs, mask works or other
works whether registered or not, owned by or licenced to the Seller in
connection with the Business and moral rights and waivers of moral rights
associated therewith including, without limitation, any copyright
registrations and applications identified in Schedule 5.11 to this
Agreement, however, excluding computer software available through retail
outlets.
"Customer Purchase Orders" means those customer purchase orders attached
hereto on Schedule A, including, without limitation, all rights to receive
payments of any kind due thereunder.
"December 1997 Balance Sheet" means the audited balance sheet of the
Principal as at and for the fiscal year ended December 31, 1997, which
forms part of the Annual Financial Statements.
"Environmental Laws" means local, state and federal laws, regulations,
orders, decrees, agreements and other requirements of any governmental or
regulatory authority, domestic or foreign, applicable to the Business or
the Purchased Assets and pertaining to protection or conservation of human
health and safety or the environment, each as amended and modified from
time to time.
"Excluded Liabilities" has the meaning set forth in Section 2.5 of this
Agreement.
"Fab-Tech" means Fabrication Technology, Inc.
"Financial Statements" has the meaning set forth in Section 5.5.
"Fixed Assets" means all of the following items: (i) all machinery,
equipment, racking, material handling equipment, implements, parts, tools,
jigs, discs, molds, dies, patterns, tooling and spare parts owned by the
Seller on the Closing Date including, without limitation, any of such
items which are in storage or in transit, and other tangible property used
by the Seller whether located in or on the premises of the Seller or
elsewhere including, without limitation, the assets listed and described
in Schedule
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5.10, and (ii) any rights of the Seller to the warranties (to the extent
assignable) and licenses received from manufacturers and sellers of the
aforesaid items, and (iii) any related claims, credits, rights of recovery
and set-off with respect thereto.
"GAAP" means generally accepted accounting principles for financial
reporting in the United States.
"Goodwill" means all goodwill of the Business and information and
documents relevant thereto including lists of customers and suppliers,
credit information, research material and research development files and
including the exclusive right of the Buyer to represent itself as carrying
on the Business in succession to and to the exclusion of the Seller and
all rights in respect of the name "Proformix" and any variations of such
name.
"Industrial Designs" means any industrial designs, utility models, petty
patents, design patents or similar rights, whether registered or not,
owned by or licenced to the Seller in connection with the Business
including without limitation any industrial design registrations and
applications identified in Schedule 5.11 to this Agreement and any
renewals, divisions, extensions and reissues, where applicable pertaining
thereto.
"Industrial Property" means all Patents, Trade-marks, Copyrights,
Industrial Designs, and other intellectual property rights, whether
registered or not, owned by or licenced to the Seller in connection with
the Business, all intangible rights and privileges of a nature similar to
any of the foregoing in every case and in every part of the world and
whether or not registered, all of the foregoing which are under
development and all applications or registrations pertaining to the
foregoing.
"Intellectual Property" means any technology owned by or licenced to the
Seller in connection with the Business including, without limitation, all
Industrial Property and Technical Information.
"Interim Financial Statements" has the meaning set forth in Section 5.5 of
this Agreement.
"Inventories" means (i) all inventories of every kind and nature and
wheresoever situate owned by the Seller in connection with the Business
including, without limitation, all inventories of raw materials, work-in-
progress, finished goods, operating supplies and packaging materials,
except for inventories of "Soho" work stations and anti-glare screens; and
(ii) any and all rights of the Seller to the warranties received from
their suppliers with respect to the foregoing items (to the extent
assignable) and related claims, credits, rights of recovery and set-off
with respect thereto.
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"Licenses and Permits" has the meaning set forth in Section 5.12 of this
Agreement.
"Lien" means any lien, UCC filing, mortgage, deed of trust, security
interest, charge, pledge, retention of title agreement, title defect,
easement, encroachment, condition, reservation, restriction, covenant,
judgment or other encumbrance affecting title.
"Losses" has the meaning set forth in Section 11.1 of this Agreement.
"Organizational Documents" has the meaning set forth in Section 5.1 of
this Agreement.
"Patents" means all patents, inventions, discoveries and improvements
whether registered or not and all applications therefor owned by or
licenced to the Seller in connection with the Business and including
divisions, reissues, renewals, re-examinations, continuations,
continuations in part and extensions where applicable pertaining thereto
including, without limitation, any issued patents and patent applications
listed in Schedule 5.11 to this Agreement.
"Person" means any individual, corporation, partnership, limited liability
company, sole proprietorship, joint venture, association, joint-stock
company, trust, unincorporated organization or any department, agency,
board, division, subdivision, audit group or procuring office, commission,
bureau or instrumentality of the government of the United States or of any
state, city, municipality, county or town thereof, or of any foreign
jurisdiction.
"Products" means all hardware products currently or during the last five
(5) years designed, developed, manufactured, marketed, distributed or sold
by the Seller or in the process of design, development, manufacture,
distribution or sale by the Seller and all improvements, modifications,
variations, substitutions or derivatives thereof including, without
limitation, the ergonomic hardware products set forth in Schedule B,
however, excluding computer software products.
"Product Liability Lawsuits" has the meaning set forth in Section 5.21 of
this Agreement.
"Purchase Price" has the meaning set forth in Section 3.1 of this
Agreement.
"Purchased Assets" means the following assets and properties relating to
or used or held for use in connection with the Business: (i) Fixed Assets;
(ii) Books and Records; (iii) Intellectual Property (to the extent
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transferable); (iv) Goodwill; (v) Inventories; (vi) Licenses and Permits
(to the extent transferable); (vii) Customer Purchase Orders; (viii)
Product drawings and specifications; (ix) all sales data, brochures,
catalogues, literature, forms, mailing lists, customer lists, supplier
lists, photographs and advertising materials, in whatever form or media
that relates to the Business and master copies of artwork and materials;
(x) telephone and fax numbers for the Business; and (xi) websites and
internet addresses used with the Business including the address
"www.Proformix.com".
"Required Consents" has the meaning set forth in Section 5.4 of this
Agreement.
"Schedule" or "Schedules" shall mean the applicable Schedule attached to
this Agreement.
"Taxes" means all federal, state, local, foreign and other taxes, however
denominated, including without limitation any interest, penalties or
additions to tax that may become payable in respect thereof, imposed by
any governmental authority, which taxes shall include, without limitation,
all income taxes, payroll and employee withholding taxes, unemployment
insurance, social security, sales and use taxes, excise taxes, franchise
taxes, gross receipts taxes, occupation taxes, real and personal property
taxes, stamp taxes, transfer taxes, workmen's compensation taxes and other
obligations of the same or a similar nature, whether arising before, on,
or after the Closing Date; and "Tax" shall mean any one of them.
"Tax Returns" means any return, report, information return or other
document (including any related or supporting information) filed or
required to be filed with any governmental authority in connection with
the determination, assessment, collection or administration of any Taxes.
"Technical Information" means all know-how and related technical knowledge
owned by or licenced to the Seller in connection with the Business and the
rights to limit the use or disclosure thereof including without
limitation:
(a) all trade secrets and other proprietary know-how, public
information, non-proprietary know-how and invention disclosures;
any information and ideas of a scientific, technical or business
nature regardless of its form;
all documented research, developmental, demonstration or engineering
work;
all information that can be or is used to define a design or process
or to procure, produce, support or operate material and equipment;
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processes, methodologies and methods of production; and
all drawings and specifications and all other writings, drawings,
recordings, blueprints, patterns, plans, flow charts, equipment,
parts lists, procedures, specifications, formulas, designs,
technical data, descriptions, related instructions, manuals, records
and procedures.
"Trade-marks" means the trade marks, trade names, and other names, service
marks, designs, graphics, logos, slogans, other commercial symbols, get-up
and trade dress, and other indications of origin or indications embodying
business or product goodwill, whether registered or not, owned by or
licenced to the Seller in connection with the Business and all goodwill
associated therewith including, without limitation, any of the same
identified in Schedule 5.11 to this Agreement.
SECTION 1.2 - Certain Rules of Interpretation. In this Agreement:
(a) Time - time is of the essence in the performance of the parties'
respective obligations.
(b) Currency - unless otherwise specified, all references to money amounts are
to United States currency.
(c) Headings - the descriptive headings of Articles and Sections are inserted
solely for convenience of reference and are not intended as complete or
accurate descriptions of the content of such Articles or Sections.
(d) Singular, etc. - the use of words in the singular or plural, or with a
particular gender, shall not limit the scope or exclude the application of
any provision of this Agreement to such Person or Persons or circumstances
as the context otherwise permits.
(e) Consent - whenever a provision of this Agreement requires an approval or
consent by a party to this Agreement and notification of such approval or
consent is not delivered within the applicable time limited, then, unless
otherwise specified, the party whose consent or approval is required shall
be conclusively deemed to have withheld its approval or consent.
(f) Calculation of Time - unless otherwise specified, time periods within or
following which any payment is to be made or act is to be done shall be
calculated by excluding the day on which the period commences and
including the day on which the period ends and by extending the period to
the next Business Day following if the last day of the period is not a
Business Day.
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(g) Business Day - whenever any payment is to be made or action to be taken
under this Agreement is required to be made or taken on a day other than a
Business Day, such payment shall be made or action taken on the next
Business Day following such day.
SECTION 1.3 - Knowledge. Any reference to the knowledge of the Seller and
the Principal shall mean to the best of the knowledge, information and belief of
the Seller and the Principal after reviewing all relevant records and making due
inquiries of all responsible parties and senior management of the Seller and the
Principal regarding the relevant matter.
SECTION 1.4 - Entire Agreement. This Agreement together with the
agreements and other documents to be delivered pursuant to this Agreement,
constitute the entire agreement between the parties pertaining to the subject
matter of this Agreement and supercede all prior agreements, understandings,
negotiations and discussions, whether oral or written, of the parties, and there
are no warranties, representations or other agreements between the parties in
connection with the subject matter of this Agreement except as specifically set
forth in this Agreement and any document delivered pursuant to this Agreement.
No supplement, modification or waiver or termination of this Agreement shall be
binding unless executed in writing by the parties to be bound thereby.
SECTION 1.5 - Governing Law; Jurisdiction. This Agreement shall be
construed, performed and enforced in accordance with, and governed by, the laws
of the State of New Jersey, without giving effect to the principles of conflicts
of laws thereof.
SECTION 1.6 - Accounting Principles. All accounting and financial terms
used in this Agreement shall be determined in accordance with GAAP unless a
deviation therefrom is expressly stated herein.
SECTION 1.7 - Schedules. The following Schedules are attached to and form
part of this Agreement:
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Schedule Number Subject
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Schedule A - Customer Purchase Orders
Schedule B - Products
Schedule 3.3 - Allocation of Purchase Price
Schedule 5.4 - Consents and Approvals
Schedule 5.5 - Financial Statements
Schedule 5.6 - Absence of Changes or Events
Schedule 5.10 - Fixed Assets
Schedule 5.11 - Intellectual Property
Schedule 5.14 - Litigation
Schedule 5.16 - Inventory
Schedule 5.17 - Customers
Schedule 5.18 - Suppliers
Schedule 5.22 - Trade Allowances
Schedule 5.23 - Accounts Payable
Schedule 5.24 - Representative, Distributor and Agency Agreements
Schedule 10.6 - Opinion of Counsel to Seller
Schedule 10.7(a) - Non-Competition, Non-Solicitation and Confidentiality
Agreement
Schedule 10.7(b) - Marketing and Development Agreement
Schedule 10.7(c) - Trade Mark License Agreement
Schedule 10.7(d) - Collateral Agreement Re: Ownership of Intellectual
Property
Schedule 10.7(e) - Marketing Agreement
ARTICLE II - PURCHASE AND SALE OF THE PURCHASED ASSETS
SECTION 2.1 - Transfer of Assets. Subject to the terms and conditions set
forth in this Agreement, the Seller shall sell, convey, transfer, assign and
deliver to the Buyer and the Buyer shall purchase and accept from the Seller, on
the Closing Date, all right, title and interest of the Seller in and to the
Purchased Assets, wherever located.
SECTION 2.2 - Sale at Closing Date. The sale, transfer, conveyance,
assignment and delivery by the Seller of the Purchased Assets to the Buyer shall
be effected on the Closing Date by deeds, bills of sale, endorsements,
assignments, consents, waivers, releases and other instruments of transfer and
conveyance satisfactory in form and substance to counsel for the Buyer. Such
sale, transfer, conveyance, assignment and delivery by the Seller shall be made
subject to no Liens.
SECTION 2.3 - Subsequent Documentation. The Seller shall at any time and
from time to time after the Closing Date, upon the request of the Buyer and at
the expense of the Seller, do, execute, acknowledge and deliver, or cause to be
done, executed, acknowledged and delivered, all such further deeds, assignments,
transfers, consents, waivers, releases, bills of sale, instruments, assurances,
affidavits and
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conveyances as may be reasonably required for the better assigning,
transferring, granting, conveying and confirming to the Buyer or its successors
and assigns, or for aiding and assisting in collecting and reducing to
possession, any or all of the Purchased Assets. The Seller hereby constitutes
and appoints, effective as of the Closing Date, the Buyer, its successors and
assigns as the true and lawful attorneys of the Seller with full power of
substitution in the name of the Buyer or in the name of the Seller but for the
benefit of the Buyer to assert or enforce any right, title or interest in, to or
under the Purchased Assets and to defend or compromise any and all actions,
suits or proceedings in respect of any of the Purchased Assets. The Buyer shall
be entitled to retain for its own account any amounts collected pursuant to the
foregoing powers, including without limitation any amounts payable as interest
in respect thereof.
SECTION 2.4 - Assumption of Liabilities. From and after the Closing, the
Buyer shall assume and the Buyer hereby agrees to pay, perform and discharge
when due, any and all liabilities obligations and commitments arising out of the
Customer Purchase Orders but only to the extent liabilities, obligations or
commitments thereunder arise after such Customer Purchase Orders are assigned to
the Buyer pursuant to this Agreement and Claims made with respect to warranties
for Products sold by the Seller in connection with the Business prior to the
Closing Date not exceeding $100,000 in the aggregate but expressly excluding the
Aetna Obligation (collectively, the "Assumed Liabilities"). It is agreed that
all warranty work performed by the Buyer shall be done on a cost recovery basis
with no profit.
SECTION 2.5 - Excluded Liabilities. Except as specifically stated in
Section 2.4, the Buyer shall not assume and shall not be responsible for any
liabilities, debts, obligations or commitments of the Seller of any nature
whatsoever, whether accrued, absolute, fixed or contingent, know or unknown, due
or to become due and whether relating to or arising out of the operation of the
Business, the ownership of the Purchased Assets or otherwise (such unassumed
liabilities, the "Excluded Liabilities"). Excluded Liabilities shall include
without limitation: (i) liabilities relating to Product Liability Lawsuits
arising from the sale or delivery of any Product prior to or on the Closing Date
or relating to any other Claims, litigation, suits, proceedings or arbitrations
in existence with respect to the Business as of the Closing Date; (ii) any
Losses arising from or in any way relating to any environmental conditions or
violations of Environmental Laws applicable to the Seller, the Business or the
Purchased Assets; (iii) liabilities in respect of employees, distributors,
agents, sales representatives and independent contractors of the Business or
benefit plans established for any of the employees of the Seller; (iv) all
liabilities of the Seller related to assets of the Business not acquired
pursuant to this Agreement or any other businesses of the Seller; (v) any Tax
imposed on the Seller or any Tax imposed on the Business or Purchased Assets for
periods prior to the Closing Date; (vi) accrued liabilities of the Seller; (vii)
indebtedness owed by the Seller to the Principal or to its Affiliates; (viii)
all Accounts Payable; (ix) indebtedness of the Seller for borrowed moneys and
any liability for outstanding letters of credit; (x) all liabilities of the
Seller for the Taxes of any Person under U.S. Treas. Reg. 1.1502-6 (or any
similar provision of federal, state, local or foreign law), as a transferee or
other successor, by contract or otherwise; (xi) any obligation of the Seller to
indemnify any other Person; (xii) all liabilities of the Seller under
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any Contracts (other than Customer Purchase Orders assumed hereunder); and
(xiii) Claims made with respect to warranties for Products sold by the Seller in
connection with the Business prior to the Closing Date in excess of $100,000 in
the aggregate. Notwithstanding the foregoing, the Buyer shall assume the
commission payment obligation to Primason Symchik for commissions payable up to
a maximum of 15% of Net Sales (as such term is defined in the Marketing and
Development Agreement) generated by Primason Symchik on orders for a 90 day
period following the Closing Date.
ARTICLE III - PURCHASE PRICE
SECTION 3.1 - Purchase Price. Subject to the terms and conditions set
forth in this Agreement, the purchase price (the "Purchase Price") to be paid to
the Seller for the Purchased Assets shall be an amount equal to Seven Hundred
and Twenty Five Thousand Dollars ($725,000).
SECTION 3.2 - Satisfaction of Purchase Price. The Buyer shall pay and
satisfy the Purchase Price payable to the Seller by certified funds payable to
the Seller, or as the Seller may direct in writing, as follows:
(i) as to the sum of Six Hundred and Seventy Five Thousand Dollars ($675,000)
by payment at Closing, such payment to be subject to any escrow balance
required by the New Jersey Division of Taxation to be held by the Buyer
pending receipt of tax waivers and releases as provided in Section 3.4
below; and
(ii) as to the balance of Fifty Thousand Dollars ($50,000) by payment of such
sum (without interest) upon satisfaction by the Seller of its obligations
under Sections 7.6, 7.7 and 7.8 hereof (it being acknowledged by the
parties that the Buyer's damages are not intended to be limited to $50,000
if such covenants by the Seller have not been satisfied).
SECTION 3.3 - Allocation of Purchase Price. The Purchase Price shall be
allocated among each of the Purchased Assets in accordance with their relative
fair market values in the manner set forth in Schedule 3.3 hereto. Such
allocations shall be conclusive and binding on each of the Seller and the Buyer
for purposes of all Tax Returns. The Seller and the Buyer agree not to take
positions on any Tax Returns inconsistent with such allocations. The Seller
shall file all Tax Returns required by Section 1060 of the Internal Revenue Code
of 1986, as amended, resulting from the sale of the Purchased Assets hereunder.
SECTION 3.4 - Withholding From Purchase Price. The Seller hereby
authorizes the Buyer to withhold from the Purchase Price an escrow amount of
$2,000 as required by the New Jersey Division of Taxation pending receipt by the
Buyer of all applicable tax waivers and releases.
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ARTICLE IV - CLOSING
The closing of the sale and purchase of the Purchased Assets shall take
place at the Closing Time on the Closing Date, at the offices of Silverman,
Collura, Chernis & Balzano, P.C., 381 Park Avenue South, Suite 1601, New York NY
10016.
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF THE SELLER
AND PRINCIPAL
The Seller and the Principal hereby represent and warrant to and covenant
with the Buyer, on a joint and several basis, as follows:
SECTION 5.1 - Corporate Organization. Each of the Seller and the Principal
is a corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation, and has all requisite corporate power
and authority to own its properties and assets and to conduct its business as
now conducted. The Seller is duly qualified to do business as a foreign
corporation and is in good standing in every jurisdiction in which the character
or location of the Purchased Assets owned or leased by it or the nature of the
business conducted by it makes such qualification necessary. Copies of the
certificate of incorporation and by-laws and certificate of authority (the
"Organizational Documents") of each of the Seller and the Principal, with all
amendments thereto to the date hereof, have been made available to the Buyer,
and such copies are accurate and complete as of the date hereof.
SECTION 5.2 - Authorization and Validity of Agreements. Each of the Seller
and the Principal has all requisite corporate power and authority to enter into,
execute and deliver this Agreement and the other agreements and instruments
delivered by each of the Seller and the Principal pursuant to this Agreement and
to carry out its obligations and duties hereunder and thereunder. The execution
and delivery of this Agreement and the other agreements and instruments
delivered by each of the Seller and the Principal pursuant to this Agreement and
the performance of each of the Seller's and the Principal's obligations
hereunder and thereunder have been duly authorized by all necessary corporate
action by the board of directors and stockholders of each of the Seller and the
Principal, and no other corporate proceedings on the part of either the Seller
or the Principal are necessary to authorize such execution, delivery and
performance. This Agreement and the other agreements and instruments delivered
by each of the Seller and the Principal pursuant to this Agreement have been
duly executed and delivered by each of the Seller and the Principal and
constitute its legal, valid and binding obligations, enforceable against each of
the Seller and the Principal in accordance with their respective terms.
SECTION 5.3 - No Conflict or Violation. The execution, delivery and
performance by each of the Seller and the Principal of this Agreement and the
other agreements and instruments delivered by each of the Seller and the
Principal pursuant
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to this Agreement do not and will not (i) violate or conflict with any provision
of the Organizational Documents of either the Seller or the Principal, (ii)
violate any provision of law applicable to either the Seller or the Principal,
or any order, judgement or decree of any court or other governmental or
regulatory authority, domestic or foreign, (iii) violate or conflict with, or
result in a breach of or constitute (with due notice or lapse of time or both) a
default under, or result in the termination of, or accelerate the performance
required by, any contract, lease, loan agreement, mortgage, security agreement,
trust indenture or other agreement or instrument to which either the Seller or
the Principal is a party or by which either the Seller or the Principal is bound
or to which any of the properties or assets of either the Seller or the
Principal is subject, (iv) result in the creation or imposition of any Lien upon
any of the Purchased Assets, (v) result in the cancellation, modification,
revocation or suspension of any of the Licenses and Permits, or (vi) otherwise
interfere in any material manner with the operation or prospects of the Business
or the Purchased Assets or have any material adverse effect thereon.
SECTION 5.4 - Consents and Approvals. Schedule 5.4 sets forth a true and
complete list of each consent, waiver, release, affidavit, instrument,
assurance, form, authorization or approval of any governmental or regulatory
authority, domestic or foreign, lenders, creditors, landlords or of any other
Person, and each notice, report or declaration to or filing or registration with
any such governmental or regulatory authority, that is required on the part of
either the Seller or the Principal in connection with (i) the execution and
delivery by either the Seller or the Principal of this Agreement and the other
agreements and instruments delivered by either the Seller or the Principal under
this Agreement, and (ii) the performance by either the Seller or the Principal
of its obligations hereunder and thereunder (the "Required Consents").
SECTION 5.5 - Financial Statements. Attached as Schedule 5.5 are true and
complete copies of:
(a) the audited consolidated balance sheets, income statements,
statements of cash flow and statements of equity of the Principal as
at and for the fiscal year ended December 31, 1997 and of the Seller
for the fiscal years ended December 31 in each of the years 1995 and
1996 including the notes and schedules thereto (collectively the
"Annual Financial Statements"), and
(b) the unaudited consolidated balance sheet, income statement,
statement of cash flow and statement of equity of the Principal as
at and for the fiscal period ended September 30, 1998 (including the
notes and schedules thereto) (the "Interim Financial Statements"),
(the Annual Financial Statements and the Interim Financial Statements are
hereinafter collectively referred to as the "Financial Statements").
The Financial Statements (i) were prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered thereby, (ii) present fairly the
financial position, results of operations and cash flows of the Principal or
Seller, as applicable, in
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accordance with GAAP as at the dates thereof and for the periods then ended,
(iii) are complete, correct and in accordance with the books of account and
records of the Principal and the Seller, as applicable, (iv) can be legitimately
reconciled with the financial statements and the financial records maintained
and the accounting methods applied by the Principal and the Seller, as
applicable, for federal income tax purposes, and (v) reflect accurately all
costs and expenses of the Principal and the Seller, as applicable. The Financial
Statements indicate all adjustments, which consist of only normal recurring
accruals, necessary for such fair presentations. The statements of income
included in the Financial Statements do not contain any items of special or
non-recurring income or loss except as expressly specified therein. The balance
sheets included in the Financial Statements do not reflect any write-up or
revaluation increasing the book value of any assets. The books and accounts of
the Principal and the Seller are complete and correct and fairly reflect all of
the transactions, items of income and expense and all assets and liabilities of
the Business consistent with prior practices of the Business. The Annual
Financial Statements contain all entries recommended by the independent
certified public accountants, Rosenberg Rich Baker Berman & Company.
The revenues of the Principal reflected in the Financial Statements consist only
of revenues derived from the Seller in the conduct of the Business, other than
immaterial revenues from other operations not exceeding $50,000 in the
aggregate.
SECTION 5.6 - Absence of Certain Changes or Events.
(a) Since December 31, 1997, except as disclosed in Schedule 5.6 or in the
Interim Financial Statements there has not been:
(i) any material adverse change in the business, operations, properties,
working capital, earnings, losses, reserves, assets, liabilities,
condition (financial or other), customer or supplier relations or
prospects of the Business, taken as a whole, or any event that has
had a material adverse effect on the foregoing, and no factor or
condition exists and no event has occurred that would be likely to
result in any such change,
(ii) any material loss, damage, destruction or other casualty to the
Purchased Assets or any material adverse change in the Purchased
Assets,
(iii) any change in any method of accounting or accounting practice of the
Principal, the Business or the Seller relating to the Business, or
(iv) any other event or condition of any character which has had, or
which could reasonably be expected to have, a material adverse
effect with respect to the Business to the extent such event or
condition relates specifically to the Business (as contrasted with
general economic conditions or trends).
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(b) Since December 31, 1997, except as disclosed in the Interim Financial
Statements the Seller has operated the Business in the ordinary course of
business consistent with past practice and has not:
(i) borrowed any amount or incurred any material obligation or liability
(whether absolute, accrued, contingent or otherwise) relating to the
operations of the Business except in the ordinary course of business
consistent with past practice,
(ii) failed to discharge or satisfy any Lien or pay or satisfy any
obligation or liability (whether absolute, accrued, contingent or
otherwise) arising from the operation of the Business,
(iii) mortgaged, pledged or subjected to any Lien any assets of the
Business, or sold or transferred any of the assets of the Business
material to the Business, or cancelled any debts or claims or waived
any rights material to the Business relating to the operations of
the Business,
(iv) entered into any transaction material to the Business or relating to
the Business, except in the ordinary course of business consistent
with past practice, or materially amended, cancelled or terminated
any arrangement material to the Business or relating to the Business
or the Purchased Assets,
(v) discontinued the sale of any Products or Product line or program,
(vi) disclosed to any person other than the Buyer and authorized
representatives of the Buyer, any proprietary confidential
information of the Business or otherwise related to the Purchased
Assets, other than pursuant to a confidentiality agreement
prohibiting the use or further disclosure of such information, which
agreement has been identified and delivered to the Buyer and is in
full force and effect on the date hereof, or
(vii) entered into any agreement or made any commitment to do any of the
foregoing.
SECTION 5.7 - Tax Matters. All Tax Returns required to be filed by the
Seller prior to or on the Closing Date have been (or will have been by the
Closing Date) filed, and the Seller has (or will have by the Closing Date) paid,
accrued or otherwise adequately reserved for the payment of all Taxes required
to be paid in respect of the periods covered by such returns and has (or will
have by the Closing Date) adequately reserved for the payment of all Taxes with
respect to periods ended on or before the Closing Date for which Tax Returns
have not yet been filed. The Seller has withheld and
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paid over all Taxes which it is obligated to withhold or pay from amounts paid
or owing to any employee, independent contractor, creditor or other third party.
All Taxes of the Seller have been paid or adequately provided for and the Seller
knows of no proposed additional tax assessment against it not adequately
reserved for in the Financial Statements. There are no Liens on any of the
assets of the Business that arose in connection with any failure (or alleged
failure) to withhold or pay any Tax. In the ordinary course, the Seller makes
adequate provision on its books for the payment of Taxes (including for the
current fiscal period) owed by the Seller. There are no pending requests for
rulings from any taxing authority that could affect the Purchased Assets or the
Business after the Closing Date.
SECTION 5.8 - Absence of Undisclosed Liabilities. The Seller does not have
any obligation or liability, whether accrued, contingent, absolute, determined,
determinable or otherwise relating to the Business, and there is no existing
condition, situation or set of circumstances which could reasonably be expected
to result in such a liability, except for (i) liabilities shown or provided for
on the Interim Financial Statements or on any notes thereto or on Schedule 5.14
attached hereto, and (ii) liabilities incurred or accrued in the ordinary course
of business (none of which is a material uninsured liability for breach of
contract, breach of warranty, tort, infringement, Claim or lawsuit) consistent
with past practice subsequent to September 30, 1998 and prior to or on the
Closing Date.
SECTION 5.9 - Operation of the Business; Sufficiency of Purchased Assets.
(a) The Seller has conducted the Business only through the Seller and not
through any other divisions or direct or indirect subsidiaries or Affiliates of
the Seller or the Principal and no part of the Business is operated by the
Seller through any other Person.
(b) The Seller is the sole, absolute, beneficial owner of the Purchased
Assets and is exclusively entitled to possess and dispose of the Purchased
Assets and has good and marketable title to all the Purchased Assets and, upon
consummation of the transactions contemplated by this Agreement, the Buyer will
acquire good and marketable title to all the Purchased Assets owned by it, free
and clear of all Claims, Liens and objections or equities of any kind, save and
except for assets subject to a license in favour of the Seller as disclosed
herein. The Purchased Assets, comprise all assets required for the continued
conduct of the Business by the Buyer as now being conducted. The Purchased
Assets are adequate for the purposes for which such assets are currently used or
are held for use and, to the knowledge of the Seller and the Principal, there
are no facts or conditions affecting the Purchased Assets which could,
individually or in the aggregate, interfere with their use or operation as
currently used or operated, or their adequacy for such use.
SECTION 5.10 - Fixed Assets. Schedule 5.10 sets forth a complete and
correct list of each item of Fixed Assets, the location thereof and the name and
address of any Person who has possession or control of a Fixed Asset. The Fixed
Assets are sufficient and adequate to carry on the Business as presently
conducted and as proposed
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by the Seller to be conducted, and all items thereof are in good operating
condition and repair (subject to normal wear and tear).
SECTION 5.11 - Intellectual Property.
(a) Schedule 5.11 sets forth a complete list and brief description of all
Industrial Property which has been registered, or for which applications for
registration have been filed, including the name of the registered and
beneficial owner of such registrations and applications. Schedule 5.11 also sets
forth a separate list and brief description of all of the Intellectual Property
of significant commercial value which has not been registered or for which
applications for registration have not been filed, including particularly all
improvements, modifications and derivatives of the Products of significant
commercial value including the name of the owner and any inventors thereof.
Without limiting the foregoing, Schedule 5.11 lists all Intellectual Property of
significant commercial value, whether registered or not, necessary for the
conduct of the Business as conducted by the Seller on the date hereof or which
has been used by the Seller in the conduct of the Business during the last five
(5) years.
(b) To the knowledge of the Principal and the Seller, the Seller has the
exclusive right to use and is the exclusive owner of all right, title and
interest in and to the Intellectual Property with no breaks in the chain of
title and free and clear of any Claims or Liens, pledge, charge or encumbrance
of any kind whatsoever except as expressly indicated in a separate list in
Schedule 5.11. Any of the Intellectual Property which is not owned by the Seller
is being used by the Seller only with the consent of or license from the
rightful owner thereof and all such licenses are in full force and effect. All
such consents or licenses are separately listed in Schedule 5.11. For certainty
it is stated that the Seller is not under any obligation to pay royalties or
similar payments in respect of any of the Intellectual Property except as
separately listed in Schedule 5.11. All Intellectual Property owned by the
Seller or an Affiliate of the Seller or the Principal required or used in
connection with the Business will, on the Closing Date, be included in the
Purchased Assets.
To the knowledge of the Principal and the Seller, the Industrial Property
including that particularly listed in Schedule 5.11 is in full force and
effect and has not been knowingly used or enforced or failed to be used or
enforced in a manner that would result in the abandonment, cancellation or
unenforceability of any of the Industrial Property. The Seller has not
knowingly forfeited or otherwise relinquished to any other Person any
intellectual property right necessary for the conduct of the Business as
conducted by the Seller on the date hereof.
Neither the Principal nor the Seller has knowledge of any claim of adverse
ownership, invalidity or other opposition to or conflict with any of the
Intellectual Property nor of any pending or threatened suit, proceeding,
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claim, demand, action or investigation of any nature or kind against the
Seller relating to the Intellectual Property or its use, except as set
forth in Schedule 5.11 in a separate list with a brief description as to
their relevance and the Intellectual Property affected.
Neither the Principal nor the Seller has knowledge that the Seller, or any
activity in which the Seller is engaged or any of the Products or any
process, method, packaging, advertising, or material that the Seller
employs in the manufacture, marketing or sale of any of the Products, or
the use of any of the Intellectual Property breaches, violates, infringes
or interferes with, or is alleged to breach, violate, infringe or
interfere, with any intellectual property rights of any third party or
requires payment for the use of any patent, trade-name, trade secret,
trade-mark, copyright or other intellectual property right or technology
of another, except as set forth in Schedule 5.11 in a separate list with a
brief description.
The Intellectual Property is complete to the extent and under the
conditions stated in this Agreement to enable the Seller to carry on the
Business.
Schedule 5.11 sets forth a complete and correct list and brief description
of all interparties claims, oppositions, conflicts, suits, proceedings,
demands, actions, investigations, breaches, violations, infringements and
interferences of the Intellectual Property of which the Principal or the
Seller has knowledge.
Schedule 5.11 sets forth a complete and correct list and brief description
of all judgements, covenants not to sue, permits, grants, licenses and
other agreements and arrangements relating to any of the Intellectual
Property which grant rights to or bind, obligate or otherwise restrict the
Seller.
The Seller will maintain or cause to be maintained the rights to the
Intellectual Property in full force and effect through the Closing Date
and, without limiting the generality of the foregoing, have renewed or
have made and will make, within an applicable renewal period ending on or
prior to the Closing Date, an application for renewal of all of the
registered Intellectual Property rights subject to expiration on or prior
to the Closing Date, and will maintain in confidence all of the
Confidential Intellectual Property.
To the knowledge of the Principal and the Seller and having made
reasonable inquiries of their intellectual property legal counsel, neither
Principal nor Seller have any knowledge of any facts which render, or
would give reasonable basis for argument to render, any of the Patents or
Trade-marks for which applications have been filed invalid or
unenforceable except as set forth in Schedule 5.11 in a separate list with
a brief description as to their relevance and the Patents and Trade-marks
affected.
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Neither Principal nor Seller have any knowledge that Products covered by a
claim on file at any time in any one U.S. patent application included in
the Patents were in public use or on sale in the United States or
published anywhere in the world more than twelve (12) months before the
earliest U.S. filing date to which said one patent application is entitled
under U.S. law in respect of all of the subject matter of such one claim
except as are separately listed in Schedule 5.11 with a brief description
as to their relevance and the Patents affected.
To the knowledge of Principal and Seller and having made reasonable
inquiries of their legal counsel, neither Principal nor Seller have any
knowledge of any opinions rendered by counsel for the Principal or Seller
regarding (a) the validity of Patents or Trade-marks for which
applications have been filed, (b) the availability for use and
registration in any country of the world of the Products as described in
any of the Patents or of Trade-marks for which applications have been
filed or (c) the right to make, use and sell any of the Products, except
such opinions as are separately listed in Schedule 5.11 with a brief
description as to their reference.
The Seller is as at the Closing Date recorded in the U.S. Patent and
Trademarks Office as the owner of each of the Patents filed in the United
States, and of each of the Trade-marks filed in the United States.
Each of the Principal and Seller agree to not use nor disclose to third
parties any information comprising the Confidential Intellectual Property
until such information becomes generally available to the public through
no breach by Principal and Seller. Principal and Seller agree to take
reasonable steps to ensure such Confidential Intellectual Property remains
confidential.
The following persons listed below are the only persons, who have been
involved in to a substantial extent, or, who have been employed or engaged
principally, or, who have made a substantial contribution, in the design,
invention, conception, improvement, modification or derivation of the
Products:
Michael Martin
Jerry Swon
Tony French
Gregory Buscetto
In respect of Copyrights, Schedule 5.11 includes a separate listing of all
significant works comprising the Copyrights including a brief description,
identification of the authors and a chain of title from the author to
Seller. Significant works comprising the Copyrights would include
instructional materials,
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manuals, brochures and the like for the Products.
SECTION 5.12 - Licences and Permits. The Seller has provided the Buyer
with true and correct copies of all licenses, permits, franchises,
authorizations, registrations, approvals and certificates of occupancy (or their
equivalent) issued or granted to the Seller with respect to the Business by the
government of the United States or of any state, city, municipality, county or
town thereof, or of any foreign jurisdiction, or any department, agency, board
division, subdivision, audit group or procuring office, commission, bureau or
instrumentality of any of the foregoing (the "Licences and Permits"), and all
pending applications therefor. Each License and Permit has been duly obtained,
is valid and in full force and effect, and is not subject to any pending or
threatened administrative or judicial proceeding to revoke, cancel, suspend or
declare such License and Permit invalid in any respect. The Licenses and Permits
are sufficient and adequate in all respects to permit the continued lawful
conduct of the Business in the manner now conducted as of the date hereof, and
none of the operations of the business are being conducted in a manner that
violates any of the terms or conditions under which any License and Permit was
granted. No such License and Permit will in any way be affected by, or terminate
or lapse by reason of, the transactions contemplated by this Agreement.
SECTION 5.13 - Compliance with Law. The operations of the Business have
been and are now being conducted in accordance with all applicable laws,
regulations, orders and other requirements of all courts and other governmental
or regulatory authorities, domestic or foreign, having jurisdiction over the
Seller and its assets, properties and operations, including without limitation
all Environmental Laws and such laws, regulations, ordinances, orders and
requirements promulgated by or relating to consumer protection, currency
exchange, equal opportunity, health, architectural barriers to the handicapped,
fire, zoning and building, occupation safety, pension, securities and
trading-with-the-enemy matters. The Seller has not received notice of any
violation of any such law, regulation, order or other legal requirement, or is
in default with respect to any order, writ, judgement, award, injunction or
decree of any national, state or local court or governmental or regulatory
authority or arbitrator, domestic or foreign, applicable to the Business or the
Purchased Assets.
SECTION 5.14 - Litigation. Except as set forth in Schedule 5.14, there are
no Claims, actions, suits, proceedings, judgements (whether final or
interlocutory), labour disputes, grievances or investigations pending or, to the
knowledge of the Seller and the Principal, threatened, before any national,
state or local court or governmental or regulatory authority, domestic or
foreign, or before any arbitrator of any nature, brought by or against the
Seller or any of its officers, directors, employees, agents or Affiliates
involving, affecting or relating to the Business, the Purchased Assets or the
transactions contemplated by this Agreement nor is any basis known to the
Seller, the Principal or any of their respective directors, officers or
employees for any such Claim, action, suit, proceeding, judgement, dispute or
investigation and all such judgements. Schedule 5.14 sets forth a list and a
summary description of all such pending actions, suits proceedings, disputes or
investigations and all such judgements. Neither the Business nor the
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Purchased Assets is subject to any order, writ, judgement, award, injunction or
decree of any national, state or local court or governmental or regulatory
authority or arbitrator, domestic or foreign, that affects or could reasonably
be expected to affect the Business or the Purchased Assets, or that would or
would reasonably be expected to interfere with the transactions contemplated by
this Agreement.
SECTION 5.15 - Customer Purchase Orders.
(a) Schedule A sets forth a true and complete copy of all Customer
Purchase Orders entered into by the Seller in connection with the Business which
are currently open.
(b) All Customer Purchase Orders are in full force and effect and are
valid, binding and enforceable against the parties thereto in accordance with
their terms. The Seller has performed all obligations required to be performed
by it to date under, and is not in default or delinquent in performance, status
or any other respect (claimed or actual) in connection with, the Customer
Purchase Orders, and no event has occurred which, with due notice or lapse of
time or both, would constitute such a default. To the knowledge of the Seller
and the Principal, no other parties to the Customer Purchase Orders are in
default in respect thereof, and no event has occurred which, with due notice or
lapse of time or both, would constitute such a default. The enforceability of
any Customer Purchase Orders will not be affected in any manner by the
execution, delivery and performance of this Agreement including the assignment
of the Customer Purchase Orders to the Buyer contemplated herein.
(c) As of the Closing Date, none of the Customer Purchase Orders have been
sold, assigned, transferred or otherwise conveyed to any Person.
SECTION 5.16 - Inventories. Set forth in Schedule 5.16 is a true and
complete list of all Inventory as of the Closing Date. All Inventories are
valued on the books of the Seller at the lower of cost, using the first in,
first out method, or net realizable value. Inventories of finished goods are
saleable and all other Inventories are merchantable or usable and all
Inventories are in quantities usable and saleable in the ordinary course of
business within a period of time which is consistent with the past experiences
of the Seller. The value of Inventories as at the Closing Date (valued as
aforesaid) shall not be less than $250,000.
SECTION 5.17 - Customers. Schedule 5.17 includes a complete and correct
list of: (a) all customers of the Seller during the current year and the
previous two (2) fiscal years providing the (i) name, (ii) address, (iii)
contact person(s), (iv) telephone number(s), (v) facsimile number(s) and (vi)
e-mail address(es) of the customer, and (b) the fifteen (15) most significant
customers by dollar volume and the aggregate dollar volume of purchases by such
customers for such fiscal years. Except as set forth in Schedule 5.17, none of
such customers has since December 31, 1997 terminated or changed significantly,
or, to the best knowledge of the Seller and the Principal, intends to terminate
or change significantly, its relationship with the Business.
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SECTION 5.18 - Suppliers. Schedule 5.18 includes a complete and correct
list of (a) all suppliers of the Seller during the current year and the previous
two (2) fiscal years providing the (i) name, (ii) address, (iii) contact
person(s), (iv) telephone number(s), (v) facsimile number(s) and (vi) e-mail
address(es) of the supplier, and (b) the five (5) most significant suppliers of
the Business by dollar volume and the aggregate dollar volume of purchases from
such suppliers for such fiscal years. Except as set forth in Schedule 5.18, none
of such suppliers has since December 31, 1997 terminated or changed
significantly, or, to the best knowledge of the Seller and the Principal,
intends to terminate or change significantly, its relationship with the
Business.
SECTION 5.19 - Insurance. The Seller has maintained such policies of
insurance, issued by responsible insurers, as are appropriate to its operations,
property and assets, in such amounts and against such risks as are customarily
carried and insured against by owners of comparable businesses, properties and
assets. All such policies of insurance are in full force and effect to the
Closing Date and the Seller is not in default for the period up to and including
the Closing Date, as to the payment of premium or otherwise, under the terms of
any such policy.
SECTION 5.20 - Products. Schedule B sets forth a true and complete list of
all the Seller's current Products and a brief description thereof.
SECTION 5.21 - Product Liability. (i) There is no notice, demand, Claim,
action, suit, injury, hearing, proceeding, notice of violation or investigation
of a civil, criminal or administrative nature before any court or governmental
or other regulatory or administrative agency, commission, authority, or
arbitrator or arbitration panel, domestic or foreign, against or involving any
Product warranty, Product, or class of claims or lawsuits involving the same or
similar Products which is pending or threatened, resulting from the rendering of
any services or an alleged defect in design, manufacture, materials or
workmanship of any Product, or any alleged failure to warn, or from any breach
of implied warranties or representations nor is any basis known to the Seller or
the Principal for any such Claim, action suit, proceeding or investigation
(collectively, "Product Liability Lawsuits"), and (ii) there has not been any
"Occurrence". For the purposes of the foregoing, the term "Occurrence" means any
accident, happening or event which takes place at any time which is caused or
allegedly caused by the rendering of any services or any alleged hazard or
alleged defect in manufacture, design, materials or workmanship, including
without limitation any alleged failure to warn or any breach of express or
implied warranties or representations with respect to, or any such accident,
happening or event otherwise involving any Product that is likely to result in a
Claim or Loss
SECTION 5.22 - Trade Allowance. No customers of the Business are entitled
to volume rebates arising from any agreements or understandings (whether written
or oral) with or concessions granted to any customer. Other than as disclosed in
Schedule 5.22, discounts granted to customers have not exceeded a 50/30 discount
in any of the last three fiscal years of the Seller. All SPIF's issued by the
Seller in relation to
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the Business are completely and accurately described in Schedule 5.22.
SECTION 5.23 - Accounts Payable. Schedule 5.23 sets forth a true and
complete list of all Accounts Payable of the Seller (including, without
limitation, amounts owing by the Seller to its landlord pursuant to any existing
lease in connection with the Business), including the name of the creditor, the
amount outstanding and the aging of the Accounts Payable.
SECTION 5.24 - Sales Representative, Distributor and Agency Agreements.
All obligations and commitments of the Seller under any sales representative,
distributorship or agency agreements (true and complete copies of which have
been delivered to the Buyer) have been duly and properly terminated effective as
of or prior to the Closing Date, and all agreements, contracts, relationships
and understandings giving rise to such obligations or commitments are of no
further force and effect and neither the Seller nor the Buyer shall have any
liabilities or obligations arising therefrom except for payment of commission to
Primason Symchik up to a maximum of 15% of Net Sales (as such term is defined in
the Marketing and Development Agreement) generated by Primason Symchik on orders
for a 90 day period following the Closing Date. Schedule 5.24 sets forth true
and complete copies of all of the termination agreements relating to such sales
representative, distributorship and agency agreements.
SECTION 5.25 - Warranties. Except for the Aetna Obligation, there are no
outstanding warranty claims or series of warranty claims in respect of Products
sold by the Seller in connection with the Business or otherwise that are
inconsistent with the Seller's experience over the last two years or in any case
are material, individually or in the aggregate. The Seller and the Principal do
not have any reasonable grounds to believe that any such warranty claim or
series of warranty claims in respect of Products supplied by the Seller may be
forthcoming.
SECTION 5.26 - Disclosure. The Seller and the Principal have made
available to the Buyer, all information, including the financial, marketing,
sales and operational information on a historical basis relating to the Business
which would be material to a purchaser of the Business or the Purchased Assets
in deciding whether to purchase the Purchased Assets or take over the Business
at the price or on the terms set out in this Agreement. All information, which
has been provided to the Buyer is true and correct in all material respects and
no material fact or facts have been omitted therefrom which would make such
information misleading. Without limiting the generality of the foregoing,
neither the Seller nor the Principal have failed to disclose to the Buyer, any
fact or information which would be material to a purchaser of the Business or
the Purchased Assets.
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ARTICLE Vl - REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer hereby represents and warrants to the Seller as follows:
SECTION 6.1 - Corporate Organization. The Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the Province
of Ontario, and has all requisite corporate power and authority to own its
properties and assets and to conduct its businesses as now conducted. Copies of
the Certificate of the Organizational Documents of the Buyer with all amendments
thereto to the date hereof, have been or will be furnished to the Seller, and
such copies are accurate and complete as of the date hereof or as of the Closing
Date.
SECTION 6.2 - Authorization and Validity of Agreements. The Buyer has all
requisite corporate power and authority to enter into this Agreement and the
other agreements and instruments delivered by the Buyer under this Agreement and
to carry out its obligations hereunder and thereunder. The execution and
delivery of this Agreement and the other agreements and instruments delivered by
the Buyer under this Agreement and the performance of the Buyer's obligations
hereunder and thereunder have been duly authorized by all necessary corporate
action by the board of directors of the Buyer, and no other corporate
proceedings in the part of the Buyer are necessary to authorize such execution,
delivery and performance. This Agreement and the other agreements and
instruments delivered by the Buyer under this Agreement have been duly executed
by the Buyer and constitute its legal, valid and binding obligations,
enforceable against it in accordance with their respective terms.
SECTION 6.3 - No Conflict or Violation. The execution, delivery and
performance by the Buyer of this Agreement and the other agreements and
instruments delivered by the Buyer under this Agreement do not and will not
violate or conflict with any provision of the Organizational Documents of the
Buyer and do not and will not violate any provision of law, or any order,
judgement or decree of any court or other governmental or regulatory authority,
nor violate nor will result in a breach of or constitute (with due notice or
lapse of time or both) a default under any contract, lease, loan agreement,
mortgage, security agreement, trust indenture or other agreement or instrument
to which the Buyer is a party or by which it is bound or to which any of its
properties or assets is subject .
SECTION 6.4 - Consents and Approvals. The execution, delivery and
performance of this Agreement on behalf of the Buyer do not require the consent,
waiver authorization or approval of any governmental or regulatory authority,
domestic or foreign, or of any other Person.
ARTICLE VII - COVENANTS OF THE SELLER AND PRINCIPAL
SECTION 7.1 - Consents and Approvals. Each of the Seller and the Principal
(a) shall, at its cost and expense, use all commercially reasonable efforts to
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obtain all Required Consents, and (b) shall render reasonable assistance and
cooperation to the Buyer in preparing and filing all documents required to be
submitted by the Buyer to any governmental or regulatory authority, domestic or
foreign, in connection with such transactions and in obtaining any governmental
consents, waivers, authorizations or approvals which may be required to be
obtained by the Buyer in connection with such transactions (which assistance and
cooperation shall include, without limitation, timely furnishing to the Buyer
all information concerning the Seller and the Principal that the Buyer
determines is required to be included in such documents or would be helpful in
obtaining any such consent, waiver, novation, authorization or approval).
SECTION 7.2 - Commercial Efforts. Subject to the terms and conditions set
forth in this Agreement, each of the Seller and the Principal shall use all
commercially reasonable efforts to take, or cause to be taken, all action, and
to do, or cause to be done, all things necessary, proper or advisable consistent
with applicable law to consummate and make effective in the most expeditious
manner practicable the transactions contemplated hereby.
SECTION 7.3 - Assignment of Contracts and Warranties. At the Closing and
effective as of the Closing Date, the Seller shall assign to the Buyer all its
rights under the Customer Purchase Orders. Notwithstanding the foregoing, this
Agreement shall not constitute an agreement to assign or transfer any Customer
Purchase Orders if an assignment or transfer or an attempt to make such an
assignment or transfer without the consent of a third party would constitute a
breach or violation thereof in accordance with its terms; and any transfer or
assignment to the Buyer by the Seller of any interest under any such Customer
Purchase Orders that requires the consent or approval of a third party shall be
made subject to such consent or approval being obtained. In the event any such
consent or approval is not obtained on or prior to the Closing Date and the
Buyer waives as of the Closing Date the condition that such consent or approval
be obtained, the Seller shall continue to use all commercially reasonable
efforts to obtain any such consent or approval after the Closing Date until such
time as such consent or approval has been obtained, and the Seller and the
Principal will cooperate with the Buyer in any lawful and economically feasible
arrangement to provide that the Buyer shall receive the interest of the Seller
in the benefits under any such Customer Purchase Orders, including without
limitation performance by the Seller as agent if economically feasible;
provided, however, that the Buyer shall undertake to pay or satisfy the
corresponding liabilities for the enjoyment of such benefit to the extent the
Buyer would have been responsible therefor hereunder if such consent or approval
had been obtained as of the Closing Date. The Seller and the Principal shall
jointly and severally pay and discharge, and shall indemnify and hold the Buyer
harmless from and against, any and all out-of-pocket costs of seeking to obtain
or obtaining any such consent or approval whether before or after the Closing
Date. Nothing in this Section 7.3 shall be deemed a waiver by the Buyer of its
right to have received on or before the Closing Date an effective assignment of
all of the Customer Purchase Orders it has requested be assigned to it nor shall
this Section 7.3 be deemed to constitute an agreement to exclude any Customer
Purchase Orders from the terms of this Agreement.
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SECTION 7.4 - Bulk Sales Compliance. The Seller shall have complied with
applicable bulk transfer provisions of the Uniform Commercial Code and any other
applicable bulk sales laws of any state with respect to the transactions
contemplated by this Agreement. The Seller and the Principal jointly and
severally agree to indemnify and hold the Buyer harmless from any Claims
relating to the failure to comply with such laws.
SECTION 7.5 - Removal of Encumbrances. The Seller and the Principal shall,
at their expense, remove any Lien incurred in any way on the Purchased Assets
(including without limitation the security interest of Carnegie Bank, N.A.
therein) on or before the Closing Date. The Seller and the Principal agree that
if any Lien is incurred on any Purchased Asset after the Closing Date which
arises from any action by, or failure to act on the part of, the Seller or the
Principal prior to or on the Closing Date, the Seller and the Principal shall,
at their cost, promptly take all actions necessary to remove such Lien, and
shall jointly and severally indemnify the Buyer for any costs incurred by the
Buyer with respect to such Lien (including without limitation any costs incurred
by the Buyer to remove such Lien).
SECTION 7.6 - Change Seller's and Principal's Name. The Seller and
Principal agree on behalf of themselves and their Affiliates (including
Proformix Software, Inc.) to discontinue all use and display of the Trade-marks
and to not use or display the Trade-marks or any trade marks similar to or
confusingly similar to the Trade-marks and particularly to not use any trade
mark including any two or more of the words PRO, FORM and MIX. Notwithstanding
the foregoing, the Seller, the Principal and their Affiliates shall be permitted
to continue to use their current corporate name for not more than fifteen (15)
days following Closing.
SECTION 7.7 - Delivery of Books and Records etc. The Seller, the Principal
and their Affiliates shall make the necessary arrangements to provide the Buyer
on or before the thirtieth (30th) day following the Closing Date:
(a) true and complete original copies of all engineering design drawings
for each of the Products (and their component parts), such drawings
to be prepared and delivered to the Buyer's satisfaction. All costs
and expenses associated with the preparation and delivery of all
such drawings shall be borne exclusively by the Seller and the
Principal; and
(b) all Books and Records including, without limitation, all records and
other documents in the Seller's or Principal's possession or control
which pertain to the Intellectual Property. The Buyer shall permit
the Seller reasonable access to those Books and Records delivered to
the Buyer which the Seller is legally required to maintain for a
period not exceeding two (2) years from Closing unless otherwise
required by applicable laws, provided that the Buyer shall not be
responsible for the destruction of such Books and Records that are
beyond its control.
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SECTION 7.8 - Aetna Obligation. The Seller agrees to diligently satisfy at
its expense the Aetna Obligation and to arrange for the delivery by Aetna
Insurance to the Buyer of a letter confirming their satisfaction with the
Products sold to them.
SECTION 7.9 - First Right to Negotiate. In the event the Buyer
discontinues the marketing and sale of a particular Product acquired from the
Seller hereunder for a continuous period of twelve months during the period of
three years after the date hereof, the Buyer agrees to negotiate in good faith
with the Seller to sell such Product to the Buyer or the Principal, such sale to
be on terms and conditions mutually satisfactory to such parties.
ARTICLE VIII - COVENANTS OF THE BUYER
SECTION 8.1 - Actions Before the Closing Date. The Buyer shall not between
the date hereof and the Closing Date take any action which shall cause it to be
in breach of any of its representations, warranties, covenants or agreements
contained in this Agreement. The Buyer shall use commercially reasonable efforts
to perform all obligations and satisfy all conditions to Closing to be performed
or satisfied by the Buyer under this Agreement as soon as practicable, but in no
event later than the Closing Date.
ARTICLE IX - CONDITIONS PRECEDENT
TO PERFORMANCE BY THE SELLER
The obligations of the Seller to consummate the transactions contemplated
by this Agreement are subject to the fulfillment, at or before the Closing Date,
of the following conditions, any one or more of which may be waived by the
Seller in its sole discretion:
SECTION 9.1 - Representations and Warranties of the Buyer. The
representations and warranties of the Buyer contained in this Agreement shall be
true and correct at and as of the date hereof, and shall be repeated and shall
be true and correct on and as of the Closing Date with the same effect as though
made on and as of the Closing Date, and the Seller shall have received a
certificate dated the Closing Date and signed by any officer of the Buyer to
that effect.
SECTION 9.2 - Performance of the Obligations of the Buyer. The Buyer shall
have performed all obligations required under this Agreement to be performed by
the Buyer on or before the Closing Date, and the Seller shall have received a
certificate dated the Closing Date and signed by any officer of the Buyer to
that effect.
SECTION 9.3 - No Violation of Orders. No preliminary or permanent
injunction or other order issued by any court or other governmental or
regulatory authority, domestic or foreign, nor any statute, rule, regulation,
decree or executive order promulgated or enacted by any governmental or
regulatory authority, domestic or foreign, that declares this Agreement invalid
or unenforceable in any respect or which prevents
<PAGE>
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the consummation of the transactions contemplated hereby shall be in effect, and
no action or proceeding before any court or regulatory authority, domestic or
foreign, shall have been initiated or threatened by any government or
governmental or regulatory authority, domestic or foreign, which seeks to
prevent or delay the consummation of the transactions contemplated by this
Agreement or which challenges the validity or enforceability of this Agreement,
and which in any such case has a reasonable likelihood of success in the opinion
of counsel to the Seller.
SECTION 9.4 - Other Closing Documents. The Seller shall have received such
other certificates, instruments and documents in confirmation of the
representations and warranties of the Buyer or in furtherance of the
transactions contemplated by this Agreement as the Seller or its counsel shall
reasonably request.
SECTION 9.5 - Legal Matters. All certificates, instruments and other
documents required to be executed or delivered by or on behalf of the Buyer
under the provisions of this Agreement, and all other actions and proceedings
required to be taken by or on behalf of the Buyer in furtherance of the
transactions contemplated hereby, shall be reasonably satisfactory in form and
substance to counsel of the Seller.
ARTICLE X - CONDITIONS PRECEDENT
TO PERFORMANCE BY THE BUYER
The obligations of the Buyer to consummate the transactions contemplated
by this Agreement are subject to the fulfillment, at or before the Closing Date,
of the following conditions, any one or more of which may be waived by the Buyer
in its sole discretion:
SECTION 10.1 - Representations and Warranties of the Seller and Principal.
The representations and warranties of the Seller and the Principal contained in
this Agreement shall be true and correct at and as of the date hereof, and shall
be repeated and shall be true and correct on and as of the Closing Date with the
same effect as though made on and as of the Closing Date, and the Buyer shall
have received a certificate dated the Closing Date and signed by any officer of
the Seller and the Principal to that effect.
SECTION 10.2 - Performance of the Obligations of the Seller and Principal.
Each of the Seller and the Principal shall have performed all obligations
required under this Agreement to be performed by it on or before the Closing
Date, and the Buyer shall have received a certificate dated the Closing Date and
signed by any officer of the Seller and the Principal to that effect.
SECTION 10.3 - Consents and Approvals. All Required Consents in connection
with the execution, delivery and performance by each of the Seller and the
Principal of this Agreement and the other agreements and instruments delivered
by each of the Seller and the Principal under this Agreement, shall have been
duly obtained and
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shall be in full force and effect on the Closing Date.
SECTION 10.4 - No Violation of Orders. No preliminary or permanent
injunction or other order issued by any court or governmental or regulatory
authority, domestic or foreign, nor any statute, rule, regulation, decree or
executive order promulgated or enacted by any governmental or regulatory
authority, domestic or foreign, that declares this Agreement invalid in any
respect or that prevents the consummation of the transactions contemplated
hereby, or that materially and adversely affects the assets, properties,
operations, prospects, net income or financial condition of the Business shall
be in effect, and no action or proceeding before any court or governmental or
regulatory authority, domestic or foreign, shall have been instituted or
threatened by any governmental or regulatory authority, domestic or foreign,
which seeks to prevent or delay the consummation of the transactions
contemplated by this Agreement or which challenges the validity or
enforceability of this Agreement, and; which in any such case has a reasonable
likelihood of success in the opinion of counsel to the Buyer.
SECTION 10.5 - No Material Adverse Change. During the period from
September 30, 1998 through the Closing Date, there shall not have been any
material adverse change in the assets, properties, business, operations,
prospects, net income or financial condition of the Business.
SECTION 10.6 - Opinion of Counsel. The Buyer shall have received an
opinion, dated as of the Closing Date, from counsel to the Seller and the
Principal, substantially in the form and substance set forth on Schedule 10.6.
SECTION 10.7 - Collateral Agreements. The Persons named below shall have
executed and delivered the following collateral agreements:
(a) a non-competition, non-solicitation and confidentiality agreement by
the Seller, the Principal, Michael Martin, Jerry Swon and Gregory
Buscetto in favour of the Buyer substantially in the form attached
hereto as Schedule 10.7(a);
(b) a marketing and development agreement between the Seller, the
Principal and the Buyer (and acknowledged and agreed to by Michael
Martin) substantially in the form attached hereto as Schedule
10.7(b); and
(c) a trade mark license agreement between the Seller, the Principal and
the Buyer for the "Proformix" name substantially in the form
attached hereto as Schedule 10.7(c);
(d) a collateral agreement by each of Michael Martin, Jerry Swon, Tony
French and Gregory Buscetto of the Seller's ownership of the
Intellectual Property rights in and to the Products in the form
attached hereto as Schedule 10.7(d); and
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(e) a marketing agreement between the Principal, the Buyer and the
Seller for the Principal"s EMS software products in the form
attached hereto as Schedule 10.7(e).
SECTION 10.8 - Subcontract Agreement. The Buyer shall have entered into a
subcontract agreement with Fab-Tech regarding the future production of Products
in form and substance satisfactory to the Buyer.
SECTION 10.9 - Other Closing Documents. The Buyer shall have received such
other certificates, instruments and documents in confirmation of the
representations and warranties of each of the Seller and the Principal or in
furtherance of the transaction contemplated by this Agreement as the Buyer or
its counsel may reasonably request.
SECTION 10.10 - Legal Matters. All certificates, instruments, opinions and
other documents required to be executed or delivered by or on behalf of each of
the Seller and the Principal under the provisions of this Agreement, and all
other actions and proceedings required to be taken by or on behalf of each of
the Seller and the Principal in furtherance of the transactions contemplated
hereby, shall be reasonably satisfactory in form and substance to counsel for
the Buyer.
SECTION 10.11 - Customer Reviews. The Buyer shall have been provided
access to and be satisfied with the results of its review of the major customers
of the Business.
SECTION 10.12 - Landlord and Supplier Waiver and Acknowledgements. The
Seller's landlord shall have delivered a waiver in form and substance
satisfactory to the Buyer and any Person who has possession or control of the
Fixed Assets or any other Purchased Assets shall have delivered an
acknowledgement, in form and substance satisfactory to the Buyer.
SECTION 10.13 - Release of Security Interest. Carnegie Bank, N.A. shall
have released its security interest in the Purchased Assets and delivered UCC-3
Releases (or Partial Releases, as the case may be) in connection therewith.
<PAGE>
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ARTICLE XI - INDEMNIFICATION
SECTION 11.1 - Indemnification by the Seller and Principal.
Notwithstanding the Closing or the delivery of the Purchased Assets and
regardless of any investigation at any time made by or on behalf of the Buyer or
of any knowledge or information that the Buyer may have, the Seller and the
Principal shall jointly and severally indemnify and fully defend, save and hold
the Buyer, any Affiliate of the Buyer and their respective directors, officers,
employees, agents, stockholders and attorneys (the "Buyer Indemnitees"),
harmless if any Buyer Indemnitee shall at any time or from time to time suffer,
sustain or become subject to any damage, liability, loss, cost, expense
(including all reasonable attorneys', experts' and consultants' fees for
attorneys, experts and consultants who were not employees of the Buyer when said
services were rendered), deficiency, interest, penalty, impositions, assessments
or fines (collectively, "Losses") arising out of or resulting from, or shall pay
or become obliged to pay any sum on account of, any Seller's Event of Breach. As
used herein, "Seller's Event of Breach" shall be and mean any one or more of the
following:
(a) any untruth or inaccuracy in any representation of either the Seller
or the Principal or the breach of any warranty of either the Seller
or the Principal (including without limitation (i) any
misrepresentation in, or omission from, any statement, certificate,
schedule, exhibit, annex or other document furnished pursuant to
this Agreement by either the Seller or the Principal (or any of its
representatives) to the Buyer (or any representative of the Buyer)
and any misrepresentation in or omission from any document furnished
to the Buyer in connection with the transactions contemplated by
this Agreement,
(b) any and all liabilities of or Claims against the Business, the
Purchased Assets, or any Buyer Indemnitee arising out of any Claim,
action, suit, proceeding, judgement, dispute or investigation or
order, writ, judgement, award, injunction or decree of the character
described in Section 5.14 or Section 5.11(d) or out of any Contract
other than Customer Purchase Orders assumed hereunder,
(c) any product liability or breach of warranty claims relating to goods
or services sold by the Seller prior to or on the Closing Date
(including, without limitation, the Aetna Obligation and excluding
the warranty Claims to the extent provided in Section 2.4 hereof),
and all general liability claims arising out of or relating to
occurrences of any nature in the conduct of the Business prior to or
on the Closing Date, whether in contract or tort and whether any
such claims are asserted prior to, on or after the Closing Date,
(d) any failure of either the Seller or the Principal duly to perform or
observe any term, provision, covenant, agreement or condition
contained in this Agreement on the part of either the Seller or the
Principal to be performed or observed, and
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(e) any claim or cause of action by any party against any Buyer
Indemnitee with respect to the Excluded Liabilities.
SECTION 11.2 - Procedures for Indemnification by the Seller and the
Principal. If a Seller's Event of Breach occurs or is alleged and a Buyer
Indemnitee asserts that either the Seller or the Principal has become obligated
to such Buyer Indemnitee pursuant to Section 11.1 or if any suit, action,
investigation, claim or proceeding is begun, made or instituted as a result of
which either the Seller or the Principal may become obligated to a Buyer
Indemnitee hereunder, such Buyer Indemnitee shall give prompt written notice to
the Seller and the Principal. The Buyer Indemnitee shall permit the Seller (at
the expense of the Seller) to assume the defense of any such suit, action,
investigation, claim or proceeding; provided, however, that (a) the counsel for
the Seller who shall conduct the defense shall be reasonably satisfactory to the
Buyer Indemnitee, (b) the Buyer Indemnitee may participate in such defense at
its expense, and (c) the omission by the Buyer Indemnitee to give notice as
provided herein shall not relieve either the Seller or the Principal of its
indemnification obligation except to the extent that such omission results in a
failure of actual notice to the Seller and the Seller and the Principal are
materially damaged as a result of such failure to give notice. Except with the
prior written consent of the Buyer Indemnitee, the Seller shall not, in the
defense of any such suit, action, investigation, claim or proceeding, consent to
entry of any judgement or enter into any settlement that provides for injunctive
or other non-monetary relief affecting the Buyer Indemnitee or that does not
include as an unconditional term thereof the giving by each claimant or
plaintiff to such Buyer Indemnitee of a release from all liability with respect
to such claim or litigation. In the event that the Buyer Indemnitee shall in
good faith determine that the conduct of the defense of any claim subject to
indemnification hereunder or any proposed settlement of any such claim by the
Seller might be expected to affect adversely the Buyer Indemnitee's Tax
liability or the ability of the Buyer to conduct its business, or that the Buyer
Indemnitee may have available to it one or more defenses or counterclaims that
are inconsistent with one or more of those that may be available to the Seller
in respect of such suit, action, investigation, claim or proceeding relating
thereto, the Buyer Indemnitee shall have the right at all times to take over and
assume control over the defense, settlement, negotiations or litigation relating
to any such claim at the sole cost of the Seller and the Principal (including
without limitation reasonable attorneys' fees and disbursements and other
amounts paid as the result of such suit, action, investigation, claim or
proceeding); provided, however, that if the Buyer Indemnitee does so take over
and assume control, the Buyer Indemnitee shall not settle such suit, action,
investigation, claim or proceeding without the prior written consent of the
Seller, such consent not to be unreasonably withheld. In the event that the
Seller does not accept and continue the defense of any matter as provided above,
the Buyer Indemnitee shall have the full right to defend against any such suit,
action, investigation, claim or proceeding and shall be entitled to settle or
agree to pay in full such claim or demand. In any event, the Seller and the
Buyer Indemnitee shall cooperate in the defense of any suit, action,
investigation, claim or proceeding subject to this Section 11.2 and the records
of each shall be available to the other with respect to such defense.
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SECTION 11.3 - Indemnification by the Buyer. Notwithstanding the Closing
or the delivery of the Purchased Assets, the Buyer shall indemnify and agree to
fully defend, save and hold the Seller, any Affiliate of the Seller, and their
respective directors, officers, employees, agents, stockholders and attorneys
(the "Seller Indemnitees"), harmless if any Seller Indemnitee shall at any time
or from time to time suffer any Losses arising out of or resulting from, or
shall pay or become obligated to pay any sum on account of, any Buyer' s Event
of Breach. As used herein, "Buyer' s Event of Breach" shall be and mean any one
or more of the following:
(a) any untruth or inaccuracy in any representation of the Buyer or the
breach of any warranty of the Buyer contained in this Agreement,
(b) any failure of the Buyer duly to perform or observe any term,
provision, covenant, agreement or condition contained in this
Agreement on the part of the Buyer to be performed or observed, and
(c) any claim or cause of action by any party against any Seller
Indemnitee with respect to Assumed Liabilities.
SECTION 11.4 - Procedures for Indemnification by the Buyer. If a Buyer's
Event of Breach occurs or is alleged and a Seller Indemnitee asserts that the
Buyer has become obligated to it pursuant to Section 11.3, or if any suit,
action, investigation, claim or proceeding is begun, made or instituted as a
result of which the Buyer may become obligated to a Seller Indemnitee hereunder,
such Seller Indemnitee shall give prompt written notice to the Buyer. The Seller
Indemnitee shall permit the Buyer (at the expense of the Buyer) to assume the
defense of any such suit, action, investigation, claim or proceeding; provided,
however, that (a) the counsel for the Buyer who shall conduct the defense shall
be reasonably satisfactory to the Seller Indemnitee, (b) the Seller Indemnitee
may participate in such defense at its expense, and (c) the omission by the
Seller Indemnitee to give notice as provided herein shall not relieve the Buyer
of its indemnification obligation except to the extent that such omission
results in a failure of actual notice to the Buyer and the Buyer is materially
damaged as a result of such failure to give notice. Except with the prior
written consent of the Seller Indemnitee, the Buyer shall not, in the defense of
any such suit, action, investigation, claim or proceeding, consent to entry of
any judgement or enter into any settlement that provides for injunctive or other
non-monetary relief affecting the Seller Indemnitee or that does not include as
an unconditional term thereof the giving by each claimant or plaintiff to such
Seller Indemnitee of a release from all liability with respect to such claim or
litigation. In the event that the Seller Indemnitee shall in good faith
determine that the conduct of the defense of any claim subject to
indemnification hereunder or any proposed settlement of any such claim by the
Buyer might be expected to affect adversely the Seller Indemnitees Tax liability
or the ability of the Seller to conduct its business, or that the Seller
Indemnitee may have available to it one or more defenses or counterclaims that
are inconsistent with one or more of those that may be available to the Buyer in
respect of such suit, action, investigation, claim or proceeding relating
thereto, the Seller Indemnitee shall have the
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right at all times to take over and assume control over the defense, settlement,
negotiations or litigation relating to any such claim at the sole cost of the
Buyer (including without limitation reasonable attorneys' fees and disbursements
and other amounts paid as the result of such suit, action, investigation, claim
or proceeding); provided, however, that if the Seller Indemnitee does so take
over and assume control, the Seller Indemnitee shall not settle such suit,
action, investigation, claim or proceeding without the prior written consent of
the Buyer, such consent not to be unreasonably withheld. In the event that the
Buyer does not accept and continue the defense of any matter as provided above,
the Seller Indemnitee shall have the full right to defend against any such suit,
action, investigation, claim or proceeding and shall be entitled to settle or
agree to pay in full such claim or demand In any event, the Buyer and the Seller
Indemnitee shall cooperate in the defense of any suit, action, investigation,
claim or proceeding subject to this Section 11.4 and the records of each shall
be available to the other with respect to such defense.
SECTION 11.5 - Offset. Any and all amounts owing or to be paid by the
Buyer to the Seller, the Principal or their Affiliates pursuant to this
Agreement or the agreements and instruments executed in connection herewith,
shall be subject to offset and reduction by any amounts on a dollar for dollar
basis that may be owing at any time by either the Seller or the Principal to the
Buyer in respect of any untruth or inaccuracy in any representation of either
the Seller or the Principal or the breach of any warranty of either the Seller
or the Principal under or in connection with this Agreement or any other
agreement with the Buyer or any transaction contemplated hereby or thereby, as
reasonably determined by the Buyer. The Buyer shall deposit any amounts it
proposes to offset into an escrow account maintained by the Buyer's counsel
pending arbitration of the matter as provided in Section 12.11 below.
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ARTICLE XII - MISCELLANEOUS
SECTION 12.1 - Survival of Provisions. The respective representations,
warranties, covenants and agreements of each of the parties to this Agreement
made herein or in any certificate or other instrument delivered by one of the
parties to this Agreement (except covenants and agreements which are expressly
required to be performed and are performed in full on or before the Closing
Date), shall be considered to have been relied upon by each of the other parties
to this Agreement, as the case may be, and shall survive the Closing Date and
the consummation of the transactions contemplated by this Agreement, except
that, subject to this Section 12.1, the representations and warranties set forth
in Article V and Article Vl shall survive the Closing for a period terminating
on the date three (3) years after the Closing Date. Notwithstanding the
preceding sentence, the representations and warranties set forth in (a) Section
5.7 (Tax Matters) shall survive until one year after the expiration of the
applicable statute of limitations, and (b) Section 5.2 (Authorization and
Validity of Agreements), Section 5.9(b) (Operation of the Business; Sufficiency
of Purchased Assets), shall survive indefinitely. In the event of a breach of
any of such representations, warranties or covenants, the party to whom such
representations, warranties or covenants have been made shall have all rights
and remedies for such breach available to it under the provisions of this
Agreement or otherwise, whether at law or in equity, regardless of any
disclosure to, or investigation made by or on behalf of, such party on or before
the Closing Date, subject to any disclosures in the Schedules hereto.
SECTION 12.2 - Successors and Assigns. Except as otherwise provided in
this Agreement, no party hereto shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other party
hereto and any such attempted assignment without such prior written consent
shall be void and of no force and effect; provided, however, that the Buyer may
assign its rights hereunder, whether before or after the Closing Date, to one or
more of its Affiliates and the Seller may assign its rights hereunder to an
Affiliate that is the successor to the ergonomic software product business of
the Seller; provided further, that no such assignment shall reduce or otherwise
vitiate any of the obligations of the Buyer or the Seller hereunder. This
Agreement shall inure to the benefit of and shall be binding upon the successors
and permitted assigns of the parties hereto.
SECTION 12.3 - Expenses. Each of the parties hereto shall pay its own
expenses in connection with this Agreement and the transactions contemplated
hereby, including without limitation any legal and accounting fees, whether or
not the transactions contemplated hereby are consummated provided that on
Closing the Seller shall be responsible for and shall direct that $25,000 of the
Purchase Price payable on Closing be paid to Cassels Brock & Blackwell in
account of legal services rendered by them.
SECTION 12.4 - Broker's and Finder's Fees. Each of the parties represents
and warrants that it has dealt with no broker or finder in connection with any
of the transactions contemplated by this Agreement, whose fees and expenses
shall be the responsibility of the Buyer, and insofar as it knows, no other
broker or other person is
<PAGE>
-36-
entitled to any commission or finder's fee in connection with any of the
transactions contemplated hereby.
SECTION 12.5 - Public Announcements. The Seller and the Principal shall
obtain the consent of the Buyer, such consent not to be unreasonably withheld,
before issuing any press release or other public statements with respect to the
transactions contemplated by this Agreement, and shall not issue any such press
release or make any such public statement prior to obtaining such approval,
except as may be required by applicable law or government regulation or decree,
court process or by obligations pursuant to any listing agreement with any
national securities exchange.
SECTION 12.6 - Severability. In the event that any part of this Agreement
is declared by any court or other judicial or administrative body to be null,
void or unenforceable, said provision shall survive to the extent it is not so
declared, and all of the other provisions of this Agreement shall remain in full
force and effect.
SECTION 12.7 - Notices. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be deemed to
have been duly given (i) on the date of service if served personally on the
party to whom notice is to be given, (ii) on the day of transmission if sent via
facsimile transmission to the facsimile number given below, (iii) on the day
after delivery to an overnight courier service, or (iv) on the fifth day after
mailing, if mailed to the party to whom notice is to be given, by first class
mail, registered or certified, postage prepaid and properly addressed, to the
party as follows:
If to the Seller or the Principal:
c/o Proformix, Inc.
50 Tannery Road
Branchburg NJ 08876
Attention: Michael Martin,
Chairman of the Board
Fax: (908) 534-9161
Copy to:
Silverman, Collura, Chernis & Balzano, P.C.
381 Park Avenue South
Suite 1601
New York NY 10016
Attention: Paul Chernis, Esq.
Fax: (212) 779-8858
If to the Buyer:
1320236 Ontario Inc.
67 Toll Road
Holland Landing ON L9N 1H2
<PAGE>
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Attention: Raj Pasricha,
Vice President, Business Development
Fax: (905) 836-6000
<PAGE>
-38-
Copy to:
Cassels Brock & Blackwell
Barristers & Solicitors
Scotia Plaza, Suite 2100
40 King Street West
Toronto ON M5H 3C2
Attention: Sheldon Plener
Fax: (416) 360-8877
Any party may change its address or fax number for the purpose of this
Section by giving the other party written notice of its new address or fax
number in the manner set forth above.
SECTION 12.8 - Parties in Interest. Nothing in this Agreement is intended
to confer any rights or remedies under or by reason of this Agreement on any
persons other than the Seller, the Buyer or the Principal and their respective
successors and permitted assigns. Nothing in this Agreement is intended to
relieve or discharge the obligations or liability of any third persons to the
Seller, the Buyer or the Principal. No provision of this Agreement shall give
any third persons any right of subrogation or action over or against the Seller
or the Buyer.
SECTION 12.9 - Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SECTION 12.10 - Cooperation and Exchange of Information. The Buyer and the
Seller shall provide each other with such cooperation and information as either
of them reasonably may request of the other in filing any Tax Return, amended
return or claim for refund, determining a liability for Taxes or a right to a
refund of Taxes or in conducting any audit or proceeding in respect of Taxes.
Such cooperation and information shall include providing copies of relevant Tax
Returns or portions thereof, together with accompanying schedules and related
work papers and documents relating to rulings or other determinations by taxing
authorities. Each party shall make its employees available on a mutually
convenient basis to provide explanation of any documents or information provided
hereunder. The Seller, upon written request by the Buyer, will provide to the
Buyer such factual information reasonably necessary for filing Tax Returns, tax
planning and contesting any tax audit that the Seller possesses as the Buyer may
reasonably request with respect to the Purchased Assets (which information the
Seller agrees to maintain and preserve for so long as it may be needed by the
Buyer).
SECTION 12.11 - Arbitration. Any claim or dispute of any nature between
the parties hereto relating to this Agreement arising directly or indirectly
from the relationship created by this Agreement shall be resolved exclusively by
arbitration in the State of New Jersey, in accordance with the applicable rules
of the American Arbitration Association then obtaining. The fees of the
arbitrator(s) and other costs incurred by the
<PAGE>
-39-
parties in connection with such arbitration shall be paid by the party which is
unsuccessful in such arbitration. The decision of the arbitrator(s) shall be
final and binding upon the parties. Judgment of the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof.
Notwithstanding the foregoing, the Buyer may apply for and obtain a temporary
restraining order, permanent restraining order or injunctive relief from a court
of competent jurisdiction in respect of certain agreements identified in Section
10.7 herein.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
PROFORMIX, INC.
By:________________________________
Name:
Title:
1320236 ONTARIO INC.
By:________________________________
Name: Raj Pasricha
Title: Assistant Secretary
PROFORMIX SYSTEMS, INC.
By:________________________________
Name:
Title:
EXHIBIT 2.2
SCHEDULE 10.7(b)
MARKETING AND DEVELOPMENT AGREEMENT
THIS AGREEMENT is made this 18th day of November, 1998, between PROFORMIX,
INC., a Delaware corporation ("PI"), 1320236 Ontario Inc., an Ontario
corporation ("1320236") and PROFORMIX SYSTEMS, INC., a Delaware corporation
("PSI").
RECITALS:
A. Pursuant to an asset purchase agreement made of even date herewith (the
"Purchase Agreement") between PI, 1320236 and PSI, PI agreed to sell and 1320236
agreed to purchase all right, title and interest of PI in and to all of PI's
hardware products including ergonomic hardware products such as keyboard
platforms, mouse platforms, mouse glidepoints, corner bridges, workstations,
document holders and all other mounting products, subject to the terms and
conditions set forth therein;
B. PI wishes to continue to market the aforementioned products; and
C. In order to facilitate the transition of the aforementioned products from PI
to 1320236, and the ongoing growth of 1320236's business, during the currency of
this Agreement PI will provide certain marketing and development services to
1320236 as hereinafter provided.
FOR VALUE RECEIVED the parties agree as follows:
SECTION 1 - INTERPRETATION
1.1 Caplitalized Terms. Each capitalized term not otherwise defined in this
Agreement has the meaning given to it in the Purchase Agreement.
1.2 Definitions. In this Agreement the following terms shall have the meanings
set out below.
"Affiliate" as to any Person means any other Person that directly, or
indirectly through one or more intermediaries, controls, or is controlled
by, or is under common control with, such Person. The term "control"
(including, with correlative meanings, the terms "controlled by" and
"under common control with" as used with respect to any Person) means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person whether through
ownership of voting securities, by contract or otherwise;
"Agreement" means this Marketing and Development Agreement, including all
schedules, and all instruments supplementing or amending or
<PAGE>
-2-
confirming this Agreement and references to "Article" or "Section" mean
and refer to the specified Article or Section of this Agreement;
"Business" shall have the meaning ascribed thereto in the Purchase
Agreement.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banking institutions in the City of New Jersey are
authorized by law or executive order to close;
"Fees" means the fees payable by 1320236 to PI pursuant to Section 2.3
below;
"Net Sales" means the total invoice sale price of Products, excluding all
taxes, SPIFs, customer credits, allowances, discounts, volume rebates,
warehouse allowances, freight, insurance, export and import charges,
returns of goods, bad debts and consulting, support contract, training and
other non-Product charges;
"Products" shall mean those products currently or during the last five (5)
years designed, developed, manufactured, marketed, distributed or sold by
PI or in the process of design, development, manufacture, distribution or
sale by PI (including modified versions of such products provided such
products remain substantially similar), including the ergonomic hardware
products set forth in Schedule A hereto;
"Purchase Agreement" shall have the meaning ascribed thereto in Recital A;
"Target Sales" shall be $8.2 million for the Year ending April 30, 2000
and such amount shall increase for each Year thereafter at a compounded
rate of 30% per annum (being approximately $10.7 million for the Year
ending April 30, 2001, approximately $13.9 million for the year ended
April 30, 2002, approximately $18.1 million for the Year ended April 30,
2003 and so on);
"Termination Date" has the meaning set forth in Section 2.3;
"Territory" means North America and Europe; and
"Year" means the twelve month period commencing May 1st in a year and
ending on April 30th in the next succeeding year, commencing with the
twelve month period ending April 30, 2000.
<PAGE>
-3-
1.3 Certain Rules of Interpretation. In this Agreement:
(a) Time - time is of the essence in the performance of the parties'
respective obligations.
(b) Currency - unless otherwise specified, all references to money
amounts are to United States currency.
(c) Headings - the descriptive headings of Articles and Sections are
inserted solely for convenience of reference and are not intended as
complete or accurate descriptions of the content of such Articles or
Sections.
(d) Singular, etc. - the use of words in the singular or plural, or with
a particular gender, shall not limit the scope or exclude the
application of any provision of this Agreement to such Person or
Persons or circumstances as the context otherwise permits.
(e) Consent - whenever a provision of this Agreement requires an
approval or consent by a party to this Agreement and notification of
such approval or consent is not delivered within the applicable time
limited, then, unless otherwise specified, the party whose consent
or approval is required shall be conclusively deemed to have
withheld its approval or consent.
(f) Calculation of Time - unless otherwise specified, time periods
within or following which any payment is to be made or act is to be
done shall be calculated by excluding the day on which the period
commences and including the day on which the period ends and by
extending the period to the next Business Day following if the last
day of the period is not a Business Day.
(g) Business Day - whenever any payment is to be made or action to be
taken under this Agreement is required to be made or taken on a day
other than a Business Day, such payment shall be made or action
taken on the next Business Day following such day.
1.4 Severability. If any provision of this Agreement is or becomes illegal,
invalid or unenforceable in any jurisdiction, the illegality, invalidity or
unenforceability of that provision will not affect:
(a) the legality, validity or enforceability of the remaining provisions
of this Agreement; or
(b) the legality, validity or enforceability of that provision in any
other jurisdiction.
<PAGE>
-4-
SECTION 2 - MARKETING AND DEVELOPMENT SERVICES BY PROFORMIX
2.1 Services Provided. PI, on behalf of itself and on behalf of its Affiliates,
agrees to render the following services to 1320236 and its Affiliates:
(a) to use its best efforts ancillary to its other business activities
during the term of this Agreement to generate leads and referrals
for Products and any other ergonomic hardware products marketed or
distributed by 1320236 or its Affiliates and to generally keep
1320236 informed of sales prospects;
(b) to cause Michael Martin, an employee of PI, during the period ending
twelve (12) months after the date hereof, to provide development
support services for the keyboard and mouse Products and to assist
in the transition of the development initiatives for these Products
to 1320236's or its Affiliate's engineering group, all as reasonably
required by 1320236; and
(c) to provide such other transitional services as 1320236 may
reasonably require during the six months following the date hereof
including, without limitation, customer service training.
PI shall be responsible for all costs incurred by it in providing the foregoing
services provided that PI shall be reimbursed for reasonable travel expenses and
lodging incurred by Mr. Martin in connection with his duties under Section
2.1(b) above.
2.2 One Time Fee. In consideration of the entering into of this Agreement,
1320236 shall pay PI, or as PI may direct in writing, a one time non-refundable
fee of $541,000 on the date hereof.
2.3 Fees. 1320236 shall pay PI an ongoing Fee equal to 18% of Net Sales of
Products sold by 1320236 or its Affiliates (including Products sold pursuant to
the Customer Purchase Orders as such term is defined on the Purchase Agreement)
between the date hereof and April 30, 1999 (such Fee not to exceed $540,000 in
the aggregate) and 10% of such Net Sales for each Year thereafter commencing
with the Year ending April 30, 2000 provided that if Target Sales for a
particular Year after the Year ending April 30, 1999 are not achieved the Fee
for that Year shall be reduced to 6% of Net Sales for that Year; and provided
further that if Target Sales are not achieved for a further consecutive Year
(the last day of such Year is herein referred to as the "Termination Date"), the
Fee for that Year shall be $1.00 in the aggregate and PI's right to further Fees
hereunder shall immediately cease and terminate.
2.4 Payment of Fees. Fees shall be calculated on a monthly basis and payable
within thirty days of the end of the preceding month at the rate of 18% of Net
Sales for the period commencing the date hereof and ending on April 30, 1999.
Fees shall be calculated on a monthly basis for the Year ending April 30, 2000
and on a quarterly basis for each Year thereafter and such Fee shall be payable
within thirty days of the end of the preceding month or quarter, as applicable,
at the rate of 6% of Net
<PAGE>
-5-
Sales unless the parties, acting in good faith, agree that the Sales Target for
the Year in question has been met in which case the monthly or quarterly
payments, as applicable, for the balance of the Year shall be adjusted to 10% of
Net Sales and any shortfall in the payment of Fees for such Year shall be
adjusted within thirty (30) days of the end of the Year in question; provided
that for any Year next succeeding a Year in which Target Sales were not met Fees
(if any) shall be payable within thirty (30) days of the end of the Year in
question. Appropriate details regarding the calculation of such Fees shall
accompany each payment.
2.5 Other Competitive Products. During the term of this Agreement and for a
period of one (1) year thereafter, PI and PSI, on behalf of themselves and their
Affiliates, shall be precluded by this Agreement from manufacturing,
distributing, selling, marketing and promoting products within the Territory
which are competitive with the Products and any other ergonomic hardware
products marketed or distributed by 1320236 and its Affiliates. For greater
certainty, PI, PSI and their Affiliates shall not be precluded from carrying on
the business heretofore and currently carried on by them consisting of the
design, development, manufacture, distribution and sale of software products.
SECTION 3 - GENERAL
3.1 Term. This Agreement shall continue in force from the date hereof until the
Termination Date, at which time this Agreement shall terminate.
3.2 Termination by 1320236. 1320236 shall be entitled at any time by notice to
PI to terminate this Agreement immediately if PI commits or permits any other
material breach of any of the provisions of this Agreement and fails to remedy
the breach within 30 days after notice thereof to PI but no such termination
shall limit the right of 1320236 to pursue any remedy in respect of a breach of
this Agreement by PI or PSI.
3.3 Termination by PI. PI shall be entitled at any time by notice to 1320236 to
terminate this Agreement immediately if 1320236 fails to pay any amount due
under this Agreement (except to the extent such amount is properly offset
against other amounts under the provisions of this Agreement, the Purchase
Agreement or the agreements and instruments executed in connection therewith)
and such failure continues for 15 days after notice thereof to 1320236 but no
such termination shall limit the right of PI to pursue any remedy in respect of
a breach of this Agreement by 1320236.
SECTION 4 - MISCELLANEOUS
4.1 Survival. Any payment obligations arising prior to the expiry or termination
of this Agreement shall survive the expiration or termination of this Agreement.
<PAGE>
-6-
4.2 Further Assurances. Each party shall from time to time promptly execute and
deliver and have executed and delivered all further documents and take, and have
taken, all further action, as may be necessary or appropriate to give effect to
the terms and intent of this Agreement and to complete the transactions
contemplated by this Agreement.
4.3 Assignment and Enurement. Neither this Agreement nor any rights or
obligations hereunder may be assigned by any of the parties hereto except as
expressly provided in this section. 1320236 may assign this Agreement and all
benefit thereof to an Affiliate or to any successor of 1320236 which has
purchased all or substantially all of the assets of the Business and PI may
assign this Agreement and all benefits thereof to an Affiliate that is the
successor to the software product business of PI, provided that no such
assignment shall reduce or otherwise vitiate any of the obligations of 1320236
or PI hereunder. Furthermore, if 1320236 or its Affiliates sells all or
substantially all of the assets of the Business it shall require as a condition
to such sale that the purchaser assumes and agrees to be bound by the terms of
this Agreement. This Agreement enures to the benefit of and binds the parties
and their respective successors and permitted assigns.
4.4 Waivers. No waiver of any term of this Agreement is binding unless it is in
writing and signed by the party to this Agreement entitled to grant the waiver.
No failure to exercise, and no delay in exercising, any right or remedy under
this Agreement will be deemed to be a waiver of that right or remedy. No waiver
of any breach of any term of this Agreement will be deemed to be a waiver of any
subsequent breach of that term.
4.5 Character of Agreement. Nothing contained in this Agreement shall constitute
a party the agent or partner of another or shall empower a party to bind
another, nor shall PI have the authority or represent itself as having the
authority to establish pricing, grant credit and/or settle other terms of sale
for the Products.
4.6 Governing Law. This Agreement is governed by, and is to be construed and
interpreted in accordance with, the laws of the State of New Jersey and the laws
of the United Sates applicable in the State of New Jersey.
4.7 Amendments. No amendment, supplement, restatement or termination of any
provisions of this Agreement is binding unless it is in writing and signed by
each party to this Agreement.
4.8 Notices. Unless otherwise agreed by the parties, each notice under this
Agreement must be given in the same way as in the Purchase Agreement.
4.9 Counterparts. This Agreement may be executed and delivered in any number of
counterparts, each of which when executed and delivered is an original but all
of which together constitute one and the same instrument.
<PAGE>
-7-
4.10 Authority. Each party to this Agreement hereby represents and warrants to
the others that the execution and delivery of this Agreement has been duly
authorized by such party, and that the individual signing this Agreement on
behalf of the party has all necessary authority to do so.
4.11 Offset. Any and all amounts owing or to be paid by 1320236 to PI pursuant
to this Agreement, shall be subject to offset and reduction by any amounts on a
dollar for dollar basis that may be owing at any time by PI or PSI to 1320236
pursuant to the Purchase Agreement, the agreements and instruments executed in
connection therewith or any other agreement between 1320236 and PI and/or PSI as
is reasonably determined by 1320236. 1320236 shall deposit any amounts it
proposes to offset into an escrow account maintained by 1320236's counsel
pending arbitration of the matter as provided in Section 4.12 below.
4.12 Arbitration. Any claim or dispute of any nature between the parties hereto
arising directly or indirectly from the relationship created by this Agreement
shall be resolved exclusively by arbitration pursuant to the provisions of
Section 12.11 of the Purchase Agreement.
The parties have executed this Agreement.
PROFORMIX, INC.
By:________________________________
Name:
Title:
1320236 ONTARIO INC.
By:________________________________
Name: Raj Pasricha
Title: Assistant Secretary
PROFORMIX SYSTEMS, INC.
By:________________________________
Name:
Title:
FOR VALUE RECEIVED, the undersigned, Michael Martin, a director,
shareholder, officer and employee of PI and PSI, agrees to make himself
available to provide the development services on behalf of PI referred to in
Section 2.1(b) above.
DATED this 18th day of November, 1998.
___________________________________
Michael Martin
EXHIBIT 99.1
PROFORMIX SYSTEMS, INC. AND SUBSIDIARIES
PRO-FORMA BALANCE SHEET
(Unaudited)
September 30, 1998
------------------
Before After
------ -----
Office Specialty Transaction
----------------------------
ASSETS
Current Assets
Cash ........................................ $ 63,490 $ 63,490
Accounts receivable, net of allowance for
doubtful accounts of 30,533 ................. 411,935 411,935
Inventories ................................. 313,982 19,000
Prepaid advertising ......................... 759,084 759,084
Other prepaid expenses ...................... 31,860 31,860
----------- -----------
Total Current Assets ..................... 1,580,351 1,285,369
Property, plant and equipment ............... 488,208 169,840
Acquired software assets .................... 2,275,282 2,275,282
Other assets ................................ 146,681 88,761
----------- -----------
TOTAL ASSETS ..................................... 4,490,522 3,819,252
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable and accrued expenses ....... 1,636,486 1,252,022
Dividends payable ........................... 9,000 9,000
Loans and notes payable ..................... 1,306,579 1,056,579
Current maturities long-term debt ........... 387,180 207,180
Current maturities lease obligations ........ 8,589 8,589
----------- -----------
Total Current Liabilities ................ 3,347,834 2,533,370
Long-term debt, less current portion ........ 1,498,888 1,150,000
Lease obligations, less current portion ..... 17,975 17,975
----------- -----------
TOTAL LIABILITIES ................................ 4,864,697 3,701,345
STOCKHOLDERS' EQUITY
Preferred Stock Ser.A, $0.01 par value,
3,000,000 shares authorized, 0 and
100,000 shares issued and
outstanding ................................. -- --
Cumulative Preferred Stock, $0.001
par value, 2,500 shares authorized, 10
shares issued and outstanding ............... 0 0
Common Stock, $0.0001 par value,
30,000,000 shares authorized, 5,081,613
issued and outstanding ...................... 508 508
Contributed capital ......................... 81,000 81,000
Additional paid-in capital .................. 7,785,520 7,785,520
Accumulated deficit ......................... (8,241,203) (7,749,121)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) ............. (374,175) 117,907
----------- -----------
TOTAL LIABILITIES AND EQUITY ... $ 4,490,522 $ 3,819,252
=========== ===========
See notes to pro-forma consolidated financial statements
<PAGE>
PROFORMIX SYSTEMS, INC. AND SUBSIDIARIES
PRO-FORMA STATEMENTS OF OPERATIONS
(Unaudited)
Nine Months Ended
September 30, 1998
------------------
Before After
------ -----
Office Specialty Transaction
----------------------------
Revenues ..................................... $ 2,776,369 $ 2,776,369
Cost of Goods Sold ...................... 1,446,935 1,446,935
Disposition obsolete inventories ........ 120,343 120,343
----------- -----------
Gross Profit ................................. 1,209,091 1,209,091
Selling expenses ........................ 1,118,232 1,118,232
General & administrative expenses ....... 1,693,656 1,693,656
----------- -----------
Operating Income (Loss) ...................... (1,602,797) (1,602,797)
Miscellaneous income .................... 436 492,518
Interest expense (net) .................. (221,139) (221,139)
Miscellaneous expenses .................. (42,547) (42,547)
----------- -----------
Non-Operating Income (Expenses) .............. (263,250) 228,832
Total Net Loss ............................... $(1,866,047) $(1,373,965)
=========== ===========
Net Loss per Common Share .................... $ (0.41) $ (0.30)
=========== ===========
Weighted-Average Number of
Common Shares Outstanding ............... 4,539,511 4,539,511
See notes to pro-forma consolidated financial statements
2
<PAGE>
PROFORMIX SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO PRO-FORMA CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
BACKGROUND
On November 18, 1998, the Company and its subsidiary Proformix, Inc. entered
into an Asset Purchase Agreement and several related agreements with 1320236
Ontario Inc.("OS"), a publicly traded Canadian designer. manufacturer and
distributor of office furniture based in Holland Landing, Ontario, Canada,
pursuant to which OS acquires Proformix Inc.'s hardware product line comprised
of the Company's ergonomic keyboard platform products and accessories, and all
related inventory and production tooling and warehousing assets, and all
intellectual property rights including the Proformix name, against a cash
consideration and an ongoing contingent stream of royalty payments on OS' sales
of the Proformix products. The Company will continue to market its proprietary
software under the Proformix label. The Agreement with OS also provides for the
retirement of the Company's existing bank debt, out of the proceeds of the
transaction.
PROCEEDS OF TRANSACTION
OS paid the Company an aggregate $1,266,000 pursuant to the Asset Purchase and
Marketing and Development Agreements. In addition, the Company will be paid
certain contingent payments calculated on the basis of OS' future revenues from
the acquired assets. As a result of the transaction, the Company transferred to
OS and disposed of certain inventories aggregating $294,982 book value,
production and warehouse assets totaling $318,368 net book value, and other
assets with a net book value of $57,920. The resulting net balance after
deducting related costs and expenses of $492,082 is accounted for as
extraordinary income.
USE OF PROCEEDS
The funds received from OS were utilized to retire two bank loans with a total
of $778,888 principal balance, pay certain trade liabilities aggregating
$384,464 and cover costs and expenses involved in consummating the transaction
totaling $102,648.
3
