SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c)
of the Securities Exchange Act of 1934
(Amendment No. 2 )
Check the appropriate box:
_ Preliminary Information Statement _ Confidential, for use of
the Commission Only (as per-
mitted by Rule 14c-5(d)(2))
X Definitive Information Statement
NEW PARADIGM SOFTWARE CORP.
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(Name Of Registrant As Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
_ No fee required.
X Fee computed on table below per Exchange Act Rules 14c-
5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
1/50th of 1% of the purchase price payable to the Registrant
under the Purchase Agreement = $410
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(4) Proposed maximum aggregate value of the transaction:
$2,050,000
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(5) Total fee paid:
$410
- ---------------------------------------------------------------------------
X Fee paid previously with preliminary materials.
_ Check Box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
(1) Amount Previously Paid:
- ---------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
New Paradigm Software Corp.
733 Third Avenue, 7th Floor
New York, New York 10017
SPECIAL MEETING OF SHAREHOLDERS
ORIGINALLY CALLED FOR JUNE 27, 1997 AND ADJOURNED TO JULY 15, 1997
REVISED INFORMATION STATEMENT
To the Shareholders of New Paradigm Software Corp.:
This statement is furnished in connection with a Special
Meeting of Shareholders of New Paradigm Software Corp. (the
"Corporation") that was originally called for June 27, 1997,
at 11:00 A.M. at the principal executive offices of the
Corporation, 733 Third Avenue, 7th Floor, New York, New York,
and at any adjournment thereof (the "Shareholders Meeting").
The Shareholders Meeting has been adjourned to July 15, 1997
at 10:00 A.M. at the same place.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE
REQUESTED NOT TO SEND US A PROXY
This Revised Information Statement is being mailed to
shareholders of the Corporation commencing on July 5, 1997.
ANNUAL REPORT ON FORM 10-KSB
Attached to this Revised Information Statement at Annex B is
the Corporation's Annual Report on Form 10-KSB for the fiscal
year ended March 31, 1997. The Annual Report on Form 10-KSB
contains detailed information concerning the Corporation's
business, properties, management, financial condition,
results of operations and other matters and contains audited
financial statements of the Corporation. The Annual Report
on Form 10-KSB forms part of this Revised Information
Statement.
VOTING SECURITIES
The securities of the Corporation entitled to vote at the
Shareholders Meeting are shares of Common Stock, par value
$.01 per share (the "Common Stock"), outstanding on May 13,
1997 (the "Record Date") and shares of Series "C" Redeemable
Preferred Stock, par value $.25 per share (the "Series C
Redeemable Preferred Stock"). On the Record Date, there were
2,451,729 shares of Common Stock outstanding and 800,000
shares of Series C Redeemable Preferred Stock outstanding.
Each share of Common Stock is entitled to one vote and each
share of Series C Redeemable Preferred Stock is entitled to
four votes. The shares of Common Stock and Series C
Redeemable Preferred Stock vote together as a single class on
all matters.
VOTING PROCEDURES
Under the New York Business Corporation Law (the "BCL") and
the Corporation's By-Laws, the presence, in person or by
proxy, of the holders of a majority of the outstanding shares
entitled to vote on a particular matter is necessary to
constitute a quorum of shareholders to take action at the
Shareholders Meeting with respect to such matter. For these
purposes, shares which are present, or represented by a
proxy, at the Shareholders Meeting will be counted for quorum
purposes regardless of whether the holder of the shares or
proxy fails to vote on any particular matter or whether a
broker with discretionary authority fails to exercise its
discretionary voting authority with respect to any particular
matter. Once a quorum of the shareholders is established,
under the BCL and the Corporation's By-Laws, each matter will
be decided by a majority of the votes cast on the matter,
except as otherwise provided by law or the Corporation's
Certificate of Incorporation. The required vote for approval
of Proposal 1 is not less than 66 2/3 % of the votes entitled
to be cast at the Shareholders Meeting. For purposes of
voting on Proposal 1 (as opposed to for purposes of
establishing a quorum) abstentions and broker non-votes will
have the same effect as a vote "against" Proposal 1.
VOTING AGREEMENTS - CHANGE OF CONTROL
The Corporation is not asking shareholders for proxies in
connection with Proposal 1 as the holders of 68.1% of the
votes eligible to be cast at the Shareholders Meeting have
already agreed to vote in favor of Proposal 1 through Voting
Agreements more fully described below (see Proposal 1 -
Voting Agreements"; "Certain Transactions - Transactions with
VIE - Voting Agreements"). One of the Voting Agreements is
with Mr. Robert Trump, who acquired the right to 3,200,000
votes by acquiring 800,000 shares of Series C Redeemable
Preferred Shares on March 13 1997. The votes represented by
the Series C Redeemable Preferred Stock represent
approximately 56% of the voting power of the Corporation's
outstanding stock. The Series C Redeemable Preferred Stock
was issued in exchange for Mr. Trump's advance of $150,000
to the Corporation in January 1997, and a further $50,000 in
March 1997. This transaction caused a change of control of
the Corporation by increasing Mr. Trump's voting power from
18% to 64% (including the shares held by Midland Associates,
an affiliate of Mr. Trump). The Corporation will redeem the
Series C Redeemable Preferred Stock with $200,000 of the
proceeds of the transaction which will be approved as a
result of the Voting Agreements, including the Voting
Agreement entered into by Mr. Trump. Mr. Trump is not
otherwise directly or indirectly affiliated with VIE and
except for the intended redemption of the Series C Redeemable
Preferred Stock in accordance with its terms will not receive
any compensation in connection with the transactions
described in Proposal 1.(See "Certain Transactions - Loan
from Robert Trump - Series C Redeemable Preferred Shares")
RIGHTS OF DISSENTING SHAREHOLDERS
Section 623 of the BCL, a copy of which is attached to this
Information Statement as Annex A, entitles any non-affiliated
shareholder who objects to the terms of Proposal 1 to demand
in writing that he be paid the "fair value" of his Common
Stock. "Fair value" is defined by the BCL as the fair value
of the Common Stock immediately before the closing date
taking into account all relevant factors but excluding any
appreciation or depreciation in anticipation of Proposal 1.
The fair value is determined as described below.
Any shareholder contemplating making demand for appraisal is
urged to review carefully the provisions of Section 623,
particularly the procedural steps required to perfect his
appraisal rights thereunder. Appraisal rights will be lost
if the procedural requirements of Section 623 are not fully
and precisely satisfied. The following summary does not
purport to be a complete statement of the provisions of
Section 623 of the BCL and is qualified in its entirety by
reference to Annex A.
Filing Notice of Intention to Demand Fair Value
Before the shareholders' vote is taken on Proposal 1, the
dissenting holder of Common Stock must deliver to the
Corporation a written objection to such action which shall
include a notice of his election to dissent, his name and
residence address, the number of shares of Common Stock as to
which he dissents and a demand that he be paid the fair value
of his Common Stock if Proposal 1 is effected. Such written
notice may be sent to the Secretary of the Corporation at 733
Third Avenue, 7th Floor, New York, New York 10017. A vote
against Proposal 1 is not sufficient to satisfy the
requirement of delivering a written notice to the
Corporation. In addition, the holder of Common Stock must
not effect any change in the beneficial ownership of his
Common Stock from the date of filing the notice with the
Corporation through the Closing Date and Common Stock for
which payment of fair value is sought must not be voted in
favor of Proposal 1. A failure to vote will not waive
appraisal rights, provided that the required written notice
described above is timely given. Proper revocation of a
signed blank proxy or a signed proxy instructing a vote for
adoption of Proposal 1 will also preserve dissenters' rights
under the BCL, provided that the required written notice
described above is timely given. Failure by a dissenting
holder of Common Stock to comply with any of the foregoing
shall forfeit any right to payment of fair value for his
Common Stock.
Record and Beneficial Owners
A record holder of Common Stock may assert dissenters' rights
as to less than all of the Common Stock registered in his
name only if he dissents with respect to all the Common Stock
beneficially owned by any one person and discloses the name
and address of the person or persons on whose behalf he
dissents. A beneficial owner of Common Stock who is not the
record holder may assert dissenters' rights with respect to
Common Stock held on his behalf if he submits to the
Corporation the written consent of the record holder not
later than the time of assertion of dissenters' rights. A
beneficial owner may not dissent with respect to less than
all of the Common Stock owned by him, whether or not such
Common Stock is registered in his name.
Submission of Certificates
At the time of filing the notice of election to dissent or
within one (1) month thereafter, a holder of Common Stock
represented by certificates shall submit the certificates
representing such Common Stock to the Corporation which shall
forthwith note conspicuously thereon that a notice of
election has been filed and shall return the certificates to
such holder or other person who submitted them on his behalf.
Any holder of Common Stock represented by certificates who
fails to submit his certificates for such notation shall, at
the option of the Corporation, exercised by written notice to
the holder within forty-five (45) days from the date of
filing of such notice of election to dissent, lose his
dissenters' rights unless a court, for good cause shown,
shall otherwise direct.
Notice to Shareholders
If Proposal 1 is approved at the reconvened Special Meeting,
the Corporation shall send written notice of such approval by
registered mail to each holder of Common Stock who filed
written notice of his intention to dissent. Such notice
shall be sent by the Corporation within ten (10) days after
the Adjourned Special Meeting.
Offer of Fair Value
Within fifteen (15) days after Proposal 1 is consummated, or
within ninety (90) days from the date of the reconvened
Special Meeting, whichever is earlier, the Corporation shall
make a written offer by registered mail to each holder of
Common Stock who has filed a written notice of his election
to dissent to pay for such holder's Common Stock at a
specified price which the Corporation considers to be the
fair value of such shares. Such offer shall be accompanied
by a statement setting forth the aggregate number of shares
with respect to which dissenter's rights have been sought and
the aggregate number of holders of such Common Stock. If
Proposal 1 has been consummated, such offer shall also be
accompanied by (i) advance payment to each such dissenting
shareholder who has submitted the certificates representing
his Common Stock to the Corporation as provided above of an
amount equal to eighty (80%) percent of the price offered by
the Corporation as the fair value of such Common Stock, or
(ii) as to each holder who has not yet submitted his
certificates as provided above, a statement that advanced
payment to him of an amount equal to eighty (80%) of the
price offered by the Corporation will be made by the
Corporation promptly upon submission of such certificates.
If Proposal 1 has not yet been consummated at the time of
the making of such offer, such advance payment or statement
as to advance payment shall be sent to each dissenting
shareholder entitled thereto upon consummation of Proposal 1.
Every advance payment or statement as to advance payment
shall include advice to the dissenting shareholder to the
effect that acceptance of such payment does not constitute a
waiver of any dissenter's rights. If within thirty (30) days
after the making of such offer, the Corporation and any
dissenting shareholder agree upon the price to be paid for
such Common Stock, payment therefore shall be made within
sixty (60) days after the making of such offer or the
consummation of Proposal 1, whichever is later upon the
surrender of the certificates for any such Common Stock
represented by such certificates.
Valuation Proceedings
If within thirty (30) days after the dissemination of the
offer referred to above by the Corporation to dissenting
shareholders, the Corporation and all such dissenting
shareholders have failed to agree upon the price to be paid
for their Common Stock, the Corporation shall within twenty
(20) days after the expiration of such thirty (30) day
period, institute a special proceeding in the Supreme Court
for the State of New York (the "Court") to determine the
rights of dissenting shareholders and to fix the fair value
of their Common Stock. If the Corporation fails to institute
such a proceeding within such twenty (20) day period, any
dissenting shareholder may institute such proceeding for the
same purpose not later than thirty (30) days after the
expiration of such twenty (20) day period. If such
proceeding is not instituted by a dissenting shareholder
within such thirty (30) day period, all dissenters' rights
shall be lost unless the Court, for good cause shown, shall
otherwise direct. All dissenting shareholders, except for
those who have already agreed with the Corporation upon the
price to be paid for their Common Stock, shall be made
parties to any such proceedings. In fixing the fair value of
the Common Stock, the Court shall consider the nature of the
transaction and its effects on the Corporation and its
shareholders, the concepts and methods then customary and
relevant in securities and financial markets for determining
the fair value of shares of a corporation engaging in a
similar transaction under comparable circumstances and other
relevant factors. Upon the Court's determination of the fair
value of the Common Stock, each dissenting shareholder shall
be entitled to recover the amount by which the fair value of
his Common Stock is found to exceed the amount previously
remitted to each such holder by the Corporation. Such
dissenter shall also be entitled to interest on such amount
from the Closing Date until the date of payment as is found
equitable under the circumstances, taking into account all
relevant factors.
Costs and Expenses of Valuation Proceedings
Each party to any such valuation proceeding shall bear its
own costs and expenses, including the fees and expenses of
its counsel and of any experts employed by it.
Notwithstanding the foregoing, the Court may, in its
discretion, apportion and assess all or any part of the
costs, expenses and fees incurred by the Corporation against
any or all of the dissenting shareholders who are parties to
the proceeding, including any who have withdrawn their
notices of election, if the Court finds that the refusal to
accept the Corporation's offer was arbitrary, vexatious or
otherwise not in good faith. The Court, may also, in its
discretion, apportion or assess all or any part of the costs,
expenses and fees incurred by any or all of the dissenting
shareholders who are parties to the proceeding against the
Corporation if the Court finds any of the following: (i) that
the fair value of the Common Stock as determined materially
exceeds the amount which the Corporation offered to pay; (ii)
that no offer or required advance payment was made by the
Corporation; (iii) that the Corporation failed to institute
the valuation proceeding within the period specified
therefor; or (iv) that the action of the Corporation in
complying with its obligations was arbitrary, vexatious or
otherwise not in good faith.
Other
Courts have held that a New York corporation's board of
directors stands in a fiduciary relationship to the
corporation and its shareholders and must discharge its
duties in good faith and with the diligence and skill which
ordinarily prudent persons would exercise in similar
circumstances. Section 623 of the BCL provides in substance
that the enforcement by a shareholder of his right to receive
payment for his shares in the manner provided in Section 623
shall exclude the enforcement by such shareholder of any
other right to which he might otherwise be entitled by virtue
of share ownership, except that such section shall not
exclude the right of such shareholder to bring or maintain an
appropriate action to obtain equitable relief on the ground
that such corporate action will be or is unlawful or
fraudulent as to him. Thus, in addition to the statutory
proceeding for the appraisal of a dissenting shareholder's
shares pursuant to Section 623, a shareholder may also seek
equitable relief based on an allegation of fraud and/or
breach of a fiduciary duty. However, in the absence of any
primary request for equitable relief, a shareholder's sole
remedy is the statutory proceeding for appraisal provided for
in Section 623.
Under certain circumstances, it is possible that holders of
Common Stock who vote in favor of Proposal 1 may, as a result
of so voting, be estopped from challenging Proposal 1 on
grounds of fairness at a later time.
PRINCIPAL SECURITY HOLDERS
The following table indicates the beneficial ownership of the
Corporation's Common Stock as of May 1, 1997, by (1) each of
the directors, (2) each of the executive officers of the
Corporation, (3) all directors and executive officers of the
Corporation as a group and (4) each person or entity which
beneficially owned in excess of five percent of the Common
Stock, based upon information supplied by each of the
directors, nominees, executive officers and five percent
beneficial owners:
Common Stock
<TABLE>
<S> <C> <C> <C> <C> <C>
Name of Beneficial Owner(a) Right to Right to Total Number Percent of Percent of
Sole Voting Shared Voting of Shares Common Stock Voting Power
and Investment and Investment Beneficially Beneficially Beneficially
Power Power Owned Owned Owned
Mark Blundell 220,665(b) 199,999(c) 420,664 16% 7%
John Brann 219,332(d) 199,999(c) 419,331 16% 7%
Matthew Fludgate 25,508(e) 0 25,508 1% (j)
Daniel Gordon 35,333(f) 0 35,333 1% (j)
Lancer Holdings 199,999(g) 0 199,999 8% 4%
Midland Associates 619,999(h) 0 619,999 24% 11%
Michael Taylor 10,000(i) 0 10,000 (j) (j)
Robert Trump 350,000(k) 619,999(l) 969,999 34% 69%(o)
All Directors and
Executive
Officers of the
Company as a
group (a total of
5 persons) 510,838(m) 199,999(n) 710,837 23% 11%
<FN>
<F1> (a) The shares of Common Stock beneficially owned by each
person or by all directors and executive officers as a group,
and the shares included in the total number of shares of
Common Stock outstanding used to determine the percentage of
shares of Common Stock beneficially owned by each person and
such group, have been adjusted in accordance with Rule 13d-3
under the Securities Exchange Act of 1934 to reflect the
ownership of shares issuable upon exercise of outstanding
options, warrants or other common stock equivalents which are
exercisable within 60 days. As provided in such Rule, such
shares issuable to any holder are deemed outstanding for the
purpose of calculating such holder's beneficial ownership but
not any other holder's beneficial ownership.
<F2> (b) Consists of (i) 26,667 shares of Common Stock, (ii) 5,333
shares of Common Stock issuable upon exercise of warrants
issued in a 1994 private placement of the Corporation's
securities (the "1994 Warrants"), (iii) 38,666 shares of
Common Stock issuable upon exercise of options granted under
the Corporation's Stock option Plan ("SOP") that are
currently exercisable, and (iv) up to 149,999 shares of
Common Stock underlying stock options be granted under the
Executive Stock Option Plan. .
<F3> (c) Represents the holdings of Lancer Holdings, Inc. of which
Mr. Blundell and Mr. Brann are each 33% owners and directors
and officers. Consists of 166,666 shares of Common Stock and
33,333 shares of Common Stock issuable upon exercise of
warrants held by Lancer (the "MBA Warrants").
<F4> (d) Consists of (i) 26,667 shares of Common Stock, (ii) 4,000
shares of Common Stock issuable upon exercise of 1994
Warrants, (iii) 38,666 shares of Common Stock issuable upon
exercise of options granted under the SOP that are currently
exercisable and (iv) up to 149,999 shares of Common Stock
underlying stock options granted under the Executive Stock
Option Plan.
<F5> (e) Consists of (i) 534 shares of Common Stock, (ii) 1,307
shares of Common Stock issuable upon exercise of 1994
Warrants and (iii) 23,667 shares of Common Stock issuable
upon the exercise of options granted under the SOP
<F6> (f) Consists of (i) 10,000 shares of Common Stock and 10,000
shares of Common Stock underlying 1993 Warrants issuable upon
exercise of Directors' Options granted in 1993 to non-
employee directors of the Corporation and (ii) 15,333 shares
of Common Stock issuable upon exercise of options granted
under the SOP that are currently exercisable.
<F7> (g) Consists of 166,666 shares of Common Stock and 33,333
shares of Common Stock issuable upon exercise of the MBA
warrants held by Lancer Holdings, Inc. Lancer Holdings, Inc.
is owned 33% by Mr. Blundell, the Corporation's President,
33% by Mr. Brann, a former officer and director of the
Corporation, 33% by Red Giant, a Jersey corporation owned by
parties unrelated to the Corporation or any of its principal
stockholders and 1% by Mr. Fludgate, the Corporation's
Secretary.
<F8> (h) Consists of 439,999 shares of Common Stock and 180,000
shares of Common Stock issuable upon exercise of warrants.
These securities were previously owned by Management
Technologies, Inc. ("MTI") and transferred to Midland
Associates in satisfaction of a loan to MTI by Midland
Associates. Midland Associates is owned by Robert S. Trump,
Maryanne Trump Barry, Elizabeth Trump Grau, Donald J Trump,
Fred C Trump III, and Mary L Trump
<F9> (i) Consists of 10,000 shares of Common Stock issuable upon
exercise of options granted under the SOP.
<F10> (j) Less than 1%.
<F11> (k) Consists of (i) 200,000 shares of Common Stock issuable
upon exercise of 1994 Warrants (ii) 150,000 shares of Common
Stock issuable upon exercise of warrants having an exercise
price of $2.00 per share issued by the Corporation in
connection with a loan by Mr. Trump that was subsequently
canceled as partial consideration for issuance of the Series
C Redeemable Preferred Stock (the "Trump Warrants").
<F12> (l) Represents the holdings of Midland Associates. Consists
of the securities listed in note h above.
<F13> (m) Consists of all of the securities in notes b-f above.
<F14> (n) Consists of the securities in note g above.
<F15> (o) Includes 3,200,000 votes from 800,000 Series C Redeemable
Preferred Stock
</FN>
</TABLE>
The following table indicates the beneficial ownership of the
Corporation's Preferred Stock as of May 1, 1997, by (1) each
of the directors, (2) each of the executive officers of the
Corporation, (3) all directors and executive officers of the
Corporation as a group and (4) each person or entity which
beneficially owned in excess of five percent of the Preferred
Stock, based upon information supplied by each of the
directors, nominees, executive officers and five percent
beneficial owners:
Series C Redeemable Preferred Stock (a)
<TABLE>
<S> <C> <C> <C> <C>
Name of Beneficial Owner(a) Right to Right to Total Number Percent of
Sole Voting Shared Voting of Shares Common Stock
and Investment and Investment Beneficially Beneficially
Power Power Owned Owned
Mark Blundell 0 0 0 0%
John Brann 0 0 0 0%
Matthew Fludgate 0 0 0 0%
Daniel Gordon 0 0 0 0%
Lancer Holdings 0 0 0 0%
Midland Associates 0 0 0 0%
Michael Taylor 0 0 0 0%
Robert Trump 800,000 0 800,000 100%
All Directors and
Executive
Officers of the
Company as a
group (a total of
5 persons) 0 0 0 0%
<FN>
<F1> (a) The only preferred stock outstanding as at March 31, 1997
was the Series C Redeemable Preferred Stock. Each Series C
Redeemable Preferred Share has four (4) votes on any matter
to be put to a vote of the Corporation's shareholders. The
Series C Redeemable Preferred Shares therefore represent 56%
of the votes on any matter to be put to a vote of the
Corporation's shareholders.
</FN>
</TABLE>
AVAILABLE INFORMATION
The Corporation is subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and in accordance therewith files reports,
including annual and quarterly reports, proxy statements and
other information with the Securities and Exchange Commission
(the "Commission"). Such reports, proxy statements and other
information may be inspected and copied at prescribed rates
at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the following Regional Offices
of the Commission: 7 World Trade Center, New York, New York,
10048, and 500 West Madison Street, Chicago, Illinois 60661.
Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street,
N.W., Washington D.C. 20549 at prescribed rates. The
Commission also maintains a Web site on the World Wide Web
that contains reports, proxy and information statements and
other information regarding registrants that file
electronically with the Commission. The address of such site
is http://www.sec.gov. The Corporation's fiscal year ends on
March 31 of each year.
CAUTIONARY STATEMENT
This Information Statement contains statements relating to
future results of the Corporation (including certain
projections and business trends) that are "forward-looking
statements" as defined in the Private Securities Litigation
Reform Act of 1995. Actual results may differ materially from
those projected as a result of certain risks and
uncertainties, including but not limited to those described
under "Special Considerations." Readers are cautioned not to
place undue reliance on these forward-looking statements,
which speak only as of the date hereof. The Corporation does
not undertake any obligation to release publicly any
revisions to these forward-looking statements to reflect
events or circumstances after the date hereof or to reflect
the occurrence of unanticipated events.
COPERNICUS(R) is a registered trademark of New Paradigm Software Corp.
PROPOSAL 1
Adoption of a resolution of the shareholders
permitting the sale of the Corporation's
COPERNICUS product which constitutes
substantially all of the assets of the
Corporation
As of May 9, 1997 the Corporation entered into an agreement,
attached hereto as Annex C (the "Agreement"), to sell,
subject to shareholder approval, the rights to its COPERNICUS
product and certain related assets to VIE Systems, Inc., a
Delaware corporation ("VIE"), for $2,050,000 in cash and a 5%
royalty on future COPERNICUS related sales payable commencing
after the first 12 months (Less a credit of $50,000 from such
Royalty). The 5% Royalty is subject to termination by VIE
upon payment of a lump-sum termination payment (see "The VIE
Agreements - Royalty Termination Right")The COPERNICUS
product and the related assets represent substantially all
of the Corporation's assets. The Corporation, as a New York
corporation, is subject to the BCL, including Section 909,
which requires the Corporation to obtain shareholder approval
by a vote of at least 66 2/3% of all outstanding shares
entitled to vote thereon to sell substantially all of its
assets.
The Board of Directors believes that this transaction is in
the best interest of its shareholders because it (i) enables
the Corporation to satisfy its existing liabilities and gives
the Corporation significant working capital, (ii) entitles
the Corporation to an interest in future COPERNICUS revenues
which VIE may generate, and (iii) reduces expenses
significantly. Management believes that by securing the
right, subject to certain conditions and mutually acceptable
financial arrangements, to procure OEM licenses from VIE to
embed COPERNICUS into applications that the Corporation may
develop or acquire, the Corporation will have a competitive
advantage in marketing such products. (See "The VIE
Agreements - OEM License") See "Plan of Operation".
Accordingly, the Board of Directors recommends that you vote
FOR this resolution. Each Shareholder has the right to seek
appraisal of his Common Stock in connection with Proposal 1.
See "Rights of Dissenting Shareholders".
VIE SYSTEMS, INC.
VIE was incorporated on March 17, 1997 for the purpose of (i)
acquiring certain assets, including the COPERNICUS product
from New Paradigm Software Corp., and (ii) building a
business to market, sell, develop, implement and support
COPERNICUS to and for mid- to large-size organizations
worldwide. VIE has represented to the Corporation in writing
that it will capitalize itself with not less than $4,000,000,
$2,050,000 of which will be used to complete Proposal 1, when
approved. VIE is not and has never been an affiliate of the
Corporation, any member of the Corporation's management, any
of the Corporation's principal shareholders, (including Mr.
Robert Trump)or related parties. In connection with the
negotiation of the Agreement, Mr. John Brann, formerly a
director and the Vice President - Technology of the
Corporation was asked by the management of the Corporation to
consider an offer of employment from VIE which he has now
accepted in order to enhance the value of the sale to the
Corporation's shareholders. (see "Certain Transactions -
Other Transactions")
VOTING AGREEMENTS
As of May 9, 1997, Mr. Robert Trump, Midland Associates,
Lancer Holdings, Inc., Mark Blundell, and John Brann,
together representing 68.1% of the voting rights of the
Corporation eligible to vote at the Shareholders Meeting,
executed voting agreements (the "Voting Agreements") agreeing
to vote in favor of Proposal 1. Accordingly it is expected
that Proposal 1 will be approved.
CIRCUMSTANCES AND BACKGROUND LEADING TO THE PROPOSED
TRANSACTION
The Corporation's management and Board of Directors have
actively explored options for preserving shareholder value
while overcoming the liquidity problems which the Corporation
has experienced. Many potential transactions were pursued
and examined. In addition, the Corporation approached many
prospective investors in, and potential acquirers of, the
COPERNICUS asset. These included many investor groups and
large software companies both in the U.S. and overseas.
Summarized below are the steps taken by the Corporation in
arriving at Proposal 1.
September 1996
By September 1996 it was obvious to management that the
Corporation would need to raise significant additional funds
in order to proceed with its business plan. The direct sales
which had been expected had not materialized and revenues
were therefore below the Corporation's expectations. The
Corporation decided to reduce costs by eliminating its direct
sales force, all of whom were released at that time. The
Corporation was at the time negotiating with several parties
with a view to establishing U.S. and international
distribution via third party channels. Management decided to
focus the Corporation's activities on promoting and
supporting these third party distributors. In September 1996,
the Corporation reached a verbal agreement with International
Business Machines Corporation ("IBM") to sign a distribution
agreement (the "IBM Agreement") whereby IBM would distribute
the Corporation's COPERNICUS product with IBM's MQ Series
message-passing middleware.
October 1996
In light of the verbal agreement with IBM, the Corporation
attempted to arrange a best efforts private placement with
its investment bankers, Josephthal, Lyon and Ross,
Incorporated. At this time the Corporation's Common Stock
was trading at a daily high of $2.00 or above, reaching a
high of $3 1/8 on October 18, 1996. The private placement
was intended to raise approximately $3 million and was
conditional upon the execution and delivery of the IBM
Agreement. The financing was documented and meetings with
various other investment banks who were interested in
participating in the private placement were held. Although
the principal business points of the IBM Agreement had been
agreed, it took considerably longer than either the
Corporation or IBM expected to complete the legal formalities
and the agreement was not finally signed until December 18,
1996.
September - December 1996
During this time, the Corporation's management pursued a
number of other alternatives to raising the funding necessary
to sustain the Corporation until the sales expected through
IBM and the other distributors materialized. It was
considered highly unlikely that significant revenues would
arise from these sources before the second half of 1997 at
the earliest. Discussions were held with a number of
companies who expressed an interest in merging with the
Corporation. However, none of the proposals which management
was able to solicit proved satisfactory (e.g., no immediate
injection of funds, extreme dilution to existing
shareholders, minimal revenue contribution by the other
party). Discussions also took place over a period of several
months with a major vendor of middleware about a possible
acquisition of the Corporation or the COPERNICUS product, but
these were preempted when that vendor acquired another
company with a product which was perceived by them to be
competitive with COPERNICUS. During this period the
Corporation's total assets fell below $2 million, raising
concerns about the possible delisting of the Corporation's
Stock form the Nasdaq SmallCap market.
December 1996
The Corporation also investigated the possibility of a
placement to European investors under Regulation S of the
Securities Act of 1933, as amended. A presentation to
relevant investors by a representative of the Corporation's
management took place in the first week of December 1996, and
appeared to generate considerable interest. Nevertheless,
during December the Corporation's Common Stock price fell
from a high of $2.00 on December 5, 1996 to a low of $1.00 on
December 31, 1996. Management believes that a significant
factor in the decline of the price of the Corporation's
Common Stock was investor concern about the Corporation's
liquidity problems and the likelihood of a delisting from the
Nasdaq SmallCap market. Under these circumstances, the
interest of overseas investors disappeared and the
Corporation's investment bankers advised that a private
placement with U.S. investors was now impossible. Due to the
Corporation's liquidity crisis, all employees not absolutely
essential to the maintenance of current business and the
relationship with IBM were terminated as of December 31,
1996.
January 1997
In January and February 1997, the Corporation engaged in
lengthy discussions with a high-net worth individual with
considerable experience in the enterprise software market.
The investor carried out certain due diligence on COPERNICUS
and an investment of $2 million in exchange for a 51%
interest in the Corporation was discussed. As the two
parties moved toward documenting the proposed transaction,
the investor withdrew, based on the investor's unwillingness
to invest in a small and troubled public company.
Loan from Mr. Robert Trump
In order to continue operating, the Corporation solicited a
$150,000 loan from Mr. Robert Trump which was received on
January 16, 1997. Mr. Trump is an investor, who together
with Midland Associates with whom he is affiliated, is the
Corporation's largest shareholder. Mr. Trump was approached
by management and requested to make the loan on the basis
that the negotiations and discussions in progress were likely
to lead to a significant investment in the Corporation in the
near future. The principal terms of this loan were as
follows:
o Advance: $150,000.
o Term: 6 months (to expire July 14th, 1997).
o Interest Rate: Non interest bearing.
o Warrants: 150,000 three-year warrants with an
exercise price of $2.00 per share, in lieu
of interest.
Other terms: Warrants exercisable for 180,000 shares of
Common Stock (the "Midland Warrants"), held by Midland
Associates, an affiliate of Mr. Trump, were amended as
follows: the expiration date was changed from August 11,
1998 to January 16, 2002 and the strike price reduced from
$3.75 to $2.00 per share. See "Certain Transactions".
The loan from Mr. Trump was used to pay certain pressing
payables, including arrears of salary to all employees.
February 1997
During late January and early February, 1997 the Corporation
reached an advanced stage of negotiating a transaction with
another public company whereby the other company would sell
to the Corporation a subsidiary with assets in excess of $1.5
million and inject $1 million cash into the Corporation in
exchange for 10 million shares of the Common Stock of the
Corporation. The effect of this transaction would have been
to increase the Corporation's assets to the point where the
Corporation would have fulfilled the requirements for
continued listing on the Nasdaq SmallCap market. However,
during the due diligence process, it was discovered that the
resulting combination would have had a significantly greater
negative cash flow than had originally been foreseen. There
were also some unresolved valuation questions relating to the
subsidiary which it was proposed the Corporation would
acquire. The parties therefore decided not to proceed with
the transaction.
The VIE transaction - preliminary negotiations
In mid-February of 1997, the Corporation began discussion
with representatives of the group of investors who eventually
formed VIE Systems, Inc. in order to offer to acquire
COPERNICUS. The group of investors included the high net
worth individual with whom the Corporation had been
conducting detailed discussions in January 1997. This
investor group (which is referred to hereafter as VIE
notwithstanding that VIE Systems, Inc. was not actually
formed until some time later) initially offered $1.6 million
and a 5% equity stake in VIE in order to acquire COPERNICUS
and its related assets. This offer was received in writing
on February 20, 1997. In light of other indications which
had been received, it seemed that a better price could be
obtained, and this offer was therefore declined. However,
negotiations continued and the terms of the offer were
improved.
March 1997 - Delisting from Nasdaq SmallCap Market
As a result of the above circumstances, the Corporation had
not met the $2 million in total assets requirement for
continued listing on the Nasdaq SmallCap market since
September 1996. Accordingly on March 3, 1997 the
Corporation's Common Stock and Redeemable Warrants were
delisted from the Nasdaq SmallCap Market on the grounds that
the Corporation failed to meet the $2 million in total assets
requirement for continued listing. The Common Stock is now
trading on the Nasdaq Bulletin Board. "Penny stock" rules now
apply to the Corporation's stock. Listing on the Nasdaq
Bulletin Board may result in reduced liquidity in trading in
the Common Stock. Together these circumstances will likely
increase the costs and reduce the likelihood of success in
the event that the Corporation seeks to raise further funds
through the sale of equity securities.
Series C Redeemable Preferred Stock
On March 13, 1997, Mr. Robert Trump agreed to advance the
Corporation a further $50,000 which the Corporation urgently
required in order to continue its operations and meet its
payroll obligations. Management believed that employee morale
was low as a direct consequence of the Corporation being
unable to meet its payroll obligations, and that further
resignations of staff members would significantly reduce the
value of the Corporation's primary asset, COPERNICUS. The
Corporation therefore approached Mr. Trump to seek a further
advance to cover arrears of payroll while management pursued
discussions with Level 8 Systems, Inc., VIE, and other
parties to secure the best possible offer for the COPERNICUS
assets.
In order to secure further funds at this time when the
Corporation was in severe financial difficulties it was
agreed that Mr. Trump would receive sufficient votes via the
creation of a new class of Preferred Stock in order to be
able to maximize the possibility of recovering both the
advance of $50,000 and the earlier advance of $150,000. As a
result of these negotiations, the earlier $150,000 advance
and the March 13, 1997 $50,000 advance were combined into
$200,000 to be used to subscribe for 800,000 shares of Series
C Redeemable Preferred Stock, $0.01 par value, with the
following principal terms:
o Each Series C Redeemable Preferred Share has four (4) votes
on any matter to be put to a vote of the Corporation's
shareholders.
o The Series C Redeemable Preferred Stock can be redeemed at
the Corporation's option at any time upon payment of
$200,000.
o The Series C Redeemable Preferred Stock can be redeemed at
the holder's option following any investment in the
Corporation or a sale of any of the Corporation's assets
where the proceeds are $2,000,000 or more.
o The Series C Redeemable Preferred Stock will have
preference in the event of any liquidation of the
Corporation to the extent of $200,000.
The Corporation therefore intends to redeem the Series C
Redeemable Preferred Stock using $200,000 of the proceeds of
the sale in when Proposal 1 is approved.
Management Deliberations Concerning Creation of the
Series C Preferred Stock.
o Management considered the creation of the Series C
Preferred Stock carefully. Among the factors taken into
account were the following: At that time, there were no
other sources of funds actually offered to the Corporation.
o If further members of staff left the Corporation's
employment because of the inability of the Corporation to
meet its payroll obligations, management believed that the
value of COPERNICUS would decrease as the Corporation would
be unable to service either its existing customers or the
new prospects being introduced by IBM.
o Management believes that these terms were the best it could
secure at that time, and believes that these terms were arrived at
through arms-length negotiations with Mr. Trump. (Mr. Trump has
been a passive investor, at no time playing any role in board
decisions or in the operations of the Corporation.
o The level of four votes per share was required by Mr. Trump
in order to give him significant influence with respect to
the future direction of the Corporation, including the
approval of any potential sale of COPERNICUS, to ensure
that the advances were repaid. The issuance of the Series
C Preferred Stock to Mr. Trump increased his proportion of
the actual votes on any matter to be put to a vote of the
Corporation's shareholders from 18% to 64% (and his
beneficial ownership from 34% to 69%).
o Management believes that the Corporation was able to secure
firm offers and improved terms from Level 8 and then from
VIE as a result of this transaction.
o The board determined that the Corporation was not required
to solicit proxies for this issuance as BCL paragraph 502
(c) gives the board the authority to fix the terms of
preferred stock where such terms are not fixed in the
charter of the Corporation.
Level 8 Systems, Inc.
Throughout the negotiations with VIE, the Corporation
continued to aggressively pursue other potentially interested
parties. Several of them indicated strong interest, and one,
Level 8 Systems Inc. ("Level 8") made a formal offer to the
Corporation. In order to move quickly, Level 8 verbally
offered to make an immediate advance of $550,000 to the
Corporation to enable it to make crucial payments to
employees and creditors. After further negotiation, a
written offer was made early on March 19, 1997. At this
point the Corporation had received a verbal offer from VIE to
acquire COPERNICUS and therefore sought a better offer from
Level 8. This was not immediately forthcoming, however
Level 8 did agree to improve the terms of its offer, to
include an immediate cash infusion. The offer accepted by
the Corporation was made later on the same day (March 19,
1997) with the following principal terms:
o Advance: $550,000.
o Term: 120 days (expiring July 17, 1997).
o Interest Rate: 10% per annum.
o Collateral: Secured by the COPERNICUS product and
related assets.
o Additional Terms: The Corporation was free to continue to
negotiate with VIE and other third parties. In the event
that the Corporation were to sell COPERNICUS on or before
the repayment of the loan, a break-up fee would be payable
to Level 8 of $100,000. The proposed sale of COPERNICUS to
VIE as described herein would represent such a sale, and it
is therefore envisaged that the break-up fee will be paid
to Level 8 from the proceeds of the sale when Proposal 1 is
approved.
The Board of Directors of the Corporation believed that it
was imperative to receive a significant cash infusion of some
kind since many of the employees were actively seeking other
employment, as they had not received salary for some time.
It was considered necessary to retain at least certain key
employees in order to protect the value of COPERNICUS. This
value would erode swiftly in the event that no staff were
available to maintain the existing customers and to support
the IBM sales effort. Therefore, despite the risks of not
being able to achieve a satisfactory offer for COPERNICUS
during the 120 days, the Board decided to proceed with the
transaction and preserve the COPERNICUS business as a going
concern in order to have the best opportunity to achieve
maximum shareholder value from the COPERNICUS asset. Level 8
is not and has never been an affiliate of the Corporation,
any member of the Corporation's management, any of its
principal shareholders or any related parties. Certain
employees of the Corporation at that time were asked by the
management to consider offers of employment from Level 8 in
order to enhance the value of the sale to the Corporation's
shareholders. No employees accepted these offers.
The only other offer which the Corporation had managed to
confirm at the time was a verbal offer from an investor to
invest $500,000 in the Corporation in exchange for a 70%
equity interest in the Corporation. The advantage of this
proposed transaction was that it did not impose the same time
constraint with respect to negotiating a satisfactory offer
as the Level 8 secured loan. The disadvantage was that it
would produce substantial dilution to existing shareholders
so that an offer for COPERNICUS more than three times as
high as the existing proposals would have been required in
order to obtain the same value for existing shareholders. In
view of the fact that employees had left for more secure
employment and that more were likely to do so, the ability of
the Corporation to maintain the value of the COPERNICUS asset
over a period longer than 120 days was limited, and it was
thus decided to proceed with the Level 8 proposal.
The VIE transaction - later negotiations
On March 20, 1997, after being advised of Level 8's serious
interest, VIE made a substantially increased offer to the
Corporation, with the following principal terms:
o VIE would acquire COPERNICUS and certain related assets for
$2 million in cash plus a 10% share in VIE. The parties
would immediately enter into a purchase agreement,
conditional upon shareholder approval, which would take
effect following shareholder approval.
o VIE would immediately advance $400,000 as a secured loan
while the Corporation sought shareholder approval for the
sale. This would represent a prepayment of the purchase
price.
o The Corporation would provide undertakings from the
required majority of shareholders to vote in favor of the
sale at the shareholders meeting.
o Mr. John Brann, the Corporation's Vice President of
Technology, and Mr. Diran Cholokian, the head of third
party sales would enter into employment agreements with
VIE.
o The Corporation would use its best efforts to obtain
shareholder approval within 60 days of signing the proposed
purchase agreement.
o Pending the shareholders meeting, VIE would immediately
receive a world-wide non-exclusive license for COPERNICUS
together with a perpetual exclusive license in the United
States for the health-care, financial services, food,
airline and hotel industries and an assignment of the IBM
contract. There would be a 5% royalty under this license
payable to the Corporation. Any payments under the license
prior to closing the purchase agreement would constitute
prepayments under the purchase agreement.
o If for any reason the sale was not approved by shareholders
or there was a change of control of the Corporation, or in
certain other circumstances defined as "Break-up events",
VIE would have received a break-up fee of the greater of
$250,000 and 50% of the difference in the value of the cash
components of the two competing offers. The issuance of the Series
C Redeemable Preferred Stock preceeded the signing of these agreements
and was therefore not subject to them.
While this offer appeared to be the most favorable yet
received from the point of view of shareholder value, the
Corporation had a number of concerns. Among other points,
these included the sweeping nature of the proposed interim
license (particularly the perpetual nature of the exclusive
license and the fact that it covered all areas where the
Corporation had experienced any success in licensing
COPERNICUS), the lack of any provision for the Corporation to
continue to utilize COPERNICUS in any fashion and the
probability of the Corporation's interest in VIE being
diluted by the need for further financing.
After further negotiations with VIE it became apparent that
there was a willingness on both sides to complete a mutually
satisfactory transaction.
The Corporation therefore duly gave notice to Level 8 that it
had received a written offer. Level 8 declined to match the
terms of the offer and instead made the following offer,
which it termed "Final" on March 27, 1997:
Level 8 would acquire COPERNICUS and related assets, the
Corporation would receive $700,000 in cash and $300,000 in
Level 8 Stock.
In view of Level 8's unwillingness to match the terms of the
VIE offer (the Corporation judged the value of Level 8's
offer to be significantly lower than that of the VIE offer)
and VIE's apparent readiness to negotiate an acceptable
proposal, the Corporation entered into a letter agreement to
negotiate with VIE on March 31, 1997. This agreement allowed
the Corporation to continue to solicit interest in COPERNICUS
and investments in the Corporation during the negotiations
and if there were to be such a sale or investment there would
be a break-up fee payable to VIE of $150,000, unless VIE had
previously broken off negotiations.
Through April and the first week of May negotiations with VIE
continued on both business points and on the most appropriate
legal language until the agreements described in "The VIE
Agreements" were entered into as of May 9, 1997.
Management Deliberations on VIE Offer
Without limitation, among the factors taken into account by
the Corporation's board of directors in deciding to accept
the offer from VIE were the following:(i) the Corporation had
proven unable to raise the funding necessary to continue
developing and marketing COPERNICUS, despite aggressively
pursuing several different possible methods; (ii) it was
anticipated that the Corporation would have insufficient
liquid resources to meet its existing and ongoing
liabilities;(iii) the Corporation was losing staff at a rapid
pace because of its inability to continue to finance its
business, which management believed was likely to reduce the
value of the assets; (iv) the Corporation had discussed a
sale of COPERNICUS widely among potentially interested
parties in the middleware and related markets, both in the
United States and overseas, and this was the best offer
available; (v) the offer allows New Paradigm Shareholders to
continue to benefit from any success in sales of COPERNICUS
through the Royalty; (vi) management believed that a higher
value could be achieved from a sale of the COPERNICUS
business as a going concern than in the event the Corporation
was forced to cease operations.
The Board of Directors decided that a third party analysis of
the fairness of the transaction was not necessary in the
circumstances. Without limitation, some of the reasons why
this course of action was considered to be appropriate and
why management believes this offer to be fair and reasonable
are (i) the Corporation had solicited offers from a wide
range of potentially interested parties in the industry and
related markets, both within the United States and overseas;
(ii) the Corporation had serious competitive interest from
different unrelated parties throughout the process; (iii)
Level 8, a significant company in the middleware market place
with a strong interest in COPERNICUS (as evidenced by the
loan advanced to the Corporation) declined to match the terms
offered by VIE; and (iv) the Corporation did not have the
cash resources to finance such a third-party analysis.
Once it became apparent that VIE required Mr. John Brann to
agree to join their management as a condition precedent of
any transaction, Mr. Brann declared a conflict of interest to
the Corporation's Board of Directors and abstained from all
further votes on the matter. From that point on, Mr. Brann
abstained, with all the other directors voting unanimously in
favor of the decisions to negotiate and then conclude the
transaction with VIE. As soon as the decision to accept the
VIE offer was made, Mr. Brann resigned from the Corporation's
Board of Directors in order to avoid any conflict of
interest. Since the incorporation of the Corporation, the
Board of Directors has observed a policy that all potential
conflicts of interest should be declared to the Board before
a vote is taken on any matter.
THE VIE AGREEMENTS
The License Agreement
As of May 9, 1997 the Corporation entered into a license
agreement (the "VIE License") to license certain rights to
its COPERNICUS product and to assign certain agreements to
VIE, which license is to be terminated upon the closing of
the sale transaction, but, in accordance with its terms, is
intended to survive in the event that the closing does not
occur for any reason.. The VIE License gives VIE a five year
exclusive right to market COPERNICUS to the financial
services, healthcare, food and government industries in the
United States and Canada and a perpetual non-exclusive
license with respect to all industries throughout the world..
Under the VIE License the Corporation receives a five percent
royalty on all license fees received by VIE relating to the
COPERNICUS product. The license also permits VIE to produce
the product on additional platforms and enhance the product
as it sees fit. The source code for the product may not be
distributed to another party without the prior written
consent of the Corporation. Finally, the Corporation has
assigned to VIE certain agreements, including a distribution
agreement with IBM. The VIE License will terminate with the
closing under the purchase agreement if Proposal 1 is
approved by the shareholders and any royalties payable
thereunder will be offset against the purchase price payable
at the closing. The royalty payable under the VIE License is
separate from and unrelated to the Royalty payable pursuant
to the terms of the Purchase Agreement.
The Asset Purchase Agreement
The Corporation entered into a purchase agreement (the
"Agreement") as of May 9, 1997, with VIE in which the
Corporation, subject to shareholder approval, agreed to
transfer, convey and assign to VIE all rights in and to its
COPERNICUS software, the "New Paradigm Architecture", related
intellectual property rights and the business, activities and
operations of the Corporation of or related to COPERNICUS,
and certain other specified tangible assets of the
Corporation (with all such business, activities and
operations of or related to the COPERNICUS software and the
"New Paradigm Architecture" engaged in by or through the
Corporation being referred to herein as the "COPERNICUS
Business"). Capitalized items used herein and not otherwise
defined shall have the meanings specified in the Agreement.
The Agreement is attached hereto as Annex C. Significant
provisions of the Agreement include:
Purchased Assets The Corporation agreed to sell and deliver
to VIE all of the Corporation's right, title and interest to
the hardware and other tangible assets of the Corporation,
and all intellectual property and other related assets, of or
used in the COPERNICUS Business and existing on the Closing
Date, except for certain Excluded Assets. The assets conveyed
include, inter alia, trademarks, patents, copyrights,
contracts, programs, documentation, customer lists and
receivables related to the COPERNICUS Business.
The Agreement provides that the purchased assets do not
include any real property owned or leased by the Corporation
or those assets referred to in the Bill of Sale as "Excluded
Assets" which include all of the assets used solely in, and
accounts receivable related exclusively to, the business
conducted by the Corporation's two subsidiaries, New Paradigm
Commerce, Inc. and New Paradigm Inter-Link, Inc.
(collectively, the "Subsidiary COPERNICUS Businesses"), and
certain assets used jointly in the Subsidiary COPERNICUS
Businesses and the COPERNICUS Business.
Purchase Price The purchase price under the Agreement is
payable as follows:
At the Closing, VIE shall pay to or for the benefit of the
Corporation One Million Eight Hundred Thousand Dollars
($1,800,000), plus (i) the amount, in excess of $50,000,
payable and paid by the Corporation to Level 8 Systems, Inc.
in respect of a break-up fee, but in no event more than a
total of $50,000, less (ii) any payments made to the
Corporation pursuant to the License Agreement (as defined in
the Agreement) and less (iii) any Liabilities Adjustment (as
defined in the Agreement), by certified check, bank check or
wire transfer in immediately available funds (the "Closing
Payment").
At the Closing, VIE shall pay to the Escrow Agent under an
Escrow Agreement (the "Escrow Agreement"), the sum of Two
Hundred Thousand Dollars ($200,000) (the "Escrow Fund"), such
amount to be held and dealt with as provided in the Escrow
Agreement (the "Escrow Agreement"). The escrow period shall
expire on the date six (6) months after the Closing Date,
except with respect to claims on the Escrow Fund made prior
to such date.
The Royalty The Agreement specifies that beginning from and
after the first anniversary of the Closing Date, VIE shall
pay to the Corporation a royalty equal to 5% of the Net
Revenue of VIE commencing on and after the first anniversary
of the Closing Date, determined, calculated and payable as
set forth below (the "Royalty").
The Royalty is equal to five percent (5%) of "Net Revenue" of
VIE commencing on and after the first anniversary of the
Closing Date. For purposes of the Agreement, "Net Revenue"
shall be equal to the amount of cash received and retained by
VIE from the sale, license and distribution of the computer
programs known and/or marketed as "COPERNICUS" software (the
"COPERNICUS Programs"), less the sum of (i) any applicable
credits, discounts and rebates, including, but not limited
to, quantity, dealer, distributor and promotional credits,
discounts, adjustments and rebates, and (ii) taxes (such as
sales, use or similar taxes) paid or payable by VIE in
connection with such sale or license. If VIE refunds or
issues a credit memo on a customer's price due to customer
dissatisfaction or other valid reason, this negative price
shall result in a reduction in Net Revenue and therefore a
reduction of the Royalty due to the Corporation. If any
COPERNICUS Program is included by VIE in a program or
combination of programs, the aggregate functionality of which
extends beyond such COPERNICUS Program, and which additional
functionality is either (l) distinct from the collective
functionality of the COPERNICUS Program, and/or (2)
separately available from VIE and/or any person other than
VIE (without royalty payable hereunder), then the Net Revenue
attributable to the sale, license or distribution of such
product shall be proportionately allocated among all
significant components of such combination product. From and
after the Closing Date, VIE agrees not to materially alter
its pricing policies with respect to the sale, license or
distribution of the COPERNICUS Programs for purposes of
reducing or otherwise negating its obligation to pay the
Royalty to the Corporation (for example, by increasing its
charges for maintenance fees or consulting services at the
expense of license fees so as to reduce the Net Revenue
calculation).
The Royalty shall be paid to the Corporation on a quarterly
basis, within fifteen (15) days following the close of each
calendar quarter commencing with the first calendar quarter
following the first anniversary of the Closing Date (each
such payment being referred to herein as a "Royalty
Payment").
The Corporation shall be entitled to have the applicable
books and records of VIE examined for purposes of showing
compliance with the Agreement (an "Audit") by an independent
public accountant mutually acceptable to the Corporation and
VIE. The fees expenses of the accounting firm shall be borne
by the Corporation unless the firm's determination of the
Royalty payable in respect of the period that is subject to
the Audit exceeds the Royalty calculated as payable by VIE by
5% or more. The Corporation shall not be entitled to conduct
an Audit more than once in any calendar year.
Termination of the Royalty Notwithstanding anything to
the contrary contained in the Agreement, VIE shall have the
right, in its sole and absolute discretion, to cause an
immediate termination its obligation to pay any future
Royalty to the Corporation, if at any time on or prior to the
fourth (4th) anniversary of the Closing Date, VIE provides
written notice to the Corporation of its intention to effect
its termination right under the royalty portion of the
Agreement and pays to or for the benefit of the Corporation,
together with such termination notice, a termination payment
in an amount equal to the greater of (a) all Royalties
previously paid to the Corporation (and/or accrued as payable
as of the date of such notice) and (b) $1,000,000 (the
"Termination Payment"). The Corporation shall have the
obligation to accept such Termination Payment when tendered.
Upon tendering of the Termination Payment, VIE's obligation
to pay any Royalty accruing from and after the date the
Termination Payment is tendered to the Corporation shall
immediately cease and be of no further force or effect. By
way of example, in the event that as of the intended
termination date, VIE had previously paid to the Corporation
aggregate Royalties equal to $750,000, VIE would be able to
terminate its obligation to pay future Royalties by paying
the Corporation a Termination payment equal to $1,000,000.
In the event prior royalties aggregated $1,500,000, the
Termination Payment would be equal to $1,500,000
In the event that at any time prior to the fourth (4th)
anniversary of the Closing Date, VIE shall transfer to an
unrelated third party all of its rights and interest in and
to the COPERNICUS Programs, and such purchaser does not
assume, by operation of law or otherwise, the Royalty
obligations under the royalty section of the Agreement, VIE
shall be required to pay to the Corporation, on or prior to
the closing of such sale transaction, an amount equal to the
Termination Payment.
In the event that at any time following the fourth (4th)
anniversary of the Closing Date, VIE shall transfer to an
unrelated third party all of its rights and interest in and
to the COPERNICUS Programs, and such purchaser does not
assume, by operation of law or otherwise, the Royalty
obligations under the royalty section of the Agreement, VIE
shall be required to pay to the Corporation, on or prior to
the closing of such sale transaction, an amount equal to the
greater of (i) the Termination Payment and (ii) five percent
(5%) of the consideration actually received by VIE for the
COPERNICUS Programs in connection with such sale.
Liabilities Undertaking VIE shall, at the Closing, execute
and deliver to the Corporation a Liabilities Undertaking (the
"Liabilities Undertaking"), the provisions of which shall,
effective upon the Closing, be deemed incorporated in the
Agreement by reference as if set forth in full in the
Agreement. Except as expressly set forth in the Liabilities
Undertaking, VIE shall not assume or be responsible for any
debts, commitments, obligations or liabilities of the
Corporation of any nature whatsoever. Liabilities not
assumed by VIE include, inter alia, shareholder liabilities,
post-closing obligations, benefit plan obligations, taxes and
legal claims arising on or before the Closing Date.
Contemporaneous Actions and Deliveries Contemporaneously
with the execution and delivery of the Agreement, the
Corporation and/or VIE will take actions and execute and/or
deliver agreements, assets and documentation including:
1. The Corporation and VIE will have entered into the License
Agreement.
2. The Corporation will have loaned to VIE until the Closing
(at which time it will be transferred to VIE) the hardware,
COPERNICUS Business Materials and other tangible assets
necessary to enable VIE to exploit the License.
3. Robert Trump, Mark Blundell, John Brann, Lancer Holdings,
Inc. and Midland Associates will have each entered into the
voting agreements with respect to the shares of preferred
stock or common stock owned by them (the "Voting
Agreements").
4. John Brann and Diran Cholakian (collectively, the
"Designated Employees") will have each terminated their
employment with the Corporation and entered into an
Employment Agreement with VIE, respectively (the "Employment
Agreements")
Operation of the COPERNICUS Business (a) Commencing
with the date of the Agreement, the Corporation irrevocably
appointed VIE as its exclusive agent to operate the
COPERNICUS Business on behalf of the Corporation, including,
without limitation, the exclusive right to develop, market,
license and support the Programs and to service, on a
subcontract basis, the IBM Agreement and all of the Assumed
Contracts (as defined in the Agreement). Between the date of
the Agreement and the Closing (and thereafter if the Closing
shall occur), the Corporation shall not incur any
obligations, grant any licenses, contract on behalf of or
otherwise take part in any of the operations of the
COPERNICUS Business without the prior written consent of VIE.
In connection therewith, VIE agreed to perform, in accordance
with the terms thereof, the unperformed and unfulfilled
obligations of the Corporation to perform maintenance and
support services from and after the date of the Agreement
under the IBM Agreement and the Assumed Contracts, and to
assume those contractual liabilities of the Corporation
specifically listed by the Corporation (the "Assumed
Liabilities"). Except for the Assumed Liabilities (and from
and after the Closing Date, those liabilities specifically
listed on the Liabilities Undertaking), VIE shall not assume
or be responsible for any debts, commitments, obligations or
liabilities of the Corporation of any nature whatsoever. VIE
also agrees that (i) it will not amend the IBM Agreement or
any of the Assumed Contracts until such time as such contract
shall have been assigned to VIE, or incur any contractual
obligation on behalf of the Corporation without the
Corporation's prior written consent if the Corporation would
be required to assume, perform or satisfy such obligation in
the event that the Closing does not occur, and (ii) it shall
commence a reasonable sales effort with respect to the
licensing of the COPERNICUS Programs and shall otherwise
conduct the COPERNICUS Business in a commercially reasonable
manner. Without in any way limiting VIE's rights under the
License Agreement, the foregoing authorization shall
terminate in the event that the Closing shall not occur
within one hundred eighty (180) days from the date of the
Agreement.
Subject to the royalty payable under the License Agreement,
from and after the date of the Agreement, as its fee for
performing the Corporation's obligations under the IBM
Agreement and the Assumed Contracts and assuming the Assumed
Liabilities, VIE shall be entitled to receive and retain any
and all amounts paid and payable from and after the date of
the Agreement to the Corporation in respect of the IBM
Agreement and the Assumed Contracts, including, without
limitation, those payments in respect of accounts receivable
and work-in-process in existence on or prior to the date of
the Agreement. In the event that any such amounts are
received by the Corporation and not promptly paid over to
VIE, VIE shall be entitled to deduct all such unpaid amounts
from the Closing Payment.
Notwithstanding the foregoing, in the event that Shareholder
Authorization (as defined in the Agreement) shall not be
obtained and the Closing shall not occur, following the
termination of the Agreement, VIE shall return to the
Corporation the Loaned Assets (in as-is condition and subject
to depletion due to use) and the Corporation shall once again
be entitled to operate the COPERNICUS Business, subject only
to the License Agreement, with respect to all industries
other than the Licensed Industries. It is understood and
agreed that the License Agreement (and the provisions of the
Agreement incorporated into the License Agreement by
reference) shall survive any such termination of the
Agreement and VIE shall be entitled to retain all of the
rights granted pursuant to the License Agreement.
Capitalization of VIE VIE will capitalize itself with not
less than four million dollars ($4,000,000) within seven (7)
days of the date of the Agreement, and agreed to maintain not
less than two million dollars ($2,000,000) in a liquid
investment or money market account until the earlier to occur
of (a) the Closing and (b) July 17, 1997. As of May 20, 1997,
VIE notified the Corporation that this has taken place.
Deliveries of the Corporation Documents to be delivered
to VIE by the Corporation at the closing include, among
others:
1. The Bill of Sale, executed by the Corporation;
2. An Assignment of Copyrights, an Assignment of Patents, and
an Assignment of Trademarks, in each case in recordable form,
each executed by the Corporation (collectively, the
"Proprietary Rights Assignments");
3. Possession and control over, (i) the Programs in machine
readable Object Code and Source Code for computers, (ii) the
Programs' Documentation in machine readable form or in paper
or in other electronic medium (including, but not limited to
user Documentation, technical Documentation, production
materials and marketing materials) in the possession of the
Corporation, (iii) a copy (in paper and electronic form) of
the Lists, (iv) copies of all agreements, commitments,
records and other data relating to the Purchased Assets
reasonably necessary for the marketing and licensing of the
Programs by VIE, (v) all master artwork in existence on the
Closing Date used for current advertising and packaging in
suitable form, and (vi) all COPERNICUS Business Materials and
other tangible and intangible property constituting part of
the Purchased Assets;
4. Instruments of Assignment and Assumption (each a "Contract
Assignment" and collectively the "Contract Assignments"),
with respect to the Worldwide Vendor Agreement and related
agreements between the Corporation and International
COPERNICUS Business Machines the Corporation (the "IBM
Agreement") and each of the other Contracts as set out by the
Corporation (the "Assumed Contracts"), executed by the
Corporation as assignor and, if such consent is required by
the terms of such Contract, consented to in writing (in form
and substance reasonably required by VIE) by each applicable
contracting party; and together with the IBM Agreement and
each such Contract Assignment, the form of Estoppel
Certificate attached to the Contract Assignments, executed by
each applicable contracting party;
5. A Confidentiality and Non-Competition Agreement in favor
of VIE executed by the Corporation, Mark Blundell and John
Brann (collectively, the "Non-Compete Agreements"), provided
that John Brann shall only be required to be a party to the
Non-Compete in the event that he shall not then be bound by
the terms of the Employment Agreement with VIE; and
6. Written confirmation from the Corporation to VIE, in form
and substance reasonably acceptable to VIE, that effective
upon the Closing, the License Agreement shall terminate and
be of no further force and effect.
Deliveries of VIE Deliveries to be made by VIE at the
closing include, among others:
1. the Closing Payment to the Corporation;
2. the Escrow Fund to the Escrow Agent;
3. the Escrow Agreement, executed by VIE; and
4. the Liabilities Undertaking, executed by VIE.
Conditions Precedent to VIE's Obligations The
obligations of VIE under the Agreement to proceed with the
purchase and other transactions contemplated, are, at the
option of VIE in its sole discretion, subject to the
fulfillment of all of the following conditions, among others,
at or prior to the Closing:
1. No action, suit, proceeding or investigation shall have
been instituted against VIE or the Corporation and be
continuing before or by any court, tribunal or governmental
body or agency or have been threatened, and be unresolved, to
restrain or prevent, or to obtain substantial damages by
reason of, any of the transactions contemplated;
2. Since the date of the Agreement, there shall not have
occurred any material adverse change in the condition
(financial or otherwise), business, properties, assets,
liabilities, prospects or results of the Corporation or the
COPERNICUS Business, or in the value or utilizability of the
Purchased Assets to VIE, except for such change caused by VIE
in connection with its operation of the COPERNICUS Business
following the date of the Agreement (it being acknowledged by
VIE that the continued deterioration in the Corporation's
working capital position consistent with recent months,
absent any other adverse change or occurrence not
contemplated by the Agreement, shall not constitute a
material adverse change);
3. All consents necessary to the assignment of the IBM
Agreement shall have been obtained by the Corporation, and
there shall have been delivered to VIE an executed
counterpart reasonably satisfactory in form and substance to
VIE and its counsel of such consent and IBM shall not have
notified the Corporation or VIE of its intent to terminate
the IBM Agreement;
4. All consents necessary to the assignment of the Assumed
Contracts shall have been obtained by the Corporation, and
there shall have been delivered to VIE executed counterparts
reasonably satisfactory in form and substance to VIE and its
counsel, of all such consents; and
5. The Agreement and each exhibit to the Agreement to which
the Corporation is a party shall have been duly authorized,
and the consummation of the transactions contemplated and
thereby shall have been duly approved, by written consent or
affirmative vote of the requisite holders of shares of
capital stock of the Corporation entitled to vote thereon, as
required by the New York Business the Corporation Law, as
amended (the "NYBCL"), the Certificate of Incorporation of
the Corporation and all applicable federal and state
securities laws ("Shareholder Authorization").
Conditions Precedent to the Corporation's Obligations
The obligations of the Corporation under the Agreement to
proceed with the sale and the other transactions
contemplated, are, at the option of the Corporation in its
sole discretion, subject to the fulfillment of all of the
following conditions, among others, at or prior to the
Closing:
1. No action, suit, proceeding or investigation shall have
been instituted against VIE or the Corporation and be
continuing before or by any court, tribunal or governmental
body or agency or have been threatened, and be unresolved, to
restrain or prevent, or to obtain substantial damages by
reason of, any of the transactions contemplated;
2. The representations and warranties of VIE contained in the
Agreement or any certificates or documents delivered in
accordance with the Agreement shall be true and correct at
the time of the Closing with the same force and effect as
though such representations and warranties were made at that
time except for changes expressly permitted by the Agreement;
and
3. Shareholder Authorization shall have been obtained.
Representations and Warranties of the Corporation
Customary representations and warranties typically found in
agreements similar to the Agreement, including, among others:
1. Corporate organizational matters.
2. Requisite corporate power and authority and due execution
and delivery of documents.
3. No conflicts and no consents.
4. Financial Statements.
5. Except as otherwise indicated the Corporation has
conducted its business only in the ordinary course in a
manner consistent with past practices. Without limiting the
foregoing, since March 31, 1996, the Corporation has not:
a. incurred any obligation or liability, absolute, accrued,
contingent or otherwise, whether due or to become due, except
current liabilities for trade or business obligations
incurred in the ordinary course of business and consistent
with its prior practice, none of which liabilities, in any
case or in the aggregate, materially and adversely affects
the condition (financial or otherwise), prospects or results
of operations of the Corporation or the COPERNICUS Business
or the Purchased Assets;
b. mortgaged, pledged or subjected to any Lien any of its
property, business or assets, tangible or intangible;
c. sold, transferred, leased to others or otherwise disposed
of any assets used in or necessary to conduct the COPERNICUS
Business, or licensed any of the Programs, or canceled or
compromised any material debt or claim, or waived or released
any right of substantial value of or relating to the
Purchased Assets and/or the COPERNICUS Business;
d. received any notice of actual or threatened termination of
any contract, lease or other agreement or other business
relationship or suffered any damage, destruction or loss
(whether or not covered by insurance) which, in any case or
in the aggregate, has had or could have a materially adverse
effect on the condition (financial or otherwise), prospects
or results of operations of the Corporation or of or on the
COPERNICUS Business or the Purchased Assets;
e. encountered any labor union organizing activity, had any
actual or threatened employee strikes, work-stoppages, slow
downs or lockouts, or had any material change in its
relations with its employees, agents, customers or suppliers
or any governmental regulatory authority or self-regulatory
authorities;
f. made any capital expenditures or capital additions or
betterment in excess of an aggregate of $250,000;
g. transferred or granted any rights under, or entered into
any settlement regarding the breach or infringement of, any
license, patent, copyright, trademark, trade name, service
mark or other Proprietary Rights, or modified any then
existing rights with respect thereto of or relating to the
Purchased Assets and/or the COPERNICUS Business;
h. instituted, settled or agreed to settle any litigation,
action or proceeding before any court or governmental body
relating to the Corporation or any of its assets, properties
or rights;
i. suffered any damage, destruction, loss, change, event or
condition which, in any case or in the aggregate, has had or
may have a material adverse effect on the condition
(financial or otherwise), prospects or results of operations
of the Corporation or of or on the COPERNICUS Business or the
Purchased Assets, including, without limitation, any change
in revenues, costs, levels or types of warranty or defective
product claims, or relations with employees, landlords,
agents, customers or suppliers;
j. entered into any transaction, contract or commitment other
than in the ordinary course of business, or paid or agreed to
pay any brokerage, finder's fee, or other compensation in
connection with, or incurred any severance pay obligations or
"break-up" fee obligations by reason of, the Agreement or the
transactions contemplated;
k. received any notice from any customer or supplier that it,
nor has knowledge that any customer or supplier, intends to
cease doing business with the Corporation, which, in any
case, has had or could have a material adverse effect on the
condition (financial or otherwise), prospects or results of
operations of the Corporation or of or on the COPERNICUS
Business or the Purchased Assets;
l. made any purchase commitment in excess of the normal,
ordinary and usual requirements of the COPERNICUS Business or
made any material change in its selling, pricing, advertising
or personnel practices inconsistent with the Corporation's
prior practice relating to the COPERNICUS Business; or
m. entered into any agreement or made any commitment to take
any of the types of actions described in any of subsections
(a) through (l) above.
6. No Liens on Purchased Assets.
7. Purchased Assets in good operating condition and repair,
suitable for the purposes used and adequate and sufficient
for the operation of the COPERNICUS Business.
8. The Purchased Assets constitute all of the assets,
properties, and rights necessary to conduct the COPERNICUS
Business as presently conducted (other than an office, office
supplies and telephones). None of the Excluded Assets are
assets, properties or rights necessary to conduct the
COPERNICUS Business as presently conducted. The Subsidiary
COPERNICUS Businesses do not compete or conflict with the
COPERNICUS Business.
9. The Corporation has delivered to VIE true and complete
copies of each of the Contracts prior to the execution of the
Agreement. To the best of the Corporation's knowledge, all
of the Contracts are in full force and effect with respect to
the Corporation in accordance with their terms and there is
no violation or default under the Contracts and to the best
of the Corporation's knowledge no event has occurred or
circumstance exists which with notice or lapse of time or
both would constitute an event of default, or give rise to a
right of termination or cancellation, or result in the loss
or adverse modification of any right or benefit thereunder.
No party to any Contract has given the Corporation written
notice of or made a claim with respect to, and the
Corporation is not otherwise aware of, any material breach or
default under any thereof. To the best of the Corporation's
knowledge, the Corporation enjoys peaceful possession and
quiet enjoyment of the Purchased Assets, tangible and
intangible, held under license; and all such licenses are in
good standing, in full force and effect and are valid,
binding and enforceable obligations of the Corporation, and
to the best of the Corporation's knowledge, of the licensors
thereunder. None of the Contracts impose any obligation on
the Corporation other than to provide service in the ordinary
course. Except as otherwise disclosed to VIE, there have
been no oral or written modifications to the terms or
provisions of any of the Contracts. No amount payable or
reserved under any Contract has been assigned or anticipated
and no amount payable under any Contract is in arrears or has
been collected in advance and to the best of the
Corporation's knowledge, there exists no offset or defense to
payment of any amount under a Contract.
10. The Corporation owns or possesses the perpetual and
royalty-free licenses and other rights to use all Proprietary
Rights used in or necessary to conduct the COPERNICUS
Business as it is presently operated, including, without
limitation, any necessary to develop, market, license and
support the Programs, all of which are in good standing and
uncontested and free and clear of any Liens and rights of
others of any kind. No Proprietary Rights are owned or
licensed or held by any shareholder, director, officer,
consultant or employee of the Corporation, or by any entity
controlled by or affiliated with the Corporation or by any of
such persons, including, without limitation, Management
Technologies, Inc., Lancer Holdings, Inc., or Midland
Associates, all such Proprietary Rights being owned or
licensed by the Corporation itself. Except as otherwise
disclosed to VIE, to the best of the Corporation's knowledge,
the Corporation is not infringing upon or otherwise acting
adversely to any copyrights, trademarks, trademark rights,
service marks, service names, trade names, patents, patent
applications, licenses or trade secrets or other proprietary
rights or intellectual property of any other person or
entity. No claim, suit, demand, proceeding or investigation
is pending, has been asserted or is threatened by or against
the Corporation with respect to, based on or alleging
infringement of any such rights or the proprietary rights or
intellectual property of any third party, or challenging the
validity or effectiveness of any license for such rights, and
the Corporation knows of no basis for any such claim, suit,
demand, proceeding or investigation.
11. The Corporation has the exclusive right to manufacture,
develop, publish, market, license and sell the Programs.
Except as otherwise disclosed in writing to VIE, no person or
entity other than the Corporation may manufacture, develop,
publish, market, license or sell all or any part of the
Programs without the prior consent of the Corporation (in the
Corporation's sole discretion) and the Corporation has not
given any such consent and the Corporation owns all right,
title and interest in and to the Programs and the exclusive
right to apply for copyright and patent protection therefor.
To the best of the Corporation's knowledge, no director,
officer, employee or independent contract of the Corporation
has in his or her personal possession outside the offices of
the Corporation, for safekeeping, convenience of work or
otherwise, any proprietary material of the Corporation. None
of the individuals or entities who have performed services in
connection with the development of any of the Programs, as
employees or as independent contractors, or any other
employee of the Corporation, holds any proprietary or other
ownership rights with respect to such Programs and each of
such employees and independent contractors has signed an
employment contract or confidentiality agreement with the
Corporation, which contains a covenant prohibiting the use or
disclosure of confidential information and proprietary
rights.
12. Except for commercially available off-the-shelf software
and software which is otherwise available in the public
domain, and except for the software used solely in connection
with the Subsidiary COPERNICUS Businesses, the Corporation
has disclosed a true and complete list of all software
licensed to, owned, developed, or published by the
Corporation, including, without limitation, the Programs, as
well as a description of any instructions or sequences of
instructions, in whatever form embodied, which are included
in any of the Programs and which requires the consent
(whether subject to royalty or otherwise) of a party other
than the Corporation in order for any of the Programs to be
sold, transferred, used, licensed, updated, enhanced or
modified or integrated with other software by the
Corporation, VIE or any other party together with true and
correct copies of all contracts between or among the
Corporation, on the one hand, and such authors or licensors,
on the other hand. There has been no publication or public
distribution of any of the Source Code of any of the Programs
that would in any way affect the right of the Corporation or
VIE to seek copyright protection for such Programs. With
respect to the Contracts pertaining to Programs entered into
by the Corporation, the Corporation has licensed the Programs
and not sold them, thus retaining ownership of the underlying
software, and has not granted any exclusive licenses in
respect thereof. The Corporation is not aware of any claims
actually or purporting to be within the scope of any warranty
coverage, express or implied, afforded to licensees of any
Programs or of any errors, omissions or failures to perform.
There are no bugs in the Programs reasonably detectable with
normal use of the Programs except as disclosed by the
Corporation in the Disclosure Schedules, all of which can be
corrected by VIE without unreasonable effort or expense.
13. The Corporation is not a party to or bound by any oral or
written contract or understanding relating to or which might
interfere with the full exploitation of any rights or
property being transferred to VIE under the Agreement or
which restricts its right to enter into the Agreement or to
perform in accordance with the Agreement. The Corporation
has not entered into any agreements not conveyed in the
Agreement to VIE in the Agreement which involves the
publication, development, manufacture or marketing of any
computer software in substantial competition with any of the
Programs; and has not entered into any transactions with
respect to any assets, liabilities or business operations
referred to or contemplated by the Agreement with any party
other than VIE, except in the ordinary course of business.
Except as otherwise set forth, no part of any of the
Proprietary Rights, including, without limitation, any source
code, is subject to or held in escrow or is in any third
party's possession.
14. No litigation.
15. No violations, all requisite licenses.
16. No illegal gifts or benefits.
17. Payment of taxes.
18. ERISA compliance; no labor disputes.
19. All Receivables constituting any part of the Purchased
Assets have arisen only from bona fide transactions in the
ordinary course of business and are collectible in accordance
with their terms.
20. No environmental issues or liabilities to the best
knowledge of the Corporation.
21. SEC compliance.
22. The information statement and related materials
(collectively, the "Information Statement") to be prepared by
the Corporation and used in connection with the Corporation's
Special Meeting of Shareholders, relating to the
authorization of the Agreement, the sale of the Purchased
Assets and other transactions contemplated (the "Special
Meeting") will, when prepared by the Corporation and
distributed to the shareholders, comply in all material
respects with the provisions of the NYBCL and the 1934 Act
and the rules and regulations promulgated thereunder and will
not, at the time of the mailing of the Information Statement
to the holders of capital stock of the Corporation (the
"Shareholders") or at the Closing Date, contain any untrue
statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to
make the statements therein, in the light of the
circumstances under which they are made, not misleading;
provided, that the Corporation makes no representation with
respect to information concerning VIE supplied by VIE to the
Corporation for inclusion in the Information Statement. The
manner and conduct of the Special Meeting by the Corporation
shall comply in all material respects with the provisions of
the NYBCL and the 1934 Act and the rules and regulations
promulgated thereunder.
23. The Corporation listed 5 Persons (within the meaning of
Rule 14a-2(b)(2) promulgated under the 1934 Act), specifying
the number of shares of common stock or preferred stock of
the Corporation owned or believed by the Corporation to be
controlled by each such person and the percentage ownership
of each such person based on the number of shares entitled to
be voted at the Special Meeting. Such persons are the owners
of or control the vote of greater than two-thirds of the
shares of capital stock of the Corporation entitled to vote
at the Special Meeting and also the requisite number of
shares of each class and series of capital stock of the
Corporation entitled to vote thereat and have duly and
validly approved at the Special Meeting the matters covered
by the Information Statement, as required by the NYBCL, the
Certificate of Incorporation of the Corporation and all
applicable federal and state securities laws.
24. Customer list and status.
25. Solvency.
26. No representation or warranty by the Corporation
contained in the Agreement nor any written statement or
certificate furnished or to be furnished by or on behalf of
the Corporation to VIE in connection with the Agreement
contains or will contain any untrue statement of a material
fact, or omits or will omit to state any material fact
required to make the statements in the Agreement or therein
contained, under the circumstances under which made, not
misleading or necessary in order to provide a prospective
purchaser of the Purchased Assets with adequate information
as to the operations of the Corporation, the COPERNICUS
Business and the Purchased Assets and the Corporation has
disclosed to VIE in writing all material adverse facts known
to it relating to the same. The representations and
warranties contained in the Agreement or any document
delivered in connection with the Agreement shall not be
affected or deemed waived by reason of the fact that VIE
and/or any of its representatives knew or should have known
that any such representation or warranty is or might be
inaccurate in any respect.
Representations and Warranties of VIE Customary
representations and warranties typically found in agreements
similar to the Agreement, including, among others:
1. Corporate organizational matters.
2. Requisite corporate power and authority and due execution
and delivery of documents.
Covenants of the Corporation 1. Without in any way
limiting the provisions of the Agreement, during the period
from the date of the Agreement to and including the Closing
Date, the Corporation shall not take any action which might
result in any material change in the operations of the
COPERNICUS Business or which might have a materially adverse
effect on the value of the Purchased Assets or the COPERNICUS
Business other than changes made with the prior written
consent of VIE. Without limiting the generality of the
foregoing, prior to the Closing, the Corporation will not,
without the prior written consent of VIE:
a. dissolve, liquidate, merge or consolidate or sell or
otherwise dispose of all or any substantial portion of
its assets or obligate itself to do so, unless such
transaction is specifically conditioned upon, and will
not occur until after, the Closing, and will otherwise
not involve or have any effect on or otherwise conflict
with the COPERNICUS Business or the transactions
contemplated by the Agreement;
b. sell, transfer, lease or otherwise dispose of any
assets or properties of or related to the COPERNICUS
Business, or license any of the Programs;
c. amend, modify, change, alter, terminate, rescind or
waive any rights or benefits under any Contract;
d. fail to maintain the Purchased Assets in reasonably
good condition, repair and working order, reasonable and
ordinary wear and tear excepted;
e. perform, take any action or incur or permit to exist
any of the acts, transactions, events or occurrences of
a type which would be inconsistent with or render untrue
any of the representations or warranties set forth in
the Agreement had the same occurred after the Balance
Sheet Date and prior to the date thereof;
f. cancel, compromise or modify or agree to cancel,
compromise or modify any Receivable; or
g. cancel any of the current insurance policies or any
of the coverage thereunder maintained for the protection
of any of the Purchased Assets or the COPERNICUS
Business, or the operation thereof.
2. During the period from the date of the Agreement to the
Closing Date, the Corporation shall give VIE prompt written
notice of any change in, or any of the information contained
in, the representations and warranties made by it in or
pursuant to the Agreement or the Disclosure Schedules or of
any event or circumstance which if it had occurred on or
prior to the date thereof, would cause any of such
representations or warranties not to be true or correct.
3. During the period from the date of the Agreement to the
Closing Date, VIE and its counsel, accountants and other
representatives shall be given, during normal business hours,
full access to and copies of all of the books, tax returns,
contracts, commitments, records, facilities and properties of
the Corporation pertaining to the COPERNICUS Business or
constituting any part of the Purchased Assets, work papers of
accountants of the Corporation pertaining to the COPERNICUS
Business and all personnel of the Corporation, and they shall
be furnished with all such documents and information with
respect to the affairs of the Corporation pertaining to the
COPERNICUS Business as may from time to time reasonably be
requested, including without limitation, employee files,
employee benefit files, contracts with the current customer
and vendor base of the COPERNICUS Business, projections of
customer and vendor activities, all computer files, systems
and records, leases, and accounts payable and receivable.
The Corporation and its directors, officers and employees
shall cooperate fully with VIE's investigation, provided that
the Corporation shall not be required to incur any out of
pocket costs in connection therewith. VIE will (and will
cause its representatives to) maintain the confidentiality of
the confidential information it receives from the
Corporation, provided that such information may be disclosed
(in confidence) to lawyers, accountants, prospective lenders
and investors, and other persons or entities involved in the
transactions, and that nothing in the Agreement shall prevent
disclosure or use of any information as may be required by
applicable law or that is at the date of the Agreement or
thereafter becomes generally available to and known by the
public other than by reason of VIE's breach of its
obligations under the confidentiality provision of the
Agreement, or is or becomes available to VIE on a non-
confidential basis from a source that is not known by VIE to
be prohibited from disclosing such information pursuant to a
confidentiality agreement with VIE or its representatives.
Notwithstanding the foregoing, VIE shall be entitled to
utilize all such confidential information in connection with
its operation of the COPERNICUS Business from and after the
date of the Agreement.
4. The Corporation shall hold confidential all information
disclosed to or obtained by it from or concerning VIE or
otherwise arising out of its negotiations with VIE or
investigations of VIE and such information shall not be used
or disclosed except in furtherance of the transactions
contemplated in the Agreement or as otherwise required by
law.
5. During the period from the date of the Agreement to the
Closing Date, the Corporation shall use its best efforts to
preserve intact the present goodwill of the Corporation and
the relationships of the Corporation with customers, dealers,
OEMs, VARs, suppliers, creditors, distributors, consultants,
governmental authorities and others having business relations
with it and the present business organization and personnel
of such the Corporation. The Corporation shall cause to be
paid before they become delinquent all taxes, assessments,
and governmental charges or levies imposed prior to the
Closing Date upon its business or properties and all claims
or demands of materialmen, mechanics, carriers, warehousemen,
landlords, and other similar persons asserted prior to the
Closing Date which, if unpaid, might result in the creation
of a Lien upon any Purchased Assets or otherwise have an
adverse effect on the conduct the COPERNICUS Business.
6. VIE has no obligation to employ any of the Corporation's
employees in its business following the date of the Agreement
or the Closing Date. Notwithstanding any offer or
determination to so employ any employee, VIE shall not be
obligated to maintain any employee for any specific length of
time and, except as otherwise provided by the Employment
Agreements, all such employees shall be employees at will.
The Corporation shall promptly pay all amounts due and
payable to, or accrued in respect of, its employees in the
nature of wages, commissions, salary, insurance and other
benefits (including accrued vacation and sick pay and
unearned bonuses), and shall pay all withholding tax and
similar obligations in each case with respect to all
employees of the Corporation and all periods ending on or
prior to the Closing Date, and with respect to the Designated
Employees, for all periods ending on or prior to the date of
the Agreement.
The Corporation shall be solely responsible for, and shall
indemnify and hold harmless VIE from and against, any and all
claims and obligations, if any, for severance pay,
termination pay and other benefits arising or claimed to
arise out of (i) the termination of employment of any
employee of the Corporation on or prior to the Closing Date,
and with respect to the Designated Employees, on or prior to
the date of the Agreement, (ii) the effect of the
transactions contemplated by the Agreement on the employment
status of any of the employees of the Corporation, including
the Designated Employees and any others which may thereafter
be employed by VIE, and/or (iii) the termination of
employment with VIE within 120 days after the Closing Date of
any employee, including the Designated Employees, who prior
to the Closing Date (or the date of the Agreement in the case
of the Designated Employees) was an employee of the
Corporation and thereafter becomes an employee of VIE (in
this latter case to the same extent as if any such employee
were then still employed by the Corporation, but only with
respect to such severance pay, termination pay or other
benefits which arise or are claimed to arise out of the
employee's employment with the Corporation).
Nothing in this Section or elsewhere in the Agreement,
express or implied, shall be construed to confer any rights
or remedies on any employee of the Corporation. All
liabilities of the Corporation under this Section shall
constitute Excluded Liabilities.
7. The Corporation shall prepare the Information Statement
as promptly as possible after the date of the Agreement and
shall cause the preliminary Information Statement to be filed
with the SEC within fourteen (14) days after the date of the
Agreement. The Corporation shall submit the proposed
Information Statement to VIE and its counsel not less than
two days prior to submitting the Information Statement to the
SEC or the Shareholders. VIE shall promptly furnish the
Corporation with such information concerning VIE as the
Corporation shall reasonably request for inclusion in the
Information Statement, and the Corporation shall be
responsible for all other information included therein. The
Corporation shall cause to be distributed to the Shareholders
of record as of the record date for the Special Meeting, in
accordance with the applicable regulations of the SEC and the
applicable provisions of the NYBCL, a copy of the Information
Statement filed by the Corporation with and cleared by the
SEC. The Corporation shall use commercially reasonable
efforts to mail the Information Statement to Shareholders on
or before May 16, 1997. If prior to the Closing Date either
the Corporation or VIE determines that the Information
Statement needs to be amended or supplemented in order to
comply with the 1934 Act or the rules and regulations
promulgated thereunder or for the Corporation's
representations or warranties in the Agreement to be correct,
VIE or the Corporation, as the case may be, shall notify the
other of such determination and shall deliver to the other
such amendment or supplement as such party believes is
necessary to comply with the applicable regulations of the
SEC and to make such representation and warranty correct.
The Corporation shall consider all such amendments proposed
by VIE, and shall cause all such amendments or supplements
that the parties reasonably believe are necessary to be
mailed to the Shareholders as soon as practicable after such
delivery.
The Corporation shall, through its Board of Directors,
recommend to the Shareholders the adoption of the Agreement
and approval of all matters contemplated by or in furtherance
of the Agreement to be acted on at the Special Meeting, and
shall use all reasonable efforts to make the actions
contemplated by the Special Meeting to be effective on or
before June 20, 1997.
8. Between the date of the Agreement and the Closing Date,
the Corporation shall deliver to VIE true and correct copies
of all information, materials, notices, mailings and other
written communications sent by the Corporation to its
Shareholders or any class or series thereof contemporaneously
with the distribution thereof.
9. The Corporation shall cause to be promptly prepared and
delivered to VIE promptly upon completion (but no later than
May 31, 1997), income statements and balance sheets of the
Corporation for its fiscal quarter ending March 31, 1997 (the
"Interim Financial Statements"). The Interim Financial
Statements shall be prepared in a manner consistent with the
Financial Statements and in accordance with generally
accepted accounting principles, but need not be audited. The
Interim Financial Statements, when delivered to VIE, shall be
deemed "Financial Statements" for purposes of the Agreement
and the representations and warranties set forth in the
Agreement shall be deemed to apply with equal force and
effect as of the date of such delivery and as of the Closing
Date to the Interim Financial Statements.
10. The Corporation shall pay all sales tax, transfer tax,
intangibles tax, filing fees, recording and registration fees
and similar government charges applicable to the transactions
contemplated by the Agreement, including, without limitation,
all taxes and charges payable, if any, upon the transfer of
title to any Purchased Assets. VIE and the Corporation will
cooperate to prepare and file with the proper public
officials, as and to the extent available and necessary, all
appropriate sales tax exemption certificates or similar
instruments as may be necessary to avoid the imposition of
sales, transfer and similar taxes on the transfer of
Purchased Assets pursuant to the Agreement.
11. VIE represents and warrants to the Corporation and the
Corporation represents and warrants to VIE, that no person is
entitled to any brokerage commissions or finder's fees in
connection with the transactions contemplated by the
Agreement as a result of any action taken by it or any of its
affiliates, officers, directors or employees.
12. The Corporation shall use its best efforts to refer all
requests for and forward all orders for products to VIE at
such telephone number and address as VIE from time to time
informs the Corporation. The Corporation and VIE shall each
attempt in good faith to direct or deliver to the other all
incoming mail, telephone or other communications or
deliveries which are not received by the appropriate party
(that is, VIE in the case of matters or materials pertaining
to the COPERNICUS Business and the Corporation in the case of
all other matters or materials).
Break-Up In addition to, and without limiting any of VIE's
rights under or pursuant to the Agreement and the
transactions contemplated, subject to and upon the occurrence
of a "Break-up Event" (as defined below) on or prior to the
expiration of one hundred and eighty (180) days from the date
of the Agreement, the Corporation shall pay, in immediately
available funds, to VIE, at the offices of its counsel in New
York, New York, the "Break-up Fee".
The following shall each be a "Break-up Event":
1. The Corporation (or any successor, assign, trustee or
custodian thereof) shall execute or the Board of Directors of
the Corporation shall authorize or approve (with or without
and whether or not subject to, diligence, financing or other
conditions), or publicly announce or confirm an agreement
with any group, entity or person other than VIE providing for
the acquisition of all or any portion of the Purchased Assets
by such other party, whether by merger, purchase of assets or
stock, purchase of claims against the Corporation or its
estate, plan of reorganization, liquidation or otherwise;
2. A Change of Control of the Corporation shall occur. For
purposes of this paragraph, "Change of Control" shall mean:
(a) a stock purchase of any "person" or "entity" (as
such terms are used in Sections 13(d) and 14(d) (2) of
the Securities Exchange Act of 1934, as amended) who
then owns or by virtue of such purchase becomes the
beneficial owner of, directly or indirectly, voting
securities of the Corporation or of any of the
subsidiaries, or rights or options with respect thereto
or securities convertible into or exchangeable for any
of same, representing 25% or more of the combined voting
power of the then outstanding voting securities of the
Corporation or any of its subsidiaries, and such person
or entity does not sign a Voting Agreement;
(b) any change in the composition of the Board of
Directors of the Corporation in any period which
involves a majority of such directors and such new Board
of Directors does not approve or otherwise seeks to
repudiate the transactions contemplated by the
Agreement, or
(c) any proxy, voting trust, or any voting or other
agreement by any of the shareholders signing the
Agreement, or any management agreement, having the
effect of transferring the power or authority (whether
or not exercised) to influence control (affirmatively or
negatively) over the Corporation, a subsidiary or its
operations, where such agreement seek to repudiate or
would have the effect of repudiating the transactions
contemplated by the Agreement.
Shareholder Authorization shall not be obtained prior to July
17, 1997 (the "Break-up Date"), provided, however, that this
section shall not be a "Break-up Event" if (A) Shareholder
Authorization is not obtained by such date because the SEC
had delayed the release by the Corporation of the Information
Statement to its shareholders to a date less than twenty (20)
days prior to the Break-up Date, and (B) such Information
Statement was filed by the Corporation not later than
fourteen (14) days following the date of the Agreement and
the Corporation had made diligent efforts to timely respond
to all SEC comments given in respect thereof, if any.
The Break-up Fee shall be $250,000; provided, that the
obligation of the Corporation to pay such Break-up Fee shall
be subject to the satisfaction of the following conditions:
(a) VIE shall not have theretofore exercised any right
or stated its intent to terminate or not to perform the
Agreement, except as a consequence of the failure of the
Corporation to perform its obligations under the
Agreement;
(b) the representations and warranties of VIE contained
in the Agreement shall have been true and correct in all
material respects and VIE shall have performed all of
its obligations under the Agreement to the extent
required to be performed on or prior to the date of the
Break-up Event; and
(c) consummation of the transaction contemplated thereby
shall not have been prevented by the failure of any
condition to the obligations of the Corporation set
forth in the Agreement to have been satisfied as a
consequence of any act or omission by VIE.
The obligations of the Corporation to pay the Break-up Fee
shall be absolute and unconditional and shall not be affected
by any circumstances, including, without limitation, any set-
off, counterclaim, recoupment, defense or other right which
the Corporation may have against VIE or any principal
thereof, or anyone else. Neither VIE nor any principal
thereof shall be required to mitigate its or his damages.
The Break-Up Fee shall not constitute liquidated damages and
shall be in addition to, and without limiting any of VIE's
rights under or pursuant to the Agreement and the
transactions contemplated, and shall be in addition to any
other remedies that VIE may have at law, in equity or
otherwise.
If a Break-up Event occurs, VIE shall nevertheless continue
to enforce its rights under the Agreement and be entitled to
make competing bids for any or all of the business the
Corporation (and to present the relative merits of bids it
may make to parties in interest), but in the event that VIE
is the successful bidder, then VIE shall not be entitled to
the Break-up Fee.
No Shop From the date of the Agreement until the expiration
of the "Restricted Period" described below, (a) the
Corporation agrees, directly or indirectly, without VIE's
prior written consent, that it shall not and shall not permit
any subsidiary to (i) offer or convey, sell or license any of
the Purchased Assets or the COPERNICUS Business, (ii) issue,
sell or purchase any shares of any class or series of any of
the issued and outstanding capital stock of the Corporation
or any security convertible into or exchangeable for such
stock or any option or warrant with respect to such stock
(except options granted under existing stock option plans and
shares of the Corporation capital stock issuable upon the
exercise or conversion of options, rights, or securities
presently outstanding), or (iii) merge or consolidate with
another entity, and (b) the Corporation will not solicit,
entertain, continue, respond to or encourage inquiries or
proposals, or enter into, pursue, or carry on any discussions
or negotiations, with respect to any transaction of the type
referred to in clause (a) above with any person or entity
other than VIE. The Corporation will immediately cease and
cause to be terminated any existing activities, discussions
or negotiations with any parties conducted in respect of any
such transaction. The Corporation will promptly advise VIE
of the identity of any offeror and communicate to VIE the
terms of any oral inquiry or proposal which it may receive
and deliver to VIE a copy of any such offer in writing.
Without limiting the rights of VIE to pursue any remedies,
the parties agree that damages are not an adequate remedy for
a breach of this Section and that the obligations under the
Agreement may be specifically enforced. The "Restricted
Period" shall continue until the expiration of the earlier of
(a) one hundred and eighty (180) days after the date of the
execution and delivery of the Agreement by all parties and
(b) the Closing. Notwithstanding the foregoing, the
Corporation shall be entitled to enter into any of the
foregoing transactions, provided that such transaction is
specifically conditioned upon, and will not occur until
after, the Closing, and will otherwise not involve or have
any effect on or otherwise conflict with the COPERNICUS
Business or the transactions contemplated by the Agreement.
OEM License Subject to the terms of the Agreement and the
schedules and exhibits of the Agreement, including, without
limitation, the Non-Compete Agreement, from and after the
Closing, VIE agrees to grant to the Corporation, on a
product-by-product basis, an OEM license (an "OEM") to
utilize the COPERNICUS programs in a non-competitive software
product to be developed or sold by the Corporation (a
"Product"), provided that (a) any such OEM shall be on
substantially similar terms and conditions as VIE's
arrangements with its other OEM's and otherwise on VIE's
standard form and (b) VIE shall have the right to refuse to
grant to the Corporation an OEM for any reasonable business
reason, including, without limitation, any of the following:
1. The proposed Product is not consistent with VIE's business
plan or relates to an area or field in which VIE does not
wish its products utilized;
2. VIE desires to enter the market with a product similar to
the Product;
3. VIE has previously granted, or desires to grant, an OEM to
an alternative vendor for a similar product or related field;
4. VIE does not wish to do business with any party affiliated
or involved with the Corporation in the development or sale
of the Product for any reason whatsoever;
5. The Corporation's financial status is below the standard
required by VIE for its VARs, OEMs or distributors, or VIE
believes, in its sole discretion, that the Corporation's
financial situation at such time not sufficient to provide
adequate support for the Product;
6. VIE, in its sole discretion, believes the Product or any
potential use thereof to be competitive with any product sold
or licensed by VIE or otherwise competitive with VIE's
business; or
7. (A) VIE, or any of its subsidiaries, shall become subject
to the reporting requirements of the Securities Exchange Act
of 1934, (B) VIE shall effect a sale of the assets of or
relating to the COPERNICUS programs, (C) any person who is
not a shareholder of VIE as of the Closing (or any affiliate
of any such shareholder) shall hold 25% or more of the equity
of VIE or (D) VIE shall have tendered to the Corporation the
Termination Payment.
Obligations to Indemnify VIE assumes and agrees to save,
indemnify and hold harmless the Corporation from and against,
and shall on demand reimburse the Corporation for:
1. Any and all loss, liability, damage or deficiency suffered
or incurred by the Corporation by reason of any
misrepresentation or breach of warranty by VIE or
nonfulfillment of any covenant or agreement to be performed
or complied with by VIE under the Agreement or in any
agreement, certificate, document or instrument executed by
VIE and delivered to the Corporation pursuant to or in
connection with the Agreement; and
2. Any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses, including
reasonable attorneys' fees, incident to any of the foregoing,
or reasonably incurred in investigating or attempting to
avoid the same or to oppose the imposition thereof, or in
enforcing any of the obligations under this indemnity
provision.
The Corporation assumes and agrees to save, indemnify and
hold harmless VIE from, against and in respect of, and shall
on demand reimburse VIE for:
1. any and all loss, liability, damage or deficiency suffered
or incurred by VIE by reason of any misrepresentation, breach
of warranty or nonfulfillment of any covenant or agreement to
be performed or complied with by the Corporation under the
Agreement or any agreement, certificate, document or
instrument executed by the Corporation and delivered to VIE
pursuant to or in connection with the Agreement;
2. any and all loss, liability, damage, cost or expense
suffered or incurred by VIE in respect of or in connection
with any and all debts, liabilities and obligations of, and
any and all violation of laws, rules, regulations, codes or
orders by the Corporation, direct or indirect, fixed,
contingent, legal, statutory, contractual or otherwise, which
exist at or as of the Closing Date or which arise after the
Closing Date but which are based upon or arise from any act,
transaction, circumstance, sale of goods or services, state
of facts or other condition which occurred or existed on or
before the Closing Date, whether or not then known, due or
payable, except to the extent specifically assumed by VIE
under the terms of the Agreement;
3. any and all loss, liability, damage, cost or expense
suffered or incurred by VIE based on or arising out of the
infringement or alleged infringement of any of the Programs
as they exist on the date of the Agreement of the proprietary
rights of any third party (provided that any such claim
pursuant to this subparagraph (iii) is made within three
years of the date of the Agreement);
4. any and all loss, liability, damage, cost or expense
suffered or incurred by VIE based on or arising out of any
defective or allegedly defective product or service warranty
and/or third party liability claims (whether alleged in
contract, tort, strict liability or otherwise), which exist
at or as of the Closing Date or which arise after the Closing
Date but which are based upon or arise from any act,
transaction, circumstance, sale of goods or services, state
of facts or other condition which occurred or existed on or
before the Closing Date, including, without limitation, any
products manufactured, assembled, sold or distributed by the
Corporation or its predecessors in interest at any time;
5. any and all loss, liability, damage, cost or expense
suffered or incurred by VIE based on or arising from (A) the
presence of any Hazardous Substance on or about any premises
occupied by the Corporation or any hazardous discharge on or
prior to the Closing Date, and/or any environmental
complaint, and/or the failure to obtain any license or permit
required in connection with any Hazardous Substance or
hazardous discharge or the retention, disposal, treatment or
use thereof, and/or arising out of any noncompliance with any
environmental, health or safety law, ordinance, rule or
regulation (each, an "Environmental Requirement"), in each
case, based on or arising from any act, transaction, state of
facts or other condition which occurred or existed on or
before the Closing Date, whether or not then known, (B) any
personal injury (including wrongful death) or property damage
(real or personal) arising out of or related to any hazardous
discharge, the presence, use, disposal or treatment of a
Hazardous Substance, or noncompliance with any Environmental
Requirement, on or prior to the Closing Date, and/or (C) any
environmental complaint and/or any demand of any government
agency or authority prior to, on or after the Closing Date
which is based upon or in any way related to any hazardous
discharge, the presence, use, disposal or treatment of a
Hazardous Substance, and/or noncompliance with any
Environmental Requirement on or prior to the Closing Date,
and including, without limitation and in each such case under
this clause (v), the reasonable costs and expenses of all
remedial action and clean-up, attorney and consultant fees,
investigation, sampling and laboratory fees, court costs and
litigation expense and costs arising out of emergency or
temporary assistance or action undertaken by or as required
by any duly authorized regulatory body in connection with any
of the foregoing;
6. any and all taxes, including, without limitation, income,
franchise, property, sales, use, added value, employees'
income withholding and social security taxes, and all
assessments or governmental charges imposed by the United
States or by any foreign country or by any state,
municipality, subdivision or instrumentality of the United
States or of any foreign country, or by any other taxing
authority, which are due or payable by the Corporation in
connection with or arising out of the operation of the
Corporation's business on or prior to the Closing Date and
all interest and penalties thereon;
7. any and all loss, liability, damage, cost or expense
suffered or incurred by VIE by reason of any claims of or
entitlements to severance pay, termination pay and/or other
benefits arising or accruing or claimed to arise or accrue
with respect to any employee of the Corporation, whether by
reason of or in connection with any of the transactions
contemplated by the Agreement or otherwise to the extent
based on any employment of such employee by the Corporation;
and
8. any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses, including,
without limitation, reasonable attorneys' fees, incident to
any of the foregoing or reasonably incurred in investigating
or attempting to avoid the same or to oppose the imposition
thereof, or in enforcing any of the obligations under this
indemnity provision.
Specific Performance Therefore, VIE shall have the right
specifically to enforce the performance of the Corporation
under the Agreement without the necessity of posting any bond
or other security, and the Corporation waives the defense in
any such suit that VIE has an adequate remedy at law and
agree not to interpose any opposition, legal or otherwise, as
to the propriety of specific performance as a remedy.
Law To Govern The Agreement shall be construed and enforced
in accordance with the internal laws of the State of New
York, without regard to principles of conflict of laws.
The Escrow Agreement
Upon the closing of the Agreement an escrow agreement (the
"Escrow Agreement") between the Corporation and VIE
appointing Golenbock, Eisman, Assor & Bell as escrow agent
(the "Escrow Agent") between the two parties will become
effective. Under the Escrow Agreement VIE will deliver, upon
closing of the Agreement, $200,000 into a bank account (the
"Escrow Account"). VIE is entitled to make a claim against
the cash held in the Escrow Account for reasons that include,
without limitation, reimbursement for amounts paid to
suppliers, vendors, licensees or licensors of the Corporation
or related to the Purchased Assets. The Escrow Agent is to
withhold funds equal to a reasonable amount under the claim.
For a period of 10 days the Escrow Agent will make no
payments to VIE unless written permission from the
Corporation is given. Following that period the Escrow Agent
will disperse funds equal to the claim or, should the
Corporation object to the amount or reason of the claim, the
parties will, in good faith try to resolve the claim and,
failing to do so, the parties agree to binding arbitration or
a final judgment of a court of competent jurisdiction.
On the 30th day from the signing of the Escrow Agreement the
Escrow Agent will release $100,000 less any claims previously
paid out of the Escrow Account. The remainder of the funds,
less any claims paid out of the Escrow Account, in the Escrow
Account will be released to the Corporation on the 60th day
from the signing of the Escrow Agreement
Amendment to Purchase Agreement
On June 27, 1997, the Corporation and VIE amended the
Purchase Agreement in connection with the delay in the
scheduled closing date and a $63,500 advance (the "Advance")
to the Corporation made by VIE (the "Amendment Agreement").
The Amendment Agreement provided, inter alia, that the
Advance was allocated as follows: (a) $13,500 of the Advance
was deemed to be an advance against royalties payable under
the VIE License and (b) $50,000 of the advance was a loan
repayable upon the first to occur of the Closing and July 16,
1997 and on the other terms and conditions of the promissory
note evidencing such loan (the "Loan"). At the Closing, the
full amount of the Advance is to be credited against the
Purchase Price and shall therefore reduce the Closing Payment
payable by VIE at the Closing by $63,500. As security for
the Loan, the Corporation granted to VIE a general security
interests in and to all of the assets, tangible and
intangible, of the Corporation, whether now owned or existing
or hereafter acquired or arising, and wherever located,
including, without limitation, all of the Purchased Assets.
The Corporation and VIE further agreed that the Purchase
Price is to be further reduced (by a reduction in the Closing
Payment) by the sum of the following: (i) $50,000 on account
of the delay in the Closing (the "Delay Penalty"), (ii)
$5,443.86 to reflect the Liabilities Adjustment agreed to
among VIE and the Corporation, and (iii) the reasonable legal
fees of Buyer resulting from the delay in the Closing, not to
exceed $10,000. Notwithstanding the foregoing, in the event
that the Closing shall occur on or prior to July 15, 1997,
the Delay Penalty shall be deducted from the Royalty payable,
if any, rather than the Closing Payment (i.e., VIE shall
receive a credit of $50,000 against any Royalty payable
pursuant to Schedule 3.2 of the Purchase Agreement).
Additionally, Section 8.4 of the Purchase Agreement was
further amended to provide that (a) the expiration of the
obligation of the Corporation to pay the Break-up Fee is
extended to 180 days from the date of the amendment, (b) the
Break-up Date is extended to July 31, 1997, and (c) the
Break-up Fee is increased to $350,000. Further, Section 8.5
of the Purchase Agreement was amended to provide that the
Restricted Period is extended to the earlier of 180 days from
the date of the amendment and the Closing.
ACCOUNTING TREATMENT OF PROPOSAL 1
The Corporation expects to account for Proposal 1
approximately as follows:
<TABLE>
<S> <C> <C>
Debit Credit
Gain on sale of
assets: $1,433,066
Reduction in
assets held for
sale: 616,934 (primarily computer
hardware)
Cash: $2,050,000
</TABLE>
FEDERAL TAXATION
The Corporation believes that its net operating loss carried
forward is sufficient to offset the anticipated gain in
connection with the sale of COPERNICUS and the related
assets. For this reason the Corporation believes that there
will be no taxes due and payable from the proceeds of the
sale.
PLAN OF OPERATION
Internet
When Proposal 1 is approved by the shareholders, the
Corporation intends to devote a significantly larger portion
of its resources to the development of its Internet business.
The Corporation believes that its remaining staff have
significant Internet experience. Through its wholly owned
subsidiary New Paradigm Inter-Link, Inc. ("NPIL"), which
began operations in December 1995, the Corporation provides
Internet services to corporations and other organizations.
Customers include Novartis and the Association of the Bar of
the City of New York. The Corporation intends to develop this
business by launching new products and services connected
with the Internet. There is no assurance that the Corporation
will be able to develop or acquire such products and services
or that if it does they will be acceptable to the market.
The Internet is a relatively new and rapidly expanding
market. Gartner Group ( a leading industry analyst)
estimates that by 2001, 60% of the US workforce will have a
justifiable business need for Internet access. By the same
date, they estimate that more than 8 million households will
access the Internet using ISDN lines (digital telephone lines
offered by principal telephone companies suitable for
accessing the Internet) and a further 3 million homes will
access the Internet using cable modems. World-wide Internet
use is currently estimated at 40 million users. With
potential access to such numbers, many corporations are
seeking to ensure that they have a presence on the Internet.
Such a presence is established through a collection of text,
graphics and small programs known as a "Web site" maintained
on a computer known as a Web server and viewed by users from
all over the world who are connected to the Internet through
the use of a Web browser such as Netscape Navigator or
Microsoft Explorer. The Corporation seeks to assist
companies with creating that Internet presence and also to
exploit other business opportunities which may arise in
servicing the Internet community.
Internet - Website services
NPIL provides organizations with the ability to utilize the
Corporation's expertise in creating a Web site. This
expertise includes assembling an appropriate team of
independent design consultants and, if necessary,
programmers; designing the site from both technical and
aesthetic perspectives, implementing the design, and then
providing Web server hosting services away from a customer's
own internal network to ensure security. NPIL specializes
in providing custom facilities to enable a customer's
presence on the Internet to be constantly evolving and
interesting without adding to their existing workload. For
example, the site for the Association of the Bar of the City
of New York is remotely updated by association staff. A
small software program ("applet") created by NPIL staff in
Java - the most common computer programming language for the
Internet today - allows customers to utilize information in
the format in which it was created under existing word
processor programs such as Microsoft Word to automatically
update their Web site from their own offices. No
translations or transitions are required - the customer's
staff member simply uses the common "cut and paste" technique
utilized within many programs to move the required document
into the NPIL applet. A typical site brings in initial
revenues of approximately $20,000 - $30,000 on completion
with continuing revenues for maintenance and changes
throughout the year which are expected to amount to $1,000-
$3,000 per annum. The Corporation has created 5 Web sites
for customers of this service to date. Revenues in fiscal
1997 were $62,420 from 3 such sites.
Examples of Web sites created by New Paradigm include:
o Novartis - site for its "Program" product:
www.programpet.com
o Association of the Bar of the City of New York:
www.abcny.org
o Nuway Corporation: Corporate Website, site for
moistmates product: www.nuwaycorp.com
o Smolin Lupin, accountants: corporate Website:
www.cpasmolinlupin.com
o Novartis - site for its "Sentinel" product:
www.petprotect.com
o New Paradigm: corporate Website: www.newparadigm.com
o Proballfan: NFL football site written by fans:
www.proballfan.com
Website services - marketing and distribution
The Corporation is marketing its services through a mix of
direct contact with prospective clients and indirect sales.
One member of staff is engaged full time in the direct sales
activity which accounts for approximately 50% of the current
customer list . Indirect sales, which account for the
remaining 50%, are primarily through advertising agencies
working on integrated media campaigns who subcontract the
Internet portion to NPIL.
Internet - Other products
The Corporation is also involved in research and development
for other products and services which can be effectively
launched and marketed through the Internet. The nature of
the Internet market is that the time to market from the
formation of a concept can be very short. The Corporation is
currently working on three projects which it expects to
launch during Fiscal 1998. These products have not been
announced as this could provide significant commercial
advantage to the Corporation's competitors. (The general
areas for these three projects are (i) intellectual property;
(ii) the Internet itself and (iii) education.) In each of
two of the projects the Corporation is working with a third
party that is providing product or market specific
information and will be entitled to a share of the revenues
or a stake in a joint venture between the Corporation and the
third party for their efforts. In neither case has the
arrangement yet been finalized. None of these products has
been completed and feasibility studies in the likely
commercial success of such products will need to be carried
out prior to their launch. The Corporation will require
additional capital resources to successfully develop and
market these and any other products and will consequently
seek to conclude additional financing arrangements as soon as
possible. Given the uncertainty of the Corporation's
financial position until the sale of the COPERNICUS assets
has been approved, management considers it unlikely that any
such financing arrangements can be concluded prior to the
Shareholders Meeting. Following approval of Proposal 1, the
Corporation expects to invest an aggregate of approximately
$200,000 in the launch of these three products, in addition
to the research and development work of the Corporation's
staff. There can be no assurance that the Corporation will
be able to reach satisfactory agreement with the third
parties involved, or that it will be able to complete the
research and development work needed to launch the products,
or that if they are launched such products will achieve any
degree of market success.
Business Combinations
The Corporation also intends to seek acquisitions of or other
business combinations with other businesses in related
fields. The Corporation will have very limited financial
resources to offer to any such prospective partners and
unless there is a significant improvement in the
Corporation's stock price, will not have attractive stock to
offer. The Corporation therefore expects to be essentially
opportunistic in seeking business combinations which are
available to it. This means the Corporation may entertain
proposals from businesses not directly related to its
intended area of operations in order to seek the maximum
value for shareholders. The Corporation anticipates that any
such combination will require additional financing, and
therefore the attractiveness of any proposed combination to
potential investors will need to be considered.
OEM License
Under the VIE purchase agreement, Subject to VIE's approval,
the Corporation will have the right to enter into agreements
with VIE on commercially reasonable terms and on a case by
case basis, to incorporate COPERNICUS within future products
which the Corporation may develop or acquire (an "OEM
License"). The Corporation intends to use its position as a
public company to purchase other software products in
vertical industries and use COPERNICUS, under the OEM
License, to give the acquired products a competitive
advantage by allowing them greater ease of integration. While
the Corporation has been evaluating several opportunities to
acquire such software products or the companies producing the
products in which to embed COPERNICUS, it is not currently in
negotiations with any companies, and cannot be assured of
locating companies from which it could acquire such products
under favorable terms. The Corporation is not currently
developing any software products in which COPERNICUS could be
embedded.
SPECIAL CONSIDERATIONS
Shareholders should carefully consider the following factors
when deciding whether or not to approve Proposal 1.
Need for Additional Financing; Equity Offerings
Planned
The Corporation will need additional financing prior to March
1998 and thereafter if demand for the Corporation's products
is sufficiently great to require expansion at a faster rate
than anticipated, or if research and development expenditures
or the extent of service and customer support that the
Corporation is required to provide are greater than expected
or other opportunities arise which require significant
investment, or if revenues are significantly lower than
expected. Additionally, the Corporation may require
significant additional financing to complete any acquisition.
If financing is required, such financing may be raised
through additional equity offerings, joint ventures or other
collaborative relationships, borrowings and other sources.
There can be no assurance that additional financing will be
available or, if it is available, that it will be available
on acceptable terms. If adequate funds are not available to
satisfy either short or long-term capital requirements, the
Corporation may be required to limit its operations
significantly and may be unable to carry out its plan of
operation.
The Corporation intends to seek to raise additional capital
by the issuance of further equity securities. Preliminary
negotiations are currently underway with investment bankers
to this end. However, there can be no assurances that any
such financing will be available or, if it is available, that
it will be available on acceptable terms. If additional funds
are raised through the issuance of equity securities, the
percentage ownership of the then current shareholders of the
Corporation will be reduced and such equity securities may
have rights, preferences or privileges senior to those of the
holders of the Common Stock. Unless the market price of the
Corporation's Common Stock increases significantly over its
market price on June 27, 1997 additional issuances of equity
security could cause significant dilution to purchasers of
Common Stock in the IPO.
New Technology; Uncertain Adoption of the Internet as
a Medium of Commerce and Communications
The Corporation at present offers no products and services other
than web design and hosting services, from which total revenues
in the year ended March 31, 1997 were only $62,420. Therefore
the Corporation's success in the future will depend on the
development of products and services for use on the Internet.
As is typical in the case of a new and rapidly evolving
industry, demand and market acceptance for recently
introduced products and services are subject to a high level
of uncertainty. The industry is young and has few proven
products. Moreover, critical issues concerning the
commercial use of the Internet (including security,
reliability, cost, ease of use and access, and quality of
service) remain unresolved and may impact the growth of
Internet use. There can be no assurance that investing and
communication over the Internet or private networks will
become widespread, or that the Corporation's products for
commerce and communication over the Internet or private
network will become widely adopted for these purposes.
Significant research and development expenditures are likely
to be required in connection with the development of the
Corporation's Internet business.
Because the market for the Corporation's Internet services is
new and evolving, it is difficult to predict the future
growth rate, if any, and size of this market. There can be
no assurance that the market for the Corporation's services
will develop, that the Corporation's services will be
adopted, or that individual personal computer users in
business or at home will use the Internet or private networks
for commerce and communication. If the market fails to
develop, develops more slowly than expected or becomes
saturated with competitors, or if the Corporation's services
do not achieve market acceptance, the Corporation's business,
operating results and financial condition will be materially
adversely affected.
Possibility of Acquisitions
One of the Corporation's strategies to attempt to achieve
growth is predicated upon the acquisition of one or more
software products or companies producing products into which
the Corporation could embed COPERNICUS. The Corporation
believes that this strategy would allow the Corporation to
provide a competitive advantage to such software products.
The Corporation also intends to seek acquisitions of or other
business combinations with other businesses in related fields.
The Corporation will have very limited financial resources to offer
to any such prospective partners and unless there is a significant
improvement in the Corporation's stock price, will not have attractive
stock to offer. The Corporation therefore expects to be essentially
opportunistic in seeking business combinations which are available
to it. This means the Corporation may entertain proposals from businesses
not directly related to its intended area of operations in order
to seek the maximum value for shareholders.
There is no current agreement, arrangement or understanding
relating to any acquisition. The Corporation receives and
expects to continue to receive inquiries as to its interest
in acquiring other products and companies and forming other
possible business combinations. There can be no assurance
that the Corporation will find suitable acquisition
candidates or that an acquisition or other business
combination can be completed upon terms acceptable to the
Corporation. Additionally, the Corporation manticipates that any
such combination wil require additional financing, and therefore
the attrictiveness of anty proposed combination to potential investors
will need to be considered in evaluating possible combinations.
There can be no assurance that financing will be available
or, if it is available, that it will be available on
acceptable terms. Generally, shareholders of the Corporation
do not have the power to vote to approve an acquisition of
another company.
Competition
The market for Internet-based services is new, intensely
competitive, rapidly evolving and subject to rapid
technological change. The Corporation expects competition to
persist, intensify and increase in the future. Many of the
Corporation's current and potential competitors have longer
operating histories, greater name recognition, larger
customer bases and significantly greater financial, technical
and marketing resources than the Corporation. Such
competition could materially adversely affect the
Corporation's business, operating results and financial
condition. There can be no assurance that the Corporation
will be able to compete successfully against current or
future competitors or that competitive pressures faced by
the Corporation will not materially adversely affect its
business, operating results and financial condition.
New Service Development and Technological Change
If the Corporation is unable to develop on a timely basis new
services or enhancements, or if such new services or
enhancements do not achieve market acceptance, the
Corporation's business, operating results and financial
condition will be materially adversely affected.
Concentration of Share Ownership
Robert S. Trump owns 800,000 shares of the Corporation's
Series C Redeemable Preferred Stock, each of which has the
right to vote the equivalent of four shares of Common Stock.
Mr. Trump also owns warrants issued in a private placement of
the Corporation's securities for which a closing was held in
October 1994 (the "1994 Warrants) which are exercisable for
200,000 shares of Common Stock. Midland Associates, a general
partnership, owns 439,999 shares of Common Stock
(representing approximately 20% of the outstanding shares of
Common Stock). Midland Associates also owns warrants (the
"Midland Warrants") which are exercisable for an additional
180,000 shares of Common Stock. Assuming exercise of all such
warrants, Midland Associates together with Mr. Trump would
own 819,999 shares of Common Stock (representing
approximately 24% of the outstanding shares of Common Stock),
and have the right to vote 4,019,999 shares (representing
approximately 71% of the outstanding voting rights of the
Corporation.)
By executing Voting Agreements in connection with the
proposed transaction, Mr. Robert Trump, Midland Associates,
Lancer Holdings, Mark Blundell, and John Brann, together
representing 68.1% of the voting rights (not including
unexercised warrants and options) of the Corporation eligible
to vote at the Special Meeting, have agreed to vote in favor
of Proposal 1.
Such shareholders will be able to have significant influence
on matters submitted to the Corporation's shareholders. See
"Voting Securities."
Government Regulation and Legal Uncertainties
The Corporation is not currently subject to direct regulation
by any government agency, other than regulations applicable
to businesses generally, and there are currently few laws or
regulations directly applicable to access to or commerce on
the Internet. Due to the increasing popularity and use of
the Internet, it is possible that a number of laws and
regulations may be adopted with respect to the Internet,
covering issues such as user privacy, pricing and
characteristics and quality of products and services. The
adoption of any such laws or regulations may decrease the
growth of the Internet, which could in turn decrease the
demand for the Corporation's products and increase the
Corporation's cost of doing business or otherwise have an
adverse affect on the Corporation's business, operating
results and financial condition. Moreover, the applicability
to the Internet of existing laws governing issues such as
property ownership, libel and personal privacy is uncertain.
Any such export restrictions, new legislation or regulation
or unlawful exportation could have a material adverse impact
on the Corporation's business, operating results and
financial condition.
Management's Broad Discretion in Application of
Proceeds
The net proceeds of the proposed transaction will be applied
to debt repayment, redemption of the Corporation's Series C
Redeemable Preferred Stock, working capital and other general
corporate purposes of the Corporation. Accordingly, the
Corporation's management will have broad discretion in the
use of proceeds of the proposed sale. In addition, the
Corporation may use a portion of the net proceeds for the
acquisition of one or more software products or software
companies. There is no current agreement, arrangement or
understanding relating to any acquisition. Generally,
shareholders of the Corporation do not have the power to vote
to approve an acquisition of another company. See "Special
Considerations -- Possibility of Acquisitions" and "Use of
Proceeds."
Dependence on the Internet
Sales of the Corporation's services will depend in large part
upon the continued development of infrastructure and related
services for providing Internet access and carrying Internet
traffic. The Internet relies on this infrastructure, such as
a reliable network backbone or timely development of
complimentary products, such as high speed modems, to enhance
its commercial viability. There can be no assurance that this
infrastructure or these products will be developed, or, if
developed, that the Internet will become a viable commercial
marketplace. If the Internet does not become a viable
commercial marketplace, the Corporation's business, operating
results and financial condition will be materially adversely
affected.
Dependence on Key Personnel
The Corporation's performance is substantially dependent upon
the performance of its executive officers and key employees.
Given the Corporation's early stage of development in the
Internet business, the Corporation is dependent upon its
ability to retain and motivate high quality personnel,
especially its management and highly skilled development
teams. The loss of the services of any of its executive
officers or other key employees could have a material adverse
affect on the business, operating results and financial
condition of the Corporation. The Corporation's future
success also depends on its continuing ability to identify,
hire, train, and retain other highly qualified technical and
managerial personnel. Competition for such personnel is
intense, and there can be no assurance that the Corporation
will be able to attract, assimilate or retain other highly
qualified technical and managerial personnel in the future.
The inability to attract and retain the necessary technical
and managerial personnel could have a material adverse affect
upon the Corporation's business, operating results or
financial condition.
Uncertain Protection of Intellectual Property
The Corporation's success and ability to compete is dependent
in part upon the development of proprietary technology.
While the Corporation will rely on trademark, trade secret
and copyright law to protect its technology, the Corporation
believes that factors such as the technological and creative
skills of its personnel, new product development, frequent
site enhancements, name recognition and reliable site
maintenance are more essential to establishing and
maintaining a leadership position on the Internet. The
Corporation currently has no patents or patent applications
pending. There can be no assurance that others will not
develop technologies that are similar or superior to the
Corporation's technology. The Corporation generally enters
into confidentiality or license agreements with its
employees, consultants and vendors, and generally controls
access to and distribution of its software, documentation and
other proprietary information. Despite these precautions, it
may be possible for a third party to copy or otherwise obtain
and use the Corporation's technology without authorization,
or to develop similar technology independently. In addition,
effective copyright and trade secret protection may be
unavailable or limited in certain foreign countries, and the
global nature of the Internet makes it virtually impossible
to control. Despite the Corporation's efforts to protect its
proprietary rights, unauthorized parties may attempt to copy
aspects of the Corporation's site or to obtain and use
information that the Corporation regards as proprietary.
Policing unauthorized use of the Corporation's products is
difficult. There can be no assurance that the steps taken by
the Corporation will prevent misappropriation of its
technology or that such agreements will be enforceable. In
addition, litigation may be necessary in the future to
enforce the Corporation's intellectual proprietary rights, to
protect the Corporation's trade secrets, to determine the
validity and scope of the proprietary rights of others, or to
defend against claims of infringement or invalidity. Such
litigation could result in substantial costs and diversion of
resources and could have a material adverse affect on the
Corporation's business, operating results and financial
condition.
Potential Interest of Officer and Director in Proposal
1
The employment agreement between the Corporation and Mr.
Blundell, its President and Chief Executive Officer, includes
a termination clause which provides that in the event that
the Corporation terminates the contract other than for cause,
or in the event of a change of control or a sale of
substantially all the assets of the Corporation, Mr Blundell
is entitled to receive a payment equivalent to two year's
benefits under the contract. The consummation of the
transactions contemplated by Proposal 1 would constitute such
a sale of substantially all the assets of the Corporation.
See Annex B page 27.
Failure to Adopt Proposal 1
In the event that Proposal 1 is not adopted by the
shareholders, the Corporation will have insufficient liquid
resources to meet its liabilities, and in the event that
further investment in the Corporation is not available, would
be unable to continue operations. Level 8 Systems, Inc. has
been granted a lien on the COPERNICUS product and related
assets and VIE has been granted a lien on all of the tangible
and intangible assets of the Corporation, including the
COPERNICUS product and related assets. Should the
Corporation's Board of Directors decide that a reorganization
or a petition for bankruptcy is necessary, it is unlikely
that shareholders would receive any return on their
investment in the Corporation. In addition, VIE will be
entitled to be paid a break-up fee in the amount of $350,000
and the VIE License would survive in accordance with its
terms.
DESCRIPTION OF BUSINESS
See Annex B, page 4.
DESCRIPTION OF PROPERTY
See Annex B, page 15.
LEGAL PROCEEDINGS
See Annex B, page 15.
FINANCIAL STATEMENTS
See Annex B, page 36.
UNAUDITED PRO FORMA FINANCIAL DATA
The unaudited pro forma financial data of the Corporation
presented below for, and as of the end of, the fiscal years
ended March 31, 1996 and 1997 have been derived from the
financial statements of the Corporation, which have been
audited by BDO Seidman LLP, independent certified public
accountants. The Corporation was incorporated in July 1993
and commenced operations in November 1993. The data set forth
below should be read in conjunction with the Corporation's
financial statements and related notes thereto included
elsewhere herein. The Corporation has entered into
agreements to sell two of its major businesses - COPERNICUS
and the EDI business. As a result the statements of
operations for the fiscal year ended March 31, 1997 and the
Balance Sheet as at March 31, 1997 have been prepared to
reflect continuing operations..
Statement of Operations Data
<TABLE>
<S> <C> <C> <C> <C>
Year Ended Pro forma adjustments Pro forma
March 31, 1997 Debit (1) Credit (1) as adjusted
----------------------------------------------------
Revenues $ 69,976 $ - $ - $69,976
Expenses 1,627,163 - - 1,627,163
----------------------------------------------------
Loss from operations (1,562,187) - - (1,562,187)
Other income (expense) 25,099 20,000 - 5,099
----------------------------------------------------
Loss from continuing operations (1,537,088) 20,000 - (1,557,088)
Loss from discontinued
operations (1,438,319) - 1,438,319 -
----------------------------------------------------
Net Loss $(2,975,407) 20,000 1,438,319 (1,577,088)
----------------------------------------------------
Net Loss per common share
from continuing operations $(0.63) - - $(0.64)
Net Loss per common share
from discontinued operations (0.58) - - -
----------------------------------------------------
Net Loss per common share (1) $(1.21) - - $(0.64)
Weighted average common
shares outstanding (1) 2,449,428 - - 2,449,428
<FN>
<F1> (1) The pro forma Statements of Operations Data for the year
ended March 31, 1997 have been adjusted to show the
transactions set out below as if they had taken place with
effect from April 1, 1996
</FN>
</TABLE>
Balance Sheet Data
<TABLE>
<S> <C> <C> <C> <C>
March 31, Pro forma adjustment Pro forma as
1997 Debit (2) Credit (2) adjusted
----------------------------------------------------
Total current assets 411,267 2,050,000 870,000 1,591,267
Note receivable - 300,000 - 300,000
Assets held for sale 691,491 - 691,491 -
Total current liabilities 1,427,817 550,000 - 877,817
Total assets $1,357,703 2,350,000 1,561,491 2,146,212
Total current liabilities 1,427,817 550,000 - 877,817
Redeemable Preferred Stock 200,000 200,000 - -
Deficit (9,109,599) 120,000 1,658,509 (9,129,599)
Total shareholders equity
(capital deficit) $(270,114) $1,658,509 $120,000 $1,268,395
<FN>
<F1> (2) The pro forma Balance Sheet as at March 31, 1997 has
have been adjusted to show the transactions set out below as
if they had taken place on March 31, 1997
</FN>
</TABLE>
<TABLE>
Pro forma adjustments:
o The sale of the EDI business to CIS for a note with a face
value of $350,000 and a present value of $300,000. Assets
held for sale are reduced by $74,557 and a gain on the sale
of assets of $225,443 is recorded as a consequence of this
transaction
o The sale of COPERNICUS and related assets as set out in
Proposal 1. An increase in cash of $2,050,000, a reduction
in assets held for sale of $616,934 and a gain on the sale
of assets of $1,433,066 are recorded as a consequence of
this transaction
o The intended redemption of the Series C Redeemable
Preferred Stock for $200,000 gives rise to a reduction in
cash of $200,000 and a reduction in the Series C Redeemable
Preferred Share liability of $200,000
o The intended repayment of the loan from Level 8 Systems,
Inc., gives rise to a reduction in cash of $670,000, a
reduction in note payable of $550,000, a charge to
reorganization costs of $100,000 and an interest charge of
$20,000.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
See Annex B, page 16.
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
USE OF PROCEEDS
The Corporation expects to use the proceeds from the sale of
COPERNICUS and related assets as follows:
<S> <C> <C>
Estimated Estimated
Amount Percentage of
Net Proceeds
----------------------------
Redemption of Series C Redeemable
Preferred Stock(1) $ 200,000 9
Repayment of Level 8 Secured Loan(2) 670,000 33
Termination and bonus payments(3) 100,000 5
Immediate payments of accounts payable 200,000 9
Repayment of June 27, advance from VIE 63,500 3
----------------------------
Working Capital 836,500 41
----------------------------
$2,050,000 100%
Notes:
1. Exactly $200,000 of the proceeds will be used to redeem
the 800,000 shares of Series C Preferred Stock.
2. Approximately $670,000 of the proceeds will be used to
repay the principal, breakup fee ($100,000) and interest
(approximately $20,000 as of June 30) on the Level 8 Systems,
Inc. secured loan. See "Certain Transactions".
3. Mr. Brann and Mr. Cholokian, former employees of the
Corporation who will join VIE under the terms of the
Agreement will receive termination or bonus payments and Mr.
Caltabiano - former Senior Vice President Sales and Marketing
will receive a payment under a termination agreement. In
total these are expected to amount to $100,000. Mr. John
Brann has agreed to lend $30,000 of his termination payment
to the Corporation. See "Certain Transactions".
4. In the event that feasibility studies prove successful,
the Corporation may use up to a maximum aggregate amount of
$200,000 to invest in new projects (see "Plan of Operations -
Internet - Other Products").
The Corporation may use a portion of the net proceeds for the
acquisition of one or more software products into which
COPERNICUS could be incorporated under its OEM License or
software companies into whose products COPERNICUS could be
incorporated. There is no current agreement, arrangement or
understanding relating to any acquisition. The Corporation
receives and expects to continue to receive inquiries as to
its interest in acquiring other products and companies and
forming other possible business combinations. There can be no
assurance that the Corporation will find suitable acquisition
candidates or that an acquisition or other business
combination can be completed upon terms acceptable to the
Corporation. Additionally, the Corporation is likely to
require additional financing to complete any acquisition. See
"Plan of Operation".
The Corporation intends to invest the net proceeds of the
COPERNICUS sale, in short-term investment grade interest-
bearing investments until they are utilized.
CERTAIN TRANSACTIONS
General
The following is a discussion of certain transactions entered
into by the Corporation with officers, directors,
securityholders and affiliates thereof. The Corporation
believes that the terms of these transactions were no less
favorable to the Corporation than would have been obtained
from a non-affiliated third party for similar transactions at
the time of entering into such transactions.
Voting Agreements
Voting Agreements - As of May 9, 1997, Mark Blundell, the
Chief Executive Officer and a Director of the Corporation,
John Brann, a former Officer and Director of the Corporation,
Mr. Robert Trump and Midland Associates, beneficial owners of
more than 5% of a class of equity securities the Corporation,
and Lancer Holdings, Inc., a company controlled by Mr.
Blundell and Mr. Brann, have entered into voting agreements
with VIE. These Voting Agreements were required by VIE as a
condition of VIE's entering into the Purchase Agreement.
Under the Voting Agreements the above named parties, who
together account for 68.1% of the voting rights entitled to
vote at the Shareholders Meeting, have agreed to vote in
favor of Proposal 1.
Other Transactions
Loan from Robert Trump-Series C Redeemable Preferred Shares -
On January 15, 1997 Mr. Robert Trump, then an 18% Shareholder
in the Corporation, loaned the Corporation $150,000 in
exchange for a six-month non-interest bearing note, and a
change in the Midland Warrants. On March 15, 1997 Mr. Trump
advanced the Corporation an additional $50,000 and
surrendered the note which he held in return for 800,000
Series C Redeemable Preferred Shares which carry four votes
per share. As of May 9, 1997, Mr Trump entered into a Voting
Agreement with VIE which will result in the 3,200,000 votes
of the Series C Redeemable Preferred Stock being cast in
favor of Proposal 1. Mr Trump is not now, and never has
been, affiliated with or related to any of the principals of
VIE or Level 8..
Secured Loan from Level 8 - On March 20, 1997 Level 8
Systems, Inc. loaned the Corporation $550,000, secured by a
lien on COPERNICUS and related assets. This loan has a
maturity date of July 17, 1997. Level 8 had certain rights
to acquire COPERNICUS, invest in the Corporation and a right
of first refusal on any other offers for COPERNICUS. These
rights have all now expired.
Secured Loan from VIE - On June 27, 1997 VIE loaned the
Corporation $50,000 secured by a security interest in all of
the Corporation's assets. (See "The VIE Agreements -
Amendment to Purchase Agreement")
Termination Agreement - On May 13, 1997 the Corporation
entered into an agreement with John Brann, the former
Secretary and Vice President of the Corporation, to terminate
his employment with the Corporation (the "Termination
Agreement") pursuant to an employment agreement dated June
14, 1993, as amended. Termination of Mr. Brann's employment
is a condition under the purchase agreement with VIE. As
consideration for the termination under the Termination
Agreement the Corporation agreed to pay Mr. Brann a total of
$50,000 on the earlier of (i) the closing of the purchase
agreement between the Corporation and VIE, or (ii) Mr. Brann
entering into employment with VIE.
The Corporation will receive a $30,000 loan from Mr. Brann to
be repaid under the following terms (a) 50% of all royalties
due to the Corporation under the purchase agreement with VIE
up to a total of $40,000, or (b) full payment of the
principal of the loan at any time including interest at 8%
per annum.
The Corporation has been verbally informed by VIE that it
intends to employ Mr. Brann. The Corporation has also been
informed that Mr. Brann will be granted certain stock options
in VIE in connection with such employment.
Market for the Common Stock and Redeemable Warrants
The following table sets forth, for the periods indicated,
the high and low sale prices for the Common Stock and
Redeemable Warrants as reported by the NASDAQ SmallCap Market
through March 3, 1997 and afterwards as reported on the
Nasdaq Bulletin Board:
</TABLE>
<TABLE>
<S> <C> <C>
Common Stock Redeemable Warrants
1996 Fiscal Quarters High Low High Low
Second Quarter
(Commencing August
11, 1995)(1) $7.50 $5.00 $2.00 $0.75
Third Quarter 6.50 4.50 1.625 0.75
Fourth Quarter 6.125 4.75 1.625 1.125
1997 Fiscal Quarter
First Quarter 6.00 1.875 1.375 0.375
Second Quarter 3.00 1.125 0.875 0.25
Third Quarter 3.125 1.00 0.75 0.25
Fourth Quarter 1.813 0.50 0.25 0.063
1998 Fiscal Quarter
First Quarter 0.50 0.15 0.01 0.01
<FN>
<F1> (1) The initial public offering of the Common Stock and
Redeemable Warrants commenced on August 11, 1995. The initial
public offering prices of the Common Stock and Redeemable
Warrants were $6.50 per share and $.10 per Redeemable
Warrant.
</FN>
</TABLE>
The foregoing sales prices and quotations reflect inter-
dealer prices, without retail mark-up, mark-down or
commission. The foregoing quotations may not represent actual
transactions.
<PAGE>
Annex A
New York Business Corporation Law - Section 623
Section 623. Procedure to enforce shareholder's rights to
receive payment for shares.
(a) A shareholder intending to enforce his right under a
section of this chapter to receive payment for his shares if the proposed
corporate action referred to therein is taken shall file with the corporation,
before the meeting of shareholders at which the action is submitted to a vote,
or at such meeting but before the vote, written objection to the action. The
objection shall include a notice of his election to dissent, his name and
residence address, the number and classes of shares as to which he dissents and
a demand for payment of the fair value of his shares if the action is taken.
Such objection is not required from any shareholder to whom the corporation did
not give notice of such meeting in accordance with this chapter or where the
proposed action is authorized by written consent of shareholders without a
meeting.
(b) Within ten days after the shareholders' authorization
date, which term as used in this section means the date on which the
shareholders' vote authorizing such action was taken, or the date on which such
consent without a meeting was obtained from the requisite
shareholders, the corporation
shall give written notice of such authorization or consent by registered mail
to each shareholder who filed written objection or from whom written objection
was not required, excepting any shareholder who voted for or consented in
writing to the proposed action and who thereby is deemed to have elected not to
enforce his right to receive payment for his shares.
(c) Within twenty days after the giving of notice to him, any
shareholder from whom written objection was not required and who elects to
dissent shall file with the corporation a written notice of such election,
stating his name and residence address, the number and classes of shares as to
which he dissents and a demand for payment of the fair value of his shares. Any
shareholder who elects to dissent from a merger under section 905 (Merger of
subsidiary corporation) or paragraph (c) of section 907 (Merger or consolidation
of domestic and foreign corporations) or from a share exchange under paragraph
(g) of section 913 (Share exchanges) shall file a written notice of such
election to dissent within twenty days after the giving to him of a copy of
the plan of merger or exchange or an outline of the material features thereof
under section 905 or 913.
(d) A shareholder may not dissent as to less than all of the
shares, as to which he has a right to dissent, held by him of record, that he
owns beneficially. A nominee or fiduciary may not dissent on behalf of any
beneficial owner as to less than all of the shares of such owner, as to
which such nominee or fiduciary has a right to dissent, held of record by such
nominee or fiduciary.
(e) Upon consummation of the corporate action, the
shareholder shall cease to have any of the rights of a shareholder except the
right to be paid the fair value of his shares and any other rights under this
section. A notice of election may be withdrawn by the shareholder at any time
prior to his acceptance in writing of an offer made by the corporation, as
provided in paragraph (g), but in no case later than sixty days from the date
of consummation of the corporate action except that if the corporation fails to
make a timely offer, as provided in paragraph (g), the time for withdrawing a
notice of election shall be extended until sixty days from the date an offer
is made. Upon expiration of such time, withdrawal of a notice of election
shall require the written consent of the corporation. In order to be
effective, withdrawal of a notice of election must be accompanied
by the return to the corporation of any advance payment made to the
shareholder as provided in paragraph (g). If a notice
of election is withdrawn, or the corporate action is rescinded, or a court
shall determine that the shareholder is not entitled to receive payment for his
shares, or the shareholder shall otherwise lose his dissenters' rights, he
shall not have the right to receive payment for his shares and he shall be
reinstated to all his rights as a shareholder as of the consummation of the
corporate action, including any intervening preemptive rights and the right to
payment of any intervening dividend or other distribution or, if any such
rights have expired or any such dividend or distribution other than in cash has
been completed, in lieu thereof, at the election of the corporation, the fair
value thereof in cash as determined by the board as of the time of such
expiration or completion, but without prejudice otherwise to any corporate
proceedings that may have been taken in the interim.
(f) At the time of filing the notice of election to dissent
or within one month thereafter the shareholder of shares represented by
certificates shall submit the certificates representing his shares to the
corporation, or to its transfer agent, which shall forthwith
note conspicuously thereon that a notice of election has been filed and
shall return the certificates to
the shareholder or other person who submitted them on his behalf. Any
shareholder of shares represented by certificates who fails to submit his
certificates for such notation as herein specified shall, at the option of the
corporation exercised by written notice to him within forty-five days from
the date of filing of such notice of election to dissent, lose his
dissenter's rights unless a court, for good cause shown, shall otherwise
direct. Upon transfer of a certificate bearing such notation, each new
certificate issued therefor shall bear a similar notation together with
the name of the original dissenting holder of the shares and a transferee
shall acquire no rights in the corporation except those which the
original dissenting shareholder had at the time of transfer.
(g) Within fifteen days after the expiration of the period within which
shareholders may file their notices of election to dissent, or within fifteen
days after the proposed corporate action is consummated, whichever is later (but
in no case later than ninety days from the shareholders' authorization date),
the corporation or, in the case of a merger or consolidation, the surviving or
new corporation, shall make a written offer by registered mail to each
shareholder who has filed such notice of election to pay for his shares at a
specified price which the corporation considers to be their fair value. Such
offer shall be accompanied by a statement setting forth the aggregate number of
shares with respect to which notices of election to dissent have been received
and the aggregate number of holders of such shares. If the corporate action has
been consummated, such offer shall also be accompanied by (1) advance payment to
each such shareholder who has submitted the certificates representing his shares
to the corporation, as provided in paragraph (f), of an amount equal to eighty
percent of the amount of such offer, or (2) as to each shareholder who has not
yet submitted his certificates a statement that advance payment to him of an
amount equal to eighty percent of the amount of such offer will be made by the
corporation promptly upon submission of his certificates. If the corporate
action has not been consummated at the time of the making of the offer, such
advance payment or statement as to advance payment shall be sent to each
shareholder entitled thereto forthwith upon consummation of the corporate
action. Every advance payment or statement as to advance payment shall include
advice to the shareholder to the effect that acceptance of such payment does not
constitute a waiver of any dissenters' rights. If the corporate action has not
been consummated upon the expiration of the ninety day period after the
shareholders' authorization date, the offer may be conditioned upon the
consummation of such action. Such offer shall be made at the same price per
share to all dissenting shareholders of the same class, or if divided into
series, of the same series and shall be accompanied by a balance sheet of the
corporation whose shares the dissenting shareholder holds as of the latest
available date, which shall not be earlier than twelve months before the making
of such offer, and a profit and loss statement or statements for not less than a
twelve month period ended on the date of such balance sheet or, if the
corporation was not in existence throughout such twelve month period, for the
portion thereof during which it was in existence. Notwithstanding the foregoing,
the corporation shall not be required to furnish a balance sheet or profit and
loss statement or statements to any shareholder to whom such balance sheet or
profit and loss statement or statements were previously furnished, nor if in
connection with obtaining the shareholders' authorization for or consent to the
proposed corporate action the shareholders were furnished with a proxy or
information statement, which included financial statements, pursuant to
Regulation 14A or Regulation 14C of the United States Securities and Exchange
Commission. If within thirty days after the making of such offer, the
corporation making the offer and any shareholder agree upon the price to be paid
for his shares, payment therefor shall be made within sixty days after the
making of such offer or the consummation of the proposed corporate action,
whichever is later, upon the surrender of the certificates [fig 1] for any such
shares represented by certificates.
(h) The following procedure shall apply if the corporation fails to make such
offer within such period of fifteen days, or if it makes the offer and any
dissenting shareholder or shareholders fail to agree with it within the period
of thirty days thereafter upon the price to be paid for their shares:
(1) The corporation shall, within twenty days after the expiration of
whichever is applicable of the two periods last mentioned, institute a special
proceeding in the supreme court in the judicial district in which the office of
the corporation is located to determine the rights of dissenting shareholders
and to fix the fair value of their shares. If, in the case of merger or
consolidation, the surviving or new corporation is a foreign corporation without
an office in this state, such proceeding shall be brought in the county where
the office of the domestic corporation, whose shares are to be valued, was
located.
(2) If the corporation fails to institute such proceeding within such period
of twenty days, any dissenting shareholder may institute such proceeding for the
same purpose not later than thirty days after the expiration of such twenty day
period. If such proceeding is not instituted within such thirty day period, all
dissenter's rights shall be lost unless the supreme court, for good cause shown,
shall otherwise direct.
(3) All dissenting shareholders, excepting those who, as provided in
paragraph (g), have agreed with the corporation upon the price to be paid for
their shares, shall be made parties to such proceeding, which shall have the
effect of an action quasi in rem against their shares. The corporation shall
serve a copy of the petition in such proceeding upon each dissenting shareholder
who is a resident of this state in the manner provided by law for the service of
a summons, and upon each nonresident dissenting shareholder either by registered
mail and publication, or in such other manner as is permitted by law. The
jurisdiction of the court shall be plenary and exclusive.
(4) The court shall determine whether each dissenting shareholder, as to whom
the corporation requests the court to make such determination, is entitled to
receive payment for his shares. If the corporation does not request any such
determination or if the court finds that any dissenting shareholder is so
entitled, it shall proceed to fix the value of the shares, which, for the
purposes of this section, shall be the fair value as of the close of business on
the day prior to the shareholders' authorization date. In fixing the fair value
of the shares, the court shall consider the nature of the transaction giving
rise to the shareholder's right to receive payment for shares and its effects on
the corporation and its shareholders, the concepts and methods then customary in
the relevant securities and financial markets for determining fair value of
shares of a corporation engaging in a similar transaction under comparable
circumstances and all other relevant factors. The court shall determine the fair
value of the shares without a jury and without referral to an appraiser or
referee. Upon application by the corporation or by any shareholder who is a
party to the proceeding, the court may, in its discretion, permit pretrial
disclosure, including, but not limited to, disclosure of any expert's reports
relating to the fair value of the shares whether or not intended for use at the
trial in the proceeding and notwithstanding subdivision (d) of section 3101 of
the civil practice law and rules.
(5) The final order in the proceeding shall be entered against the
corporation in favor of each dissenting shareholder who is a party to the
proceeding and is entitled thereto for the value of his shares so determined.
(6) The final order shall include an allowance for interest at such rate as
the court finds to be equitable, from the date the corporate action was
consummated to the date of payment. In determining the rate of interest, the
court shall consider all relevant factors, including the rate of interest which
the corporation would have had to pay to borrow money during the pendency of the
proceeding. If the court finds that the refusal of any shareholder to accept the
corporate offer of payment for his shares was arbitrary, vexatious or otherwise
not in good faith, no interest shall be allowed to him.
(7) Each party to such proceeding shall bear its own costs and expenses,
including the fees and expenses of its counsel and of any experts employed by
it. Notwithstanding the foregoing, the court may, in its discretion, apportion
and assess all or any part of the costs, expenses and fees incurred by the
corporation against any or all of the dissenting shareholders who are parties to
the proceeding, including any who have withdrawn their notices of election as
provided in paragraph (e), if the court finds that their refusal to accept the
corporate offer was arbitrary, vexatious or otherwise not in good faith. The
court may, in its discretion, apportion and assess all or any part of the costs,
expenses and fees incurred by any or all of the dissenting shareholders who are
parties to the proceeding against the corporation if the court finds any of the
following: (A) that the fair value of the shares as determined materially
exceeds the amount which the corporation offered to pay; (B) that no offer or
required advance payment was made by the corporation; (C) that the corporation
failed to institute the special proceeding within the period specified therefor;
or (D) that the action of the corporation in complying with its obligations as
provided in this section was arbitrary, vexatious or otherwise not in good
faith. In making any determination as provided in clause (A), the court may
consider the dollar amount or the percentage, or both, by which the fair value
of the shares as determined exceeds the corporate offer.
(8) Within sixty days after final determination of the proceeding, the
corporation shall pay to each dissenting shareholder the amount found to be due
him, upon surrender of the certificates [fig 1] for any such shares represented
by certificates.
(i) Shares acquired by the corporation upon the payment of the agreed value
therefor or of the amount due under the final order, as provided in this
section, shall become treasury shares or be canceled as provided in section 515
(Reacquired shares), except that, in the case of a merger or consolidation, they
may be held and disposed of as the plan of merger or consolidation may otherwise
provide.
(j) No payment shall be made to a dissenting shareholder under this section at a
time when the corporation is insolvent or when such payment would make it
insolvent. In such event, the dissenting shareholder shall, at his option:
(1) Withdraw his notice of election, which shall in such event be deemed
withdrawn with the written consent of the corporation; or
(2) Retain his status as a claimant against the corporation and, if it is
liquidated, be subordinated to the rights of creditors of the corporation, but
have rights superior to the non-dissenting shareholders, and if it is not
liquidated, retain his right to be paid for his shares, which right the
corporation shall be obliged to satisfy when the restrictions of this paragraph
do not apply.
(3) The dissenting shareholder shall exercise such option under subparagraph
(1) or (2) by written notice filed with the corporation within thirty days after
the corporation has given him written notice that payment for his shares cannot
be made because of the restrictions of this paragraph. If the dissenting
shareholder fails to exercise such option as provided, the corporation shall
exercise the option by written notice given to him within twenty days after the
expiration of such period of thirty days.
(k) The enforcement by a shareholder of his right to receive payment for his
shares in the manner provided herein shall exclude the enforcement by such
shareholder of any other right to which he might otherwise be entitled by virtue
of share ownership, except as provided in paragraph (e), and except that this
section shall not exclude the right of such shareholder to bring or maintain an
appropriate action to obtain relief on the ground that such corporate action
will be or is unlawful or fraudulent as to him.(l) Except as otherwise
expressly provided in this section, any notice to be given by
a corporation to a shareholder under this section
shall be given in the manner provided in section 605 (Notice of meetings of
shareholders).
(m) This section shall not apply to foreign corporations except as provided in
subparagraph (e)(2) of section 907 (Merger or consolidation of domestic and
foreign corporations).
<PAGE>
Annex B
TABLE OF CONTENTS
PART I
ITEM PAGE
1. Description of Business 4
2. Description of Property 15
3. Legal Proceedings 15
4. Submission of Matters to a Vote of 15
Security Holders
PART II
5. Market for Registrant's Common 16
Equity and Related Stockholder
Matters
6. Management's Discussion and 16
Analysis of Financial Condition and
Results of Operations
7. Financial Statements 22
8. Changes in and Disagreements with 22
Accountants On Accounting and
Financial Disclosure
PART III
9. Directors, Executive Officers, 23
Promoters and Control Persons;
Compliance with Section 16(a) of
the Exchange Act
10.Executive Compensation 24
11.Security Ownership of Certain 28
Beneficial Owners and Management
12.Certain Relationships and Related 31
Transactions
PART IV
13.Exhibits and Reports on Form 8-K 34
PART I
Item 1. Description of Business
General
New Paradigm intends to devote its efforts in future to the
development of its Internet business (see "Description of
Business - Internet"). However throughout the period which
is covered by this report, the Company was primarily focused
on its COPERNICUS(R) business which it has agreed to sell,
subject to shareholder approval, and its EDI business, which
has already been sold. (See "Description of Business -
General - COPERNICUS" and "Description of Business - General
- - EDI").
General - Sale of COPERNICUS - Circumstances and
Background
The intended sale of Copernicus and the New Paradigm
Architecture is the most significant recent development for
the Company. The Company's management and Board of Directors
have actively explored options for preserving shareholder
value while overcoming the liquidity problems which the
Company has experienced. Many potential transactions were
pursued and examined. In addition, the Company approached
many prospective investors in, and potential acquirers of,
the COPERNICUS asset. These included many investor groups and
large software companies both in the U.S. and overseas.
Summarized below are the steps taken by the Company in
arriving at the decision to seek to sell COPERNICUS.
September 1996
By September 1996 it was obvious to management that the
Company would need to raise significant additional funds in
order to proceed with its business plan. The direct sales
which had been expected had not materialized and revenues
were therefore below the Company's expectations. The Company
decided to reduce costs by eliminating its direct sales
force, all of whom were released at that time. The Company
was at the time negotiating with several parties with a view
to establishing U.S. and international distribution via third
party channels. Management decided to focus the Company's
activities on promoting and supporting these third party
distributors. In September 1996, the Company reached a verbal
agreement with International Business Machines Corporation
("IBM") to sign a distribution agreement (the "IBM
Agreement") whereby IBM would distribute the Company's
COPERNICUS product with IBM's MQ Series message-passing
middleware.
October 1996
In light of the verbal agreement with IBM, the Company
attempted to arrange a best efforts private placement with
its investment bankers, Josephthal, Lyon and Ross
Incorporated. At this time the Company's Common stock was
trading at a daily high of $2.00 or above, reaching a high of
$3 1/8 on October 18, 1996. The private placement was
intended to raise approximately $3 million and was
conditional upon the actual signing of the IBM Agreement.
The financing was documented and meetings with various other
investment banks who were interested in participating in the
private placement were held. Although the principal business
points of the IBM Agreement had been agreed, it took
considerably longer than either the Company or IBM expected
to complete the legal formalities and the agreement was not
finally signed until December 18, 1996.
September - December 1996
During this time, the Company's management pursued a number
of other alternatives to raising the funding necessary to
sustain the Company until the sales expected through IBM and
the other distributors materialized. It was considered
highly unlikely that significant revenues would arise from
these sources before the second half of 1997 at the earliest.
Discussions were held with a number of companies who
expressed an interest in merging with the Company. However,
none of the proposals which management was able to solicit
proved satisfactory (e.g., no immediate injection of funds,
extreme dilution to existing shareholders, minimal revenue
contribution by the other party). Discussions also took
place over a period of several months with a major vendor of
middleware about a possible acquisition of the Company or the
COPERNICUS product, but these were preempted when that vendor
acquired another company with a product which was perceived
by them to be competitive with COPERNICUS. During this
period the Company's total assets fell below $2 million,
raising concerns about the possible delisting of the
Company's Stock form the Nasdaq SmallCap market.
December 1996
The Company also investigated the possibility of a placement
to European investors under Regulation S of the Securities
Act. A presentation to relevant investors by a
representative of the Company's management took place in the
first week of December 1996, and appeared to generate
considerable interest. Nevertheless, during December the
Company's Common Stock price fell from a high of $2.00 on
December 5, 1996 to a low of $1.00 on December 31, 1996.
Management believes that a significant factor in the decline
of the price of the Company's Common Stock was investor
concern about the Company's liquidity problems and the
likelihood of a delisting from the Nasdaq SmallCap market.
Under these circumstances, the interest of overseas investors
disappeared and the Company's investment bankers advised that
a private placement with U.S. investors was now impossible.
Due to the Company's liquidity crisis, all employees not
absolutely essential to the maintenance of current business
and the relationship with IBM were terminated as of December
31, 1996.
January 1997
In January and February 1997, the Company engaged in lengthy
discussions with a high-net worth individual with
considerable experience in the enterprise software market.
The investor carried out certain due diligence on COPERNICUS
and an investment of $2 million in exchange for a 51%
interest in the Company was discussed. As the two parties
moved toward documenting the proposed transaction, the
investor withdrew, based on the investor's unwillingness to
invest in a small and troubled public company.
Loan from Mr. Robert Trump
In order to continue operating, the Company solicited a
$150,000 loan from Mr. Robert Trump which was received on
January 16, 1997. Mr. Trump is an investor, who together
with Midland Associates with whom he is affiliated, is the
Company's largest shareholder. Mr. Trump was approached by
management and requested to make the loan on the basis that
the negotiations and discussions in progress were likely to
lead to a significant investment in the Company in the near
future. The principal terms of this loan were as follows:
o Advance: $150,000.
o Term: 6 months (to expire July 14th, 1997).
o Interest Rate: To be paid in warrants, see below.
o Warrants: 150,000 three-year warrants with an
exercise price of $2.00 per share, in lieu of interest.
Other terms: The 180,000 Midland Warrants, held
by Midland Associates, an affiliate of Mr. Trump, were
amended as follows: The expiration date was changed from
August 11, 1998 to January 16, 2002 and the exercise price
reduced from $3.75 to $2.00 per share. See "Certain
Transactions".
The Loan was used to pay certain pressing payables, including
arrears of salary to all employees.
February 1997
During late January and early February 1997 the Company
reached an advanced stage of negotiating a transaction with
another public company whereby the other company would sell
to the Company a subsidiary with assets in excess of $1.5
million and inject $1 million cash into the Company in
exchange for 10 million shares of the common stock of the
Company. The effect of this transaction would have been to
increase the Company's assets to the point where the Company
would have fulfilled the requirements for continued listing
on the Nasdaq SmallCap market. However, during the due
diligence process, it was discovered that the resulting
combination would have had a significantly greater negative
cash flow than had originally been foreseen. There were also
some unresolved valuation questions relating to the
subsidiary which it was proposed the Company would acquire.
The parties therefore decided not to proceed with the
transaction.
The VIE transaction - preliminary negotiations
In mid-February of 1997, the Company began discussion with
representatives of the group of investors who eventually
formed VIE Systems, Inc. in order to offer to acquire
COPERNICUS. The group of investors included the high net
worth individual with whom the Company had been conducting
detailed discussions in January 1997. This investor group
(which is referred to hereafter as VIE notwithstanding that
VIE Systems, Inc. was not actually formed until some time
later) initially offered $1.6 million and a 5% equity stake
in VIE in order to acquire COPERNICUS and its related assets.
This offer was received in writing on February 20, 1997. In
light of other indications which had been received, it seemed
that a better price could be obtained, and this offer was
therefore declined. However, negotiations continued and the
terms of the offer were improved.
March 1997 - Delisting from Nasdaq SmallCap Market
As a result of the above circumstances, the Company had not
met the $2 million in total assets requirement for continued
listing on the Nasdaq SmallCap market since September 1996.
Accordingly on March 3, 1997 the Company's Common Stock and
Redeemable Warrants were delisted from the Nasdaq SmallCap
market. on the grounds that the Company failed to meet the $2
million in total assets requirement for continued listing.
The Common Stock is now trading on the Nasdaq Bulletin Board.
"Penny stock" rules now apply to the Company's stock. Listing
on the Nasdaq Bulletin Board may result in reduced liquidity
in trading in the Common Stock. Together these circumstances
will likely increase the costs and reduce the likelihood of
success in the event that the Company seeks to raise further
funds through the sale of equity securities.
Series C Redeemable Preferred Stock
On March 13, 1997, Mr. Robert Trump agreed to advance the
Company a further $50,000 which the Company urgently required
in order to continue its operations and meet its payroll
obligations. Management believed that employee morale was low
as a direct consequence of the Company being unable to meet
its payroll obligations, and that further resignations of
staff members would significantly reduce the value of the
Company's primary asset, COPERNICUS. The Company therefore
approached Mr. Trump to seek a further advance to cover
arrears of payroll while management pursued discussions with
Level 8 Systems, Inc., VIE, and other parties to secure the
best possible offer for the COPERNICUS assets.
In order to secure further funds at this time when the
Company was in severe financial difficulties it was agreed
that Mr. Trump would receive sufficient votes via the
creation of a new class of Preferred Stock in order to be
able to maximize the possibility of recovering both this
advance and the earlier advance of $150,000. As a result of
these negotiations the earlier $150,000 advance and the March
13, 1997 $50,000 advance were combined into $200,000 to be
used to subscribe for 800,000 shares of Series C Redeemable
Preferred Stock, $0.01 par value, with the following
principal terms:
o Each Series C Redeemable Preferred Share has four (4) votes
on any matter to be put to a vote of the Company's
shareholders.
o The Series C Redeemable Preferred Stock can be redeemed at
the Company's option at any time upon payment of $200,000.
o The Series C Redeemable Preferred Stock can be redeemed at
the holder's option following any investment in the Company
or a sale of any of the Company's assets where the proceeds
are $2,000,000 or more.
o The Series C Redeemable Preferred Stock will have
preference in the event of any liquidation of the Company
to the extent of $200,000.
The Company therefore intends to redeem the Series C
Redeemable Preferred Stock using $200,000 of the proceeds of
the sale in when the sale of COPERNICUS is approved.
Management Deliberations Concerning Creation of the
Series C Preferred Stock.
Management considered the creation of the Series C Preferred
Stock carefully. Among the factors taken into account were
the following:
o At that time, there were no other sources of funds actually
offered to the Company.
o If further members of staff left the Company's employment
because of the inability of the Company to meet its payroll
obligations, management believed that the value of
COPERNICUS would decrease as the Company would be unable to
service either its existing customers or the new prospects
being introduced by IBM.
o Management believes that these terms were the best it
could secure at that time, and these terms were arrived at
through arms-length negotiations with Mr. Trump.
o The level of four votes per share was required by the
lender in order to give him significant influence in the
approval of any potential sale of COPERNICUS to ensure that
the advance was repaid. The issuance of the Series C
Preferred Stock to Mr. Trump increased his proportion of
the votes on any matter to be put to a vote of the
Company's shareholders from 18% to 64%.
o Management believes that the Company was able to secure
both firm offers and improved terms from Level 8 and then
from VIE as a result of this transaction.
o The board determined that the Company was not required to
solicit proxies for this issuance as BCL paragraph 502 (c)
gives the board the authority to fix the terms of preferred
stock where such terms are not fixed in the charter of the
Company.
Level 8 Systems, Inc.
Throughout the negotiations with VIE, the Company continued
to aggressively pursue other potentially interested parties.
Several of them indicated strong interest, and one, Level 8
Systems Inc. ("Level 8") made a formal offer to the Company.
In order to move quickly, Level 8 verbally offered to make an
immediate advance of $550,000 to the Company to enable it to
make crucial payments to employees and creditors. After
further negotiation, a written offer was made early on March
19, 1997. At this point the Company had received a verbal
offer from VIE to acquire COPERNICUS and therefore sought a
better offer from Level 8. This was not immediately
forthcoming, however Level 8 did agree to improve the terms
of its offer, to include an immediate cash infusion. The
offer accepted by the Company was made later on the same day
(March 19, 1997) with the following principal terms:
o Advance: $550,000.
o Term: 120 days (expiring July 17, 1997).
o Interest Rate: 10% per annum.
o Collateral: Secured by the COPERNICUS product and
related assets.
o Additional Terms: The Company was free to continue to
negotiate with VIE and other third parties. In the event
that the Company were to sell COPERNICUS on or before the
repayment of the loan, a break-up fee would be payable to
Level 8 of $100,000. The proposed sale of COPERNICUS to
VIE as described herein would represent such a sale, and it
is therefore envisaged that the break-up fee will be paid
to Level 8 from the proceeds of the sale when the sale of
COPERNICUS is approved.
The Board of Directors of the Company believed that it was
imperative to receive a significant cash infusion of some
kind since many of the employees were actively seeking other
employment, as they had not received salary for some time.
It was considered necessary to retain at least certain key
employees in order to protect the value of COPERNICUS. This
value would erode swiftly in the event that no staff were
available to maintain the existing customers and to support
the IBM sales effort. Therefore, despite the risks of not
being able to achieve a satisfactory offer for COPERNICUS
during the 120 days, the Board decided to proceed with the
transaction and preserve the COPERNICUS business as a going
concern in order to have the best opportunity to achieve
maximum shareholder value from the COPERNICUS asset. Level 8
is not and has never been an affiliate of the Company, any
member of the Company's management, any of its principal
shareholders or any related parties. Certain employees of
the Company at that time were asked by the management to
consider offers of employment from Level 8 in order to
enhance the value of the sale to the Company's shareholders.
No employees accepted these offers.
The only other offer which the Company had managed to confirm
at the time was a verbal offer from an investor to invest
$500,000 in the Company in exchange for a 70% equity interest
in the Company. The advantage of this proposed transaction
was that it did not impose the same time constraint with
respect to negotiating a satisfactory offer as the Level 8
secured loan. The disadvantage was that it would produce
substantial dilution to existing shareholders so that an
offer for COPERNICUS more than three times as high as the
existing proposals would have been required in order to
obtain the same value for existing shareholders. In view of
the fact that employees had left for more secure employment
and that more were likely to do so, the ability of the
Company to maintain the value of the COPERNICUS asset over a
period longer than 120 days was limited, and it was thus
decided to proceed with the Level 8 proposal.
The VIE transaction - later negotiations
On March 20, 1997, after being advised of Level 8's serious
interest, VIE made a substantially increased offer to the
Company, with the following principal terms:
o VIE would acquire COPERNICUS and certain related assets for
$2 million in cash plus a 10% share in VIE. The parties
would immediately enter into a purchase agreement,
conditional upon shareholder approval, which would take
effect following shareholder approval.
o VIE would immediately advance $400,000 as a secured loan
while the Company sought shareholder approval for the sale.
This would represent a prepayment of the purchase price.
o The Company would provide undertakings from the required
majority of shareholders to vote in favor of the sale at
the shareholders meeting.
o Mr. John Brann, the Company's Vice President of technology,
and Mr. Diran Cholokian, the head of third party sales
would enter into employment agreements with VIE.
o The Company would obtain shareholder approval within 60
days of signing the proposed purchase agreement.
o Pending the shareholders meeting, VIE would immediately
receive a world-wide non-exclusive license for COPERNICUS
together with a perpetual exclusive license in the United
States for the health-care, financial services, food,
airline and hotel industries and an assignment of the IBM
contract. There would be a 5% royalty under this license
payable to the Company. Any payments under the license
prior to closing the purchase agreement would constitute
prepayments under the purchase agreement.
o If for any reason the sale was not approved by shareholders
or there was a change of control of the Company, or in
certain other circumstances defined as "Break-up events",
VIE would have received a break-up fee of the greater of
$250,000 and 50% of the difference in the value of the cash
components of the two competing offers.
While this offer appeared to be the most favorable yet
received from the point of view of shareholder value, the
Company had a number of concerns. Among other points, these
included the sweeping nature of the proposed interim license
(particularly the perpetual nature of the exclusive license
and the fact that it covered all areas where the Company had
experienced any success in licensing COPERNICUS), the lack of
any provision for the Company to continue to utilize
COPERNICUS in any fashion and the probability of the
Company's interest in VIE being diluted by the need for
further financing.
After further discussions with VIE it became apparent that
there was a willingness on both sides to negotiate a mutually
satisfactory transaction.
The Company therefore duly gave notice to Level 8 that it had
received a written offer. Level 8 declined to match the
terms of the offer and instead made the following offer,
which it termed "Final" on March 27, 1997:
Level 8 would acquire COPERNICUS and related assets, the
Company would receive $700,000 in cash and $300,000 in Level
8 Stock.
In view of Level 8's unwillingness to match the terms of the
VIE offer (the Company judged the value of Level 8's offer to
be significantly lower than that of the VIE offer) and VIE's
apparent readiness to negotiate an acceptable proposal, the
Company entered into a letter agreement to negotiate with VIE
on March 31, 1997. This agreement allowed the Company to
continue to solicit interest in COPERNICUS and investments in
the Company during the negotiations and if there were to be
such a sale or investment there would be a break-up fee
payable to VIE of $150,000, unless VIE had previously broken
off negotiations.
Through April and the first week of May negotiations with VIE
continued on both business points and on the most appropriate
legal language until the agreements described in "The VIE
Agreements" were entered into as of May 9, 1997.
Management Deliberations on VIE Offer
Without limitation, among the factors taken into account by
the Company's board of directors in deciding to accept the
offer from VIE were the following:(i) the Company had proven
unable to raise the funding necessary to continue developing
and marketing COPERNICUS, despite aggressively pursing
several different possible methods; (ii) the Company had
insufficient liquid resources to meet its existing and
ongoing liabilities;(iii) the Company was losing staff at a
rapid pace because of its inability to continue to finance
its business, which management believed was likely to reduce
the value of the assets; (iv) the Company had discussed a
sale of COPERNICUS widely among potentially interested
parties in the Middleware and related markets, both in the
United States and overseas, and this was the best offer
available; (v) the offer allows New Paradigm Shareholders to
continue to benefit from any success in sales of COPERNICUS
through the Royalty; (vi) management believed that a higher
value could be achieved from a sale of the COPERNICUS
business as a going concern than in the event the Company was
forced to cease operations.
The Board of Directors decided that a third party analysis of
the fairness of the transaction was not necessary in the
circumstances. Without limitation, some of the reasons why
this course of action was considered to be appropriate and
why management believes this offer to be fair and reasonable
are (i) the Company had solicited offers from a wide range of
potentially interested parties in the industry and related
markets, both within the United States and overseas; (ii) the
Company had serious competitive interest from different
unrelated parties throughout the process; (iii) Level 8, a
significant Company in the middleware market place with a
strong interest in COPERNICUS (as evidenced by the loan
advanced to the Company) declined to match the terms offered
by VIE; and (iv) the Company did not have the cash resources
to finance such a third-party analysis
Once it became apparent that VIE required Mr. John Brann to
agree to join their management as a condition precedent of
any transaction, Mr Brann declared a conflict of interest to
the Company's Board of Directors and abstained from all
further votes on the matter. From that point on, Mr Brann
abstained, with all the other directors voting unanimously in
favor of the decisions to negotiate and then conclude the
transaction with VIE. As soon as the decision to accept the
VIE offer was made, Mr. Brann resigned from the Company's
Board of Directors in order to avoid any conflict of
interest. Since the incorporation of the Company, the Board
of Directors has observed a policy that all potential
conflicts of interest should be declared to the Board before
a vote is taken on any matter.
General - COPERNICUS
Until May 9th 1997, New Paradigm was primarily engaged in the
development, marketing, licensing and support of its
COPERNICUS software product. As of May 9, 1997 the Company
entered into an agreement (the "Purchase Agreement"), to
sell, subject to shareholder approval, the rights to
COPERNICUS, the New Paradigm Architecture and certain related
assets to VIE Systems, Inc., a Delaware corporation ("VIE")
for $2,050,000 in cash and a 5% royalty on future COPERNICUS
related license fees payable commencing after the first 12
months. Subject to VIE's approval, the Company will have the
right to enter into OEM agreements with VIE on commercially
reasonable terms, to incorporate COPERNICUS within future
products which the Company may develop or acquire. Under the
Purchase Agreement the Company has appointed VIE as its
exclusive agent for the operation of all aspects of the
COPERNICUS related business and VIE is entitled to retain all
revenues received in connection therewith. This agreement
will terminate at the earlier of the closing of the sale or
180 days from May 9, 1997. VIE has entered into Voting
Agreements with the holders of 68.1% of the voting rights
entitled to vote at a meeting of New Paradigm Shareholders,
and the Company therefore expects the sale to be approved and
completed during July 1997. In the event that the sale is
not approved, the Company sells the COPERNICUS assets to a
third party, or in certain other circumstances VIE is
entitled to receive a break-up fee of $350,000.
As of May 9, 1997 the Company entered into a license
agreement (the "VIE License") to license certain rights to
its COPERNICUS product and to assign certain agreements to
VIE. The VIE License gives VIE a five year exclusive license
to market COPERNICUS to the financial services, healthcare,
food & government industries in US & Canada and a perpetual
non-exclusive worldwide license with respect to all
industries. Under the VIE license the Company is entitled to
receive a 5% royalty on all license fees received by VIE
relating to the COPERNICUS product. The license also permits
VIE to produce the product on additional platforms and
enhance the product as it sees fit. The source code for the
product may not be distributed to another party without the
prior written consent of the Company. Finally the Company has
assigned to VIE certain agreements, including a distribution
agreement with IBM. The VIE license will terminate upon the
closing of the sale under the Purchase Agreement and any
royalties payable thereunder shall be offset against the
purchase price payable at the closing.
Until the closing of the contemplated sale of COPERNICUS
pursuant to the Purchase Agreement, New Paradigm will
continue to be engaged, through its exclusive agent, VIE, in
the development, marketing, licensing and support of its
COPERNICUS software for large-scale computer users. Most
large organizations have many different computer systems. The
need to pass information among those often incompatible
systems is growing rapidly. Passing information among
disparate computer systems is called "systems integration."
COPERNICUS automates systems integration by converting the
data entered into or generated by one program or system into
the form needed by another program or system. The Company
believes that its customers can achieve systems integration
using COPERNICUS in a more timely and cost-effective way than
the traditional approach of writing custom software on a
case-by-case basis. An application for a United States patent
on COPERNICUS is pending.
COPERNICUS replaces the laborious construction of custom
systems integration programs with a method of systems
integration that is activated by pointing and clicking a
"mouse" in the same manner as with widely used consumer and
business software programs. The Company believes COPERNICUS
can bring improvements in productivity to systems integration
comparable to those produced by using a personal computer
spreadsheet to replace manual calculations.
General - EDI
Until April 1, 1997, through its wholly owned subsidiary, New
Paradigm Commerce ("NPC") (formerly New Paradigm Golden
Link), the Company operated a service bureau business
providing electronic data interchange ("EDI") services (the
conveying of business documents electronically). This EDI
business was not operating profitably, and the Company no
longer had the resources to invest in its further
development. Management therefore concluded that the best
course of action was to dispose of this business. As of April
1, 1997, the Company sold its EDI business to Custom
Information Systems Corp. of New York ("CIS") for $6,000 and
a note repayable monthly over three years with a face value
of $355,000 and a present value of approximately $300,000.
CIS operates a similar EDI service bureau in Manhattan. To
date (June 28th 1997), all payments due under the note have
been received in a timely fashion.
History - COPERNICUS
COPERNICUS was invented by John Brann, a former director and
former officer of the Company, prior to his employment with
the Company and prior to his earlier employment with
Management Technologies, Inc. ("MTI"). Mr. Brann assigned all
of his right, title and interest in and to COPERNICUS and the
method of constructing software which it employed (the "New
Paradigm Architecture") to Lancer Holdings Inc. ("Lancer"),
formerly called Mark Blundell & Associates, Inc., a New York
corporation controlled by John Brann and Mark Blundell, who
is a director and the principal executive officer of the
Company. Lancer was formed in July 1992. Pursuant to a
license agreement dated as of January 13, 1993, Lancer
granted to MTI, where both John Brann and Mark Blundell were
then employed, a license to distribute software incorporating
the New Paradigm Architecture to banks on an exclusive basis
and to distribute such software to other customers on a non-
exclusive basis. MTI funded the development of a prototype of
COPERNICUS and began conducting several pilot programs in the
banking industry.
The Company was organized in July 1993 to further develop
COPERNICUS and to develop and market products outside the
banking industry. The Company was initially capitalized by
MTI.
In connection with the formation of the Company both Lancer
and MTI transferred their licenses to the Company and the
Company granted to MTI a non-exclusive license to distribute
software incorporating the New Paradigm Architecture to
banks. John Brann and Mark Blundell became executive officers
of the Company and the infrastructure and the support for the
New Paradigm Architecture and all software applications
employing the New Paradigm Architecture ("the New Paradigm
Applications") were transferred from MTI to the Company. As a
part of a strategic shift in MTI's operations, MTI determined
in August 1994 to cease marketing products using the New
Paradigm Architecture and MTI's remaining license was
terminated. The Company acquired the New Paradigm
Architecture and COPERNICUS and related intellectual property
rights from Lancer as of March 22, 1995. Neither Lancer nor
MTI retains any rights to the New Paradigm Architecture or
COPERNICUS. See "Certain Relationships and Related
Transactions."
Following its initial public offering in August 1995, the
Company sought to market COPERNICUS to large-scale computer
users, both directly with its own sales force and indirectly
through systems integrators and other software vendors.
Systems integrators marketed COPERNICUS in connection with
their services, and software companies acted as value-added
resellers ("VARs") of COPERNICUS by incorporating it into
their own software products. Royalties from VARs are based on
sales of their products. COPERNICUS will allow a VAR's
software and its customers' software to work together. Prior
to signing the Purchase Agreement, the Company had entered
into the following agreements to license or distribute
COPERNICUS:
o License agreements with Marriott International, Inc.,
and its subsidiaries and affiliates (collectively
"Marriott"), New York Life Insurance Company,
Transquest Information Solutions ("Transquest"),
Massachusetts Institute of Technology ("MIT"), Bell
Atlantic and the Canadian Imperial Bank of Commerce
("CIBC"). These agreements permit the above named
entities to use COPERNICUS. The fees collected from
these licenses vary depending on the scope of the
license.
o An agreement with International Business Machines
Corporation ("IBM") whereby IBM would seek to
distribute COPERNICUS with IBM's MQSeries(tm) message-
passing middleware.
o An agreement to distribute COPERNICUS in Canada with
New Venture Technologies Ltd., a software reseller and
systems integration consulting company, an agreement
with EXEL to distribute COPERNICUS in the United
Kingdom and an agreement with Rivergate Technologies
to distribute COPERNICUS for the Company worldwide.
o A License with Praxis International, Inc. ("Praxis")
to incorporate COPERNICUS into its OmniReplicator(tm)
software product, which is designed to permit the
duplication of databases on different types of
computer systems.
These agreements have been assigned to VIE under the VIE
License.
History - New Paradigm Commerce
Beginning in May 1995, the Company worked to establish a
presence in the EDI service center business. As of April 1,
1997, at the time of the sale of this business, NPC had
connections to two dozen providers of retail goods and
services to the public ("Trading Partners") and had signed up
approximately 180 suppliers ("Suppliers") (41 at March 31,
1996) to those Trading Partners as customers.
Most Suppliers who used the Company's EDI services did so
because a Trading Partner required that all of its Suppliers
send all invoices for their products electronically if they
were to do business. These Trading Partners were primarily
large corporations seeking to have the maximum possible
number of their suppliers connected to them electronically to
avoid the expensive handling costs associated with paper
based systems. If the Supplier wished to create an EDI
capability internally, the Supplier would have to buy EDI
software, install that software on an existing or new
computer, learn the software, transmit the data generated
from the software (by modem or email), develop the proper EDI
format for the Trading Partner selected and test the
connection with the Trading Partner with which it was
connected. Many Suppliers were not able, or willing, to spend
the resources to make the connection to their Trading
Partners, particularly where they did business with several
different Trading Partners. As a result they often looked to
outsource their EDI functions. NPC took the information for
the EDI transaction via fax, letter or email and reformatted
that information and transmitted that information in the
appropriate EDI format.
NPC was not operating profitably, and the Company no longer
had the resources to invest in its further development, so as
of April 1, 1997 the business of NPC was sold for cash and a
note with a face value of $361,000 and a present value of
approximately $300,000. (see "Description of the Business -
General - EDI")
History - Netphone
On October 9, 1995 the Company acquired from Electric Magic
Company the Netphone product, which permits users of
Macintosh(R) computers to conduct worldwide long distance
telephone conversations over the Internet. While the
acquisition of Netphone was not part of the Company's
strategic goal of broadening the New Paradigm Architecture,
it represented an opportunity to acquire a functional product
in the expanding Internet market. The Company subsequently
received an offer from the Camelot Corporation ("Camelot") to
acquire these assets from the Company for a package of stock
and cash comparable to the acquisition price paid by the
Company and an agreement to pay the Company a royalty for
each unit sold by Camelot in the future. This allows the
Company to benefit from any success Netphone may experience
from the wider distribution of the product through Camelot's
existing retail marketing channels. To date the Company has
received no significant revenue from this royalty arrangement
and there can be no assurance that any such significant
revenues will arise.
Internet
Through its wholly owned subsidiary New Paradigm Inter-Link,
Inc. ("NPIL"), which began operations in December 1995, the
Company provides Internet services to corporations and other
organizations. Customers include Novartis and the Association
of the Bar of the City of New York. The Company intends to
develop this business by launching new products and services
connected with the Internet. There is no assurance that the
Company will be able to develop or acquire such products and
services or that if it does they will be acceptable to the
market. The Internet is a relatively new and rapidly
expanding market. Gartner Group ( a leading industry
analyst) estimates that by 2001, 60% of the US workforce will
have a justifiable business need for Internet access. By the
same date, they estimate that more than 8 million households
will access the Internet using ISDN lines (digital telephone
lines offered by principal telephone companies suitable for
accessing the Internet) and a further 3 million homes will
access the Internet using cable modems. World-wide Internet
use is currently estimated at 40 million users. With
potential access to such numbers, many corporations are
seeking to ensure that they have a presence on the Internet.
Such a presence is established through a collection of text,
graphics and small programs known as a "Web site" maintained
on a computer known as a Web server and viewed by users from
all over the world who are connected to the Internet through
the use of a Web browser such as Netscape Navigator or
Microsoft Explorer. The Company seeks to assist companies
with creating that Internet presence and also to exploit
other business opportunities which may arise in servicing the
Internet community.
Internet - Website services
NPIL provides organizations with the ability to utilize the
Company's expertise in creating a Web site. This expertise
includes assembling an appropriate team of independent design
consultants and, if necessary, programmers; designing the
site from both technical and aesthetic perspectives,
implementing the design, and then providing Web server
hosting services away from a customer's own internal network
to ensure security. NPIL specializes in providing custom
facilities to enable a customer's presence on the Internet to
be constantly evolving and interesting without adding to
their existing workload. For example, the site for the
Association of the Bar of the City of New York is remotely
updated by association staff. A small software program
("applet") created by NPIL staff in Java - the most common
computer programming language for the Internet today - allows
customers to utilize information in the format in which it
was created under existing word processor programs such as
Microsoft Word to automatically update their Web site from
their own offices. No translations or transitions are
required - the customer's staff member simply uses the common
"cut and paste" technique utilized within many programs to
move the required document into the NPIL applet. A typical
site brings in initial revenues of approximately $20,000 -
$30,000 on completion with continuing revenues for
maintenance and changes throughout the year which are
expected to amount to $1,000- $3,000 per annum. The Company
has created 5 Web sites for customers of this service to
date. Revenues in fiscal 1997 were $62,420 from 3 such
sites.
Examples of Web sites created by New Paradigm include:
o Novartis - site for its "Program" product:
www.programpet.com
o Association of the Bar of the City of New York:
www.abcny.org
o Nuway Corporation: Corporate Website, site for
moistmates product: www.nuwaycorp.com
o Smolin Lupin, accountants: corporate Website:
www.cpasmolinlupin.com
o Novartis - site for its "Sentinel" product:
www.petprotect.com
o New Paradigm: corporate Website: www.newparadigm.com
o Proballfan: NFL football site written by fans:
www.proballfan.com
Website services - marketing and distribution
The Company is marketing its services through a mix of direct
contact with prospective clients and indirect sales. One
member of staff is engaged full time in the direct sales
activity which accounts for approximately 50% of the current
customer list . Indirect sales, which account for the
remaining 50%, are primarily through advertising agencies
working on integrated media campaigns who subcontract the
Internet portion to NPIL.
Internet - Other products
The Company is also involved in research and development for
other products and services which can be effectively launched
and marketed through the Internet. The nature of the
Internet market is that the time to market from the formation
of a concept can be very short. The Company is currently
working on three projects which it expects to launch during
Fiscal 1998. These products have not been announced as this
could provide significant commercial advantage to the
Company's competitors. (The general areas for these three
projects are (i) intellectual property; (ii) the Internet
itself and (iii) education.) In each of two of the projects
the Company is working with a third party that is providing
product or market specific information and will be entitled
to a share of the revenues or a stake in a joint venture
between the Company and the third party for their efforts.
In neither case has the arrangement yet been finalized. The
Company expects to invest an aggregate of approximately
$200,000 in the launch of these three products, in addition
to the research and development work of the Company's staff.
There can be no assurance that the Company will be able to
reach satisfactory agreement with the third parties involved,
or that it will be able to complete the research and
development work needed to launch the products, or that if
they are launched such products will achieve any degree of
market success.
Research and Development
From its inception until the signing of the Purchase
Agreement, the Company focused its internal development
efforts on COPERNICUS and the New Paradigm Architecture. In
addition, the Company has employed independent consultants to
perform certain development functions. Research and
development expenses, which include salaries and other
employee costs of the Company's product development
personnel, for the fiscal year ended March 31, 1995 were
$331,821 (17% of total expenditures). Beginning July 1, 1995
the Company recognized technological feasibility of
COPERNICUS and began capitalizing the development costs of
COPERNICUS in accordance with Statement of Accounting
Standards ("FASB") No. 86, "Accounting for the Cost of
Computer Software to be Sold, Leased or Otherwise Marketed."
The Company capitalized $218,950 of development costs
relating to COPERNICUS and expended an additional $60,344 for
Research and Development expenses during the year ended March
31, 1996. The Company capitalized $495,696 of development
costs relating to COPERNICUS during the year ended March 31,
1997. There were no research and development expenses for
that year. For a discussion of the history of the
development of COPERNICUS and the New Paradigm Architecture,
see "Description of Business -- History."
Research and development will remain vital to the Company's
efforts to remain competitive in the Internet business. The
technology in that marketplace is evolving at a very rapid
pace, and new techniques must be learned constantly. The
Company currently has two staff involved in Research and
Development, and is seeking to recruit a third. The Company
is presently significantly dependent on the services of Mr.
Ali Faraji in this area. Mr. Faraji is not the subject of an
employment contract and their can be no assurance that he
will remain employed by the Company. There can also be no
assurance that the additional engineer can be recruited or if
any of the current Research and Development staff leave that
they can be replaced at a cost acceptable to the Company.
Competition
The Internet marketplace, while rapidly expanding, is
intensively competitive. There are hundreds or thousands of
companies competing for the Web-site creation and hosting
business. These range from college or even high-school
students working at low cost from their home, to the largest
providers of telecommunications services such as AT&T or MCI.
The Company will seek to compete by offering high quality
service at reasonable cost and by differentiating itself with
innovative products and services. Many of the Company's
competitors have much greater resources and name recognition
than the Company. There can be no assurance that the Company
will succeed in competing effectively in this marketplace, or
that if it does succeed in winning business that it will be
able to continue to do so.
Intellectual Property Rights
On March 23, 1995, the Company acquired the intellectual
property rights to COPERNICUS and the New Paradigm
Architecture from Lancer. See "Directors and Executive
Officers of the Registrant" and "Certain Relationships and
Related Transactions -- Acquisition of the New Paradigm
Architecture." The intellectual property rights acquired
from Lancer include one application for a United States
patent relating to COPERNICUS, which application is now
pending in the USPTO, and corresponding applications (or the
right to file corresponding applications) in 24 foreign
countries. Patents have been granted in Pakistan and France.
While there can be no assurance when or if a United States
patent will be granted, management believes that COPERNICUS
is patentable. These rights will be transferred to VIE on
the closing of the Purchase Agreement.
In the Internet field, the Company does not believe that any
of the software which it has developed to date is patentable.
The Company relies upon a combination of trade secret,
nondisclosure and other contractual arrangements, and patent,
copyright and trademark laws to protect its rights to
intellectual property. The Company generally enters into
confidentiality agreements with its employees, consultants,
distributors, value-added resellers and potential customers
and limits access to and distribution of proprietary
information to licensed users. There can be no assurance that
the steps taken by the Company will be adequate to deter
misappropriation of proprietary information, that the Company
will be able to detect unauthorized use of proprietary
information or that the Company can afford the high cost
required to enforce its intellectual property rights.
Further, no assurance can be given that nondisclosure and
other contractual arrangements to protect the Company's
proprietary rights will not be breached, that the Company
will have adequate remedies for any breach or that trade
secrets will not otherwise become known to or be
independently developed by competitors. The failure or
inability of the Company to protect proprietary information
could have a material adverse effect on the Company's
business, operating results and financial condition.
Employees
As of June 15, 1997, the Company employed 9 full-time
employees. None of the Company's employees is represented by
a labor union or is subject to a collective bargaining
agreement. The Company believes that its employee relations
are satisfactory. The number of the Company's employees
declined because the Company released 6 employees in its
Atlanta office as it withdrew from direct sales, and 10 more
in New York when staff reductions were made to reduce
expenses on December 31, 1996. In addition 6 employees
transferred to CIS or VIE as they began operating businesses
previously operated by the Company.
Item 2. Description of Property
The Company's corporate headquarters is located on the 7th
floor of 733 Third Avenue, New York, New York (the
"Premises"). The Premises are currently being sublet from Go
America Tours, Inc. Go America's master lease expires on
August 31, 1999. In view of the reduction in the number of
the Company's employees from a high of 44 to 9 at present,
the Company no longer needs the 12,500 square feet of space
it subleases and is seeking sub-tenants to occupy all or part
of the space. Based upon its preliminary discussions with
real estate brokers, the Company believes that it will be
able to secure such sub-lessees at approximately the same
rate as in its own sub-lease (presently approximately $23,000
per month). The Company anticipates that, in the event that
it is successful in sub-leasing all of the space it currently
occupies, it will experience no difficulty in obtaining
suitable space for the remaining 9 employees. It is
estimated the cost of such space would be approximately
$6,000 per month.
Item 3. Legal Proceedings
The Company is not involved in any material legal
proceedings.
Item 4. Submission of Matters to a Vote of Security
Holders
Not applicable
PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters
(a) Principal Market.
The Registrant's Common Stock and Redeemable Warrants are
quoted on the Nasdaq Bulletin Board.
(b) Approximate Number of Holders of Equity.
The number of record holders of the Common Stock was
approximately 86 and the number of record holders of
Redeemable Warrants was 46 as of March 31, 1997.
(c) Frequency and Amount of Dividends.
To date, the Company has not paid any cash dividends. The
Company does not anticipate paying any dividends in the
foreseeable future. The Company intends to retain any future
earnings to finance the growth and development of its
business. Any future determination as to the payment of
dividends will be at the discretion of the Board of Directors
of the Company and will depend on the Company's operating
results, financial condition, capital requirements and such
other factors as the Board of Directors may deem relevant.
(d) High and Low Sales Prices of Common Equity and Redeemable
Warrants
The following table sets forth, for the periods indicated,
the high and low closing prices for the Common Stock and
Redeemable Warrants as reported by the NASDAQ SmallCap Market
through March 3, 1997 and afterwards as reported on the
Nasdaq Bulletin Board:
<TABLE>
<S> <C> <C>
Common Stock Redeemable Warrants
1996 Fiscal Quarters High Low High Low
Second Quarter
(Commencing August
11, 1995)(1) $7.50 $5.00 $2.00 $0.75
Third Quarter 6.50 4.50 1.625 0.75
Fourth Quarter 6.125 4.75 1.625 1.125
1997 Fiscal Quarter
First Quarter 6.00 1.875 1.375 0.375
Second Quarter 3.00 1.125 0.875 0.25
Third Quarter 3.125 1.00 0.75 0.25
Fourth Quarter 1.813 0.50 0.25 0.063
<FN>
<F1> (1) The initial public offering of the Common Stock and
Redeemable Warrants commenced on August 11, 1995. The initial
public offering prices of the Common Stock and Redeemable
Warrants were $6.50 per share and $.10 per Redeemable
Warrant.
</TABLE>
The foregoing prices and quotations reflect inter-dealer
prices without retail mark-up, mark-down or commissions. The
foregoing quotations may not represent actual transactions.
(e) Issuances of Unregistered Securities in the year ended March 31, 1997
On September 25, 1996 the Company entered into a termination agreement
with a former officer of the Company in which he was granted 5,000
shares of Common Stock (together with $75,000) in respect of a termination
payment. The former officer is an Accredited Investor (as defined in Rule
501(a) of Regulation D under the Securities Act). These securities were
issued in reliance on the exemptions from registration provided by Section
4 (2) of the Securities Act and Rule 506 of Regulation D under the
Securities Act.
On March 17, 1997 the Company issued Mr. Robert Trump with 800,000 Series C
Redeemable Preferred Shares in exchange for $50,000 and a note for $150,000
previously issued by the Company. Mr. Trump is an Accredited Investor
(as defined in Rule 501(a) of Regulation D under the Securities
Act). These securities were issued in reliance on the
exemptions from registration provided by Section 4 (2) of the
Securities Act and Rule 506 of Regulation D under the Securities Act.
Item 6. Management's Discussion and Analysis of
Financial Condition and Results of Operations
The selected financial data of the Company presented below
for, and as of the end of, the fiscal years ended March 31,
1996 and 1997 have been derived from the financial statements
of the Company, which have been audited by BDO Seidman LLP,
independent certified public accountants. The Company was
incorporated in July 1993 and commenced operations in
November 1993. The data set forth below should be read in
conjunction with the Company's financial statements and
related notes thereto included elsewhere herein. The Company
has entered into agreements to sell two of its major
businesses - COPERNICUS and the EDI business. As a result
the statements of operations for the fiscal years ended March
31, 1997 and 1996 and the Balance Sheet as at March 31, 1997
have been prepared to reflect continuing operations. The
Loss for discontinued operations is shown in Note 14 to the
financial statements.
Statement of Operations Data
<TABLE>
<S> <C> <C>
Year Ended March 31, 1997 Year Ended March 31, 1996
Revenues $64,976 $ -
Expenses 1,627,163 1,316,332
----------- -----------
Loss from operations (1,562,187) (1,316,332)
Other income (expense) 25,099 (302,154)
----------- -----------
Loss from continuing
operations (1,537,088) (1,618,486)
Loss from discontinued
operations (1,438,319) (1,941,806)
----------- -----------
Net Loss $(2,975,407) $(3,560,292)
----------- -----------
Net Loss per common share
from continuing operations $(0.63) $(0.93)
----------- -----------
Net Loss per common share
from discontinued operations (0.58) (1.11)
----------- -----------
Net Loss per common share (1) $(1.21) ($2.04)
Weighted average common
shares outstanding (1) 1,743,472 2,449,428
Balance Sheet Data
March 31, 1997
--------------
Total assets $1,357,703
Total current assets 411,267
Assets held for sale 691,491
Total current liabilities 1,427,817
Long-term debt 0
Current liabilities 1,427,817
Redeemable Preferred Stock 200,000
Deficit (9,109,599)
Total capital deficit $(271,114)
<FN>
<F1>
(1) See Notes to Financial Statements for an explanation of
the determination of the number of shares and share
equivalents used in computing share amounts.
</FN>
</TABLE>
Overview
The Company has entered into agreements to sell two of its
major businesses - COPERNICUS and the EDI business. As a
result the statements of operations for the fiscal years
ended March 31, 1997 and 1996 and the Balance Sheet as at
March 31, 1997 have been prepared to reflect continuing
operations. The Loss for discontinued operations is shown in
Note 14 to the financial statements. The discussion and
analysis which follows therefore considers separately the
continuing and discontinued operations.
In its continuing operations the Company had net losses of
$1,537,088 for the year ended March 31, 1997 and $1,618,486
for the year ended March 31, 1996. The Company's revenues
from continuing operations for the fiscal years ended March
31, 1996 and 1997 were nil and $69,976, respectively. The
Company's subsidiary, NPIL had 3 customers for its Web site
creation and maintenance services as at March 31, 1997 and 5
as at June 30, 1997.
In its discontinued operations the Company had net losses of
$1,438,319 for the year ended March 31, 1997 and $1,941,806
for the year ended March 31, 1996. The Company's revenues for
the fiscal years ended March 31, 1997 and 1996 were $622,898
and $425,953, respectively. These revenues were primarily due
to the licensing of COPERNICUS in 1996. In 1997, $380,671 was
derived from COPERNICUS licensing and royalties and $234,048
was derived from EDI service bureau revenues. The Company's
subsidiary, NPC, had 41 EDI customers in the year ended March
31, 1996 and approximately 180 EDI customers in the year
ended March 31, 1997.
Following the Company's initial public offering ("IPO") in
August 1995, the Company significantly expanded its
operations and particularly its sales activity relating to
COPERNICUS. Five additional staff members were recruited and
the sales operation moved to Atlanta. The Company closed its
sales office in Atlanta in January, 1997.
The Company's revenues and profitability may vary
significantly both in the case of consecutive quarters and in
the case of a quarter compared to the corresponding quarter
of the preceding year. Such variations may result from, among
other factors, lengthy development time for the Company's
products and services, timing of new product and service
introductions by the Company and its competitors, changes in
levels of the Company's operating expenditures, including the
Company's expenditures on research and development, the size
and timing of customer orders, the amount and timing of
initial fees for creating Web sites, royalty payments and
license fees by licensees, as well as consulting, training
and maintenance fees, increased competition, reduced prices,
the effect of currency exchange rate fluctuations, delays in
the development of new products and services, the costs
associated with the introduction of new products and services
and the general state of national and global economies. The
Company expects to derive substantially all of its revenues
from initial fees for creating Web sites, and consulting,
training, service and maintenance fees. Accordingly, the
Company's revenues will vary with the demand for its products
and services. As a result of such factors, the Company's
revenues and profitability for any particular quarter are not
necessarily indicative of any future results. Fluctuations in
quarterly results may also result in volatility in the price
of the Company's securities.
Results of Operations
Revenues. Revenues from continuing operations during the
fiscal year ended March 31, 1997 increased from $0 to $64,976
as NPIL made its first sales during fiscal 1997.. These
revenues primarily consisted of revenue from the initial fees
for the creation of Web sites.
Revenues from discontinued operations during the fiscal year
ended March 31, 1997 increased by $196,945 (46%) to $622,898
over the year ended March 31, 1996. In 1996, these revenues
primarily consisted of revenue from the licensing of
COPERNICUS to direct end-users. In 1997, $380,671 was derived
from COPERNICUS license fees and royalties. In 1996, $19,421
of revenues arose in the NPC EDI service bureau business. In
1997 this increased by $214,627 (1,105%) to $234,048.
Expenses. The Company's expenses primarily comprise salaries
and related employee costs, research and development costs,
professional fees, marketing expenses, general and
administrative expenses, occupancy expenses and depreciation
and amortization.
Expenses relating to continuing operations during the fiscal
year ended March 31, 1997 increased by $310,831 (24%) over
the fiscal year ended March 31, 1996.
Expenses during the fiscal year ended March 31, 1997 relating
to discontinued operations decreased by $306,542 (13%) over
the fiscal year ended March 31, 1996.
For the continuing operations, employee costs increased by
21% to $630,616 in the fiscal year ended March 31, 1997,
compared to $520,356 in the fiscal year ended March 31, 1996.
This was due to the hiring of additional staff members for
NPIL and an increase in the number of staff members employed
by the Company in administrative and corporate positions to 9
as the overall staff of the corporation increased to 44.
However by March 31, 1997 the number of staff members
involved in such tasks had been reduced to 4, and the total
number of staff members to 9.
For the discontinued operations, employee costs increased
marginally by 4% to $1,047,606 in the fiscal year ended March
31, 1997, compared to $1,008,015 in the fiscal year ended
March 31, 1996.
The Company did not recognize any research and development
expenses in the fiscal year ended March 31, 1997, compared to
$60,344 in the fiscal year ended March 31, 1996. This
decrease is due to the fact that the Company recognized
technological feasibility of its COPERNICUS product on July
1, 1995. According to FASB No. 86, "Accounting for Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed,"
the Company believes it is now required to capitalize its
COPERNICUS research and development expenses. Capitalized
software expenses consist principally of salaries and certain
other expenses related to development and modifications of
COPERNICUS capitalized in accordance with the provisions of
FASB No. 86. Amortization of capitalized software costs is
provided at the greater of the ratio of current product
revenue to the total of current and anticipated product
revenue or on a straight-line basis over the estimated
economic life of the software, which is not more than five
years. $218,950 was capitalized during the year ended March
31, 1996 and $276,746 was capitalized during the year ended
March 31, 1997.
Professional fees relating to continuing operations decreased
by 4% to $244,731 in the fiscal year ended March 31, 1997,
compared to $256,148 in the period ended March 31, 1996. The
decrease is primarily due to the fact that there were costs
related but not directly attributable to the IPO in fiscal
1996. No such expenses arose in 1997.
Professional fees relating to the discontinued operations
deceased by 39% to $223,213 in the fiscal year ended March
31, 1997, compared to $364,050 in the period ended March 31,
1996. The decrease is primarily due to the fact that the
Company incurred legal fees during fiscal 1996 to derive
standardized licensing and maintenance agreements. The use
of these agreements as the basis for negotiations in fiscal
1997 produced a reduction in related legal fees.
Marketing expenses relating to continuing operations
increased by 86% to $164,238 in the fiscal year ended March
31, 1997 compared to $88,461 in the fiscal year ended March
31, 1996. This is principally due to increased fees from the
Company's public relations consultants as the Company engaged
in a marketing and promotional campaign. A proportion of the
costs of this campaign were allocated to developing the
corporate profile. The campaign was terminated in September
1996 and the Company no longer employs public relations
consultants.
Marketing expenses relating to discontinued operations
decreased by 38% to $323,725 in the fiscal year ended March
31, 1997 compared to $523,624 in the fiscal year ended March
31, 1996. This is principally due to the decision to
concentrate on indirect rather than direct channels and the
consequent termination of the Company's advertising campaign
in September 1996.
General and administrative expense relating to continuing
operations increased by 58% to $340,744 in the fiscal year
ended March 31, 1997, compared to $215,199 in the fiscal year
ended March 31, 1996. This was due to an increase in the
average number of staff employed by the Company in the year
ended March 31 1997 compared to the previous year.
General and administrative expense relating to discontinued
operations decreased by 8% to $265,087 in the fiscal year
ended March 31, 1997, compared to $288,756 in the fiscal year
ended March 31, 1996. This is principally due to the decision
to concentrate on indirect rather than direct channels and
the consequent reduction in the number of staff employed in
direct sales and other COPERNICUS related activities.
Occupancy costs did not change significantly. 1997 occupancy
costs for continuing operations were $197,230 and in 1996:
$198,356. For discontinued operations 1997 occupancy
expenses were $20,310 and 1996 occupancy expenses were
$20,000.
Depreciation and amortization expenses relating to continuing
operations increased by 31% to $49,604 in the fiscal year
ended March 31, 1997 compared to $37,803 in the fiscal year
ended March 31, 1996. Depreciation and amortization increased
because of an increase in fixed assets relating to continuing
operations from March 31, 1996 to March 31, 1997.
Depreciation and amortization expenses relating to
discontinued operations increased by 88% to $181,276 in the
fiscal year ended March 31, 1997 compared to $96,335 in the
fiscal year ended March 31, 1996. Depreciation and
amortization increased because of the amortization on the
capitalization of the COPERNICUS software product and an
increase in fixed assets relating to discontinued operations
from March 31, 1996 to March 31, 1997.
In December 1996, the Company entered into a sublease with
Go-America Tours in respect of approximately 12,500 square
feet of space at 733 Third Avenue, New York, New York to be
the Company's principal place of business. Payments under
this lease which runs until August 31, 1999 are expected to
total $694,000 of which $275,000 is due in fiscal
1998,$291,000 in fiscal 1999 and $128,000 in fiscal 2000.
The Company has made no other material capital commitments.
The Company's net operating loss carryforwards and deferred
tax asset account are approximately as follows:
<TABLE>
<S> <C> <C> <C>
Period or Year Net operating Net Deferred
ended March 31, Year of expiration loss carryforward tax asset
- ---------------------------------------------------------------------------
1994 2009 $589,000 $ -
1995 2010 1,954,000 -
1996 2011 3,542,000 -
1997 2012 2,958,000 -
---------
9,043,000 $ -
</TABLE>
The tax benefit of these losses (approximately $4,140,000 and
$2,786,000 at March 31, 1997 and 1996 respectively) is
subject to significant limitations due to the change in
control for income tax purposes resulting from the Company's
IPO in August 1995. The tax benefit of these losses has been
fully reserved by a valuation allowance of the same amount
due to the uncertainty of its realization.
Foreign Exchange. The Company currently has no exposure to
foreign currency exchange rate fluctuations. In the future
the Company may seek to minimize its exposure to foreign
currency exchange rate fluctuations by requesting that its
customers, distributors, including systems integrators, and
VARs located outside of the United States enter into
contracts denominated in United States dollars or by entering
into transactions to attempt to hedge some of the risks of
foreign currency exchange rate fluctuations.
Liquidity and Capital Resources
The Company has financed its operations to date primarily
through public and private sales of its debt and equity
securities. The Company has raised a total of approximately
$10.6 million from these activities. Of this total, $50,000
was raised in connection with the initial capitalization of
the Company, $1,141,000 was raised in a private placement of
equity securities in October 1993; $450,000 in a private
placement of equity securities and promissory notes in
October 1994 (the "1994 Financing"), $1,312,500 in a private
placement of equity securities and promissory notes in March
1995 and April 1995 (collectively, the "1995 Financing"),
$6,891,933 in the Company's IPO and $200,000 in the private
placement of Series C Redeemable Preferred Stock in March
1997. Of the funds raised in the 1994 Financing, $130,000 of
promissory notes were repaid out of the proceeds of the 1995
Financing, and the remaining principal of and interest on the
notes issued in the 1994 Financing and the 1995 Financing
were repaid from the net proceeds of the Company's IPO.
Additionally on March 19, 1997 the Company borrowed $550,000
from Level 8 Systems, Inc. by means of a loan secured by
COPERNICUS and related assets. Level 8 Systems, Inc. agreed
to make this advance as part of negotiations in which it
sought to acquire COPERNICUS and related assets from the
Company. This loan is due to be repaid on July 18th 1997.
On June 27 1997, the Company was received from VIE a loan of
$50,000 secured on all the assets of the Company and an
advance of $13,500 against royalties under the VIE License.
These amounts are to be deducted from the purchase price due
on closing of the transactions contemplated by the Purchase
Agreement.
In the fiscal years ended March 31, 1994 and March 31, 1995,
the Company borrowed $466,409 from a shareholder, MTI (MTI is
no longer a shareholder of the Company), pursuant to a
subordinated financing agreement. This subordinated debt was
canceled pursuant to a Settlement Agreement with MTI dated as
of May 26, 1995. This amount is not included in the $10.6
million figure set forth in the preceding paragraph.
Pursuant to a certain Accounts Receivable Purchase and Sale
Agreement between the Company and MTB Bank dated June 19,
1995 (the "Factoring Agreement"), the Company sold,
transferred and assigned all of its right, title and interest
in certain receivables due to the Company in consideration of
the payment of approximately $100,000 by MTB Bank to the
Company. The Company used the proceeds of this factoring
arrangement for working capital and other general corporate
purposes. This loan was repaid with interest from the
proceeds of the IPO.
Accounts payable and accrued expenses increased to $806,690
at March 31, 1997 from $220,341 at March 31, 1996. Such
decrease in accounts payable and accrued expenses is
primarily due to the inability of the Company to pay its
creditors in a timely manner at March 31, 1997 and a
consequential significant increase in accounts payable.. At
March 31, 1997, the Company had a working capital deficit of
approximately $1,017,000.
Of the proceeds of $2,050,000 due at the closing of the
Purchase Agreement, the Company expects to utilize $200,000
to redeem the Series C Redeemable Preferred Stock, $650,000
to repay the Secured Loan from Level 8 Systems, Inc. and
approximately $300,000 as immediate payments to be made
towards accounts payable and in settlement of employee
termination payments. A further $63,500 will be used to
repay the June 27, 1997 advance from VIE. This will leave a
balance of approximately $836,500 available for working
capital.
Based on the Company's current plan of operations, and
assuming that the Company is successful in securing a sub-
tenant for its space, it is anticipated that the net
proceeds from the intended sale of COPERNICUS pursuant to the
Purchase Agreement and the Company's expected operating
revenues will provide sufficient working capital until
approximately March 1998. The Company's total expenses from
the closing of the transactions contemplated under the
Purchase Agreement for the remainder of the fiscal year
ending March 31,1998 are expected to be below $100,000 per
month. The Company will need additional financing prior to
March 1998 and thereafter if demand for the Company's
products is sufficiently great to require expansion at a
faster rate than anticipated, or if research and development
expenditures or the extent of service and customer support
that the Company is required to provide are greater than
expected or other opportunities arise which require
significant investment, or if revenues are significantly
lower than expected. Additionally, the Company may require
significant additional financing to complete any acquisition.
If financing is required, such financing may be raised
through additional equity offerings, joint ventures or other
collaborative relationships, borrowings and other sources.
There can be no assurance that additional financing will be
available or, if it is available, that it will be available
on acceptable terms. If adequate funds are not available to
satisfy either short or long-term capital requirements, the
Company may be required to limit its operations significantly
and may be unable to carry out its plan of operation. See
Note 1 to the Company's financial statements and "Report of
Independent Certified Public Accountants on Audited Financial
Statements."
New Paradigm intends to seek to raise additional capital by
the issuance of further equity securities. Negotiations are
currently underway with investment bankers to this end.
However, there can be no assurances that any such financing
will be available or, if it is available, that it will be
available on acceptable terms. If additional funds are raised
through the issuance of equity securities, the percentage
ownership of the then current shareholders of the Company
will be reduced and such equity securities may have rights,
preferences or privileges senior to those of the holders of
the Common Stock. Unless the market price of the Company's
Common Stock increases significantly over its market price on
June 27, 1997 additional issuances of equity security could
cause significant dilution to purchasers of Common Stock in
the IPO.
Plan of Operation
During the fiscal year ending March 31, 1998, the Company
intends to continue to develop its Internet business, both by
bringing in new customers for its web-site services business
and by launching new Internet related products. (see
"Internet - other products"). The Internet marketplace,
while expanding rapidly is intensely competitive. Through
March 31, 1997, the Company's NPIL subsidiary had revenues of
$62,420.
None of these products has been completed and feasibility
studies in the likely commercial success of such products
will need to be carried out prior to their launch. The
Company will require additional capital resources to
successfully develop and market these and any other products
and will consequently seek to conclude additional financing
arrangements as soon as possible. Given the uncertainty of
the Company's financial position until the sale of the
COPERNICUS assets has been approved, management considers it
unlikely that any such financing arrangements can be
concluded prior to the Shareholders Meeting.
The Company also intends to seek acquisitions of or other
business combinations with other businesses in related
fields. The Company will have very limited financial
resources to offer to any such prospective partners and
unless there is a significant improvement in the Company's
stock price, will not have attractive stock to offer. The
Company therefore expects to be essentially opportunistic in
seeking business combinations which are available to it.
This means the Company may entertain proposals from
businesses not directly related to its intended area of
operations in order to seek the maximum value for
shareholders. The Company anticipates that any such
combination will require additional financing, and therefore
the attractiveness of any proposed combination to potential
investors will need to be considered.
Item 7. Financial Statements and Supplementary Data
Financial statements are included herein following Part IV,
Item 13.
Item 8. Disagreements with Accountants on Accounting
and Financial Disclosure
Not applicable.
PART III
Item 9. Directors, Executive Officers Promoters and
Control Persons; Compliance with Section 16(a) of the
Exchange Act
There are currently three members of the Company's Board of
Directors. The Company's By-Laws authorize the Board of
Directors to fix the number of authorized directors. The By-
Laws also authorize the Board of Directors to fill any
vacancy on the Board of Directors.
The Company has agreed that Mr. Robert S. Trump, an investor
and the purchaser of the Company's Series C Redeemable
Preferred Stock in a private placement in March, 1997 may
nominate for election one person to serve on the Board of
Directors. Mr. Trump has orally advised the Company that he
does not currently intend to nominate anyone to serve on the
Board of Directors.
The following table sets forth the names, ages and positions
with the Company of the Company's directors, executive
officers and key employees:
Name Age Position
- --------------------------- -------- ----------------
Mark Blundell 39 Chief Executive Officer,
President, Chief Financial
Officer, and Director
Matthew Fludgate 25 Secretary, and Vice
President
Daniel A. Gordon 57 Chairman of the Board of
Directors
Michael Taylor 55 Director
Mark Blundell is the Chief Executive Officer, President,
Chief Financial Officer and a director of the Company and has
served in these capacities since the Company's inception.
From October 1991 until December 1993, Mr. Blundell was
initially the Chief Executive Officer of MTI's European
subsidiary and then the Chief Operating Officer and Chief
Financial Officer of MTI in New York. He was also a director
of MTI from December 1993 to March 1994. From May 1988 to
October 1991, Mr. Blundell was the Chief Executive Officer of
London Fox, the futures and options exchange, where he
introduced the first international electronic trading system.
He is also a director and President of Lancer, a company
initially formed to hold the intellectual property rights
relating to the New Paradigm Architecture and which currently
conducts no business. Lancer is a principal shareholder of
the Company. Mr. Blundell received an M.A. in Politics,
Philosophy and Economics from Pembroke College, Oxford.
Matthew Fludgate has been the Secretary and Vice President
of Administration for the Company since May 9, 1997. Prior to
this he was the Business Manager for the Company since
November, 1993. From June 1993 through October 1993 Mr.
Fludgate was an Executive Assistant at Management
Technologies, Inc. Mr. Fludgate received a B.S. in Business
Economics from the State University of New York at Oneonta.
Daniel A. Gordon, an attorney, has been a director and
Chairman of the Board of Directors of the Company since
November 1993. He has been a principal with Corporate Growth
Services since 1992. Corporate Growth Services provides
consulting support services to businesses in the early stages
of development. From 1989 to 1992, Mr. Gordon served as
President of COIN Banking Systems, Inc., which had been the
banking systems division of COIN Financial Systems Inc. Mr.
Gordon had served as Chairman and Chief Executive Officer of
COIN Financial Systems Inc. from 1984 to 1989. He received a
B.A. in English from Dartmouth College and an L.L.B. from
George Washington University.
Michael Taylor has been a director of the Company since
April 26, 1996. Since December 3, 1996 he has been a Senior
Vice President of Gilford Securities. Prior to that he was a
Managing Director of Investment Banking at Laidlaw Equities
from March 1996. He was Associate Director of Investment
Banking for Josephthal Lyon & Ross from June 1989 to March
1996. From early 1980 until joining Josephthal, he was
President of Mostel & Taylor Securities, Inc., a NASD-member
investment banking and brokerage firm. He has been involved
in the securities industry since 1966, when he joined Lehman
Brothers as an analyst. He has been a director of NDE
Environmental, Inc. since July 1992. He is also Chairman of
the Board of Jennifer Muller/The Works, a contemporary dance
company. He attended Amherst College and Columbia University.
In 1991, the Securities and Exchange Commission entered an
administrative order finding that, in 1988 and 1989, Mr.
Taylor aided Mostel & Taylor Securities, Inc. in connection
with certain violations of the net capital requirements for
securities broker-dealers imposed by the Securities Exchange
Act of 1934, and suspended him from associating with a
broker, dealer, investment company, investment adviser or
municipal securities dealer in any capacity for 90 days and
in a proprietary or supervisory capacity for an indefinite
period with the right to apply for removal of such suspension
after two years. He has applied to remove the suspension. Mr.
Taylor consented to the order without admitting or denying
its findings.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934
("Section 16(a)") requires the Company's directors, executive
officers, and persons who own more than 10% of a registered
class of the Company's equity securities, to file with the
Securities and Exchange Commission reports on Forms 3, 4 and
5 concerning their ownership of the Common Stock and other
equity securities of the Company.
Based solely on the Company's review of copies of such
reports and written representations that no other reports
were required, the Company believes that all its officers,
directors and greater than ten percent beneficial owners
complied with all filing requirements applicable to them with
respect to transactions during the fiscal year ended March
31, 1997,
Item 10. Executive Compensation
The following table sets forth information concerning the
compensation of the Company's chief executive officer and
each of the other executive officers (the "Named Officers")
for services rendered in all capacities to the Company. The
Company has only four executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Annual Compensation Long Term Compensation
Name and Principal Position Fiscal Year Salary Bonus Other Securities Restricted All Other
Ended Annual underlying Stock Compensation
March 31, Compensation options Awards
Mark Blundell - Chief Exec- 1995 $150,000 $0 $45,000(1) 0 $0 $1,456(2)
utive Officer, Chief Finan- 1996 $150,000 $20,000 $57,000(1) 38,666 $0 $1,100(2)
cial Officer & President 1997 $150,000 $0 $57,000(1) 149,999 $0 $1,100(2)
John Brann - 1995 $100,000 $0 $0 0 $0 $0
Vice President - Technology(3) 1996 $75,000 $0 $25,000(4) 38,666 $0 $810(2)
1997 $100,000 $0 $0 149,999 $0 $810(2)
Philip V. Caltabiano - 1995 $100,000 $0 $0 0 $188(6) $0
Senior Vice President - 1996 $100,000 $0 $0 33,333 $188(6) $0
Sales and Marketing (5) 1997 $50,000 $0 $75,000(7) 100,000 $188(6) $0
Nicholas Field 1995 $70,000 $0 $0 0 $100(9) $0
Vice President - 1996 $80,000 $0 $0 22,500 $50(9) $0
Implementation (8) 1997 $80,000 $0 $0 66,000 $0(9) $0
Matthew Fludgate 1995 $33,000 $0 $0 0 $0 $0
Secretary and Vice President 1996 $35,000 $5,000 $0 8,667 $0 $0
- - Administration 1997 $42,000 $0 $0 15,000 $0 $0
<FN>
<F1> (1) Reflects a non-accountable expense allowance of $4,000
per month and a car allowance of $750 per month paid to Mr.
Blundell.
<F2> (2) Reflects the insurance premium paid by the Company for
term life insurance for Mr. Blundell and Mr. Brann.
<F3> (3) Resigned effective May 9, 1997.
<F4> (4) Reflects severance pay paid to Mr. Brann when his
employment terminated on March 18, 1996 upon expiration of
his visa to work in the United States. Mr. Brann was
reemployed by the Company upon being granted a new visa on
August 1,1996.
<F5> (5) Resigned effective September 25, 1996.
<F6> (6) Upon first joining the Company in 1993, the Company
awarded Mr. Caltabiano a stock grant of 20,000 shares of
Common Stock, 15,000 of which have vested. The amounts
included in the table reflects 5,000 shares of Common Stock
that vested in each of the fiscal years ended March 31, 1995
and March 31, 1996. These shares were awarded in connection
with the organization of the Company and have been valued at
par value ($.01 per share) before giving effect to a reverse
split of the Company's Common Stock that was approved by the
Company's shareholders on April 18, 1995.
<F7> (7) Reflects payment agreed to be paid in respect of a termination
agreement dated September 27, 1996.
<F8> (8) Resigned effective March 21, 1997.
<F9> (9) Upon first joining the Company in 1993, the Company
awarded Mr. Field a stock grant of 8,000 shares of Common
Stock, all of which have vested. The amount included in this
table reflects 2,667 shares that vested during the year ended
March 31, 1995 and 1,333 shares that vested during the year
ended March 31, 1996. These shares were awarded in connection
with the organization of the Company and have been valued at
par value ($.01 per share) before giving effect to a reverse
split of the Company's Common Stock that was approved by the
Company's shareholders on April 18, 1995.
</FN>
</TABLE>
OPTION GRANTS IN FISCAL YEAR ENDED MARCH 31, 1997
The following table sets forth all grants of stock options
made during the fiscal year ended March 31, 1997 pursuant to
the Company's Stock Option Plan to the Named Officers:
Individual Grants
<TABLE>
<S> <C> <C> <C> <C>
Name Number of % of Total Average Expiration
Securities Options Granted Exercise or Date
Underlying to Employees in Base Price
Options Fiscal Year Per Share
Granted Ended March 31,
1997 (a)
Mark Blundell 149,999 21% $1.25 November 2000
John Brann (b) 149,999 21% $1.25 November 2000
Philip V. Caltabiano 100,000 14% $1.25 November 2000
Nicholas Field (b) 66,000 9% $1.25 November 2000
Matthew Fludgate 15,000 2% $1.625 November 2000
All Shareholders N/A N/A N/A N/A
All Optionees (a) 715,000 N/A $1.35 November 2000
<FN>
<F1> (a) Includes 30,000 shares of Common Stock issuable upon
exercise of options granted to outside directors.
<F2> (b) Mr Field resigned on March 21, 1997 and Mr. Brann
resigned on May 9, 1997. The terms of the Option Plan
provide that these options will expire 90 days after the date
of resignation unless exercised prior to such date. As at
June 31, 1997 none of these options have been exercised.
</FN>
</TABLE>
AGGREGATE OPTION EXERCISES IN FISCAL YEAR ENDED MARCH
31, 1997 AND YEAR-END OPTION VALUES
The following table sets forth information with respect to
options exercised by each of the Named Officers during the
fiscal year ended March 31, 1997 and the number and value of
unexercised options as of March 31, 1997:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Shares Value Number of Securities Value of Unexercised in-
Acquired Realized Underlying Unexercised -the-Money Options at
on Exercise Options at March March 31, 1997(a)
Name 31, 1997
Exercisable Unexercisable Exercisable Unexercisable
Mark Blundell 0 $0 38,666 149,999 $0 $0
John Brann 0 0 38,666 149,999 $0 $0
Philip V. Caltabiano 0 0 0 0 $0 $0
Nicholas Field 0 0 22,200 66,000 $0 $0
Matthew Fludgate 0 0 8,667 15,000 $0 $0
<FN>
<F1> (a) Based on the closing price of New Paradigm Software Corp.
Common Stock on March 31, 1997 of $0.50 as reported on NASDAQ
Bulletin Board.
</FN>
</TABLE>
Employment Contracts
The Company has entered into employment contracts with
Messrs. Blundell, Brann and Caltabiano. The employment
contracts of Messrs. Blundell, Brann and Caltabiano contain
the following principal features.
Mr. Blundell: Term: Five years with a remaining term of
approximately two years (1994-1999); Base Salary: $200,000
per annum (Mr. Blundell has waived $50,000 per annum of this
Base Salary (which is not being accrued) until such time as
the Company would otherwise be able to report a pre-tax
annual profit in excess of $75,000); Allowances: Mr.
Blundell receives a non-accountable expense allowance of
$4,000 per month and a car allowance of $750 per month.
Common Stock Award: Mr. Blundell received 26,667 shares of
Common Stock. If the Company achieves at least $2.5 million
in sales in any period of twelve consecutive months, Mr.
Blundell will be paid a bonus of $50,000. Mr. Blundell's
employment contract provides that if such bonus target is
achieved and such bonus paid, he and the Company will
negotiate a new bonus arrangement. Mr. Blundell is entitled
to receive a death benefit of $1,000,000 payable to a
beneficiary named by him. The Company has obtained a life
insurance policy to fund this benefit. Mr. Blundell's
employment agreement will renew automatically from year to
year unless Mr. Blundell or the Company gives notice of
termination to the other on or before May 1 of any year
beginning in 1999. In the event that the Company terminates
the contract other than for cause, or in the event of a
change of control or a sale of substantially all the assets
of the Company, Mr Blundell is entitled to receive a payment
equivalent to two year's benefits under the contract.
Mr. Brann: Term: Three years with a remaining term of
approximately one year(1995-1998); Base Salary: $125,000 per
annum (Mr. Brann has waived $25,000 per annum of this Base
Salary (which is not being accrued) until such time as the
Company would otherwise be able to report a pre-tax annual
profit in excess of $75,000); Common Stock Award: Mr. Brann
received 26,667 shares of Common Stock. Mr. Brann is entitled
to a death benefit of $1,000,000 payable to a beneficiary
named by him. The Company has obtained a life insurance
policy to fund this benefit. Mr. Brann's employment agreement
will renew automatically from year to year unless Mr. Brann
or the Company gives notice of termination to the other on or
before May 1 of any year beginning in 1999. Mr. Brann's
employment as Vice President of Technology was terminated on
March 21, 1996 when his visa to work in the United States
expired. On May 13, 1997 the Company entered into an
agreement with John Brann, the former Secretary and Vice
President of the Company, to terminate his employment with
the Company (the "Termination Agreement") pursuant to an
employment agreement dated June 14, 1993, as amended.
Termination of Mr. Brann's employment is a condition under
the purchase agreement with VIE. As consideration for the
termination under the Termination Agreement the Company
agreed to pay Mr. Brann a total of $50,000 on the earlier of
(i) the closing of the purchase agreement between the Company
and VIE, or (ii) Mr. Brann entering into employment with VIE.
The Company will receive a $30,000 loan from Mr. Brann to be
repaid under the following terms (a) 50% of all royalties due
to the Company under the purchase agreement with VIE up to a
total of $40,000, or (b) full payment of the principal of the
loan at any time including interest at 8% per annum. The
Company has been verbally informed by VIE that it intends to
employ Mr. Brann. The Company has also been informed that Mr.
Brann will be granted certain stock options in VIE in
connection with such employment.
Mr. Caltabiano: Term: Three years (but terminated as set
forth below); Base Salary: $100,000 per annum plus
commissions on sales; Common Stock Award: Mr. Caltabiano
received 20,000 shares of Common Stock, 15,000 of which have
vested.. On September 25, 1996, Mr. Caltabiano left the
Company and the employment agreement was terminated for 5,000
shares of Common Stock, a $50,000 termination fee and a
$25,000 consulting fee.
The directors of the Company currently receive a retainer of
$1,000 per quarter and a fee of $1,000 for each meeting of
the Board of Directors that they attend. They are also
reimbursed by the Company for their direct costs for
attending meetings. On December 8, 1993, Mr. Gordon and three
former directors were each granted, as remuneration for
service on the Board of Directors, an option ("Directors'
Options") to acquire, at a price of $5.00 per unit, 10,000
units, each unit consisting of one share of Common Stock and
one warrant to purchase one share of Common Stock at an
exercise price of $6.00 per share ("1993 Warrant"). These
options will expire on November 1, 1998. On April 26, 1995
Messrs. Blundell, Brann, Gordon and two former directors were
granted options under the Company's Stock Option Plan to
purchase 5,333 shares of Common Stock each at an exercise
price of $4.50 per share. These options became exercisable on
April 26, 1996 and expire on April 26, 2005. On November 30,
1995 Mr. Gordon and two former directors were each granted
options under the Company's Stock Option Plan to purchase
10,000 shares of Common Stock at an exercise price of $5.125
per share. Messrs. Blundell and Brann were granted options
under the Company's Stock Option Plan to purchase 20,000
shares of Common Stock at the same exercise price. These
options become exercisable on November 30, 1996 and expire on
November 30, 2000. On April 24, 1996, Mr. Taylor was granted
options under the Company's Stock Option Plan to purchase
10,000 shares of Common Stock at an exercise price of $5.125
per share. These options become exercisable on April 24, 1997
and expire on April 24, 2001.
Pursuant to an Underwriting Agreement dated August 11, 1995
(the "Underwriting Agreement") between the Company and First
Allied Securities, Inc., as representative (the
"Representative") of the underwriters in the Company's
initial public offering, the Company agreed that until
September 11, 1996 it would not issue any options to any
director or officer of the Company without the prior written
consent of the Representative. The Representative agreed to
the issuance of the options granted in November 1995.
Item 12. Security Ownership of Certain Beneficial
Owners And Management
The following table indicates the beneficial ownership of the
Company's Common Stock as of May 1, 1997, by (1) each of the
directors, (2) each of the executive officers of the Company,
(3) all directors, and executive officers of the Company as a
group and (4) each person or entity which beneficially owned
in excess of five percent of the Common Stock, based upon
information supplied by each of the directors, nominees,
executive officers and five percent beneficial owners:
Common Stock
<TABLE>
<S> <C> <C> <C> <C>
Name of Beneficial Owner(a) Right to Right to Total Number Percent of
Sole Voting Shared Voting of Shares Common Stock
and Investment and Investment Beneficially Beneficially
Power Power Owned Owned
Mark Blundell 220,665(b) 199,999(c) 420,664 16%
John Brann 219,332(d) 199,999(c) 419,331 16%
Matthew Fludgate 25,508(e) 0 25,508 1%
Daniel Gordon 35,333(f) 0 35,333 1%
Lancer Holdings 199,999(g) 0 199,999 8%
Midland Associates 619,999(h) 0 619,999 24%
Michael Taylor 10,000(i) 0 10,000 (j)
Robert Trump 350,000(k) 619,999(l) 969,999 34%
All Directors and
Executive
Officers of the
Company as a
group (a total of
5 persons) 510,838(m) 199,999(n) 710,837 23%
<FN>
<F1> (a) The shares of Common Stock beneficially owned by each
person or by all directors and executive officers as a group,
and the shares included in the total number of shares of
Common Stock outstanding used to determine the percentage of
shares of Common Stock beneficially owned by each person and
such group, have been adjusted in accordance with Rule 13d-3
under the Securities Exchange Act of 1934 to reflect the
ownership of shares issuable upon exercise of outstanding
options, warrants or other common stock equivalents which are
exercisable within 60 days. As provided in such Rule, such
shares issuable to any holder are deemed outstanding for the
purpose of calculating such holder's beneficial ownership but
not any other holder's beneficial ownership.
<F2> (b) Consists of (i) 26,667 shares of Common Stock, (ii) 5,333
shares of Common Stock issuable upon exercise of warrants
issued in a 1994 private placement of the Company's
securities (the "1994 Warrants"), (iii) 38,666 shares of
Common Stock issuable upon exercise of options granted under
the Company's Stock option Plan ("SOP") that are currently
exercisable, and (iv) up to 149,999 shares of Common Stock
underlying stock options be granted under the Executive
Stock Option Plan. .
<F3> (c) Represents the holdings of Lancer Holdings of which Mr.
Blundell and Mr. Brann are each 33% owners and directors and
officers. Consists of 166,666 shares of Common Stock and
33,333 shares of Common Stock issuable upon exercise of
warrants held by Lancer (the "MBA Warrants").
<F4> (d) Consists of (i) 26,667 shares of Common Stock, (ii) 4,000
shares of Common Stock issuable upon exercise of 1994
Warrants, (iii) 38,666 shares of Common Stock issuable upon
exercise of options granted under the SOP that are currently
exercisable and (iv) up to 149,999 shares of Common Stock
underlying stock options granted under the Executive Stock
Option Plan.
<F5> (e) Consists of (i) 534 shares of Common Stock, (ii) 1,307
shares of Common Stock issuable upon exercise of 1994
Warrants and (iii) 23,667 shares of Common Stock issuable
upon the exercise of options granted under the SOP
<F6> (f) Consists of (i) 10,000 shares of Common Stock and 10,000
shares of Common Stock underlying 1993 Warrants issuable upon
exercise of Directors' Options granted in 1993 to non-
employee directors of the Company and (ii) 15,333 shares of
Common Stock issuable upon exercise of options granted under
the SOP that are currently exercisable.
<F7> (g) Consists of 166,666 shares of Common Stock and 33,333
shares of Common Stock issuable upon exercise of the MBA
warrants held by Lancer Holdings.
<F8> (h) Consists of 439,999 shares of Common Stock and 180,000
shares of Common Stock issuable upon exercise of warrants.
These securities were previously owned by Management
Technologies, Inc. ("MTI") and transferred to Midland
Associates in satisfaction of a loan to MTI by Midland
Associates.
<F9> (i) Consists of 10,000 shares of Common Stock issuable upon
exercise of options granted under the SOP.
<F10> (j) Less than 1%.
<F11> (k) Consists of (i) 200,000 shares of Common Stock issuable
upon exercise of 1994 Warrants (ii) 150,000 shares of Common
Stock issuable upon exercise of warrants having an exercise
price of $2.00 per share issued by the Company in connection
with a loan by Mr. Trump that was subsequently canceled as
partial consideration for issuance of the Series C Redeemable
Preferred Stock (the "Trump Warrants").
<F12> (l) Represents the holdings of Midland Associates. Consists
of the securities listed in note h above.
<F13> (m) Consists of all of the securities in notes b-f above.
<F14> (n) Consists of the securities in note g above.
</FN>
</TABLE>
The following table indicates the beneficial ownership of the
Company's Preferred Stock as of May 1, 1997, by (1) each of
the directors, (2) each of the executive officers of the
Company, (3) all directors, and executive officers of the
Company as a group and (4) each person or entity which
beneficially owned in excess of five percent of the Preferred
Stock, based upon information supplied by each of the
directors, nominees, executive officers and five percent
beneficial owners:
Series C Redeemable Preferred Stock (a)
<TABLE>
<S> <C> <C> <C> <C>
Name of Beneficial Owner(a) Right to Right to Total Number Percent of
Sole Voting Shared Voting of Shares Common Stock
and Investment and Investment Beneficially Beneficially
Power Power Owned Owned
Mark Blundell 0 0 0 0%
John Brann 0 0 0 0%
Matthew Fludgate 0 0 0 0%
Daniel Gordon 0 0 0 0%
Lancer Holdings 0 0 0 0%
Midland Associates 0 0 0 0%
Michael Taylor 0 0 0 0%
Robert Trump 800,000 0 800,000 100%
All Directors and
Executive
Officers of the
Company as a
group (a total of
5 persons) 0 0 0 0%
<FN>
<F1> (a) The only preferred stock outstanding as at March 31, 1997
was the Series C Redeemable Preferred Stock. Each Series C
Redeemable Preferred Share has four (4) votes on any matter
to be put to a vote of the Company's shareholders. The
Series C Redeemable Preferred Shares therefore represent 56%
of the votes on any matter to be put to a vote of the
Company's shareholders.
<F2> (b) The shares of Preferred Stock beneficially owned by each
person or by all directors and executive officers as a group,
and the shares included in the total number of shares of
Preferred Stock outstanding used to determine the percentage
of shares of Preferred Stock beneficially owned by each
person and such group, have been adjusted in accordance with
Rule 13d-3 under the Securities Exchange Act of 1934 to
reflect the ownership of shares issuable upon exercise of
outstanding options, warrants or other preferred stock
equivalents which are exercisable within 60 days. As provided
in such Rule, such shares issuable to any holder are deemed
outstanding for the purpose of calculating such holder's
beneficial ownership but not any other holder's beneficial
ownership.
Item 12. Certain Relationships and Related Transactions
General
The following is a discussion of certain transactions entered
into by the Company with officers, directors, security
holders and affiliates thereof. The Company believes that the
terms of these transactions were no less favorable to the
Company than would have been obtained from a non-affiliated
third party for similar transactions at the time of entering
into such transactions.
The Company has adopted a policy whereby any future
transactions, including loans, between the Company and its
directors, officers, principal shareholders and other
affiliates, will be on terms no less favorable to the Company
than could be obtained from unaffiliated third persons on an
arm's-length basis at the time that the transaction was
entered into and will be reviewed and approved by a majority
of the Company's directors, including a majority of the
Company's independent disinterested directors.
Issuance of Securities to Directors, Executive
Officers and Their Affiliates
In a private placement of the Company's securities for which
a closing was held on October 20, 1994 (the "1994
Financing"), Mr. Blundell purchased for $15,000 a fractional
unit comprised of (i) a two-year promissory note with an
increasing interest rate starting at 10% per annum (a "1994
Note") in the principal amount of $15,000 and (ii) 1994
Warrants exercisable for 12,000 shares of Common Stock; Mr.
Brann purchased for $5,000 a fractional unit comprised of (i)
a 1994 Note in the principal amount of $5,000 and (ii) 1994
Warrants exercisable for 4,000 shares of Common Stock; Mr.
Blundell subsequently transferred 1994 Warrants exercisable
for 6,667 shares of Common Stock. The shares of Common Stock
issuable upon exercise of the 1994 Warrants purchased in the
1994 Financing by the foregoing directors and executive
officers are registered for sale under the Securities Act of
1933.
On March 22, 1995, 33,333 shares of Common Stock and warrants
(the "MBA Warrants"), which are exercisable for 33,333 shares
of Common Stock at an exercise price of $5.63 per share,
subject to adjustment under certain circumstances, were
issued to Mark Blundell and Associates (now known as Lancer)
in connection with the Company's acquisition of the New
Paradigm Architecture. See "New Paradigm Architecture." The
MBA Warrants will expire on March 21, 2000 and are not
redeemable.
See "Executive Compensation - Directors Compensation" and
"Options Grants in Fiscal Year Ended March 31, 1997" with
respect to options granted to directors and executive
officers of the Company during the fiscal year ended March
31, 1997.
New Paradigm Architecture
The Company acquired the rights to its proprietary approach
to developing computer programs (the "New Paradigm
Architecture") used to develop its COPERNICUS software and
related intellectual property rights from Lancer as of March
22, 1995 for a consideration equal to 33,333 shares of Common
Stock and the MBA Warrants. Lancer no longer holds any right,
title or interest in COPERNICUS or the New Paradigm
Architecture. Prior to the acquisition of the New Paradigm
Architecture, the Company held an exclusive, perpetual
license to use the New Paradigm Architecture from Lancer. The
Company acquired the license pursuant to a license agreement
with Lancer dated as of July 20, 1993. Pursuant to the July
20, 1993 license agreement, the Company made a one-time
payment of 133,333 shares of Common Stock in 1993 and annual
license fee payments of $10,000 in 1993 and 1994.
The Company's Chief Executive Officer and President, Mark
Blundell, and its former director and Vice President of
Technology, John Brann, collectively own 66% of the voting
stock of Lancer. Messrs. Blundell and Brann have no direct or
indirect interest in the remaining 34% of the voting stock of
Lancer. Messrs. Blundell and Brann are the only directors of
Lancer Holdings and Mr. Blundell is a director of the
Company.
Other Transactions
Mr. Jeff Kahn, a former director, is the President of Kahn
Communications Group Inc.("KCG"), a division of Ruder Finn.
Kahn Communications Group provided public relations services
to the Company from its inception until December 1996 for
which it received a monthly fixed fee from the Company of
$5,000. KCG also provided special event related marketing
services to the Company for which it received additional fees
on a per engagement basis. In the fiscal year ended March 31,
1996, KCG received $88,589 and in the fiscal year ended
March 31, 1997, in such fees. The Company ceased using the
services of KCG in December 1996 following the termination of
the Company's marketing program.
On September 1, 1995 the Company entered into a consulting
contract with Corporate Growth Services, a corporation owned
by Mr. Gordon, Chairman of the Board of Directors. Corporate
Growth Services provides small development stage companies
with management consulting. Under the terms of the contract
Corporate Growth Services receives a consulting fee of $2,000
per month over and above any fees Mr. Gordon receives for
attending meetings of the Board of Directors. In the fiscal
year ended March 31, 1996 Corporate Growth Services received
$18,000 in such fees and in the fiscal year ended March 31,
1997, $24,000..
Effective March 31, 1996, the Company entered into a
five-year value added reseller agreement with Petra, Inc.
("Petra"). Petra's president, Mr. Barrington J Fludgate, is a
consultant to and a former director of the Company. The
Company granted to Petra the right to license and distribute
the Company's COPERNICUS software program integrated with
Petra's products. Petra never paid the license fee of
$100,000 due to the Company on September 30, 1996, and
consequently the Company terminated the agreement.
Loan from Mr. Robert Trump
In early January, 1997, in order to continue operating, the
Company solicited a $150,000 loan from Mr. Robert Trump which
was received on January 16, 1997. The principal terms of
this loan were as follows:
o Advance: $150,000.
o Term: 6 months (to expire July 14th, 1997).
o Interest Rate: To be paid in warrants, see below.
o Warrants: 150,000 three-year warrants with an
exercise price of $2.00 per share, in lieu
of interest.
Other terms: The 180,000 Midland Warrants, held by Midland
Associates, an affiliate of Mr. Trump, were amended as
follows: The expiration date was changed from August 11,
1998 to January 16, 2002 and the exercise price reduced from
$3.75 to $2.00 per share.
Series C Redeemable Preferred Stock
On March 13, 1997, Mr. Robert Trump agreed to advance the
Company a further $50,000 which the Company urgently required
in order to continue its operations and meet its payroll
obligations. The earlier $150,000 advance and the March 13,
1997 $50,000 advance were combined into $200,000 to be used
to subscribe for 800,000 shares of Series C Redeemable
Preferred Stock, $0.01 par value, with the following
principal terms:
o Each Series C Redeemable Preferred Share has four (4) votes
on any matter to be put to a vote of the Company's
shareholders.
o The Series C Redeemable Preferred Stock can be redeemed at
the Company's option at any time upon payment of $200,000.
o The Series C Redeemable Preferred Stock can be redeemed at
the holder's option following any investment in the Company
or a sale of any of the Company's assets where the proceeds
are $2,000,000 or more.
o The Series C Redeemable Preferred Stock will have
preference in the event of any liquidation of the Company
to the extent of $200,000.
The Company therefore intends to redeem the Series C
Redeemable Preferred Stock using $200,000 of the proceeds of
the closing of the transactions contemplated by the Purchase
Agreement. At that time, there were no other sources of
funds actually offered to the Company. Management believes
that these terms were the best it could secure at that time,
and these terms were arrived at through arms-length
negotiations with Mr. Trump. The level of four votes per
share was required by the Mr. Trump in order to give him
significant influence in the approval of any potential sale
of COPERNICUS to ensure that the advance was repaid. The
Series C Preferred Stock represent 56% of the votes on any
matter to be put to a vote of the Company's shareholders, and
increased the proportion of the vote on any such matter
exercisable by Mr. Trump, and Midland Associates, (with which
he is affiliated) from 18% to 64%.
Management believes that the Company was able to secure
improved terms from Level 8 and then from VIE as a result of
this transaction. Neither Mr. Trump nor Midland Associates
is affiliated with either Level 8 or VIE.
PART IV
Item 14. Exhibits, Financial Statements and Reports
on Form 8-K
A Exhibits
3.1
Restated Certificate of Incorporation of the Company, as
amended by a Certificate of Amendment dated August 14, 1995
and as corrected by a Certificate of Corrections dated
August 24, 1995 (incorporated by reference to Exhibit 2 to
Form 10-QSB for the Quarterly Period ended June 30, 1995
"the June 1995 Form 10-QSB"))
3.1.1
Certificate of Designation establishing Series C Redeemable
Preferred Stock
3.2
By-laws of the Company (incorporated by reference to Exhibit
3.2 to Amendment No. 1 to the Registration Statement on Form
SB-2 (File No. 33-92988NY (the "Registration Statement")).
4.1
Form of Warrant Agreement between the Company and
Continental Stock Transfer & Trust Company (incorporated by
reference to Exhibit 4 to the June 1995 Form 10-QSB)
4.2
Form of Representative's Warrant Agreement (incorporated by
reference to Exhibit 4.2 to Amendment No. 1 to the
Registration Statement).
4.3
Form of 1993 Warrant (incorporated by reference to Exhibit
4.3 to Amendment No. 1 to the Registration Statement).
4.4
Letter dated December 8, 1993 from the Company to Barrington
J. Fludgate granting Directors Options to purchase shares of
Common Stock and 1993 Warrants. Substantially identical
grants were made to Anthony J. Cataldo, Daniel A. Gordon and
Jeff Kahn (incorporated by reference to Exhibit 4.4
Amendment to No. 1 to the Registration Statement).
4.5
Form of 1994 Warrant (incorporated by reference to Exhibit
4.5 to Amendment No. 1 to the Registration Statement).
4.6
Form of 1995 Warrant (incorporated by reference to Exhibit
4.6 to Amendment No. 1 to the Registration Statement).
4.7
Form of Lancer Warrant. (incorporated by reference to
Exhibit 4.7 to the Registration Statement).
4.8
Form of Financial Advisory and Investment Banking Agreement
with the Representative (incorporated by reference to
Exhibit 4.8 to Amendment No. 3 to the Registration
Statement).
4.9
Form of Midland Warrant (incorporated by reference to
Exhibit 4.9 to the Registration Statement).
4.10
Form of Agreement between the Company and Josephthal Lyon &
Ross incorporated regarding termination of certain warrants
(incorporated by reference to Exhibit 4.10 to Amendment No.
2 to the Registration Statement).
4.11
Option Agreement dated October 9, 1995 between the Company
and the Electric Magic Company (incorporated herein by
reference to Exhibit 4.11 to Form 10-QSB for the Quarterly
Period ended September 30, 1995 (the "September 1995 Form
10-QSB")).
4.12
Warrant issued to Omotsu Holdings Limited (incorporated by
reference to Exhibit 4.12 to the September 1995 Form 10-
QSB).
10.1.1
Blundell Employment Contract, as amended (incorporated by
reference to Exhibit 10.1.1 to the Registration Statement).
10.1.2
Brann Employment Contract, as amended (incorporated by
reference to Exhibit 10.1.2 to the Registration Statement).
10.1.3
Caltabiano Employment Contract, as amended (incorporated by
reference to Exhibit 10.1.3 to the Registration Statement).
10.2
MBA Rights Purchase Agreement dated March 22, 1995
(incorporated by reference to Exhibit 10.2 to the
Registration Statement).
10.3
Voting Trust Agreement (incorporated by reference to Exhibit
10.3 to Amendment No. 1 to the Registration Statement).
10.4
MTI Settlement Agreement dated as of May 26, 1995
(incorporated by reference to Exhibit 10.4 to the
Registration Statement).
10.5.1
Paxcell, Inc. Distribution Agreement dated March 31, 1994
(incorporated by reference to Exhibit 10.5.1 to the
Registration Statement).
10.5.2
Rivergate Systems, Inc. Distribution Agreement dated June
23, 1994 (incorporated by reference to Exhibit 10.5.2 to the
Registration Statement).
10.5.3
New Venture Technologies Distribution Agreement dated
January 11, 1995 (incorporated by reference to Exhibit
10.5.3 to Amendment No. 1 to the Registration Statement).
10.6.1
Financial Performance Corporation Value-Added Reseller
Agreement dated April 29, 1994 (incorporated by reference to
Exhibit 10.6.1 to the Registration Statement).
10.6.2
Benson Software Systems, Inc. Value-Added Reseller Agreement
dated October 25, 1994 (incorporated by reference to Exhibit
10.6.2 to the Registration Statement).
10.6.3
Praxis Value-Added Reseller Agreement dated January 9, 1995
(incorporated by reference to Exhibit 10.6.3 to the
Registration Statement).
10.7
Novell Inc. Co-Marketing Letter Agreement dated December 2,
1994 (incorporated by reference to Exhibit 10.7 to the
Registration Statement).
10.8
Publicitas Letter Agreement dated January 31, 1995
(incorporated by reference to Exhibit 10.8 to the
Registration Statement).
10.9
Stock Option Plan of the Company (incorporated by reference
to Exhibit 10.9 to the Registration Statement).
10.10
Accounts Receivable Purchase and Sale Agreement between the
Company and MTB Bank (incorporated by reference to Exhibit
10.10 to Amendment No. 1 to the Registration Statement).
10.11
Software License Agreement dated May 31, 1995 between the
Company and Marriott International, Inc. (incorporated by
reference to Exhibit 10.11 to Amendment No. 1 to the
Registration Statement).
10.13
Marriott Acceptance Certificate, dated June 8, 1995
(incorporated by reference to Exhibit 10.13 to Amendment No.
2 to the Registration Statement).
10.14
Agreement dated October 9, 1995 between the Company and
Electric Magic Company (incorporated by reference to Exhibit
10.14 to the September 1995 Form 10-QSB).
10.15
Agreement dated October 31, 1995 between the Company and
Camelot Corporation (incorporated by reference to Exhibit
10.15 to the September 1995 Form 10-QSB).
10.16
Note issued by the Company to Mr. Robert Trump dated January
15, 1997 (incorporated by reference to Form 8-K filed
January 16, 1997).
10.18
Lease dated October 31, 1997 between the Company and
GoAmerica Tours, Inc. (incorporated by reference to Exhibit
10.18 to the December 31, 1996 Form 10-QSB).
10.19
Agreement dated as of April 1, 1997 between the Company and
Custom Information Systems, Inc. (incorporated by reference
to Form 8-K filed May 2, 1997)
10.20
Letter Agreement dated March 19, 1997 between the Company
and Level 8 Systems, Inc.
10.21
Agreements dated as of May 9, 1997 between the Company and
VIE Systems, Inc. (incorporated by reference to Form 8K
filed May 16, 1997)
10.22
Agreement dated December 18, 1996 between the Company and
International Business Machines, Inc. ("IBM")
(incorporated by reference to Exhibit 10.22 to the March 31, 1997
Form 10-KSB/A).
11 Statement re: computation of per share earnings (losses)
24 Power of Attorney.
99 Financial data schedule
B. Reports on Form 8-K
The following reports have been filed on Form 8-K since
February 15, 1997.
1) March 17, 1997 New Paradigm Software Corp. Reports
Delisting from NASDAQ SmallCap Market
2) March 19, 1997 New Paradigm Software Corp. Reports
Financing - Preferred Stock Issue
3) April 17, 1997 New Paradigm Software Corp. Reports
Sale of EDI Business for $300,000
4) May 9, 1997 Mr. John Brann Resigns as Director and
Corporate Secretary of the Company
5) May 23, 1997 New Paradigm Software Corp. Announces
Sale of COPERNICUS
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act,
the registrant caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
NEW PARADIGM SOFTWARE CORP.
(Registrant)
Date: June 30, 1997 _/s/ Mark Blundell________________
Mark Blundell
President & Chief Executive
Officer
In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/Mark Blundell
Mark Blundell Chief Executive Officer and
President (principal executive
officer, principal financial
officer and principal
accounting officer) and Director June 30, 1997
/s/Daniel A. Gordon
Daniel A. Gordon
By Arthur M. Mitchell
Attorney in fact Chairman of the Board of Directors June 30, 1997
/s/ Michael Taylor
Michael Taylor Director June 30, 1997
<PAGE>
AUDITED FINANCIAL STATEMENTS
NEW PARADIGM SOFTWARE CORP. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1997 AND 1996
Report of independent certified public accountants F-2
Consolidated financial statements:
Balance sheet F-3
Statements of operations F-4
Statements of shareholders' equity (capital deficit) F-5 - F-6
Statements of cash flows F-7
Notes to consolidated financial statements F-8 - F-20
Report of Independent Certified Public Accountants
New Paradigm Software Corp.
and Subsidiaries
New York, New York
We have audited the accompanying consolidated balance sheet
of New Paradigm Software Corp. and Subsidiaries as of
March 31, 1997, and the related consolidated statements of
operations, shareholders' equity (capital deficit), and cash
flows for the two years in the period ended March 31, 1997. These financial
statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects,
the financial position of New Paradigm Software Corp. and
Subsidiaries at March 31, 1997, and the results of their
operations and their cash flows for the two years in the perios ended
March 31, 1997, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As disclosed in Note 1, the Company has incurred
significant losses since its inception and as discussed in
Note 14, the Company has entered into agreements to dispose
of its COPERNICUS and EDI businesses. At March 31, 1997 the
Company had deficiencies in working capital and equity.
These conditions raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are described in Note 1. These consolidated
financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
BDO Seidman, LLP
New York, New York
June 25, 1997
NEW PARADIGM SOFTWARE CORP. and SUBSIDIARIES
Consolidated Balance Sheet
</TABLE>
<TABLE>
<S> <C>
March 31, 1997
Assets
Current:
Cash and cash equivalents $328,168
Accounts receivable 50,612
Other receivables and prepayments 32,487
________
Total current assets 411,267
Property and equipment, less accumulated depreciation and
amortization (Note 3) 168,920
Investment in restricted common stock at market value
(Note 10) 14,759
Assets held for sale (Note 14) 691,491
Other assets, less accumulated amortization (Note 4) 71,266
------------
$1,357,703
Liabilities and Capital Deficit
Current:
Loan payable (Note 5) $550,000
Accounts payable and accrued expenses 806,690
Deferred rent payable (Note 7a) 71,127
------------
Total current liabilities 1,427,817
Redeemable Series C shares authorized and outstanding
800,000 200,000
___________
Commitments and contingencies (Note 7)
Capital deficit (Notes 2,8 and 10):
Preferred stock, $.01 par value - shares authorized
10,000,000:
Series A shares authorized, 1,000,000; none issued and
outstanding -
Series B shares authorized 2,000,000; none issued and
outstanding -
Common stock, $.01 par value - shares authorized
50,000,000; issued and outstanding 2,451,729 24,517
Additional paid-in capital 9,150,209
Unrealized loss on investment in restricted common
stock (335,241)
Deficit (9,109,599)
------------
Total Capital deficit (270,114)
------------
$1,357,703
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
NEW PARADIGM SOFTWARE CORP. and SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<S> <C> <C>
Year ended Year ended
March 31, 1997 March 31, 1996
Revenues:
Consulting $ 64,976 $ -
_________ __________
69,976 -
Expenses:
Employee costs 630,616 520,356
General and administrative (Note 12a) 340,744 215,199
Professional fees 244,731 256,148
Marketing (Note 12b) 164,238 88,461
Occupancy 197,230 198,365
Depreciation and amortization 49,604 37,803
_________ __________
1,627,163 1,316,332
_________ __________
Loss from operations (1,562,187) (1,316,332)
Other income (expense):
Interest income 25,099 112,251
Gain on sale of assets (Note 10) - 24,865
Interest expense - (63,724)
Amortization of debt discount and
deferred financing costs - (375,546)
_________ __________
25,099 (302,154)
Loss from continuing operations (1,537,088) (1,618,486)
Loss from discontinued operations (Note 14) (1,438,319) (1,941,806)
_________ __________
Net Loss $(2,975,407) $(3,560,292)
_________ __________
Loss per Common share from continuing
operations $(0.63) $(0.93)
Loss per Common share from discontinued
operations (0.58) (1.11)
Loss per Common share ($1.21) ($2.04)
_________ __________
Weighted average common shares
outstanding 2,449,428 1,743,472
</TABLE>
See accompanying notes to consolidated financial statements
NEW PARADIGM SOFTWARE CORP. and SUBSIDIARIES
Consolidated Statements of Shareholders' Equity (Capital Deficit)
Years ended March 31, 1997 and 1996 (Note 8)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Preferred stock Additional Unrealized Total
Series A, B and C Common Stock Paid in Capital on investment Deficit Shareholders'
in restricted equity (capital
Shares Par Value Shares Par Value stock deficit)
- --------------------------------------------------------------------------------------------------------------------
Balance, April 1, 1995 1,240,500 $12,405 693,323 $6,933 $1,353,650 $ - $(2,573,900) $(1,200,912)
Issuance of Series B
preferred stock
and warrants in
private placement, net
of costs of $11,000,
April 1995 100,000 1,000 - - 12,400 - - 13,400
Conversion of MTI
debt to paid-in
capital, May 1995 - - - - 491,284 - - 491,284
Vesting of 1,333
shares issued to
an employee pursuant
to a restricted
grant, June 1995 - - 1,333 13 37 - - 50
Exercise of 1993
warrants at an
exercise price of
$.49 per share pursuant
to a special exercise
offer, July 1995 - - 29,250 293 14,040 - - 14,333
Conversion of Series A
preferred stock to
common, August 1995
(Note 8 (a)) (28,000) (280) 28,000 280 - - - -
Conversion of Series B
preferred stock to
common, August 1995
(Note 8(a)) (1,312,500) (13,125) 201,916 2,019 11,106 - - -
Sale of common
stock and warrants
in the Company's
initial public
offering, August
1995, @ $6.50 per
share, net of
underwriters' discount,
underwriters' expense
allowance and other
expenses of the offering
(Note 2) - - 1,200,000 12,000 5,813,703 - - 5,825,703
Issuance of common stock
upon exercise of the
underwriters' overallotment
option, September 1995,
net of underwriters'
discount and expenses
(Note 2) - - 180,000 1,800 1,064,430 - - 1,066,230
Issuance of common stock
for the purchase of Netphone,
November 1995 @ $3.00 per
share (Note 10) - - 80,000 800 239,200 - - 240,000
Issuance of options for the
purchase of Netphone,
November 1995 (Note 10) - - - - 500 - - 500
Issuance of common stock for
settlement of legal fees @
$5.38 per share, December
1995 (Note 8(d)) - - 27,907 279 149,721 - - 150,000
Vesting of 5,000 shares
issued to an employee pursuant
to a restricted grant,
December 1995 - - 5,000 50 138 - - 188
Unrealized loss on
investment in restricted
stock(Note 10) - - - - - (164,457) - (164,457)
Net loss for the year - - - - - - (3,560,292) (3,560,292)
- -----------------------------------------------------------------------------------------------------------------
Balance,March 31, 1996 - - 2,446,729 $24,467 $9,150,209 $(164,457) $(6,134,192) $2,876,027
See accompanying notes to consolidated financial statement
</TABLE>
See accompanying notes to consolidated financial statements
NEW PARADIGM SOFTWARE CORP. and SUBSIDIARIES
Consolidated Statements of Shareholders' Equity (Capital Deficit)
Years ended March 31, 1997 and 1996 (Note 8)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Preferred stock Additional Unrealized Total
Series A, B and C Common Stock Paid in Capital on investment Deficit Shareholders'
in restricted equity (capital
Shares Par Value Shares Par Value stock deficit)
- --------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1996 - $ - 2,446,729 $24,467 $9,150,209 $(164,457) $(6,134,192) $2,876,027
Issuance of Series C
redeemable preferred
stock in March 1997
(Note 8a) 800,000 8,000 - - 192,000 - - 200,000
Reclassification of
Series C Redeemable
Preferred Stock (800,000) (8,000) - - (192,000) - - (200,000)
Issuance of Common
Stock to terminated
employee - - 5,000 50 - - - 50
Unrealized loss on
investment in restricted
stock (Note 10) - - - - - (170,784) - -
Net loss for the year - - - - - - (2,975,407) (2,975,407)
- --------------------------------------------------------------------------------------------------------------------
Balance,
March 31, 1997 - $ - 2,451,729 $24,517 $9,150,209 $(335,241) $(9,109,599) $(270,114)
</TABLE>
See accompanying notes to consolidated financial statements
NEW PARADIGM SOFTWARE CORP. and SUBSIDIARIES
Consolidated Statements of Cash Flows (Note 9)
<TABLE>
<S> <C> <C>
Year ended Year ended
March 31, 1997 March 31, 1996
Cash flows from operating activities:
Net Loss $(2,975,407) $(3,560,292)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 230,880 134,138
Gain on sale of assets - (24,482)
Deferred rent payable 71,127 -
Issuance of Common Stock to
terminated employee 50 -
Issuance of common stock to employees
pursuant to a restricted grant - 238
Amortization of debt discount and
deferred financing costs - 375,546
Noncash interest expense - 3,110
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (22,116) (78,544)
Receivable from related party 50,000 (50,000)
Other receivables and prepayments 76,073 (108,560)
Other assets (61,281) (5,950)
Increase (decrease) in:
Accounts payable and accrued
expenses 589,748 (144,337)
Deferred revenue 27,500 17,500
------- -------
Total adjustments 961,981 118,659
Net cash used in operating
activities 2,013,426 (3,441,633)
------- -------
Cash flows from investing activities:
Purchases of property and equipment (57,747) (324,940)
COPERNICUS development costs (276,746) (218,950)
Sale of property and equipment - 3,300
Purchase of Netphone software - (280,000)
Sale of Netphone software - 193,532
Patents, trademarks and organization
costs (91,385) (5,985)
------- -------
Net cash used in investing activities: (425,878) (633,043)
------- -------
Cash flows from financing activities:
Proceeds from sale of Redeemable Preferred
Class C stock 200,000 -
Proceeds from note payable 550,000 -
Proceeds from private placements - 100,000
Borrowings from shareholder - 107,283
Repayment of debt - (1,632,500)
Proceeds from bank loan - 100,000
Repayment of bank loan - (100,000)
Repayment of shareholder loans - (175,234)
Proceeds from exercise of 1993 warrants - 14,333
Proceeds from Initial Public Offering of common
stock and warrants - 7,283,973
------- -------
Net cash provided by financing activities 750,000 5,697,855
------- -------
Net increase (decrease) in cash and cash
equivalents (1,689,304) 1,623,179
Cash and cash equivalents, beginning of period 2,017,472 394,293
Cash and cash equivalents, end of period $328,168 $2,017,472
</TABLE>
See accompanying notes to consolidated financial statements
1. Organization and Summary of Accounting Policies
Organization
New Paradigm Software Corp. (the "Company")
a New York corporation, was founded in July
1993 and commenced operations on
November 1, 1993. The Company is engaged in
the research, development and marketing of
computer software based upon a software
architecture acquired from Lancer Holdings,
Inc. ("Lancer"), a related party (see
Note 7(c)).
In December 1995, the Company incorporated
two wholly-owned subsidiaries, New Paradigm
Commerce (formerly known as New Paradigm
Golden-Link, Inc.) (See Note 14),consisting
of its former electronic data interchange
("EDI") division, and New Paradigm
Inter-Link, Inc. ("NPIL") a subsidiary
created to research and develop commercial
applications for the Internet.
The Company had no significant revenues
through March 31, 1997 and its activities
had been limited to finalization of domestic
and foreign patent agreements,
organizational and initial capitalization
activities, research and development of
computer software products, initial
marketing activities and pilot projects.
Basis of Presentation
The accompanying consolidated financial
statements have been prepared on the basis that
the Company will continue as a going concern,
which contemplates the realization of assets
and the satisfaction of liabilities in the
normal course of business. At March 31,
1997 the Company had a deficit in working
capital approximating $1,017,000, a capital
deficit of approximately $270,000 and had incurred
significant losses since inception. As
discussed in Note 14, the Company has
entered into agreements to dispose of its
COPERNICUS and EDI businesses. General and
administrative expenses, employee costs,
professional fees and occupancy expenses
from continuing operations will be incurred which, in the
absence of significant income from new operations, will
produce continuing net losses and an increase in
capital deficit annually. Although there
can be no assurance of its success,
management intends to continue to develop
its Internet business (through its
subsidiary NPIL) and also intends to seek
acquisitions of or other business
combinations with other businesses in
related fields. The consolidated financial
statements do not include any adjustments
that might result from the outcome of this
uncertainty.
Principles of Consolidation
The consolidated financial statements
include the accounts of the Company and its
wholly-owned subsidiaries. All material
intercompany accounts and transactions are
eliminated.
Cash Equivalents
Cash equivalents are comprised of highly
liquid debt instruments with original
maturities of three months or less,
principally money market accounts.
Investment in Equity Securities
Investment in restricted common stock is
accounted for in accordance with Statement
of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt
and Equity Securities". Under Statement No.
115, debt and marketable equity securities
are required to be classified in one of
three categories: trading, available-for-
sale or held to maturity. The Company's
investment in restricted common stock
qualifies under the provisions of Statement
No. 115 as available-for-sale. Such
securities are recorded at fair value, and
unrealized holding gains and losses, net of
the related tax effect, are not reflected in
earnings but are reported as a separate
component of shareholders' equity until
realized.
Property, Equipment and Depreciation
Property and equipment are stated at cost.
Depreciation is computed using accelerated
methods over the estimated useful lives of
the assets, ranging from 5-7 years for
financial and tax reporting purposes.
Intangible Assets
Patents and related trademarks are amortized
using the straight-line method over 17
years, which is the estimated useful life of
the patents.
Software rights are amortized using the
straight-line method over 5 years.
Copernicus development costs are amortized
using the straight-line method over 5 years
(see Product Development).
Organization costs are amortized using the
straight-line method over 5 years.
Revenue Recognition
Revenue from software products is recognized
upon delivery to the customer. The Company's
contracts with its customers provide for
payment to be made on specified schedules
which may differ from the timing of
recognition of revenue. Customer advances
are recorded as cash payments received in
advance of delivery.
Maintenance fees are recognized
proportionately over the term of the
maintenance agreement. Customer service fees
represent fees charged to customers for
installation, configuration and modification
of standard software to customer
specifications. Revenue is recorded as work
is performed under the relevant arrangement.
Use of Estimates
The preparation of the financial statements
in conformity with generally accepted
accounting principles requires management to
make estimates and assumptions that affect
the reported amounts of assets and
liabilities and disclosure of contingent
assets and liabilities at the date of the
financial statements and the reported
amounts of revenues and expenses during the
reporting period. Actual results could
differ from those estimates.
Fair Value of Financial Instruments
The carrying amounts of cash, and cash equivalents accounts
receivable, other receivables, loans accounts payable and
redeemable preferred stock approximate fair value because
of the short maturity of these items.
Stock-Based Compensation
In October 1995, the Financial Accounting
Standards Board issued Statement of
Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation"
("SFAS No. 123"). SFAS No. 123 requires
entities which have arrangements under which
employees receive shares of stock or other
equity instruments of the employer or the
employer incurs liabilities to employees in
amounts based upon the price of its stock to
either record the fair value of the
arrangements or disclose the pro forma
effects of the fair value of the
arrangements. During fiscal year ended
March 31, 1997, the Company has adopted the
disclosure method of SFAS No. 123. The
adoption of this method did not affect the
Company's financial position, operating
results or cash flows.
Product Development
Costs associated with product development
subsequent to establishment of technological
feasibility, including enhancements to
software products, are capitalized and
amortized as required by Statement of
Financial Accounting Standards No. 86,
"Accounting for the Cost of Computer
Software to Be Sold, Leased, or Otherwise
Marketed" ("SFAS No. 86"). Costs incurred
prior to achieving technological feasibility
are expensed as incurred. On July 1, 1995,
the Company established technological
feasibility for its COPERNICUS software
product and capitalized all enhancement and
upgrade costs since that date as provided by
SFAS No. 86.
Income Taxes
Income taxes are computed in accordance with
the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting
for Income Taxes" ("SFAS No. 109"), which
requires, among other things, a liability
approach to calculating deferred income
taxes. SFAS No. 109 requires a company to
recognize deferred tax liabilities and
assets for the expected future tax
consequences of temporary differences
between the carrying amounts of assets and
liabilities for financial reporting purposes
and the amounts used for income tax
purposes. Deferred tax assets must be
reduced by a valuation allowance to amounts
expected to be realized.
Net Loss Per Share
Net loss per share is based on the weighted
average number of common shares outstanding
and dilutive common stock equivalents during
the periods. For the years ended March 31,
1996 and 1997, common stock options and
warrants outstanding are not included in the
calculation of weighted average number of
common shares outstanding as their effect is
antidilutive.
A portion of the proceeds from the Company's
initial public offering ("IPO") of common
stock and redeemable warrants was used to
repay long-term debt. If such debt had been
repaid at the beginning of the fiscal year
ended March 31, 1996, with a portion of such
proceeds, the Company's loss per share would
have been $(1.76).
Recent Accounting Standards
1n 1997, the Financial Accounting Standards
Board issued Statement of Financial
Accounting Standards No. 128, "Earnings Per
Share" ("SFAS No. 128"). SFAS No. 128
specifies the computation, presentation, and
disclosure requirements for earnings per
share. SFAS No. 128 is effective for
periods ending after December 15, 1997. The
adoption of this statement is not expected
to have a material effect on the
consolidated financial statements.
2. Initial Public Offering
The registration statement for the Company's
IPO became effective on August 11, 1995. The
Company consummated the IPO on August 16,
1995 and issued 1,200,000 shares of common
stock and 1,200,000 redeemable warrants
("Redeemable Warrants"), each entitling the
holder to purchase one share of common stock
at an initial exercise price of $7.80 per
share. In September 1995, the underwriters
in the IPO exercised the overallotment
option granted to them by the Company and
purchased 180,000 additional shares of
common stock and 180,000 Redeemable Warrants
upon the same terms and conditions as listed
above. The Company raised proceeds of
$6,891,933, net of underwriters' discount,
underwriters' expense allowance and other
expenses of the IPO.
Each Redeemable Warrant entitles the holder
to purchase one share of common stock
(subsequently adjusted to 1.029 common
shares per Redeemable Warrant) at an
exercise price of $7.80 per Redeemable
Warrant (subsequently adjusted to $7.58 per
Redeemable Warrant) during a four-year
exercise period commencing on August 11,
1996, one year after the anniversary of the
IPO. The Redeemable Warrants may be redeemed
by the Company upon 30 days' prior written
notice, at a price of $.10 per warrant,
provided that the average closing bid
quotation of the common stock as reported on
the over-the-counter market or the closing
sale price, if listed on a national
securities exchange, during a period of 20
consecutive trading days ending within 10
days prior to the date of such notice shall
be not less than $9.75, subject to
adjustment in certain circumstances
(subsequently adjusted to $9.48). The
Company also issued to the representative of
the underwriters warrants to purchase
120,000 shares of common stock (subsequently
adjusted to 123,480 common shares) at an
exercise price of $7.80 per share
(subsequently adjusted to $7.58 per share)
and 120,000 Redeemable Warrants at an
exercise price of $.12 per Redeemable
Warrant.
3. Property and Equipment
Property and equipment consists of the following:
March 31, 1997
Computer equipment $ 225,396
Software 21,804
Furniture and fixtures 79,343
Telephone system 37,262
-------
363,805
Less: Accumulated depreciation and
amortization
194,885
-------
$168,920
4. Other Assets
Other assets are summarized as follows:
March 31, 1997
Trademarks 3,792
Organization costs 4,487
Security deposits 67,631
-------
75,910
Less: Accumulated
amortization 4,644
-------
71,266
5. Loan Payable
On March 20, 1997 a corporation Level 8
Systems, Inc., interested in purchasing the
COPERNICUS assets made a formal offer to the
Company to purchase COPERNICUS. In
connection with this offer, Level 8 Systems,
Inc. advanced the Company a loan for
$550,000. This loan matures on July 17,
1997, bears interest at 10% per annum and is
collateralized by the COPERNICUS product and
related assets. This offer stated that the
Company was free to negotiate with other
potential buyers of the COPERNICUS assets;
however, if the Company was to sell
COPERNICUS on or before the repayment of the
loan a break-up fee of $100,000 would be
payable to Level 8 Systems, Inc.. The
proposed sale of COPERNICUS to VIE discussed
in note 14 would represent such a sale and
the break-up fee would be paid if such sale
is approved by the shareholders.
6.
Income Taxes
The Company's net operating loss
carryforwards and deferred tax asset account
are approximately as follows:
<TABLE>
<S> <C> <C> <C>
Period or Year Net operating Net Deferred
ended March 31, Year of expiration loss carryforward tax asset
- ---------------------------------------------------------------------------
1994 2009 $589,000 $ -
1995 2010 1,954,000 -
1996 2011 3,542,000 -
1997 2012 2,958,000 -
---------
9,043,000 $ -
</TABLE>
The tax benefit of these losses
(approximately $4,140,000 at March 31, 1997) is
subject to significant limitations due to
the change in control for income tax
purposes resulting from the Company's IPO in
August 1995. The tax benefit of these losses
has been fully reserved by a valuation
allowance of the same amount due to the
uncertainty of its realization.
7. Commitments and Contingencies
(a) Leases
The Company was leasing its New York
sales and office space on a monthly basis
from Management Technologies, Inc.
("MTI"). Effective September 1, 1995, the
arrangement with MTI was terminated and
the Company leased this space on a month-
to-month basis through December 1996 when
the Company moved to a new location. The
Company's Atlanta sales office was leased
on a month-to-month basis through January
1997, when this sales office was closed.
The Company currently subleases sales and
office space from sublessors who have
entered into non-cancelable operating
lease obligations with the landlord. The
Company and the sublessors intend for the
Company to occupy the space for the
entire term of the lease agreement from
December 1, 1996 through August 31, 1999.
The lease agreement provides for
scheduled rent increases during the lease
term and for rental payments commencing
three months after the initial occupancy.
When significant, provision has been made
for the excess of average operating lease
rentals, computed on a straight-line
basis over the lease term, over cash
rentals. The deferred rent payable
balance of $71,127 at March 31, 1997
reflects such a provision.
The future minimum rental payments under
this sublease agreement are approximately
as follows:
Year ending March 31,
1998 $275,000
1999 291,000
2000 128,000
-------
$694,000
Rent expense for the years ended
March 31, 1997 and 1996 amounted to
approximately $195,000, and $202,000
respectively.
(b) Employment Agreements
The Company entered into employment
agreements with two of its executive
officers, including Mark Blundell, its
chief executive officer and John Brann, a
former director and Vice-President of
Technology. The agreements provide for
aggregate annual salaries of $325,000
through 1999 plus bonuses based on net
earnings of the Company. The executives
agreed to waive an aggregate of $75,000
of their annual base salaries (which is
not being accrued) until such time as the
Company is able to report a pre-tax
annual profit in excess of $75,000. In
connection with the employment
agreements, the Company issued certain
common stock and other options to the
officers). In addition, the Company has
agreed to pay death benefits aggregating
$2,000,000 to the beneficiaries of the
two officers. The Company has obtained
life insurance policies to fund these
death benefits. Further, the Company has
obtained "key man" insurance policies for
which it is the beneficiary aggregating
$2,500,000.
On May 13, 1997, the Company entered into
an agreement with John Brann, the former
Secretary/Treasurer and Vice President of
the Company, to terminate his employment
agreement with the Company (the
"Termination Agreement") pursuant to an
employment agreement dated June 14, 1993,
as amended. Termination of Mr. Brann's
employment is a condition under the
purchase agreement with VIE Systems, Inc.
("VIE") (see note 14). As consideration
for the termination under the Termination
Agreement the Company agreed to pay Mr.
Brann a total of $50,000 on the earlier
of (i) the closing of the purchase
agreement between the Company and VIE, or
(ii) Mr. Brann entering into employment
with VIE.
The Company has been verbally informed by
VIE that it intends to employ Mr. Brann.
The Company has also been informed that
Mr. Brann will be granted certain stock
options in VIE in connection with such
employment.
The Company had entered into an
employment agreement with another officer
to serve as Senior Vice President of
Sales and Marketing. The agreement
provided for a minimum annual
compensation of $100,000, plus
commissions through 1997. On September
25, 1996, this officer left the Company
and the employment agreement was
terminated for 5,000 shares of Common
Stock, a $50,000 termination fee and a
$25,000 consulting fee. As of March 31,
1997, $58,000 remained unpaid under the
terms of the termination agreement and
has been included in accounts payable and
accrued expenses.
The Company had entered into an
employment agreement with another
officer. The agreement provided for a
minimum annual compensation of $100,000,
plus commission through 1997. On March
21, 1997 this officer resigned his
position with the Company and this
employment agreement was terminated.
The Company had entered into an
employment agreement with an officer to
serve as president of a division of the
Company. The agreement provided for a
minimum annual compensation of $85,000
through 1999 and incentive compensation
dependent on achievement of gross revenue
levels for the division. Subsequent to
March 31, 1996, this officer left the
Company and the employment agreement was
terminated and a termination fee of
$50,000 was paid to this officer.
(c) License Agreement
In August 1993, the Company entered into
a licensing agreement with Lancer
Holdings, Inc. ("Lancer") (formerly known
as Mark Blundell & Associates), of which
Mark Blundell, the President and Chief
Executive Officer and a director, and
John Brann, a consultant and former
director and executive officer of the
Company are controlling shareholders. On
October 27, 1993, 133,333 shares of
common stock were issued to Lancer and
valued at Lancer's basis (nominal value)
and recorded at the par value of the
shares issued (500,000 common shares,
pre-split, at $0.01 per share). Lancer
was the owner of certain intellectual
property rights including rights relating
to certain computer software and
documentation (the "Lancer rights"). The
agreement granted the Company the
exclusive worldwide license to sublicense
the COPERNICUS software in return for
royalty payments to the licensor.
In March 1995, the Company acquired the
Lancer rights for 33,333 shares of common
stock and 33,333 noncallable,
transferable warrants to purchase shares
of common stock, subject to adjustment
under certain circumstances. The common
stock was valued at Lancer's basis
(nominal value) and recorded at the par
value of the shares issued (125,000
common shares pre-split, at $0.01 per
share). Such warrants will expire five
years after their issue date. These
warrants include a cashless exercise
provision which allows Lancer to
surrender warrants in payment for the
exercise thereof.
8. Capital Deficit
(a) Preferred Stock
The Company's Certificate of
Incorporation authorizes issuance of
10,000,000 shares of preferred stock. In
September 1994, the Board of Directors
subdivided the preferred stock to create
a Series A preferred stock with 1,000,000
shares authorized. On October 24, 1994,
105,000 shares of Series A convertible
preferred stock ("A Preferred"), each
convertible into one share of
common stock, were issued in connection
with the October 1994 private placement).
On April 18, 1995, the common
shareholders and the A Preferred
shareholders approved a 1-for-3.75
reverse stock split of the common stock
and the A Preferred. As a result of this
reverse stock split, the outstanding
shares of A Preferred were reduced to
28,000. Upon completion of the IPO, these
shares of A Preferred were converted into
shares of common stock on a one-for-one
basis and all of the shares of A
Preferred were retired and restored to
the status of authorized but unissued
shares of Preferred Stock.
In February 1995, the Board of Directors
subdivided the preferred stock to create
a Series B preferred stock with 2,000,000
shares authorized. On March 23, 1995,
1,212,500 shares of Series B preferred
stock ("B Preferred "), par value $.01
per share, were issued). On April 13,
1995, an additional 100,000 shares of
Series B Preferred were issued. The
shares of B Preferred were convertible
into a number of shares of common stock
equal to the number of shares of B
Preferred to be converted multiplied by
$1.00 divided by the price at which
common stock is sold by the Company in an
IPO. Upon completion of the IPO, these
shares of B Preferred were converted into
shares of common stock on a 1-for-3.75
basis and all of the shares of B
Preferred were retired and restored to
the status of authorized but unissued
shares of preferred stock.
In March 1997 the Board of Directors
subdivided the preferred stock to create
a Series C redeemable preferred stock ("C
Preferred"), $0.01 par value, with
800,000 shares authorized with the
following principal terms:
o Each C Preferred share has four votes
on any matter to be put to the vote of
the Company's Shareholders.
o The C Preferred shares can be redeemed
at the Company's option at any time
upon payment of $200,000.
o The C Preferred shares can be redeemed
at the holder's option following any
investment in the Company or a sale of
any of the Company's assets where the
proceeds are $2,000,000 or more.
o The C Preferred shares will have
preference in the event of any
liquidation to the extent of $200,000
On January a shareholder loaned the
Company $150,000 in exchange for a six-
month non interest bearing note. In
consideration for the note and interest
thereon the shareholder was to be paid
150,000 three-year warrants with an
exercise price of $2.00 per share and a
change in the Midland Warrants (see (b)
below). The 180,000 Midland warrants,
held by Midland Associates, an affiliate
of the shareholder were amended as
follows: the expiration date was changed
from August 11 1988 to January 16, 2002
and the exercise price reduced from $3.75
to $2.00 per share.
On March 15 1997, this shareholder
advanced the Company an additional
$50,000 and surrendered the $150,000 note
which he held. The combined $200,000 was
used to subscribe for the 800,000 C
Preferred shares described above.
(b) Warrants
At March 31, 1997, the Company has
outstanding warrants as follows:
<TABLE>
<S> <C> <C> <C>
Number of Exercise Price Expiration Date
common shares per share
issuable
March 31, 1997
--------------------------------------------------
October 1994 private
placement 310,668 $3.75 October 1999
March 1995 private placement 149,720 $7.58 August 11, 2000(i)
March 1995 software rights
acquisition 33,333 $5.63 March 2000
April 1995 private placement 12,348 $7.58 August 11, 2000(i)
May 1995 settlement
agreement with MTI ("Midland
Warrants") 180,000 $2.00 January 16, 2002(ii)
August 1995 initial public
offering Redeemable Warrants 1,234,000 $7.58 August 11, 2000
August 1995 representative
warrants 123,480 $7.58 August 11, 2000
August 1995 Redeemable
Warrants issuable upon
exercise of representative's
warrants 123,480 $7.58 August 11, 2000(iii)
September 1995 exercise of
underwriters' overallotment
option for Redeemable
Warrants 185,220 $7.58 August 11, 2000
October 1995 Electric Magic
Options 50,000 $6.00 October 9, 1998
October 1995 Omotsu Warrants 80,000 $7.80 August 11, 2000
January 1997 Shareholder
warrants 150,000 $2.00 January 16, 2002
(i) Effective upon completion of the
IPO, these warrants were exchanged by
the holders for Redeemable Warrants
exercisable for an equal number of
shares and the warrants will expire upon
the fifth anniversary of the IPO.
(ii) On January 16, 1997, in connection
with a loan to the Company by the holder
of these warrants, the expiration date
was extended to January 16, 2002 and the
exercise price was reduced to $2.00 per
share.
(iii) The representative's warrants
require payment of an exercise price of
$.12 per Redeemable Warrant issuable
upon exercise of the representative's
warrants.
(c) Common Stock
On incorporation (July 1993), the
Company granted employees rights to
stock at par value that would vest based
on future employment. The total number
of shares offered under such agreements
was 87,762, of which 64,201 were issued
during the period ended March 31, 1994,
12,228 were issued during the year ended
March 31, 1995, 6,333 were issued during
the year ended March 31, 1996 and 5,000
remain to be issued as of March 31,
1997.
On April 18, 1995, the shareholders of
the Company approved a 1-for-3.75
reverse stock split of the common stock.
This reverse stock split has been
retroactively reflected in the
accompanying consolidated financial
statements as of inception.
(d) Issuance of Common Stock for Legal Fees
On November 21, 1995, the Company
entered into an agreement with its
corporate counsel, Chadbourne & Parke
LLP ("C&P"), to settle its then
outstanding legal fees. The Company
settled $450,000 of the outstanding
balance to C&P by payment to C&P of
$300,000 in cash and 27,907 shares of
common stock valued at $150,000.
(e) Stock Option Plan
The Company adopted a stock option plan
(the "Option Plan"), effective April 8,
1994, which was approved by the
shareholders on September 3, 1994. The
Option Plan provides for the grant of
options to qualified employees
(including officers and directors) of
the Company to purchase up to an
aggregate of 266,667 shares of common
stock. The Option Plan is administered
by a committee (the "Committee")
appointed by the Board of Directors. The
Committee may, from time to time, grant
options under the Option Plan to such
key employees as the Committee may
determine, provided, however, that the
Committee may not grant incentive stock
options ("Incentive Options") to any key
employee who is not in the regular
full-time employment of the Company.
Options granted under the Option Plan
may or may not be "incentive stock
options" as defined in the Internal
Revenue Code, depending upon the terms
established by the Committee at the time
of grant. The exercise price shall not
be less than the fair market value of
the Company's common stock as of the
date of the grant (110% of the fair
market value if the grant is an
Incentive Option to an employee who owns
more than 10% of the total combined
voting power of all classes of stock of
the Company). Options granted under the
Option Plan are subject to a maximum
term of 10 years.
In April 1995, options to purchase
99,466 shares of common stock at an
exercise price of $4.50 per share were
granted and became exercisable in April
1996.
In November 1995, options to purchase
124,400 shares of common stock at an
exercise price of $5.125 per share were
granted. Such options vested and became
exercisable on November 30, 1996.
SFAS No. 123 requires the Company to
provide pro forma information regarding
net loss and loss per share as if
compensation cost for the Company's
stock option plans had been determined
in accordance with the fair value based
method prescribed in SFAS No. 123
The accounting provisions of SFAS No.
123 do not have a material effect on the
Company's pro forma net loss and loss
per share and thus have not been
presented.
(f) Directors' Stock Options
One current and three former directors
have received options to purchase 10,000
units, each at an exercise price of $5
per unit, each unit consisting of one
share of common stock and a warrant to
purchase one share of common stock at an
exercise price of $6 per share. The
options are outstanding and exercisable
at March 31, 1997.
In November 1995, the Company issued to
each of its outside directors options to
purchase 10,000 shares of common stock
at an exercise price of $5.125 per share
exercisable on or after November 30,
1996. These options expire on November
30, 2000.
In April 1996, the Company issued to a
current director options to purchase
10,000 shares of common stock at an
exercise price of $5.125 per share
exercisable on or after April 24, 1997.
(g) Stock Options Issued in Connection with
the Acquisition of
Netphone
Pursuant to the terms of the acquisition
agreement for Netphone, with Electric
Magic Co. on October 9, 1995. (see Note
10), the Company issued to Electric
Magic options to purchase 50,000 shares
of common stock at an exercise price of
$6.00 per share, expiring in October
1998. In addition, the Company issued to
a third party (Omotsu Holdings Limited),
in consideration of its surrender of
rights to acquire Netphone, warrants to
buy 80,000 shares of common stock at an
exercise price of $7.80 per share
expiring August 11, 2000. (See Note 10.)
9.Supplemental Disclosures of Cash Flow Information
Year ended March 31,
1997 1996
Cash paid during the
period for:
Interest - $60,614
=======================
Income taxes - -
=======================
Supplemental disclosures
of noncash investing
activities:
Conversion of MTI
debt to paid-in
capital - 491,284
Issuance of common
stock for the
purchase of Netphone - 240,000
Issuance of common
stock for legal
services - 150,000
10. Acquisition of Netphone
On October 9, 1995, the Company acquired
Netphone, a software package, from Electric
Magic Co. in exchange for $200,000 in cash
and options to acquire 50,000 shares of the
Company's common stock valued at the nominal
amount of $500. This product allows user of
Macintosh computers to conduct long distance
conversations over the Internet for the cost
of local Internet access. The Company paid a
third party (Omotsu Holdings Limited) $80,000
in cash and issued 80,000 shares of
restricted common stock and warrants to
acquire 80,000 shares of the Company's common
stock valued at $240,000 (market value
$520,000) for surrendering its rights to
acquire Netphone.
On October 31, 1995, the Company sold
Netphone to Camelot Corporation ("Camelot")
for $193,532 in cash, 67,470 shares of
Camelot's restricted common stock valued at
the market value of $350,000 and an agreement
by Camelot to pay the Company a fee for each
unit sold by Camelot in the future. This
resulted in a gain of $23,032 included in
gain on sale of assets in the consolidated
statements of operations. On March 31, 1997,
the market value of the Camelot restricted
stock had decreased to $14,759 resulting in
an unrealized loss of $335,241, which has
been reflected in the consolidated statement
of shareholders' equity (capital deficit).
11. Employee Benefit Plan
Effective February 15, 1996, the Company
implemented a 401(k) profit sharing plan
covering substantially all employees.
Contributions to the plan are at the
discretion of the Board of Directors. The
Board did not elect to make a contribution
for the years ended March 31, 1997 or 1996.
12. Related Party Transactions
(a) During the years ended March 31, 1997 and
1996, the Company incurred fees of
approximately $24,000 and $18,000 to a
consulting firm owned by the Company's
Chairman of the Board of Directors.
(b) During the years ended March 31, 1997 and
1996, the Company incurred marketing fees
of approximately $82,000 and $72,000 to
a firm where a former Company director is
employed.
13. Major Customers
Revenues from one major customer for the
year ended March 31, 1997 accounted for
approximately 37% of the Company's total
revenues. There were no receivables due
from this customer at March 31, 1997.
Revenues from four major customers for the
year ended March 31, 1996 accounted for
approximately 64% of the Company's total
revenues.
14. Assets Held for Sale/ Discontinued operations
(a) Sale of COPERNICUS
As of May 9, 1997 the Company entered into an
agreement (the "Purchase Agreement") to sell,
subject to shareholder approval, the rights
to COPERNICUS and certain related assets to
VIE Systems Inc., a Delaware corporation
("VIE") for $2,050,000 in cash and a 5%
royalty on future COPERNICUS related license
fees payable commencing after the first 12
months. Subject to VIE's approval, the
Company will have the right to enter into OEM
agreements with VIE on commercially
reasonable terms, to incorporate COPERNICUS
within future products which the Company may
develop or acquire. Under the Purchase
Agreement the Company has appointed VIE as
its exclusive agent for the operation of all
aspects of the COPERNICUS related business .
This agreement will terminate at the earlier
of the closing of the sale or 180 days from
May 9, 1997. VIE has entered into Voting
Agreements with the holders of 68.1% of the
voting rights entitled to vote at a meeting
of Company Shareholders, and the Company
therefore expects the sale to be approved and
completed during July 1997.
As of May 9, 1997 the Company entered into a
license agreement (the "VIE License") to
license certain rights to its COPERNICUS
product and to assign certain agreements to
VIE. The VIE License gives VIE a five year
exclusive right to market COPERNICUS to the
financial services, healthcare, food and
government industries in the US and Canada.
It also allows VIE to act as a non-exclusive
distributor to all other industries within
the United States and gives VIE worldwide
non-exclusive distribution rights for all
industries until termination of the license.
Under the VIE license the Company receives a
5% royalty on all license fees received by
VIE relating to the COPERNICUS product. The
license also permits VIE to produce the
product on additional platforms and enhance
the product as it sees fit. The source code
for the product may not be distributed to
another party without the prior written
consent of the Company. Finally the Company
has assigned to VIE certain agreements,
including a distribution agreement with IBM.
This license will terminate upon the closing
of the sale under the Purchase Agreement.
Until the closing of the contemplated sale of
COPERNICUS pursuant to the Purchase
Agreement, The Company will continue to be
engaged, through its exclusive agent VIE in
the development, marketing, licensing and
support of its COPERNICUS software for large-
scale computer users. An application for a
United States patent on COPERNICUS is
pending.
b) Sale of EDI business
Until April 1, 1997, through its wholly owned
subsidiary, New Paradigm Commerce ("NPC")
(formerly New Paradigm Golden Link), the
Company operated a service bureau business
providing electronic data interchange ("EDI")
services (the conveying of business documents
electronically). As of April 1, 1997, the
Company sold its EDI business to Custom
Information Systems Corp. of New York ("CIS")
for $6,000 and a note receivable monthly over
three years with a face value of $355,000 and
a present value of approximately $300,000.
c) Discontinued Operations
The proposed dispositions of the businesses
disclosed in (a) and (b) above have been
presented as discontinued operations and the
balance sheet at March 31, 1997 and
statements of operations for the two years
then ended have been restated to conform to
this presentation. The anticipated gain on
disposal of such businesses will be included
in the statement of operations for the year
ended March 31, 1998. Financial results of
the businesses included as discontinued
operations are as follows:
Operating Data for COPERNICUS and EDI combined:
</TABLE>
<TABLE>
<S> <C> <C>
Year ended March Year ended March
31, 1997 31, 1996
Revenues:
Software fees, royalties
and licensing fees $380,671 $392,541
Consulting, maintenance and other fees 242,227 33,412
----------------------------
622,898 425,953
Expenses:
Employee costs 1,047,606 1,008,015
General and administrative 265,087 288,756
Professional fees 223,213 364,050
Marketing 323,725 523,624
Research and development - 66,979
Occupancy 20,310 20,000
Depreciation and amortization 181,276 96,335
--------- ---------
2,061,217 2,367,759
Net Loss from discontinued operations (1,438,319) (1,941,806)
</TABLE>
Balance Sheet Data
[S] [C] [C] [C]
COPERNICUS EDI Total
Assets:
Accounts receivable - net $15,995 $60,173 $76,168
COPERNICUS development costs - net 404,863 - 404,863
Patents and trademarks - net 153,629 - 153,629
Software - net 53,949 5,303 59,252
Computer equipment - net 30,792 9,081 39,873
Software rights - net 2,706 - 2,706
--------------------------------
661,934 74,557 736,491
Liabilities:
Deferred revenues 45,000 - 45,000
--------------------------------
Net Assets held for sale $616,934 $74,557 $691,491
ANNEX C
AGREEMENT OF PURCHASE AND SALE OF ASSETS
This Agreement (the "Agreement") is entered into as of
May 9, 1997, by and between VIE Systems, Inc., a Delaware
corporation ("Buyer"), and New Paradigm Software Corp., a New
York corporation ("Seller").
W I T N E S E T H:
WHEREAS, Seller desires to transfer, convey and assign
to Buyer all rights in and to its COPERNICUS software, the "New
Paradigm Architecture", related intellectual property rights and
the business, activities and operations of Seller of or related
thereto, and certain other specified tangible assets of Seller, on
the terms and subject to the conditions hereinafter set forth
(with all such business, activities and operations of or related
to the COPERNICUS software and the "New Paradigm Architecture"
engaged in by or through Seller being referred to herein as the
"Business").
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements hereinafter set forth, the parties
hereto hereby agree as follows:
PURCHASE AND SALE OF ASSETS
1.1 Purchased Assets. Subject to and upon the terms
and conditions of this Agreement, on the Closing Date, Seller
shall sell, transfer, convey, assign, and deliver to Buyer
all of Seller's right, title and interest to the hardware and other
tangible assets of Seller listed on Schedule 1.1 attached hereto
(and not previously transferred to Buyer) (the "Equipment"), and
all intellectual property and other related assets (other than
hardware and other tangible assets) of or used in the Business, of
every kind, nature and description, owned, leased or licensed,
wherever located and whether or not carried or reflected on the
books or records of Seller, as the same shall exist on the Closing
Date, except for the Excluded Assets (as hereinafter defined),
including, without limiting the generality of the foregoing:
(a) all trademarks, trademark applications, trade
names, designs, logos and service marks owned or used by
Seller in the Business, including without limitation, "COPERNICUS", and
the other names, designs and logos set forth on Schedule 1.1(a)
hereto, and any names similar to or any derivation or
variation of any and all such names, designs and logos, and the goodwill
pertaining thereto and the right to fully exploit such names
(collectively, "Marks");
(b) all copyrights and copyright applications
owned or used by Seller in the Business, including without
limitation, the copyrights and copyright applications set
forth on Schedule 1.1(b) hereto (collectively, "Copyrights");
(c) all patents and patent applications owned or
used by Seller in the Business, including without limitation, the
patent applications set forth on Schedule 1.1(c) hereto, and the
goodwill pertaining thereto and the right to fully exploit, and
enforce infringement claims in respect of, such patents
(collectively, "Patents");
(d) all of the right, title and interest
(including by reason of license or lease) of Seller in or to any
software, computer program or software product owned, used,
developed or being developed by or for Seller and used in or
necessary for the operation of the Business, whether for internal
use (including without limitation, sales, marketing and training
programs) or for sale or license to others, and any software,
computer program or software product, manufactured, published,
licensed and/or marketed by Seller through the Business at any
time prior to the Closing, including, without limitation, all
software which pertains to and consists of or which is
incorporated, integrated, bundled, merged or otherwise included as
part of or within the computer programs known and/or marketed as
"COPERNICUS" and more fully described on Schedule 1.1(d) hereto,
in all versions and releases, including all run-time systems,
libraries, examples, utilities, data files, manuals, guides and
written and related materials and all Proprietary Rights and
Documentation (as each are hereinafter defined), whether or not
patented or copyrighted, related to the implementation or use
thereof (collectively, "Programs");
(e) all documentation, records and software,
whether in machine or visually readable or other tangible form,
evidencing, representing or containing any Proprietary Rights in
the possession or under the control of Seller relating to a
Program or used in or necessary to the Business, including,
without limitation, any manuals, functional and design
specifications, user and programmer instructions, sales and
marketing training and instructions, flow charts and diagrams,
coding constructions, alpha and beta testing notes, error reports
and logs, patches and patch instructions, itemizations of
development tools, and all other writings which might be necessary
or helpful to a skilled programmer or skilled software salesperson
or marketeer to understand, maintain and enhance any Program
(collectively, "Documentation");
(f) all mailing lists and lists and records of
customers and prospects and related information and data base or
bases used by Seller in connection with the Business, including
without limitation, the names of all persons actually known to
have licensed or purchased products or services of or from the
Business, other users of such products and services known to
Seller and user prospects of such products and services known to
Seller, together with file layouts and other information related
to such products and services necessary to the convenient
processing of such information by Buyer (collectively, the
"Lists");
(g) all know-how and other intellectual property
of Seller relating to or necessary for the operation of the
Business, including, without limitation, the "New Paradigm
Architecture" described on Schedule 1.1(g) hereto, and all trade
secrets, vendor information, lists and data bases, proprietary
processes, methods and apparatus, information not known to the
general public, each literary work, whether or not copyrightable,
ideas, concepts, designs, discoveries, formulae, patents, patent
applications, product and service developments, inventions,
improvements, disclosures, software, source codes and materials,
object codes and materials, algorithms, techniques, architecture,
mask work rights, prototypes, engineering and design models,
information with respect to firmware and hardware, and any
information relating to any product or program which has either
been developed, acquired or licensed for or by Seller and used in
or necessary for the operation of the Business, including the
maintenance, modification or enhancement thereof, all vendor and
customer sales and purchase records and files of or related to the
Business, and all publishing, outsourcing, fulfillment, reseller
and manufacturing information (collectively, together with the
Marks, Copyrights, Patents, Lists and Programs, "Proprietary
Rights");
(h) each contract, agreement, lease, license,
franchise, purchase order, sale order, permit, instrument,
commitment, arrangement and understanding (in each case, whether
written or oral and including all amendments thereto) to which
Seller is a party or by which it is bound or under which it has
any rights or is entitled to benefits, relating to the Business,
including, without limitation, all license, supply, purchase,
distribution, OEM, VAR, dealer, advertising and promotional
services agreements and agreements for software acquisition,
development, publishing, support, maintenance, outsourcing,
manufacture and fulfillment, reseller and manufacture, including,
without limitation, those listed on Schedule 1.1(h) hereto
(collectively, "Contracts");
(i) the non-exclusive right to all restrictive and
negative covenants, non-competition, proprietary property and
confidentiality agreements in favor of Seller, including, without
limitation, those with any and all former or current employees,
consultants, customers, vendors or others having access to
Proprietary Rights or rendering services to Seller in connection
with the Business;
(j) all inventory, samples, goods-in-transit,
work-in-process, raw materials, promotional materials and other
materials and supplies of every kind, nature and description used
or which are used in or necessary for the operation of the
Business (other than generic office supplies), including, without
limitation, all physical copies of items constituting any part
thereof such as user manuals and diskettes, and all advertising,
artwork, templates and related creative materials for
advertisements, catalog insertions, page layouts, promotional and
product literature and displays, sales literature, marketing
materials, brochures, pamphlets and packaging and printed material
related to any of the foregoing, in each case, in which Seller has
any right, title or interest and of the type sold or offered for
sale by or through the Business (collectively, "Business Materials");
(k) all accounts, notes and other receivables of
Seller arising from the Business or products or services sold by
or through the Business (whether payable in cash or product)
outstanding as of the Closing Date, and all rights of Seller under
any security agreements with respect thereto, including rights to
all files and documentation substantiating Seller's rights to said
Receivables in sufficient diary form to effect an efficient
collection of said receivables (collectively, "Receivables");
(l) the proceeds of any insurance, and the right
to receive the proceeds of any insurance, with respect to any
claims which have been or may be asserted in connection with any
of the Purchased Assets (as hereinafter defined) and the right to
continue and maintain any insurance with respect thereto;
(m) all unfilled sales, purchase orders and
commitments of or related to the Business made or entered into by
Seller in the ordinary course of its business and all rights which
Seller may have against its licensors and other suppliers under
express or implied warranties related to the Business or products
or services sold or offered by or through the Business, and the
right to receive mail and other communications and shipments of
merchandise addressed to Seller related to the Business;
(n) all books and records necessary for the use of
any of the Purchased Assets and used in or necessary for the
operation of the Business, and all of the goodwill of the Business
as a going concern.
The business, properties, assets, licenses, franchises, goodwill
and rights to be sold, transferred, conveyed, assigned, granted
and/or delivered to Buyer are hereinafter sometimes collectively
referred to as the "Purchased Assets". The Purchased Assets shall
be transferred to Buyer at the Closing pursuant to the form of
Bill of Sale annexed as Exhibit 1.1 hereto (the "Bill of Sale").
1.2 Excluded Assets. Notwithstanding anything to the
contrary contained in this Agreement, it is understood that Seller
is not selling and Buyer is not acquiring any real property owned
or leased by Seller or those assets referred to in the Bill of
Sale as "Excluded Assets" which include all of the assets used
solely in, and accounts receivable related exclusively to, the
business conducted by Seller's two subsidiaries, New Paradigm
Commerce, Inc. and New Paradigm Inter-Link, Inc. (collectively,
the "Subsidiary Businesses"), and those certain assets used
jointly in the Subsidiary Businesses and the Business which
are listed on Schedule 1.2 hereto and in Schedule A to the Bill
of Sale.
1.3 Title to Purchased Assets. At the Closing, Seller
shall deliver or cause to be delivered to Buyer all right, title
and interest of Seller in and to the Purchased Assets, free and
clear of any and all mortgage, pledge, hypothecation, assignment,
deposit arrangement, claim, encumbrance, lien (statutory or
other), preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever
(including any conditional sale or other title retention agreement
or any financing statement filed under the Uniform Commercial Code
or comparable law of any jurisdiction) (collectively, "Liens").
1.4 Satisfaction of Liabilities. (a) On or prior to
the Closing, Seller shall cause all Liens securing indebtedness of
Seller or otherwise in, on or against any of the Purchased Assets
to be released and to cause to be delivered at the Closing
releases and discharges of all Liens relating to any of such
indebtedness (including, without limitation, all required Form
UCC-3 releases) in form and substance reasonably satisfactory to
Buyer.
(a) On or prior to the Closing, Seller shall cause
all past due indebtedness owing to suppliers, vendors, licensees
or licensors of or related to the Purchased Assets and/or the
Business to be satisfied in full (or shall make arrangements for
such payments to be made on terms acceptable to such suppliers,
vendors, licensees and licensors and approved in writing by Buyer,
which approval shall not be unreasonably withheld). Without
limiting any of Buyer's rights under Section 3.3 hereto, following
the Closing, Buyer shall be entitled, but shall have no obligation
whatsoever, following written notice to Seller (which notice shall
specify the indebtedness to be repaid and any proposed offset), to
satisfy any such unpaid or unresolved indebtedness, on behalf of
Seller, and offset any amount so paid against the Escrow Fund (as
hereinafter defined) and/or any amounts payable to Seller in
connection herewith, including, without limitation, from amounts
payable by Buyer in respect of the Royalty.
1.5 Assignments of Contracts. Buyer and Seller
acknowledge that certain of the Contracts included in the
Purchased Assets, and the rights and benefits thereunder, may not,
by their terms, be assignable. Anything in this Agreement to the
contrary notwithstanding, this Agreement shall not constitute an
agreement to assign any such Contract if an attempted assignment
thereof, without the consent of a third party thereto, would
constitute a breach thereof or adversely affect the rights under
any such Contract of Buyer or Seller thereunder. In such event,
Seller will cooperate with Buyer and use its best efforts to
provide for Buyer all benefits to which Seller is entitled under
such Contracts, and any transfer or assignment to Buyer by Seller
of any such Contract or any right or benefit arising thereunder or
resulting therefrom which shall require the consent or approval of
any third party shall be made subject to such consent or approval
being obtained. Seller shall use its best efforts to obtain such
consents and approvals. If and when any such consent or approval
shall be obtained or such Contract shall otherwise become
assignable to Buyer, Seller shall promptly assign all of its
rights thereunder to Buyer. Until such time, Seller shall not
enter into any amendment of any such Contract without the prior
written consent of Buyer. Notwithstanding anything to the
contrary herein, Seller shall not be obligated to incur any
additional financial obligation or liability to the party under
any Contract for which such consent or approval is required.
PURCHASE PRICE; LIMITED ASSUMPTION OF LIABILITIES
2.1 Purchase Price. Subject to and upon the terms and
conditions of this Agreement, Buyer shall pay or deliver to or for
the benefit of Seller, in full payment and consideration for the
Purchased Assets, a total amount (the "Purchase Price") payable as
follows:
(a) At the Closing, Buyer shall pay to or for the
benefit of Seller One Million Eight Hundred Thousand Dollars
($1,800,000), plus (i) the amount, in excess of $50,000, payable
and paid by Seller to Level 8 Systems, Inc. in respect of a break-
up fee, but in no event more than a total of $50,000, less
(ii) any payments made to Seller pursuant to the License Agreement
(as hereinafter defined) and less (iii) any Liabilities Adjustment
(as hereinafter defined), by certified check, bank check or wire
transfer in immediately available funds (the "Closing Payment").
(b) At the Closing, Buyer shall pay to the Escrow
Agent under the Escrow Agreement in the form of Exhibit 2.1(b)
hereto (the "Escrow Agreement"), the sum of Two Hundred Thousand
Dollars ($200,000) (the "Escrow Fund"), such amount to be held and
dealt with as provided in the Escrow Agreement. As more fully set
forth in the Escrow Agreement, the escrow period shall expire on
the date six (6) months after the Closing Date, except with
respect to claims on the Escrow Fund made prior to such date.
(c) Beginning from and after the first anniversary
of the Closing Date, Buyer shall pay to Seller a royalty equal to
5% of the Net Revenue (as defined in Schedule 3.2 hereto) of Buyer
commencing on and after the first anniversary of the Closing Date,
as the same shall be determined, calculated and payable in
accordance with, and containing such other terms and provisions as
are set forth in, Schedule 2.1(c) hereto (the "Royalty").
2.2 Allocation of Purchase Price. The parties hereto
hereby agree that the Purchase Price shall be allocated in
accordance with Schedule 2.2 hereto.
2.3 Liabilities Undertaking. Buyer shall, at the
Closing, execute and deliver to Seller a Liabilities Undertaking
(the "Liabilities Undertaking") in the form of Exhibit 2.3 hereto,
the provisions of which shall, effective upon the Closing, be
deemed incorporated herein by reference as if set forth in full
herein. Except as expressly set forth in the Liabilities
Undertaking, Buyer shall not assume or be responsible for any
debts, commitments, obligations or liabilities of Seller of any
nature whatsoever. Without limiting the generality of the
foregoing, Buyer shall not assume any of the following (herein
collectively referred to as the "Excluded Liabilities"):
(a) any obligation or liability of Seller to
distribute to its shareholders or otherwise apply all or any part
of the Purchase Price received hereunder;
(b) any obligation or liability of Seller based
upon acts or omissions of Seller occurring after the Closing Date;
(c) Seller's obligations under any stock option or
profit-sharing plans or under any outstanding qualified or non-
qualified stock options;
(d) any brokerage or finder's fee payable by
Seller in connection with the transactions contemplated
hereby;
(e) any liabilities of Seller to any of its
present or former shareholders as such arising out of any action
by Seller in connection with the transactions contemplated hereby;
(f) any and all obligations of Seller for
indebtedness for borrowed money or other amounts payable to third
parties in the nature of "break-up" fees, including without
limitation, any amounts payable to Level 8 Systems, Inc. (subject
only to Buyer's obligation to pay Seller the amount specified in
Section 2.1(a)(i) hereof);
(g) any and all debts, liabilities and obligations
of Seller incurred or accrued with respect to any period, or
circumstances, or state of facts or occurrences, on or prior to
the Closing Date, relating to bonuses, salaries, wages, incentive
compensation, compensated absences, workmen's compensation, FICA,
unemployment taxes, employee benefits, deferred compensation, wage
continuation, severance, termination, pension, section 401(k)
plans, cafeteria, retirement, profit-sharing or similar plans or
arrangements and any and all vacation, holiday or sick pay or
leave incurred or accrued with respect to any employees of Seller
whether or not such employees become employees of Buyer, and any
and all liabilities or obligations incurred or accrued under
Benefit Plans (as hereinafter defined), including, without
limitation, contractual and statutory wage continuation,
severance, reemployment assistance, termination pay and other
benefits;
(h) any and all domestic and foreign federal,
state and local income, payroll, property, sales, use, franchise
or value added tax liabilities, imposed on Seller or with respect
to income or activities of Seller, including assessments and
governmental charges or levies imposed in respect of such taxes;
(i) any and all obligations and liabilities of
Seller arising under this Agreement (including, without
limitation, indemnification obligations and obligations to pay
expenses arising out of this Agreement), or from its failure to
perform any of its agreements contained herein or incurred by it
in connection with the consummation of the transactions
contemplated hereby, or for which Seller is responsible under this
Agreement, including, without limitation, fees of lawyers,
accountants and other advisors;
(j) any and all liabilities and obligations with
respect to claims, suits, legal, administrative, arbitral or other
actions, proceedings and judgments with respect to causes of
action or disputes arising, and other non-contractual liabilities
of Seller asserted or imposed, or arising out of, any events
occurring, or circumstances or state of facts existing, on or
prior to the Closing Date, or any product liability or warranty
claim with respect to products sold, licensed or distributed or
services rendered by Seller prior to the Closing Date;
(k) any and all leases of real property or
improvements thereon, including, without limitation, any and all
premises occupied by Seller, all leases of tangible personal
property not specifically assumed pursuant to the Liabilities
Undertaking hereto; and
(l) any commitment, liability or obligation under
any contracts or other agreements other than those liabilities
under the Contracts specifically assumed by Buyer pursuant to the
Liabilities Undertaking.
2.4 Collection of Accounts Receivable. Without
limiting Section 3.2(b) hereof, Seller agrees that after the
Closing Date Buyer shall have the right and authority to collect
for its own account all Receivables and other items which shall be
included within the Purchased Assets and to endorse with the name
of Seller any checks received on account of any such Receivables
or other items.
CONTEMPORANEOUS ACTIONS AND DELIVERIES; OTHER AGREEMENTS
3.1 Contemporaneous Actions and Deliveries.
Contemporaneously with the execution and delivery of this
Agreement, Seller and/or Buyer have taken the following actions
and executed and/or delivered the following agreements, assets and
documentation:
(a) Seller and Buyer have entered into the License
Agreement attached as Exhibit 3.1(a) hereto (the "License
Agreement").
(b) Seller has loaned to Buyer until the Closing
(at which time it will be transferred to Buyer) the hardware,
Business Materials and other tangible assets necessary to enable
Buyer to exploit the License, including, without limitation, those
assets listed on Schedule 3.1(b) hereto (the "Loaned Assets").
(c) Robert Trump, Mark Blundell, John Brann,
Lancer Holdings, Inc. and Midland Associates have each entered
into the voting agreements with respect to the shares of preferred
stock or common stock owned by them, attached as Exhibit 3.1(c)
hereto (the "Voting Agreements").
(d) Chadbourne & Parke LLP, counsel to Seller, has
delivered to Buyer the legal opinion with respect to the
transactions contemplated hereby attached as Exhibit 3.1(d) hereto
(the "Signing Legal Opinion").
(e) John Brann and Diran Cholakian (collectively,
the "Designated Employees") have each terminated their employment
with Seller and entered into an Employment Agreement with Buyer,
in the form attached as Exhibit 3.1(e)(i) and Exhibit 3.1(e)(ii)
hereto, respectively (the "Employment Agreements")
(f) Seller has delivered to Buyer a certificate of
the Secretary or an Assistant Secretary of Seller, dated the date
hereof as to (i) the resolutions of the Board of Directors of
Seller authorizing the execution, delivery and performance of this
Agreement and the License Agreement, and the consummation of the
transactions contemplated herein and therein; and (ii) the
incumbency and signatures of the officers of Seller executing all
such agreements.
3.2 Operation of the Business. (a) Commencing with
the date hereof, Seller hereby irrevocably appoints Buyer as its
exclusive agent to operate the Business on behalf of Seller,
including, without limitation, the exclusive right to develop,
market, license and support the Programs and to service, on a
subcontract basis, the IBM Agreement and all of the Assumed
Contracts (as hereinafter defined). Between the date hereof and
the Closing (and thereafter if the Closing shall occur), Seller
shall not incur any obligations, grant any licenses, contract on
behalf of or otherwise take part in any of the operations of the
Business without the prior written consent of Buyer. In
connection therewith, Buyer agrees to perform, in accordance with
the terms thereof, the unperformed and unfulfilled obligations of
Seller to perform maintenance and support services from and after
the date hereof under the IBM Agreement and the Assumed Contracts,
and to assume those contractual liabilities of Seller specifically
listed on Schedule 3.2 hereto (the "Assumed Liabilities"). Except
for the Assumed Liabilities (and from and after the Closing Date,
those liabilities specifically listed on the Liabilities
Undertaking), Buyer shall not assume or be responsible for any
debts, commitments, obligations or liabilities of Seller of any
nature whatsoever. Buyer also agrees that (i) it will not amend
the IBM Agreement or any of the Assumed Contracts until such time
as such contract shall have been assigned to Buyer, or incur any
contractual obligation on behalf of Seller without Seller's prior
written consent if Seller would be required to assume, perform or
satisfy such obligation in the event that the Closing does not
occur, and (ii) it shall commence a reasonable sales effort with
respect to the licensing of the COPERNICUS Programs and shall
otherwise conduct the Business in a commercially reasonable
manner. Without in any way limiting Buyer's rights under the
License Agreement, the foregoing authorization shall terminate in
the event that the Closing shall not occur within one hundred
eighty (180) days from the date hereof.
(a) Subject to the royalty payable under the License
Agreement, from and after the date hereof, as its fee for
performing Seller's obligations under the IBM Agreement and the
Assumed Contracts and assuming the Assumed Liabilities, Buyer
shall be entitled to receive and retain any and all amounts paid
and payable from and after the date hereof to Seller in respect of
the IBM Agreement and the Assumed Contracts, including, without
limitation, those payments in respect of accounts receivable and
work-in-process in existence on or prior to the date hereof. In
the event that any such amounts are received by Seller and not
promptly paid over to Buyer, Buyer shall be entitled to deduct all
such unpaid amounts from the Closing Payment.
(b) Notwithstanding the foregoing, in the event
that Shareholder Authorization (as hereinafter defined) shall not
be obtained and the Closing shall not occur, following the
termination of this Agreement, Buyer shall return to Seller the
Loaned Assets (in as-is condition and subject to depletion due to
use) and Seller shall once again be entitled to operate the
Business, subject only to the License Agreement, with respect to
all industries other than the Licensed Industries. It is hereby
understood and agreed that the License Agreement (and the
provisions of this Agreement incorporated into the License
Agreement by reference) shall survive any such termination of this
Agreement and Buyer shall be entitled to retain all of the rights
granted pursuant to the License Agreement.
3.3 Liabilities Adjustment. Without limiting any of
its rights under the Agreement, and except for Assumed
Liabilities, at or prior to the Closing, Buyer may, but shall have
no obligation to, assume all other trade and other accounts
payable and accrued expenses payable and other indebtedness and
liabilities of Seller of or related to the Business, and reduce
the Closing Payment dollar-for-dollar by the amount of any such
liabilities of Seller so assumed (the "Liabilities Adjustment").
Buyer agrees to give Seller not less than five (5) days prior
written notice of its intention to assume and satisfy any such
liabilities of Seller.
3.4 Further Assurances. At any time and from time to
time after the date hereof, at Buyer's request, and without
further consideration therefor, Seller will execute and deliver
such other instruments or agreements as Buyer may reasonably deem
necessary in order more effectively to transfer to Buyer, and to
confirm Buyer's interest in, the License, and to assist Buyer in
exercising all rights with respect thereto. Buyer and Seller
hereby agree to cooperate to effectively vest in Buyer the rights
transferred to Buyer pursuant to this Article 3.
3.5 Capitalization of Buyer. Buyer will capitalize
itself with not less than four million dollars ($4,000,000) within
seven (7) days of the date hereof, and agrees to maintain not less
than two million dollars ($2,000,000) in a liquid investment or
money market account until the earlier to occur of (a) the Closing
and (b) July 17, 1997.
4
Closing; Deliveries; Conditions Precedent.
4.1 Closing. (a) The Closing under this Agreement
(the "Closing") shall take place at the offices of Golenbock,
Eiseman, Assor & Bell, 437 Madison Avenue, New York, New York,
10022, at 10:00 A.M. local time on June 20, 1997, or such other
date, place or time as the parties hereto shall mutually agree
upon (the date of the Closing being called the "Closing Date").
In the event either of the parties is entitled not to close on the
scheduled date because a condition to the Closing set forth in
Section 4.5 or 4.6 hereof has not been met (or waived by the party
or parties entitled to waive it), such party may postpone the
Closing from time to time until the condition has been met,
but in no event to a date later than December 31, 1997. Any such
postponement shall not effect the rights or remedies to which a
party is entitled to in respect of any breach of non-compliance
with this Agreement.
(a) All proceedings to be taken and all documents
to be executed and delivered by all parties at the Closing shall
be deemed to have been taken and executed simultaneously and no
proceedings shall be deemed taken nor any documents executed or
delivered until all have been taken, executed and delivered.
4.2 Deliveries of Seller. At the Closing Seller shall
deliver to Buyer:
(a) the Bill of Sale, executed by Seller;
(b) an Assignment of Copyrights in the form of
Exhibit 4.2(b)-1 hereto, an Assignment of Patents in the form of
Exhibit 4.2(b)-2, and an Assignment of Trademarks in the form of
Exhibit 4.2(b)-3, in each case in recordable form, each executed
by Seller (collectively, the "Proprietary Rights Assignments");
(c) possession and control over, (i) the Programs
in machine readable Object Code and Source Code for computers,
(ii) the Programs' Documentation in machine readable form or in
paper or in other electronic medium (including, but not limited to
user Documentation, technical Documentation, production materials
and marketing materials) in the possession of Seller, (iii) a
copy (in paper and electronic form) of the Lists, (iv) copies of
all agreements, commitments, records and other data relating to
the Purchased Assets reasonably necessary for the marketing and
licensing of the Programs by Buyer, (v) all master artwork in
existence on the Closing Date used for current advertising and
packaging in suitable form, and (vi) all Business Materials and
other tangible and intangible property constituting part of the
Purchased Assets; and
(d) Instruments of Assignment and Assumption in
the forms attached as Exhibit 4.2(d) hereto (each a "Contract
Assignment" and collectively the "Contract Assignments"), with
respect to the Worldwide Vendor Agreement and related agreements
between Seller and International Business Machines Corporation
(the "IBM Agreement") and each of the other Contracts listed on
Schedule 4.2(d) hereto (the "Assumed Contracts"), executed by
Seller as assignor and, if such consent is required by the terms
of such Contract, consented to in writing (in form and substance
reasonably required by Buyer) by each applicable contracting
party; and together with the IBM Agreement and each such Contract
Assignment, the form of Estoppel Certificate attached to the
Contract Assignments, executed by each applicable contracting party;
(e) a Confidentiality and Non-Competition
Agreement in favor of Buyer in the forms of Exhibit 4.2(e) hereto,
executed by Seller, Mark Blundell and John Brann (collectively,
the "Non-Compete Agreements"), provided that John Brann shall only
be required to be a party to the Non-Compete in the event that he
shall not then be bound by the terms of the Employment Agreement
with Buyer;
(f) the legal opinion of Chadbourne & Parke LLP in
the form of Exhibit 4.2(f), hereto, executed by Chadbourne & Parke
LLP (the "Closing Legal Opinion");
(g) a long form certificate of subsistence of
Seller, issued as of a recent date by the Secretary of State of
the State of New York;
(h) written confirmation from Seller to Buyer, in
form and substance reasonably acceptable to Buyer, that effective
upon the Closing, the License Agreement shall terminate and be of
no further force and effect;
(i) a certificate of the Secretary or an Assistant
Secretary of Seller, dated the Closing Date, in form and substance
reasonably satisfactory to Buyer, as to (i) the resolutions of the
Board of Directors of Seller authorizing the execution, delivery
and performance of this Agreement and each exhibit hereto to which
it is a party and the consummation of the transactions
contemplated herein and therein; (ii) certification that
Shareholder Authorization has been duly and properly
obtained, and
(iii) the incumbency and signatures of the officers of Seller
executing this Agreement and any Seller Documents (as hereinafter
defined); and
(j) all other documents, materials, items and
property required by the terms of this Agreement to be delivered
to Buyer under or to effect the provisions of this Agreement.
4.3 Deliveries of Buyer. At the Closing, Buyer will
deliver to Seller or the Escrow Agent, as the case may be:
(a) the Closing Payment to Seller;
(b) the Escrow Fund to the Escrow Agent;
(c) the Escrow Agreement, executed by Buyer;
(d) the Liabilities Undertaking, executed by
Buyer;
(e) the legal opinion of Golenbock, Eiseman, Assor
& Bell in the form of Exhibit 4.3(e) hereto, executed by
Golenbock, Eiseman, Assor & Bell;
(f) a certificate of good standing of Buyer,
issued as of a recent date by the Secretary of State of the State
of Delaware;
(g) a certificate of the Secretary or an Assistant
Secretary of Buyer, dated the Closing Date, in form and substance
reasonably satisfactory to Seller, as to (i) the resolutions of
the Board of Directors of Buyer authorizing the execution delivery
and performance of this Agreement and each exhibit hereto to which
it is a party and the consummation of the transactions
contemplated herein and therein; and (ii) the incumbency and
signatures of the officers of Buyer executing this Agreement and
each exhibit hereto to which it is a party; and
(h) all other documents required by the terms of
this Agreement to be delivered to Seller at the Closing under or
to effect the provisions of this Agreement.
4.4 Further Assurances. At any time and from time to
time after the Closing, at Buyer's request, and without further
consideration therefor, Seller will execute and deliver such other
instruments of sale, transfer, conveyance, assignment and
confirmation as Buyer may reasonably deem necessary in order more
effectively to transfer, convey and assign to Buyer, and to
confirm Buyer's title to, all of the Purchased Assets, whether
tangible or intangible, to put Buyer in actual possession and
operating control thereof, and to assist Buyer in exercising all
rights with respect thereto. Buyer and Seller hereby agree to
cooperate to effectively transfer the Business to Buyer.
4.5 Conditions Precedent of Buyer. The obligations of
Buyer under this Agreement to proceed with the purchase and other
transactions contemplated hereby, are, at the option of Buyer in
its sole discretion, subject to the fulfillment of all of the
following conditions at or prior to the Closing, and Seller shall
use its best efforts to cause each such condition to be fulfilled:
(a) No Litigation. No action, suit, proceeding or
investigation shall have been instituted against Buyer or Seller
and be continuing before or by any court, tribunal or governmental
body or agency or have been threatened, and be unresolved, to
restrain or prevent, or to obtain substantial damages by reason
of, any of the transactions contemplated hereby;
(b) Representations. The representations and
warranties of Seller contained in this Agreement, and any
Schedules hereto and any certificate or documents delivered in
accordance with this Agreement shall be true and correct at the
time of the Closing with the same force and effect as though such
representations and warranties were made at that time except for
changes expressly permitted by this Agreement;
(c) Performance of Covenants. Each covenant,
agreement and obligation required by the terms of this Agreement
to be complied with and performed by Seller at or prior to the
Closing shall have been duly and properly complied with and
performed;
(d) No Material Adverse Change. Since the date of
this Agreement, there shall not have occurred any material adverse
change in the condition (financial or otherwise), business,
properties, assets, liabilities, prospects or results of Seller or
the Business, or in the value or utilizability of the Purchased
Assets to Buyer, except for such change caused by Buyer in
connection with its operation of the Business following the date
hereof (it being acknowledged by Buyer that the continued
deterioration in Seller's working capital position consistent
with
recent months, absent any other adverse change or occurrence not
contemplated by this Agreement, shall not constitute a material
adverse change for purposes of this Section 4.5(d);
(e) Assignment of IBM Agreement; No Cancellation.
All consents necessary to the assignment of the IBM Agreement
shall have been obtained by Seller, and there shall have been
delivered to Buyer an executed counterpart reasonably satisfactory
in form and substance to Buyer and its counsel of such consent and
IBM shall not have notified Seller or Buyer of its intent to
terminate the IBM Agreement;
(f) Consents. All consents necessary to the
assignment of the Assumed Contracts shall have been obtained by
Seller, and there shall have been delivered to Buyer executed
counterparts reasonably satisfactory in form and substance to
Buyer and its counsel, of all such consents;
(g) Shareholder Authorization. This Agreement and
each exhibit hereto to which Seller is a party shall have been
duly authorized, and the consummation of the transactions
contemplated hereby and thereby shall have been duly approved, by
written consent or affirmative vote of the requisite holders of
shares of capital stock of Seller entitled to vote thereon and by
the written consent or affirmative vote of the requisite holders
of the shares of each class and series of capital stock of Seller
entitled to vote thereon, as required by the New York Business
Corporation Law, as amended (the "NYBCL"), the Certificate of
Incorporation of Seller and all applicable federal and state
securities laws ("Shareholder Authorization");
(h) Certificate. There shall have been delivered
to Buyer a certificate executed by the President of Seller, dated
the date of the Closing, certifying that the conditions set forth
in subsections (a) through (f) of this Section 4.5 have been fulfilled;
(i) Certain Agreements. Each other document,
instrument and agreement contemplated by Section 4.2 shall have
been executed and delivered by each party thereto other than
Buyer; and
(j) Opinion of Counsel. Buyer shall have received
the Closing Legal Opinion, in form and substance reasonably
satisfactory to Buyer.
4.6 Conditions Precedent of Seller. The obligations of
Seller under this Agreement to proceed with the sale contemplated
hereby and to proceed with the other transactions contemplated
hereby, are, at the option of Seller in its sole discretion,
subject to the fulfillment of all of the following conditions at
or prior to the Closing, and Buyer shall use its best efforts to
cause each such condition to be fulfilled:
(a) No Litigation. No action, suit, proceeding or
investigation shall have been instituted against Buyer or Seller
and be continuing before or by any court, tribunal or governmental
body or agency or have been threatened, and be unresolved, to
restrain or prevent, or to obtain substantial damages by reason
of, any of the transactions contemplated hereby;
(b) Representations. The representations and
warranties of Buyer contained in this Agreement or any
certificates or documents delivered in accordance with this
Agreement shall be true and correct at the time of the Closing
with the same force and effect as though such representations and
warranties were made at that time except for changes expressly
permitted by this Agreement;
(c) Performance of Covenants. Each covenant,
agreement and obligation required by the terms of this Agreement
to be complied with and performed by Buyer at or prior to the
Closing, shall have been duly and properly complied with and
performed;
(d) Certificate. There shall have been delivered
to Seller a certificate executed by an officer of Buyer, dated the
date of the Closing, certifying that the conditions set forth in
subsections (a), (b) and (c) of this Section 4.6 have been
fulfilled;
(e) Certain Agreements. Each other document,
instrument and agreement contemplated by Section 4.3 shall have
been executed and delivered by each party thereto other than
Seller; and
(f) Shareholder Authorization. Shareholder
Authorization shall have been obtained.
5
Representations and Warranties of Seller.
Seller hereby represents and warrants to Buyer as follows:
5.1 Organization, Standing and Qualification;
Subsidiaries. (a) Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State
of New York and has all requisite power and authority and is
entitled to own, lease and operate its properties and to carry on
its business as and in the places such properties are now owned,
leased or operated and where such business is presently conducted.
Seller is qualified to do business and is in good standing in
each state or jurisdiction listed in Schedule 5.1 of the
Disclosure Schedule delivered by Seller in connection and
concurrently with the execution and delivery of this Agreement
(the "Disclosure Schedule"), which states constitute all states in
which the failure to be so qualified could have a material adverse
effect on the condition (financial or otherwise), business,
properties, assets, liabilities, prospects or results of the
operations of Seller. The copies of the Certificate of
Incorporation and By-Laws of Seller delivered by Seller to Buyer
are complete and correct.
(a) No part or aspect of the Business has been
conducted through any direct or indirect subsidiary or any direct
or indirect affiliate of Seller.
5.2 Authority; Options. (a) Seller has all requisite
power and authority to enter into this Agreement, and each other
agreement, document and instrument to be executed or delivered by
it in accordance with this Agreement, including, without
limitation, the License Agreement, the Bill of Sale, the
Proprietary Rights Assignments and the Contract Assignments (the
"Seller Documents"), and to carry out the transactions
contemplated hereby and thereby. The execution, delivery and
performance of this Agreement and the Seller Documents by Seller
have been duly authorized and approved by its board of directors
and, except for Shareholder Authorization (as hereinafter
defined), no other corporate proceedings on the part of Seller are
necessary to authorize this Agreement, the Seller Documents and
the transactions contemplated hereby and thereby, provided,
however, that the consent or approval by the shareholders of
Seller is not required for Seller to enter into the License
Agreement in order to have such agreement be a legal, valid and
binding obligation of Seller enforceable in accordance with its
terms. This Agreement has been duly authorized, executed and
delivered by Seller and is the legal, valid and binding obligation
of Seller enforceable in accordance with its terms, and each of
the Seller Documents has been duly authorized by Seller and is, or
upon execution and delivery by Seller of any thereof at the
Closing will be, a legal, valid and binding obligation of Seller
enforceable in accordance with its terms.
(a) Except as set forth on Schedule 5.2(b) of the
Disclosure Schedule, there are no outstanding subscriptions,
options, warrants, calls, puts, contracts, demands, commitments,
convertible securities or other agreements or arrangements of any
character or nature whatever under which Seller or any shareholder
or trustee thereof or holder of a beneficial interest therein is
or may become obligated to issue, assign, purchase, acquire or
transfer, (i) shares of the capital stock or securities of, or
beneficial interest or equity interests in, Seller, or (ii) any of
the Purchased Assets (except for non-exclusive licenses entered
into in the ordinary course of business on customary terms and
conditions).
5.3 No Violation. Except as required under the NYBCL
and the Securities Exchange Act of 1934, as amended (the "1934
Act"), and except as set forth in Schedule 5.3 of the Disclosure
Schedule, neither the execution or delivery of this Agreement, nor
the consummation of the transactions contemplated herein, will
with or without the giving of notice or the lapse of time or both
(a) violate or conflict with any provision of Seller's Certificate
of Incorporation or Bylaws, as each may have been amended, (b)
result in (i) a breach of, or violate, or be in conflict with or
constitute a default under, or result in the termination or
cancellation of, or accelerate the performance required under, any
security instrument, mortgage, note, debenture, indenture, loan,
lease, contract, agreement or other instrument, to which Seller is
a party or by which it or any of its properties or assets are
bound, or (ii) the loss or adverse modification of any lease,
franchise, license or other contractual right or other
authorization granted to or otherwise held by Seller or with
respect to the Purchased Assets, (c) require the consent of any
party to any such agreement or commitment to which Seller is a
party or by which any of its properties or assets are bound, (d)
result in the creation or imposition of any Lien upon any property
or assets of Seller, (e) require any consent, approval,
authorization, order, filing, registration or qualification of or
with any court or governmental authority or arbitrator to which
Seller is subject or by which any of its properties or assets may
be bound or affected.
5.4 Financial Statements. Seller has delivered to
Buyer copies of the audited and unaudited financial statements of
Seller listed on Schedule 5.4 of the Disclosure Schedule (the
"Financial Statements"), including without limitation, the audited
balance sheet of Seller as at March 31, 1996 (the "Balance Sheet")
and the unaudited balance sheet and income statement of Seller for
the quarter ended March 31, 1997. All of the Financial Statements
are complete and correct, have been prepared from the books and
records of Seller in accordance with generally accepted accounting
principles consistently applied and maintained throughout the
periods indicated and fairly present the financial condition of
Seller as at their respective dates and the results of operations
of Seller for the periods covered thereby. Such Financial
Statements do not contain any items of special or nonrecurring
income or any other income not earned in the ordinary course of
business except as expressly specified therein, and include all
adjustments, which consist only of normal recurring accruals,
necessary for such fair presentation.
5.5 Absence of Undisclosed Liabilities. Except as and
to the extent reflected or reserved against on the face of the
Balance Sheet (including the notes thereto), or set forth on
Schedule 5.5 of the Disclosure Schedule, as of the Balance Sheet
Date, Seller had no material debts, liabilities or obligations
(whether absolute, accrued, contingent or otherwise) relating to
or arising out of any act, transaction, circumstance or state of
facts which occurred or existed on or before March 31, 1996 (the
"Balance Sheet Date"), whether or not then known, due or payable.
5.6 Absence of Changes or Events. Except as set forth
on Schedule 5.6 of the Disclosure Schedule, since the Balance
Sheet Date Seller has conducted its business only in the ordinary
course in a manner consistent with past practices. Without
limiting the foregoing, since such date, Seller has not:
(a) incurred any obligation or liability,
absolute, accrued, contingent or otherwise, whether due or to
become due, except current liabilities for trade or business
obligations incurred in the ordinary course of business and
consistent with its prior practice, none of which liabilities, in
any case or in the aggregate, materially and adversely affects the
condition (financial or otherwise), prospects or results of
operations of Seller or the Business or the Purchased Assets;
(b) mortgaged, pledged or subjected to any Lien
any of its property, business or assets, tangible or
intangible;
(c) sold, transferred, leased to others or
otherwise disposed of any assets used in or necessary to conduct
the Business, or licensed any of the Programs, or canceled or
compromised any material debt or claim, or waived or released any
right of substantial value of or relating to the Purchased Assets
and/or the Business;
(d) received any notice of actual or threatened
termination of any contract, lease or other agreement or other
business relationship or suffered any damage, destruction or loss
(whether or not covered by insurance) which, in any case or in the
aggregate, has had or could have a materially adverse effect on
the condition (financial or otherwise), prospects or results of
operations of Seller or of or on the Business or the Purchased
Assets;
(e) encountered any labor union organizing
activity, had any actual or threatened employee strikes, work-
stoppages, slow downs or lockouts, or had any material change in
its relations with its employees, agents, customers or suppliers
or any governmental regulatory authority or self-regulatory
authorities;
(f) made any capital expenditures or capital
additions or betterment in excess of an aggregate of $250,000;
(g) transferred or granted any rights under, or
entered into any settlement regarding the breach or infringement
of, any license, patent, copyright, trademark, trade name, service
mark or other Proprietary Rights, or modified any then existing
rights with respect thereto of or relating to the Purchased Assets
and/or the Business;
(h) instituted, settled or agreed to settle any
litigation, action or proceeding before any court or governmental
body relating to Seller or any of its assets, properties or rights;
(i) suffered any damage, destruction, loss,
change, event or condition which, in any case or in the aggregate,
has had or may have a material adverse effect on the condition
(financial or otherwise), prospects or results of operations of
Seller or of or on the Business or the Purchased Assets,
including, without limitation, any change in revenues, costs,
levels or types of warranty or defective product claims, or
relations with employees, landlords, agents, customers or
suppliers;
(j) entered into any transaction, contract or
commitment other than in the ordinary course of business, or paid
or agreed to pay any brokerage, finder's fee, or other
compensation in connection with, or incurred any severance pay
obligations or "break-up" fee obligations by reason of, this
Agreement or the transactions contemplated hereby;
(k) received any notice from any customer or
supplier that it, nor has knowledge that any customer or supplier,
intends to cease doing business with Seller, which, in any case,
has had or could have a material adverse effect on the condition
(financial or otherwise), prospects or results of operations of
Seller or of or on the Business or the Purchased Assets;
(l) made any purchase commitment in excess of the
normal, ordinary and usual requirements of the Business or made
any material change in its selling, pricing, advertising or
personnel practices inconsistent with Seller's prior practice
relating to the Business; or
(m) entered into any agreement or made any
commitment to take any of the types of actions described in any of
subsections (a) through (m) above.
5.7 Title to and Condition of Purchased Assets; Leases.
(a) Seller does not own any real property. Except for the
assets subject to Personal Property Leases (as hereinafter
defined), Seller has good and marketable title to all of the
Purchased Assets which it owns or uses in the Business or purports
to own. Except as set forth in Schedule 5.7(a) of the Disclosure
Schedule, none of the Purchased Assets are subject to any Lien of
any nature whatsoever, direct or indirect, whether accrued,
absolute, contingent or otherwise.
(a) All of the tangible Purchased Assets are in
good operating condition and repair, are suitable for the purposes
used and are adequate and sufficient for the operation of the
Business. Seller enjoys peaceful possession of all leasehold
interests and personal property constituting any part of the
Purchased Assets and held under lease or license.
(b) The Purchased Assets constitute all of the
assets, properties, and rights necessary to conduct the Business
as presently conducted (other than an office, office supplies and
telephones). None of the Excluded Assets are assets, properties
or rights necessary to conduct the Business as presently
conducted. The Subsidiary Businesses do not compete or conflict
with the Business.
(c) Seller has delivered to Buyer true and
complete copies of each of the Contracts prior to the execution of
this Agreement. To the best of Seller's knowledge, all of the
Contracts are in full force and effect with respect to Seller in
accordance with their terms and there is no violation or default
under the Contracts and to the best of Seller's knowledge no event
has occurred or circumstance exists which with notice or lapse of
time or both would constitute an event of default, or give rise to
a right of termination or cancellation, or result in the loss or
adverse modification of any right or benefit thereunder. No party
to any Contract has given Seller written notice of or made a claim
with respect to, and Seller is not otherwise aware of, any
material breach or default under any thereof. To the best of
Seller's knowledge, Seller enjoys peaceful possession and quiet
enjoyment of the Purchased Assets, tangible and intangible, held
under license; and all such licenses are in good standing, in full
force and effect and are valid, binding and enforceable
obligations of Seller, and to the best of Seller's knowledge, of
the licensors thereunder. None of the Contracts impose any
obligation on Seller other than to provide service in the ordinary
course. Except as set forth on Schedule 5.7(d) to the Disclosure
Schedule, there have been no oral or written modifications to the
terms or provisions of any of the Contracts. No amount payable or
reserved under any Contract has been assigned or anticipated and
no amount payable under any Contract is in arrears or has been
collected in advance and to the best of Seller's knowledge, there
exists no offset or defense to payment of any amount under a
Contract.
5.8 Proprietary Rights. (a) Seller owns or possesses
the perpetual and royalty-free licenses and other rights to use
all Proprietary Rights used in or necessary to conduct the
Business as it is presently operated, including, without
limitation, any necessary to develop, market, license and support
the Programs, all of which are in good standing and uncontested
and free and clear of any Liens and rights of others of any kind.
No Proprietary Rights are owned or licensed or held by any
shareholder, director, officer, consultant or employee of Seller,
or by any entity controlled by or affiliated with Seller or by any
of such persons, including, without limitation, Management
Technologies, Inc., Lancer Holdings, Inc., or Midland Associates,
all such Proprietary Rights being owned or licensed by Seller
itself. Except as set forth on Schedule 5.8(a) of the Disclosure
Schedule, to the best of Seller's knowledge, Seller is not
infringing upon or otherwise acting adversely to any copyrights,
trademarks, trademark rights, service marks, service names,
trade names, patents, patent applications, licenses or trade
secrets or other proprietary rights or intellectual property of any
other person or entity. No claim, suit, demand, proceeding or
investigation is pending, has been asserted or is threatened
by or against Seller with respect to, based on or alleging
infringement of any such rights or the proprietary rights or intellectual
property of any third party, or challenging the validity or
effectiveness of any license for such rights, and Seller knows of
no basis for any such claim, suit, demand, proceeding or investigation.
(a) Seller has the exclusive right to manufacture,
develop, publish, market, license and sell the Programs. Except
as set forth on Schedule 5.8(b)(i) of the Disclosure Schedule, no
person or entity other than Seller may manufacture, develop,
publish, market, license or sell all or any part of the Programs
without the prior consent of Seller (in Seller's sole discretion)
and Seller has not given any such consent and Seller owns all
right, title and interest in and to the Programs and the exclusive
right to apply for copyright and patent protection therefor. To
the best of Seller's knowledge, no director, officer, employee or
independent contract of Seller has in his or her personal
possession outside the offices of Seller, for safekeeping,
convenience of work or otherwise, any proprietary material of
Seller. None of the individuals or entities who have performed
services in connection with the development of any of the
Programs, as employees or as independent contractors, or any other
employee of Seller, holds any proprietary or other ownership
rights with respect to such Programs and each of such employees
and independent contractors has signed an employment contract or
confidentiality agreement with Seller in the form annexed to
Schedule 5.8(b)(ii) of the Disclosure Schedule, which contains a
covenant prohibiting the use or disclosure of confidential
information and proprietary rights.
(b) Except for commercially available off-the-
shelf software and software which is otherwise available in the
public domain, and except for the software used solely in
connection with the Subsidiary Businesses, Schedule 5.8(c)(i) of
the Disclosure Schedule contains a true and complete list of all
software licensed to, owned, developed, or published by Seller,
including, without limitation, the Programs, as well as a
description of any instructions or sequences of instructions, in
whatever form embodied, which are included in any of the Programs
and which requires the consent (whether subject to royalty or
otherwise) of a party other than Seller in order for any of
the Programs to be sold, transferred, used, licensed, updated,
enhanced or modified or integrated with other software by Seller,
Buyer or any other party together with true and correct copies of
all contracts between or among a Seller, on the one hand, and such
authors or licensors, on the other hand. There has been no
publication or public distribution of any of the Source Code of
any of the Programs that would in any way affect the right of
Seller or Buyer to seek copyright protection for such Programs.
With respect to the Contracts pertaining to Programs entered into
by Seller, Seller has licensed the Programs and not sold them,
thus retaining ownership of the underlying software, and has not
granted any exclusive licenses in respect thereof. Seller is not
aware of any claims actually or purporting to be within the scope
of any warranty coverage, express or implied, afforded to licensees of any
Programs or of any errors, omissions or
failures to perform. There are no bugs in the Programs reasonably
detectable with normal use of the Programs except as set forth in
Schedule 5.8(c)(ii) of the Disclosure Schedule, all of which can
be corrected by Buyer without unreasonable effort or expense.
(c) Seller is not a party to or bound by any oral
or written contract or understanding relating to or which might
interfere with the full exploitation of any rights or property
being transferred to Buyer under this Agreement or which restricts
its right to enter into this Agreement or to perform in accordance
herewith. Seller has not entered into any agreements not conveyed
herein to Buyer which involves the publication, development,
manufacture or marketing of any computer software in substantial
competition with any of the Programs; and has not entered into any
transactions with respect to any assets, liabilities or business
operations referred to or contemplated by this Agreement with any
party other than Buyer, except in the ordinary course of business.
Except as set forth on Schedule 5.8(d) of the Disclosure
Schedule, no part of any of the Proprietary Rights, including,
without limitation, any source code, is subject to or held in
escrow or is in any third party's possession.
5.9 Litigation. (a) Except as set forth on Schedule
5.9(a) of the Disclosure Schedule, there is no action, suit,
proceeding, arbitration or investigation pending against, asserted
by, or affecting Seller or the transactions contemplated by this
Agreement, nor to the best of the knowledge of Seller, any basis
therefor or threat thereof which, in any case or in the aggregate,
could if adversely determined have a material adverse effect on
the business, assets, liabilities, operations or financial
condition of Seller, the Business or the Purchased Assets or the
use thereof by Buyer. Neither Seller nor any of its subsidiaries
is subject to any court or administrative order, writ, injunction
or decree, applicable to it or to its business, property or
employees, nor is it in default with respect to any order, writ,
injunction or decree, of any court or federal, state, municipal or
other governmental department, commission, board, agency or
instrumentality, domestic or foreign.
(a) Schedule 5.9(b) of the Disclosure Schedule
sets forth a complete list and description of all defective
product or service warranty and/or third party liability claims,
made against Seller during the past three years, together with the
resolution thereof (whether under insurance policies or otherwise).
5.10 Compliance; Permits. (a) Neither Seller, nor any
officer or director thereof has violated any law, rule,
regulation, order, judgment or decree applicable to Seller, any of
its employees, any of the Purchased Assets and/or any aspect of
the Business, including without limitation, any laws, rules,
regulations, ordinances, codes, orders, judgments or decrees as to
zoning, building requirements or standards, import, export,
environmental, health and/or safety matters, which violation could
have a material adverse effect on the condition (financial or
otherwise), business, properties, assets, liabilities, prospects
or results of the operations of Seller, the Purchased Assets or
the Business. Seller has all licenses, consents, certificates,
franchises, permits, and authorizations issued by any department,
board, commission, bureau or instrumentality ("Governmental
Licenses") necessary to conduct the Business in the manner that it
is currently conducted by it, and none of operations of Seller are
being conducted in any manner which violates in any material
respect any of the terms of conditions under which such
Governmental License was granted. Each Governmental License has
been duly obtained, is valid and in full force and effect, and is
not subject to any pending or, to the knowledge of Seller,
threatened administrative or judicial proceeding to revoke, cancel
or declare such Governmental License invalid in any respect. No
Governmental Licenses by their terms will terminate or lapse by
reason of the transaction contemplated by this Agreement.
5.11 Absence of Certain Business Practices. Neither
Seller nor any officer, employee or agent of Seller, nor any other
person acting on its behalf, has, directly or indirectly, within
the past five years given or agreed to give any gift or similar
benefit to any customer, supplier, governmental employee or other
person who is or may be in a position to help or hinder the
business of Seller (or assist Seller in connection with any actual
or proposed transaction) which (a) might subject Seller to any
damage or penalty in any civil, criminal or governmental
litigation or proceeding, (b) if not given in the past, might have
had an adverse effect on the assets, business or operations of
Seller or the Business, or (c) if not continued in the future,
might adversely affect Seller's assets, business, operations or
prospects or the Business or which might subject Seller to suit or
penalty in any private or governmental litigation or proceeding.
5.12 Schedules. Schedule 5.12 of the Disclosure
Schedule hereto contains a true, complete and accurate list and
description of the following:
(a) all real property in which Seller has an
ownership, leasehold or other interest or which is used by Seller
in connection with the conduct of its business (the "Properties");
(b) all material items of hardware and other
equipment, owned, leased or used by Seller in the Business, and
setting forth with respect to all such listed property a summary
description of all leases relating thereto, identifying the
parties thereto, the rental or other payment terms, expiration
date and cancellation and renewal terms thereof (the "Personal
Property Leases");
(c) all sales, agency, supply, purchase,
distribution, OEM, VAR, dealer, advertising, promotional, support,
maintenance, outsourcing, manufacture and fulfillment agreements
or franchises, and agreements for software acquisition,
development agreements, author agreements and publishing
agreements of or relating to the Purchased Assets or the Business,
and all agreements providing for the services of an independent
contractor to which Seller is a party or by which it is bound and
which relate to any of the Purchased Assets or the conduct of the
Business, including, without limitation, a true and complete
itemized description of all contracts between Seller and software
developers, licensors and authors or pursuant to which any royalty
or similar payment shall be payable;
(d) all contracts, agreements, commitments,
purchase orders, leases, licenses or other understandings or
arrangements to which Seller is a party or by which it or any of
its property is bound or affected, relating to the Business,
except for (i) those listed on Schedule 5.12(c) of the Disclosure
Schedule (ii) entered into in the ordinary course of business that
are terminable by Seller on less than 30 days' notice without any
penalty or consideration, and (iii) involve payments or receipts
during the entire life of such contracts by Seller of less than
$2,000 in the case of any single contract but not more than
$10,000 in the aggregate;
(e) all guarantees, loan agreements, indentures,
mortgages and pledges, all conditional sale or title retention
agreements, security agreements, equipment obligations, leases or
lease purchase agreements as to items of personal property
(excluding equipment obligations, leases or lease purchase
agreements not relating to the Purchased Assets), in each case to
which Seller is a party or by which it is bound or under which it
has rights;
(f) all employment and consulting agreements,
including, without limitation, obligations for severance,
reemployment assistance, termination, deferred compensation, or
vacation pay, to which Seller is a party or by which it is bound;
(g) as of a date no earlier than May 9, 1997, all
of Seller's accounts receivables relating to or arising out of the
Business, together with information as to each such listed
receivable which has been outstanding for more than 30 days;
(h) as of a date no earlier than May 9, 1997, all
of Seller's accounts payable relating to or arising out of the
Business;
True and complete copies of all contracts,
agreements, plans, arrangements, commitments and documents
required to be listed or identified pursuant to this Section 5.12
(to the extent in writing or if not in writing, an accurate
summary thereof), together with any and all amendments thereto,
have either been delivered to Buyer or attached to Schedule 5.12
of the Disclosure Schedule.
Except as set forth on Schedule 5.12 of the
Disclosure Schedule, all of the contracts and agreements required
to be listed or identified pursuant to this Section 5.12 (other
than those which have been fully performed) are legal, valid,
binding and enforceable in accordance with their respective terms,
in full force and effect, do not require the consent or approval
of any party to the assignment thereof and will be unaffected by
the sale or other transfer of the Purchased Assets to Buyer
hereunder, and Buyer will be entitled to the full benefits
thereof, and none of such contracts and agreements is with a
governmental agency or authority. To the best of the knowledge of
Seller, there is not under any contract or agreement required to
be listed or identified pursuant to this Section 5.12 any existing
default or event which, after notice or lapse of time, or both,
would constitute a default or result in a right to accelerate or
loss of rights. There have been no oral or written modifications
to the terms or provisions of any of such agreements. No amount
payable or reserved under any such agreement has been assigned or
anticipated and no amount payable under any such agreement is in
arrears or has been collected in advance and to the best of the
knowledge of Seller, there exists no offset or defense to payment
of any amount under such an agreement.
5.13 Taxes. Seller has paid or made adequate provision
for the payment of all taxes, fees, assessments and charges,
including, without limitation, income, property, sales, use,
franchise, added value, employees' income withholding and social
security taxes, imposed by the United States or by any foreign
country, or by any state, municipality or instrumentality of any
of same or by any other taxing authority, and for all penalties
and interest thereon, which has or may become due for or during
all periods ending, and in respect of all operations, on or prior
to the Closing Date. All tax returns required to be filed in
connection therewith have been accurately prepared and filed and
all deposits required by law to be made by Seller with respect
thereto have been duly made. Seller is not a party to any pending
action, proceeding or audit by any governmental authority for
assessment or collection of any amount of taxes for which it may
be directly or indirectly liable, and there is no claim for
assessment or collection of any amount of taxes for which it may
be directly or indirectly liable.
5.14 Employee Benefits; Labor Matters. (a) All
pension, retirement, profit-sharing, deferred compensation, bonus,
incentive, medical, vision, dental and other health insurance,
life insurance or any other employees benefit plan, arrangement or
understanding and any trusts or insurance contracts maintained in
connection therewith (collectively, "Benefit Plans"), conform to,
and the administration thereof is in material compliance with, all
applicable laws and regulations, including, without limitation,
the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), the Internal Revenue Code of 1986, as amended (the
"Code"), and comparable foreign laws, rules and regulations, and
neither the operation or administration of any such Benefit Plan,
nor the transactions contemplated by this Agreement will result in
any liability to Seller or Buyer under or in respect of any of
such Benefit Plans, in Buyer incurring or suffering any liability,
or have any adverse effect on the financial condition, assets
liabilities or results of operations of Seller, Buyer or the
Business. All contributions required, by law or by contract, to
be made to any Benefit Plans subject to ERISA or any foreign law
for any plan year, or other period on the basis of which
contributions are required, ending before the date hereof, have
been made as of the date hereof. Seller has complied in all
material respects with all reporting and disclosure requirements
with respect to each Benefit Plan. No such Benefit Plan
(including any trust created thereunder), nor any trustee or
administrator thereof, has engaged in any transaction prohibited
by ERISA or any foreign law, or by Section 4975 of the Code, which
could subject Seller, or such Plan to any penalty imposed under
ERISA or any foreign law or to any tax imposed by Section 4975 of
the Code or any foreign law or, if any such transaction has
occurred, it has been corrected within the meaning of Section 4975
of the Code or such foreign law, and all applicable taxes and
penalties with respect thereto have been paid. No "reportable
event" as that term is defined in ERISA has occurred with respect
to any of the Benefit Plans. No liability to the Pension Benefit
Guaranty Corporation or comparable foreign authority has been or
is expected to be incurred with respect to any of such Benefit
Plans. Seller does not participate, maintain or contribute to (or
within the preceding three years participated, maintained or
contributed to) and has no liability or obligation under or with
respect to any multi-employer plan governed by or subject to ERISA
or any foreign law, nor has it participated, maintained,
contributed or incurred any liability in respect of any thereof
within the last three fiscal years. Seller has no liability or
obligation with respect to any Benefit Plan or trust related
thereto that may have been terminated prior to the date
hereof.
(a) Seller has complied in all material respects
with all applicable laws, rules and regulations relating to the
employment of labor, including those relating to hiring, wages,
hours, collective bargaining and the payment and withholding of
taxes, and has withheld all amounts required by law, regulation or
agreement to be withheld from the wages or salaries of its
employees and is not liable for any arrears of wages or any taxes
or penalties for failure to comply with any of the foregoing.
Seller has not engaged in any unfair labor practice, and there is
no unfair labor practice, sexual harassment or other employment-
related complaint pending, or, to the knowledge of Seller,
threatened against Seller or any officer, director or employee
thereof. There do not exist any pending workmen's compensation
claims against Seller that are not adequately provided for by
insurance, or any pending or, to the knowledge of Seller,
threatened claims that the workplace of Seller is unsafe or that
Seller has engaged in unfair labor practices, employment
discrimination or wrongful discharge. No union, trade, guild or
collective bargaining unit represents any employees of Seller, and
no union organizing or election activities involving any non-union
employees of Seller is now in progress or, to the best of Seller's
knowledge, threatened.
5.15 Accounts Receivables. All Receivables
constituting any part of the Purchased Assets have arisen only
from bona fide transactions in the ordinary course of business and
are collectible in accordance with their terms.
5.16 Environmental Matters. (a) As a result of
Seller's action or inaction, and to the best knowledge of Seller,
no Hazardous Substance (as hereinafter defined) is present or at
any time has been stored, treated, recycled, released, disposed of
or discharged on, about, from or affecting the Properties in any
material amounts, and Seller has no liability or potential
liability which is based upon or related to the environmental
conditions under or about the Properties.
(a) Neither Seller nor, to the knowledge of
Seller, any prior or current owner, tenant or occupant of any of
Properties, has received (i) any notification or advice from or
given any report or notice to any governmental agency or authority
involving the use, handling, transport, presence, spill, escape,
leakage, release, remediation or clean-up of any Hazardous
Substance on or about any of the Properties or caused by Seller or
any affiliate of Seller or (ii) any complaint, order, citation or
notice with regard to any emission, discharge, storage or
disposal, any Hazardous Substance or any other environmental,
health or safety matter affecting any of the Properties, or any
property or location at any time occupied or used by any Seller,
under any other federal, state or local law, ordinance, rule or
regulation.
(b) To the best of Seller's knowledge, there are
no fuel or gasoline storage tanks presently in use or at any time
abandoned in, on or under any of the Properties. None of the
Properties contains any asbestos or asbestos-containing materials.
(c) The term "Hazardous Substance" as used in this
Agreement shall include, without limitation, gasoline, oil and
other petroleum products, explosives, radioactive materials and
related and similar materials, and any other substance or material
defined as a hazardous, toxic or polluting substance or material
by any federal, state or local law, ordinance, rule or regulation,
including asbestos and asbestos-containing materials, PCBs and
urea formaldehyde foam insulation.
5.17 SEC Filings. Seller has filed with the Securities
and Exchange Commission (the "SEC") all notices, prospectuses,
offering statements and registration statements required to be
filed in connection with the offer or sale of securities by Seller
under the Securities Act of 1933, as amended (the "Securities
Act"), and the rules and regulations promulgated thereunder. All
such notices, prospectuses, offering statements and registration
statements comply in all material respects with the requirements
of the Securities Act, and the rules and regulations promulgated
thereunder, and such notices, prospectuses, offering statements
and registration statements at the date of filing thereof with the
SEC did not contain an untrue statement of any material fact or
omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading
in light of the circumstances under which they were made. In
addition, Seller has filed with the SEC all reports and proxy
statements required to be filed by Seller under the 1934 Act, and
the rules and regulations promulgated thereunder, and such reports
and proxy statements at the date of filing thereof with the SEC
did not contain an untrue statement of any material fact nor omit
to state any material fact required to be stated therein or
necessary to make the statements therein not misleading in light
of the circumstances under which they were made. Seller has
delivered to Buyer copies of (i) all notices, prospectuses,
offering statements and registration statements filed with the SEC
by Seller under the Securities Act since August 11, 1995; and (ii)
all reports and definitive proxy statements filed with the SEC by
Seller under the 1934 Act since such date.
5.18 Information Statement. (a) The information
statement and related materials (collectively, the "Information
Statement") to be prepared by Seller in accordance with Section
7.7 and used in connection with Seller's Special Meeting of
Shareholders described in Section 7.8, relating to the
authorization of this Agreement, the sale of the Purchased Assets
and other transactions contemplated hereby (the "Special Meeting")
will, when prepared by Seller and distributed to the shareholders,
comply in all material respects with the provisions of the NYBCL
and the 1934 Act and the rules and regulations promulgated
thereunder and will not, at the time of the mailing of the
Information Statement to the holders of capital stock of Seller
(the "Shareholders") or at the Closing Date, contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which
they are made, not misleading; provided, that Seller makes no
representation with respect to information concerning Buyer
supplied by Buyer to Seller for inclusion in the Information
Statement. The manner and conduct of the Special Meeting by
Seller shall comply in all material respects with the provisions
of the NYBCL and the 1934 Act and the rules and regulations
promulgated thereunder.
(a) Set forth on Schedule 5.18 to the Disclosure
Schedule is a list of not more than ten (10) persons (within the
meaning of Rule 14a-2(b)(2) promulgated under the 1934 Act),
specifying the number of shares of Common Stock or Preferred Stock
of Seller owned or believed by Seller to be controlled by each
such person and the percentage ownership of each such person based
on the number of shares entitled to be voted at the Special
Meeting. Such persons are the owners of or control the vote of
greater than two-thirds of the shares of capital stock of Seller
entitled to vote at the Special Meeting and also the requisite
number of shares of each class and series of capital stock of
Seller entitled to vote thereat and have duly and validly approved
at the Special Meeting the matters covered by the Information
Statement, as required by the NYBCL, the Certificate of
Incorporation of Seller and all applicable federal and state
securities laws.
5.19 Customers and Suppliers. Set forth in Schedule
5.19 of the Disclosure Schedule is a list of the names and
addresses of the seven (7) largest customers and the ten (10)
largest suppliers (measured by dollar volume of purchases or sales
in each case) of the Business and the percentage of the business
of the Business which each such customer or supplier represented
during each of the years ended March 31, 1997 and 1996. Except as
set forth in Schedule 5.19 of the Disclosure Schedule, there
exists no actual or threatened termination, cancellation or
limitation of, or any modification or change in, the business
relationship of Seller with any supplier or customer listed such
Schedule 5.19.
5.20 Solvency. On the date hereof, the present fair
saleable value of the assets of Seller, on a going-concern basis,
exceeds the amount that will be required to be paid on or in
respect of its existing debts and other liabilities (including
contingent liabilities) as they mature. After giving effect
to the transactions contemplated hereby, Seller will have sufficient
capital for it to carry on its business as proposed to be
conducted, including its existing capital needs.
5.21 Disclosure. No representation or warranty by
Seller contained in this Agreement nor any written statement or
certificate furnished or to be furnished by or on behalf of Seller
to Buyer in connection herewith contains or will contain any
untrue statement of a material fact, or omits or will omit to
state any material fact required to make the statements herein or
therein contained, under the circumstances under which made, not
misleading or necessary in order to provide a prospective
purchaser of the Purchased Assets with adequate information as to
the operations of Seller, the Business and the Purchased Assets
and Seller has disclosed to Buyer in writing all material adverse
facts known to it relating to the same. The representations and
warranties contained in this Agreement or any document delivered
in connection with this Agreement shall not be affected or deemed
waived by reason of the fact that Buyer and/or any of its
representatives knew or should have known that any such
representation or warranty is or might be inaccurate in any
respect.
6
Representations and Warranties of Buyer
Buyer represents and warrants to Seller that:
6.1 Organization and Standing. Buyer is a corporation
duly incorporated, validly existing and in good standing under the
laws of the State of Delaware and has all requisite corporate
power and authority to enter into this Agreement and to carry out
the transactions contemplated hereby.
6.2 Authority of Buyer. The execution, delivery and
performance of this Agreement and all the agreements and
instruments of Buyer relating hereto and the consummation of the
transactions contemplated hereby shall have been duly authorized
by all necessary corporate action on the part of Buyer at or prior
to the Closing; this Agreement has been duly executed by a duly
authorized officer of Buyer; and this Agreement and such
agreements and instruments constitute the legal, valid and binding
obligations of Buyer, enforceable against Buyer in accordance with
their terms.
7
Covenants of Seller
7.1 Conduct of Business. Without in any way limiting
the provisions of Article 3 of this Agreement, during the period
from the date of this Agreement to and including the Closing Date,
Seller shall not take any action which might result in any
material change in the operations of the Business or which might
have a materially adverse effect on the value of the Purchased
Assets or the Business other than changes made with the prior
written consent of Buyer. Without limiting the generality of the
foregoing, prior to the Closing, Seller will not, without the
prior written consent of Buyer:
(a) dissolve, liquidate, merge or consolidate or
sell or otherwise dispose of all or any substantial portion of its
assets or obligate itself to do so, unless such transaction is
specifically conditioned upon, and will not occur until after, the
Closing, and will otherwise not involve or have any effect on or
otherwise conflict with the Business or the transactions
contemplated by this Agreement;
(b) sell, transfer, lease or otherwise dispose of
any assets or properties of or related to the Business, or license
any of the Programs;
(c) amend, modify, change, alter, terminate,
rescind or waive any rights or benefits under any Contract;
(d) fail to maintain the Purchased Assets in
reasonably good condition, repair and working order, reasonable
and ordinary wear and tear excepted;
(e) perform, take any action or incur or permit to
exist any of the acts, transactions, events or occurrences of a
type which would be inconsistent with or render untrue any of the
representations or warranties set forth in Section 5.6 hereof had
the same occurred after the Balance Sheet Date and prior to the
date hereof;
(f) cancel, compromise or modify or agree to
cancel, compromise or modify any Receivable; or
(g) cancel any of the current insurance policies
or any of the coverage thereunder maintained for the protection of
any of the Purchased Assets or the Business, or the operation
thereof.
7.2 Changes in Information. During the period from the
date of this Agreement to the Closing Date, Seller shall give
Buyer prompt written notice of any change in, or any of the
information contained in, the representations and warranties made
by it in or pursuant to this Agreement or the Disclosure Schedule
or of any event or circumstance which if it had occurred on or
prior to the date hereof, would cause any of such representations
or warranties not to be true or correct.
7.3 Access to Information. During the period from the
date of this Agreement to the Closing Date, Buyer and its counsel,
accountants and other representatives shall be given, during
normal business hours, full access to and copies of all of the
books, tax returns, contracts, commitments, records, facilities
and properties of Seller pertaining to the Business or
constituting any part of the Purchased Assets, work papers of
accountants of Seller pertaining to the Business and all personnel
of Seller, and they shall be furnished with all such documents and
information with respect to the affairs of Seller pertaining to
the Business as may from time to time reasonably be requested,
including without limitation, employee files, employee benefit
files, contracts with the current customer and vendor base of the
Business, projections of customer and vendor activities, all
computer files, systems and records, leases, and accounts payable
and receivable. Seller and its directors, officers and employees
shall cooperate fully with Buyer's investigation, provided that
Seller shall not be required to incur any out of pocket costs in
connection therewith. Buyer will (and will cause its
representatives to) maintain the confidentiality of the
confidential information it receives from Seller, provided that
such information may be disclosed (in confidence) to lawyers,
accountants, prospective lenders and investors, and other persons
or entities involved in the transactions, and that nothing herein
shall prevent disclosure or use of any information as may be
required by applicable law or that is at the date hereof or
hereafter becomes generally available to and known by the public
other than by reason of Buyer's breach of its obligations under
this Section 7.3, or is or becomes available to Buyer on a non-
confidential basis from a source that is not known by Buyer to be
prohibited from disclosing such information pursuant to a
confidentiality agreement with Buyer or its representatives.
Notwithstanding the foregoing, Buyer shall be entitled to utilize
all such confidential information in connection with its operation
of the Business from and after the date hereof.
7.4 Confidentiality. Seller shall hold confidential
all information disclosed to or obtained by it from or concerning
Buyer or otherwise arising out of its negotiations with Buyer or
investigations of Buyer and such information shall not be used or
disclosed except in furtherance of the transactions contemplated
herein or as otherwise required by law.
7.5 Preservation of Business. During the period from
the date of this Agreement to the Closing Date, Seller shall use
its best efforts to preserve intact the present goodwill of Seller
and the relationships of Seller with customers, dealers, OEMs,
VARs, suppliers, creditors, distributors, consultants,
governmental authorities and others having business relations with
it and the present business organization and personnel of such
Seller. Seller shall cause to be paid before they become
delinquent all taxes, assessments, and governmental charges or
levies imposed prior to the Closing Date upon its business or
properties and all claims or demands of materialmen, mechanics,
carriers, warehousemen, landlords, and other similar persons
asserted prior to the Closing Date which, if unpaid, might result
in the creation of a Lien upon any Purchased Assets or otherwise
have an adverse effect on the conduct the Business.
7.6 Employees. (a) Buyer has no obligation to employ
any of Seller's employees in its business following the date
hereof or the Closing Date. Notwithstanding any offer or
determination to so employ any employee, Buyer shall not be
obligated to maintain any employee for any specific length of time
and, except as otherwise provided by the Employment Agreements,
all such employees shall be employees at will.
(a) Seller shall promptly pay all amounts due and
payable to, or accrued in respect of, its employees in the nature
of wages, commissions, salary, insurance and other benefits
(including accrued vacation and sick pay and unearned bonuses),
and shall pay all withholding tax and similar obligations in each
case with respect to all employees of Seller and all periods
ending on or prior to the Closing Date, and with respect to the
Designated Employees, for all periods ending on or prior to the
date hereof.
(b) Seller shall be solely responsible for, and
shall indemnify and hold harmless Buyer from and against, any and
all claims and obligations, if any, for severance pay, termination
pay and other benefits arising or claimed to arise out of (i) the
termination of employment of any employee of Seller on or prior to
the Closing Date, and with respect to the Designated Employees, on
or prior to the date hereof, (ii) the effect of the transactions
contemplated by this Agreement on the employment status of any of
the employees of Seller, including the Designated Employees and
any others which may hereafter be employed by Buyer, and/or (iii)
the termination of employment with Buyer within 120 days after the
Closing Date of any employee, including the Designated Employees,
who prior to the Closing Date (or the date hereof in the case of
the Designated Employees) was an employee of Seller and thereafter
becomes an employee of Buyer (in this latter case to the same
extent as if any such employee were then still employed by Seller,
but only with respect to such severance pay, termination pay or
other benefits which arise or are claimed to arise out of the
employee's employment with Seller).
(c) Nothing in this Section 7.6 or elsewhere in
this Agreement, express or implied, shall be construed to confer
any rights or remedies on any employee of Seller. All liabilities
of Seller under this Section shall constitute Excluded Liabilities.
7.7 Preparation of Information Statement; Action by
Shareholders. (a) Seller shall prepare the Information Statement
as promptly as possible after the date hereof and shall cause the
preliminary Information Statement to be filed with the SEC within
fourteen (14) days after the date hereof. Seller shall submit the
proposed Information Statement to Buyer and its counsel not less
than two days prior to submitting the Information Statement to the
SEC or the Shareholders. Buyer shall promptly furnish Seller with
such information concerning Buyer as Seller shall reasonably
request for inclusion in the Information Statement, and Seller
shall be responsible for all other information included therein.
Seller shall cause to be distributed to the Shareholders of record
as of the record date for the Special Meeting, in accordance with
the applicable regulations of the SEC and the applicable
provisions of the NYBCL, a copy of the Information Statement filed
by Seller with and cleared by the SEC. Seller shall use
commercially reasonable efforts to mail the Information Statement
to Shareholders on or before May 16, 1997. If prior to the
Closing Date either Seller or Buyer determines that the
Information Statement needs to be amended or supplemented in
order to comply with the 1934 Act or the rules and regulations
promulgated thereunder or for Seller's representations or
warranties in Section 5.18 to be correct, Buyer or Seller, as the
case may be, shall notify the other of such determination and
shall deliver to the other such amendment or supplement as such
party believes is necessary to comply with the applicable
regulations of the SEC and to make such representation and
warranty correct. Seller shall consider all such amendments
proposed by Buyer, and shall cause all such amendments or
supplements that the parties reasonably believe are necessary to
be mailed to the Shareholders as soon as practicable after such
delivery.
(a) Seller shall, through its Board of Directors,
recommend to the Shareholders the adoption of this Agreement and
approval of all matters contemplated by or in furtherance of this
Agreement to be acted on at the Special Meeting, and shall use all
reasonable efforts to make the actions contemplated by the Special
Meeting to be effective on or before June 20, 1997.
7.8 Information Provided to Shareholders. Between the
date of this Agreement and the Closing Date, Seller shall deliver
to Buyer true and correct copies of all information, materials,
notices, mailings and other written communications sent by Seller
to its Shareholders or any class or series thereof
contemporaneously with the distribution thereof.
7.9 Interim Financial Statements. Seller shall cause
to be promptly prepared and delivered to Buyer promptly upon
completion (but no later than May 31, 1997), income statements and
balance sheets of Company for its fiscal quarter ending March 31,
1997 (the "Interim Financial Statements"). The Interim Financial
Statements shall be prepared in a manner consistent with the
Financial Statements and in accordance with generally accepted
accounting principles, but need not be audited. The Interim
Financial Statements, when delivered to Buyer, shall be deemed
"Financial Statements" for purposes of Section 5.4 hereof and
the representations and warranties set forth in Section 5.4 hereof
shall be deemed to apply with equal force and effect as of the
date of such delivery and as of the Closing Date to the Interim
Financial Statements.
8
Further Agreements.
8.1 Sales and Other Taxes. Seller shall pay all sales
tax, transfer tax, intangibles tax, filing fees, recording and
registration fees and similar government charges applicable to the
transactions contemplated by this Agreement, including, without
limitation, all taxes and charges payable, if any, upon the
transfer of title to any Purchased Assets. Buyer and Seller will
cooperate to prepare and file with the proper public officials, as
and to the extent available and necessary, all appropriate sales
tax exemption certificates or similar instruments as may be
necessary to avoid the imposition of sales, transfer and similar
taxes on the transfer of Purchased Assets pursuant hereto.
8.2 Brokerage and Finder's Fee. Buyer represents and
warrants to Seller and Seller represents and warrants to Buyer,
that no person is entitled to any brokerage commissions or
finder's fees in connection with the transactions contemplated by
this Agreement as a result of any action taken by it or any
of its affiliates, officers, directors or employees.
8.3 Referral. Seller shall use its best efforts to
refer all requests for and forward all orders for products to
Buyer at such telephone number and address as Buyer from time to
time informs Seller. Seller and Buyer shall each attempt in good
faith to direct or deliver to the other all incoming mail,
telephone or other communications or deliveries which are not
received by the appropriate party (that is, Buyer in the case of
matters or materials pertaining to the Business and Seller in the
case of all other matters or materials).
8.4 Break-up Fee. (a) In addition to, and without
limiting any of Buyer's rights under or pursuant to this Agreement
and the transactions contemplated hereby, subject to and upon the
occurrence of a "Break-up Event" (as defined in Subsection 8.4(b)
below) on or prior to the expiration of one hundred and eighty
(180) days from the date hereof, Seller shall pay, in immediately
available funds, to Buyer, at the offices of its counsel in New
York, New York, the "Break-up Fee" specified in subsection 8.4(c)
hereof.
(a) The following shall each be a "Break-up Event":
(i) Seller (or any successor, assign, trustee
or custodian thereof) shall execute or the Board of Directors of
Seller shall authorize or approve (with or without and whether or
not subject to, diligence, financing or other conditions), or
publicly announce or confirm an agreement with any group, entity
or person other than Buyer providing for the acquisition of all or
any portion of the Purchased Assets by such other party, whether
by merger, purchase of assets or stock, purchase of claims against
Seller or its estate, plan of reorganization, liquidation or
otherwise;
(ii) A Change of Control of Seller shall
occur. For purposes of this paragraph, "Change of Control" shall
mean:
(A) a stock purchase of any "person" or
"entity" (as such terms are used in Sections 13(d) and 14(d)
(2) of the Securities Exchange Act of 1934, as amended) who
then owns or by virtue of such purchase becomes the
beneficial owner of, directly or indirectly, voting
securities of Seller or of any of the subsidiaries, or rights
or options with respect thereto or securities convertible
into or exchangeable for any of same, representing 25% or
more of the combined voting power of the then outstanding
voting securities of Seller or any of its subsidiaries, and
such person or entity does not sign a Voting Agreement
referred to in Section 3.1(c) hereof;
(B) any change in the composition of the
Board of Directors of Seller in any period which involves a
majority of such directors and such new Board of Directors
does not approve or otherwise seeks to repudiate the
transactions contemplated by this Agreement, or
(C) any proxy, voting trust, or any
voting or other agreement by any of the shareholders signing
this Agreement, or any management agreement, having the
effect of transferring the power or authority (whether or not
exercised) to influence control (affirmatively or negatively)
over Seller, a subsidiary or its operations, where such
agreement seek to repudiate or would have the effect of
repudiating the transactions contemplated by this Agreement.
(iii) Shareholder Authorization shall not be
obtained prior to July 17, 1997 (the "Break-up Date"), provided,
however, that this subsection (iii) shall not be a "Break-up
Event" if (A) Shareholder Authorization is not obtained by such
date because the SEC had delayed the release by Seller of the
Information Statement to its shareholders to a date less than
twenty (20) days prior to the Break-up Date, and (B) such
Information Statement was filed by Seller not later than fourteen
(14) days following the date hereof and Seller had made diligent
efforts to timely respond to all SEC comments given in respect
thereof, if any.
(b) The Break-up Fee shall be $250,000; provided,
that the obligation of Seller to pay such Break-up Fee shall be
subject to the satisfaction of the following conditions:
(i) Buyer shall not have theretofore
exercised any right or stated its intent to terminate or not to
perform this Agreement, except as a consequence of the failure of
Seller to perform its obligations hereunder;
(ii) the representations and warranties of
Buyer contained in this Agreement shall have been true and correct
in all material respects and Buyer shall have performed all of its
obligations under the this Agreement to the extent required to be
performed on or prior to the date of the Break-up Event; and
(iii) consummation of the transaction
contemplated thereby shall not have been prevented by the failure
of any condition to the obligations of Seller set forth in the
this Agreement to have been satisfied as a consequence of any act
or omission by Buyer.
(c) The obligations of Seller to pay the Break-up
Fee shall be absolute and unconditional and shall not be affected
by any circumstances, including, without limitation, any set-off,
counterclaim, recoupment, defense or other right which Seller may
have against Buyer or any principal thereof, or anyone else.
Neither Buyer nor any principal thereof shall be required to
mitigate its or his damages. The Break-Up Fee shall not
constitute liquidated damages and shall be in addition to, and
without limiting any of Buyer's rights under or pursuant to this
Agreement and the transactions contemplated hereby, and shall be
in addition to any other remedies that Buyer may have at law, in
equity or otherwise.
(d) If a Break-up Event occurs, Buyer shall
nevertheless continue to enforce its rights under this Agreement
and be entitled to make competing bids for any or all of the
business Seller (and to present the relative merits of bids it may
make to parties in interest), but in the event that Buyer is
the successful bidder, then Buyer shall not be entitled to the Break-
up Fee.
8.5 No Shop. From the date hereof until the expiration
of the "Restricted Period" described below, (a) Seller agrees,
directly or indirectly, without Buyer's prior written consent,
that it shall not and shall not permit any subsidiary to (i) offer
or convey, sell or license any of the Purchased Assets or the
Business, (ii) issue, sell or purchase any shares of any class or
series of any of the issued and outstanding capital stock of
Seller or any security convertible into or exchangeable for such
stock or any option or warrant with respect to such stock (except
options granted under existing stock option plans and shares of
Seller capital stock issuable upon the exercise or conversion of
options, rights, or securities presently outstanding), or
(iii) merge or consolidate with another entity, and (b) Seller
will not solicit, entertain, continue, respond to or encourage
inquiries or proposals, or enter into, pursue, or carry on any
discussions or negotiations, with respect to any transaction of
the type referred to in clause (a) above with any person or entity
other than Buyer. Seller will immediately cease and cause to be
terminated any existing activities, discussions or negotiations
with any parties conducted heretofore in respect of any such
transaction. Seller will promptly advise Buyer of the identity of
any offeror and communicate to Buyer the terms of any oral inquiry
or proposal which it may receive and deliver to Buyer a copy of
any such offer in writing. Without limiting the rights of Buyer
to pursue any remedies, the parties agree that damages are not an
adequate remedy for a breach of this Section and that the
obligations hereunder may be specifically enforced. The
"Restricted Period" shall continue until the expiration of the
earlier of (a) one hundred and eighty (180) days after the date of
the execution and delivery of this Agreement by all parties and
(b) the Closing. Notwithstanding the foregoing, Seller shall be
entitled to enter into any of the foregoing transactions, provided
that such transaction is specifically conditioned upon, and will
not occur until after, the Closing, and will otherwise not involve
or have any effect on or otherwise conflict with the Business or
the transactions contemplated by this Agreement.
8.6 OEM License. Subject to the terms of this
Agreement and the schedules and exhibits hereto, including,
without limitation, the Non-Compete Agreement, from and after the
Closing, Buyer agrees to grant to Seller, on a product-by-product
basis, an OEM license (an "OEM") to utilize the COPERNICUS
programs in a non-competitive software product to be developed or
sold by Seller (a "Product"), provided that (a) any such OEM shall
be on substantially similar terms and conditions as Buyer's
arrangements with its other OEM's and otherwise on Buyer's
standard form and (b) Buyer shall have the right to refuse to
grant to Seller a OEM for any reasonable business reason,
including, without limitation, any of the following:
(i) the proposed Product is not consistent
with Buyer's business plan or relates to an area or field in which
Buyer does not wish its products utilized;
(ii) Buyer desires to enter the market with a
product similar to the Product;
(iii) Buyer has previously granted, or
desires to grant, an OEM to an alternative vendor for a similar
product or related field;
(iv) Buyer does not wish to do business with
any party affiliated or involved with Seller in the development or
sale of the Product for any reason whatsoever;
(v) Seller's financial status is below the
standard required by Buyer for its VARs, OEMs or
distributors, or
Buyer believes, in its sole discretion, that Seller's financial
situation at such time not sufficient to provide adequate support
for the Product; or
(vi) Buyer, in its sole discretion, believes
the Product or any potential use thereof to be competitive with
any product sold or licensed by Buyer or otherwise competitive
with Buyer's business.
(A) Buyer, or any of its subsidiaries, shall become subject to
the reporting requirements of the Securities Exchange Act of 1934,
(B) Buyer shall effect a sale of the assets of or relating to the
COPERNICUS programs, (C) any person who is not a stockholder of
Buyer as of the Closing (or any affiliate of any such stockholder)
shall hold 25% or more of the equity of Buyer or (D) Buyer shall
have tendered to Seller the Termination Payment (as defined in
Schedule 2.1(c) hereto).
9
9.1 Obligation to Indemnify. (a) Buyer hereby assumes
and agree to save, indemnify and hold harmless Seller from and
against, and shall on demand reimburse Seller for:
(i) any and all loss, liability, damage or
deficiency suffered or incurred by Seller by reason of any
misrepresentation or breach of warranty by Buyer or nonfulfillment
of any covenant or agreement to be performed or complied with by
Buyer under this Agreement or in any agreement, certificate,
document or instrument executed by Buyer and delivered to Seller
pursuant to or in connection with this Agreement; and
(ii) any and all actions, suits, proceedings,
claims, demands, assessments, judgments, costs and expenses,
including reasonable attorneys' fees, incident to any of the
foregoing, or reasonably incurred in investigating or attempting
to avoid the same or to oppose the imposition thereof, or in
enforcing any of the obligations under this Section 9.1(a).
(b) Seller hereby assumes and agrees to save,
indemnify and hold harmless Buyer from, against and in respect of,
and shall on demand reimburse Buyer for:
(i) any and all loss, liability, damage or
deficiency suffered or incurred by Buyer by reason of any
misrepresentation, breach of warranty or nonfulfillment of any
covenant or agreement to be performed or complied with by Seller
under this Agreement or any agreement, certificate, document or
instrument executed by Seller and delivered to Buyer pursuant to
or in connection with this Agreement;
(ii) any and all loss, liability, damage,
cost or expense suffered or incurred by Buyer in respect of or in
connection with any and all debts, liabilities and obligations of,
and any and all violation of laws, rules, regulations, codes or
orders by Seller, direct or indirect, fixed, contingent, legal,
statutory, contractual or otherwise, which exist at or as of the
Closing Date or which arise after the Closing Date but which are
based upon or arise from any act, transaction, circumstance, sale
of goods or services, state of facts or other condition which
occurred or existed on or before the Closing Date, whether or not
then known, due or payable, except to the extent specifically
assumed by Buyer under the terms of this Agreement;
(iii) any and all loss, liability, damage,
cost or expense suffered or incurred by Buyer based on or arising
out of the infringement or alleged infringement of any of the
Programs as they exist on the date hereof of the proprietary
rights of any third party (provided that any such claim pursuant
to this subparagraph (iii) is made within three years of the date
hereof);
(iv) any and all loss, liability, damage,
cost or expense suffered or incurred by Buyer based on or arising
out of any defective or allegedly defective product or service
warranty and/or third party liability claims (whether alleged in
contract, tort, strict liability or otherwise), which exist at or
as of the Closing Date or which arise after the Closing Date but
which are based upon or arise from any act, transaction,
circumstance, sale of goods or services, state of facts or other
condition which occurred or existed on or before the Closing Date,
including, without limitation, any products manufactured,
assembled, sold or distributed by Seller or its predecessors in
interest at any time;
(v) any and all loss, liability, damage, cost
or expense suffered or incurred by Buyer based on or arising from
(A) the presence of any Hazardous Substance on or about any
premises occupied by Seller or any hazardous discharge on or prior
to the Closing Date, and/or any environmental complaint, and/or
the failure to obtain any license or permit required in connection
with any Hazardous Substance or hazardous discharge or the
retention, disposal, treatment or use thereof, and/or arising out
of any noncompliance with any environmental, health or safety law,
ordinance, rule or regulation (each, an "Environmental
Requirement"), in each case, based on or arising from any act,
transaction, state of facts or other condition which occurred or
existed on or before the Closing Date, whether or not then known,
(B) any personal injury (including wrongful death) or property
damage (real or personal) arising out of or related to any
hazardous discharge, the presence, use, disposal or treatment of a
Hazardous Substance, or noncompliance with any Environmental
Requirement, on or prior to the Closing Date, and/or (C) any
environmental complaint and/or any demand of any government agency
or authority prior to, on or after the Closing Date which is based
upon or in any way related to any hazardous discharge, the
presence, use, disposal or treatment of a Hazardous Substance,
and/or noncompliance with any Environmental Requirement on or
prior to the Closing Date, and including, without limitation and
in each such case under this clause (v), the reasonable costs and
expenses of all remedial action and clean-up, attorney and
consultant fees, investigation, sampling and laboratory fees,
court costs and litigation expense and costs arising out of
emergency or temporary assistance or action undertaken by or as
required by any duly authorized regulatory body in connection with
any of the foregoing;
(vi) any and all taxes, including, without
limitation, income, franchise, property, sales, use, added value,
employees' income withholding and social security taxes, and all
assessments or governmental charges imposed by the United States
or by any foreign country or by any state, municipality,
subdivision or instrumentality of the United States or of any
foreign country, or by any other taxing authority, which are due
or payable by Seller in connection with or arising out of the
operation of Seller's business on or prior to the Closing Date and
all interest and penalties thereon;
(vii) any and all loss, liability, damage,
cost or expense suffered or incurred by Buyer by reason of any
claims of or entitlements to severance pay, termination pay and/or
other benefits arising or accruing or claimed to arise or accrue
with respect to any employee of Seller, whether by reason of or in
connection with any of the transactions contemplated by this
Agreement or otherwise to the extent based on any employment of
such employee by Seller; and
(viii) any and all actions, suits,
proceedings, claims, demands, assessments, judgments, costs and
expenses, including, without limitation, reasonable attorneys'
fees, incident to any of the foregoing or reasonably incurred in
investigating or attempting to avoid the same or to oppose the
imposition thereof, or in enforcing any of the obligations under
this Section 9.1(b).
9.2 Survival and Other Matters. Each representation,
warranty, indemnity, covenant and agreement of each of the parties
hereto shall survive the Closing; provided, however, that no party
shall be entitled to assert claims against the other for
misrepresentations or breach of warranty under or pursuant to this
Agreement unless the party asserting such claim shall notify the
other in writing of such claim within three (3) years after the
Closing Date; provided, further, that the foregoing limitation on
the survival of representations and warranties shall not apply to
any of the representations and warranties in Sections 5.2, 5.7(a),
5.13 and 5.16 hereof.
9.3 Offsets. Without limiting its other rights and
remedies, Buyer shall have the right to set off the amount of any
claims reasonably asserted by Buyer in good faith that it is
entitled to a deduction or setoff in respect of any obligation
under Section 9.1(b) or otherwise under this Agreement against the
Closing Payment, the Escrow Fund and/or, under any instrument or
agreement executed and delivered by Buyer in accordance with or as
contemplated by this Agreement, including, without limitation, the
License Agreement and the Royalty, in each case at the option of
Buyer, in such order as Buyer shall determine. No such setoff
shall constitute a default under this Agreement or otherwise, it
being agreed that Buyer shall have a period of ten (10) days after
the final and binding resolution of all such good faith claims
and/or disputes relating to such non-payment to pay the amounts
determined as a result of such resolution to be due and payable.
If it shall be determined that Buyer improperly (despite Buyer's
good faith belief that such setoff was proper) withheld any
payment under this Section, such amount shall bear interest at the
rate of ten percent (10%) per annum from the date such amount was
due. The remedies provided for in this Agreement are not
exclusive and shall be in addition to any other remedies that
Buyer may have at law, in equity or otherwise.
10
Miscellaneous
10.1 Specific Performance. Seller agrees that the
Purchased Assets are unique property that cannot be readily
obtained on the open market and that Buyer will be irreparably
injured if this Agreement is not specifically enforced.
Therefore, Buyer shall have the right specifically to enforce the
performance of Seller under this Agreement without the necessity
of posting any bond or other security, and Seller hereby waives
the defense in any such suit that Buyer has an adequate remedy at
law and agree not to interpose any opposition, legal or otherwise,
as to the propriety of specific performance as a remedy. The
remedy of specifically enforcing any or all of the provisions of
this Agreement in accordance with this Section 10.1 shall not be
exclusive of any other rights which Buyer may have to terminate
this Agreement, or of any other rights or remedies which Buyer may
otherwise have under this Agreement or otherwise, all of which
rights and remedies shall be cumulative.
10.2 Binding Agreement; Assignment. All the terms and
provisions of this Agreement shall be binding upon, inure to the
benefit of, and be enforceable by, the parties hereto and their
respective heirs, legal representatives, successors and assigns.
This Agreement and all rights of Buyer shall be assignable to one
or more subsidiaries or affiliates of Buyer. Such assignment
shall not relieve Buyer of its obligations hereunder.
10.3 No Public Announcement. No party hereto shall,
without the prior written approval of all of the other parties,
make any press release or other public announcement concerning the
transactions contemplated by this Agreement, except as and to the
extent that Buyer or Seller shall be so obligated by law or the
rules of any stock exchange, in which case such party shall so
advise the other party and Buyer and Seller shall use their
reasonable best efforts to cause a mutually agreeable release or
announcement to be issued; provided that the foregoing shall not
preclude communications or disclosures necessary to implement the
provisions of this Agreement or to comply with accounting and SEC
disclosure or reporting obligations.
10.4 Law To Govern. This Agreement shall be construed
and enforced in accordance with the internal laws of the State of
New York, without regard to principles of conflict of laws.
10.5 Notices. All notices shall be in writing and shall
be deemed to have been duly given to a party hereto if delivered
personally, then on the date of such delivery, or on the fifth day
after being deposited in the mail if mailed via registered or
certified mail, return receipt requested, postage prepaid, or on
the next business day after being sent by recognized national
overnight courier services, in each case, to such party, at the
following respective addresses:
if to Seller, to:
New Paradigm Software Corp.
733 Third Avenue
New York, New York 10017
Attention: President
with a copy to:
Chadbourne & Parke LLP
30 Rockefeller Plaza
New York, New York 10112
Attention: Arthur Mitchell, Esq.
if to Buyer, to:
VIE Systems, Inc.
51 John F. Kennedy Parkway
Short Hills, New Jersey 07078
Attention: Mr. Eric LeGoff
with a copy to:
Golenbock, Eiseman, Assor & Bell
437 Madison Avenue
New York, New York 10022
Attention: A.C. Peskoe, Esq.
or to such other address as any such party may designate in
writing in accordance with this Section 10.5.
10.6 Fees and Expenses. Except as expressly set forth
in this Agreement, each of the parties shall pay its own fees and
expenses with respect to the transactions contemplated hereby.
10.7 Entire Agreement. This Agreement sets forth the
entire understanding of the parties hereto in respect of the
subject matter hereof and may not be modified, amended or
terminated except by a written agreement specifically referring to
this Agreement signed by all of the parties hereto. This
Agreement supersedes all prior agreements and understandings among
the parties with respect to such subject matter.
10.8 Waivers. The failure by any party to this
Agreement to comply with any of its obligations hereunder may be
waived by any Seller in the case of a default by Buyer and by
Buyer in case of a default by Seller. No waiver shall be
effective unless in writing and signed by the party granting such
waiver, and no such waiver shall be deemed a waiver of any
subsequent breach or default of the same or similar nature.
10.9 No Third-Party Beneficiaries. Nothing herein,
express or implied, is intended or shall be construed to confer
upon or give to any person, firm, corporation or legal entity,
other than the parties hereto, any rights, remedies or other
benefits under or by reason of this Agreement or any documents
executed in connection with this Agreement.
10.10 Counterparts. This Agreement may be executed in
any number of counterparts, each of which shall be deemed an
original but all of which shall constitute one and the same
agreement.
10.11 Headings. The Section and paragraph headings
contained herein are for the purposes of convenience only and are
not intended to define or limit the contents of said Sections and
paragraphs.
IN WITNESS WHEREOF, the parties have duly executed
this
Agreement as of the date first above written.
NEW PARADIGM SOFTWARE CORP.
By:________________________
VIE SYSTEMS, INC.
By:________________________
<PAGE>
Exhibit 1.1
BILL OF SALE
THIS BILL OF SALE ("Bill of Sale"), dated
, 1997, is entered into by
and between VIE Systems, Inc., a Delaware corporation (the
"Buyer"), and New Paradigm
Software Corp., a New York corporation ("Seller") pursuant to
the terms of the Agreement of
Purchase and Sale of Assets (the "Agreement"), dated as of
May ____, 1997, by and among
Buyer and Seller.
Capitalized terms used herein shall have the same meanings
and definitions as set forth in the
Agreement, unless otherwise specifically defined in this Bill
of Sale.
KNOW ALL MEN BY THESE PRESENTS, that pursuant to the terms and
conditions of the Agreement and for the consideration set
forth therein, the receipt and
sufficiency of which are hereby acknowledged, Seller hereby
grants, conveys, assigns, transfers
and delivers to Buyer all of Seller's right, title, interest
and benefit, of whatever kind and nature,
in and to the Purchased Assets and excepting only those
assets listed on Schedule A hereto (the
"Excluded Assets"), free and clear of any liens, charges and
encumbrances of any nature
whatsoever.
TO HAVE AND TO HOLD the same unto Buyer, its
successors and assigns forever.
All of the terms and provisions of this Bill of
Sale will be binding upon and inure
to the benefit of the parties hereto and their successors and
assigns.
Seller hereby constitutes and appoints Buyer, and
its successors and assigns, the
true and lawful attorney or attorneys of Seller, with full
power of substitution, in the name of
Buyer or in the name of Seller, by and on behalf of and for
the sole benefit of Buyer, its
successors and assigns, to demand and receive from time to
time any and all of the Purchased
Assets, and from time to time to institute and prosecute, in
the name of Seller or otherwise, any
and all proceedings at law, in equity or otherwise, which
Buyer or its successors or assigns, may
deem necessary or desirable in order to receive, collect,
assert or enforce any claim, right or title
of any kind in or to the Purchased Assets hereby transferred,
assigned and conveyed to Buyer and
to defend and compromise any and all actions, suits or
proceedings in respect thereof and to do
all such acts and things and execute any instruments in
relation thereto as Buyer or its successors
or assigns shall deem advisable. Without limitation of the
foregoing, Seller hereby authorize any
officer of Buyer to endorse or assign any instrument,
contract or chattel paper relating to the
Purchased Assets. Seller agrees that the foregoing
appointment made and the powers hereby
granted are coupled with an interest and shall be
irrevocable.
Notwithstanding the foregoing, no provision of this
Bill of Sale shall in any way
modify, replace, amend, change, rescind, waive or in any way
affect the express provisions
(including the warranties, covenants, agreements, conditions,
representations or any of the
obligations and indemnifications, and the limitations related
thereto) set forth in the Agreement,
this Bill of Sale being intended solely to effect the
transfer of property sold and purchased
pursuant to the Agreement in accordance with the Agreement.
IN WITNESS WHEREOF, each of the parties hereto has
executed this Bill of
Sale on the date first above written.
VIE SYSTEMS, INC.
By:_________________________________
Name:
Title:
NEW PARADIGM SOFTWARE CORP.
By:_________________________________
Name:
Title:
<PAGE>
Schedule 2.1(c)
The Royalty
Subject to and upon the terms and conditions of
this
Agreement, Buyer shall pay to Seller a Royalty, determined
and
payable as follows:
1 Calculation of the Royalty. The Royalty shall be
equal to five percent (5%) of "Net Revenue" of Buyer commencing on
and after the first anniversary of the Closing Date. For purposes
hereof, "Net Revenue" shall be equal to the amount of cash
received and retained by Buyer from the sale, license and
distribution of the computer programs known and/or marketed as
"COPERNICUS" software (the "COPERNICUS Programs"), less the sum of
(i) any applicable credits, discounts and rebates, including, but
not limited to, quantity, dealer, distributor and promotional
credits, discounts, adjustments and rebates, and (ii) taxes (such
as sales, use or similar taxes) paid or payable by Buyer in
connection with such sale or license. If Buyer refunds or issues
a credit memo on a customer's price due to customer
dissatisfaction or other valid reason, this negative price shall
result in a reduction in Net Revenue and therefore a reduction of
the Royalty due to Seller. If any COPERNICUS Program is included
by Buyer in a program or combination of programs, the aggregate
functionality of which extends beyond such COPERNICUS Program, and
which additional functionality is either (l) distinct from the
collective functionality of the COPERNICUS Program, and/or (2)
separately available from Buyer and/or any person other than Buyer
(without royalty payable hereunder), then the Net Revenue
attributable to the sale, license or distribution of such product
shall be proportionately allocated among all significant
components of such combination product. From and after the
Closing Date, Buyer agrees not to materially alter its pricing
policies with respect to the sale, license or distribution of the
COPERNICUS Programs for purposes of reducing or otherwise negating
its obligation to pay the Royalty to Seller (for example, by
increasing its charges for maintenance fees or consulting services
at the expense of license fees so as to reduce the Net Revenue
calculation).
2 Payment of the Royalty. The Royalty shall be paid
to Seller on a quarterly basis, within fifteen (15) days following
the close of each calendar quarter commencing with the first
calendar quarter following the first anniversary of the Closing
Date (each such payment being referred to herein as a "Royalty
Payment"). If Seller shall so request in writing, Buyer shall
provide Seller with a statement setting forth the basis for
determination of a Royalty Payment in respect of the period or
periods referenced in such request. Buyer shall, at Seller's sole
cost and expense, permit Seller access, during normal business
hours and on reasonable notice, to those records of Buyer relevant
to the calculation of any such Royalty Payment and shall retain
such records for a period of two years after the close of the
fiscal quarter in which a Royalty Payment is due. Seller shall
keep all such information confidential and not use it for any
purpose other than for determining compliance with this Agreement.
3 Audit. Seller shall be entitled to have the
applicable books and records of Buyer examined for purposes of
showing compliance with this Agreement (an "Audit") by an
independent public accountant mutually acceptable to the parties
hereto, who shall have access to such records during normal
business hours. If Buyer and Seller are unable to agree on the
choice of an accounting firm, they will select by lot a
nationally-recognized firm of independent certified public
accountants (after excluding Buyer's and Seller's regular outside
accounting firm). The fees expenses of the accounting firm shall
be borne by Seller unless the firm's determination of the Royalty
payable in respect of the period that is subject to the Audit
exceeds the Royalty calculated as payable by Buyer by 5% or more.
Seller shall not be entitled to conduct an Audit more than once
in any calendar year.
4 Royalty Termination Right. Notwithstanding anything
to the contrary contained herein, Buyer shall have the right, in
its sole and absolute discretion, to cause an immediate
termination its obligation to pay any future Royalty to Seller
hereunder, if at any time on or prior to the fourth (4th)
anniversary of the Closing Date, Buyer provides written notice to
Seller of its intention to effect its termination right hereunder
and pays to or for the benefit of Seller, together with such
termination notice, an amount equal to the greater of (a) all
Royalties previously paid to Seller (or accrued as payable as of
the date of such notice) pursuant to the provisions of this
Schedule 2.1(c) and (b) $1,000,000 (the "Termination Payment").
Seller shall have the obligation to accept such Termination
Payment when tendered. Upon tendering of the Termination Payment,
Buyer's obligation to pay any Royalty accruing from and after the
date the Termination Payment is tendered to Seller shall
immediately cease and be of no further force or effect.
5 Sale of the COPERNICUS Programs. (a) In the event
that at any time prior to the fourth (4th) anniversary of the
Closing Date, Buyer shall transfer to an unrelated third party all
of its rights and interest in and to the COPERNICUS Programs, and
such purchaser does not assume, by operation of law or otherwise,
the Royalty obligations hereunder, Buyer shall be required to pay
to Seller, on or prior to the closing of such sale transaction, an
amount equal to the Termination Payment.
.1 In the event that at any time following the
fourth (4th) anniversary of the Closing Date, Buyer shall transfer
to an unrelated third party all of its rights and interest in and
to the COPERNICUS Programs, and such purchaser does not assume, by
operation of law or otherwise, the Royalty obligations hereunder,
Buyer shall be required to pay to Seller, on or prior to the
closing of such sale transaction, an amount equal to the greater
of (i) the Termination Payment and (ii) five percent (5%) of the
consideration actually received by Buyer for the COPERNICUS
Programs in connection with such sale.
6 Offset Right. The provisions of this Schedule
2.1(c) are subject to the provisions of Section 9.3 of the
Agreement.
<PAGE>
schedule 2.1 Escrow Agreement
INDEMNIFICATION ESCROW AGREEMENT
AGREEMENT dated as of _______, 1997, among VIE
Systems,
Inc., a Delaware corporation ("Buyer"), having offices at
and New Paradigm Software
Corp.,
a New York corporation ("Seller"), having offices at
, and Golenbock, Eiseman,
Assor &
Bell, having offices at 437 Madison Avenue, New York, New
York
10022 (the "Escrow Agent"). Buyer and Seller are hereinafter
sometimes referred to as the "Parties".
W I T N E S S E T H:
WHEREAS, pursuant to that certain Agreement of
Purchase
and Sale of Assets, dated as of __________, 1997 (the "Purchase
Agreement"), among Buyer and Seller, Buyer is concurrently
herewith purchasing from Seller the Purchased Assets, with any
capitalized term used herein but not otherwise defined having the
meaning ascribed to such term in the Purchase Agreement.
WHEREAS, pursuant to Section 2.1(b) of the Purchase
Agreement, the Parties have agreed that on the date hereof,
$200,000 of the Purchase Price shall be deposited into escrow upon
the terms stated herein.
WHEREAS, the Parties desire to establish with the Escrow
Agent the escrow contemplated by the Purchase Agreement.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained, the parties hereto agree as
follows:
1. Appointment. The Parties hereby appoint and
designate the law firm of Golenbock, Eiseman, Assor & Bell as
the Escrow Agent for the purposes herein set forth, and the
Escrow Agent hereby accepts such appointment, subject to and in
accordance with the provisions of this Escrow Agreement.
2. Deposit. Seller hereby authorizes Buyer to deliver
to the Escrow Agent on behalf of Seller, simultaneously with the
execution and delivery of this Agreement and as partial payment of
the Purchase Price under the Purchase Agreement, $200,000 (such
amount, or any future balance thereof, being referred to herein as
the "Escrow Fund"), to be held in accordance with the terms of
this Agreement in an account of (the "Escrow Account").
3. Claims Procedure.
3. 1 Notice of Claims. At any time prior to the
Second Escrow Termination Date (as hereinafter defined), Buyer may
give notice to the Escrow Agent and Seller that pursuant to the
terms of the Purchase Agreement Buyer is asserting a claim
("Claim") against Seller. Such notice shall constitute the
assertion of such Claim by Buyer against the Escrow Fund held in
escrow hereunder. Buyer shall be entitled to make or assert a
Claim under the Purchase Agreement, including, without limitation,
that it is entitled to (a) reimbursement for amounts paid to
suppliers, vendors, licensees or licensors of Seller of or related
to the Purchased Assets and/or the Business in respect of pre-
Closing Date liabilities of Seller pursuant to Section 1.4(b) of
the Purchase Agreement, or (b) indemnification under the Purchase
Agreement. Upon the receipt of such notice of a Claim by the
Escrow Agent, the Escrow Agent shall hold in escrow hereunder such
portion of the Escrow Fund as shall equal the amount of such Claim
and all other pending Claims hereunder. Notice of a Claim given
to the Escrow Agent and Seller pursuant to this Section 3.1 shall
briefly set forth the basis of the Claim and, if then determinable
by Buyer, a reasonable estimate of the amount thereof, which
estimate may include an estimate of attorneys', accountants' and
other fees to be incurred to resolve such Claim. If the estimated
amount of a Claim is not set forth in the notice of the Claim
given to the Escrow Agent and Seller, Buyer will give a further
notice to the Escrow Agent and Seller setting forth Buyer's
estimate of the amount of such Claim promptly after it is
reasonably able to make such estimate.
3.2 Objection; Delivery. For a period of ten (10)
days after the giving of any such notice of Claim to Seller, the
Escrow Agent shall make no payment of any of the Escrow Funds in
respect thereof unless the Escrow Agent shall have received
written authorization from Seller to make such payment with
respect to such Claim. After the expiration of such ten (10) day
period, the Escrow Agent shall, to the extent of the Escrow Fund,
make payment to Buyer of the amount stated in the notice of such
Claim given by Buyer pursuant to Section 3.1 hereof, unless prior
to the expiration of such ten-day period the Escrow Agent and
Buyer have received written notice from Seller that it disputes
the Claim. In the event of a payment to Buyer, the Claim shall be
deemed to have resulted in a determination in favor of Buyer,
solely for purposes of delivery of the Escrow Fund to Buyer. Any
such written objection by Seller shall specify the amount stated
in the notice of Claim, if any, Seller agrees Buyer is entitled to
in respect of any such Claim. In the event of such specification
by Seller, the Escrow Agent shall, to the extent of the Escrow
Fund, make payment to Buyer of the amount agreed to by Seller in
such notice.
3.3 Determination of Claims. In case Seller
shall, in the manner provided in Section 3.2 hereof, object in
respect of any Claim (or any portion thereof) made by Buyer, then
Seller and Buyer shall, within the seven (7) day period beginning
on the date of the receipt by Buyer of such written objection,
attempt in good faith to agree upon the rights and obligations of
the respective parties with respect to such Claim and how such
Claim shall be paid. If Seller and Buyer so agree, a memorandum
setting forth such agreement shall be prepared and signed by both
parties. The Escrow Agent shall be entitled to rely on any such
memorandum and shall, to the extent of the Escrow Fund and the
direction in such memorandum, make payment to Buyer as provided in
such memorandum. If Seller and Buyer fail to so agree, such
dispute shall be settled either by (a) mutual agreement of Buyer
and Seller, evidenced by single written instructions to the Escrow
Agent, (b) a binding and final arbitration award, provided the
parties have agreed in the Purchase Agreement or otherwise to
arbitration with respect to the matters in dispute, or (c) a final
judgment, order or decree of a court of competent jurisdiction in
the United States of America (the time for appeal therefrom having
expired and no appeal having been perfected), all costs and
expenses of which (including reasonable attorneys' fees) shall be
borne by the party against whom the dispute is settled as
aforesaid. Buyer and Seller agree to proceed in good faith and
use their best efforts to resolve any disputes hereunder in a
timely and commercially reasonable manner. The Escrow Agent shall
be under no duty to institute or defend any such proceedings, and
none of the costs and expenses of any such proceedings shall be
borne by the Escrow Agent. Upon receipt of a certificate of Buyer
as to such determination, the Escrow Agent shall deliver to Buyer
free and clear of any interest of Seller, from the Escrow Fund, an
amount equal to the amount of such Claim payable to Buyer pursuant
to such determination.
4. Term.
(a) the thirtieth (30th) day from the date of this
Agreement (the "First Escrow Termination Date"), and (b) the
sixtieth (60th) day from the date of this Agreement (the "Second
Escrow Termination Date"), respectively, with respect to the
amounts indicated below, except with respect to any then pending
Claim.
4.2 No Claims at Termination. If at the First
Escrow Termination Date there shall be no Claims pending or awards
or judgments outstanding, the Escrow Agent shall deliver to Seller
the lesser of (a) (i) $100,000 minus (ii) any Claims previously
paid out of the Escrow Fund, and (b) the amount of the Escrow
Funds then being held by it. If at the Second Escrow Termination
Date there shall be no Claims pending or awards or judgments
outstanding, the Escrow Agent shall deliver the remainder of the
Escrow Funds then being held by it to Seller, if any.
4.3 Claims at Termination. If at either the First
Escrow Termination Date or the Second Escrow Termination Date
there shall be any Claims pending or awards or judgments
outstanding, the Escrow Agent shall retain, until the final
disposition of such Claim, such amount of the Escrow Fund as shall
equal the amount of such Claim stated in the notice thereof. If
the Escrow Fund is equal to or less than the aggregate of the
outstanding Claims, awards and judgments, the full amount of the
Escrow Fund shall continue to be held in escrow. Any amount not
theretofore delivered to Seller shall be delivered to Seller at
such time or from time to time when the Claim, award or judgment
to which the retained Escrow Funds relate has been fully rendered
as herein provided and all amounts payable as a result thereof
have been paid to Buyer.
4.4 Delivery. Promptly after the determination of
a Claim in accordance with the provisions of Section 3.2 hereof
and promptly after giving receipt of notice of the determination
of a Claim in accordance with the provisions of Section 3.3
hereof, the Escrow Agent shall deliver to Buyer, free and clear of
any interest of Seller therein, from the Escrow Fund, an amount
equal to the amount of such Claim payable to Buyer pursuant to
such determination. If the amount of the Escrow Fund then held by
the Escrow Agent is less than or equal to the amount of such Claim
so payable, the Escrow Agent shall deliver to Buyer all of the
Escrow Fund then held by it, free and clear of any interest of
Seller therein.
4.5 Remedies Cumulative. The rights and remedies
of Buyer under this Agreement are cumulative with, and in addition
to, any and all other rights and remedies which Buyer may have
under the Purchase Agreement.
5. The Escrow Agent.
5.1 Disputes. In the event the Escrow Agent shall
believe there shall be any disagreement among or between the
Parties resulting in adverse claims or demands being made in
connection with the Escrow Fund, or in the event that the Escrow
Agent in good faith is in doubt as to what action it should take
hereunder, the Escrow Agent shall be entitled, at its option, (a)
to refuse to comply with any claims or demands on it as long as
such disagreement shall continue and, in so refusing, shall make
no delivery or other disposition of the Escrow Fund pursuant to
the terms of this Agreement and shall not be or become liable in
any way or to any person for its failure or refusal to comply with
such conflicting or adverse claims or demands and shall be
entitled to continue so to refrain from acting and so to refuse to
act until the Escrow Agent shall have received (i) a final and
non-appealable order of a court of competent jurisdiction
directing delivery of the Escrow Fund, or (ii) a written agreement
executed by Buyer and Seller directing delivery of the Escrow
Fund, in which event the Escrow Agent shall disburse the Escrow
Fund in accordance with such order or agreement, or (b) to place
the Escrow Fund with a proper court and to apply to any court of
competent jurisdiction (including the commencement of immediate
action or suit) to determine the rights of the parties. Any court
order referred to in (i) above shall be accompanied by a legal
opinion by counsel for the presenting party satisfactory to the
Escrow Agent to the effect that said court order is final and non-
appealable. The Escrow Agent shall act on such court order and
legal opinion without further question.
5.2 Performance. To induce the Escrow Agent to
act hereunder, it is further agreed by the parties that:
(a) The duties and obligations of the Escrow
Agent shall be determined solely by the express provisions of this
Agreement. No implied duties or obligations shall be read into
this Agreement against the Escrow Agent. The Escrow Agent shall
not be under any duty to give the Escrow Fund held by it hereunder
any greater degree of care than it gives its own similar property
and shall not be required to invest any funds held hereunder
except as directed in this Agreement. Uninvested funds held
hereunder shall not earn or accrue interest.
(b) The Escrow Agent shall be entitled to rely
upon any order, judgment, certification, demand, notice,
instrument or other writing delivered to it hereunder without
being required to determine the authenticity or the correctness of
any fact stated therein or the propriety or validity of the
service thereof. The Escrow Agent may act in reliance upon any
instrument or signature believed by it in good faith to be genuine
and may assume, if in good faith, that any person purporting to
give notice or receipt or advice or make any statement or execute
any document in connection with the provisions hereof has been
duly authorized to do so.
(c) The Escrow Agent shall not be bound or in
any way affected by any notice of any modification or cancellation
of this Agreement or the Purchase Agreement, or of any fact or
circumstance affecting or alleged to affect rights or liabilities
hereunder other than as is herein set forth, or affecting or
alleged to affect the rights and liabilities of any other person,
unless notice of the same is delivered to the Escrow Agent in
writing, signed by the proper parties to the Escrow Agent's
satisfaction and, in the case of modification of the duties or
responsibilities of the Escrow Agent, unless such modification
shall be satisfactory to the Escrow Agent and approved by the
Escrow Agent in writing.
(d) The Escrow Agent shall not be liable for
any error of judgment, or any action taken by it in good faith and
believed by it to be authorized or within the rights or powers
conferred upon it by this Agreement, except in the case of its
gross negligence, nor shall it be liable for the default or
misconduct of any employee, agent or attorney appointed by it who
shall have been selected with reasonable care. The Parties shall
defend (by attorneys selected by the Escrow Agent), indemnify and
hold harmless the Escrow Agent (and any successor escrow agent)
from and against any and all losses, liabilities, claims, actions,
judgments, damages, costs and expenses arising out of and in
connection with this Agreement or the Escrow Agent's duties or
services hereunder. This indemnity includes, without limitation,
disbursements and reasonable attorneys' fees either paid to retain
attorneys or representing the fair value of legal services
rendered by the Escrow Agent to itself. Without limiting the
foregoing, the Escrow Agent shall in no event be liable in
connection with its investment or reinvestment of any cash
held by
it hereunder, in accordance with the terms hereof, including
without limitation, any liability for any delays (not resulting
from gross negligence) in the investment or reinvestment of the
Escrow Fund or any loss of interest incident to any such
delays.
(e) The Escrow Agent shall not charge a
separate administrative fee for its services as Escrow Agent
hereunder. However, the Parties agree to pay or reimburse the
Escrow Agent upon request for all expenses, disbursements and
advances, including reasonable attorneys' fees, incurred or made
by it in the performance of its duties hereunder.
(f) The Escrow Agent shall be entitled to
consult with counsel of its own choice and shall have full and
complete authorization and protection for any action taken or
suffered by it hereunder in good faith and in accordance with the
opinion of such counsel.
(g) Escrow Agent shall be entitled to
represent or to act as an advisor of Buyer and its affiliates in
any lawsuit or any other matter.
(h) The Escrow Agent does not have any
interest in the Escrow Fund deposited hereunder but is serving as
stakeholder only. Upon payment of the Escrow Fund as herein
provided, the Escrow Agent shall be fully released from all
liability and obligations with respect thereto.
6. Resignation. The Escrow Agent (and any successor
escrow agent) at any time may be discharged from its duties and
obligations hereunder by the delivery to it of notice of
termination signed by the Parties or at any time may resign by
giving written notice to such effect to the Parties. Upon any
such termination or resignation, the Escrow Agent shall deliver
the Escrow Fund to any successor escrow agent designated by the
Parties in writing, or to any court of competent jurisdiction if
no such successor escrow agent is agreed upon, whereupon the
Escrow Agent shall be discharged of and from any and all further
obligations arising in connection with this Agreement. The
termination or resignation of the Escrow Agent shall take effect
on the earlier of (i) the appointment of a successor (including a
court of competent jurisdiction) or (ii) the day that is 30 days
after the date of delivery: (A) to the Escrow Agent of the other
parties' notice of termination or (B) to the other parties hereto
of the Escrow Agent's written notice of resignation. If at that
time the Escrow Agent has not received a designation of a
successor escrow agent, the Escrow Agent's sole responsibility
after that time shall be to keep the Escrow Fund until receipt of
a designation of successor escrow agent or a joint written
disposition instruction by the other parties hereto or an
enforceable order of a court of competent jurisdiction.
(i) submit to the jurisdiction of any New York State or
federal court sitting in New York in any action or proceeding
arising out of or relating to this Agreement, (ii) agree that all
claims with respect to such action or proceeding shall be heard
and determined in such New York State or federal court and
(iii) waive, to the fullest extent possible, the defenses of an
inconvenient forum. The parties hereby consent to and grant any
such court jurisdiction over the persons of such parties and over
the subject matter of any such dispute and agree that delivery or
mailing of process or other papers in connection with any such
action or proceeding in the manner provided hereinabove, or in
such other manner as may be permitted by law, shall be valid and
sufficient service thereof.
8. Notices. All notices, instructions and other
communications required or permitted to be given, forwarded or
transmitted hereunder or necessary or convenient in connection
herewith shall be in writing and shall be deemed to have been duly
given if delivered personally, or three business days after being
sent by registered or certified mail, return receipt requested,
postage prepaid, addressed to the address set forth above, or one
business day after being delivered to a nationally recognized
overnight courier service or when sent by electronic facsimile
transmission, or to such other address as the person to whom
notice is to be given shall have given notice of pursuant
hereto.
9. Miscellaneous. This Agreement shall be binding upon
and inure solely to the benefit of the parties hereto and their
respective successors and assigns and shall not be enforceable by
or inure to the benefit of any other third party except as
provided with respect to the termination of, or resignation by,
the Escrow Agent. No party may assign any of its rights or
obligations under this Agreement without the written consent of
the other parties. No waiver hereunder shall be effective unless
in a writing signed by the party to be charged. This Agreement
may be amended, modified, superseded, or canceled, and any of the
terms hereof may be waived, only by a written instrument executed
by the parties hereto. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the
State of New York, without reference to conflicts of laws.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed on the date and year first above
written.
VIE SYSTEMS, INC.
By:
Eric LeGoff, President
NEW PARADIGM SOFTWARE CORP.
By:
Mark Blundell, President
GOLENBOCK, EISEMAN, ASSOR & BELL, as
Escrow Agent
By:
<PAGE>
Schedule 3.1
LICENSE AGREEMENT
THIS LICENSE AGREEMENT (the "Agreement") is entered
into as of May 9, 1997 between New Paradigm Software Corp., a
New York corporation ("Licensor"), and VIE Systems, Inc., a
Delaware corporation ("VIE").
WHEREAS, Licensor has developed and owns certain
software products and programs known as "COPERNICUS";
WHEREAS, Licensor and VIE have entered into an
Agreement of Purchase and Sale of Assets (the "Purchase
Agreement"), pursuant to which VIE has agreed to purchase and
Licensor has agreed to sell to VIE, inter alia, certain of
its assets and software known as COPERNICUS;
WHEREAS, this is the License Agreement contemplated
by Section 3.1(a) of the Purchase Agreement;
WHEREAS, in addition to and not in limitation of
the provisions of the Purchase Agreement, and intending this
Agreement to survive in the event that the Closing
contemplated under the Purchase Agreement shall not occur,
VIE desires to obtain a license on the terms and conditions
contained herein; and
WHEREAS, this Agreement is intended to fall within
the purview of 11 U.S.C. 365(n);
NOW, THEREFORE, in consideration of the above and
the mutual promises and covenants herein, the parties hereby
agree as follows (capitalized terms not otherwise defined
herein shall have the meanings specified in the Purchase
Agreement):
1. Definitions. As used herein, the following
terms shall have the following meanings:
"Additional Methods" includes, but is not limited
to, the programs, routines, subroutines, translators,
compilers, assemblers, operating systems, conversion filers,
encryption and encryption algorithms and codes, protocol
modifications made thereto, and all support documentation
related thereto, including, but not limited to, flowcharts,
instructions, end-user manuals, demonstration models and test
aids, including any and all updates and modifications made
thereto, which may be developed by or for VIE for the purpose
of exploiting the distribution of the Programs (as defined
below).
"Affiliate" shall mean any entity having any
relationship, contract, or arrangement with VIE with respect
to any matter which affects or is affected by this Agreement
wherein VIE has or exercises or has the power to exercise,
directly or indirectly (in any manner) control, direction, or
restraint of such entity, or wherein such entity has the
power to exercise, directly or indirectly (in any manner)
control, direction, or restraint of VIE, or wherein such
entity and VIE are subject to common or mutual control,
direction, or restraint.
"Documentation" is the documentation included
within the Source Code and shall mean all written information
relating to the design, use, implementation and correction of
algorithms, mask work rights and other programs, including,
without limitation, any functional and design specifications,
notes on the architecture, use and programmer instructions,
logic, flow charts, principles of operation and diagrams,
coding conventions, alpha and beta testing notes, test
suites, test plans, regression suites, error reports and
logs, patches and patch instructions, project history
documents and other technology or information, proprietary
development tools, and all other writings which are necessary
or helpful to a skilled programmer to create, understand,
maintain, modify, correct errors and enhance any program
thereof without assistance from Licensor, as more fully
described in Schedule A hereto.
"Information" shall mean any and all information
relating to or arising out of the Programs, Source Code,
Documentation and/or Additional Methods, and including,
without limitation, trade secrets and any and all embodiments
and representations of Intellectual Property Rights.
"Intellectual Property Rights" shall include, but
not be limited to, rights associated with the Programs in
know-how, trademarks, copyrights, patents, patent
applications (including without limitation patent
applications set forth in Schedule 1.1(c) of the Purchase
Agreement and proprietary rights with respect thereto, in all
languages and computer platforms, operating systems and
environments, patent reissues, renewals, continuations,
continuations-in-part, or divisions of any patent or patent
application), trade secrets (as defined in the Restatement of
Torts), instructions, improvements, modifications,
suggestions, proposals, programs, ideas, writings, and the
like of any sort whatsoever, and any embodiment thereof
including, but not limited to, computer programs,
documentation of programs, assembly and detailed drawings,
plans, specifications, results of technical investigations
and research, assembly, and parts manuals, and any other
information which are owned or controlled by Licensor.
"Object Code" shall mean the machine readable
Programs which result from the translation of the Source Code
into machine readable.
"Programs" shall mean, alone or in combination, the
programs which make up the COPERNICUS computer programs and
Documentation, including the META system, METAbase
database, UNIVERSAL TRANSLATOR (also known as COPERNICUS),
and any extensions which are dependent upon the foregoing for
their function, as more fully described in Schedule A hereto.
"Source Code" shall mean visual and machine
readable embodiments of an algorithm, mask work rights or
computer program, including the process or method thereof and
the concepts contained therein, and the representation in the
original language in which the program was coded and any
languages into which the same may have been translated,
together with instructions and any other information
necessary or convenient to the compilation and/or editing of
such code into object code, including any and all comments by
authors, procedural code (such as job control language) and
related documentation.
"Trademark" shall mean any term or terms supplied
by Licensor and used in any form or format, style or design,
as applied to the Programs and Additional Methods in whatever
form and identifies business names, trademarks, and service
marks, as well as any goodwill and rights, at common law or
otherwise, pertinent thereto, and refers to trademarks,
service marks and trade names as set forth on Schedule B
hereto.
"Trademark Registrations" shall mean any United
States Trademark Registration or any other domestic
application or registration made by VIE now or hereafter
obtained.
"VIE Improvements" means changes or additions at
any time after the signature of this Agreement made by VIE to
the Programs or Additional Methods, other than maintenance
modifications, which add one or more significant new program
functions to the Programs or Additional methods or
significantly improve their performance by changes in system
design and/or coding.
2. Deliveries. On the date hereof, Licensor
shall deliver to VIE, a master copy of the Programs and
Documentation for use by VIE to publish the same, and a copy
of the Source Code.
3. License Grant.
(a) Grant. Subject to the provisions of this
Agreement, Licensor hereby grants to VIE a license (alone or
in combination with any other programs, products or services)
to use, sublicense, distribute or otherwise commercialize and
exploit the Programs and to translate, modify, make
derivative works of, revise, upgrade, enhance, reproduce,
manufacture, market and distribute the Programs in all
languages and computer platforms, operating systems and
environments; to translate, modify and to make Additional
Methods and to, create VIE Improvements, as follows:
(i) An exclusive license for a period of five
(5) years from the date hereof (the "Exclusive License") for
the United States (including its territories and possessions)
and Canada in and only in the industry fields of financial
services, health care and food and to all federal, state,
provincial and local governments (the "Licensed Industry
Fields");
(ii) In addition to, and without limiting the
Exclusive License, a perpetual non-exclusive license (the
"Non-Exclusive License") in all markets and industries for
all territories throughout the world (the Non-Exclusive
License and the Exclusive License together being hereinafter
referred to as the "License").
(b) The License does not confer upon VIE the right
to sell, assign or transfer, pledge, encumber, subject to any
lien, or otherwise convey title, in whole or in part, whether
or not for value, in the Programs or Intellectual Property
Rights; provided, however VIE shall be permitted to place a
copy of the Source Code in escrow for the benefit of its
sublicensees (including any OEMs).
(c) The License granted pursuant to Section 3(a)
includes the right for VIE to reproduce at its own expense
the Programs and supporting materials contained on magnetic
media in non-printed, machine readable form solely for the
purposes of the License and rights granted hereunder. VIE
may, at its own expense, copy for its own internal use and
for the internal use of its sublicensees (including any
OEMs), all Documentation included as a part of the Programs
as listed in Schedule A attached hereto. VIE shall, on a
quarterly basis, notify Licensor in writing of the number of
copies of programs reproduced. Except as expressly permitted
in this Section 3, VIE shall not copy, reproduce,
remanufacture or duplicate all or any part of any physical or
magnetic version of the Programs or supporting materials.
(d) Sublicensees. VIE shall, consistent with the
scope of and terms applicable to the License, have the right
to grant sublicenses to Affiliates and end users, without
prior written notice to Licensor, and shall have the right to
grant sublicenses to OEMs upon prior written notice to
Licensor. Any sublicense granted by VIE shall be subject to
the confidentiality provisions of Section 12 herein and shall
provide for the return of all copies of the Program to VIE
upon termination of said license.
(e) Trademarks.
(i) Licensor hereby grants to VIE the right
to use any Trademark and any Trademark Registration in
connection with the License hereunder, as, or as part
of, the marks for or in conjunction with any of the
Programs under the existing names or marks of Programs.
Notwithstanding anything to the contrary contained
herein, any use by VIE of any Trademark shall be deemed
a use on behalf of and as agent for Licensor.
(ii) In order to protect the copyrights of
Licensor in, and Trademarks of Licensor used with, the
Programs, Documentation and supporting materials, VIE
agrees to reproduce all proprietary legends of Licensor,
including all copyright and/or trademark notices
contained on the copies of the Program and supporting
materials delivered to VIE pursuant to this Agreement in
or on any copies or partial copies (including those made
with respect to Additional Methods) made by VIE,
including, for the on screen sign-on.
(iii) It is agreed between the parties hereto
that twenty-five percent (25%) of any Royalty (as
hereinafter defined) shall be attributable to use of the
Trademarks.
4. Term. The term of the License shall commence
on the date hereof and terminate either (i) in the event of a
Closing pursuant to the Purchase Agreement, on the effective
date of said Closing; (ii) in the event the Closing under the
Purchase Agreement does not occur , then on the fifth
anniversary of the date hereof with respect to the Exclusive
License but shall not terminate with respect to the Non-
Exclusive License; or (iii) in accordance with the terms of
Section 13 herein.
5. Royalty. During the term of this License,
royalties shall be payable to Licensor at the rate of five
percent (5%) of "Net Revenue" of VIE commencing on the date
hereof (the "Royalty"). For purposes herein, "Net Revenue"
shall be equal to the sums received and retained by VIE from
the sale, license and distribution of the Programs less the
sum of (i) any applicable credits, discounts and rebates,
including, but not limited to, quantity, dealer, distributor
and promotional credits, discounts, adjustments and rebates,
and (ii) taxes (such as sales, use or similar taxes) paid or
payable by VIE in connection with such sale or license. If
VIE refunds or issues a credit memo on a customer's price due
to customer dissatisfaction or other valid reason, this
negative price shall result in a reduction in Net Revenue and
therefore a reduction of the Royalty due to Licensor. If any
Programs is included by VIE in a program or combination of
programs, the aggregate functionality of which extends beyond
any of such Programs, and which additional functionality is
either (1) distinct from the collective functionality of the
Programs, and/or (2) separately available from VIE and/or any
person other than VIE (without royalty payable hereunder),
then the Net Revenue attributable to the sale, license or
distribution of such product shall be proportionately and
fairly allocated among all significant components of such
combination product. From and after the date hereof, VIE
agrees not to materially alter its pricing strategy with
respect to the sale, license or distribution of the Programs
for purposes of reducing or otherwise negating its obligation
to pay the Royalty to Licensor (for example, by increasing
its charges for maintenance fees or consulting services at
the expense of license fees so as to reduce the Net Revenue
calculation).
6. Payment of Royalties.
(i) The Royalty shall be paid to Licensor on
a quarterly basis within fifteen (15) days following the
close of each calendar quarter; provided, however,
royalty payments for the first two quarters hereunder
shall accrue but not be payable until the third calendar
quarter following the date hereof (each such payment
being referred to herein as a "Royalty Payment"). With
each Royalty Payment, VIE shall provide Licensor with a
statement setting forth the basis for determination of
each such Royalty Payment in respect of the period
applicable to the Royalty Payment due. In the event
that the Closing under the Purchase Agreement shall
occur, no Royalty Payments shall be due or payable
pursuant to the terms of this Agreement.
(ii) Records. Vie shall, for itself and its
sublicensees, keep full and accurate written books and
records, for a period of no less than three (3) years
after termination or expiration of this Agreement, in
sufficient detail and in accordance with the terms of
this Agreement, to permit verification of the sums
payable under this Agreement. VIE shall, at Licensor's
sole cost and expense, permit Licensor or any
representative of Licensor to access, during normal
business hours and on reasonable notice, to any such
records of VIE. Licensor shall keep all such
information confidential and not use it for any purpose
other than for determining compliance with this
Agreement.
7. Audit Right. Licensor shall be entitled to
have the applicable books and records of VIE examined for the
purposes of showing compliance with this Agreement (the
"Audit") by a nationally-recognized firm of independent
certified public accountants, during normal business hours,
together with any other relevant records for purposes of
verifying any Royalty Payments as well as, more generally,
the accuracy of statements made, or reports submitted, to
Licensor in connection with the payment of any Royalties
hereunder. Such Audit shall be at Licensor's expense except
in the event that an adjustment upward resulting from
underpayment of Royalties due by VIE is greater than five
(5%) percent of fees due for the period audited, in which
case VIE shall pay all expenses associated with the Audit and
all sums identified as due and interest thereon at the rate
of 1 1/2 percent per month (or maximum rate available by law)
and adjustment in royalties due, whether such underpayment
results from error, omission or otherwise. If VIE objects to
the Licensor's choice of accountants, Licensor and VIE will
select by lot a nationally-recognized firm of independent
certified public accountants (after excluding Licensor's and
VIE's regular outside accounting firms).
8. Assignment of Certain Third Party Contracts.
In the event that the Closing under the Purchase Agreement
shall not occur, all of Licensor's rights under the IBM
Agreement and the other agreements specified in Schedule C
hereto (the "Third Party Contracts") hereto shall be deemed
automatically assigned to VIE pursuant to the terms hereof
(and Licensor shall execute any other instrument reasonably
satisfactory to VIE with respect to such assignment), and
Licensor shall use its best efforts to cause each other
contracting party thereto to consent to such assignment.
Licensor acknowledges that the inability to assign any of
such Third Party Contracts shall not relieve Licensor of any
of its other obligations hereunder. Anything in this License
to the contrary notwithstanding, this Section 8 shall not
constitute an agreement to assign any unassignable Third
Party Contracts if an attempted assignment thereof, without
the consent of a third party thereto, would constitute a
breach thereof or in any way affect the rights of Licensor or
VIE thereunder. Licensor promptly shall use its best efforts
to obtain all of such consents at its own cost and expense
and until such consents are obtained, Licensor will cooperate
with VIE in any arrangement designed to provide for VIE all
rights and benefits under all unassignable Third Party
Contracts, including enforcement for the benefit of VIE of
any and all rights of Licensor against any third party
thereto arising out of the breach or cancellation by such
third party or otherwise, and Licensor shall, without further
consideration therefor, pay, assign and remit to VIE promptly
all monies and, to the extent permitted, all other rights or
consideration received, or which may be received or obtained
in respect of performance of any unassignable Third Party
Contracts. Licensor shall not renew, extend or modify any
such Third Party Contracts without the prior written consent
of VIE.
9. Certain Representations.
(i) The representations and warranties of Licensor
contained in Article 5 of the Purchase Agreement are
incorporated herein by reference as if set forth herein in
their entirety, it being specifically understood that such
incorporated provisions shall have effect herein independent
of their effect in the Purchase Agreement.
(ii) Licensor makes no representations and
warranties with respect to intellectual property rights of
third parties in connection with any such party's software
under Third Party Contracts assigned to VIE in accordance
with Section 8 herein.
(iii) Licensor understands and agrees, on its own
behalf and that of its sublicensees, that in the event that
VIE or any of its licensees or customers shall develop their
own Additional Methods without having had access to
Licensor's Additional Methods, neither Licensor nor its
sublicensees shall hold VIE or its licensees and/or customers
liable with respect to any ownership rights which Licensor
may claim.
10. VIE's Representations.
(i) The representations and warranties of VIE
contained in Section 6 of the Purchase Agreement are
incorporated herein by reference as if set forth herein in
their entirety, it being specifically understood that such
incorporated provisions shall have effect herein independent
of their effect in the Purchase Agreement.
(ii) VIE understands and agrees, on its own behalf
and that of its sublicensees, that in the event that Licensor
or any of its existing licensees or customers shall develop
their own Additional Methods without having had access to
Licensee's Additional Methods, neither VIE nor its
sublicensees shall hold Licensor, its licensees and/or
customers liable with respect to any ownership rights which
VIE may claim.
(iii) VIE hereby represents and warrants that it
shall use the Trademark at all times in a manner which is
consistent with the quality of the Trademark and the goods it
identifies.
11. Indemnification; Limitations. Without
limiting any of the provisions of Section 9 of the Purchase
Agreement, Licensor agrees to indemnify and to hold VIE
harmless from and against and in respect of, and VIE agrees
to indemnify and to hold Licensor harmless from and against
and in respect of, any losses, damages, claims, liabilities,
costs and expenses (including without limitation any
reasonable legal, accounting or other expenses for
investigating or defending any actions or threatened actions)
incurred by the indemnified party in connection with:
(a) any damage or deficiency resulting from
any misrepresentation, breach of warranty or
nonfulfillment of any agreement or covenant on the part
of the indemnifying party under this Agreement;
(b) any and all claims made against the
indemnified party in respect of liabilities or
obligations of the indemnifying party (including
liabilities for taxes) relating to the Programs, the
Intellectual Property Rights, Additional Methods, and
related rights and assets to the extent such liabilities
and obligations of the indemnifying party are not to be
assumed by the indemnified party or are not attributable
to acts or omissions of the indemnified party;
(c) any and all loss, liability, damage, cost
or expense suffered or incurred by VIE based on or
arising out of the infringement or alleged infringement
of any of the Programs as they exist on the date hereof
of the proprietary rights of any third party; and
(d) all reasonable costs and expenses
(including attorneys' fees) incurred by the indemnified
party in connection with any claim, action, suit,
proceeding, demand, assessment or judgment incident to
any of the matters the indemnified party is indemnified
against by the indemnifying party in this Agreement.
12. CONFIDENTIALITY
(a) Information is the essence of this Agreement.
Accordingly, VIE, on behalf of itself and its employees,
agrees that all of said Information shall be held in
confidence by VIE and that VIE shall not disclose the same to
others, nor (directly or indirectly) assist others to use the
same for itself or others except in furtherance of the
transactions contemplated in Section 3 above or as otherwise
required by law. Notwithstanding anything to the contrary
contained above, VIE shall obtain Licensor's express prior
written consent to each disclosure of Source Code to third
parties, which consent shall not be unreasonably withheld.
(b) This requirement of confidentiality extends to
any and all Information previously acquired by VIE from
Licensor and shall survive the termination of this Agreement
for any reason.
(c) VIE shall secure written agreements from its
employees, consultants, agents, licensees, OEMs and customers
(hereinafter a "Person") to hold Information in confidence
which is consistent with VIE's obligations under this
Agreement.
13. Events of Termination.
This Agreement and the License granted herein may
be terminated:
(i) at any time by mutual written consent; or
(ii) by Licensor upon written notice in the event
that VIE shall breach any of the
confidentiality obligations listed in
subparagraphs (a) through (c) below, and such
breach, if curable, is not cured within thirty
(30) days of written notice to VIE from
Licensor that Licensor intends to terminate
this Agreement as a result of such breach (it
being understood that a breach shall only be
deemed incurable if as a result of such breach
the Source Code has been disclosed to any
person or entity from whom a written
obligation of confidentiality consistent with
VIE's obligations under this Agreement, is or
would be impossible to be obtained such that
the obligations would be effective prior to
such disclosure, it being further understood
that this Agreement shall be terminable
immediately upon written notice in the event
of such incurable breach):
(a) VIE shall fail to maintain a corporate
policy wherein its employees having
access to Source Code are required to
execute an employment or confidentiality
agreement requiring such employee to hold
Source Code in confidence consistent with
VIE's obligations under this Agreement;
(b) VIE shall fail to obtain confidentiality
agreements from its consultants
affiliates, or any other third parties
prior to having access to the Source Code
binding such consultants, affiliates, or
third parties to hold the Source Code in
confidence consistent with VIE's
obligations under this Agreement; or
(c) VIE shall make a distribution of the
Source Code to any third party in
contravention of the last sentence of
Section 12(a) above (provided, however,
that a distribution of the Source Code
not authorized or aided by VIE by a
Person subject to a confidentiality
agreement with VIE shall not give the
Licensor the right to terminate this
Agreement pursuant to this Section 13).
(iii) by Licensor in the event that VIE shall have
terminated or suspended its business and
failed to remedy such termination or
suspension within ninety (90) days after
receipt of written notice from the Licensor,
provided, however, that this notice shall not
prejudice the right of Licensor to recover any
royalties or other sums due at the time of
such termination and shall not prejudice any
cause of action or claim Licensor accrued or
may accrue on account of any breach or default
by VIE; or
(iv) by Licensor upon thirty (30) days' written
notice to VIE in the event that the Closing
under the Purchase Agreement shall not have
occurred due solely to a breach by VIE of any
of its obligations under the Purchase
Agreement provided that Licensor shall have
satisfied all of the conditions to Closing as
set forth in Section 4.5 of the Purchase
Agreement.
14. Effect of Termination.
(a) Upon the termination of this Agreement
pursuant to the terms of Section 13 above, VIE shall return
to Licensor all copies of the Programs and supporting
materials or, upon Licensor's request, destroy all such
copies of the Programs for Additional Methods and certify to
Licensor in writing that they have been destroyed. VIE's
obligations regarding confidentiality pursuant to this
Agreement and its obligation to make payments to Licensor for
all sums due pursuant to Section 5 hereof shall survive the
termination of this Agreement; however, except as otherwise
provided in Section 13 hereof, it is expressly agreed that
VIE's failure to pay Royalties when due or its failure to
perform any of its other covenants hereunder shall not be
grounds for termination of the License hereunder and
Licensor's sole remedy for any such breach shall be an action
for monetary damages to the fullest extent permitted by
applicable law.
(b) Upon termination of this Agreement, however
occurring, all accrued royalties on the Programs which have
been made, used, licensed, or otherwise disposed of by or on
behalf of VIE, shall immediately become due and payable to
Licensor. Any Program in existence at the termination of
this Agreement and upon which royalty has not been so paid
shall become immediately due and payable to Licensor.
(c) With respect to all agreements between VIE and
third parties, upon termination of this Agreement for any
reason, any and all rights and benefits to VIE under any such
agreements shall vest in Licensor, at Licensor's option. All
use of any Trademark shall cease and VIE shall return all
copies of the Program(s) and Additional Method(s).
(d) Upon the termination of this Agreement, VIE
shall be entitled to continue to provide maintenance and
support for its existing end users (in the event that
Licensor has not exercised its option as set forth in Section
14(c) above) and Licensor shall grant to VIE a License to
permit VIE to provide such maintenance and support but VIE
shall not be entitled to grant any further sublicense or to
use the Programs to develop further Additional Methods.
15. Expenses. Each of the parties shall pay its
own fees and expenses with respect to the transactions
contemplated hereby.
16. Injunction Relief. (a) VIE agrees that the
obligations and promises of VIE under this Agreement are of a
unique character that gives them particular value. VIE
acknowledges and agrees that a breach of any promise or
covenant regarding confidential Information or Intellectual
Property Rights may result in irreparable and continuing
damage to Licensor for which there may be no adequate remedy
at law and, in the event of such breach, Licensor shall be
entitled to seek injunctive relief and/or a decree for
specific performance, and such other further relief as may be
proper to specifically enforce those covenants, without the
posting of any bond. VIE agrees to pay to Licensor any
reasonable expenses, including but not limited to attorney
fees, incurred in obtaining such specific enforcement (in
addition to any other relief to which Licensor may be
entitled).
(b) Licensor hereby acknowledges and agrees that a
breach of any covenant by Licensor hereunder may result in
irreparable and continuing damage to VIE for which there may
be no adequate remedy at law and, in the event of such
breach, VIE shall be entitled to seek injunctive relief
and/or a decree for specific performance, and such other
further relief as may be proper to specifically enforce those
covenants, without the posting of any bond. Licensor agrees
to pay VIE any reasonable expenses, including but not limited
to attorneys fees, incurred in obtaining such specific
enforcement (in addition to any other relief to which VIE may
be entitled).
17. Jurisdiction; forum; governing law.
(a) This Agreement shall be deemed entered into
the State of New York and shall be construed and governed
solely by the laws of the State of New York applicable to
agreements made to be performed entirely within the State.
(b) For purposes of this Agreement, the parties
hereby irrevocably submit to the exclusive jurisdiction of
any New York State or federal court sitting in New York
county, New York or the Southern District of the State of New
York. Each party irrevocably waives, to the fullest extent
permitted by law, any objection which it may now or hereafter
have to the laying of the venue of any such suit, action or
proceeding brought in any such court, any claim that any such
court, action or proceeding brought in such a court has been
brought in an inconvenient forum and the right to object,
with respect to any such suit, action or proceeding brought
in any such court, that such court does not have jurisdiction
over such party.
18. Survival of Restrictive Covenants. The
covenants herein concerning Intellectual Property Rights will
be construed as independent of any other provision hereof.
The provisions of Section 5 (royalties), Section 11
(indemnification) and 12 (confidentiality) shall survive the
termination of this Agreement.
19. Effect of Partial Invalidity. If any one or
more of the provisions of this Agreement should be ruled
wholly or partly invalid or unenforceable by a court or other
government body of competent jurisdiction, then: (a) the
validity and enforceability of all provisions to this
Agreement not ruled to be invalid or unenforceable with be
unaffected; (b) the effect of the ruling will be limited to
the jurisdiction of the court or other government body making
the ruling; (c) the provision(s) held wholly or partly
invalid or unenforceable will be deemed amended, and the
court or other government body is authorized to reform the
provision(s), to the minimum extent necessary to render them
valid and enforceable in conformity with the parties' intent
as manifested herein; and (d) if the ruling, and/or the
controlling principle of law or equity leading to the ruling,
is subsequently overruled, modified, or amended by
legislative, judicial, or administrative action, then the
provision(s) in question as originally set forth in this
Agreement will be deemed valid and enforceable to the maximum
extent permitted by the new controlling principle of law or
equity.
20. Notices. All notices shall be in writing and
shall be deemed to have been duly given to a party hereto if
delivered personally, then on the date of such delivery, or
on the fifth day after being deposited in the mail if mailed
via registered or certified mail, return receipt requested,
postage prepaid, or on the next business day after being sent
by recognized national overnight courier services, in each
case, to such party, at the following respective addresses:
if to Licensor, to
New Paradigm Software Corp.
733 Third Avenue
New York, New York 10017
Attention: President
with a copy to:
Chadbourne & Parke LLP
30 Rockefeller Plaza
New York, New York 10112
Attention: Arthur M. Mitchell, Esq.
if to VIE, to
VIE Systems, Inc.
51 John F. Kennedy Parkway
Short Hills, New Jersey 07078
Attention: Mr. Eric LeGoff
with a copy to:
Golenbock, Eiseman, Assor & Bell
437 Madison Avenue
New York, New York 10022
Attention: A.C. Peskoe, Esq.
21. No Third-Party Beneficiaries. Nothing herein,
express or implied, is intended or shall be construed to
confer upon or give to any person, firm, corporation or legal
entity, other than the parties hereto, any rights, remedies
or other benefits under or by reason of this Agreement or any
documents executed in connection with this Agreement.
22. Miscellaneous. This Agreement may be
executed in any number of counterparts, each of which shall
be an original, but all of which together shall constitute
one instrument. The paragraph headings are for convenience
only and are not a part of this agreement. This Agreement
shall inure to the benefit of and be binding upon the parties
and their respective successors and permitted assigns. Any
and all rights and remedies of the parties hereunder shall be
separate and apart from, and in addition to, any and all
rights and remedies of the parties pursuant to the terms of
the Purchase Agreement.
23. Assignment. This Agreement may be freely
assigned by VIE to an Affiliate of VIE, without the prior
written consent of the Licensor, or to a third party with the
prior written consent of the Licensor (which consent shall
not be unreasonably withheld or delayed); provided, each
assignee of this Agreement shall acknowledge in writing to
the Licensor that it will be legally bound by the obligations
of the VIE set forth herein.
IN WITNESS WHEREOF, the parties have duly executed
this Agreement as of the date first above written.
NEW PARADIGM SOFTWARE CORP.
By:
Name:
Title:
VIE SYSTEMS, INC.
By:
Name:
Title:
<PAGE>
Exhibit 3.1(c)
VOTING AGREEMENT
AGREEMENT dated as of this day of
____________, 1997, by and between
the undersigned shareholder and VIE Systems, Inc., a Delaware
corporation ("Buyer").
W I T N E S S E T H:
WHEREAS, the undersigned is a shareholder of New
Paradigm Software Corp., a New York corporation (the
"Company"); and
WHEREAS, the undersigned desires to induce Buyer to
enter into an Agreement of Purchase and Sale of Assets with
the Company, as hereafter amended (the "Purchase Agreement"),
providing for the purchase by Buyer of, inter alia, all of
the assets and business of the Company relating to its
COPERNICUS software and "New Paradigm Architecture" (the
"Sale Transaction"), for the consideration and on the terms
and conditions set forth in the form of Purchase Agreement, a
copy of which has been delivered to the undersigned.
NOW, THEREFORE, in consideration of the foregoing,
the parties do hereby agree as follows:
1. Representations and Warranties. The
undersigned hereby represents and warrants to Buyer that the
undersigned (a) owns of record and beneficially the number of
shares of capital stock of each class or series of the
Company set forth below the undersigned's name below, (b) is
entitled to vote such shares at the Special Meeting (as
defined in the Purchase Agreement), and such shares represent
the number of outstanding shares of common stock of the
Company entitled to vote at the Special Meeting set forth
below the undersigned's name below, and (c) has full power
and authority to make, enter into and carry out the terms of
this Agreement.
2. Agreement to Vote Shares. Until the Expiration
Date, the undersigned shall vote or cause to be voted, and/or
execute a written consent of shareholders with respect to,
all of the shares of capital stock of the Company owned of
record or beneficially by the undersigned and any shares of
capital stock of the Company hereafter acquired by the
undersigned (collectively, the "Shares"), for and in favor of
the Sale Transaction and the transactions contemplated by the
Purchase Agreement at any meeting of shareholders of the
Company called therefor or at any adjournment thereof or by
any consent related thereto (and, if applicable, against any
competing proposals and/or transactions).
3. Conditional Irrevocable Proxy. Concurrently
with the execution and delivery of this Agreement, the
undersigned has executed and delivered to Buyer, pursuant to
Section 212 of the New York Business Corporation Law, an
irrevocable proxy, in the form attached as
Exhibit A hereto, with respect the Shares. Buyer may
exercise such proxy only if it appears that any of the Shares
are or may be voted or a consent given otherwise than in
accordance with this Agreement or the Shares are not voted or
no consent is given.
4. Agreement Not to Transfer Shares. Until the
Expiration Date, the undersigned hereby agrees not to sell,
grant an option for the sale of, assign, transfer, pledge or
otherwise encumber or grant any proxy or voting rights
(except to Buyer) with respect to any of the Shares.
5. Expiration Date. This Agreement shall expire
upon the earliest to occur of (a) the closing of the Sale
Transaction and (b) one hundred and twenty (120) days after
the date of the execution and delivery of the Purchase
Agreement by all parties thereto (the "Expiration Date"),
6. Legend. Upon the request of Buyer,
certificates representing the Shares shall bear the following
legend:
The shares represented by this certificate are
subject to certain voting restrictions set forth in a certain
voting agreement dated __________, 1997, by and among the
parties named therein. A copy of such agreement is on file
at the executive office of the Company.
7. Further Assurances. From and after the date of
this Agreement, the undersigned shall from time to time, at
the request of Buyer and without further consideration, do,
execute and deliver, or cause to be done executed and
delivered (without cost or liability to the undersigned), all
such other and further acts, things, instruments or documents
as may be reasonably requested or required in order to
provide to Buyer the benefits contemplated by this Agreement.
8. Notices. All notices, instructions and other
communications required or permitted to be given, forwarded
or transmitted hereunder or necessary or convenient in
connection herewith shall be in writing and shall be deemed
to have been duly given if delivered personally, or three
business days after being sent by registered or certified
mail, return receipt requested, postage prepaid, addressed to
the address set forth above, or one business day after being
delivered to a nationally recognized overnight courier
service or when sent by electronic facsimile transmission.
Notices shall be sent to the undersigned at its address
indicated below, and to Buyer at 51 John F. Kennedy Parkway,
Short Hills, New Jersey 07078, Attention: President, with a
copy to Golenbock, Eiseman, Assor & Bell, 437 Madison Avenue,
New York, New York 10022, Attention: A.C. Peskoe, Esq., or
to such other persons or addresses as may be designated by
like notice hereunder.
9. Miscellaneous. (a) This Agreement constitutes
the entire agreement between the parties hereto with respect
to the subject matter hereof and may not be modified or
amended nor may any right be waived except by a writing which
expressly refers to this Agreement, states that it is a
modification, amendment or waiver and is signed by all
parties with respect to a modification or amendment or the
party granting the waiver with respect to a waiver. No
course of conduct or dealing and no trade custom or usage
shall modify any provision of this Agreement.
(b) This Agreement shall be governed by and
construed in accordance with the internal laws of the State
of New York, without regard to principles of conflicts of
laws.
(c) This Agreement shall be binding upon and
inure to the benefit of the parties hereto, and their
respective successors and permitted assigns.
(d) The undersigned acknowledges that its
agreement to vote and take (and refrain from taking) other
actions herein, the agreement of the undersigned contained
herein not to sell or otherwise dispose of the Shares covered
by all of the foregoing are unique; and that Buyer will not
have adequate remedies at law if the undersigned fails to
perform any of its obligations under this Agreement.
Accordingly, the undersigned agrees that Buyer shall have the
right (without the necessity of posting any bond) to specific
performance and equitable injunctive relief if the
undersigned shall fail or threaten to fail to perform any of
its obligations under this Agreement. Buyer agrees that the
undersigned shall have no liability for money damages or any
other monetary liability under or pursuant to this Agreement.
(e) In the event that any term or provision
of this Agreement shall be deemed by a court of competent
jurisdiction to be invalid, void or unenforceable, the court
considering the same shall have the power and is hereby
authorized and directed to limit such invalid, void or
unenforceable provision, so that such term or provision is no
longer invalid, void or unenforceable and to enforce the same
as so limited. Subject to the foregoing sentence, in the
event any provision of this Agreement shall be held to be
invalid or unenforceable for any reason, such invalidity or
unenforceability shall attach only to such provision and
shall not affect or render invalid or unenforceable any other
provision of this Agreement.
(f) The representations and warranties of the
contained in this Agreement shall survive the Expiration
Date.
(g) All references to any gender shall be
deemed to include the masculine, feminine or neuter gender,
the singular shall include the plural, and the plural shall
include the singular. The section headings contained herein
are for the purposes of convenience only and are not intended
to define or limit the contents of said sections.
(h) This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original
but all of which together shall constitute one and the same
document.
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date and year above written.
VIE SYSTEMS, INC.
_________________________________
Signature of Shareholder
By:_______________________________
_________________________________
Name of Shareholder
__________________________________
Address of Shareholder
__________________________________
Number of Shares
__________________________________
Number of Shares able to
be Voted
Exhibit A
IRREVOCABLE PROXY FOR
SHARES OF CAPITAL STOCK
OF
NEW PARADIGM SOFTWARE CORP.
PURSUANT TO SECTION 212 OF THE
NEW YORK BUSINESS CORPORATION LAW
KNOW ALL MEN BY THESE PRESENTS:
The undersigned hereby IRREVOCABLY MAKES,
CONSTITUTES, AND APPOINTS VIE Systems, Inc. ("Buyer") the
attorney and proxy of the undersigned for the term hereof
with respect to all of the shares of capital stock of New
Paradigm Software Corp. (the "Company") set forth below (and
any shares hereafter acquired), with full power of
substitution, to vote for and in favor of the purchase by
Buyer of, inter alia, all of the assets and business of the
Company relating to its "COPERNICUS" software and the "New
Paradigm Architecture" (the "Sale Transaction") as
contemplated by the Agreement of Purchase and Sale of Assets
with the Company, as hereafter amended (the "Purchase
Agreement"), and to attend and vote all such shares at any
annual or special meeting of shareholders, and any
adjournments thereof, at which the Sale Transaction or any
other transaction contemplating the sale of any assets or
securities of the Company has been submitted to the
shareholders for approval.
This Proxy and all authority hereby conferred are
granted and conferred in furtherance of and in consideration
for Buyer undertaking to entering into the Purchase Agreement
and shall be deemed irrevocable and coupled with an interest.
The undersigned acknowledges and agrees that Buyer
will use this Proxy to vote in its own self-interest and that
Buyer shall be entitled to vote the Shares notwithstanding
the fact that such vote may inure to the benefit of Buyer.
The terms of this Proxy shall expire upon the
earliest to occur of (i) the closing of the Sale Transaction
and (ii) one hundred and twenty (120) days after the date of
the execution and delivery of the Purchase Agreement by all
parties thereto.
Dated: _______________, 1997.
Number of Shares and
Class Name of Shareholder
Signature of Shareholder
<PAGE>
Exhibit 4.2(e)
CONFIDENTIALITY AND NON-COMPETITION UNDERTAKING
UNDERTAKING, dated as of ____________, 1997, from
New
Paradigm Software Corp. ("Seller"), Mark Blundell *[and John
Brann]* (collectively, "Shareholders" and together with Seller
hereinafter called the "Selling Parties").
W I T N E S S E T H:
WHEREAS, pursuant to an Agreement of Purchase and Sale
of Assets, dated as of _______, 1997 (the "Purchase Agreement"),
Buyer is purchasing from Seller, and the Seller is selling, the
Purchased Assets (as defined in the Purchase Agreement);
WHEREAS, it is a condition precedent to the Purchase
Agreement, that the Selling Parties enter into this
Confidentiality and Non-Competition Undertaking.
NOW, THEREFORE, for good and valuable
consideration, the
receipt of which by the undersigned is hereby acknowledged, and in
order to induce Buyer to purchase the Purchased Assets pursuant to
the terms of the Purchase Agreement, the Selling Parties hereby
jointly and severally undertake and agree as follows:
1. The Selling Parties will not and will not permit any
person or entity directly or indirectly (alone or together with
others) controlling, controlled by, affiliated with or related to,
any of the Selling Parties (collectively "Seller Affiliates"), to,
for a period of three (3) years from the date hereof (or one (1)
year in the case of Mark Blundell) (the "Limited Period"):
(a) directly or indirectly, anywhere throughout
the world (the "Territory"), own, manage, operate or control, or
participate in the ownership, management, operation or control of,
or be connected with or have any interest in, as a stockholder,
agent, consultant, partner or otherwise, or refer or exploit any
customers, business or opportunities to or with, or otherwise
assist in any manner, (i) any business which sells, distributes
or provides "middleware" software products (i.e. products whose
primary functionality or purpose is systems-to-systems
connectivity, message translation or message routing), or any
other products or services which have been sold, distributed
or provided by Seller in the Business (as defined in the Purchase
Agreement) or which are competitive therewith or (ii) any other
business which is competitive within the Territory with any
business (A) heretofore conducted by Seller in the Business and/or
(B) hereafter conducted by Buyer or any of its subsidiaries or
affiliates and reasonably related or substantially similar to any
of the business activities heretofore conducted by Seller in the
Business; provided that the foregoing shall not prohibit the
undersigned from owning less than 1% of any class of securities
listed on a national securities exchange or traded publicly in the
over-the-counter market; or
(b) without the express prior written consent of
Buyer, directly or indirectly employ or attempt to employ or
engage or knowingly arrange or solicit to have any other person or
entity employ or engage any person, who heretofore has been, or
is, on the date hereof in the employ of Buyer or any corporation
or entity controlling, controlled by or under common control with
Buyer (collectively referred to herein as the "Buyer Affiliates"),
or who has heretofore been in the employ of Seller and becomes or
has become an employee of Buyer or any of the Buyer Affiliates,
for a period of two (2) years after such person shall no longer be
employed with Seller, Buyer or any of the Buyer Affiliates.
2. The Selling Parties will not, and will not permit
any of the Seller Affiliates to, at any time, divulge or make
available to any person or entity, except as expressly consented
to in writing by Buyer, or use, any confidential information or
any documents, files or other papers concerning the business or
financial affairs of Buyer or any of the Buyer Affiliates and/or
the business or assets relating to or derived from the Business
(as defined in the Purchase Agreement), except such disclosure
which is otherwise required by applicable law or regulations. The
Selling Parties further agree that, during the Limited Period,
they will refer to Buyer prospective customers who contact them
(it being understood that this shall not constitute an affirmative
obligation on the part of the Selling Parties to seek out or
contact customers for Buyer). The Selling Parties shall not
disparage Buyer or the Business, and shall not, and shall not
permit any of the Seller Affiliates to, commit any act, or in any
way assist others to commit any act, which will injure Buyer or
the business heretofore conducted by Seller.
3. The parties recognize that irreparable damage will
result in the event that the provisions hereof shall not be
specifically enforced. If any dispute arises concerning action
alleged to be in violation of any such provision, the parties
hereto agree that an injunction may be issued restraining such
action pending determination of such controversy and that no bond
or other security shall be required in connection therewith. If
any dispute arises concerning the right or obligation of any party
hereto, such right or obligation shall be enforceable by a decree
of specific performance. Such remedies shall, however, not be
exclusive of and shall be in addition to any other remedies which
Buyer may have, including injunctive relief and actions for damages.
4. In the event that any of the provisions contained
herein would be held to be invalid, prohibited or unenforceable in
any jurisdiction for any reason because of the scope, duration or
area of its applicability or for any other reason, unless narrowed
by construction, such provision shall for purposes of such
jurisdiction only, be construed as if such invalid, prohibited or
unenforceable provision had been more narrowly drawn so as not to
be invalid, prohibited or unenforceable (or if such language
cannot be drawn narrowly enough, the court making any such
determination shall have the power to modify, to the extent
necessary to make such provision or provisions enforceable in such
jurisdiction, such scope, duration or area or all of them, and
such provision shall then be applicable in such modified form).
If, notwithstanding the foregoing, any such provision would be
held to be invalid, prohibited or unenforceable in any
jurisdiction for any reason, such provision, as to such
jurisdiction only, shall be ineffective to the extent of such
invalidity, prohibition or unenforceability, without invalidating
the remaining provisions hereof. No narrowed construction, court-
modification or invalidation of any provision shall affect the
construction, validity or enforceability of such provision in any
other jurisdiction.
5. Each of the Selling Parties represents to Buyer
that the enforcement of the restrictions of this Agreement would
not be unduly burdensome to such Selling Party. The
representations and covenants contained in this Agreement on the
part of the Selling Parties shall be construed as ancillary to and
independent of any other provision of the Purchase Agreement. If
any of the Selling Parties violates any covenant contained in this
Agreement and Buyer brings a legal action for injunctive or other
relief, Buyer shall not, as a result of the time involved in
obtaining the relief, be deprived of the benefit of the full
period of any such covenant. Accordingly, the duration of each
such covenant of any of the Selling Parties shall be deemed to
have been extended as if the Limited Period with respect thereto
began on the date of entry by a court of competent jurisdiction of
a final judgment enforcing such covenant of such Selling Party
under this Agreement.
6. This Agreement shall inure to the benefit of Buyer
and its successors and assigns, and shall be binding upon each of
the Selling Parties and their respective heirs, personal
representatives, successors and assigns, and may not be
modified or terminated orally.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date set forth in the introductory paragraph
hereof.
NEW PARADIGM SOFTWARE CORP.
By:
Mark Blundell
John Brann
<PAGE>
4.2 (F)
OPINION LETTER
VIE Systems, Inc.
51 John F. Kennedy Parkway
Short Hills, New Jersey 07078
Attn.: Mr. Eric Le Goff
Gentlemen:
We have acted as counsel for New Paradigm Software
Corp. ("NPS"), a New York corporation in connection with the
execution and delivery of the following documents:
a) An Agreement of Purchase and Sale of Assets
between NPS and VIE Systems, Inc. ("VIE") dated May 9, 1997
(the "Purchase Agreement");
b) A License Agreement between NPS and VIE dated
May 9, 1997 (the "License Agreement");
c) A Confidentiality and Non-Competition
Undertaking dated May 9, 1997 by NPS, and Mark Blundell and
John Brann individually (the "Non-Competition
Undertaking"); and
d) An Indemnification Escrow Agreement dated
May 9, 1997 by and among NPS, VIE and Messrs. Golenbock,
Eiseman, Assor and Bell, as escrow agent (the "Escrow
Agreement").
The foregoing are collectively referred to as the Documents.
Capitalized terms used herein shall have the meanings assigned
to said terms in the Documents.
In addition, we wish to call your attention to the
fact that NPS issued 800,000 Series C Redeemable Preferred
Stock, par value $0.01 per share (the "Preferred Shares") to Mr.
Robert Trump on April 11, 1997 pursuant to a resolution of the
Board of Directors of NPS adopted on March 15, 1997 at a meeting
of the Board.
We have reviewed such matters of law and have examined
such documents, records, agreements, and certificates of public
officials and officers of the NPS as we have deemed necessary
for the opinions hereinafter expressed. In such examination, we
have assumed the genuineness of signatures on original documents
and the conformity to original documents of all copies submitted
to us as certified, conformed or photographic copies; and as to
certificates of public officials, we have assumed the same to
have been properly given and to be accurate. As to various
questions of fact material to our opinion, we have relied upon
the attached certificates of officers of NPS. As to any matter
of fact contained in such certificates of officers of the NPS,
we have no reason to believe such certificates to be inaccurate.
On the basis of the foregoing, we are of the opinion that:
1. NPS is a corporation duly organized and validly
existing and in good standing under the laws of the State
of New York and has all requisite corporate power and
authority to carry on its business as now conducted and as
proposed to be conducted.
2. No consent, approval, order or authorization of,
or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental
authority on the part of NPS is required in connection with
the consummation of the transactions contemplated by the
Documents or related documents.
3. Subject only to the authorization of the holders
of two-thirds of all outstanding shares entitled to vote
with respect to the transactions contemplated by the
Purchase Agreement at a meeting of the shareholders, all
corporate action on the part of NPS, its officers and
directors necessary for the authorization, execution and
delivery of the Purchase Agreement, the Non-Competition
Agreement and the Escrow Agreement has been taken and the
performance of all obligations of NPS thereunder, and the
Purchase Agreement, the Non-Competition Agreement and the
Escrow Agreement constitute valid and legally binding
obligations of NPS enforceable in accordance with their
respective terms except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization,
arrangement, moratorium or other similar laws relating to
or affecting the rights of creditors generally, including,
without limitation, laws relating to fraudulent transfers
or conveyances, preferences and equitable subordination.
The enforceability of the NPS's obligations under the
Purchase Agreement, the Non-Competition Agreement and the
Escrow Agreement is subject to general principles of equity
(regardless of whether such enforceability is considered in
a proceeding in equity or at law).
4. The authorization of the shareholders of NPS is
not required for the execution and delivery of the License
Agreement by NPS and all corporate action on the part of
NPS, its officers and directors necessary for the
authorization, execution and delivery of the License
Agreement has been taken and the performance of all
obligations of NPS thereunder, and the License Agreement
constitutes the valid and legally binding obligation of NPS
enforceable in accordance with its terms except as
enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, arrangement, moratorium or
other similar laws relating to or affecting the rights of
creditors generally, including, without limitation, laws
relating to fraudulent transfers or conveyances,
preferences and equitable subordination. The
enforceability of the License Agreement is subject to
general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or
at law.)
5. The execution, delivery and performance of the
Documents and the consummation of the transactions
contemplated thereby, do not nor will not (i) conflict with
or violate any provisions of the Certificate of
Incorporation or By-Laws of NPS, (ii) to our knowledge,
with or without the giving of notice or the passage of
time, or both, result in a breach of, or violate, or be in
conflict with, or constitute a default under, or permit the
termination of, or cause of permit acceleration under, any
agreement or instrument of any debt or obligation to which
NPS is a party or any of its assets is subject or bound,
(iii) to our knowledge, require the consent of any party to
any agreement to which the NPS is a party, or to which any
of the Purchased Assets is subject or bound, (iv) to our
knowledge, result in the creation or imposition of any lien
upon any of the Purchased Assets, or (v) violate any law,
rule or regulation or, to our knowledge, any order,
judgment, decree or award, of any court, governmental
authority or arbitrator to or by which the NPS or any of
the Purchased Assets is subject or bound; except we note
that prior to the date hereof a UCC-1 financing statement
was executed by NPS in favor of Level 8, Inc. with respect
to the Copernicus software and may be filed by Level 8,
Inc. at any time. Nevertheless, we understand that if such
financing statement is filed, it will be terminated
simultaneously with the Closing under the Purchase
Agreement.
6. The Preferred Shares were duly authorized and
issued to Mr. Robert Trump, are fully-paid and non-
assessable, and such Preferred Shares are entitled to cast
four votes per share (or an aggregate of 3,200,000 votes)
at the Special Meeting or any other meeting of the
shareholders, and if voted, will be counted at the Special
Meeting as outstanding shares of NPS entitled to vote in
favor of the transactions contemplated by the Purchase
Agreement for purposes of compliance by NPS with the
provisions of Section 909 of the Business Corporation Law
of New York.
Very truly yours,
<PAGE>
Exhibit 4.3(e)
GEAB OPINION
1. Buyer is a corporation duly incorporated, validly
existing and in good standing under the laws of the state of
Delaware.
2. The execution, delivery and performance of the
Agreement and has been duly and validly authorized by all
necessary corporate action of Buyer. Buyer has duly executed and
delivered the Agreement.
