REFERENCE 10.7
CADNETICS AGREEMENT
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January 13th, 1998
SMD Group Inc.
Bedford Towers
000 Xxxxxxx Xxxxxx
Xxxxx 0X
Xxxxxxxx, Xxxxxxxxxxx
XXX 00000
Attention: Xx. Xxxx Xxxxxxxx
Dear Xx. Xxxxxxxx:
RE: Letter of Intent - Development of a Software Application for
SMD Group Inc.
Our File: 774-012
Cadnetics Inc. ("Cadnetics") desires to enter into the transaction, as hereunder
described, for the purpose of developing a software application for SMD Group
Inc. ("SMD"), the whole in accordance with and subject to the terms and
conditions hereinafter set forth. This letter of intent ("Letter of Intent") is
to confirm SMD's intention to hire Cadnetics to develop the Application (as
hereinafter defined) and is to be construed as an offer which, if accepted by
both parties, shall constitute an agreement binding upon Cadnetics and SMD,
subject to the terms, conditions and covenants hereunder set forth as well as
the terms, conditions and covenants to be set forth:
1. Offer and Closing Date
1.1 This offer shall be open for acceptance until the 14th day of January,
1999 (the "Offer").
1.2 The transaction contemplated herein shall take place no later than
within ten (10) days following the acceptance of the Offer by SMD (the
"Closing Date").
2. Development of Application
2.1 Cadnetics hereby undertakes to develop an application, which may be
generally described as follows: an interactive web enabled audio CD
music player (the "Application"), the whole subject to the
specifications set out in the requirement document entitled
IWEACDMP-req01.doc.
2.2 SMD hereby undertakes to assume and be responsible for any and all
costs relating to the development, progress and furtherance of the
Application.
2.4 Cadnetics shall not assume any costs relating to the purchasing and
licensing of any external technology which may be necessary for the
development of the Application. Furthermore, all costs relating to
travel and lodging which are required for the furtherance of the
Application shall be chargeable to SMD. Any purchases or charges shall
require the prior approval of SMD.
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2.5 Cadnetics shall remit the Application in final form (complied
executable) to SMD on a CD-ROM capable of reproduction.
2.6 Cadnetics shall remit to SMD all relevant documentation and the source
code on an "as is" basis every month for the Application.
2.7 Cadnetics hereby undertakes to provide SMD with a monthly update as to
the development of the Application.
2.8 SMD hereby gives the mandate to Cadnetics to develop upgrades of the
Application in consideration of further development fees, to be agreed
upon by the parties negotiating in good faith, the amount of which shall
be dependent upon the extent and complexity of the desired upgrade and
improvement.
2.9 In the event of a conflict or dispute between the parties, the parties
hereby undertake to enter into good faith negotiations in order to
attempt to resolve any such conflict or dispute.
3. Consideration
3.1 Cadnetics agrees to develop the Application for SMD in consideration
of a fee consisting of the following:
3.1.1 On the Closing Date, SMD shall remit to Cadnetics forty-two
thousand dollars (US $42,000.00) in cash as well as the share
certificate representing the Shares, the whole in accordance with
paragraph 3.19 hereof, and
3.1.2 On January 15, SMD shall remit to Cadnetics twenty-thousand
dollars (US$20,000) in cash.
3.13 On February 15, SMD shall remit to Cadnetics thirty-five
thousand dollars (US$35,000) in cash.
3.14 On March 1, SMD shall remit to Cadnetics thirty thousand
dollars (US$30,000) in cash.
3.15 On March 19, SMD shall remit to Cadnetics thirty-three thousand
dollars (US$35,000) in cash.
3.16 On April 15, SMD shall remit to Cadnetics fourty thousand
dollars (US$40,000) in cash.
3.17 On May 15, SMD shall remit to Cadnetics fourty thousand dollars
(US$40,000) in cash.
3.18 On June 15, SMD shall remit to Cadnetics fourty thousand
dollars (US$40,000) in cash.
3.19 the issuance by SMD to Cadnetics of a number of common fully
voting and fully participating shares of its share capital
having a fair market value of two hundred and forty thousand
U.S. dollars (U.S. $240,000.00) and a number of preferred
shares of its share capital having a fair market value of one
hundred and thirty-eight thousand U.S. dollars (U.S.
$138,000.00) (the common shares and preferred shares
hereinafter collectively referred to as the "Shares").
4. Service of Application
For a fee in the amount of one hundred and twenty dollars (US $120.00) per
man hour (the "Service Call Fee"), Cadnetics shall provide SMD with the
necessary technical support services in respect of the Application. Such
Service Call Fee shall be receivable depending on the extent and complexity
of the services required and shall be adjusted upwards to reflect any
change in the market value for similar services.
5. Representations and Warranties of SMD
SMD hereby represents and warrants to Cadnetics as follows and confirms
that Cadnetics is relying on the accuracy of such representations and
warranties in connection with the execution of its obligations hereunder:
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5.1 SMD is a corporation duly incorporated and validly subsisting in all
aspects under the laws of its respective jurisdiction of
incorporation. It has good right, full corporate power and absolute
authority to authorize and consent to the transaction as herein
provided.
5.2 SMD has taken all necessary or desirable actions, steps and corporate
and other proceedings to approve or authorize, validly and
effectively, the entering into of and the execution, delivery and
performance of this transaction.
5.3 SMD has the authority to issue the Shares so that the Shares shall
have a global value equal to the consideration paid at the time of
issuance, that is, three hundred and seventy-eight thousand U.S.
dollars (U.S.
$378,000.00).
5.4 The execution, delivery and performance of this Letter of Intent and
the completion of the transaction contemplated herein will not
constitute or result in a violation, breach or default under the terms
or provisions of the articles or by-laws of SMD or of any contract to
which it is bound.
5.5 SMD further represents and warrants that should it enter into any
agreement or commitment, to issue shares, by option, warrant or
otherwise, which will have the effect of dilution upon the
shareholdings of Cadnetics, said dilution shall occur on a
proportionate basis based on the shareholding of all the shareholders
in the company.
6. Representations and Warranties of Xxxxxxxxx
Xxxxxxxxx hereby represents and warrants to SMD as follows and confirms
that SMD is relying on the accuracy of such representations and warranties
in connection with the execution of its obligations hereunder:
6.1 Cadnetics is a corporation duly incorporated and validly subsisting in
all aspects under the laws of its respective jurisdiction of
incorporation. It has good right, full corporate power and absolute
authority to authorize and consent to the transaction as herein
provided.
6.2 Cadnetics has taken all necessary or desirable actions, steps and
corporate and other proceedings to approve or authorize, validly and
effectively, the entering into of and the execution, delivery and
performance of this transaction.
6.3 The execution, delivery and performance of this Letter of Intent and
the completion of the transaction contemplated herein will not
constitute or result in a violation, breach or default under the terms
or provisions of the articles or by-laws of Cadnetics or of any
contract to which it is bound.
6.4 Cadnetics makes no representation as to the value or potential value
of the Application.
7. Present and Future Rights
7.1 SMD hereby acknowledges that Cadnetics and its associated companies have
extensive expertise in the development of applications of this nature
and that its said expertise is the basis for Cadnetics being selected as
the primary developer for the Application.
7.2 SMD also acknowledges that Cadnetics is an independent developer and may
be involved in the development of other applications which use a similar
architecture.
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7.3 SMD and Cadnetics agree that they shall not impose any restrictions upon
each other in respect of their respective development of applications of
architecture similar to the Application.
7.4 Cadnetics shall retain all rights of ownership for internal use only in
respect of the developed Application until such time that SMD has
successfully fulfilled all of its financial obligations in respect of
Cadnetics.
8. Terms of Preferred Shares
Cadnetics shall have the right to convert its preferred shares into common
shares at any time until July 30th 1999, and the conversion price for said
shares shall be the lower of: (i) the average of the high trading price
plus the low trading price for the common shares at the date of conversion,
or (ii) two dollars and fifty cents (U.S. $2.50) per common share at the
date of conversion.
8.1 On January 13, 1999, Cadnetics agrees to convert its preferred shares
into common shares at a price of US$2.50 per common share.
9. Conditions Precedent
9.1 Notwithstanding anything herein contained, the undertakings and
obligations of Cadnetics under the terms of this Letter of Intent are,
at the option of Cadnetics, subject to and conditional upon the
performance of or compliance with the following condition precedent:
9.1.1 SMD shall not be in default of its obligations herein created.
9.1.2 The representations and warranties of SMD shall be true and
correct and remain in full force and effect for the benefit of
Cadnetics as of the Closing Date, and shall continue in full
force and effect notwithstanding the closing of the transaction
contemplated herein.
9.2 Notwithstanding anything herein contained, the undertakings and
obligations of SMD under the terms of this Letter of Intent are, at the
option of SMD, subject to and conditional upon the performance of or
compliance with the following conditions precedent:
9.2.1 Cadnetics shall not be in default of its obligations herein created.
9.2.2 The representations and warranties of Cadnetics shall be true
and correct and remain in full force and effect for the benefit
of SMD as of the Closing Date, and shall continue in full force
and effect notwithstanding the closing of the transaction
contemplated herein.
10. Indemnification
The parties shall mutually and reciprocally indemnify and hold each other
harmless from and against any damage, loss, cost, deficiency (including the
payment of attorneys fees) arising out of any inaccuracy in any
representation or warranty made hereunder.
11. Further Executions
The parties hereto agree and undertake in good faith to exert their best
efforts to agree upon and execute all documents and do all acts as may be
necessary or useful to conclude the transaction contemplated herein.
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12. Related Costs
Each party shall assume and pay their respective costs and expenses
including legal and financial advisory fees incurred in connection with the
negotiation, agreement upon and performance of the transaction herein
contemplated.
13. Interpretation
13.1 Entire Agreement - This Letter of Intent sets forth all of the
promises, covenants, agreements, conditions and undertakings between the
parties hereto with respect to the subject matter hereof and supersedes all
prior and contemporaneous agreements and undertakings, inducements or
conditions expressed or implied, oral or written.
13.2 Severability - It is intended by the parties hereto that the
provisions of this Letter of Intent be enforced to the fullest extent
permissible. Accordingly, if any paragraph, article or any part
thereof is adjudicated to be invalid or unenforceable, then such
paragraph or article shall be deemed amended to delete that portion
thus adjudicated to be invalid or unenforceable, such deletion to
apply only with respect to the operation of such paragraph or article.
13.3 Waiver - No waiver by a party of a default and a performance of any
breach or series of breaches by another party hereto and failure,
refusal or neglect by a party to exercise all rights hereunder or to
insist upon strict compliance or performance of another party hereto
under this Letter of Intent shall constitute a waiver of the
provisions hereof.
13.4 Governing Laws - This Letter of Intent shall be governed and construed
in accordance with the laws of the province of Quebec.
13.5 Assignment - The present Letter of Intent may not be assigned by a
party hereto without the prior written consent of the other parties.
13.6 Successors and Assigns - This Letter of Intent shall be binding upon
the parties hereto and their respective assigns, successors and
interests and shall not be modified or amended except by written
agreement.
13.7 Language - The parties hereto have requested that this Letter of
Intent and all documents relating hereto be drafted in the English
language. Les parties aux presentes ont exige que la presente
convention et tout document y afferent soit redige en langue anglaise.
If you are in agreement with the terms and conditions set forth herein, kindly
indicate your acceptance by signing and returning the enclosed copy of this
offer prior to the 29th day of December 1998.
Yours very truly,
CADNETICS INC.
/s/ Xxx Xxxxxxx, Vice-President
Acknowledged and agreed this 13th day of January 1999.
SMD GROUP INC.
/s/ Xxxx Xxxxxxxx
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