EXHIBIT 10.18
JOINT VENTURE AGREEMENT
THIS AGREEMENT made as of the 28th day of October, 1997
BETWEEN-
HEARTSOFT INC., a Delaware corporation (hereinafter referred to as
"Heartsoft"),
OF THE FIRST PART
-and-
HEARTSOFT III 1997 LIMITED PARTNERSHIP, an Ontario limited partnership
(hereinafter referred to as the "Partnership")
OF THE SECOND PART
WHEREAS the Partnership has acquired from Heartsoft an undivided 15% interest in
and to Heartsoft K-8 Library, a set of 50 educational application software
programs (the "Computer Programs");
AND WHEREAS the Partnership and Heartsoft wish to form and operate a joint
venture to market and exploit the Computer Programs throughout the world;
NOW THEREFORE in consideration of the sum of one dollar ($1.00), and other good
consideration, now paid by each of the parties hereto to the other (the receipt
and sufficiency of which is hereby acknowledged), the parties hereto hereby
covenant and agree as follows:
1. DEFINITIONS
1.1 For the purpose of this Agreement, the following terms shall be deemed to
have the following meanings:
(a) "Affiliate" has the meaning ascribed thereto in the Securities Act
(Ontario);
(b) "Associate" has the meaning ascribed thereto in the Securities Act
(Ontario) and also includes any person who does not deal at arm's
length (as that term is defined in the Income Tax Act (Canada)) with
such associate;
(c) "Auditors" means the international firm of licensed auditors to be
engaged by the Executive Committee in order to give effect to section
6 of this agreement;
(d) "Bank" means a chartered bank selected from time to time by the
Executive Committee;
(e) "Bank Account" means the bank account of the Partnership and Heartsoft
to be opened at a Bank with offices in Tulsa, Oklahoma in accordance
with the terms of section 4 of this agreement;
(f) "Business Plan" means the business plan of Heartsoft dated October,
1996, a copy of which has been provided to the Partnership, as may be
amended and updated from time to time;
(g) "Computer Programs" means an undivided 15% interest in and to
HEARTSOFT K-8 LIBRARY, a set of 50 educational application software
programs;
(k) "General Partner" means CVI LP Management Inc., the general partner of
the Partnership, and any replacement general partner of the
Partnership;
(l) "Gross Margin" means Gross Sales less returns, discounts to arm's
length parties and the cost of goods sold (all costs associated with
the acquisition of components, assembly of finished products and
shipping);
(m) "Gross Sales" shall mean the aggregate of all gross revenues generated
by the marketing and exploitation of the Computer Programs;
(n) "Joint Venture" means the joint venture between the Partnership and
Heartsoft to market and exploit the Computer Programs, the terms of
which are set out in this agreement;
(o) "Joint Venture Funds" means the maximum of $367,500 to be contributed
by Heartsoft to the Joint Venture pursuant to section 4 of this
agreement;
(p) "Losses" means any and all loss, damage, claim, demand, deficiency,
cost and expense, including interest, compound interest and legal
fees on a solicitor and his or her own client basis;
(q) "Offering" means the offering of a maximum of 1,750 units in the
Partnership pursuant to the terms and conditions set out in the
Offering Memorandum;
(r) "Offering Memorandum" means the offering memorandum of the Partnership
dated June 25, 1997, and any amendments thereto;
(s) "Partnership" means Heartsoft III 1997 Limited Partnership, a limited
partnership formed under the laws of the Province of Ontario;
(t) "Quarterly Report" means the quarterly report prepared by the
Executive Committee and provided to Heartsoft and the Partnership in
accordance with the terms of section 6.1 of this agreement;
(u) "Software Agreement" means the software agreement dated October 28,
1997 between the Partnership and Heartsoft, pursuant to which the
Partnership acquired the Computer Programs;
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2. FORMATION OF JOINT VENTURE
2.1 The parties hereto agree to form a joint venture, the purpose of which
shall be to market and exploit the Computer Programs throughout the world, in
accordance with the terms and conditions of this agreement.
2.2 Subject to Section 10 of this agreement, the term of the Joint Venture
shall commence upon the execution of this agreement and continue until March
1, 2012.
2.3 Upon written notice given by the Partnership to Heartsoft not less than
60 days prior to the expiry of the term of the joint venture and any
extensions thereto, the term of this agreement and the joint venture shall be
extended for an additional ten (10) years upon the same terms and conditions
as contained herein.
3. FORMATION OF EXECUTIVE COMMITTEE
3.1 The Partnership and Heartsoft shall form an Executive Committee, the
purpose of which shall be to:
(a) implement the Business Plan with such additions and amendments and
changes as the Executive Committee may determine;
(b) approve the hiring and monitor the performance of the key personnel
necessary to operate the Joint Venture;
(c) prepare or cause to be prepared a detailed budget (the "Budget") for
the Joint Venture;
(d) oversee the long term planning of the Joint Venture;
(e) approve all expenditures of the Joint Venture in excess of $25,000;
(f) report to the Partnership and Heartsoft in accordance with the terms
of section 6 of this agreement; and
(g) do all such other things as may be necessary in order to administer,
manage, control and operate the business of the Joint Venture in
accordance with the terms of the Business Plan.
3.2 The Executive Committee shall be comprised of three persons, the first
of which shall be selected by the Partnership, the second of which shall be
selected by Heartsoft and the third of which shall be selected by the
Partnership and Heartsoft together. In the event that the Partnership and
Heartsoft cannot agree on the third member of the Executive Committee,
Heartsoft shall be entitled to select that member, provided that such member
has the skills and qualifications necessary to fulfil his or her duties as a
member of the Executive Committee.
3.3 The Executive Committee shall meet regularly, and in no event less than
every quarter, either in person or by telephone, in order to carry out its
obligations under this agreement.
3.4 Subject to section 3.5 of this agreement, at any meeting of the
Executive Committee, provided proper notice of such meeting has been given to
every member of the Executive Committee, the approval of any two members of
the Executive Committee shall be sufficient to determine any matter.
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3.5 Notwithstanding section 3.4 of this agreement, decisions of the
Executive Committee in respect of the following matters shall require the
consent of all members of the Executive Committee:
(a) changing or selling all or substantially all of the business or assets
of the Joint Venture;
(b) amending this agreement;
(c) agreeing to any compromise or arrangement with any creditor or class
or classes of creditors;
(d) borrowing money;
(e) dissolving or terminating the Joint Venture except in accordance with
the terms of this agreement; or
(f) approving the settlement of any action against the Joint Venture.
4. FUNDING OF JOINT VENTURE EXPENSES
4.1 Upon execution of this agreement, Heartsoft shall deposit into a bank
account (the "Bank Account") at a Bank the sum of $166,250 (the "Joint
Venture Funds"), which, along with any interest on such deposit, shall be
used solely for the purpose of paying the expenses of the Joint Venture in
accordance with the Budget and the decisions of the Executive Committee.
4.2 On May 30, 1998, Heartsoft shall deposit into the Bank Account the
additional sum of $201,250 (the "Joint Venture Funds"), which, along with any
interest on such deposit, shall be used solely for the purpose of paying the
expenses of the Joint Venture in accordance with the Budget and the decisions
of the Executive Committee.
4.3 Notwithstanding sections 4.1 and 4.2 of this agreement:
(a) in the event that the Partnership raises less than $1,750,000 pursuant
to the Offering, Heartsoft's obligations to deposit the Joint Venture
Funds shall be reduced pro rata; and
(b) in the event that the terms of the Offering permit the limited
partners of the Partnership to make multiple payments on their
units, Heartsoft's obligation to deposit the Joint Venture Funds shall
be amended to reflect the payment provisions offered to such limited
partners.
4.4 The Bank Account shall require:
(a) in the case of individual withdrawals or cheques in an amount less
than $25,000, the consent of any two members of the Committee; and
(b) in the case of individual withdrawals or cheques in an amount greater
than $25,000, the consent of all of the members of the Executive
Committee.
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5. TREATMENT OF JOINT VENTURE REVENUES
5.1 The Partnership shall be entitled to receive 100% of Gross Sales each
year until all interest owed by the Partnership to Heartsoft pursuant to the
acquisition note dated October 28, 1997 from the Partnership to Heartsoft in
respect of the acquisition of the Computer Programs has been paid in full.
5.2 After all outstanding interest on the Acquisition Note has been paid in
full, and until principal and interest on the Acquisition Note have been paid
in full, the Partnership and Heartsoft shall each be entitled to 50% of the
Gross Margin. After the Partnership has received written notice from
Heartsoft that all interest and principal on the Acquisition Note has been
paid in full, the Partnership shall be entitled to 25% of the Gross Margin
and Heartsoft shall be entitled to the balance of Gross Margin.
6. REPORTING AND AUDIT
6.1 Throughout the term of this agreement, the Executive Committee, shall
prepare, or cause to be prepared, and shall provide to the Partnership and
Heartsoft, a quarterly report (the "Quarterly Report") setting out:
(a) a summary of the status of the Joint Venture and the activities
carried out during the quarter;
(b) a description of any significant new business developments or changes
in the status of the Joint Venture or of Heartsoft during the quarter;
and
(c) a brief summary of the financial statements prepared for the quarter.
6.2 Each Quarterly Report shall be provided to the Partnership within 30
days of the end of the quarter in respect of which the report is prepared,
and the last Quarterly Report for each calendar year shall be accompanied by
any payment due to the Partnership from the Joint Venture for the preceding
year pursuant to this agreement.
6.3 Throughout the term of this agreement, and within 30 days of the end of
each quarter, the Executive Committee shall prepare and provide to the
Partnership and to Heartsoft unaudited quarterly financial statements,
prepared in accordance with generally accepted accounting principles.
6.4 Throughout the term of this agreement, and within 90 days of the end of
each fiscal year of the Joint Venture, the Executive Committee provide to the
Partnership and to Heartsoft audited financial statements, prepared by the
Auditors in accordance with generally accepted accounting principles.
6.5 Once per year, and upon written request, either or both of the
Partnership and Heartsoft shall be entitled, at their own expense, to audit
the books and records of the Joint Venture. In the event that such an audit
reveals material irregularities in the books, records or audited financial
statements of the Joint Venture, the party responsible for conducting such
audit shall be reimbursed by Heartsoft for the cost of such audit.
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7. PROTECTION, MAINTENANCE AND ENHANCEMENT
7.1 Heartsoft shall develop, regenerate and continuously update the
Computer Programs in accordance with the terms of the Software Agreement.
7.2 The parties hereto acknowledge that the Computer Programs contain
valuable proprietary trading information, and neither party hereto shall
disclose to any other person the source codes of the Computer Programs nor
any other information concerning the Computer Programs without the written
consent of the other, subject only to the right of Heartsoft, upon receipt of
an executed non-disclosure agreement from other parties, to disclose such
information about the Computer Programs to such parties as may be necessary
during the normal course of business.
8. REPRESENTATIONS AND WARRANTIES
8.1 Heartsoft hereby represents and warrants to the Partnership that the
following representations and warranties are true and correct as of the date
hereof, and acknowledges that the Partnership is relying on such
representations and warranties in connection with the performance of its
obligations under this agreement:
(a) Heartsoft is a corporation duly incorporated, organized and validly
subsisting under the laws of the State of Delaware;
(b) This agreement constitutes a valid and binding obligation of
Heartsoft, enforceable against it in accordance with its terms, and
each of the instruments and documents necessary to give effect to the
transactions contemplated herein will, when executed and delivered by
Heartsoft, constitute a valid and binding obligation of Heartsoft,
enforceable against it in accordance with its terms;
(c) The entering into of this agreement and the consummation of the
transactions contemplated herein have not resulted and will not
result in the violation of or default under any of the terms and
provisions of any trust deed, hypothecation, indenture, mortgage,
lease, agreement, written or oral, license or permit to which
Heartsoft is a party or by which Heartsoft may be bound;
(d) The entering into of this agreement and the consummation of the
transactions contemplated herein will not result in the violation
of any statute, regulation, judgment, decree or law to which Heartsoft
may be subject, or any applicable order of any court, arbitrator or
government authority having jurisdiction over Heartsoft or its
property;
(e) Heartsoft is not materially in default or breach of any contract,
agreement, lease or other instrument to which it is a party or by
which it may be bound, nor is it aware of any state of facts which
after notice or the passage of time, or both, would constitute such a
material default or breach;
(f) Heartsoft has taken all such steps and done all such things as may be
necessary in order to allow Heartsoft and the Partnership to carry out
the joint venture agreed to herein, including but not limited to
obtaining all such licenses, registrations, authorizations and
permits necessary to carry on business from the State of Delaware and
in all other states in which Heartsoft carries on business; and
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(h) the Computer Programs have been prepared in a workmanlike manner and
with professional diligence and skill, will function efficiently in
the machines and with operating systems for which they are designed,
is free from defect, deficiency, design flaw or bug of any nature
and will otherwise be wholly suitable for the purpose for which the
Joint Venture intends to use them and for which they have been
designed.
8.2 The representations and warranties set out in section 8.1 above shall
survive and continue in full force and effect for the benefit of the
Partnership until ten years after the expiry or termination of this
agreement, including all amendments, extensions and renewals thereof.
8.3 No claim by the Partnership for breach of representation or warranty by
Heartsoft shall be valid unless Heartsoft has been given notice thereof
before the date on which the representation or warranty shall have terminated
in accordance with section 8.2 above.
8.4 The Partnership hereby represents and warrants to Heartsoft that the
following representations and warranties are true and correct as of the date
hereof, and acknowledges that Heartsoft is relying on such representations
and warranties in connection with the performance of its obligations under
this agreement:
(a) The Partnership is a limited partnership duly registered and in good
standing in the Province of Ontario;
(b) This agreement constitutes a valid and binding obligation of the
Partnership, enforceable against it in accordance with its terms, and
each of the instruments and documents necessary to give effect to the
transactions contemplated herein will, when executed and delivered by
the Partnership, constitute a valid and binding obligation of the
Partnership, enforceable against it in accordance with its terms;
(c) The entering into of this agreement and the consummation of the
transactions contemplated herein have not resulted and will not
result in the violation of or default under any of the terms and
provisions of any trust deed, hypothecation, indenture, mortgage,
lease, agreement, written or oral, license or permit to which the
Partnership is a party or by which it may be bound;
(d) The entering into of this agreement and the consummation of the
transactions contemplated herein will not result in the violation
of any statute, regulation, judgment, decree or law to which the
Partnership may be subject, or any applicable order of any court,
arbitrator or government authority having jurisdiction over the
Partnership or its property;
(e) the Partnership is not materially in default or breach of any
contract, agreement, lease or other instrument to which it is a party
or by which it may be bound, nor is it aware of any state of facts
which after notice or the passage of time, or both, would
constitute such a material default or breach; and
(f) the Partnership has taken all such steps and done all such things as
may be necessary in order to allow the Partnership to carry out the
joint venture agreed to
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herein, including but not limited to obtaining all such licenses,
registrations, authorizations and permits necessary to carry on
business in and from Ontario;
8.5 The representations and warranties set out in section 8.4 above shall
survive and continue in full force and effect for the benefit of Heartsoft
until ten years after the expiry or termination of this agreement, including
all amendments, extensions and renewals thereof.
8.6 No claim by Heartsoft for breach of representation or warranty by the
Partnership shall be valid unless the Partnership has been given notice
thereof before the date on which the representation or warranty shall have
terminated in accordance with section 8.5 above.
9. INDEMNIFICATION
9.1 The general indemnifications set out in this section are in addition to
any specific obligation of either of the parties hereto to indemnify the
other hereunder.
9.2 Heartsoft shall indemnify and save harmless the Partnership for and
from and against any Losses suffered by it as a result of any inaccuracy in
or breach of any representation or warranty by Heartsoft, or the failure of
Heartsoft to fulfill any condition or perform any covenant as provided herein.
9.3 The Partnership shall indemnify and save harmless Heartsoft for, from
and against any Losses suffered by it as a result of any inaccuracy in or
breach of any representation or warranty by the Partnership or the failure of
the Partnership to perform any covenant as provided herein.
9.4 Notwithstanding anything else in this section, each of the parties
hereto shall have an obligation to mitigate any Losses which are the subject
of a claim for indemnification.
10. TERMINATION
10.1 Notwithstanding any other term of this agreement, the Partnership may,
but is not obligated to, terminate this agreement upon 30 days written notice
in the event that:
(a) Heartsoft becomes bankrupt or insolvent or makes an assignment for the
benefit of its creditors;
(b) either Heartsoft takes steps to wind-up, dissolve or liquidate, except
for internal corporate reorganizations, mergers or shareholder
reorganizations;
(c) if a trustee, receiver, receiver and manager or other custodian is
appointed with respect to the assets or undertaking of Heartsoft; or
(d) there is a material breach of this agreement.
10.2 On or after January 1, 1999, notwithstanding any other term of this
agreement, but subject to section 10.3 of this agreement, Heartsoft may, but
is not obligated to, terminate this agreement upon 30 days written notice to
the Partnership.
10.3 In the event that Heartsoft elects to terminate this agreement in
accordance with section 10.02 of this agreement, Heartsoft and the
Partnership shall negotiate, in good faith, a price at which the
Partnership's interest in the Joint Venture shall be acquired by Heartsoft.
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11. NOTICE
11.1 Any notice, direction or other instrument required or permitted to be
given pursuant to this agreement shall be in writing and may be given by
delivering the same or sending the same by prepaid first class mail or by
telecopier to the appropriate party as follows:
(a) To Heartsoft:
0000 Xxxxx Xxxxxxx Xxxxxx
Xxxxxx Xxxxx, Xxxxxxxx 00000
Attention: Xxxxx Xxxxxxx
Fax: 000-000-0000
(b) The Partnership:
c/o CVI LP Management Inc.
000 Xxxxxxxx Xxxxxx Xxxx, Xxxxx 000
Xxxxxxx, Xxxxxxx X0X I W2
Attention: Xxxx Xxxxxxx
Fax: 000-000-0000
11.2 Any such notice, direction or other instrument, if delivered, shall be
deemed to have been given on the date on which it was delivered and, if sent
by mail, shall be deemed to have been given on the seventh (7th) business day
following the date of mailing and, if transmitted by telecopier, shall be
deemed to have been given at the close of business in the office of the
addressee on the business day next following the transmission thereof.
11.3 Any party hereto may change its address for service or telecopier
number from time to time by notice given to the other parties hereto in
accordance with the foregoing.
12. FURTHER ASSURANCES AND ACTIONS
12.1 Each of the parties hereto shall sign and deliver such further and
other documents, instruments, notices and papers and do and perform and cause
to be done and performed such further and other acts and things as may be
necessary or desirable in order to give full effect to the purpose and intent
of this agreement and all ancillary agreements relating to the transactions
contemplated herein.
13. GENERAL MATTERS
13.1 Unless otherwise expressly stated, all dollar amounts referred to in
this agreement are expressed and shall be payable in Canadian dollars.
13.2 In this agreement, unless the context otherwise requires, words
importing number include the singular and plural, words importing gender
include all genders, and words importing persons shall include firms,
corporations, trusts, estates, government agencies and departments and all
other types of entities, and vice versa.
13.3 In this agreement, references to "generally accepted accounting
principles" mean the principles established in and amended from time to time
by the Handbook of Canadian Institute of Chartered Accountants.
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13.4 Each of the provisions contained in this agreement is distinct and
severable, and a declaration of invalidity of unenforceability of one or more
provisions of this agreement by any court of competent jurisdiction shall not
effect the validity or enforceability of any other provision hereof.
13.5 This agreement constitutes the entire agreement between the parties
pertaining to the transaction contemplated herein and supersedes all prior
agreements, whether written or oral, and there are no other warranties,
representations or agreements between the parties in connection with the
transactions contemplated herein.
13.6 This agreement shall be governed by and interpreted in accordance with
the laws of the Province of Ontario and the laws of Canada as applicable
therein. Each of the parties hereto irrevocably attorns and submits to the
jurisdiction of the courts of the Province of Ontario.
13.7 Headings used in this agreement are for convenience of reference only
and do not form a part of this agreement, nor are they intended to interpret,
define or limit the scope, extent or intent of this agreement or any
provision hereof.
13.8 Any reference in this agreement to a statute shall include and shall be
deemed to be a reference to such statute and the regulations made pursuant
thereto, with amendments made thereto and in force from time to time, and to
any statute or regulation that may be passed which has the effect of
supplementing or superseding the statute so referred to or the regulations
made pursuant thereto.
13.9 Any reference in this agreement to any entity shall include and shall
be deemed to be a reference to any entity that is a successor to such entity.
13.10 Time shall be of the essence in this agreement.
13.11 This agreement may be executed in two (2) or more counterparts, each of
which shall be deemed to be an original and all of which together shall
constitute one and the same agreement.
13.12 This agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective heirs, legal personal representatives,
successors and assigns, but shall not be assignable by any party hereto
without the written consent of the other parties hereto.
13.13 No waiver of any provision of this agreement shall constitute a waiver
of any other Provision nor shall any waiver of any provision of this
agreement constitute a continuing waiver unless otherwise expressly provided.
EXECUTED at Toronto this 28th day of October, 1991.
HEARTSOFT INC.
Per: /s/ Xxxxxxxx X. Xxxxx
---------------------------------------------
Xxxxxxxx X. Xxxxx - Chief Executive Officer
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HEARTSOFT III 1997 LIMITED PARTNERSHIP, by
ITS GENERAL PARTNER, CVI LP MANAGEMENT INC.
Per: /s/ Xxxx Xxxxxxx
---------------------------------------------
Xxxx Xxxxxxx - President
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