ACQUISITION AGREEMENT
BETWEEN
THE FOREFRONT GROUP, INC.,
AND
LANPROFESSIONAL INC.
AND
XXXXX X. XXXXX, XXXXXX XXXX, XXXXXXX XXXXX,
XXXXXX XXXXX, AND JANG XXXXXXX XXXXX
MADE AS OF
September 29, 1997
TABLE OF CONTENTS
ARTICLE I
INTERPRETATION
Section 1.1 Definitions.....................................................1
Section 1.2 Headings........................................................3
Section 1.3 Extended Meanings...............................................3
Section 1.4 Accounting Principles...........................................3
Section 1.5 Currency........................................................3
Section 1.6 Schedules and Exhibits..........................................3
ARTICLE II
PURCHASE AND SALE
Section 2.1 Purchase and Sale...............................................4
Section 2.2 Closing.........................................................5
Section 2.3 Termination of Agreement........................................5
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1 Vendors' Representations and Warranties.........................6
Section 3.2 Survival of the Vendors' Representations, Warranties and
Covenants......................................................16
Section 3.3 Purchaser's Representations and Warranties.....................17
Section 3.4 Survival of the Purchaser's Representations, Warranties and
Covenants......................................................17
ARTICLE IV
COVENANTS
Section 4.1 Taxes .........................................................18
Section 4.2 Covenants of the Vendors.......................................18
Section 4.3 Covenants of the Purchaser.....................................18
Section 4.4 Securities Law Compliance......................................18
ARTICLE V
CONDITIONS
Section 5.1 Conditions for the Benefit of the Purchaser....................19
Section 5.2 Conditions for the Benefit of the Vendors......................21
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ARTICLE VI
INDEMNIFICATION AND ESCROW
Section 6.1 Survival of Representations and Warranties.....................22
Section 6.2 Indemnity......................................................22
Section 6.3 Escrow Fund; Procedure.........................................23
Section 6.4 No Third Party Beneficiaries...................................24
ARTICLE VII
GENERAL
Section 7.1 Further Assurances.............................................24
Section 7.2 Time of the Essence............................................24
Section 7.3 Commissions....................................................24
Section 7.4 Fees...........................................................24
Section 7.5 Public Announcements...........................................24
Section 7.6 Benefit of the Agreement.......................................24
Section 7.7 Entire Agreement...............................................25
Section 7.8 Amendments and Waiver..........................................25
Section 7.9 Assignment.....................................................25
Section 7.10 Notices.......................................................25
Section 7.11 Governing Law.................................................26
Section 7.12 Tax Effect of Transaction.....................................26
Section 7.13 Severability..................................................26
Section 7.14 Counterparts..................................................26
Section 7.15 Facsimile Signatures..........................................26
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ACQUISITION AGREEMENT
THIS AGREEMENT made as of September 29, 1997, is between The
ForeFront Group, Inc., a corporation incorporated under the laws of Delaware
(hereinafter referred to as the "Purchaser"), LanProfessional Inc., a
corporation incorporated under the laws of Canada (the "Corporation") and Xxxxx
X. Xxxxx, Naveen Seth, Xxxxxxx Xxxxx, Xxxxxx Xxxxx, and Jang Xxxxxxx Xxxxx
(hereinafter referred to individually as a "Vendor" and collectively as the
"Vendors").
WHEREAS, the Vendors are the beneficial and registered owners
of all of the issued and outstanding shares of the Corporation;
AND WHEREAS, the Purchaser, the Corporation and the Vendors
have agreed to the acquisition by the Purchaser of the Corporation upon and
subject to the terms and conditions hereinafter set forth;
AND WHEREAS, in order to effect such acquisition, the parties
have agreed to effect the reorganization described below in this Recital (the
"Reorganization"), namely:
a) the purchase by the Purchaser and the sale by the Vendors
of 1,800,000 Special Shares of the Corporation (the "Special
Shares") for cash consideration of U.S.$1,800,000 ("Step
One");
b) following Step One, the amendment of the share capital of
the Corporation by articles of amendment as follows;
(i) the creation of an unlimited number of
Exchangeable Shares of the Corporation having the
respective rights, privileges, restrictions and
conditions set forth in Exhibit I annexed hereto,
(ii) the exchange of the issued and outstanding
3,867,052 Class B Shares of the Corporation into
557,413 Exchangeable Shares so that each Vendor owns
that number of Exchangeable Shares as specified
beside each Vendor's name in Part II of Schedule A
hereto,
(iii) the exchange of the Special Shares of the
Corporation into 1,000,000 Class A Shares of the
Corporation, and
(iv) the cancellation, after giving effect to the
exchange described at paragraph (iii) above, of the
class of Class B Shares and the class of Special
Shares of the Corporation ("Step Two");
AND WHEREAS, the Exchangeable Shares will be exchangeable by
the holders for ForeFront Shares (as defined below) on a one-for-one basis.
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NOW THEREFORE, THIS AGREEMENT WITNESSES that, in consideration
of the premises and the covenants and agreements herein contained, the parties
hereto agree as follows:
ARTICLE I
INTERPRETATION
Section 1.1 Definitions. In this Agreement, unless something
in the subject matter or context is inconsistent therewith:
"Additional Escrow Agreement" means the Escrow Agreement made
and entered into between the Vendors, the Purchaser and XxXxxxxx
Xxxxxxxx, the Purchaser's special Canadian counsel in the form attached
as Exhibit M hereto;
"Agreement" means this agreement and all amendments made
hereto by written agreement between the Vendors, the Purchaser and the
Corporation;
"Balance Sheet" means the balance sheet of the Corporation as
at the Balance Sheet Date;
"Balance Sheet Date" means June 30, 1997;
"Business Day" means a day other than a Saturday, Sunday or
statutory holiday in Ontario;
"CBCA" means the Canada Business Corporations Act;
"Class B Shares" means 3,867,052 Class B Shares of the
Corporation, being all of the Class B Shares to be issued and
outstanding at the Time of Closing and to be exchanged for Exchangeable
Shares as described in Step Two of the Reorganization;
"Closing Date" means the date of execution of this Agreement
by the parties, or such other date as may be agreed to in writing
between the Vendors and the Purchaser;
"Closing Price" means U.S.$6.9375, being the closing price of
the shares of ForeFront Common Stock on the Nasdaq National Market
System on the Business Day prior to the date hereof;
"Corporation" means LanProfessional Inc., a Canadian
corporation d/b/a LanTec;
"Escrow Agent" means Texas Commerce Bank, N.A., pursuant to
the Escrow Agreement;
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"Escrow Agreement" means the Escrow Agreement made and entered
into between the Vendors, the Purchaser and the Escrow Agent attached
as Exhibit A hereto;
"Escrow Fund" means the cash and Escrowed Shares deposited by
the Vendors in escrow pursuant to the terms of Section 2.1(1)(a) and
(2);
"Escrow Period" means the period commencing on the Closing
Date and ending on the first anniversary of the Closing Date;
"Escrowed Shares" means the Exchangeable Shares to be
delivered to the Escrow Agent as provided in Section 2.1(2) or any
ForeFront Shares issued in exchange therefor;
"Exchange Rights Agreement" means the Exchange Rights
Agreement made and entered into by the Purchaser, the Corporation and
the Vendors attached as Exhibit G hereto;
"Exchangeable Shares" means the 557,143 Exchangeable Shares of
the Corporation having the rights, preferences and limitations set
forth in the Corporation's articles of amendment attached hereto as
Exhibit I;
"Financial Statements" has the meaning set out in Section
3.1(h);
"ForeFront Shares" means the shares of ForeFront Common Stock,
par value $.01 per share, to be issued in exchange for the Exchangeable
Shares pursuant to the terms of the Exchangeable Shares;
"Intellectual Property" means all right, title and interest of
the Corporation in, to and under all (i) trademarks, technology,
know-how, data, copyrights, trade names, service marks, domain names,
web sites, licenses, trade secrets, software programs, and other
intellectual property (collectively, the "Intellectual Property"), (ii)
the right to recover for infringement of any Intellectual Property, and
(iii) all goodwill associated with the business of the Corporation in
connection with which any of the Intellectual Property is used
(collectively, the "Intangible Assets").
"LockUp Agreement" means the LockUp Agreement between the
Purchaser and the Vendors attached as Exhibit B hereto;
"Registration Rights Agreement" means the Registration Rights
Agreement between the Purchaser and the Vendors attached as Exhibit J
hereto;
"Reorganization" has the meaning set out in the Recitals to
this Agreement;
"Special Shares" means 1,800,000 Special Shares of the
Corporation being all of the Special Shares of the Corporation to be
issued and outstanding at the Time of Closing
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and to be purchased by the Purchaser from the Vendors as described in
Step One of the Reorganization;
"Support Agreement" means the Support Agreement between the
Purchaser and the Corporation attached as Exhibit H hereto; and
"Time of Closing" means 3:00 p.m. (Ottawa time) on the Closing
Date.
Section 1.2 Headings. The division of this Agreement into
Articles and Sections and the insertion of headings are for convenience of
reference only and shall not affect the construction or interpretation of this
Agreement. The terms "this Agreement", "hereof", "hereunder" and similar
expressions refer to this Agreement and not to any particular Article, Section
or other portion hereof and include any agreement supplemental hereto. Unless
something in the subject matter or context is inconsistent therewith, references
herein to Articles and Sections are to Articles and Sections of this Agreement.
Section 1.3 Extended Meanings. In this Agreement words
importing the singular number only shall include the plural and vice versa,
words importing the masculine gender shall include the feminine and neuter
genders and vice versa and words importing persons shall include individuals,
partnerships, associations, trusts, unincorporated organizations and
corporations.
Section 1.4 Accounting Principles. Wherever in this Agreement
reference is made to a calculation to be made in accordance with generally
accepted accounting principles, such reference shall be deemed to be to the
generally accepted accounting principles from time to time approved by the
Canadian Institute of Chartered Accountants, or any successor institute,
applicable as at the date on which such calculation is made or required to be
made in accordance with generally accepted accounting principles.
Section 1.5 Currency. All references to currency herein are to
lawful money of Canada, unless otherwise specified.
Section 1.6 Schedules and Exhibits. The following are the
Schedules and Exhibits annexed hereto and incorporated by reference and deemed
to be part hereof:
Schedules
---------
Schedule A -- Ownership, Distribution and Escrow of Shares and Cash
Schedule B -- Certificates of Continuance and of Amendment
Schedule C -- Financial Statements
Schedule D -- Changes since Balance Sheet
Schedule E -- Tax Accounts, Retail Sales Tax Accounts and Goods and
Services Tax Accounts
Schedule F -- Material Contracts and Commitments
Schedule G -- Leases
Schedule H -- Royalty/Contract Fees
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Schedule I -- Employment Agreements and Employee Information
Schedule J -- Benefit Plans
Schedule K -- Litigation and Claims
Schedule L -- Intellectual Property Rights
Schedule M -- Insurance
Schedule N -- Permits
Schedule O -- Pricing
Schedule P -- Related Party Transactions
Exhibits
--------
Exhibit A -- Escrow Agreement
Exhibit B -- LockUp Agreement
Exhibit C -- Lease Agreement Amendment
Exhibit D -- Employment Agreement - Naveen Seth
Exhibit E -- Employment Agreement - Xxxxx Xxxxx
Exhibit F -- Opinion of Counsel - Vendor's Counsel
Exhibit G -- Exchange Rights Agreement
Exhibit H -- Support Agreement
Exhibit I -- Reorganization Articles of Amendment
Exhibit J -- Registration Rights Agreements
Exhibit K -- Special Resolutions of Holders of Exchangeable Shares
Exhibit L -- Opinion of Vendors' Counsel
Exhibit M -- Additional Escrow Agreement
Exhibit N -- Risk Factors related to ForeFront Shares
ARTICLE II
PURCHASE AND SALE
Section 2.1 Purchase and Sale.
(1) Upon and subject to the terms and conditions
hereof, on the Closing Date, the Reorganization shall be completed in the manner
set forth below:
(a) On the Closing Date, Step One of the
Reorganization shall be completed upon and subject to the terms and conditions
hereof, whereby the Vendors shall sell to the Purchaser and the Purchaser shall
purchase from the Vendors 1,800,000 Special Shares of the Corporation for a
total purchase price of U.S.$1,800,000, payable to the Vendors in the respective
amounts shown in Part II of Schedule A hereto. The number of Special Shares to
be purchased from each Vendor shall be the number of Special Shares specified
beside each Vendor's name in Part I of Schedule A hereto. The purchase price
shall be paid and satisfied by the Purchaser (i) as to U.S.$1,423,274 by
certified cheque or bank draft at the Time of Closing to the Vendors in the
respective amounts shown in Part III of Schedule A hereto or as they may direct
in writing to
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the Purchaser, upon delivery by the Vendors to the Purchaser of certificates for
the Special Shares, (ii) as to U.S.$50,000 by deposit by the Purchaser in escrow
to be held by the Escrow Agent pursuant to the Escrow Agreement in the
respective amounts shown in Part III of Schedule A hereto and (iii) as to
U.S.$100,000 (the "Securities Cash Escrow") to XxXxxxxx Xxxxxxxx, the
Purchaser's special Canadian counsel, as security for the costs and expenses of
the Purchaser as described in Section 4.4 and as to U.S.$226,726 to such counsel
as contemplated in Section 5.1(q), such aggregate amount of U.S.$326,726 (the
"Tax Cash Escrow") to be held in escrow in accordance with the terms of the
Additional Escrow Agreement in the respective amounts shown in Part IV of
Schedule A hereto.
(b) On the Closing Date, after completion of
Step One, articles of amendment in the form of Exhibit I shall be filed by the
Corporation to effect Step Two of the Reorganization and the Corporation shall
deliver to the Vendors certificates for the Exchangeable Shares in the
respective numbers shown in Part II of Schedule A hereto upon delivery by the
Vendors to the Corporation of certificates for the Class B Shares. With respect
to each Exchangeable Share, the Vendors shall have the right to exchange such
Exchangeable Share pursuant to this Agreement for one ForeFront Share pursuant
to the terms of the Exchangeable Shares.
(2) On the Closing Date, the Vendors shall deposit in
escrow 81,687 Exchangeable Shares to be held by the Escrow Agent pursuant to the
Escrow Agreement in the respective numbers set out in Part III of Schedule A
hereto.
Section 2.2 Closing. Subject to the right of Vendors,
ForeFront and Purchaser to terminate this Agreement pursuant to Section 2.3
hereof, the closing for the consummation of the purchase and sale contemplated
by this Agreement (the "Closing") shall, unless another date or place is agreed
to in writing by the parties, take place at the offices of XxXxxxxx Xxxxxxxx,
located at Xxx Xxxxxxxx, Xxxxx 0000, 00 Xxxxx Xx., Xxxxxx, Ontario, at 3:00
p.m., Ottawa time, on or before the Closing Date.
Section 2.3 Termination of Agreement. (a) This Agreement may,
by written notice given at or prior to the Closing in the manner hereinafter
provided, be terminated or abandoned:
(1) In the event that the Closing shall not have
occurred on or before October 15, 1997, by any party, unless such parties shall
otherwise agree in writing;
(2) By the Purchaser, if a default or breach shall be
made by the Vendors with respect to the due and timely performance of any of
their covenants and agreements contained herein, or with respect to the
correctness of or due compliance with any of their representations and
warranties contained in Article 3 hereof, and such default has not been cured or
waived;
(3) By the Vendors, if a default or breach shall be
made by the Purchaser with respect to the due and timely performance of any of
their covenants and agreements contained
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herein, or with respect to the correctness of or due compliance with any of its
representations and warranties contained in Article 3 hereof, and such default
has not been cured or waived;
(4) By the Purchaser, in the event that its Board of
Directors does not approve the terms of this Agreement or any related agreement,
in its sole discretion; or
(5) By mutual consent of the parties.
(b) No termination of this Agreement, whether pursuant to this
Section 2.3 or otherwise, shall terminate or impair any claim by any party
against the other based upon any breach hereof, nor shall it terminate any
obligations of any party to the other with respect to confidentiality of
information provided to such party by the other party pursuant to the terms of
that certain Confidentiality Agreement dated July 9, 1997 entered into between
the Corporation and the Purchaser.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1 Vendors' Representations and Warranties.
The Vendors, jointly and/or severally, represent and warrant
to the Purchaser that:
(a) the Corporation is a corporation duly incorporated,
organized and subsisting under the laws of Canada as
a private company as that term is defined in the
Securities Act (Ontario) with the corporate power to
own, lease or operate all properties and assets now
owned, leased or operated by it and to carry on its
business as now conducted and has made all necessary
filings under all applicable corporate, securities
and taxation laws or any other laws to which the
Corporation is subject;
(b) the authorized capital of the Corporation consists of
an unlimited number of Class A Shares, an unlimited
number of Class B Shares, and an unlimited number of
Special Shares, of which 3,867,052 Class B Shares and
1,800,000 Special Shares have been validly issued and
are outstanding as fully paid and non-assessable, and
of which no Class A Shares are outstanding;
(c) the rights, privileges, restrictions and conditions
attached to the Class A Shares, Class B Shares and
Special Shares of the Corporation are as set out in
Schedule B attached hereto;
(d) each Vendor is and at the Time of Closing will be the
beneficial and registered owner of the respective
number of Special Shares and Class B Shares set out,
respectively adjacent to his or her name, in Part I
of
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Schedule A hereto, free and clear of all liens,
charges, encumbrances and any other rights of others;
(e) the Vendors have good and sufficient power,
authority and right to enter into, deliver and
perform this Agreement (including, without
limitation, each of the related agreements attached
as an exhibit hereto to which such Vendor is a party)
and, at the Time of Closing, to transfer the legal
and beneficial title and ownership of the Special
Shares and the Exchangeable Shares to the Purchaser
free and clear of all liens, charges, encumbrances
and any other rights of others without the necessity
of any of the Vendors obtaining any consent,
approval, authorization or waiver or giving any
notice or otherwise, except for such consents,
approvals, authorizations, waivers and notices which
have been obtained and are unconditional and are in
full force and effect and such notices which have
been given;
(f) other than with respect to the Reorganization
contemplated herein, there is no contract, option or
any other right of another binding upon or which at
any time in the future may become binding upon:
(i) the Vendors to sell, transfer, assign,
pledge, charge, mortgage or in any other way
dispose of or encumber any of the Special
Shares and the Exchangeable Shares other
than pursuant to the provisions of this
Agreement, or
(ii) the Corporation to allot or issue any of the
unissued shares of the Corporation or to
create any additional class of shares;
(g) neither the entering into nor the delivery of this
Agreement nor the completion of the transactions
contemplated hereby by the Vendors will:
(i) constitute a violation of any of the
provisions of the constating documents or
by-laws of the Corporation;
(ii) conflict with, or constitute a breach or
default under, or give rise to any right of
termination, cancellation or acceleration
under, any term or provision of any
agreement or other instrument to which the
Corporation or any Vendor is a party or by
which the Corporation or any Vendor is
bound, or an event which, with notice, lapse
of time, or both, would result in any such
conflict, breach, default or right; or
(iii) constitute a violation of any applicable
law, rule, regulation, judgment, order or
decree applicable or relating to any Vendor
or the Corporation;
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(h) the audited financial statements of the Corporation,
consisting of the Balance Sheet and statements of
income, retained earnings and changes in financial
position for the period ended on the Balance Sheet
Date, together with the report of Xxxxx Xxxxxx Xxxxx,
chartered accountants, thereon and the notes thereto
(hereinafter collectively referred to as the
"Financial Statements"), a copy of which is attached
hereto as Schedule C:
(i) are in accordance with the books and
accounts of the Corporation as at the
Balance Sheet Date,
(ii) are true and correct and present fairly the
financial position of the Corporation as at
the Balance Sheet Date,
(iii) have been prepared in accordance with
generally accepted accounting principles
consistently applied, and
(iv) present fairly all of the assets and
liabilities of the Corporation as at the
Balance Sheet Date including, without
limiting the generality of the foregoing,
all contingent liabilities of the
Corporation as at the Balance Sheet Date;
(i) the financial position of the Corporation is at
least as good as the financial position of the
Corporation as at the Balance Sheet Date, except as
described on Schedule D; the Vendors shall ensure
that the Corporation has a quick ratio of one
(defined as the ratio of cash plus accounts
receivable to current liabilities including tax
liabilities and other long term liabilities created
due to this transaction); the accounts receivable of
the Corporation are good and collectible in the
ordinary course of business; and product returns
shall not exceed U.S.$26,661 on sales of the
Corporation's products by the Purchaser for the three
month period prior to the Closing Date (provided that
the Vendors shall be entitled to conduct an audit if
such returns exceed such amount);
(j) since the Balance Sheet Date the business of the
Corporation has been carried on in its usual and
ordinary course and the Corporation has not entered
into any transaction out of the usual and ordinary
course of business, except as described on Schedule
D;
(k) since the Balance Sheet Date there has been no change
in the affairs, business, prospects, operations or
condition of the Corporation, financial or otherwise,
whether arising as a result of any legislative or
regulatory change, revocation of any licence or right
to do business, fire, explosion, accident, casualty,
labor dispute, flood, drought, riot, storm,
condemnation,
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act of God, public force or otherwise, except changes
occurring in the usual and ordinary course of
business which have not materially adversely affected
the affairs, business, prospects, operations or
condition of the Corporation, financial or otherwise
except as described on Schedule D;
(l) the Corporation is the owner with a good and
marketable title, free and clear of all liens,
charges, encumbrances and any other rights of others,
of all assets shown or reflected on the Balance
Sheet, except only such of the assets of the
Corporation as have been disposed of in the usual and
ordinary course of business since the Balance Sheet
Date, and of all assets acquired by the Corporation
since the Balance Sheet Date;
(m) all machinery and equipment owned or used by the
Corporation has been properly maintained and is in
good working order for the purposes of ongoing
operation, subject to ordinary wear and tear for
machinery and equipment of comparable age;
(n) the tangible assets owned or used by the
Corporation (i) are in good operating condition,
order and repair, subject to ordinary wear and tear,
and have been maintained in accordance with standard
industry practice, (ii) are adequate for the purposes
for which they are being used and are capable of
being used in the business as presently being
conducted without present need for repair or
replacement except in the ordinary course of the
business, and (iii) in the aggregate provide the
capacity to enable the Corporation to engage in
commercial operation on a continuous basis (subject
to normal maintenance and repair outages in the
ordinary course). All real and tangible personal
property held by the Corporation under lease is held
under a valid and binding lease agreement that is in
full force and effect. The Corporation is not in
default, and no notice of alleged default has been
received by the Corporation, under any such lease and
no lessor is in default or alleged to be in default
thereunder.
(o) all of the inventories of the Corporation are of
merchantable quality and reasonably fit for their
usual purpose;
(p) there are no outstanding orders, notices or similar
requirements relating to the Corporation issued by
any building, environmental, fire, health, labor or
police authorities or from any other federal,
provincial or municipal authority and there are no
matters under discussion with any such authorities
relating to orders, notices or similar requirements;
(q) except as described on Schedule D, no single capital
expenditure in excess of $1,000 or capital
expenditures in the aggregate in excess of $10,000
have been made or authorized by the Corporation since
the Balance Sheet Date;
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(r) except as described on Schedule D, no dividends have
been declared or paid on or in respect of any shares
of the Corporation and no other distribution on any
of its securities or shares has been made by the
Corporation since the Balance Sheet Date and all
dividends which to the date hereof have been declared
or paid by the Corporation have been duly and validly
declared or paid;
(s) the Corporation does not have any liability,
obligation or commitment for the payment of income
taxes, corporation taxes or any other taxes or duties
of whatever nature or kind, or interest or penalties
with respect thereto, except such as are disclosed in
the Financial Statements or such taxes or duties not
yet due or for which a filing or declaration related
thereto is not yet required to be made as have arisen
since the Balance Sheet Date in the usual and
ordinary course of business and for which adequate
provision in the accounts of the Corporation has been
made, and the Corporation is not in arrears with
respect to any required withholdings or installment
payments of any tax or duty of any kind and has not
filed any waiver for a taxation year of the
Corporation under the Income Tax Act (Canada) or any
other legislation imposing tax on the Corporation;
(t) the tax accounts of the Corporation as disclosed
in Schedule E attached hereto are true and complete
in all material respects and provide the
undepreciated capital cost of all assets of the
Corporation; the Vendors have made available to the
Purchaser, to the extent requested by the Purchaser,
all tax reports and returns of the Corporation for
all periods ending prior to the date hereof. No
Vendor has received notice of any tax deficiency
outstanding, proposed or assessed against or
allocable to the Corporation, nor has any Vendor
executed any waiver of any statute of limitations on
the assessment or collection of any tax or executed
or filed under the Income Tax Act (Canada) or any
other governmental body any agreement now in effect
extending the period for assessment or collection of
any taxes against the Corporation. There are no tax
liens upon, pending against or, to the knowledge of
Vendors, threatened against any asset;
(u) there are no outstanding liabilities against the
Corporation except trade debts incurred in the usual
and ordinary course of business;
(v) the Corporation is not a party to any contract or
commitment outside the usual and ordinary course of
business and is not a party to any contract or
commitment extending for a period of time longer than
one month or involving expenditures by the
Corporation in the aggregate in excess of $10,000,
except such contracts or commitments as are listed in
Schedule F attached hereto;
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(w) the Corporation is not in default or breach of any
contract or commitment to which it is a party and
there exists no condition, event or act which, with
the giving of notice or lapse of time or both would
constitute such a default or breach and all such
contracts and commitments are in good standing and in
full force and effect without amendment thereto and
the Corporation is entitled to all benefits
thereunder;
(x) the Corporation is not a party to or bound by any
guarantee, indemnification, surety or similar
obligation;
(y) the Corporation is not a party to any lease or
agreement in the nature of a lease for real or
personal property, whether as lessor or lessee,
except as are listed in Schedule G;
(z) the Corporation does not have any subsidiaries or
agreements, options or commitments to acquire any
shares or securities of any corporation or to acquire
or lease any business operations, real property or
assets;
(aa) there is no agreement, option, understanding or
commitment, or any right or privilege capable of
becoming an agreement, for the purchase from the
Corporation of its business or any of its assets
other than in the usual and ordinary course of
business;
(bb) the Corporation is not a party to or bound by any
contract or commitment to pay any royalty, licence
fee, consulting fee, contractor fee or management
fee, except as disclosed on Schedule H;
(cc) the Corporation does not have any employment contract
(verbal or written) with any person whomsoever except
such contracts as are listed in Schedule I attached
hereto and such Schedule truly and correctly sets out
whether such contracts are in writing and the annual
salary and the length of employment of each of the
employees of the Corporation;
(dd) the Corporation is not bound by or a party to:
(i) any collective bargaining agreement, or
(ii) any benefit plan including, without limiting
the generality of the foregoing, any pension
plan maintained by or on behalf of the
Corporation for any of its employees, except
such agreements and plans as are listed in
Schedule J attached hereto;
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(ee) all benefit plans listed in Schedule J attached
hereto have been duly registered where required by,
and are in good standing under, all applicable
legislation including, without limiting the
generality of the foregoing, the Income Tax Act
(Canada) and the Pension Benefits Act (Ontario) and
all required employer contributions under any such
plans have been made and the applicable funds have
been funded in accordance with the terms thereof of
the plans and no past service funding liabilities
exist thereunder; Schedule J sets out in detail the
benefit plans which have been registered and the
amounts, if any, of employer contributions made to
date;
(ff) no trade union, council of trade unions,
employee bargaining agency or affiliated bargaining
agent:
(i) holds bargaining rights with respect to any
of the Corporation's employees by way of
certification, interim certification,
voluntary recognition, designation or
successor rights,
(ii) has applied to be certified as the
bargaining agent of any of the Corporation's
employees, or
(iii) has applied to have the Corporation declared
a related employer pursuant to Section 1(4)
of the Labor Relations Act (Ontario);
(gg) except as identified in Schedule D hereto and except
for remuneration paid to employees in the usual and
ordinary course of business and made at current rates
of remuneration no payments have been made or
authorized since the Balance Sheet Date by the
Corporation to officers, directors or employees of
the Corporation;
(hh) no director, former director, officer, shareholder or
employee of the Corporation or any person not dealing
at arm's length within the meaning of the Income Tax
Act (Canada) with any such person is indebted to the
Corporation, except such indebtedness as is disclosed
in Schedule F attached hereto;
(ii) there are no claims, actions, suits or
proceedings (whether or not purportedly on behalf of
the Corporation) pending or threatened against or
adversely affecting, or which could adversely affect,
the Corporation or any of its assets, officers,
directors, shareholders or employees, or before or by
any federal, provincial, municipal or other
governmental court, department, commission, board,
bureau, agency or instrumentality, domestic or
foreign, whether or not insured, and which might
involve the possibility of any judgment or liability
against the Corporation, except such actions, suits
or proceedings as are disclosed in Schedule K
attached hereto;
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(jj) the Corporation is not conducting its business
in any jurisdiction other than the Province of
Ontario;
(kk) the Corporation is conducting its business in
compliance with all applicable laws, rules,
regulations, notices, approvals and orders of Canada
and of the Province of Ontario and all municipalities
thereof in which its business is carried on, is not
in breach of any such laws, rules, regulations,
notices, approvals or orders and is duly licensed,
registered or qualified, and duly possesses all
permits and quotas, in the Province of Ontario and
all municipalities thereof in which the Corporation
carries on its business to enable its business to be
carried on as now conducted and its assets to be
owned, leased and operated, and all such licences,
registrations, qualifications, permits and quotas are
valid and subsisting and in good standing and none of
the same contains or is subject to any term,
provision, condition or limitation which has or may
have a material adverse effect on the operation of
its business or which may adversely change or
terminate such licence, registration, qualification,
permit or quota by virtue of the completion of the
transactions contemplated hereby;
(ll) the operation of the Corporation on any lands from
which it conducts the operations of its business is
not subject to any restriction or limitation and is
not in contravention of any law or regulation or of
any decree or order of any court or other body having
jurisdiction;
(mm) attached hereto as Schedule L is a list of all
registered trade marks, trade names, patents and
copyrights, of all unregistered trade marks, trade
names and copyrights and of all patent applications,
trade xxxx registration applications and copyright
registration applications, both domestic and foreign,
owned or made by the Corporation or otherwise used in
or necessary for the Corporation to conduct its
business;
(nn) all trade marks, trade names, patents and copyrights,
both domestic and foreign, used in or required for
the proper carrying on of the Corporation's business
are validly and beneficially owned by the Corporation
with the sole and exclusive right to use the same and
are in good standing and duly registered in all
appropriate offices to preserve the right thereof and
thereto;
(oo) the Intellectual Property includes (but is not
limited to) all of the items listed in Schedule L
hereto. The Corporation owns all right title and
interest to the Intellectual Property except for
those indicated as "licensed" in Schedule L. Schedule
L also sets forth all license agreements with respect
to any of the foregoing as to which the Corporation
is licensor or licensee. There are no pending or, to
the knowledge of any Vendor, threatened infringement
claims against the Corporation by any person with
respect to any of the items listed on Schedule L nor
has any such item been declared
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invalid or been limited by any court or agreement.
Subject to any required third party consents which
have been obtained and are in full force and effect
or will be obtained and in full force and effect on
the Closing Date, the Intellectual Property will
afford Purchaser at all times after the Closing Date
the rights to use all technology, proprietary
information, know-how, patents, designs, inventions,
trademarks, copyrights, trade names and service marks
owned by the Corporation or others necessary for the
conduct of the business as presently being conducted.
To the best of Vendors' knowledge, information and
belief, the use of the Intellectual Property will
not, and the conduct of the Corporation does not,
infringe upon the trade marks, trade names, patents
or copyrights, domestic or foreign, of any other
person;
(pp) attached hereto as Schedule M is a true and complete
list of all insurance policies maintained by the
Corporation that also specifies the insurer, the
amount of the coverage, the type of insurance, the
policy number and any pending claims thereunder;
(qq) four of the Vendors, namely, Xxxxx X. Xxxxx, Naveen
Seth, Xxxxxx Xxxxx and Xxxxxxx Xxxxx, are resident
persons of Canada and the remaining Vendor, namely,
Jang Bhadhar Sethi, is a non-resident person within
the meaning of section 116 of the Income Tax Act
(Canada);
(rr) Schedules F and G hereto contains a list of all
contracts, leases, agreements and instruments
material to the business or requiring the performance
by the Corporation of any material obligations of the
Corporation after the date hereof except (i)
employment agreements and contracts for miscellaneous
services, in each case terminable at will without any
liability, (ii) purchase orders and contracts with
suppliers and customers entered into in the ordinary
course of business, and (iii) miscellaneous
contracts, leases, agreements and instruments (with
persons unaffiliated with the Vendors) involving
liabilities under all such contracts, leases,
agreements and instruments of not more than Five
Thousand Dollars ($5,000), individually or Twenty
Five Thousand Dollars ($25,000) in the aggregate. The
Vendors have heretofore delivered, or made available,
to Purchaser or its counsel complete copies of all
contracts, leases, agreements and instruments listed
in Schedules F and G. There are no existing defaults
by the Corporation or to the knowledge of any Vendor,
other parties, under any of the contracts, leases,
agreements and instruments comprising the Scheduled
Leases and Contracts;
(ss) The Corporation possesses all the permits listed in
Schedule N hereto, copies of all of which have been
delivered to the Purchaser. Such permits constitute
all the permits necessary under law or otherwise for
the Corporation to conduct the business as now being
conducted and to own or
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operate the assets in the manner in which they are
now being operated and used. Each of such permits and
the Corporation's rights with respect thereto is
valid and subsisting, in full force and effect, and
enforceable by the Corporation. The Corporation is in
compliance in all material respects with the terms of
such permits. None of such permits have been, or to
the knowledge of any Vendor, are threatened to be,
revoked, canceled, suspended or modified.
(tt) attached hereto as Schedule O is a complete and
accurate list by customer name of the Corporation's
standard prices and any applicable discounts.
(uu) neither the Corporation nor any officer,
employee or agent of the Corporation nor any other
person acting on its behalf, has, directly or
indirectly, within the past five (5) years, given or
agreed to give any gift or similar benefit to any
customer, supplier, government employee or other
person who is or may be in a position to help or
hinder the business of the Corporation (or to assist
the Corporation in connection with any actual or
proposed transaction) which (1) might subject the
Corporation to any damage or penalty in any civil,
criminal or governmental litigation or proceeding,
(2) if not given in the past, might have had a
material adverse effect on the assets, business or
operations of the Corporation as reflected in the
Financial Statements, or (3) if not continued in the
future, might materially adversely effect the assets,
business operations or prospects of the Corporation
or which might subject the Corporation to a lawsuit
or penalty in a private or governmental litigation or
proceeding;
(vv) none of the Vendors or associates of any Vendor nor
any affiliate of the Corporation, directly or
indirectly, owns any interest in (excepting not more
than a 5% holding for investment purposes in
securities of publicly held and traded companies), or
is an officer, director, employer or consultant of or
otherwise receives remuneration from, any person
which is, or is engaged in business as, a competitor,
lessor, lessee, customer or supplier of the
Corporation except as disclosed on Schedule P;
(ww) Disclosure.
(1) Vendors have fully provided the Purchaser or its
representatives with all the information that they have
requested for deciding whether to consummate the purchase of
the Corporation pursuant to the terms and conditions of this
Agreement.
(2) No representation or warranty of Vendors
contained in this Agreement or any Schedule attached hereto
contains any untrue statement. No representation or warranty
of Vendors contained in this Agreement or any Schedule
attached hereto omits to state a material fact necessary in
order to make the statements herein or therein, in light of
the circumstances under which they were
-16-
made, not misleading, provided, however, that notwithstanding
any provision to the contrary herein, Purchaser shall be
entitled only to rely on the latest version of information
furnished to the Purchaser by Vendors which supersedes
previous information furnished to the Purchaser.
(xx) Investment Representations.
(1) The ForeFront Shares to be received by Vendors
pursuant to the transactions contemplated by this Agreement
will be acquired for investment for their own accounts, not as
a nominee or agent and not with a view to the sale or
distribution of any part thereof, and the Vendors have no
present intention of selling, granting participations in, or
otherwise distributing the same. The Vendors do not have any
contract, undertaking, agreement, or arrangement with any
person to sell, transfer, or grant participations to such
person, or to any third person, with respect to any of the
ForeFront Shares.
(2) The Vendors understand that the ForeFront Shares
to be delivered pursuant to the transactions contemplated by
this Agreement are not registered under the Securities Act of
1933, as amended (the "1933 Act") or under the Securities Act
(Ontario) (the "Ontario Act"), on the basis that the offer and
sale provided for in this Agreement and the issuance of
securities hereunder is exempt from registration under the
1933 Act, and that Purchaser's reliance on such exemption is
predicated on the Vendors' representations set forth herein.
(3) The Vendors understand that the ForeFront Shares
to be delivered pursuant to this Agreement and the Exchange
Rights Agreement may not be sold, transferred, or otherwise
disposed of without registration under the 1933 Act or the
filing of a prospectus under the Ontario Act, or an exemption
therefrom, and in no instance prior to the expiration of one
year from the date of delivery to them, and that in the
absence of an effective registration statement or an available
exemption that such securities must be held in accordance with
applicable rules relating thereto.
(4) The Vendors have such knowledge and experience in
financial and business matters as to be capable of evaluating
the merits and risks of their investment in the ForeFront
Shares and have the ability to bear the economic risks of such
investment, including, without limitation, the risk factors
set forth in Exhibit N attached hereto. The Vendors have had
access to and an opportunity to inspect relevant business,
financial and other corporate information and data of the
Purchaser. All information which the Vendors have requested
from the Purchaser concerning the Purchaser and each of its
business and affairs has been made available to them,
including the SEC Documents as defined in Section 3.3(g). The
Vendors have had, during the course of the transaction and
prior to the Closing, the opportunity to ask questions of, and
receive answers from, the Purchaser concerning
-17-
the Purchaser and each of its business and affairs and
ForeFront Shares and to obtain additional information (to the
extent the Purchaser possessed such information or could
acquire it without unreasonable effort or expense) necessary
to verify the accuracy of any information furnished to them.
(5) The Vendors represent and warrant that they have
not, since the execution of the Letter of Intent dated August
15, 1997 for this transaction, bought or sold any shares of
ForeFront Common Stock, nor have any of their spouses or
family members or other contacts who may have knowledge of
this transaction, to the best of their knowledge.
Section 3.2 Survival of Vendors's Representations, Warranties
and Covenants.
(1) The representations and warranties of the Vendors
set forth in Section 3.1 shall survive the completion of the transactions herein
provided for and, notwithstanding such completion:
(a) the representations and warranties of the Vendors relating
to the tax liability of the Corporation, shall, unless such representations and
warranties prove to be false as a result of any misrepresentation made or fraud
committed in filing a return or supplying information for the purposes of the
Income Tax Act (Canada) or any other legislation imposing tax on the
Corporation, continue in full force and effect for the benefit of the Purchaser
until the expiration of the last of the limitation periods contained in the
Income Tax Act (Canada) and any other legislation imposing tax on the
Corporation subsequent to the expiration of which an assessment, reassessment or
other form or recognized document assessing liability for tax, interest or
penalties thereunder for the period ended on the Balance Sheet Date cannot be
issued to the Corporation;
(b) the representations and warranties of the Vendors relating
to the tax liability of the Corporation, which prove to be false as a result of
any misrepresentation made or fraud committed in filing a return or in supplying
information for the purposes of the Income Tax Act (Canada) or any other
legislation imposing tax on the Corporation shall continue in full force and
effect for the benefit of the Purchaser and be unlimited as to duration; and
(c) the remaining representations and warranties of the
Vendors set forth in Section 3.1 shall continue in full force and effect for the
benefit of the Purchaser for a period of one year from the Closing Date.
(2) The covenants of the Vendors set forth in this
Agreement shall survive the completion of the transactions herein provided for
and, notwithstanding such completion, shall continue in full force and effect
for the benefit of the Purchaser in accordance with the terms thereof.
-18-
Section 3.3 Purchaser's Representations and Warranties.
The Purchaser represents and warrants to the Vendors that:
(a) the Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the state of Delaware and is
qualified to transact business and is in good standing as a foreign corporation
in the jurisdictions where it is required to qualify in order to conduct its
businesses as presently conducted. The Purchaser has the corporate power and
authority to own, lease or operate all properties and assets now owned, leased
or operated by it and to carry on its businesses as now conducted;
(b) the Purchaser may execute, deliver and perform this
Agreement without the necessity of the Purchaser obtaining any consent,
approval, authorization or waiver or giving any notice or otherwise, except for
such consents, approvals, authorizations, waivers and notices which have been
obtained and are unconditional and are in full force and effect and such notices
which have been given;
(c) the execution, delivery and performance of this Agreement
do not and will not:
(1) constitute a violation of the
certificate of incorporation, as amended, or
the bylaws, as amended, as the case may be,
of the Purchaser;
(2) constitute a violation of any statute,
judgment, order, decree or regulation or
rule of any court, governmental authority or
arbitrator applicable or relating to the
Purchaser; or
(3) constitute a default under any contract to
which the Purchaser is a party except where
such default would not have a material
adverse effect upon the Purchaser or the
ability of the Purchaser to perform its
obligations under this Agreement;
(d) this Agreement has been duly authorized, executed and
delivered by the Purchaser. This Agreement constitutes the legal, valid and
binding obligation of the Purchaser, enforceable in accordance with its terms,
except as may be limited by bankruptcy, reorganization, insolvency and similar
laws of general application relating to or affecting the enforcement of rights
of creditors;
(e) the authorized stock of the Purchaser consists of
20,000,000 shares of Common Stock, $.01 par value, of which 6,500,850 shares
were issued and outstanding as of the date hereof, and 5,000,000 shares of
undesignated Preferred Stock, $.01 par value, none of which were issued and
outstanding as of the date hereof. All such shares have been duly authorized and
all such issued and outstanding shares have been validly issued and are fully
paid and nonassessable;
-19-
(f) the ForeFront Shares will be duly authorized and when
issued, will be validly issued, fully paid, and non-assessable and will be free
of any liens and encumbrances except as set forth herein or in the Exchange
Rights Agreement or the Support Agreement and except for liens or encumbrances
created by the Vendors.
(g) the Purchaser has furnished the Vendors with a true and
complete copy of all of its filings with the Securities and Exchange Commission
(the "SEC") since December 31, 1996 (the "SEC Documents"). The SEC Documents
comply in all respects with the Securities Act of 1933, as amended, the
Securities Exchange Act of 1934, as amended, and the rules and regulations of
the SEC (together the "SEC Laws"). The Purchaser has, since its inception,
complied in all material respects with the filing requirements of the SEC Laws.
None of the SEC Documents contains any material untrue statement or omits to
state a material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The SEC
Documents contain an audited consolidated balance sheet of the Purchaser as of
December 31, 1996 and the related consolidated statements of income and cash
flow for the year then ended and the Purchaser's unaudited consolidated balance
sheet as of March 31, 1997 and June 30, 1997 and the related unaudited
consolidated statements of income and cash flow for the three month period then
ended (collectively, the "Purchaser's Financials"). The Purchaser's Financials
are correct in all material respects and have been prepared in accordance with
United States generally accepted accounting principles applied on a basis
consistent throughout the periods indicated and consistent with each other. The
Purchaser's Financials present fairly the financial condition and operating
results and cash flows of the Purchaser as of the dates and during the periods
indicated therein, subject, in the case of unaudited statements, to normal
year-end adjustments, which will not be material in amount or significance,
individually or in the aggregate;
(h) Since the date of the balance sheet included in the
Purchaser's most recently filed report on Form 10-Q, other than the sale of the
Verona Technology to Hewlett-Packard Company, the Purchaser has conducted its
business in the ordinary course and there has not occurred: (i) any material
adverse change in the financial condition, liabilities, assets, business, or
prospects of the Purchaser, (ii) any amendments or changes in the Articles of
Incorporation or Bylaws of the Purchaser, (iii) any damage to, destruction or
loss of any assets of the Purchaser that materially and adversely affects the
financial condition, business or prospects of the Purchaser or any of its
subsidiaries, (iv) any sale of a material amount of property of the Purchaser,
except in the ordinary course of business; or (v) any material acquisition of
other corporations or businesses;
(i) There is no action, suit, proceeding, claim, arbitration
or investigation pending, or as to which the Purchaser has received any notice
of assertion nor, to the Purchaser's knowledge, is there a reasonable basis to
expect such notice of assertion, against the Purchaser which would materially
affect the Purchaser or that in any manner challenges or seeks to prevent,
enjoin, alter or materially delay any of the transactions contemplated by this
Agreement; and
(j) The Purchaser does not have any material liability,
obligation, expense, claim, deficiency, guaranty or endorsement of any type,
whether accrued, absolute, contingent,
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matured, unmatured or other (whether or not required to be reflected in
financial statements in accordance with United States generally accepted
accounting principles), which individually or in the aggregate (i) has not been
reflected in the SEC Documents and the financial statements contained therein or
(ii) has not arisen in the ordinary course of the Purchaser's business since the
date of the Purchaser's most recently filed report on Form 10-Q.
Section 3.4 Survival of the Purchaser's Representations,
Warranties and Covenants.
(1) The representations and warranties of
the Purchaser set forth in Section 3.3 shall survive the completion of the
transactions herein provided for and, notwithstanding such completion, shall
continue in full force and effect for the benefit of the Vendors for a period of
one year from the Closing Date.
(2) The covenants of the Purchaser set forth
in this Agreement shall survive the completion of the transactions herein
provided for and, notwithstanding such completion, shall continue in full force
and effect for the benefit of the Vendors in accordance with the terms thereof.
ARTICLE IV
COVENANTS
Section 4.1 Taxes.
The Purchaser does not assume and shall not be liable for any
taxes under the Income Tax Act (Canada) or any other taxes whatsoever which may
be or become payable by the Vendors including, without limiting the generality
of the foregoing, any taxes resulting from or arising as a consequence of the
transactions herein contemplated, and the Vendors shall indemnify and save
harmless the Purchaser from and against all such taxes.
Section 4.2 Covenants of the Vendors.
(a) The Vendors shall ensure that the representations and
warranties of the Vendors set out in Section 3.1 over which the Vendors have
reasonable control are true and correct at the Time of Closing and that the
conditions of closing for the benefit of the Purchaser set out in Section 5.1(1)
over which the Vendors have reasonable control have been performed or complied
with by the Time of Closing.
(b) The Vendors shall permit the Purchaser, through its agents
and representatives, to make such reasonable investigation prior to the Time of
Closing of the assets of the Corporation and of its financial and legal
condition as the Purchaser consider necessary or advisable to familiarize
themselves with such assets and other matters and the Vendors shall supply any
and all documents and records of the Corporation to the Purchaser and its agents
and representatives as they may reasonably require. The Vendors shall also
permit the inspection of the assets of the Corporation prior to the Time of
Closing by such federal, provincial or municipal authorities as the Purchaser
may require. Such investigations and inspections shall not, however,
-21-
affect or mitigate the Vendors' covenants, representations and warranties
hereunder which shall continue in full force and effect.
(c) The Vendors shall execute the Registration Rights
Agreement in the form attached hereto as Exhibit J, at such time as requested by
the Purchaser, in the event that the Purchaser is required to file a
registration statement relating to the ForeFront Shares pursuant to the terms of
Section 4.3 hereof.
(d) Xxxxx X. Xxxxx and Xxxxxx Xxxx agree that they will use
best efforts to obtain the consent of all employees of the Corporation who are
not currently bound by such an agreement to enter into agreements not to compete
with the Corporation for the six months period following termination of the
employment.
(e) It is contemplated that following the Closing, the
Corporation may be continued under the Business Corporations Act (Ontario)
and/or amalgamated with a wholly-owned subsidiary of the Purchaser to whom the
Purchaser may transfer all of the Class A Shares. The Vendors, as holders of the
Exchangeable Shares, but subject to the provisions of Sections 4.1 and 4.2 of
Exhibit I attached hereto, shall consent to such continuation and/or
amalgamation in the manner set forth in the Exhibits attached as K-1 and K-2
hereto and shall do all other things and take all other actions as may be
necessary or appropriate therefor. The Corporation is hereby authorized to
insert the dates in and attach the applicable articles to such special
resolutions. Notwithstanding the foregoing and Section 4.3 of the terms of the
Exchangeable Shares as set out in Exhibit I hereto, the Corporation shall not
implement any continuation or amalgamation or, without the consent of the
Vendors, any other amendment to the articles of the Corporation, if such
continuation or amalgamation or other amendment, as the case may be, will result
in adverse tax consequences to the Vendors based on the provisions of the Income
Tax Act (Canada) in effect on the date of this Agreement.
Section 4.3 Covenants of the Purchaser.
(a) The Purchaser shall ensure that the representations and
warranties of the Purchaser set out in Section 3.3 over which the Purchaser has
reasonable control are true and correct at the Time of Closing and that the
conditions of closing for the benefit of the Vendors set out in Section 5.2(1)
over which the Purchaser has reasonable control have been performed or complied
with by the Time of Closing.
(b) The Purchaser shall, at all times following the issue of
the ForeFront Shares and following the expiration of the LockUp Period, use good
faith to cooperate with the Vendors to ensure that the ForeFront Shares shall be
eligible for resale under an available exemption from registration under United
States securities laws, including removing any legends which are no longer
applicable upon written request from the Vendors, and providing necessary legal
opinions to the transfer agent on a timely basis. Should the parties determine,
either before or after the issue of the ForeFront Shares and the expiration of
the LockUp Period, that there are no available exemptions from registration
relating to the resale of the ForeFront Shares, then in such instance
-22-
the Purchaser on ten (10) days prior notice from any Vendor shall execute the
Registration Rights Agreement in the form attached hereto as Exhibit J, and
subject to execution by the Vendors, prepare and file a registration statement
pursuant to the terms thereof at least thirty (30) days prior to the expiration
or earlier termination of the LockUp Period.
(c) So long as the Vendors shall hold any Exchangeable Shares,
the Purchaser will furnish to the Vendors all information provided by the
Purchaser from time to time to the holders of ForeFront Stock contemporaneously
as such information is provided to such holders.
(d) The Purchaser shall file a notification for listing of the
ForeFront Shares on the NASDAQ National Market System and shall cause such
filing to be accepted prior to any exchange of Exchangeable Shares for ForeFront
Shares.
Section 4.4 Securities Law Compliance.
(a) The Vendors covenant and agree to apply for within 15 days of the
Closing Date and to use their reasonable best efforts to obtain within 120 days
of the Closing Date, all necessary consents, receipts, approvals or orders from
the Ontario Securities Commission (the "OSC") to ensure that each of the
transactions contemplated in this Agreement, the terms of the Exchangeable
Shares, the Exchange Rights Agreement and the Support Agreement may be completed
in accordance with the Securities Act (Ontario) and the regulations thereunder,
and the policies and rules of the OSC, for compliance with such laws,
regulations, policies and rules as required in connection with the transactions.
(b) The Vendors acknowledge and agree that as set forth in Sections
3.1(xx) of this Agreement, the Purchaser has provided to them all information
requested by them as necessary for the investment decision made by them to grant
the Retraction Call Right, Redemption Call Right and Liquidation Call Right as
defined in the Exchange Rights Agreement, and the Vendors hereby waive any and
all rights, whether statutory or common law, which they may have to rescind the
transaction arising out of any failure of the Vendors, the Corporation or the
Purchaser to obtain any consent, receipt, approval or order deemed necessary
from the OSC.
(c) The Vendors shall indemnify and save harmless the Purchaser and the
Corporation from all costs and expenses which either or both may incur as a
result of having to comply with the provisions of any ruling or order issued by
the OSC as contemplated in Section 4.4(a), other than with respect to the
performance by the Purchaser of any obligations of the Purchaser expressly set
forth herein or in the Exchange Rights Agreement or the Support Agreement. As
security for such costs and expenses, the Vendors shall place in escrow the sum
of U.S.$100,000 with the Purchaser's counsel, XxXxxxxx Xxxxxxxx, pursuant to the
Additional Escrow Agreement as contemplated in Section 2.1(1)(a)(iii) hereof.
(d) In the event that for any reason, other than the failure of the
Purchaser to perform its obligations hereunder and under the Exchange Rights
Agreement or the Support Agreement, the transactions contemplated herein are
rescinded, the Vendors shall indemnify and save harmless
-23-
the Purchaser from all costs incurred by the Purchaser in negotiating and
completing the transactions contemplated herein.
ARTICLE V
CONDITIONS
Section 5.1 Conditions for the Benefit of the Purchaser.
(1) The completion of the transactions
contemplated herein is subject to the following conditions which are for the
exclusive benefit of the Purchaser to be performed or complied with at or prior
to the Time of Closing:
(a) the representations and warranties of the Vendors set
forth in Section 3.1 shall be true and correct at the Time of Closing with the
same force and effect as if made at and as of such time;
(b) the Vendors shall have performed or complied with all of
the terms, covenants and conditions of this Agreement to be performed or
complied with by the Vendors at or prior to the Time of Closing;
(c) the Purchaser shall be furnished with such certificates,
affidavits or statutory declarations of the Corporation and of the Vendors or of
officers of the Corporation and of the Vendors as the Purchaser and its counsel
may reasonably think necessary in order to establish that the terms, covenants
and conditions contained in this Agreement to have been performed or complied
with by the Vendors or by the Corporation, as the case may be, at or prior to
the Time of Closing have been performed and complied with and that the
representations and warranties of the Vendors herein given are true and correct
at the Time of Closing;
(d) no material damage by fire or other hazard to the assets
of the Corporation shall have occurred from the date hereof to the Time of
Closing;
(e) all directors and officers of the Corporation
specified by the Purchaser shall resign;
(f) the Vendors and all directors and officers of the
Corporation shall release the Corporation from any and all possible claims
against the Corporation arising from any act, matter or thing arising at or
prior to the Time of Closing;
(g) all necessary steps and proceedings shall have been taken
to permit the Purchased Shares to be duly and regularly transferred to and
registered in the name of the Purchaser;
(h) the parties shall have entered into the Escrow Agreement
in the form of Exhibit A hereto and U.S.$50,000 and 81,687 Exchangeable Shares,
in the respective amounts
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and numbers for each Vendor set out in Part III of Schedule A hereto (the
"Escrowed Exchangeable Shares") shall have been delivered to the Escrow Agent by
the Vendors as collateral for the indemnification obligations of the Vendors
contained in Article VI of this Agreement, pursuant to the terms of the Escrow
Agreement.;
(i) the existing lease agreement for the current premises
occupied by the Corporation shall be amended pursuant to the terms provided on
the Lease Agreement Amendment attached as Exhibit C hereto.
(j) there shall be an employment agreement entered into
between each of Naveen Seth and Xxxxx Xxxxx and the Corporation substantially in
the forms attached hereto as Exhibit D and E, respectively, in full substitution
for any existing employment agreements with such individuals;
(k) the Vendors shall cause 1213360 Ontario Ltd. to repay the
existing loan of $85,000 to the Corporation;
(l) the guaranty by the Corporation and the financing
statement filed against the Corporation relating to the purchase by 1213360
Ontario Ltd. of the premises leased by the Corporation shall be released and
terminated to Purchaser's reasonable satisfaction;
(m) the Vendors shall have delivered to the Purchaser
favorable opinions of the Vendors' counsel substantially in the form attached
hereto as Exhibit F;
(n) the Board of Directors of the Purchaser, in its sole
discretion, shall have approved the closing of the proposed transaction;
(o) no material change shall have occurred between the
execution of this Agreement and the Closing in the Corporation's business or
otherwise, which would adversely affect the value of the proposed transaction to
the Purchaser;
(p) the form and legality of all matters incidental to the
completion of the transactions contemplated herein shall be subject to the
approval of the Purchaser's counsel;
(q) Xxxx Xxxxxx Sethi, who is a non-resident person within the
meaning of Section 116 of the Income Tax Act (Canada), shall, subject, as
provided in the Additional Escrow Agreement, to a holdback of U.S.$226,726
payable to that Vendor, furnish to the Purchaser a certificate on Form T2068,
not later than October 30, 1997 having a "certificate limit" of not less than
such amount;
(r) the Vendors, as holders of the Exchangeable Shares shall
have signed and delivered to the Corporation and the Purchaser the special
resolutions of the Corporation in the forms of Exhibit K-1 and K-2 hereto;
-25-
(s) the Reorganization shall have been completed and the only
issued and outstanding shares of the Corporation shall be the Class A Shares
owned by the Purchaser and the Exchangeable Shares owned by the Vendors; and
(t) the parties shall have entered into the LockUp Agreement
in the form of Exhibit B hereto.
(2) In case any term or covenant of the Vendors
or condition to be performed or complied with for the benefit of the Purchaser
at or prior to the Time of Closing shall not have been performed or complied
with at or prior to the Time of Closing, the Purchaser may, without limiting any
other right that it may have, at its sole option, either:
(a) rescind this Agreement by notice to the Vendors, and in
such event the Purchaser shall be released from all obligations
hereunder; or
(b) waive compliance with any such term, covenant or condition
in whole or in part on such terms as may be agreed upon without
prejudice to any of its rights of rescission in the event of
non-performance of any other term, covenant or condition in whole or in
part.
Section 5.2 Conditions for the Benefit of the Vendors.
(1) The completion of the transactions
contemplated herein is subject to the following conditions which are for the
exclusive benefit of the Vendors to be performed or complied with at or prior to
the Time of Closing:
(a) the representations and warranties of the Purchaser set
forth in Section 3.3 shall be true and correct at the Time of Closing with the
same force and effect as if made at and as of such time;
(b) the Purchaser shall have performed or complied with all of
the terms, covenants and conditions of this Agreement to be performed or
complied with by the Purchaser at or prior to the Time of Closing;
(c) the Vendors shall be furnished with such certificates,
affidavits or statutory declarations of the Purchaser or of officers of the
Purchaser as the Vendors or the Vendors' counsel may reasonably think necessary
in order to establish that the terms, covenants and conditions contained in this
Agreement to have been performed or complied with by the Purchaser at or prior
to the Time of Closing have been performed and complied with and that the
representations and warranties of the Purchaser herein given are true and
correct at the Time of Closing;
(d) the Purchaser shall have entered into the Exchange Rights
Agreement and the Support Agreement in the forms of Exhibit G and H hereto,
respectively;
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(e) the form and legality of all matters incidental to the
transactions contemplated herein shall be subject to the approval of the
Vendors' counsel; and
(f) the Reorganization shall have been completed.
(2) In case any term or covenant of the
Purchaser or condition to be performed or complied with for the benefit of the
Vendors at or prior to the Time of Closing shall not have been performed or
complied with at or prior to the Time of Closing, the Vendors may, without
limiting any other right that the Vendors may have, at its sole option, either:
(a) rescind this Agreement by notice to the Purchaser, and in
such event the Vendors shall be released from all obligations
hereunder; or
(b) waive compliance with any such term, covenant or
condition in whole or in part on such terms as may be agreed
upon without prejudice to any of its rights of rescission in
the event of non-performance of any other term, covenant or
condition in whole or in part.
ARTICLE VI
INDEMNIFICATION AND ESCROW
Section 6.1 Survival of Representations and Warranties. All
representations, warranties and (except as provided by the following sentence)
covenants of the Vendors or any authorized representative thereof contained in
this Agreement or in any schedule or exhibit hereto, or in any certificate,
document or other instrument delivered in connection herewith, shall terminate
and cease to be of further force and effect as of the expiration of the
applicable period set forth in Section 3.2 (the "Escrow Period"). Those
covenants that expressly contemplate or involve actions to be taken or
obligations in effect after the Closing shall survive in accordance with their
terms.
Section 6.2 Indemnity. (a) The Vendors shall indemnify and
save harmless the Purchaser, the Corporation and the officers and directors of
the Purchaser and the Corporation from and against all liabilities (whether
accrued, actual, contingent or otherwise), claims and demands whatsoever
including, without limiting the generality of the foregoing, liabilities, claims
and demands for income, sales, excise or other taxes, of or in connection with
the Corporation existing or incurred as at or subsequent to the Balance Sheet
Date and up to the Closing Date which are not disclosed in the Financial
Statements, have not arisen in the usual and ordinary course of the
Corporation's business since the Balance Sheet Date or have arisen in the usual
and ordinary course of the Corporation's business since the Balance Sheet Date
but for which adequate provision in the Corporation's accounts has not been
made.
(b) The Vendors agree to (jointly and severally) indemnify and
hold the Purchaser and the Corporation and each of the officers, directors,
shareholders, affiliates,
-27-
employees and agents of the Purchaser and the Corporation (collectively, the
"Indemnitees") harmless from any and all damages, losses, liabilities (joint or
several), payments, obligations, penalties, claims, litigation, demands,
judgments, suits, proceedings, costs, disbursements or expenses (including
without limitation, reasonable fees, disbursements and expenses of attorneys) of
any kind or nature whatsoever (collectively, the "Damages"), directly or
indirectly resulting from, relating to or arising out of:
(1) any breach of or inaccuracy in any
representation or warranty of Vendors contained in Section 3.1;
(2) any breach or non-performance, by any
Vendor of any covenant or agreement of Vendors contained in this Agreement or in
any related document; and
(3) the terms of Section 6.2(a) or 4.1 hereof.
Section 6.3 Escrow Fund; Procedure. (a) The Vendors shall have
the right to vote, and to receive dividends declared on, any Escrowed Shares
during the period the Exchangeable Shares are held in escrow. The Escrowed
Shares are not subject to forfeiture or return in the event of any Vendor's
death or bankruptcy, or the failure of any Vendor to continue employment with
the Corporation.
(b) If a claim by a third party is made against any Indemnitee
or in the event that an Indemnitee determines, in good faith, that an event has
occurred which gives rise to a claim for Damages (together, a "Claim"), and if
such Indemnitee intends to seek indemnity with respect thereto under this
Article VI, the Indemnitee shall notify Vendors of such Claim in writing. Such
notice must be given no later than thirty (30) days after the assertion or
determination of such Claim but in no event more than ten days after the
expiration of the Escrow Period. Indemnitee shall include in its notice to
Vendors the basis for the Claim, the amount of the resulting Damages and the
amount of cash and if applicable, the number of Escrowed Shares which it intends
to retain and cancel in order to satisfy such Damages. For purposes of
determining the number of Escrowed Shares to be retained and canceled, any Claim
should be satisfied from all of the Escrowed Shares on a pro rata basis, and the
number of such Escrowed Shares shall be equal to the number resulting upon the
division of the amount of the Claim by the Closing Price regardless of the
actual fair market value of the Common Stock at the time of such determination
hereunder. For such purposes, the amount of the Claim or any portion thereof in
Canadian dollars shall be converted at the noon rate published by the Bank of
Canada on the last Business Day prior to the payment of such Claim. If any
Vendor wishes to dispute the validity of any Claim or the amount of Damages for
any Claim, it must give the Indemnitee requesting indemnification written notice
of such dispute and the basis therefore, within thirty (30) days of receiving
the Indemnitee's notice. If the parties are unable to resolve any such dispute,
the matter shall be submitted to binding arbitration, the costs of which shall
be borne equally by the parties. Any such arbitration shall be conducted by an
independent firm mutually agreeable to the parties with expertise in matters of
this kind, and shall be in a mutually agreeable location.
-28-
(c) Any cash or Escrowed Shares held by the Escrow Agent at
the expiration of the Escrow Period which have not been applied against any
Damages as provided herein, or which do not represent Damages for Claims whose
validity or amount is still in dispute, shall be delivered to the Vendors
promptly following the expiration of the Escrow Period. Any portion of the
Escrow Fund withheld pending resolution of a dispute, shall be delivered or
returned and canceled, as may be determined, upon final resolution of the
dispute.
(d) The Purchaser shall be entitled to control the defense of
any Claim brought against the Purchaser or any Indemnitee, in its sole
discretion, and to settle any such Claim without the consent of Vendors,
provided however that Vendors shall be entitled to participate in any such
defense at its expense.
(e) Notwithstanding anything hereinabove to the contrary, the
aggregate liability of the Vendors under this Article VI, other than in the
event of fraud by the Vendors, shall not exceed the amount which is 10% of the
sum of (i) U.S.$1,800,000, and (ii) the number of Exchangeable Shares receivable
by the Vendors under Section 2.1 hereof multiplied by the Closing Price.
Section 6.4 No Third Party Beneficiaries. The foregoing
indemnification is given solely for the purpose of protecting the parties to
this Agreement and the Indemnitees and shall not be deemed extended to, or
interpreted in a manner to confer any benefit, right or cause of action upon,
any other Person.
ARTICLE VII
GENERAL
Section 7.1 Further Assurances. Each of the parties shall from
time to time execute and deliver all such further documents and instruments and
do all acts and things as the other party may, either before or after the
Closing Date, reasonably require to effectively carry out or better evidence or
perfect the full intent and meaning of this Agreement.
Section 7.2 Time of the Essence. Time shall be of the essence
of this Agreement.
Section 7.3 Commissions. The Vendors shall indemnify and save
harmless the Purchaser from and against any claims whatsoever for any commission
or other remuneration payable or alleged to be payable to any person in respect
of the transactions contemplated herein, whether such person purports to act or
have acted for the Vendors or the Purchaser in connection with the transactions
contemplated herein.
-29-
Section 7.4 Fees. Each of the parties hereto shall pay their
respective legal and accounting costs and expenses incurred in connection with
the preparation, execution and delivery of this Agreement and all documents and
instruments executed pursuant hereto and any other costs and expenses whatsoever
and howsoever incurred.
Section 7.5 Public Announcements. No public announcement or
press release concerning the transactions contemplated herein shall be made by
the Vendors without the prior consent and approval of the Purchaser.
Section 7.6 Benefit of the Agreement. This Agreement shall
enure to the benefit of and be binding upon the respective heirs, executors,
administrators, successors and permitted assigns of the parties hereto.
Section 7.7 Entire Agreement. This Agreement constitutes the
entire agreement between the parties hereto with respect to the subject matter
hereof and cancels and supersedes any prior understandings and agreements
between the parties hereto with respect thereto. There are no representations,
warranties, terms, conditions, undertakings or collateral agreements, express,
implied or statutory, between the parties other than as expressly set forth in
this Agreement.
Section 7.8 Amendments and Waiver. No modification of or
amendment to this Agreement shall be valid or binding unless set forth in
writing and duly executed by all of the parties hereto and no waiver of any
breach of any term or provision of this Agreement shall be effective or binding
unless made in writing and signed by the party purporting to give the same and,
unless otherwise provided, shall be limited to the specific breach waived.
Section 7.9 Assignment. This Agreement may not be assigned by
the Vendors without the written consent of the Purchaser but may be assigned by
the Purchaser without the consent of the Vendors to an affiliate of the
Purchaser, provided that such affiliate enters into a written agreement with the
Vendors to be bound by the provisions of this Agreement in all respects and to
the same extent as the Purchaser is bound and provided that the Purchaser shall
continue to be bound by all the obligations hereunder as if such assignment had
not occurred and perform such obligations to the extent that such affiliate
fails to do so.
Section 7.10 Notices. Any demand, notice or other
communication to be given in connection with this Agreement shall be given in
writing and shall be given by personal delivery, by registered mail or by
electronic means of communication addressed to the recipient as follows:
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To the Vendors:
Xxxxx X. Xxxxx
00 Xxxxxx Xx.
Xxxxxx, Xxxxxxx KIG 5J8
Facsimile: (000) 000-0000
With a copy to:
Xxxxxx X. XxXxxx
0000 Xxxxxxxxx Xxx.
Xxxxxx, Xxxxxxx X0X 0X0
Facsimile: (000) 000-0000
To the Purchaser and the Corporation:
The ForeFront Group, Inc.
0000 Xxxx Xxx Xxxx., Xxxxx 0000
Xxxxxxx, Xxxxx 00000
(000) 000-0000 (facsimile)
Attention: Xxxxx Xxxxxx, President
With a copy to:
Xxxxxxx X. Xxxxxx, V.P. and General Counsel
0000 Xxxx Xxx Xxxx., Xxxxx 0000
Xxxxxxx, Xxxxx 00000
(713) 961- 4530 (facsimile)
or to such other address, individual or electronic communication number as may
be designated by notice given by either party to the other. Any demand, notice
or other communication given by personal delivery shall be conclusively deemed
to have been given on the day of actual delivery thereof and, if given by
registered mail, on the third Business Day following the deposit thereof in the
mail and, if given by electronic communication, on the day of transmittal
thereof if given during the normal business hours of the recipient and on the
Business Day during which such normal business hours next occur if not given
during such hours on any day. If the party giving any demand, notice or other
communication knows or ought reasonably to know of any difficulties with the
postal system which might affect the delivery of mail, any such demand, notice
or other communication shall not be mailed but shall be given by personal
delivery or by electronic communication.
-31-
Section 7.11 Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the Province of Ontario and the
laws of Canada applicable therein.
Section 7.12 Tax Effect of Transaction. Neither the Vendors
nor the Purchaser have made nor do any of them make herein any representation or
warranty as to the tax consequences of the Transaction to any party. It is
understood and agreed that each party has looked to its own advisors for advice
and counsel as to such tax effects.
Section 7.13 Severability. In the event that any provision
contained in this Agreement shall be determined to be invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and the remaining
provisions of this Agreement shall not, at the election of the party for whose
benefit the provision exists, be in any way impaired.
Section 7.14 Counterparts. This Agreement may be executed in
any number of counterparts, and each such counterpart hereof shall be deemed to
be an original instrument, but all such counterparts together shall constitute
but one Agreement.
Section 7.15 Facsimile Signatures. The signature of any party
to this Agreement may be evidenced on this Agreement and any other agreement or
instrument contemplated herein by facsimile. Without prejudice to the
effectiveness of such facsimile signature, such party agrees to forward promptly
following the transmission by facsimile of such party's signature, such
agreement or instrument bearing an original signature to the other parties
hereto.
-32-
IN WITNESS WHEREOF the parties have executed this Agreement.
THE FOREFRONT GROUP, INC.
By: /s/ Xxxxx Xxxxxx
Name: Xxxxx Xxxxxx
Title: President & CEO
LANPROFESSIONAL INC.
By: /s/ Naveen Seth
Name: Naveen Seth
Title: VP Operations
/s/ Xxxxx Xxxxx
XXXXX X. XXXXX
/s/ Naveen Seth
NAVEEN SETH
/s/ Xxxxxxx Xxxxx
XXXXXXX XXXXX
/s/ Xxxxxx Xxxxx
XXXXXX XXXXX
/s/ X X Xxxxx
JANG XXXXXXX XXXXX
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SCHEDULE A
PART I
Vendor Special Shares Class B Shares
------ -------------- --------------
Xxxxx X. Xxxxx 382,490 1,147,590
Naveen Seth 382,490 1,147,590
Xxxxxxx Xxxxx 382,490 580,885
Xxxxxx Xxxxx 382,490 580,885
Jang Xxxxxxx Xxxxx 270,040 410,102
------- -------
Totals: 1,800,000 3,867,052
PART II
Vendor Total Consideration Cash Exchangeable Shares
------ ------------------- ---- -------------------
Xxxxx X. Xxxxx US$1,530,080 US$382,490 165,418
Naveen Seth US$1,530,080 US$382,490 165,418
Xxxxxxx Xxxxx US$963,375 US$382,490 83,731
Xxxxxx Xxxxx US$963,375 US$382,490 83,731
Jang Xxxxxxx Xxxxx US$680,143 US$270,040 59,115
------------- ------------ -------
Totals: US$5,667,052 US$1,800,000 557,413
PART III
Escrowed Exchangeable
Vendor Cash at Closing Escrowed Cash Shares
------ --------------- ------------- ---------------------
Xxxxx X. Xxxxx US$350,615 US$10,625 24,242
Naveen Seth US$350,615 US$10,625 24,242
Xxxxxxx Xxxxx US$350,615 US$10,625 12,270
Xxxxxx Xxxxx US$350,615 US$10,625 12,270
Jang Xxxxxxx Xxxxx US$20,814 US$7,500 8,663
------------ --------- ------
Totals: US$1,423,274 US$50,000 81,687
PART IV
Vendor Securities Cash Escrow Tax Cash Escrow
------ ---------------------- ---------------
Xxxxx X. Xxxxx US$21,250 --
Naveen Seth US$21,250 --
Xxxxxxx Xxxxx US$21,250 --
Xxxxxx Xxxxx US$21,250 --
Jang Xxxxxxx Xxxxx US15,000 US$226,726
---------- ----------
Totals: US$100,000 US$226,726
