Exhibit 2.1
EXECUTION VERSION
COREL CORPORATION
-and-
COREL JS ACQUISITION, INC.
-and-
COREL HOLDINGS CORPORATION
-and-
JASC SOFTWARE, INC.
-and-
PRINCIPAL STOCKHOLDERS (AS THAT TERM IS DEFINED IN THIS AGREEMENT)
-and-
EACH OTHER JASC STOCKHOLDER (AS THAT TERM IS DEFINED IN THIS AGREEMENT) THAT
BECOMES PARTY TO THIS AGREEMENT
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AGREEMENT AND PLAN OF
MERGER
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OCTOBER 8, 2004
TABLE OF CONTENTS
ARTICLE 1
INTERPRETATION.......................................................... 2
1.1 Definitions........................................................ 2
1.2 Schedules and Exhibits............................................. 10
1.3 Headings and Table of Contents..................................... 11
1.4 Gender and Number.................................................. 11
1.5 Date............................................................... 11
1.6 Laws............................................................... 12
1.7 Currency........................................................... 12
1.8 Generally Accepted Accounting Principles........................... 12
1.9 Construction of Agreement.......................................... 12
1.10 Invalidity of Provisions........................................... 12
1.11 Entire Agreement................................................... 12
1.12 Waiver, Amendment.................................................. 13
1.13 Governing Law...................................................... 13
ARTICLE 2
THE TRANSACTION......................................................... 13
2.1 The Transaction.................................................... 13
2.2 Closing and the Effective Time..................................... 13
2.3 Effect of the Merger............................................... 13
2.4 Articles of Incorporation and Bylaws............................... 14
2.5 Directors and Officers............................................. 14
2.6 Effect on Capital Stock............................................ 14
2.6.1 Conversion of Jasc Shares................................... 14
2.6.2 Conversion of Merger Subsidiary Common Stock................ 14
2.6.3 Fractional Shares........................................... 14
2.6.4 Dissenters' Rights.......................................... 14
2.7 Surrender of Certificates and Payment of Merger
Consideration...................................................... 15
2.8 Adjustments........................................................ 16
2.9 Working Capital Adjustment......................................... 16
2.10 Q3 Net Revenue Adjustment.......................................... 17
2.11 Dispute Process.................................................... 18
2.12 Escrow............................................................. 18
2.13 Convertible Securities and Option Plan............................. 18
2.14 Tax Related Payment................................................ 19
ARTICLE 3
REPRESENTATIONS AND WARRANTIES.......................................... 20
3.1 By the Corporation and the Principal Stockholders.................. 20
3.1.1 Formation and Status of the Corporation..................... 20
3.1.2 Power of the Corporation and Due Authorization.............. 20
3.1.3 Capital of the Corporation.................................. 20
3.1.4 Subsidiaries and Investments................................ 21
3.1.5 No Obligations to Issue Securities.......................... 21
3.1.6 No Contravention by the Corporation......................... 21
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3.1.7 Approvals and Consents...................................... 21
3.1.8 Financial Statements........................................ 21
3.1.9 Accounts Receivable......................................... 22
3.1.10 Inventory Valuation......................................... 22
3.1.11 Liabilities and Guarantees.................................. 22
3.1.12 Indebtedness................................................ 22
3.1.13 Absence of Unusual Transactions and Events.................. 22
3.1.14 No Dividends, Loans, etc.................................... 23
3.1.15 Insider Interests........................................... 24
3.1.16 As to Certain Contracts In and Out of the Ordinary
Course...................................................... 24
3.1.17 Certain Distribution and Master Representative
Agreements.................................................. 25
3.1.18 No Default Under Agreements................................. 25
3.1.19 No Owned Real Property...................................... 25
3.1.20 Leased Real Property........................................ 26
3.1.21 Zoning and Other Matters Relating to Real Property.......... 26
3.1.22 Title to Assets............................................. 26
3.1.23 Environmental Matters....................................... 27
3.1.24 Tax Matters................................................. 28
3.1.25 Employment Matters.......................................... 29
3.1.26 Employee Plans.............................................. 30
3.1.27 Labor Relations............................................. 32
3.1.28 Insurance................................................... 32
3.1.29 Intellectual Property....................................... 32
3.1.30 Permits, Registrations and Elections........................ 36
3.1.31 Compliance with Laws........................................ 37
3.1.32 Litigation and Other Proceedings and Warranty
Claims...................................................... 37
3.1.33 Corporate Records........................................... 37
3.1.34 Books of Account and Internal Controls...................... 37
3.1.35 Bank Accounts, etc.......................................... 38
3.1.36 Customers and Suppliers..................................... 38
3.1.37 Conduct of Business......................................... 38
3.1.38 Disclosure.................................................. 38
3.2 By Principal Stockholders.......................................... 39
3.2.1 Corel Common Shares......................................... 39
3.2.2 No Foreign Person........................................... 39
3.2.3 Incorporation and Status of the Principal
Stockholder................................................. 39
3.2.4 Power of the Principal Stockholder and Due
Authorization............................................... 39
3.2.5 Title to, and Right to Sell, Purchased Shares............... 39
3.2.6 No Contravention by Principal Stockholders.................. 40
3.2.7 Accredited Investor......................................... 40
3.3 By Merger Subsidiary and Corel Holdings............................ 40
3.3.1 Incorporation and Status.................................... 40
3.3.2 Corporate Power and Due Authorization....................... 40
3.3.3 No Contravention............................................ 41
3.3.4 Approvals and Consents...................................... 41
3.4 By Corel........................................................... 41
3.4.1 Incorporation and Status of Corel........................... 41
3.4.2 Corporate Power of Corel and Due Authorization.............. 41
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3.4.3 Capital of Corel............................................ 42
3.4.4 No Obligations to Issue Securities.......................... 42
3.4.5 No Contravention of Corel................................... 42
3.4.6 Approvals and Consents...................................... 42
3.4.7 Equity Consideration........................................ 42
3.4.8 Corel Financial Statements.................................. 42
3.4.9 Sufficiency of Capital, Access to Capital................... 42
3.5 No Finder's Fees................................................... 43
3.6 Survival of Covenants, Representations and Warranties.............. 43
ARTICLE 4
CONDITIONS.............................................................. 43
4.1 Conditions for the Benefit of Corel and the Merger
Subsidiary...................................................... 43
4.1.1 Accuracy of Representations and Compliance With
Covenants................................................ 43
4.1.2 Opinion of Faegre & Benson LLP.............................. 44
4.1.3 Force Majeure............................................... 44
4.1.4 No Adverse Legislation...................................... 44
4.1.5 No Action to Restrain....................................... 44
4.1.6 [Reserved].................................................. 44
4.1.7 Consents and Approvals...................................... 44
4.1.8 Delivery of Other Agreements and Documents.................. 45
4.1.9 Q3 Net Revenue.............................................. 45
4.1.10 Exercise of Dissenters' Rights.............................. 45
4.1.11 Certain Terminations........................................ 45
4.2 Conditions for the Benefit of the Corporation...................... 46
4.2.1 Accuracy of Representations of Merger Subsidiary and
Corel and Compliance With Covenants...................... 46
4.2.2 Opinion of Torys LLP........................................ 46
4.2.3 No Action to Restrain....................................... 46
4.2.4 [Reserved].................................................. 46
4.2.5 Delivery of Other Agreements................................ 46
ARTICLE 5
ADDITIONAL AGREEMENTS OF THE PARTIES.................................... 47
5.1 Access to Information.............................................. 47
5.2 Conduct of Business Until Time of Closing.......................... 47
5.3 Negative Covenant.................................................. 48
5.4 Merger Subsidiary's Covenant....................................... 48
5.5 Corporate Action, Releases......................................... 48
5.6 Obtaining of Consents and Approvals................................ 49
5.7 Additional Insurance............................................... 49
5.8 Non-Solicitation................................................... 49
5.9 [Reserved]......................................................... 49
5.10 Tax Matters........................................................ 49
5.11 Certain Payments and Expenses...................................... 50
5.12 Goodwill........................................................... 51
5.13 Cooperation........................................................ 51
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5.14 Termination........................................................ 51
5.15 Jasc Stockholder Approval.......................................... 52
5.16 Jasc YE Bonus Program.............................................. 52
5.17 Jasc Founder's Computer and Cell Phone............................. 52
5.18 Post-Closing Access................................................ 52
ARTICLE 6
INDEMNIFICATION......................................................... 53
6.1 Indemnification.................................................... 53
6.2 Notice of Claim.................................................... 54
6.3 Procedure for Indemnification...................................... 54
6.3.1 Corel Indemnified Party's Claims............................. 54
6.3.2 Third Party Claims........................................... 54
6.4 Additional Rules and Procedures.................................... 55
6.5 Escrow Agreement................................................... 56
6.6 Limitation of Remedies............................................. 56
ARTICLE 7
CLOSING................................................................. 57
7.1 Location and Time of the Closing................................... 57
7.2 Deliveries at the Closing.......................................... 57
ARTICLE 8
GENERAL MATTERS......................................................... 57
8.1 Public Notices..................................................... 57
8.2 Stockholder Representative......................................... 57
8.3 Expenses........................................................... 57
8.4 Assignment......................................................... 59
8.5 Notices............................................................ 59
8.6 Time of Essence.................................................... 60
8.7 Consent to Jurisdiction............................................ 60
8.8 Waiver of Jury Trial............................................... 61
8.9 No Third-Party Beneficiaries....................................... 61
8.10 Further Assurances................................................. 61
8.11 Counterparts....................................................... 61
(TORYS LLP NEW YORK TORONTO LOGO)
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is made as of the 8th day of
October, 2004,
AMONG:
COREL CORPORATION, a corporation existing under the laws of the
Province of Ontario ("COREL")
- and -
COREL JS ACQUISITION, INC., a corporation existing under the laws
of the State of Minnesota (the "MERGER SUBSIDIARY")
- and-
COREL HOLDINGS CORPORATION, a corporation existing under the laws
of the Province of New Brunswick (the "COREL HOLDINGS")
- and-
JASC SOFTWARE, INC., a corporation existing under the laws of the
State of Minnesota (the "CORPORATION")
-and-
the PRINCIPAL STOCKHOLDERS (as defined below)
- and-
each other JASC STOCKHOLDER (as defined below) that becomes party
to this Agreement
RECITALS:
A. The Boards of Directors of the Corporation, Corel and the Merger Subsidiary
believe it is in the best interests of their respective companies and the
stockholders of their respective companies that (1) the Corporation sell
the Specified Assets (as defined below) to a wholly-owned subsidiary of
Corel (the "ASSET SALE"); and (2) the Corporation and the Merger Subsidiary
combine into a single company through the statutory merger of the Merger
Subsidiary with and into the Corporation (the "MERGER") and, in furtherance
of these actions, have declared the advisability of and approved the
Transaction.
B. The Corporation, the Jasc Stockholders, Corel and the Merger Subsidiary
desire to make certain representations and warranties and other agreements
in connection with the Transaction.
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NOW THEREFORE in consideration of the mutual covenants and agreements
contained in this Agreement and other good and valuable consideration (the
receipt and sufficiency of which are hereby acknowledged), the parties to this
Agreement agree as follows:
ARTICLE 1
INTERPRETATION
1.1 DEFINITIONS
In this Agreement,
1.1.1 "ACCREDITED INVESTOR" means an accredited investor within the meaning
of Rule 501 (a) under the Securities Act;
1.1.2 "ADJUSTED SEPTEMBER 30 WORKING CAPITAL" means the Working Capital as
of September 30, 2004 (excluding accruals in respect of the Jasc YE Bonus
Program) adjusted to reflect all expenses and accruals for Stockholder
Expenses occurring prior to the Closing Date;
1.1.3 "AFFILIATE" means, with respect to any Person, any other Person that
directly, or indirectly through one or more intermediaries, controls or is
controlled by or is under common control with that Person;
1.1.4 "AGREEMENT" means this agreement and all schedules attached to this
agreement, in each case as they may be amended or supplemented from time to
time, and the expressions "hereof," "herein," "to this Agreement,"
"hereunder," "hereby" and similar expressions refer to this agreement; and
unless otherwise indicated, references to Articles, sections and Schedules
are to Articles in, sections in, and Schedules to this agreement;
1.1.5 "ALBUM SOFTWARE PROGRAM" means the Paint Shop Photo Album 5 Software;
1.1.6 "ARTICLES OF MERGER" has the meaning given to that term in section
2.1.2;
1.1.7 "ASSET SALE" has the meaning given to that term in Recital A;
1.1.8 "ASSET SALE CASH CONSIDERATION" means $30,870,000, less, (1) any
Stockholder Expenses not satisfied or accrued by the Corporation prior to
the Effective Time to the extent not reflected in the calculation of the
Initial Working Capital Shortfall, (2) the Initial Working Capital
Shortfall, if any, and (3) the Initial Q3 Net Revenue Shortfall, if any;
1.1.9 "ASSET SALE CONSIDERATION" means the Asset Sale Cash Consideration
and the Asset Sale Equity Consideration to be paid or issued, as the case
may be, by Corel or a subsidiary of Corel to the Corporation as
consideration pursuant to the Transfer Agreement;
1.1.10 "ASSET SALE EQUITY CONSIDERATION" means 4,001,581 Corel Common
Shares;
1.1.11 "AUDITED FINANCIAL STATEMENTS" means the balance sheet of the
Corporation as at the Audited Statements Date and the accompanying
statements of income, changes in stockholders' equity and cash flows for
the year then ended, including the notes to those financial statements, and
the report of the auditors of the Corporation on those financial
statements, all as attached as Schedule 1.1.11;
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1.1.12 "AUDITED STATEMENTS DATE" means December 31, 2003;
1.1.13 "BENEFIT PLANS" has the meaning given to that term in section
1.1.40.3;
1.1.14 "BUSINESS" means the development and global marketing and
distribution of digital photography and imaging software business (i)
carried on by the Corporation prior to the Effective Time; and (ii) carried
on by the Surviving Corporation, Corel and/or one or more direct or
indirect subsidiaries of Corel following the Effective Date utilizing
assets of the Corporation;
1.1.15 "BUSINESS DAY" means any day, other than Saturday, Sunday or any
statutory holiday in the State of California, the State of Minnesota and/or
the Province of Ontario;
1.1.16 "CHARGE" means any security interest, lien, charge, pledge,
encumbrance, mortgage, adverse claim or title retention agreement of any
nature or kind;
1.1.17 "CLAIM," "COREL INDEMNIFIED PARTY'S CLAIM" and "THIRD PARTY CLAIM"
have the meanings given to those terms respectively in section 6.2;
1.1.18 "CLOSING" means the consummation of the Transaction and the other
transactions contemplated by this Agreement;
1.1.19 "CLOSING DATE" has the meaning given to that term in section 2.2;
1.1.20 "CLOSING BALANCE SHEET" means the statement of assets and
liabilities of the Corporation as at the Closing Date calculated in
accordance with GAAP, delivered in accordance with section 2.14;
1.1.21 "CLOSING REQUIRED CONSENTS" means the Required Consents listed under
that heading on Schedule 3.1.7;
1.1.22 "CLOSING WORKING CAPITAL AMOUNT" means the Adjusted September 30
Working Capital as determined based upon the Working Capital Closing
Balance Sheet;
1.1.23 "CODE" means the United States Internal Revenue Code of 1986, as
amended;
1.1.24 "CONFIDENTIALITY AGREEMENTS" means the Confidentiality Agreement
between Goldsmith, Agio, Helms & Lynner, LLC and Corel dated April 7, 2004
and the Mutual Non-Disclosure Agreement among Vector Capital Corporation,
Corel and the Corporation dated July 30, 2004;
1.1.25 "CONSENTS" means those consents, authorizations and approvals set
out in Schedule 3.1.7;
1.1.26 "CONTRACT" means any commitment, contract, agreement, license,
lease, guarantee, binding arrangement or other instrument and includes any
amendments;
1.1.27 "CONTROL," when used with respect to any Entity, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of that Entity, whether through
the ownership, directly or indirectly, of more than 20% of the voting or
equity securities or other interests of that Entity and/or by contract or
otherwise; and the terms "controlling" and "controlled" have correlative
meanings;
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1.1.28 "CONVERTIBLE SECURITIES" means all shares (excluding shares of
common stock of the Corporation), options, warrants, rights or other
securities to acquire shares of common stock of the Corporation;
1.1.29 "COREL AUDITED FINANCIAL STATEMENTS" means the consolidated balance
sheet of Corel as at the Corel Audited Statements Date and the accompanying
consolidated statements of operations and cash flows for the year then
ended, including the notes to those financial statements, and the report of
the auditors of the Corporation on those financial statements, all as
attached as Schedule 1.1.29;
1.1.30 "COREL AUDITED STATEMENTS DATE" means November 30, 2003;
1.1.31 "COREL COMMON SHARES" means Class B Common Shares in the capital of
Corel;
1.1.32 "COREL INDEMNIFIED PARTIES" has the meaning given to that term in
section 6.1.1:
1.1.33 "COREL MINORITY SHAREHOLDERS AGREEMENT" means the shareholders
agreement to be entered into at the Time of Closing between Corel, its
shareholders and the Jasc Stockholders in the form attached as Schedule
1.1.33;
1.1.34 "COREL UNAUDITED FINANCIAL STATEMENTS" means the consolidated
balance sheet of the Corporation as at August 31, 2004 and the accompanying
consolidated statements of operations and cash flows for the nine months
then ended, all as attached as Schedule 1:1.34;
1.1.35 "COREL Q3 NET REVENUE PAYMENT" has the meaning given to that term in
section 2.10.3.2;
1.1.36 "COREL WORKING CAPITAL PAYMENT" has the meaning given to that term
in section 2.9.3.2;
1.1.37 "DUE INQUIRY" means the due inquiry which is reasonably expected of
a prudent member of the management of the Business;
1.1.38 "EFFECTIVE TIME" has the meaning given to that term in section 2.2;
1.1.39 "ELIGIBLE INVENTORY" means the raw materials which are purchased by
the Corporation no earlier than 90 days prior to the Closing Date, and
which either are, or are reasonably expected to be, used within 90 days of
the Closing Date;
1.1.40 "EMPLOYEE PLANS" means all oral or written plans, arrangements,
agreements, programs, policies, practices or undertakings with respect to
some or all of the current or former directors, officers, employees,
independent contractors or agents of the Corporation which provide for or
relate to:
1.1.40.1 bonus, profit sharing or deferred profit sharing, performance
compensation, deferred or incentive compensation, share compensation,
share purchase or share option purchase, share appreciation rights,
phantom stock, vacation or vacation pay, sick pay, employee loans, or
any other compensation in addition to salary ("INCENTIVE PLANS");
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1.1.40.2 retirement or retirement savings, including registered or
unregistered pension plans, pensions, supplemental pensions,
registered retirement savings plans and retirement compensation
arrangements ("PENSION PLANS"); or
1.1.40.3 insured or self-insured benefits for or relating to income
continuation or other benefits during absence from work (including
short term disability, long term disability and workers compensation),
hospitalization, health, welfare, legal costs or expenses, medical or
dental treatments or expenses, life insurance, accident, death or
survivor's benefits, supplementary employment insurance, day care,
tuition or professional commitments or expenses or similar employee
benefits ("BENEFIT PLANS");
1.1.41 "ENTITY" means any partnership, limited partnership, company or
corporation with or without share capital, trust or other entity however
designated or constituted;
1.1.42 "ENVIRONMENTAL LAWS" and "ENVIRONMENTAL PERMITS" have the meanings
given to those terms respectively in section 3.1.23.1;
1.1.43 "ERISA" means the United States Employee Retirement Income Security
Act of 1974, as amended;
1.1.44 "ESCROW AGENT" means Royal Trust Corporation;
1.1.45 "ESCROW AGREEMENT" means the escrow agreement to be entered into at
the Time of Closing, between the Merger Subsidiary, Corel, the Escrow
Agent, the Jasc Stockholders and the Stockholder Representative, in the
form attached as Schedule 1.1.45;
1.1.46 "ESCROW FUND" means all cash and property held by the Escrow Agent
from time to time pursuant to the terms of the Escrow Agreement;
1.1.47 "GOVERNMENTAL AUTHORITY" means any (1) supranational, multinational,
federal, provincial, state, regional, municipal, local or other government,
governmental or public department, central bank, court, tribunal, arbitral
body, commission, board, bureau, agency, association, institution, or other
similar authority, (2) any quasi-governmental or private body exercising
any regulatory, expropriation or taxing authority under, delegated by, or
for the account of any of the foregoing, (3) any industry self-regulatory
organization or any stock exchange or (4) any minister, secretary or other
governmentally appointed individual, in each case whether domestic or
foreign;
1.1.48 "HAZARDOUS SUBSTANCE" has the meaning given to that term in section
3.1.23.1.5;
1.1.49 "HSR ACT" means the United States Hart-Scott-Rodino Antitrust
Improvements Act of 1976 and the rules and regulations adopted pursuant to
that act, as amended;
1.1.50 "INCENTIVE PLANS" has the meaning given to that term in section
1.1.40.1;
1.1.51 "INCLUDES" or "INCLUDING" means includes, without limitation, or
including, without limitation, as the case may be;
1.1.52 "INITIAL CLOSING BALANCE SHEET" means the statement of assets and
liabilities of the Corporation as at the close of business on September 30,
2004 calculated in accordance with
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GAAP (excluding accruals in respect of the Jasc YE Bonus Program),
delivered in accordance with section 2.9.1;
1.1.53 "INITIAL WORKING CAPITAL SHORTFALL" has the meaning given to that
term in section 2.9.2;
1.1.54 "INITIAL Q3 NET REVENUE" means a calculation of the gross sales,
less reserves, rebates, distributor discounts and miscellaneous for the
Corporation for the three months ended September 30, 2004, all as
determined in accordance with GAAP, as historically applied by the
Corporation, delivered in accordance with section 2.10.1.
1.1.55 "INITIAL Q3 NET REVENUE SHORTFALL" has the meaning given to that
term in section 2.10.2;
1.1.56 "INTELLECTUAL PROPERTY" means trade marks and trade mark
applications, trade names, certification marks, patents and patent
applications, copyrights, know-how, formulae, processes, inventions,
technical expertise, research data, trade secrets, industrial designs and
other similar property, whether registered or unregistered;
1.1.57 "JASC COUNSEL" means the firm of Faegre & Benson LLP of Minneapolis,
Minnesota, or any other counsel as the Corporation may appoint with respect
to this Agreement and the matters contemplated by this Agreement;
1.1.58 "JASC SHARES" means shares of stock in the capital of the
Corporation outstanding immediately prior to the Effective Time;
1.1.59 "JASC STOCKHOLDER" means a holder of Jasc Shares immediately prior
to the Effective Time;
1.1.60 "JASC STOCKHOLDER MEETING" has the meaning given to that term in
section 5.15.1;
1.1.61 "JASC STOCKHOLDER SIGNATURE PAGE" means the form of signature page
attached as Schedule 1.1.61;
1.1.62 "JASC STOCKHOLDER'S OWNERSHIP PERCENTAGE" means the number of Jasc
Shares held by a Jasc Stockholder immediately before the Effective Time
divided by the number of Jasc Shares held by all Jasc Stockholders
immediately before the Effective Time;
1.1.63 "JASC YE BONUS PROGRAM" means the calendar year 2004 year-end
objective bonus payments for employees of Jasc based upon the letter
agreement delivered to those employees, true and correct copies of which
have been provided to Merger Subsidiary;
1.1.64 "KEY SOFTWARE PROGRAMS" means the following groupings of Software
and each incorporated program: Paint Shop Power Suite - Photo Edition,
Paint Shop Pro 8, Paint Shop Pro 9, Paint Shop Photo Album 5, Animation
Shop 3, Paint Shop Photo Studio and WebDraw Version 1;
1.1.65 "KNOWLEDGE" means, with respect to the subject matter, the actual
knowledge of the Person after Due Inquiry, and in the case of the knowledge
of an Entity, means the Knowledge of its senior officers or comparable
member(s) of management;
1.1.66 "LAWS" means any law, statute, rule, regulation, by-law, judgment or
order of general application, or any direction, policy, guideline,
bulletin, ruling, judgment, order or requirement,
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including of a Governmental Authority (whether or not having the force of
law, but if it does not have the force of law being of a nature with which
a prudent person would comply);
1.1.67 "LEASED REAL PROPERTY" has the meaning given to that term in section
3.1.20;
1.1.68 "LICENSED INTELLECTUAL PROPERTY" means all Intellectual Property of
a Person other than the Corporation;
1.1.69 "LICENSED SOFTWARE" means all Software of a Person other than the
Corporation;
1.1.70 "LICENSED SOURCE CODE" has the meaning given to that term in section
3.1.29.8;
1.1.71 "MATERIAL CONTRACT" means any Contract made in the ordinary course
of the Business if it requires or may require the provision by the
Corporation to any Person of goods or services having a fair market value
in excess of $25,000;
1.1.72 "MERGER" has the meaning given to that term in the Recitals;
1.1.73 "MERGER CONSIDERATION" means the Total Adjusted Merger Cash
Consideration and the Total Merger Equity Consideration to be paid or
issued, as the case may be, by Corel or a subsidiary of Corel to Jasc
Stockholders as consideration upon the Merger;
1.1.74 "MERGER SUBSIDIARY'S COUNSEL" means the firm of Torys LLP of
Toronto, Ontario, and New York, New York or any other counsel as the Merger
Subsidiary may appoint with respect to this Agreement and the matters
contemplated by this Agreement;
1.1.75 "MINNESOTA LAW" has the meaning given to that term in section 2.1;
1.1.76 "PENSION PLANS" has the meaning given to that term in section
1.1.40.2;
1.1.77 "PER JASC SHARE CASH CONSIDERATION" means the quotient of (i) the
Total Adjusted Merger Cash Consideration; divided by (ii) the number of
Jasc Shares;
1.1.78 "PER JASC SHARE EQUITY CONSIDERATION" means the quotient of (i) the
Total Merger Equity Consideration; divided by (ii) the number of Jasc
Shares;
1.1.79 "PERSON" means any individual, partnership, limited partnership,
joint venture, syndicate, sole proprietorship, company or corporation with
or without share capital, unincorporated association, trust, trustee,
executor, administrator or other legal personal representative, regulatory
body or agency, government or governmental agency, authority or entity
however designated or constituted, and any reference to a Person includes
its successors and assigns;
1.1.80 "PREMISES" has the meaning given to that term in section 3.1.23;
1.1.81 "PRINCIPAL STOCKHOLDERS" means Jonathan C. Ort, Robert V. Voit, and
Kris Tufto;
1.1.82 "PROCEEDING" means any court, administrative, regulatory or similar
proceeding (whether civil, quasi-criminal or criminal); arbitration or
other dispute settlement procedure; investigation or inquiry by any
governmental, administrative, regulatory or similar body; or any similar
matter or proceeding including (1) those in process; (2) those pending or
threatened; and (3) those in respect of which, to the Knowledge of the
Corporation or the Principal Stockholders, circumstances exist that would
be reasonably likely to result in a Proceeding;
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1.1.83 "PROPRIETARY INTELLECTUAL PROPERTY" means all Intellectual Property
other than Licensed Intellectual Property;
1.1.84 "PROPRIETARY SOFTWARE" means all Software other than Licensed
Software;
1.1.85 "PUBLIC SOFTWARE" means software which creates, or purports to
create, obligations for the Corporation or grants, or purports to grant, to
any third party any rights or immunities under the Corporation's
Intellectual Property or proprietary rights in the Corporation's Software
or derivative work of that Software and includes any software that requires
as a condition of use, modification and/or distribution of the software
that other software incorporated into, derived from or distributed with
that software be (1) disclosed or distributed in source code form; (2)
licensed for the purpose of making derivative works; or (3) redistributable
at no charge.
1.1.86 "Q3 NET REVENUE" means a calculation of the net revenues of the
Corporation for the three months ended September 30, 2004, all as
determined in accordance with GAAP, as historically applied by the
Corporation, delivered in accordance with section 2.10.3;
1.1.87 "Q3 NET REVENUE ADJUSTMENT AMOUNT" has the meaning given to that
term in section 2.10.3.1.
1.1.88 "REAL PROPERTY LEASES" has the meaning given to that term in section
3.1.20;
1.1.89 "RELATED AGREEMENTS" means all Contracts required by this Agreement
to be executed and delivered at the Closing, including the Escrow
Agreement, the Corel Minority Shareholders Agreement, the Transfer
Agreement and the non-competition, non-solicitation and confidentiality
agreements contemplated by section 4.1.6;
1.1.90 "REQUIRED CONSENTS" means, collectively, the Consents which are set
out and identified as "Required Consents" on Schedule 3.1.7 which, for
greater certainty, includes any Consents required in connection with
Contracts related to the "material Licensed Software" set out on Schedule
3.1.29;
1.1.91 "REQUIRED Q3 NET REVENUE" means $7,500,000;
1.1.92 "REQUIRED WORKING CAPITAL AMOUNT" means $2,000,000;
1.1.93 "SECURITIES ACT" means the United States Securities Act of 1933 and
the rules and regulations adopted pursuant to that act, as amended;
1.1.94 "SEPTEMBER INCOME STATEMENT" means the statement of income for the
Corporation prepared in accordance with GAAP consistently applied with the
Corporation's past practice (excluding accruals in respect of the Jasc YE
Bonus Program) for the month ended September 30, 2004;
1.1.95 "SEVERANCE PAYMENT" has the meaning given to that term in section
5.11.1;
1.1.96 "SOFTWARE" means all computer software programs, operating systems,
and applications, firmware or software of any nature related to the
Business, whether operational, under development or inactive, including all
object code, source code, development and testing tools and scripts,
technical manuals, user manuals and other documentation thereof, whether in
machine-readable
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form, programming language or any other language or symbols, and whether
stored, encoded, recorded or written on disk, tape, film, memory device,
paper or other media of any nature;
1.1.97 "SPECIFIED ASSETS" has the meaning given to that term in the
Transfer Agreement;
1.1.98 "STOCKHOLDER EXPENSES" means the costs, fees, expenses and
liabilities described in sections 5.11.1, 5.11.2, 5.11.3, 5.11.5 and 5.11.6
and specifically set out on Schedule 1.1.98;
1.1.99 "STOCKHOLDER REPRESENTATIVE" means Robert V. Voit;
1.1.100 "SUBSIDIARY" means, with respect to any Person, any other Entity
that directly, or indirectly through one or more intermediaries, is
controlled by that Person;
1.1.101 "SURVIVING CORPORATION" has the meaning given to that term in
section 2.1;
1.1.102 "TAX REASSESSMENT PERIOD" means the period ending on the first date
on which no assessment, reassessment or other document assessing liability
for Taxes may be issued to the Corporation or any past or current
subsidiary of the Corporation in respect of any taxation year or other
period ended prior to the Closing Date, or within which the Closing Date
occurs, pursuant to any applicable Tax Laws;
1.1.103 "TAX RETURNS" will mean any return, report, document, statement or
form required to be filed with respect to any Taxes (including any
schedules required to be attached to it), including information returns,
claims for refund, amended returns and declarations of estimated Tax;
1.1.104 "TAX RELATED PAYMENT" has the meaning given to that term in section
2.14.3;
1.1.105 "TAXES" means all taxes, levies, assessments, reassessments and
other charges together with all related penalties, interest, costs and
fines, including income, gross receipts, capital stock, profits, stamp,
occupation, transfer, value added, excise, franchise, sales, use, property
(whether real, personal or mixed), employment, unemployment, disability,
withholding, social security and workers' compensation taxes and estimated
income and franchise tax payments, due and payable to any domestic or
foreign government (federal, state, provincial, municipal or otherwise) or
to any regulatory authority, agency, commission or board of any domestic or
foreign government, or imposed by any court or any other Governmental
Authority having jurisdiction in relevant circumstances;
1.1.106 "THIRD PARTY" has the meaning given to that term in section 6.4.5;
1.1.107 "THIRD PARTY CLAIM" has the meaning given to that term in section
6.2;
1.1.108 "TIME OF CLOSING" means 10:00 a.m., Toronto time, on the Closing
Date or any other time on the Closing Date as may be agreed upon in writing
by the Merger Subsidiary and the Stockholder Representative;
1.1.109 "TOTAL CASH CONSIDERATION" means the aggregate of the Asset Sale
Cash Consideration and the Total Merger Cash Consideration, the aggregate
being $34,300,000;
1.1.110 "TOTAL MERGER CASH CONSIDERATION" means $3,430,000;
1.1.111 "TOTAL MERGER EQUITY CONSIDERATION" means 444,620 Corel Common
Shares;
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1.1.112 "TOTAL ADJUSTED MERGER CASH CONSIDERATION" means the Total Merger
Cash Consideration, less (1) any Stockholder Expenses not satisfied or
accrued by the Corporation prior to the Effective Time to the extent not
reflected in the calculation of the Initial Working Capital Shortfall, (2)
the Initial Working Capital Shortfall, if any, and (3) the Initial Q3 Net
Revenue Shortfall, if any, to the extent such amounts in (1), (2) and/or
(3) were not deducted in calculating the Asset Sale Cash Consideration;
1.1.113 "TOTAL EQUITY CONSIDERATION" means the aggregate of the Asset Sale
Equity Consideration and the Total Merger Equity Consideration, the
aggregate being 4,446,201 Corel Common Shares;
1.1.114 "TRANSACTION" means the Asset Sale and the Merger;
1.1.115 "TRANSFER AGREEMENT" means the Transfer Agreement dated the Closing
Date between the Corporation and a wholly-owned subsidiary of Corel, in the
form attached as Schedule 1.1.115, pursuant to which the Asset Sale will be
effected;
1.1.116 "TRANSACTION CONSIDERATION" means the aggregate of the Merger
Consideration and the Asset Sale Consideration;
1.1.117 "UNAUDITED FINANCIAL STATEMENTS" means the balance sheet of the
Corporation as at the Unaudited Statements Date and the accompanying
statements of income and cash flows, for the six months then ended, all as
attached as Schedule 1.1.117;
1.1.118 "UNAUDITED STATEMENT DATE" means June 30, 2004;
1.1.119 "WORKING CAPITAL" means the Corporation's cash, cash equivalents,
accounts receivable and Eligible Inventory, less the Corporation's current
liabilities, all as determined in accordance with GAAP, as historically
applied by the Corporation;
1.1.120 "WORKING CAPITAL ADJUSTMENT AMOUNT" has the meaning given to that
term in section 2.9.3.1; and
1.1.121 "WORKING CAPITAL CLOSING BALANCE SHEET" means the statement of
assets and liabilities of the Corporation as at the close of business on
September 30, 2004 (excluding accruals in respect of the Jasc YE Bonus
Program), delivered in accordance with section 2.9.3.
1.2 SCHEDULES AND EXHIBITS
The following are the schedules and exhibit attached to this Agreement:
Exhibit A - Articles of Merger
Exhibit B - Form of Consent
Schedule 1.1.10 - Audited Financial Statements
Schedule 1.1.29 Corel Audited Financial Statements
Schedule 1.1.33 - Corel Minority Shareholders Agreement
Schedule 1.1.34 Corel Unaudited Financial Statements
Schedule 1.1.45 - Escrow Agreement
Schedule 1.1.61 - Jasc Stockholder Signature Page
Schedule 1.1.98 - Stockholder Expenses
Schedule 1.1.115 - Transfer Agreement
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Schedule 1.1.117 - Unaudited Financial Statements
Schedule 3.1.3 - Capital of the Corporation
Schedule 3.1.7 - Approvals and Consents
Schedule 3.1.11 - Liabilities and Guarantees
Schedule 3.1.12 - Indebtedness
Schedule 3.1.14 - Dividends
Schedule 3.1.15 - Insider Interests
Schedule 3.1.16 - As to Certain Contracts In and Out of the Ordinary
Course
Schedule 3.1.17.1 - Certain Distribution Agreements
Schedule 3.1.17.2 - Master Representative Contracts
Schedule 3.1.20 - Leased Real Property
Schedule 3.1.22.1 - Title to Assets
Schedule 3.1.23.6 - Environmental Permits
Schedule 3.1.25 - Employment Matters
Schedule 3.1.26 Employee Plans
Schedule 3.1.28 - Insurance
Schedule 3.1.29 - Intellectual Property
Schedule 3.1.30 - Permits, Registrations and Elections
Schedule 3.1.32 - Litigation and Other Proceedings
Schedule 3.1.35 - Bank Accounts, etc.
Schedule 3.1.37 - Conduct of Business
Schedule 3.3.4 - Approvals and Consents (Merger Subsidiary)
Schedule 3.4.3 - Capital of Corel
Schedule 3.4.6 - Approvals and Consents (Corel)
Schedule 4.1.1 - Bring-down Certificate
Schedule 4.1.2.1 - Opinion of Faegre & Benson LLP
Schedule 4.1.2.2 Opinion of Thomsen & Nybeck, P.A.
Schedule 4.1.6 - Non-Competition, Non-Solicitation and Confidentiality
Agreement
Schedule 4.2.2.1 - Opinion of Torys LLP
Schedule 4.2.2.2 Opinion of Stewart McKelvey Stirling Scales LLP
Schedule 5.3 - Negative Covenants
Schedule 5.10.2 - Merger Consideration Allocation
1.3 HEADINGS AND TABLE OF CONTENTS
The inclusion of headings and a table of contents in this Agreement is
for convenience of reference only and will not affect the construction or
interpretation of this Agreement.
1.4 GENDER AND NUMBER
In this Agreement, unless the context otherwise requires, words
importing the singular include the plural and vice versa, words importing gender
include all genders or the neuter, and words importing the neuter include all
genders.
1.5 DATE
Any date specified for any action that is not a Business Day will be
deemed to mean the first Business Day after that date.
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1.6 LAWS
Any reference to any federal, state, local or foreign statute or law
will be to that statute or law as amended at the applicable time, and will be
deemed also to refer to all rules and regulations promulgated under that law at
the applicable time.
1.7 CURRENCY
Except where otherwise expressly provided, all amounts in this
Agreement are stated and will be paid in United States currency.
1.8 GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
In this Agreement, except to the extent otherwise expressly provided,
references to "GAAP" mean generally accepted accounting principles in the United
States and references to "CANADIAN GAAP" mean generally accepted accounting
principles in Canada.
1.9 CONSTRUCTION OF AGREEMENT
The parties have participated jointly in the negotiation and drafting
of this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement will be construed as if drafted jointly by
the parties and no presumption or burden of proof will rise favoring or
disfavoring any party by virtue of the authorship of any of the provisions of
this Agreement.
1.10 INVALIDITY OF PROVISIONS
Each of the provisions contained in this Agreement is distinct and
severable and a declaration of invalidity or unenforceability of any provision
or part of a provision by a court of competent jurisdiction will not affect the
validity or enforceability of any other provision of this Agreement. To the
extent permitted by applicable law, the parties waive any provision of law which
renders any provision of this Agreement invalid or unenforceable in any respect.
The parties will engage in good faith negotiations to replace any provision
which is declared invalid or unenforceable with a valid and enforceable
provision, the economic effect of which comes as close as possible to that of
the invalid or unenforceable provision which it replaces.
1.11 ENTIRE AGREEMENT
This Agreement, the Related Agreements and the Confidentiality
Agreements constitute the entire agreement among the parties pertaining to the
subject matter of this Agreement. There are no warranties, conditions, or
representations (including any that may be implied by Law) and there are no
agreements in connection with this subject matter except as specifically set out
or referred to in this Agreement, the Related Agreements and/or the
Confidentiality Agreements. No reliance is placed on any warranty,
representation, opinion, advice or assertion of fact made either prior to,
contemporaneous with, or after entering into this Agreement, or any amendment or
supplement to this Agreement, by any party to this Agreement or its directors,
officers, employees or agents, to any other party to this Agreement or its
directors, officers, employees or agents, except to the extent that the same has
been reduced to writing and included as a term of this Agreement, and none of
the parties to this Agreement has been induced to enter into this Agreement or
any amendment or supplement by reason of any such warranty, representation,
opinion, advice or assertion of fact. Accordingly, there will be no liability,
either in tort or in contract, assessed in relation to any such warranty,
representation, opinion, advice or assertion of fact, except to the extent
contemplated above.
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1.12 WAIVER, AMENDMENT
Except as expressly provided in this Agreement, no amendment or waiver
of this Agreement will be binding unless executed in writing by the party to be
bound by the amendment or waiver provided, however, that with respect to the
Jasc Stockholders, this Agreement may be amended with the consent of the
Stockholder Representative. No waiver of any provision of this Agreement will
constitute a waiver of any other provision nor will any waiver of any provision
of this Agreement constitute a continuing waiver unless otherwise expressly
provided. The failure of any party at any time or times to require performance
of any provision of this Agreement will in no way affect its right at a later
time to enforce that provision or any other provision.
1.13 GOVERNING LAW
The validity of this Agreement and of any of its terms or provisions,
as well as the rights and duties of the parties under this Agreement, will be
construed pursuant to and in accordance with the laws of the State of Minnesota,
without regard to the conflicts of laws provisions thereof.
ARTICLE 2
THE TRANSACTION
2.1 THE TRANSACTION
2.1.1 On the Closing Date and immediately prior to the Effective Time (1)
the Corporation will transfer the Specified Assets to Corel Holdings, and
(2) Corel Holdings will pay to, or as directed by, the Corporation the
Asset Sale Consideration, each as contemplated by the Transfer Agreement.
2.1.2 At the Effective Time and subject to and upon the terms and
conditions of this Agreement and the Articles of Merger attached to this
Agreement as Exhibit A (the "ARTICLES OF MERGER") and the applicable
provisions of the Minnesota Business Corporation Act ("MINNESOTA LAW"), the
Merger Subsidiary will be merged with and into the Corporation, the
separate corporate existence of the Merger Subsidiary will cease and the
Corporation will continue as the surviving corporation under the name "
Jasc Software, Inc." The Corporation as the surviving corporation after the
Merger is sometimes referred to as the "SURVIVING CORPORATION."
2.2 CLOSING AND THE EFFECTIVE TIME
Upon satisfaction (or, to the extent permitted under this Agreement,
waiver) of all conditions to the Transaction (that date being the "CLOSING
DATE"), the parties will first complete the Asset Sale and immediately
thereafter, the Merger Subsidiary and the Corporation will cause to be filed the
Articles of Merger with the Secretary of State of the State of Minnesota and
make all other filings or recordings required by Minnesota Law in connection
with the Merger. Pending completion of the Merger following the Closing, all
closing deliveries will be held in escrow. The Merger will become effective at
the time when the Articles of Merger, specifying 11:59 p.m. on the date of
filing as the effective date of the Merger, is duly filed with the Secretary of
State of the State of Minnesota (the "EFFECTIVE TIME").
2.3 EFFECT OF THE MERGER
At the Effective Time, the effect of the Merger will be as provided in
this Agreement, the Articles of Merger and the applicable provisions of
Minnesota Law. Without limiting the generality of
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the foregoing, and subject thereto, at the Effective Time, all the property,
rights, privileges, powers and franchises of the Corporation and the Merger
Subsidiary (excluding, for greater certainty, the Specified Assets) will vest in
the Surviving Corporation, and all debts, liabilities and duties of the
Corporation and the Merger Subsidiary will become the debts, liabilities and
duties of the Surviving Corporation.
2.4 ARTICLES OF INCORPORATION AND BYLAWS
2.4.1 At the Effective Time, the Articles of Incorporation of the
Corporation will be amended in their entirety to read as the Articles of
Incorporation of the Merger Subsidiary as in effect immediately prior to
the Effective Time, and will be the Articles of Incorporation of the
Surviving Corporation until thereafter amended as provided by Minnesota
Law, except that as of the Effective Time, Article I of the Articles of
Incorporation will be amended to read: "The name of the corporation will be
'Jasc Software, Inc.'"
2.4.2 The Bylaws of the Merger Subsidiary, as in effect immediately prior
to the Effective Time, will be the Bylaws of the Surviving Corporation
until thereafter amended as provided by Minnesota Law, the Articles of
Incorporation of the Surviving Corporation and those Bylaws.
2.5 DIRECTORS AND OFFICERS
At the Effective Time, the directors of the Merger Subsidiary
immediately prior to the Effective Time will be the initial directors of the
Surviving Corporation, to hold office until those directors resign, are removed
or their respective successors are duly elected or appointed in accordance with
Minnesota Law and the Articles of Incorporation and Bylaws of the Surviving
Corporation. The officers of the Merger Subsidiary immediately prior to the
Effective Time will be the initial officers of the Surviving Corporation, to
hold office until those officers resign, are removed or their respective
successors are duly elected or appointed in accordance with Minnesota Law and
the Articles of Incorporation and Bylaws of the Surviving Corporation.
2.6 EFFECT ON CAPITAL STOCK
By virtue of the Merger and without any action on the part of Corel,
the Merger Subsidiary, the Corporation or the Jasc Stockholders:
2.6.1 CONVERSION OF JASC SHARES. Each Jasc Share will be converted into (i)
the Per Jasc Share Equity Consideration subject to any fractional share
interest to be addressed in accordance with section 2.6.3; and (ii) the
right to receive a cash payment equal to the Per Jasc Share Cash
Consideration.
2.6.2 CONVERSION OF MERGER SUBSIDIARY COMMON STOCK. At the Effective Time,
each share of common stock, $.01 par value, of the Merger Subsidiary will
be converted automatically into one fully paid and nonassessable share of
common stock of the Surviving Corporation.
2.6.3 FRACTIONAL SHARES. No fraction of a Corel Common Share will be issued
in the Merger. Any fractional share that would otherwise be issued to a
Jasc Stockholder will be rounded down to the nearest whole number of
shares.
2.6.4 DISSENTERS' RIGHTS. Notwithstanding any provisions of this Agreement
to the contrary, any Jasc Share outstanding immediately prior to the
Effective Time held by a holder who has demanded and perfected the right,
if any, to receive fair value for those Jasc Shares ("DISSENTING SHARES")
in accordance with the provisions of Sections 302A.471 and 302A.473 of
Minnesota Law
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and as of the Effective Time has not withdrawn or lost those dissenter's
rights will not be converted into or represent a right to receive the
Merger Consideration pursuant to section 2.6.1, but the stockholder will
only be entitled to those rights as are granted by Minnesota Law. If a
holder of Jasc Shares who asserts dissenter's rights under Minnesota Law
withdraws or loses those rights (through failure to perfect or otherwise),
then, as of the Effective Time or the occurrence of that event, whichever
last occurs, those shares (the "UNPERFECTED SHARES") will be converted into
and/or represent, as applicable, only the right to receive the Merger
Consideration as provided in section 2.6.1, without interest, upon the
surrender of the certificate or certificates formerly representing those
Unperfected Shares. The Corporation will give Corel (i) prompt notice of
any written notice of intent to demand fair value for any Unperfected
Shares, attempted withdrawals of those demands, the deposit of any shares
for which payment is demanded, and any other instruments served pursuant to
Minnesota Law received by the Corporation relating to dissenters' rights
and (ii) the opportunity to direct all negotiations and proceedings with
respect to the assertion of dissenters' rights under Minnesota Law. The
Corporation will not, except with the prior written consent of Corel, given
in its sole discretion, voluntarily make any payment with respect to any of
those demands for payment of fair value, offer to settle or settle any of
those demands or approve any withdrawal of any of those demands.
2.7 SURRENDER OF CERTIFICATES AND PAYMENT OF MERGER CONSIDERATION
2.7.1 Promptly at the Effective Time, each of the Jasc Stockholders will
surrender his or her existing share certificates representing Jasc Shares
("OLD CERTIFICATES") to Corel.
2.7.2 Each Jasc Stockholder, upon surrender to Corel of the Old
Certificates, will receive in exchange for those certificates as soon as
practicable following the receipt of the certificates by Corel, the Merger
Consideration to which he, she or it is entitled pursuant to section 2.6.1
(subject to section 2.12), and the Old Certificates so surrendered will be
cancelled. Unless and until so surrendered, each Old Certificate will,
after the Effective Time, represent for all purposes only the right to
receive upon surrender the Merger Consideration to which the Jasc
Stockholder is entitled pursuant to section 2.6.1.
2.7.3 At and following the Effective Time, Jasc Stockholders will cease to
be, and will have no rights as, stockholders of the Corporation (and/or,
for greater certainty, the Surviving Corporation), other than as provided
in this section 2.7.3. After the Effective Time, there will be no further
registration of transfers of Jasc Shares. If, after the Effective Time, Old
Certificates are presented to the Surviving Corporation or Corel, they will
be cancelled and exchanged for the Merger Consideration as provided for,
and in accordance with the procedures set out in this Article 2.
2.7.4 No dividends or other distributions on Corel Common Shares will be
paid to the holder of any unsurrendered Old Certificates until those Old
Certificates are surrendered as provided in this section 2.7. Upon that
surrender, where the holder of the Old Certificate receives Corel Common
Shares in accordance with section 2.6.1, there will be paid, without
interest, to the Person in whose name the new share certificates
representing the Corel Common Shares ("NEW CERTIFICATES") into which those
Jasc Shares were converted are registered, all dividends and other
distributions paid in respect of those Corel Common Shares on a date
subsequent to, and in respect of a record date after, the Effective Time.
Dividends and other distributions paid on Corel Common Shares subject to
the Escrow Agreement will be dealt with in the manner provided in the
Escrow Agreement.
2.7.5 If any Old Certificate has been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person claiming that Old
Certificate to be lost, stolen or destroyed and the granting by that person
of an indemnity in favour of Corel and the Surviving Corporation against
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any claim that may be made against Corel or the Surviving Corporation with
respect to that Old Certificate, Corel will deliver the Merger
Consideration as provided for in section 2.6.1.
2.8 ADJUSTMENTS
If, at any time during the period between the date of this Agreement
and the Effective Time, the outstanding Corel Common Shares are changed into a
different number of shares, by reason of any reclassification, recapitalization,
stock split or combination, reverse stock split, consolidation, exchange or
readjustment of shares, stock dividend or similar transaction with a record date
(or where there is no record date, effective date) during that period, the
number of Corel Common Shares that the Jasc Stockholders are entitled to receive
as Merger Consideration as provided for in section 2.6.1 will be appropriately
adjusted.
2.9 WORKING CAPITAL ADJUSTMENT
2.9.1 At least 3 Business Days prior to the Closing Date, the Corporation
will have prepared and delivered to Corel the Initial Closing Balance
Sheet. The Initial Closing Balance Sheet will show a minimum amount of
Adjusted September 30 Working Capital at least equal to the Required
Working Capital Amount.
2.9.2 If the Initial Closing Balance Sheet shows Adjusted September 30
Working Capital that is less than the Required Working Capital Amount (the
"INITIAL WORKING CAPITAL SHORTFALL"), then the Asset Sale Cash
Consideration will be reduced by the amount of the Initial Working Capital
Shortfall. If the Initial Working Capital Shortfall is greater than the
Asset Sale Cash Consideration, then the Total Merger Cash Consideration
will be reduced by that excess amount.
2.9.3 Within 60 days of the Closing Date, Corel will prepare and deliver to
the Stockholder Representative a draft Working Capital Closing Balance
Sheet. The Working Capital Closing Balance Sheet will contain a
reconciliation that details any differences between this balance sheet and
the Initial Closing Balance Sheet. Once the Working Capital Closing Balance
Sheet is settled in accordance with this section 2.9, it will be used to
calculate the Closing Working Capital Amount. Within 10 Business Days after
settling the Working Capital Closing Balance Sheet:
2.9.3.1 if the Closing Working Capital Amount is less than the
Required Working Capital Amount by more than the Initial Working
Capital Shortfall (the difference from the Initial Working Capital
Shortfall being the "WORKING CAPITAL ADJUSTMENT AMOUNT") then the Jasc
Stockholders will pay to Corel the Working Capital Adjustment Amount.
Each of the Jasc Stockholders will pay to Corel cash equal to a pro
rata portion of the Working Capital Adjustment Amount based upon the
Jasc Stockholder's Ownership Percentage. If the entire Working Capital
Adjustment Amount is not paid by the Jasc Stockholders within the 10
Business Day period, the unpaid balance of the Working Capital
Adjustment Amount will be satisfied from the Escrow Fund and each Jasc
Stockholder that did not make its required payment during the 10
Business Day period will (and will be severally, and not jointly,
liable to) make a cash payment to the Escrow Fund equal to that Jasc
Stockholder's pro rata share of the Working Capital Adjustment Amount
(based upon the percentage of the Jasc Stockholder's Ownership
Percentage); or
2.9.3.2 if the Closing Working Capital Amount is less than the
Required Working Capital Amount by less than the Initial Working
Capital Shortfall (the difference from the Initial Working Capital
Shortfall being the "COREL WORKING CAPITAL PAYMENT"), then
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Corel will pay to the Jasc Stockholders cash equal to a pro rata
portion of the Corel Working Capital Payment based upon the Jasc
Stockholder's Ownership Percentage.
2.9.4 If the Stockholder Representative notifies Corel that it agrees with
the Working Capital Closing Balance Sheet within 21 days after receiving it
or fails to deliver notice to Corel of its disagreement with the Working
Capital Closing Balance Sheet within that 21 day period, the Working
Capital Closing Balance Sheet will be conclusive and binding on Corel and
each of the Jasc Stockholders and the parties will be deemed to have agreed
to it, in the first case on the date Corel receives the notice and, in the
second case, on the 21st day.
2.9.5 If the Stockholder Representative notifies Corel of a disagreement
with the Working Capital Closing Balance Sheet within the 21 day period,
then Corel and the Stockholder Representative will attempt, in good faith,
to resolve their differences with respect to it within 15 days after
Corel's receipt of the notice of disagreement. Any disagreement over the
Working Capital Closing Balance Sheet not resolved by Corel and the
Stockholder Representative within that 15 day period (or any longer period
as may be agreed to between the parties) will be settled in accordance with
section 2.11.
2.10 Q3 NET REVENUE ADJUSTMENT
2.10.1 At least 3 Business Days prior to the Closing Date, the Corporation
will have prepared and delivered to Corel a calculation of the Initial Q3
Net Revenue.
2.10.2 If the Initial Q3 Net Revenue is less than the Required Q3 Net
Revenue (the "INITIAL Q3 NET REVENUE SHORTFALL"), then the Asset Sale Cash
Consideration will be reduced by the amount of the Initial Q3 Net Revenue
Shortfall. If the Initial Q3 Net Revenue Shortfall is greater than the
Asset Sale Cash Consideration, then the Total Merger Cash Consideration
will be reduced by that excess amount.
2.10.3 Within 60 days of the Closing Date, Corel will prepare and deliver
to the Stockholder Representative a draft calculation of Q3 Net Revenue.
The calculation of the Q3 Net Revenue will contain a reconciliation that
details any differences between this calculation and the calculation of the
Initial Q3 Net Revenue. Within 10 Business Days after settling the
calculation of Q3 Net Revenue in accordance with this section 2.10:
2.10.3.1 if the Q3 Net Revenue is less than the Required Q3 Net
Revenue by more than the Initial Q3 Net Revenue Shortfall (the
difference from the Initial Q3 Net Revenue Shortfall being the "Q3 NET
REVENUE ADJUSTMENT AMOUNT") then the Jasc Stockholders will pay to
Corel the Q3 Net Revenue Adjustment Amount. Each of the Jasc
Stockholders will pay to Corel cash equal to a pro rata portion of the
Q3 Net Revenue Adjustment Amount based upon the Jasc Stockholder's
Ownership Percentage. If the entire Q3 Net Revenue Adjustment Amount
is not paid by the Jasc Stockholders within the 10 Business Day
period, the unpaid balance of the Q3 Net Revenue Adjustment Amount
will be satisfied from the Escrow Fund and each Jasc Stockholder that
did not make its required payment during the 10 Business Day Period
will (and will be severally, and not jointly, liable to) make a cash
payment to the Escrow Fund equal to that Jasc Stockholder's pro rata
share of the Q3 Net Revenue Adjustment Amount (based upon the Jasc
Stockholder's Ownership Percentage); or
2.10.3.2 if the Q3 Net Revenue is less than the Required Q3 Net
Revenue by less than the Initial Q3 Net Revenue Shortfall (the
difference from the Initial Q3 Net Revenue
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Shortfall being the "COREL Q3 NET REVENUE PAYMENT"), then Corel will
pay to the Jasc Stockholders cash equal to a pro rata portion of the
Corel Q3 Net Revenue Payment based upon the Jasc Stockholder's
Ownership Percentage.
2.10.4 If the Stockholder Representative notifies Corel that it agrees with
the calculation of Q3 Net Revenue within 21 days after receiving it or
fails to deliver notice to Corel of its disagreement with the calculation
of Q3 Net Revenue within that 21 day period, the calculation of Q3 Net
Revenue will be conclusive and binding on Corel and each of the Jasc
Stockholders and the parties will be deemed to have agreed to it, in the
first case on the date Corel receives the notice and, in the second case,
on the 21st day.
2.10.5 If the Stockholder Representative notifies Corel of a disagreement
with the calculation of Q3 Net Revenue within the 21 day period, then Corel
and the Stockholder Representative will attempt, in good faith, to resolve
their differences with respect to it within 15 days after Corel's receipt
of the notice of disagreement. Any disagreement over the calculation of Q3
Net Revenue not resolved by Corel and the Stockholder Representative within
that 15 day period (or any longer period as may be agreed to between the
parties) will be settled in accordance with section 2.11.
2.11 DISPUTE PROCESS
Any dispute relating to the Working Capital Closing Balance Sheet, Q3
Net Revenue, Tax Related Payment or Stockholder Expense Adjustment Amount will
be determined by arbitration administered by the American Arbitration
Association under its Commercial Arbitration Rules, expedited procedures, as
amended and effective on the date of this Agreement provided that (1) the
arbitration will be conducted before a single arbitrator agreed to by Corel and
the Stockholder Representative or if the parties are unable to agree on a single
arbitrator after using best efforts to reach agreement, appointed pursuant to
the applicable expedited procedures under the Commercial Arbitration Rules, (2)
any award or determination of an arbitrator will be final and binding on the
parties and there will be no appeal on any ground, (3) an arbitrator will not,
without the written consent of Corel and the Stockholder Representative, retain
any expert, (4) all matters relating to the arbitration will be kept
confidential to the full extent permitted by law, (5) the arbitrator will have
power to award legal fees and costs associated with the arbitration (including
fees of the arbitrator) and to order equitable relief in accordance with this
section 2.11, and (6) no individual will be appointed as an arbitrator unless he
or she agrees in writing to be bound by this arbitration provision.
2.12 ESCROW
Pursuant to the terms of the Escrow Agreement, Corel will deliver at
the Closing to the Escrow Agent 2,778,876 Corel Shares which comprise a portion
of the Total Equity Consideration and $1.0 million which comprises a portion of
the Total Cash Consideration. The Escrow Agent will hold the Escrow Fund in
escrow in accordance with the terms of the Escrow Agreement.
2.13 CONVERTIBLE SECURITIES AND OPTION PLAN
Prior to the Effective Time, the Corporation and each holder of
Convertible Securities will enter into an agreement that will provide (i) that
holders of Convertible Securities who are Accredited Investors on the date of
that agreement will, prior to the Closing Date, in respect of each Convertible
Security, either (a) exercise that Convertible Security for Jasc Shares or (b)
receive a cash payment as consideration for the cancellation of that Convertible
Security in an amount equal to the difference between the exercise price of that
Convertible Security and the value of the Transaction Consideration which the
holder would have received had that Convertible Security been exercised
immediately prior to
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the Time of Closing (if the holder fails to elect (a) or (b) at least 3 days
prior to the Closing Date, the holder will be deemed to have elected (b)); and
(ii) that holders of Convertible Securities who are not Accredited Investors on
the date of that agreement will, prior to the Closing Date, for each Convertible
Security held receive a cash payment as consideration for the cancellation of
that Convertible Security in an amount equal to the difference between the
exercise price of that Convertible Security and the value of the Transaction
Consideration which the holder would have received had that Convertible Security
been exercised immediately prior to the Time of Closing. The Corporation will
pay the amounts due to the holders of Convertible Securities or will arrange
with Corel, at least one Business Day prior to the Closing Date, for the payment
of those amounts to be made directly out of the Asset Sale Cash Consideration as
contemplated by section 5.11.
2.14 TAX RELATED PAYMENT
2.14.1 Upon the later of (i) at least 3 Business Days prior to the Closing
Date; or (ii) October 15, 2004, the Corporation (or the Stockholder
Representative, if that later date is following the Closing Date) will
prepare and deliver to Corel a draft September Income Statement and a draft
calculation of the Tax Related Payment calculated in accordance with
section 2.14.3.
2.14.2 Within 10 Business Days after settling the calculation of the Tax
Related Payment in accordance with this section 2.14, Corel will pay to the
Jasc Stockholders cash equal to the Tax Related Payment, pro rata based
upon the Jasc Stockholder's Ownership Percentage.
2.14.3 The "TAX RELATED PAYMENT" will be equal to the taxable income of the
Corporation for the time period commencing on October 1, 2004 and ending at
the Effective Time, multiplied by 0.43. The taxable income of the
Corporation for the time period commencing on October 1, 2004 and ending at
the Effective Time will be the product of (i) taxable income of the
Corporation from September 1, 2004 to September 30, 2004 divided by 30 and
(ii) the number of days from and including October 1, 2004, to the
Effective Time. The Tax Related Payment will be a liability of the
Corporation on the Effective Date and, for greater certainty, will be
treated for tax purposes as Merger Consideration. The parties agree that
(i) the foregoing calculation will be the basis for allocating income
between the parties, from a Tax perspective, for the period from October 1,
2004 to the Effective Date; and (ii) in no event will the taxable income
calculated pursuant to this section 2.14.3 be greater than the taxable
income reported to the Internal Revenue Service for that same period.
2.14.4 If Corel notifies the Stockholder Representative that it agrees with
the calculation of the Tax Related Payment within 21 days after receiving
it or fails to deliver notice to the Stockholder Representative of its
disagreement with the calculation of the Tax Related Payment within that 21
day period, the calculation of the Tax Related Payment will be conclusive
and binding on Corel and each of the Jasc Stockholders and the parties will
be deemed to have agreed to it, in the first case on the date the
Stockholder Representative receives the notice and, in the second case, on
the 21st day.
2.14.5 If Corel notifies the Stockholder Representative of a disagreement
with the calculation of the Tax Related Payment within the 21 day period,
then Corel and the Stockholder Representative will attempt, in good faith,
to resolve their differences with respect to it within 15 days after the
Stockholder Representative's receipt of the notice of disagreement. Any
disagreement over the calculation of the Tax Related Payment not resolved
by Corel and the Stockholder Representative within that 15 day period (or
any longer period as may be agreed to between the parties) will be settled
in accordance with section 2.11.
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2.14.6 If it is later determined, in connection with a tax audit or
otherwise, that the actual tax obligations of the Jasc Stockholders related
to the period between September 30, 2004 and the Closing Date is greater
than Tax Related Payment, Corel shall make an additional cash payment to
each Jasc Stockholder in an amount equal to such additional tax liability.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
3.1 BY THE CORPORATION AND THE PRINCIPAL STOCKHOLDERS
The Corporation and each of the Principal Stockholders represent and
warrant to the Merger Subsidiary and Corel as follows and acknowledge that the
Merger Subsidiary and Corel are relying upon the following representations and
warranties in connection with the Transaction:
3.1.1 FORMATION AND STATUS OF THE CORPORATION. The Corporation:
3.1.1.1 is duly formed and organized and is validly existing, in good
standing and up-to-date in the filing of all corporate and similar
returns under the laws of the State of Minnesota;
3.1.1.2 is duly registered, licensed or qualified, in good standing
and up-to-date in the filing of all corporate and similar returns,
under the laws of each jurisdiction in which the nature of the
Business or the assets owned or leased by it makes that registration,
licensing or qualification necessary or desirable; and
3.1.1.3 has provided to the Merger Subsidiary a correct and complete
copy of the articles of incorporation, by-laws, constating documents
and other organizational documents of the Corporation, in each case as
amended to the date of this Agreement, as well as the corporate
minutes and stock record books.
3.1.2 POWER OF THE CORPORATION AND DUE AUTHORIZATION. The Corporation has
the corporate power and capacity to own or lease its assets and to carry on
the Business as it is presently conducted and to enter into, and to perform
its obligations under, this Agreement and the Related Agreements to which
it is a party. Each of this Agreement and each of the Related Agreements to
which the Corporation is a party has been duly authorized by the
Corporation. This Agreement has been duly executed and delivered by the
Corporation and is a valid and binding obligation of the Corporation,
enforceable in accordance with its terms, subject to the usual exceptions
as to bankruptcy and the availability of equitable remedies. At the Time of
Closing, each of the Related Agreements to which the Corporation is a party
will be duly executed and delivered by the Corporation and will be valid
and binding obligations of the Corporation, enforceable in accordance with
their respective terms, subject to the usual exceptions as to bankruptcy
and the availability of equitable remedies.
3.1.3 CAPITAL OF THE CORPORATION. Schedule 3.1.3 sets out particulars of
the authorized and issued securities of the Corporation (including shares,
options, warrants, other rights to acquire securities or debt instruments),
the names of the Persons who are the beneficial owners of those securities
and, if those beneficial owners are not the registered owners of those
securities, the names of the Persons shown on the securities register of
the Corporation as the holder of any of those securities, and the number
and class of securities held by those Persons. All the shares indicated on
the Schedule as being issued and outstanding constitute all of the
outstanding shares of
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capital stock of the Corporation, have been validly issued and are
outstanding as fully paid and non-assessable shares. Except as set out in
Schedule 3.1.3, there are no stockholders agreements, pooling agreements,
voting trusts or other Contracts with respect to the voting of the
securities of the Corporation. Complete and accurate records with respect
to the issuance, transfer, redemption and cancellation of all shares of
capital stock (including a list of all certificates issued at any time
evidencing outstanding securities of the Corporation, the names of the
holder or holders of each of those certificates and the type of Person(s)
comprising that holder or holders) are set out in the Corporation's stock
record books, copies of which have been provided to the Merger Subsidiary.
At the Time of Closing, there will not be any outstanding Convertible
Securities and the former holders of Convertible Securities will have no
rights against the Corporation or the Surviving Corporation to receive
cash, securities or other property.
3.1.4 SUBSIDIARIES AND INVESTMENTS. The Corporation does not have any
subsidiaries. The Corporation does not own beneficially or of record any
securities of, or any other interests in, any Entity, nor have any Contract
to acquire any such securities or other interests.
3.1.5 NO OBLIGATIONS TO ISSUE SECURITIES. Except as set out in Schedule
3.1.3, there are no options, warrants, rights of conversion or other rights
or Contracts pursuant to which the Corporation is, or may become, obligated
to issue any shares or any securities convertible or exchangeable, directly
or indirectly, into any shares of the Corporation.
3.1.6 NO CONTRAVENTION BY THE CORPORATION. Except as set out in Schedule
3.1.6, none of the entering into of this Agreement or any Related
Agreement, the consummation of the Transaction or the performance by the
Corporation of its other obligations under this Agreement and the Related
Agreements to which it is a party (a) will contravene, breach or result in
any default under (1) the articles of incorporation, by-laws, constating
documents or other organizational documents of the Corporation, or (2) any
license, permit, order, judgment, decree or Law to which the Corporation is
a party or by which it may be bound or (b) contravenes, breaches or results
in any default under, or conflicts with or will conflict with, or results
in or will result in any modification of any of the terms of, or results in
or will result in the termination of or the creation of any Charge,
acceleration right or other right pursuant to the terms of, any Contract or
Permit to which the Corporation is a party or by which it may be bound or
will in any way affect the continuation, validity or effectiveness of any
such Contract or Permit.
3.1.7 APPROVALS AND CONSENTS. Except as set out in Schedule 3.1.7, no
authorization, consent or approval of, or filing with or notice to, any
Governmental Authority or other Person is required in connection with (1)
the execution, delivery or performance of this Agreement by the Corporation
or the Jasc Stockholders or the consummation of the Transaction or (2) any
subsequent assignment or transfer by Corel or any of its subsidiaries
(including the Surviving Corporation) of any part or all or substantially
all of the Corporation's assets (including the Corporation's Contracts, Key
Software Programs, Proprietary Intellectual Property or Proprietary
Software) to Corel and/or one or more direct or indirect subsidiaries of
Corel. The failure of the Corporation to obtain any or all of the Consents
which are not Closing Required Consents would not have a material adverse
impact on the Merger Subsidiary, the Surviving Corporation or the Business.
3.1.8 FINANCIAL STATEMENTS. The Audited Financial Statements and the
Unaudited Financial Statements have been prepared and the Initial Closing
Balance Sheet and the calculation of Initial Q3 Net Revenue will be
prepared in accordance with GAAP (subject to usual year-end adjustments and
the absence of notes in the case of the Unaudited Financial Statements)
consistently applied throughout the periods indicated and fairly,
completely and accurately present the financial position of the Corporation
and the results of its operations as of the dates and throughout the
periods
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indicated and there has been no material adverse change in the financial
position of the Corporation from that reflected in the Audited Financial
Statements. Notwithstanding the foregoing, the absence of any accrual for
the Jasc YE Bonus Program will not be deemed to be a breach of the
representations in this section 3.1.8.
3.1.9 ACCOUNTS RECEIVABLE. The accounts receivable reflected on the balance
sheet forming part of the Unaudited Financial Statements and all accounts
receivable arising after the Unaudited Statements Date are bona fide and
collectible, other than those accounts receivable which are doubtful
accounts and in respect of which a reasonable allowance, consistent with
past practice, has been made, and are not subject to any set-off or
counterclaim.
3.1.10 INVENTORY VALUATION. The inventory of the Corporation reflected on
the balance sheet forming part of the Unaudited Financial Statements was,
and the current inventory of the Corporation is, in usable and saleable
condition in the ordinary course of the Business and, in the case of
inventory reflected on that balance sheet, at an amount not less than the
amounts carried in that balance sheet.
3.1.11 LIABILITIES AND GUARANTEES. The Corporation does not have any
outstanding liabilities or obligations, whether accrued, absolute, known or
unknown, contingent or otherwise (including any liabilities or obligations
which would arise as a result of the consummation of the Transaction), and
the Corporation is not a party to or bound by any agreement of guarantee,
support, indemnification, assumption, or endorsement of, or any other
similar commitment with respect to the obligations, liabilities (contingent
or otherwise) or indebtedness of any Person, other than:
3.1.11.1 those set out in the Unaudited Financial Statements;
3.1.11.2 current liabilities (determined in accordance with GAAP) in
respect of trade or business obligations incurred after the Unaudited
Statements Date in the ordinary course of the Business, consistent
with past practice, none of which has been or could be materially
adverse to the nature, results of operations, assets or financial
condition of, or manner of conducting, the Business; and
3.1.11.3 those set out in Schedule 3.1.11.
Except as set out in Schedule 3.1.11, there are no off-balance sheet
arrangements (as defined in Item 303(a)(4)(ii) of Regulation S-K under the
Securities Act) which are currently or at any point may be binding on the
Corporation.
3.1.12 INDEBTEDNESS. Except as set out in the Audited Financial Statements
or the Unaudited Financial Statements or in Schedule 3.1.12, the
Corporation does not have outstanding any bonds, debentures, notes,
mortgages or other indebtedness which mature more than one year after the
date of their original creation or issuance and the Corporation has not
agreed to create or issue any bonds, debentures, notes, mortgages or other
indebtedness which will mature more than one year after the date of their
creation or issuance.
3.1.13 ABSENCE OF UNUSUAL TRANSACTIONS AND EVENTS. Except as set out in
Schedule 3.1.13, the Corporation has not, since the Unaudited Statement
Date:
3.1.13.1 paid or satisfied any obligation or liability, absolute or
contingent, other than current liabilities or obligations disclosed in
the Unaudited Financial Statements and
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current liabilities or obligations incurred since the Unaudited
Statements Date in the ordinary course of the Business, consistent
with past practice;
3.1.13.2 waived or cancelled any rights or claims or made any gift,
other than donations made in the ordinary course of the Business,
consistent with past practice;
3.1.13.3 sold or otherwise disposed of any fixed or capital assets
having a fair market value, in the case of any single sale or
disposition, in excess of $25,000 and, in the case of all sales and
dispositions, in excess of $50,000 in total;
3.1.13.4 made any capital expenditures, in the case of any single
capital expenditure, in excess of $25,000 and, in the case of all
capital expenditures, in excess of $50,000 in total;
3.1.13.5 made any material change or deviation from past practices in
the manner of its billings, or the credit terms made available by it,
to any of its customers or recording and/or treatment by the
Corporation of customer accounts receivable or reserves for doubtful
accounts;
3.1.13.6 made or suffered any change or changes in its financial
condition, assets, liabilities or the Business which, singly or in the
aggregate, have materially adversely affected or could materially
adversely affect its financial condition, assets, liabilities or the
Business;
3.1.13.7 suffered or incurred any damage, destruction or loss, whether
or not covered by insurance, which has materially adversely affected
or could materially adversely affect its financial condition, assets
or the Business;
3.1.13.8 made any increase in the compensation payable or to become
payable to directors, officers, employees, independent contractors or
agents, including any improvements to severance or termination pay,
except as required by Law, other than improvements to Employee Plans
set out in Schedule 3.1.25;
3.1.13.9 declared or paid any dividend or made any distribution,
whether in cash, stock or in specie, in respect of any of its shares
or purchased, redeemed or otherwise acquired any of its securities or
made any other payment to the Jasc Stockholders or Persons related to
them outside the ordinary course of business;
3.1.13.10 changed any method of accounting or accounting principles;
3.1.13.11 incurred any Charges with respect to any assets, except
non-exclusive licenses to the Corporation's Key Software Programs
granted in the ordinary course of Business; or
3.1.13.12 authorized or agreed or otherwise become committed to do any
of the foregoing.
3.1.14 NO DIVIDENDS, LOANS, ETC.
3.1.14.1 Except as disclosed on Schedule 3.1.14, subsequent to the
Unaudited Statements Date, the Corporation has not (1) declared or
paid any dividend (whether in
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cash, stock or specie) or made any other distribution of any kind in
respect of its capital stock, and the Corporation has no obligation
(contingent or otherwise) to pay any dividends or make any other
distribution of any kind; or (2) purchased, redeemed or otherwise
acquired any shares of capital stock or any notes, bonds or other
securities of any kind and has no obligation (contingent or otherwise)
to do any of the foregoing.
3.1.14.2 The Corporation has paid on a timely basis (1) all amounts
due and payable under its indebtedness, leases and other Contract
obligations; and (2) all other amounts due and payable to any Persons.
3.1.15 INSIDER INTERESTS. Except as disclosed on Schedule 3.1.15, no
present or former stockholder, partner, principal, officer, director,
employee of the Corporation or Affiliate of the Corporation or, to the
Corporation's and each Principal Stockholder's Knowledge, any immediate or
other family member of any such person or any Person in which any such
person is an officer, director, principal, partner or stockholder (1) is
presently a party to any transaction or arrangement with the Corporation
(other than for services as officers, directors or employees of the
Corporation in the ordinary course of the Business); (2) owns any interest
in any of the assets or properties of the Corporation; (3) owns any
interest in, controls or is an employee, officer, director or agent of, or
consultant to, any other Person which is a competitor, supplier, customer,
vendor, landlord or tenant of the Corporation; (4) is indebted or liable
to, owns any interest in, or owns, holds or has guaranteed any obligation
or debt of the Corporation; or (5) has acquired from or sold or transferred
to the Corporation any assets or properties owned, leased or used by the
Corporation. Except as disclosed on Schedule 3.1.15 (1) there is no
Contract in effect between the Corporation, on the one hand, and any Jasc
Stockholder or family member of that Jasc Stockholder or any Affiliate of
any such Jasc Stockholder or family member, on the other hand; and (2) the
Corporation has no outstanding obligation or liability of any kind
(contingent, unknown or otherwise) to any such Jasc Stockholder, family
member or Affiliate.
3.1.16 AS TO CERTAIN CONTRACTS IN AND OUT OF THE ORDINARY COURSE. Except as
set out in Schedule 3.1.16 and except as disclosed in any other Schedule
(and explicitly cross-referenced to Schedule 3.1.16), the Corporation is
not a party to or bound by any:
3.1.16.1 Contract which expires or may expire, if the same is renewed
or extended at the unilateral option of any other Person, more than
one year after the date of this Agreement;
3.1.16.2 Contract for the purchase of materials, supplies or services
which requires payment of more than $25,000, in the case of any single
Contract, or, in the case of all such Contracts, in excess of $50,000
in the aggregate;
3.1.16.3 Contract for the purchase or sale of any equipment or fixed
or capital assets having a fair market value in excess of $25,000;
3.1.16.4 management, consulting, agency or similar Contract;
3.1.16.5 license or royalty agreement relating to Intellectual
Property;
3.1.16.6 Contract to make any gift of any of its property, other than
donations made in the ordinary course of the Business, consistent with
past practice;
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3.1.16.7 Contract which materially adversely affects or could
materially adversely affect the Business or its financial condition or
any of its assets or is or could be materially burdensome to it;
3.1.16.8 Material Contract;
3.1.16.9 lease, agreement in the nature of a lease or agreement to
lease whether as lessor or lessee, and whether in respect of real
property or personal property, except for any lease or agreement in
the nature of a lease relating to personal property where the total
annual payments under that lease or agreement and under any related
service or maintenance or similar Contract do not exceed $25,000; or
3.1.16.10 material Contract which was not made in the ordinary course
of the Business, consistent with past practice.
For the purposes of the foregoing, if a particular Contract falls within
more than one of the categories established by sections 3.1.16.1 through
3.1.16.10, it need not be set out more than once in Schedule 3.1.16.
Correct and complete copies of all of the Contracts set out in Schedule
3.1.16, or, where those Contracts are oral, correct and complete written
summaries of their terms, have been provided to the Merger Subsidiary.
3.1.17 CERTAIN DISTRIBUTION AND MASTER REPRESENTATIVE AGREEMENTS.
3.1.17.1 Schedule 3.1.17.1 sets out those Contracts of the Corporation
relating to all distribution, reselling and similar arrangements
involving the Corporation's Key Software Programs. Except as set out
on Schedule 3.1.17.1, all of those Contracts may be terminated by the
Corporation on no more than 60 days written notice and without any
requirement to pay any amounts, deliver any property, grant any rights
or restrict the activities of the Corporation.
3.1.17.2 Except as set out in Schedule 3.1.17.2, each of the
international master representative Contracts set out on Schedule
3.1.17.1 may be terminated in accordance with its terms or, if
termination is not addressed by the terms of a Contract, in accordance
with applicable Laws, without giving rise to any obligations and/or
liabilities to the Corporation or to Corel or a subsidiary of Corel
which is assigned the Contract.
3.1.18 NO DEFAULT UNDER AGREEMENTS. The Corporation is not in default or
breach of any Contract to which it is a party or by which it may be bound
(including the Contracts referred to in any Schedule to this Agreement) and
there exists no state of facts which after notice or the passage of time,
or both, would constitute such a default or breach, and all of those
Contracts are now in good standing and the Corporation is entitled to all
benefits, rights and privileges under them. To the Corporation's and each
Principal Stockholder's Knowledge, no other party to any of the
Corporation's Contracts is in default under that Contract. Each of the
Contracts to which the Corporation is a party or by which it may be bound
has been entered into in the ordinary course of the Business and is at
arm's length.
3.1.19 NO OWNED REAL PROPERTY. The Corporation does not own any real
property.
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3.1.20 LEASED REAL PROPERTY. A list and description of all real property
leased by the Corporation or in which the Corporation has any interest is
set out in Schedule 3.1.20 (collectively, the "Leased REAL PROPERTY"). All
of the Leased Real Property is held subject to the written leases that are
identified on Schedule 3.1.20 (the "REAL PROPERTY LEASES"). Each of the
Real Property Leases is valid and effective in accordance with their
respective terms, and there are no existing defaults or events of default,
or events which with notice or lapse of time or both would constitute
defaults under the Real Property Leases on the part of the Corporation.
True and complete copies of all of the Real Property Leases, together with
any amendments to the Real Property Leases, have been delivered to the
Merger Subsidiary. To the Corporation's and each Principal Stockholder's
Knowledge, there has not been any default or claimed or purported or
alleged default or state of facts which with notice or lapse of time or
both would constitute a default on the part of any other party in the
performance of any obligation to be performed or paid by that other party
under any Real Property Lease. Neither the Corporation nor any of the
Principal Stockholders has received any written or oral notice to the
effect that any Real Property Lease will not he renewed at the termination
of the term of the Real Property Lease or that any Real Property Lease will
be renewed only at a substantially higher rent.
3.1.21 ZONING AND OTHER MATTERS RELATING TO REAL PROPERTY. To the
Corporation's and each Principal Stockholder's Knowledge, the buildings and
other structures located on the Leased Real Property and the operation and
maintenance of those buildings and structures, as now operated and
maintained, comply with all material applicable Laws; none of those
buildings or other structures encroaches upon any land other than the
Leased Real Property; and there are no restrictive covenants or other Laws
which in any way restrict or prohibit the use of those lands, buildings or
structures for the purposes for which they are presently being used. There
are no expropriation, pending assessment for public improvements or
condemnation, taking by eminent domain or similar Proceedings, actual or
threatened, of which any of the Principal Stockholders or the Corporation
has received notice, related to the Leased Real Property.
3.1.22 TITLE TO ASSETS.
3.1.22.1 The Corporation has good, valid and marketable title to all
of its properties and assets, real, personal and mixed, tangible and
intangible, including the properties and assets reflected in the
balance sheet forming part of the Audited Financial Statements (except
for assets leased under Contracts identified on Schedule 3.1.22.1, and
except for accounts receivable collected upon and inventory disposed
of since the Audited Statements Date in the ordinary course of the
Business), free and clear of all Charges.
3.1.22.2 All of the assets and properties owned or leased by the
Corporation are in good operating condition and repair, normal wear
and tear excepted, and have been maintained and serviced in accordance
with the prudent conduct of business, are suitable for the purposes
for which they presently are being used and constitute all of the
assets and properties used in the operations of, and necessary to
operate, the Business as presently conducted. None of the assets or
properties owned or leased by the Corporation (or uses to which they
are put) fails to conform in any material respect with any applicable
Contract or Law. Except with respect to assets leased pursuant to
valid Contracts identified on Schedule 3.1.22.1, the Corporation owns
all the properties and assets located at or on the Real Property.
3.1.22.3 There are no defects in the design or manufacture of any of
the products sold by the Corporation or on hand to be sold which could
give rise to any liabilities or
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obligations which could result in a material adverse effect on the
Corporation. The Corporation does not have and has never had any
product recall plans or programs.
3.1.23 ENVIRONMENTAL MATTERS.
3.1.23.1 As used in this Agreement:
3.1.23.1.1 "Environmental Claim" means any written notice to the
Corporation by a person or entity alleging potential material
liability of the Corporation (including potential material
liability for investigatory costs or governmental response costs)
arising out of, based on, or resulting from (i) the presence, or
release into the environment, of any Hazardous Substance at the
Leased Real Property or (ii) circumstances forming the basis of
any violation, or alleged violation, of any Environmental Law;
3.1.23.1.2 "Environmental Laws" means all applicable federal,
state, and local statutes, regulations, laws, or ordinances
relating to the protection of human health or the environment;
3.1.23.1.3 "Environmental Permits" means all permits, licenses,
or authorizations required to operate the Business pursuant to
any Environmental Law;
3.1.23.1.4 "Environmental Reports" means those environmental
reports made available to the Merger Subsidiary; and
3.1.23.1.5 "Hazardous Substance" means contaminants, hazardous
wastes, petroleum, and other hazardous materials listed in,
regulated by, or identified in any Environmental Law, including
but not limited to asbestos-containing material.
3.1.23.2 Except as disclosed by the Environmental Reports, the
operation of the Business is in compliance with all applicable
Environmental Laws and Environmental Permits and the Corporation has
not disposed or released any Hazardous Substance at the Leased Real
Property.
3.1.23.3 Except as disclosed by the Environmental Reports, there are
no Environmental Claims pending or, to the Corporation's and each of
the Principal Stockholder's Knowledge, threatened, with respect to the
Corporation and/or the Leased Real Estate.
3.1.23.4 To the Corporation's and each of the Principal Stockholder's
Knowledge, except as disclosed by the Environmental Reports, no
Hazardous Substances are present in, on, or under, the Leased Real
Property in such forms or quantities as would create a material risk
to employees or invitees or would create any material liability of the
Corporation under any Environmental Law.
3.1.23.5 The Corporation has made available to the Purchaser copies of
all environmental reports in its possession, custody or control with
respect to the Leased Real Estate and is not aware of any false or
misleading information in such environmental reports.
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3.1.23.6 All Environmental Permits obtained by the Corporation in
connection with the Business (including any applicable expiry dates)
are listed in Schedule 3.1.23 and are valid and in full force and
effect.
3.1.23.7 For greater certainty, the representations and warranties
contained in sections 3.1.6, 3.1.7 and 3.1.30 apply to Environmental
Permits.
3.1.24 TAX MATTERS.
3.1.24.1 For the purposes of this section 3.1.24, "CORPORATION"
includes the Corporation and any or all of its current or past
subsidiaries, whether or not in existence as of the date of this
Agreement. The Corporation has filed or caused to be filed on a timely
basis all Tax Returns required to be filed by it and has paid all
Taxes due and payable with respect to the periods covered by those Tax
Returns (whether or not reflected on those Tax Returns). All Tax
Returns filed by or on behalf of the Corporation are true, complete
and correct in all material respects. No deficiency in Taxes of the
Corporation for any period has been asserted by any taxing authority
which remains unpaid at the date of this Agreement. No Tax Return is
under audit or examination by any taxing authority, and no notice of
such an audit or examination has been received by the Corporation.
There is no deficiency, refund litigation, proposed adjustment or
matter in controversy with respect to any Taxes due and owing by the
Corporation. Each deficiency resulting from any completed audit or
examination relating to Taxes by any taxing authority has been timely
paid. No issues relating to Taxes were raised by the relevant taxing
authority in any completed audit or examination that could reasonably
be expected to recur in a later taxable period. The United States
federal income tax Tax Returns of the Corporation have either been
examined and settled with the Internal Revenue Service or closed by
virtue of the expiration of the applicable statute of limitations for
all years through the taxation year ended December 31, 2000. The
Corporation has not agreed to the extension of the statute of
limitations with respect to any Tax Returns or periods. There are no
assessments relating to the Corporation's Tax Returns pending or
threatened. The Corporation has delivered to the Merger Subsidiary
true and complete copies of the federal and state income (or
franchise) Tax Returns filed by the Corporation for the past three
years. The Corporation is not, and has never been, the common parent
or a member of any affiliated group of corporations filing a
consolidated federal income tax return, and is not a party to any tax
sharing agreement or other arrangement pursuant to which it could be
liable for the Taxes of any third-party.
3.1.24.2 The accruals for Taxes in the Audited Financial Statements
and Unaudited Financial Statements accurately reflect the total amount
of all unpaid Taxes, whether or not disputed and whether or not
presently due and payable, of the Corporation as of the close of the
period covered by the Audited Financial Statements and the Unaudited
Financial Statements, respectively. Adequate accruals and reserves
have been made in the Audited Financial Statements and the Unaudited
Financial Statements and the books and records of the Corporation for
the payment of all unpaid Taxes of the Corporation for all periods
through the respective dates thereof, as at the Closing Date, whether
or not yet due and payable and whether or not disputed by the
Corporation, and nothing has occurred subsequent to the dates of the
Audited Financial Statements and the Unaudited Financial Statements,
as applicable, or such accruals or reserves in those books and records
which make those accruals and reserves inadequate.
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3.1.24.3 The Corporation is not a "United States real property holding
corporation" within the meaning of Section 897(c)(2) of the Code.
3.1.24.4 The Corporation is not required to make any adjustment
pursuant to Section 481 (a) of the Code or any similar provision of
state, local or foreign Law by reason of a change in accounting method
initiated by the Corporation.
3.1.24.5 Except as set forth in Schedule 3.1.24.5, the Corporation has
elected, pursuant to Section 1362 of the Code, to be treated as an "S
corporation" for federal income tax purposes continuously since
inception, as that term is defined in Section 1361 of the Code, and
has filed similar elections with each state taxing authority requiring
a separate state election to be treated as an S corporation.
3.1.24.6 The Corporation's election to be treated as an S corporation
was valid and timely filed and has never been challenged by the
Internal Revenue Service or any state taxing authority, has been in
effect for all taxable years of the Corporation since formation and
has been at all times and is valid and effective under the Code and in
all states where the Corporation is subject to Taxes. The Corporation
is not and could not be subject to any obligation and/or liability in
respect of its failure or alleged failure to qualify as an "S
corporation" at any time.
3.1.25 EMPLOYMENT MATTERS.
3.1.25.1 Except as set out in Schedule 3.1.25, neither the Corporation
nor any Subsidiary is a party to or is bound by any:
3.1.25.1.1 oral or written Contract for the employment or
retainer of any individual, including, for greater certainty, any
Contract with directors, officers, employees, independent
contractors or agents, other than for Contracts of at-will
employment terminable by the Corporation without cause;
3.1.25.1.2 oral or written Contract providing for severance,
termination or similar payments, including on a change of control
of the Corporation; or
3.1.25.1.3 Contract with any trade union, council of trade
unions, employee bargaining agent or affiliated bargaining agent
(collectively called "LABOR REPRESENTATIVES") and neither the
Corporation nor any Subsidiary has conducted negotiations with
respect to any such future Contracts; no labor representatives
hold bargaining rights with respect to any employees of the
Corporation; and there are no current or threatened attempts to
organize or establish any trade union or employee association
with respect to the Corporation.
Correct and complete copies of all Contracts set out in Schedule
3.1.25, or where oral, correct and complete written summaries of their
terms, have been provided to the Merger Subsidiary.
3.1.25.2 Schedule 3.1.25 sets out all full-time and part-time
employees and their respective positions; job categories; location;
salaries, bonuses and other compensation; and years of service.
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3.1.25.3 Except as set out in Schedule 3.1.25, (1) all bonuses
previously granted to employees have been paid in full to those
employees, and (2) the Corporation does not have, and neither the
execution of this Agreement nor the consummation of the Transaction
will result in, any liability for severance pay or similar payment
requirements to any employee, sales representative, independent
contractor, consultant, distributor, agent or Affiliate of the
Corporation. No employee of the Corporation has received any payment
of any kind for services rendered to or on behalf of the Corporation
from any Person other than payments made by the Corporation to the
employee in compliance with all applicable Laws (including Laws
relating to withholding with respect to wages, salaries and other
payments to employees) and which payments are fully reflected in the
books, records and financial statements of the Corporation.
3.1.25.4 Except as set out in Schedule 3.1.25, all of the employees of
the Corporation are employed on at-will basis and no notice or
severance or other termination payments would be required in
connection with the termination of any of those employees whether in
connection with the consummation of the Transaction or otherwise.
3.1.25.5 Except as referred to in Schedule 3.1.25, there is no work
stoppage or other concerted action, grievance or dispute existing or
threatened against the Corporation.
3.1.25.6 Except as set out in Schedule 3.1.25.6, all of the current
and former employees of the Corporation and/or its subsidiaries
(including subsidiaries which are no longer in existence) have entered
into an "Intellectual Property Rights Agreement" and a
"Confidentiality and Non-Disclosure Statement" with the Corporation in
substantially the same form of the agreements provided by the
Corporation to the Merger Subsidiary and which agreements survive the
termination of the employment relationship with the applicable
employee.
3.1.26 EMPLOYEE PLANS. Except as set out in Schedule 3.1.26, the
Corporation does not maintain or sponsor or contribute to, is not a party
to, is not bound by, and does not have any actual or contingent liability
in respect of, any Employee Plan. Correct and complete copies of all
Employee Plans set out in Schedule 3.1.26 and all related documents, or,
where oral, correct and complete written summaries of their terms, have
been provided to the Merger Subsidiary and any. related documents created
or filed after the date of this Agreement will be provided to the Merger
Subsidiary. For the purposes of this section 3.1.26, related documents in
respect of an Employee Plan includes: (1) all documents establishing or
creating such plan; (2) any funding agreement or amendment to a funding
agreement; (3) actuarial reports; (4) all funding, investment and financial
information; (5) all regulatory returns, reports, statements or filings
made or completed; (6) all employee plan summaries and booklets describing
or giving particulars of the plan; (7) all material correspondence with all
regulatory authorities; (8) all material internal memoranda; and (9) all
material professional opinions. All such related documents are and will be
true, correct and complete in all material respects and none of the
actuarial assumptions underlying those documents have changed since the
respective dates of those documents.
Except as set out in Schedule 3.1.26:
3.1.26.1 All Employee Plans comply in all material respects with all
requirements of ERISA, the Code, and with all other applicable Law,
and the Corporation has not taken or failed to take any action with
respect to the Employee Plans which might create any liability on the
part of the Corporation or the Merger Subsidiary. Each "fiduciary"
(within the meaning of Section 3(21)(A) of ERISA) as to each Employee
Plan has
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complied in all material respects with all requirements of ERISA and
all other applicable Laws in respect of each such Employee Plan.
3.1.26.2 The Corporation does not maintain, sponsor or contribute to,
and has never withdrawn from, maintained, sponsored or contributed to,
a "defined benefit plan" (within the meaning of Section 3(35) of
ERISA) or a "multiemployer plan" (within the meaning of Section 3(37)
of ERISA).
3.1.26.3 Each Employee Plan intended to be qualified under Section 401
(a) of the Code has received a favorable determination letter from the
Internal Revenue Service as to its qualification under Section 401 (a)
of the Code.
3.1.26.4 No "prohibited transaction" (within the meaning of Section
406 of ERISA or Section 4975(c) of the Code) has occurred with respect
to any Employee Plan.
3.1.26.5 No provision of any Employee Plan or of any agreement, and no
act or omission of the Corporation, in any way limits, impairs,
modifies or otherwise affects the right of the Corporation, the Merger
Subsidiary or the Surviving Corporation unilaterally to amend or
terminate any Employee Plan after the Closing, subject to the
requirements of applicable Law.
3.1.26.6 No policy, plan, program, arrangement, understanding or
agreement exists which could result in the payment by the Corporation,
the Merger Subsidiary or the Surviving Corporation of money or any
other property or rights, or accelerate or provide any other rights or
benefits, to any employee of the Corporation that would not have been
required but for the consummation of the Transaction.
3.1.26.7 There are no contributions which are or hereafter will be
required to be made to trusts in connection with any Employee Plan
that would constitute a "defined contribution plan" (within the
meaning of Section 3(34) of ERISA).
3.1.26.8 Other than claims in the ordinary course for benefits with
respect to the Employee Plans, there are no Proceedings pending with
respect to any Employee Plan, or any circumstances (including arising
out of the operation or termination of any Employee Plan) which might
give rise to any such Proceeding.
3.1.26.9 All reports, returns and similar documents with respect to
the Employee Plans required to be filed with any Governmental
Authority have been so filed on or before their due date or, if not
currently due, will be filed when due.
3.1.26.10 The Corporation has no obligation to provide health or other
welfare benefits to former, retired or terminated employees, except as
specifically required under Section 4980B of the Code or Section 601
of ERISA. The Corporation has complied in all material respects with
the notice and continuation requirements of Section 4980B of the Code
and Section 601 of ERISA.
3.1.26.11 The Corporation is not a party to any Contract that would
result, separately or in the aggregate, in any payment (whether or not
in connection with any termination of employment or otherwise) of any
"excess parachute payment" within the meaning of Section 280G of the
Code.
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3.1.27 LABOR RELATIONS. Except as set out in Schedule 3.1.27, there have
been no violations of any Laws with respect to the employment of
individuals by, or the employment practices or work conditions of, the
Corporation, or the terms and conditions of employment, wages and hours.
The Corporation is not engaged in any unfair labor practice or other
unlawful employment practice and there are no charges of unfair labor
practices or other employee-related complaints pending or threatened
against the Corporation before the National Labor Relations Board, the
Equal Employment Opportunity Commission, the Occupational Safety and Health
Review Commission, the Department of Labor or any other Governmental
Authority. There is no strike, picketing, slowdown or work stoppage or
organizational attempt pending, threatened against or involving the
Corporation or the Business. No issue with respect to union representation
is pending or threatened with respect to the employees of the Corporation.
No union or collective bargaining unit or other labor organization has ever
been certified or recognized by the Corporation as the representative of
any of the employees of the Corporation. The Corporation has complied with
the Workers Adjustment and Retraining Notification Act. No employee of the
Corporation benefits from a special protection status in respect of his
termination by his employer. No employee of the Corporation is currently
performing his severance period of notice and no employment agreement is
currently suspended or temporarily discontinued due to illness, pregnancy,
career interruption or any other legal cause of suspension.
3.1.28 INSURANCE. All physical assets of the Corporation are covered by
fire and other insurance with responsible insurers against those risks and
in those amounts as are reasonable for prudent owners of comparable assets.
Schedule 3.1.28 sets out particulars of all the insurance policies held by
the Corporation, including the name of the insurer, the risks insured
against and the amount of coverage. No other insurance is necessary to the
conduct of the Business or would be considered to be desirable by a prudent
Person operating a business similar to the Business. The Corporation is not
in default with respect to any of the provisions contained in any those
policies of insurance and has not failed to give any notice or pay any
premium or present any claim under any of those insurance policies. Neither
the Corporation nor any Principal Stockholder has any reason to believe
that any of the insurance policies listed in Schedule 3.1.28 will not be
renewed by the insurer upon the scheduled expiry of the policy or will be
renewed by the insurer only on the basis that there will be a material
increase in the premiums payable in respect of the policy. Correct and
complete copies of all of the insurance policies set out in Schedule 3.1.28
have been provided to the Merger Subsidiary. The Corporation has not had
any casualty loss or other occurrence which may give rise to any claim of
any kind not covered by insurance and neither the Corporation nor any of
the Principal Stockholders is aware of any occurrence which may give rise
to any claim of any kind not covered by insurance. No third-party has filed
any claim against the Corporation for personal injury, property damage or
other occurrence of a kind for which liability insurance is generally
available which is not fully insured. All claims against the Corporation
covered by insurance have been reported to the insurance carrier on a
timely basis and are listed on Schedule 3.1.28.
3.1.29 INTELLECTUAL PROPERTY.
3.1.29.1 Schedule 3.1.29 contains a complete and accurate listing of
(1) all of the registrations and applications for registration of the
Proprietary Intellectual Property, the name of the registered owner
and the beneficial owner of that Proprietary Intellectual Property,
the names of all persons who have been granted rights in respect of
that Proprietary Intellectual Property and the outside legal counsel
assisting with those applications and (2) versions of the Key Software
Programs currently being used in production by the Corporation, a
listing of all Licensed Software incorporated in each Key Software
Program and a listing of all Proprietary Software (including any
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modifications to, enhancements to and derivative works based upon any
Licensed Software) incorporated in each Key Software Program. Except
as specified in Schedule 3.1.29, and except with respect to patent
applications and registrations, all of the registrations and
applications for registration of the Proprietary Intellectual Property
are valid and subsisting, in good standing and are recorded in the
name of the Corporation. Except as specified in Schedule 3.1.29, all
of the registrations and applications for registration of patents
which are part of the Proprietary Intellectual Property are recorded
in the name of the Corporation and, to the Corporation's and each
Principal Stockholder's Knowledge, are valid, subsisting and in good
standing. No application for registration of any Proprietary
Intellectual Property has been finally rejected and no rights to
pursue any such application have been prejudiced for the Corporation's
failure to prosecute that application.
3.1.29.2 Except as specified in Schedule 3.1.29, no person other than
the Corporation has any right or interest of any kind or nature in or
to the Proprietary Intellectual Property, including any right to sell,
license, lease, transfer, distribute, use or otherwise exploit the
Proprietary Intellectual Property or any portion of it. The
Corporation has good, marketable and exclusive title to, and the valid
and enforceable power and unqualified right to sell, license,
transfer, distribute, use and otherwise exploit, the Proprietary
Intellectual Property. Except as disclosed in Schedule 3.1.29, the
Corporation is not subject to any obligation or arrangement pursuant
to which a third person has or will have any right, title or interest
in or to any Intellectual Property which is currently being developed
or may in the future be developed by or for the Corporation.
3.1.29.3 No person has any right or interest of any kind or nature in
or to the Key Software Programs, Proprietary Software or any Software
which is currently being developed or may in the future be developed
by or on behalf of the Corporation, including any right to sell,
license, lease, transfer, distribute, use or otherwise exploit the
Proprietary Software or any portion thereof other than (1) the
Corporation, (2) any customer of the Corporation or (3) any licensor
identified by name on Schedule 3.1.29 and explicitly cross referenced
to this section 3.1.29.3, which licensor has no right to grant any
rights to or in the Key Software Programs to any other person. No
person other than the Corporation has the right to make modifications
to, enhancements to or derivative works based upon the Key Software
Programs or upon any Proprietary Software. The Corporation has not
directly or indirectly granted to any person any rights or interests
in the source code of the Key Software Programs or any Proprietary
Software.
3.1.29.4 With respect to current versions and the version immediately
prior to the current version of the Key Software Programs and any
Proprietary Software listed on Schedule 3.1.29.4 (1) the Corporation
maintains machine-readable, master-reproducible copies, complete
human-readable source code listings, technical documentation and user
manuals; (2) in each case, the machine-readable copy substantially
conforms to the corresponding source code listing; (3) in each case,
based on the source code and other organized technical documentation,
it can be maintained, enhanced and modified by reasonably competent
programmers familiar with the applicable language, hardware and
operating systems; (4) in each case, the complete source code listings
are maintained in an electronic repository enabling skilled personnel
to completely compile, build and assemble the final machine-executable
version at will without undue manual processes; (5) in each case, it
has been developed by the Corporation in accordance with practices
that are standard for the software industry and operates in accordance
with the user
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manual therefor without material operating defects; and (6) there are
employees of the Corporation that have familiarity with that Software.
3.1.29.5 Except as specified in Schedule 3.1.29, neither the
Corporation nor any of the Principal Stockholders have received any
written notice challenging the validity or ownership of the
Proprietary Intellectual Property, the Key Software Programs or any
Proprietary Software or the use of any Intellectual Property or any of
the Software, and to the Corporation's and the Principal Stockholders'
Knowledge there are no facts upon which such a challenge could be
made.
3.1.29.6 Any person who contributed to the conception, reduction to
practice, invention, creation or development of the Proprietary
Intellectual Property of the Corporation or the creation or
development of the Proprietary Software embodied in the Key Software
Programs or of any other Proprietary Software has irrevocably
assigned, or is obligated to irrevocably assign, to the Corporation or
granted sufficient rights to conduct the Business as currently
conducted in writing all intellectual property rights in that person's
contribution to that Proprietary Intellectual Property or that
Proprietary Software. Each person based in Canada that contributed to
the conception, reduction to practice, invention, creation or
development of the Proprietary Intellectual Property of the
Corporation or the creation or development of the Proprietary Software
of the Corporation embodied in the Key Software Programs or of any
other Proprietary Software has waived his or her moral rights in any
copyright works within that Proprietary Intellectual Property or
Proprietary Software in favor of the Corporation and its successors
and assigns.
3.1.29.7 The Corporation has taken or caused to be taken steps so that
none of the Proprietary Intellectual Property, the value of which to
the Corporation is contingent upon maintenance of the confidentiality
thereof, has been disclosed by the Corporation to any person other
than employees, contractors, customers, representatives and agents of
the Corporation who are parties to customary confidentiality and
nondisclosure agreements with the Corporation and which agreements
survive the termination of the specific relationship with the
applicable party.
3.1.29.8 Schedule 3.1.29 contains a complete and accurate listing of
all material Licensed Software and the name of the applicable
licensor. Each license or permission referred to in Schedule 3.1.29 is
in full force and effect, the Corporation has not violated, breached
or defaulted in, and is not currently violating, breaching or in
default of its obligations, under the license and, to the Knowledge of
the Corporation and the Principal Stockholders, no other party to the
license has violated, breached or defaulted in, or is currently
violating, breaching or in default of its obligations, under that
license. For purposes of this section 3.1.29.8, "material Licensed
Software" refers to all Licensed Software except for Licensed Software
that (i) could be immediately replaced with comparable (from a
functionality and royalties perspective) alternative and/or recreated
without infringing upon the Intellectual Property of a third party,
and (ii) with respect to the substitution in (i), could be
incorporated into the affected product(s) in less than 15 person-days
of development and testing.
3.1.29.9 Schedule 3.1.29 lists all source code for Licensed Software
which is utilized in the current versions and/or the version
immediately prior to the current version of the Key Software Programs
and any Proprietary Software listed on Schedule 3.1.29.9 which the
Corporation has the right to modify, enhance, prepare and has prepared
derivative
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works based upon (the "LICENSED SOURCE CODE"). Except as set out in
Schedule 3.1.29, all of the Licensed Source Code is in the possession
of the Corporation. All intellectual and/or industrial property rights
in or to modifications, enhancements and derivative works made by or
for the Corporation and all associated functional or technical
specifications and technical documentation (the "MODIFICATIONS") are
owned solely and exclusively by the Corporation. Except as specified
in Schedule 3.1.29, subject to any rights a customer has in respect of
the Modifications by virtue of the inclusion of them in the Key
Software Programs, no person other than the Corporation has any right
or interest of any kind or nature in or to any Modifications. Subject
to any written agreements with any customer, the Corporation has not
entered into any Contract pursuant to which any right, title or
interest of the Corporation in any Modification is assigned, licensed
or otherwise granted to any other Person.
3.1.29.10 The Corporation has not furnished or otherwise disclosed the
source code, any functional or technical specifications, or any
technical documentation other than user documentation, for any
Modifications to any person other than employees, contractors,
representatives and agents of the Corporation who are parties to
customary confidentiality and nondisclosure agreements with the
Corporation (which agreements survive the termination of the specific
relationship with the applicable party) and is under no duty or
obligation to do so.
3.1.29.11 Except as set out in Schedule 3.1.29, there are no source
code escrow agreements relating to any of the Software.
3.1.29.12 Except as set out in Schedule 3.1.29, to the Corporation's
and each of the Principal Stockholder's Knowledge, no person has
violated, infringed upon or breached, or is currently violating,
infringing upon or breaching, any of the rights of the Corporation to
the Proprietary Intellectual Property, to the Key Software Programs or
to any Proprietary Software, or has asserted the right to take any
action which might reasonably be considered such a violation,
infringement or breach or has breached or is breaching any duty or
obligation owed to the Corporation in respect of the Proprietary
Intellectual Property, the Key Software Programs or any Proprietary
Software.
3.1.29.13 All material amounts, including royalties, due and payable
by the Corporation with respect to any Intellectual Property or any
Software have been paid in full or accrued in the Audited Financial
Statements.
3.1.29.14 Except as set out in Schedule 3.1.29.14, neither the use of
the Intellectual Property or the Software nor the conduct of the
Corporation's Business has violated, infringed or breached or
currently violates, infringes upon or breaches or has been alleged by
any Person in writing or verbally to a senior officer of the
Corporation, to violate, infringe or breach (1) the industrial or
intellectual property rights of any person (and in the case of
patents, to the Corporation's and each of the Principal Stockholder's
Knowledge), (2) any duty or obligation owed to any person or (3) the
terms of any license granted to the Corporation by any other person.
The Intellectual Property and the Software are sufficient to carry on
the Business as currently conducted and as proposed to be conducted,
without requiring any such infringement. The Corporation has not
incorporated or used the Intellectual Property of any former employer
(a "FORMER EMPLOYER") of any employee, consultant, former employee or
former consultant of the Corporation in the Corporation's Intellectual
Property or in the operation of the Business. Neither any Principal
Stockholder nor the Corporation is aware of any claim or any basis
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for a claim by a Former Employer that the Corporation has incorporated
into its Intellectual Property any Intellectual Property owned by,
claimed to be owned by or previously disclosed to that Former
Employer.
3.1.29.15 The Corporation has not (1) breached any duty or obligation
of confidentiality or of non-disclosure or non-use of any confidential
information owed to, or (2) misappropriated any confidential
information of, any person, including any person who has licensed
Licensed Intellectual Property or Licensed Software to the
Corporation.
3.1.29.16 Except as set out in Schedule 3.1.29, no Contract which
relates to any Intellectual Property or any Software requires consents
or other actions as a result of the consummation of the Transaction or
any subsequent disposition of all or a portion of the Specified Assets
and/or the Surviving Corporation's assets to Corel and/or one or more
direct or indirect subsidiary of Corel in order for the Corporation to
continue to be entitled to use, operate, sell and license that
Intellectual Property or Software after the Closing Date without
material alterations in the Corporation's obligations.
3.1.29.17 Except as set out in Schedule 3.1.29, there is no
governmental prohibition or restriction on the use of the Intellectual
Property or the Software.
3.1.29.18 Schedule 3.1.29 lists Proceedings (whether in progress or
threatened) relating to the Intellectual Property and the Software.
3.1.29.19 Except as set out in the Contract for the Album Software
Program listed in Schedule 3.1.29, the Corporation has been granted
all Intellectual Property rights in and to the Album Software Program
under one or more binding Contracts which are in full force and effect
and which provide for those rights to be exclusive to the Corporation,
irrevocable, perpetual and fully transferable by the Corporation. No
third party has been granted Intellectual Property rights in or to the
Album Software Program and the licensor of the Intellectual Property
rights party to the Contract for the Album Software Program is not
using those Intellectual Property rights in any manner which is
competitive with the Business.
3.1.29.20 Except as set out in Schedule 3.1.29 and explicitly
cross-referenced to this section 3.1.29.20, the Corporation has never
(1) incorporated Public Software into or combined Public Software with
the Proprietary Software or the Key Software Programs or a derivative
work of that Software, (2) distributed Public Software in conjunction
with the Key Software Programs or (3) used Public Software in the
development of a derivative work of the Proprietary Software or the
Key Software Programs. No Key Software Programs or any other
Proprietary Software is required to be (a) disclosed or distributed in
source code form; (b) licensed for the purpose of making derivative
works; and/or (c) redistributable at no charge, as a result of the
Corporation's use, modification and/or distribution of Public
Software.
3.1.30 PERMITS, REGISTRATIONS AND ELECTIONS. The Corporation holds all
permits, licenses, approvals, consents, authorizations, registrations,
certificates and franchises, including all Environmental Permits, which it
requires, or is required to have, to own its properties and assets and to
carry on the Business as presently conducted by it (collectively, the
"PERMITS"). All the Permits not otherwise listed in Schedule 3.1.23 are
listed in Schedule 3.1.30 (including any applicable expiry dates) and are
in full force and effect; the Corporation is in compliance with all the
terms and conditions relating to the Permits; and there are no Proceedings
in progress, pending
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or threatened which may result in revocation, cancellation, suspension,
rescission or any adverse modification of any of the Permits nor are there
any facts upon which those Proceedings could reasonably be based. Neither
the terms and conditions relating to the Permits nor the Laws pursuant to
which they were issued require that any consent or approval of, or filing
with or notice to, any governmental agency or regulatory body or other
Person be made to assure the continued holding by the Corporation (or any
transferee contemplated by the Transaction) of the Permits after
consummation of the Transaction (provided that such Permits were not
transferred in the Asset Sale).
3.1.31 COMPLIANCE WITH LAWS. The Corporation is not in default under, nor
has it failed to comply with or is otherwise in violation of, any Law or
any order, judgment or decree of any court or other Governmental Authority
of each jurisdiction in which the Business is carried on. There is no basis
for assertion of any violation of the foregoing or for any claim for
compensation or damages or otherwise arising out of any violation of the
foregoing. None of the Corporation nor any of the Principal Stockholders
has received any notification of any asserted present or past failure to
comply with any of the foregoing which has not been satisfactorily
responded to in the time period required under that notice. The Corporation
has gathered (for greater certainty, not including information gathered on
behalf of the Corporation by any Third Party) all information with respect
to its customers (both past, current and prospective) in accordance with
all applicable Laws, including those related to privacy and personal
information. To the actual knowledge of the Corporation (which, for the
purposes of this section 3.1.31, includes the actual knowledge of those
individuals who are actively involved in the day-to-day management of the
Corporation's relationships with master representatives) and each of the
Principal Stockholders, all information with respect to its customers
(past, current and prospective) gathered by Third Parties has been gathered
in accordance with all applicable Laws, including those related to privacy
and personal information. Each Third Party that gathers information with
respect to customers (past, current and prospective) of the Corporation is
party to a Contract with the Corporation pursuant to which that Third Party
is bound to comply with all applicable Laws.
3.1.32 LITIGATION AND OTHER PROCEEDINGS AND WARRANTY CLAIMS. Except as set
out in Schedule 3.1.32, there is no Proceeding against or involving the
Corporation or any Employee Plan (whether in progress or threatened); no
event has occurred and, to the Corporation's and each of the Principal
Stockholder's Knowledge, no facts or circumstances exist, which might give
rise to any Proceeding; and there is no judgment, decree, injunction, rule,
award or order of any court, government department, board, commission,
agency, arbitrator or similar body outstanding against the Corporation.
There are no warranty, damage or similar claims made or pending against the
Corporation for or arising from defects in any products, in each case
provided by the Corporation, for which the Corporation is or is alleged to
be liable nor, to the Corporation's and each of the Principal Stockholder's
knowledge, are there any facts upon which that type of claim could
reasonably be made.
3.1.33 CORPORATE RECORDS. The corporate records and minute books of the
Corporation contain complete and accurate minutes of all meetings of
directors, committees of directors and shareholders held since its date of
incorporation, and all of those meetings were duly called and held. The
stock certificate books, registers of stockholders, registers of transfers
and registers of directors of the Corporation are complete and accurate.
3.1.34 BOOKS OF ACCOUNT AND INTERNAL CONTROLS.
3.1.34.1 The books and records of the Corporation fairly present and
disclose the financial position of the Corporation as at the relevant
dates, have been maintained in
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accordance with GAAP and in accordance with good business practices
and all material financial transactions of the Corporation have been
accurately recorded in those books and records.
3.1.34.2 The Corporation maintains proper and adequate internal
accounting controls which provide assurance that (1) transactions of
the Corporation are executed with management's authorization; (2)
transactions are recorded as necessary to permit preparation of the
Corporation's financial statements; and (3) accounts, notes and other
receivables and inventory are recorded accurately, and proper and
adequate procedures are implemented to effect the collection of them
on a current and timely basis.
3.1.35 BANK ACCOUNTS, ETC. Schedule 3.1.35 is a correct and complete list
(including addresses and account numbers) of each bank, trust company or
similar institution in which the Corporation has an account or safety
deposit box and the names of all Persons, including any individual or firm
holding a power of attorney, authorized to draw on those accounts or to
have access to those accounts and safety deposit boxes.
3.1.36 CUSTOMERS AND SUPPLIERS. Since the Audited Statements Date, there
has been no termination or cancellation of, and no modification or change
in, the business relationship with any distributor, group of distributors,
customer or group of customers which singly or in total provided more than
10% of the gross revenues of the Corporation for the fiscal year ended on
the Audited Statements Date. Except as set out in Schedule 3.1.36, neither
the Corporation nor the Principal Stockholders have any reason to believe
that the benefits of any relationship with any of the customers or
suppliers of the Corporation will not continue after the Closing Date in
substantially the same manner as prior to the date of this Agreement,
assuming the consummation of the Transaction.
3.1.37 CONDUCT OF BUSINESS. The Corporation is not restricted from
conducting the Business in any manner or location by Contract or court
decree. Except as set out in Schedule 3.1.37, the Business is conducted
entirely through the Corporation (and not through any subsidiary,
Affiliate, partner or any other Person), and the Corporation does not and
never has conducted any other business other than the Business.
3.1.38 DISCLOSURE.
3.1.38.1 The Principal Stockholders, the Corporation and the
Corporation's management have disclosed to the Merger Subsidiary and
Corel all facts known to them relating to the Business and assets of
the Corporation which could reasonably be expected to be material to
an intending purchaser of the Jasc Shares.
3.1.38.2 No representation or warranty made under this Agreement
(including the Schedules) or any certificate or other document
delivered by the Corporation or any of the Jasc Stockholders or any
representative of them pursuant to this Agreement, and none of the
information furnished by the Corporation or any of the Principal
Stockholders to the Merger Subsidiary and/or Corel, contains any
untrue statement of a material fact or omits to state a material fact
necessary to make the statements in this Agreement or therein not
misleading.
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3.2 BY PRINCIPAL STOCKHOLDERS
Each of the Principal Stockholders represents and warrants to the
Merger Subsidiary and Corel, severally and not jointly, as follows and
acknowledges that the Merger Subsidiary and Corel are relying upon the following
representations and warranties in connection with the Transaction:
3.2.1 COREL COMMON SHARES. With respect to the Corel Common Shares, each
Principal Stockholder:
3.2.1.1 understands that those shares have not been and will not be
registered under the Securities Act, and that the issuance of those
shares is being made in reliance on a private placement exemption;
3.2.1.2 is acquiring those shares for its own account;
3.2.1.3 acknowledges those shares are not freely transferable;
3.2.1.4 has had the opportunity to ask all questions and to obtain all
other information from the Merger Subsidiary and Corel as it has
deemed necessary in connection with its decision to acquire those
shares; and
3.2.1.5 acknowledges that it is not acquiring those shares as a result
of any "general solicitation" or "general advertising," as those terms
are used in Regulation D under the Securities Act.
3.2.2 NO FOREIGN PERSON. Each Principal Stockholder that is acquiring
shares forming part of the Total Equity Consideration is not a foreign
person within the meaning of Section 1445(f)(3) of the Code.
3.2.3 INCORPORATION AND STATUS OF THE PRINCIPAL STOCKHOLDER. If an Entity,
the Principal Stockholder is duly formed and validly existing under the
laws of its jurisdiction of formation.
3.2.4 POWER OF THE PRINCIPAL STOCKHOLDER AND DUE AUTHORIZATION. If an
Entity, the Principal Stockholder has all necessary power and capacity to
enter into, and to perform its obligations under, this Agreement. Each of
this Agreement and each of the Related Agreements to which the Principal
Stockholder is a party has been duly authorized by the Principal
Stockholder. This Agreement has been duly executed and delivered by the
Principal Stockholder and is a valid and binding obligation of the
Principal Stockholder, enforceable in accordance with its terms, subject to
the usual exceptions as to bankruptcy and the availability of equitable
remedies. At the Time of Closing, each of the Related Agreements to which
the Principal Stockholder is a party will be duly executed and delivered by
the Principal Stockholder and will be valid and binding obligations of the
Principal Stockholder, enforceable in accordance with their respective
terms, subject to the usual exceptions as to bankruptcy and the
availability of equitable remedies, provided that (i) no representation as
to enforceability is made with respect to the agreements described in
section 4.1.6. and (ii) the enforceability of the indemnification
provisions contained in Schedule B to the Corel Minority Shareholders'
Agreement may be limited by applicable federal or state securities laws.
3.2.5 TITLE TO, AND RIGHT TO SELL, PURCHASED SHARES. Each Principal
Stockholder is the sole registered and beneficial owner of those Jasc
Shares set out opposite the Principal Stockholder's name on Schedule 3.1.3
with good and marketable title to those Jasc Shares, free of all Charges.
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There are no subscriptions, warrants, options, calls, or other rights or
Contracts to which the Corporation or any Principal Stockholder is subject
to or bound which in any way limit or restrict the consummation of the
Transaction (specifically in respect of that Principal Stockholder's Jasc
Shares) and there are no shareholders agreements, pooling agreements,
voting trusts or other Contracts with respect to the voting of the Jasc
Shares other than as set out in Schedule 3.1.3. At or prior to the Time of
Closing, those agreements and restrictions will have been complied with or
terminated (and evidence in form and substance satisfactory to the Merger
Subsidiary to that effect will have been provided to the Merger
Subsidiary).
3.2.6 NO CONTRAVENTION BY PRINCIPAL STOCKHOLDERS. None of the entering into
of this Agreement or any Related Agreement, the consummation of the
Transaction or the performance by each Principal Stockholder of that
Principal Stockholder's other obligations under this Agreement or any
Related Agreement to which it is a party (a) will contravene, breach or
result in any default under (1) if the Principal Stockholder is an Entity,
the certificate of incorporation, by-laws, constating documents or other
organizational documents of that Principal Stockholder, or (2) any license,
permit, order, judgment, decree or Law to which the Principal Stockholder
is a party or by which it may be bound or (b) contravenes, breaches or
results in any default under, or conflicts with or will conflict with or
results in or will result in any modification of any of the terms of or
results in or will result in the termination of or the creation of any
Charge, acceleration right or other right pursuant to the terms of, any
Contract to which the Principal Stockholder is a party or by which it may
be bound or will in any way affect the continuation, validity or
effectiveness of any such Contract.
3.2.7 ACCREDITED INVESTOR. Each of the Principal Stockholders is an
Accredited Investor.
3.2.8 APPOINTMENT OF STOCKHOLDER REPRESENTATIVE. Each Principal Stockholder
designates and appoints Robert V. Voit as the Stockholder Representative
under this Agreement and authorizes the Stockholder Representative to take
such actions on behalf of such Principal Stockholder under this Agreement,
including, but not limited to, accepting notices, reviewing information
provided to the Stockholder Representative and executing the certificate
required in section 4.1.1 on behalf of each Jasc Stockholder, together with
all such powers as are reasonably incidental thereto. The Stockholder
Representative may consult with legal counsel, independent public
accountants and other experts selected by it and shall not be liable for
any action taken, or omitted to be taken, by it in good faith in accordance
with the advice of such counsel, accountants or experts. The Stockholder
Representative shall not be liable for actions he takes or fails to take in
the absence of his own gross negligence or willful misconduct.
3.3 BY MERGER SUBSIDIARY AND COREL HOLDINGS
Each of the Merger Subsidiary and Corel Holdings, severally and not
jointly, represents and warrants to the Corporation and the Jasc Stockholders as
follows and acknowledges that the Corporation and the Jasc Stockholders are
relying upon the following representations and warranties in connection with the
Transaction:
3.3.1 INCORPORATION AND STATUS. Each of the Merger Subsidiary and Corel
Holdings is duly incorporated and validly existing under the laws of its
jurisdiction of incorporation.
3.3.2 CORPORATE POWER AND DUE AUTHORIZATION. Each of the Merger Subsidiary
and Corel Holdings has the corporate power and capacity to enter into, and
to perform its obligations under, this Agreement and the Related Agreements
to which is party. Each of this Agreement and each of the Related
Agreements to which it is a party has been duly authorized by each of the
Merger
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Subsidiary and Corel Holdings. This Agreement has been duly executed and
delivered by each of the Merger Subsidiary and Corel Holdings and is a
valid and binding obligation of each of the Merger Subsidiary and Corel
Holdings, enforceable in accordance with its terms, subject to the usual
exceptions as to bankruptcy and the availability of equitable remedies. At
the Time of Closing each of the Related Agreements to which it is a party
will be duly executed and delivered by each of the Merger Subsidiary and
Corel Holdings and will be valid and binding obligations of the Merger
Subsidiary and Corel Holdings, enforceable in accordance with their
respective terms, subject to the usual exceptions as to bankruptcy and the
availability of equitable remedies.
3.3.3 NO CONTRAVENTION. None of the entering into of this Agreement, any
Related Agreement to which it is a party, the consummation of the
Transaction nor the performance by each of the Merger Subsidiary and Corel
Holdings of its other obligations under this Agreement and the Related
Agreements to which it is a party (a) will contravene, breach or result in
any default under (1) the articles of incorporation, by-laws, constating
documents or other organizational documents of the Merger Subsidiary or
Corel Holdings, as applicable, or (2) any Contract, license, permit, order,
judgment, decree or Law to which the Merger Subsidiary is a party or by
which the Merger Subsidiary or Corel Holdings, as applicable, may be bound,
or (b) contravenes, breaches or results in any default under, or conflicts
with or will conflict with, or results in or will result in any
modification of any of the terms of, or results in or will result in the
termination of or the creation of any Charge, acceleration right or other
right pursuant to the terms of, any Contract to which the Merger Subsidiary
or Corel Holdings, as applicable, is a party or by which it may be bound or
will in any way affect the continuation, validity or effectiveness of any
such Contact.
3.3.4 APPROVALS AND CONSENTS. Except as set out on Schedule 3.3.4, no
authorization, consent or approval of, or filing with or notice to, any
Governmental Authority or other Person is required in connection with the
execution, delivery or performance of this Agreement by the Merger
Subsidiary and Corel Holdings or the consummation of the Transaction.
3.4 BY COREL
Corel represents and warrants to the Corporation and the Jasc
Stockholders as follows and acknowledges that the Corporation and the Jasc
Stockholders are relying upon the following representations and warranties in
connection with the Transaction:
3.4.1 INCORPORATION AND STATUS OF COREL. Corel is duly incorporated and
validly existing under the laws of the Province of Ontario.
3.4.2 CORPORATE POWER OF COREL AND DUE AUTHORIZATION. Corel has the
corporate power and capacity to enter into, and to perform its obligations
under, this Agreement. Each of this Agreement and each of the Related
Agreements to which it is a party has been duly authorized by Corel. This
Agreement has been duly executed and delivered by Corel and is a valid and
binding obligation of Corel, enforceable in accordance with its terms,
subject to the usual exceptions as to bankruptcy and the availability of
equitable remedies. At the Time of Closing, each of the Related Agreements
to which it is a party will be duly executed and delivered by Corel and
will be valid and binding obligations of Corel, enforceable in accordance
with their respective terms, subject to the usual exceptions as to
bankruptcy and the availability of equitable remedies provided that no
representation as to enforceability is made with respect to the agreements
described in section 4.1.6.
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3.4.3 CAPITAL OF COREL. Schedule 3.4.3 sets out particulars of the
authorized and issued securities of Corel (including shares, options,
warrants, other rights to acquire securities and debt instruments).
3.4.4 NO OBLIGATIONS TO ISSUE SECURITIES. Except as set out in Schedule
3.4.4, there are no agreements, options, warrants, rights of conversion or
other rights or Contracts pursuant to which Corel is, or may become,
obligated to issue any shares or any securities convertible or
exchangeable, directly or indirectly, into any shares of Corel, other than
pursuant to the terms of Corel's existing Series A Participating
Convertible Preferred Shares, Class A Common Shares and Corel's Share
Option and Phantom Share Unit Plan dated December 1, 2003. The issuance of
the Corel Common Shares under this Agreement does not give rise to any
preemptive rights or an adjustment of the conversion price of any
outstanding securities of Corel.
3.4.5 NO CONTRAVENTION OF COREL. None of the entering into of this
Agreement, any Related Agreement to which it is a party, the consummation
of the Transaction nor the performance by Corel of its obligations under
this Agreement (including the issuance by Corel of the Total Equity
Consideration) and the Related Agreements to which it is a party (a) will
contravene, breach or result in any default under (1) the restated articles
of incorporation, by-laws, constating documents or other organizational
documents of Corel, or (2) any Contract, license, permit, order, judgment,
decree or Law to which the Corel is a party or by which Corel may be bound,
or (b) contravenes, breaches or results in any default under, or conflicts
with or will conflict with, or results in or will result in any
modification of any of the terms of, or results in or will result in the
termination of or the creation of any Charge, acceleration right or other
right pursuant to the terms of, any Contract to which Corel is party or by
which it may be bound or will in any way affect the continuation, validity
or effectiveness of any such Contract, except to the extent that the
contravention, breach or default would not result in a material adverse
effect to Corel.
3.4.6 APPROVALS AND CONSENTS. Except as set out on Schedule 3.4.6, no
authorization, consent or approval of, or filing with or notice to, any
Governmental Authority or other Person is required in connection with the
execution, delivery or performance of this Agreement by Corel.
3.4.7 EQUITY CONSIDERATION. All the Corel Common Shares comprising the
Total Equity Consideration, when issued and delivered in accordance with
this Agreement, will be duly and validly issued and will be outstanding as
fully paid and non-assessable shares.
3.4.8 COREL FINANCIAL STATEMENTS. The Corel Audited Financial Statements
and the Corel Unaudited Financial Statements (copies of which have been
provided by Corel to the Corporation and the Jasc Stockholders) have been
prepared in accordance with Canadian GAAP (subject to usual year-end
adjustments in the case of the Corel Unaudited Financial Statements)
consistently applied throughout the periods indicated and fairly,
completely and accurately present the consolidated financial position of
Corel and the results of its consolidated operations as of the dates and
throughout the periods indicated and there has been no material adverse
change in the consolidated financial position of Corel from that reflected
in the Corel Audited Financial Statements.
3.4.9 SUFFICIENCY OF CAPITAL, ACCESS TO CAPITAL. As of the Closing Date,
Corel will have sufficient capital or credit arrangements in place to pay
the Asset Sale Cash Consideration and the Total Adjusted Merger Cash
Consideration on the Closing.
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3.5 NO FINDER'S FEES
Each of the Principal Stockholders and the Corporation represents and
warrants to the Merger Subsidiary that neither the Corporation nor any Principal
Stockholder has taken, and each agree that it will not take, any action that
would cause the Corporation, the Merger Subsidiary or the Surviving Corporation
to become liable to any claim or demand for a brokerage commission, finder's fee
or other similar payment, except for commissions and fees due to Goldsmith Agio
Helms, which will be paid by the Jasc Stockholders pursuant to section 5.11.6.
3.6 SURVIVAL OF COVENANTS, REPRESENTATIONS AND WARRANTIES
To the extent that they have not been fully performed at or prior to
the Time of Closing, the covenants, representations and warranties contained in
this Agreement and in all certificates and documents delivered pursuant to or
contemplated by this Agreement will survive the Closing and will continue as set
out below:
3.6.1 all representations and warranties, except those set out in sections
3.1.1.1, 3.1.1.3, 3.1.2, 3.1.3, 3.1.5, 3.1.6(a), 3.1.24, 3.2.3, 3.2.4 and
3.2.5, and sections 1.3, 1.4 and 1.5 of the Jasc Stockholder Signature Page
will terminate at the expiration of 18 months following the Closing;
3.6.2 the representations and warranties set out in sections 3.1.1.1,
3.1.1.3, 3.1.2, 3.1.3, 3.1.5, 3.1.6(a), 3.2.3, 3.2.4 and 3.2.5, and
sections 1.3, 1.4 and 1.5 of the Jasc Stockholder Signature Page will
survive the Closing indefinitely;
3.6.3 the representations and warranties set out in section 3.1.24 will,
subject to section 3.6.4, terminate at the expiration of the Tax
Reassessment Period;
3.6.4 there will be no termination of the representations and warranties
set out in section 3.1.24 to the extent that any misrepresentation has been
made or fraud has been committed in filing a return or in supplying
information for the purposes of any legislation imposing Taxes on the
Corporation; and
3.6.5 no claim for breach of representation or warranty will be valid
unless the party against whom that claim is made has been given notice of
the claim before the date on which the applicable representation or
warranty will have terminated in accordance with the foregoing.
ARTICLE 4
CONDITIONS
4.1 CONDITIONS FOR THE BENEFIT OF COREL AND THE MERGER SUBSIDIARY
The obligations of the Merger Subsidiary and Corel to consummate and
effect the Transaction and the transactions contemplated by this Agreement are
subject to the satisfaction of, or compliance with, at (except with respect to
section 4.1.8.9 which must be satisfied prior to the Effective Time) or prior to
the Effective Time, each of the following conditions (each of which is
acknowledged to be for the exclusive benefit of the Merger Subsidiary and
Corel):
4.1.1 ACCURACY OF REPRESENTATIONS AND COMPLIANCE WITH COVENANTS. The
representations and warranties of the Jasc Stockholders and of the
Corporation made in or pursuant to this Agreement will be true and correct
in all material respects (except for any representations and
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warranties which are qualified by materiality in Article 3, which
representations and warranties will be strictly true and correct) at the
Time of Closing with the same force and effect as if made at and as of the
Time of Closing; the covenants contained in this Agreement to be performed
by the Jasc Stockholders or the Corporation at or prior to the Time of
Closing will have been performed in all material respects; neither the Jasc
Stockholders nor the Corporation will be in breach of any agreement on its
part contained in this Agreement; and the Merger Subsidiary and Corel will
have received a certificate confirming the foregoing, signed for and on
behalf of each Jasc Stockholder and the Corporation (and, in the case of
the Corporation or of a Jasc Stockholder which is an Entity, by senior
officers or directors or other persons acceptable to the Merger
Subsidiary), in the form attached as Schedule 4.1.1.
4.1.2 OPINION OF FAEGRE & BENSON LLP. The Merger Subsidiary and Corel will
have received an opinion of Faegre & Benson LLP in the form and substance
as attached as Schedule 4.1.2.1. In addition, the Merger Subsidiary and
Corel will have received an opinion of Thomsen & Nybeck, P.A. addressing
the matters set out in Schedule 4.1.2.2 in respect of the Robert V. Voit
GRAT.
4.1.3 FORCE MAJEURE. No fire, war, strike, riot, labor dispute, technical
failure, or an act of God will have occurred (1) that restrains or
prohibits the Corporation for a period of at least five (5) Business Days
from carrying on in any material respect the Business as the Business is
being carried on at the date of this Agreement; or (2) has or would
reasonably be expected to have a material adverse effect on the Business,
assets, financial condition, results of operations or prospects of the
Corporation and/or the Business or which would materially and adversely
affect the consummation of the Transaction.
4.1.4 NO ADVERSE LEGISLATION. No Laws will have been enacted that restrain
or prohibit the Corporation from carrying on the Business as the Business
is being carried on at the date of this Agreement.
4.1.5 NO ACTION TO RESTRAIN. No Proceeding will be pending by any Person
(other than Corel or Merger Subsidiary or an Affiliate of Corel or a person
acting on the behalf of or at the request of any Affiliate of Corel) to
restrain or prohibit:
4.1.5.1 the consummation of the Transaction as contemplated by this
Agreement; or
4.1.5.2 the Corporation from carrying on the Business as the Business
is being carried on at the date of this Agreement.
4.1.6 [RESERVED].
4.1.7 CONSENTS AND APPROVALS. The following consents, authorizations and
approvals will have been delivered to the Merger Subsidiary. In the case of
Required Consents, the form and substance of the consents, authorizations
and approvals will be substantially similar to the form of consent attached
as Exhibit B:
4.1.7.1 [Reserved];
4.1.7.2 approval of the Transaction by the affirmative vote of the
holders of the requisite majority of the outstanding Jasc Shares in
accordance with Minnesota Law; and
4.1.7.3 all Closing Required Consents.
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4.1.8 DELIVERY OF OTHER AGREEMENTS AND DOCUMENTS. The following agreements
and documents, duly executed by the Corporation, each of the Principal
Stockholders and each of the other Jasc Stockholders, as applicable, will
have been delivered to the Merger Subsidiary, with respect to subsections
4.1.8.1 and 4.1.8.9 in the forms attached to this Agreement and with
respect to subsection 4.1.8.2, substantially in the form attached to this
Agreement with such changes as may be reasonably agreed to by the
Stockholder Representative and the Merger Subsidiary:
4.1.8.1 the Corel Minority Shareholders Agreement;
4.1.8.2 the Escrow Agreement;
4.1.8.3 [Reserved]
4.1.8.4 [Reserved];
4.1.8.5 each of the Jasc Stockholders (including any holder of
Convertible Securities that exercises those securities and acquires
Jasc Shares as contemplated by section 2.13) will have delivered a
Jasc Stockholder Signature Page;
4.1.8.6 [Reserved];
4.1.8.7 evidence that as contemplated by section 5.11, the Stockholder
Expenses have been fully satisfied prior to the Closing Date; or
irrevocable directions have been provided to Corel directing Corel to
fully satisfy the Stockholder Expenses not satisfied prior to the
Closing Date directly out of the Asset Cash Consideration;
4.1.8.8 [Reserved]; and
4.1.8.9 the Transfer Agreement.
4.1.9 Q3 NET REVENUE. The Corporation will have Initial Q3 Net Revenue of
at least $7,000,000.
4.1.10 EXERCISE OF DISSENTERS' RIGHTS. Jasc Stockholders holding less than
two percent (2%) of the issued and outstanding Jasc Shares will have
exercised appraisal or dissenters' rights in accordance with the provisions
of Minnesota Law.
4.1.11 CERTAIN TERMINATIONS. The Corporation will accrue for all Severance
Payments made to each of Jonathan C. Ort and Craig Letourneau in connection
with that Person's termination of employment, as of September 30, 2004.
If any of the conditions contained in this section 4.1 are not
fulfilled or performed at (except with respect to section 4.1.8.9 which must be
satisfied prior to the Effective Time and except as a direct result of actions
taken or not taken by Jasc at the specific direction of Corel pursuant to
section 5.1) or prior to the Effective Time to the satisfaction of the Merger
Subsidiary and Corel (acting reasonably), the Merger Subsidiary and Corel may,
by notice to the Stockholder Representative, terminate this Agreement and the
obligations of the Corporation, the Principal Stockholders, the Merger
Subsidiary and Corel under this Agreement other than the obligations contained
in sections 3.5, 8.1 and 8.3. Any condition may be waived in whole or in part by
the Merger Subsidiary and/or Corel without prejudice to any claims it may have
for breach of covenant, representation or warranty.
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4.2 CONDITIONS FOR THE BENEFIT OF THE CORPORATION
The obligation of the Corporation to consummate and effect the
Transaction and the transactions contemplated by this Agreement is subject to
the satisfaction of, or compliance with, at (except with respect to section
4.2.5.3 which must be satisfied prior to the Effective Time) or prior to the
Effective Time, each of the following conditions (each of which is acknowledged
to be for the exclusive benefit of the Corporation):
4.2.1 ACCURACY OF REPRESENTATIONS OF MERGER SUBSIDIARY AND COREL AND
COMPLIANCE WITH COVENANTS. The representations and warranties of the Merger
Subsidiary and Corel made in or pursuant to this Agreement will be true and
correct in all material respects at the Time of Closing (except for any
representations and warranties which are qualified by materiality in
Article 3, which representations and warranties will be strictly true and
correct) with the same force and effect as if made at and as of the Time of
Closing; the covenants contained in this Agreement to be performed by the
Merger Subsidiary and Corel at or prior to the Time of Closing will have
been performed in all material respects; neither the Merger Subsidiary nor
Corel will be in breach of any agreement on its part contained in this
Agreement; and the Corporation and the Stockholder Representative will have
received a certificate confirming the foregoing, signed for and on behalf
of the Merger Subsidiary and Corel by senior officers or directors of the
Merger Subsidiary and Corel or other persons acceptable to the Stockholder
Representative, in form and substance satisfactory to the Stockholder
Representative and Jasc Counsel.
4.2.2 OPINION OF TORYS LLP. The Corporation and Jasc Stockholders will have
received an opinion of Torys LLP in the form and substance as attached as
Schedule 4.2.2.1 and an opinion of Stewart McKelvey Stirling Scales LLP in
the form and substance as attached as Schedule 4.2.2.2.
4.2.3 NO ACTION TO RESTRAIN. No Proceeding will be pending by any Person to
restrain or prohibit the Transaction.
4.2.4 [RESERVED]
4.2.5 DELIVERY OF OTHER AGREEMENTS. The following agreements, duly executed
by Corel and/or the Merger Subsidiary, as applicable, will have been
delivered to each of the Jasc Stockholders who is a party to the applicable
agreement, with respect to subsections 4.2.5.1 and 4.2.5.3 in the forms
attached to this Agreement and with respect to subsection 4.2.5.2
substantially in the form attached to this Agreement with such changes as
may be reasonably agreed to by the Stockholder Representative and the
Merger Subsidiary:
4.2.5.1 the Corel Minority Shareholders Agreement;
4.2.5.2 the Escrow Agreement; and
4.2.5.3 the Transfer Agreement.
If any of the conditions contained in this section 4.2 are not
fulfilled or performed at (except with respect to section 4.2.5.3 which must be
satisfied prior to the Effective Time) or prior to the Effective Time to the
satisfaction of the Corporation (acting reasonably), the Corporation may, by
notice to the Merger Subsidiary and Corel terminate this Agreement and the
obligations of the Corporation, the Jasc Stockholders, the Merger Subsidiary and
Corel under this Agreement other than the obligations contained in sections 3.5,
8.1 and 8.3. Any condition may be waived in whole or in part by the
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Corporation without prejudice to any claims it may have for breach of covenant,
representation or warranty.
ARTICLE 5
ADDITIONAL AGREEMENTS OF THE PARTIES
5.1 ACCESS TO INFORMATION
The Corporation will give, and the Principal Stockholders will cause
the Corporation to give, until the Time of Closing, to the Merger Subsidiary,
Corel and their respective accountants, legal advisers and representatives
during normal business hours full access to their premises, all their assets,
books, accounts, tax returns, contracts, commitments and records and to their
personnel and to furnish them with all such information relating to the Business
(collectively, the "JASC FACILITIES AND INFORMATION") and their affairs and
assets as the Merger Subsidiary and/or Corel may reasonably request. In
addition, the Corporation will give, and the Principal Stockholders will cause
the Corporation to give, until the Time of Closing, to the Merger Subsidiary,
Corel and their representatives reasonable access to the Jasc Facilities and
Information to conduct ongoing integration and transaction planning which
includes the initiation of customer surveys of existing Jasc customers;
provided, however, that the Merger Subsidiary, Corel and their representatives
shall have no right to legally bind the Corporation and, provided further, that
the Stockholder Representative shall be provided with information about the
integration and transaction planning that is being conducted and shall have the
right to cause the delay or termination of such planning activities if he
reasonably believes that it is necessary to do so in order to allow the
Corporation to carry on the Business as the Business is being carried on at the
date of this Agreement. No investigation made by the Merger Subsidiary, Corel or
their respective representatives will affect the Merger Subsidiary's and/or
Corel's right to rely on any representation or warranty made by the Jasc
Stockholders or the Corporation in this Agreement or in any document
contemplated by this Agreement or derogate from the Jasc Stockholders'
acknowledgement of that reliance in sections 3.1 and 3.2 and the Jasc
Stockholder Signature Page, as applicable.
5.2 CONDUCT OF BUSINESS UNTIL TIME OF CLOSING
Except as expressly provided in this Agreement or except with the
prior written consent of the Merger Subsidiary, prior to the Time of Closing the
Corporation will, and the Principal Stockholders will cause the Corporation to:
5.2.1 operate the Business only in the ordinary course, consistent with
past practice and, to the extent consistent with that operation, use best
efforts to preserve its business organization, including the services of
its officers and employees, and its business relationships with customers,
suppliers and others having business dealings with it;
5.2.2 maintain all its assets, whether owned or leased, in good condition
and repair and, subject to section 5.7, maintain insurance upon all its
assets comparable in amount, scope and coverage to that in effect on the
date of this Agreement;
5.2.3 satisfy or accrue all salary obligations to employees of the
Corporation, as incurred up until and including the Closing Date;
5.2.4 maintain its books, records and accounts in the ordinary course on a
basis consistent with past practice (including the recording and/or
treatment by the Corporation of accounts receivable and payable); and
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5.2.5 do or refrain from doing all acts and things in order to ensure that
the representations and warranties in section 3.1 remain true and correct
in all material respects at the Time of Closing (except for any
representations and warranties which are qualified by materiality in
section 3, which representations and warranties are to be strictly true and
correct) as if those representations and warranties were made at and as of
that date and to satisfy or cause to be satisfied the conditions in section
4.1 which are within its control.
5.3 NEGATIVE COVENANT
Except as expressly provided in this Agreement or listed in Schedule
5.3 or except with the prior written consent of the Merger Subsidiary, prior to
the Time of Closing the Corporation will not, and the Principal Stockholders
will ensure that the Corporation will not:
5.3.1 amend its certificate of incorporation, by-laws, constating documents
or other organizational documents;
5.3.2 merge or consolidate with, or acquire all or substantially all the
shares or assets of, any Person;
5.3.3 transfer, lease, license, sell or otherwise dispose of any of its
assets, other than inventory and non-exclusive licenses to the Key Software
Programs in the ordinary course of the Business, consistent with past
practice;
5.3.4 do any act or thing of the kind described in section 3.1.13 or enter
into any Contract of the kind described in sections 3.1.16 or 3.1.25; or
5.3.5 without limiting the generality of this section 5.3, change the
Corporation's pricing policies, announce new products, hire or terminate
key employees, terminate master representatives, enter into, renew or
terminate significant Contracts or alter any employee compensation or
benefits (including any profit sharing or equity participation plans) or
other terms and conditions of employment.
5.4 MERGER SUBSIDIARY'S COVENANT
Except as expressly provided in this Agreement or except with the
prior written consent of the Corporation, prior to the Time of Closing each of
the Merger Subsidiary and Corel will do or refrain from doing all acts and
things in order to ensure that the representations and warranties in sections
3.2 and 3.4 remain true and correct in all material respects at the Time of
Closing (except for any representations and warranties which are qualified by
materiality in section 3, which representations and warranties are to be true
and correct) as if those representations and warranties were made at and as of
that date and to satisfy or cause to be satisfied the conditions in section 4.2
which are within each entity's respective control.
5.5 CORPORATE ACTION, RELEASES
At or prior to the Time of Closing, the Principal Stockholders will
cause all necessary corporate action to be taken for the purpose of approving
the Transaction and the transactions contemplated by this Agreement. If
requested by the Merger Subsidiary, the Principal Stockholders will cause
nominees of the Merger Subsidiary to be elected or appointed directors of the
Corporation to fill any vacancies.
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5.6 OBTAINING OF CONSENTS AND APPROVALS
The Principal Stockholders will, and will cause the Corporation to,
use best efforts to deliver, at or prior to the Time of Closing, the Required
Consents.
5.7 ADDITIONAL INSURANCE
The Principal Stockholders will, at the request and expense of the
Merger Subsidiary, cause the Corporation to place promptly any additional
insurance on its insurable assets and/or to place any additional public
liability or other insurance as the Merger Subsidiary may request.
5.8 NON-SOLICITATION
Neither the Corporation (including its directors, officers, employees
and agents) nor any Jasc Stockholder will initiate, encourage, cooperate with,
provide non-public information to or participate in any discussions with any
third party (other than its professional advisors) regarding the Transaction or
any other proposed financing of the Corporation or sale of the Corporation's
securities or assets, and the Corporation and each Jasc Stockholder will
immediately terminate any such discussions currently in progress. If, prior to
the earlier of the Time of Closing and termination of this Agreement, the
Corporation or a Jasc Stockholder receives an inquiry concerning a proposed
transaction that could be inconsistent with the Transaction, then the
Corporation or that Jasc Stockholder will immediately notify the Merger
Subsidiary of that event and provide the Merger Subsidiary with a copy of that
proposal (if in writing) or a summary of that inquiry (if oral).
5.9 [RESERVED]
5.10 TAX MATTERS
5.10.1 The Merger Subsidiary and the Jasc Stockholders will make an
election under Section 338(h)(10) of the Code (and any comparable election
under state or local Tax Law), with respect to the Transaction. The Merger
Subsidiary and the Jasc Stockholders will cooperate fully with each other
in the making of that election. In particular, and not by way of
limitation, in order to effect that election, promptly upon the request of
the Merger Subsidiary, each of the Jasc Stockholders will execute with the
Merger Subsidiary necessary copies of Internal Revenue Service Form 8023
and all attachments required to be filed with that form pursuant to
applicable Treasury regulations.
5.10.2 The Transaction Consideration and the liabilities of the Corporation
assumed by the Merger Subsidiary under this Agreement will be allocated to
the assets of the Corporation substantially as set out in Schedule 5.10.2.
The parties agree that the Schedule 5.10.2 attached to this Agreement on
the date of this Agreement is in draft form (the "DRAFT SCHEDULE 5.10.2")
and that the final Schedule 5.10.2 (the "FINAL SCHEDULE 5.10.2") will be
delivered by the Merger Subsidiary to the Stockholder Representative at
least 2 Business Days prior to the Closing Date. The Final Schedule 5.10.2
will (i) contain the identical line items as the Draft Schedule 5.10.2 (and
will not contain any additional items), and (ii) reflect amounts allocated
to "Property, plant and equipment" and "Non-compete" that will not be more
than 3 times the value allocated to those items in the Draft Schedule
5.10.2. The parties agree that this allocation is intended to comply with
the allocation method required by Section 338 of the Code. The parties will
cooperate to comply with all substantive and procedural requirements of
Section 338 of the Code and any applicable regulations, and the allocation
will be adjusted if, and to the extent, necessary to comply with the
requirements of Section 338 of the Code. Neither the Merger Subsidiary nor
any of the Jasc
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Stockholders will take, nor permit any Affiliated person to take, for
federal, state or local income Tax purposes, any position inconsistent with
(i) the allocation set out in Schedule 5.10.2, or, if applicable, that
adjusted allocation; and/or (ii) the description of the Transaction as set
out in section 2.1.
5.10.3 The Principal Stockholders will prepare, or cause to be prepared,
and file, or cause to be filed, on a timely basis all Tax Returns with
respect to the Corporation for taxable periods ending on or prior to the
Closing Date (a "PRE-CLOSING TAX PERIOD") including any short period return
for the Corporation ending at the end of the day on the Closing Date. The
Principal Stockholders shall provide Corel copies of the Tax Returns at
least 30 days prior to the due date for filing the specific Tax Return, and
Corel shall have the right to comment on any of those Tax Returns.
5.10.4 Subject to the process set out in section 6.3, each of Corel on the
one hand, and the Jasc Stockholders on the other hand (each a "RECIPIENT"),
shall notify the other party in writing within 20 days of receipt by the
Recipient of written notice of any pending or threatened audit, notice of
deficiency, proposed adjustment, assessment, examination or other
administration or Proceeding or other claim which could affect the
liability for Taxes of the other party (a "TAX CLAIM"). The Jasc
Stockholders agree that they will not settle any Proceeding in respect of a
Tax Claim in a manner which could potentially materially affect, Corel, the
Corporation or the Surviving Corporation for any taxable period that ends
after the Closing Date without the prior consent of Corel. Corel agrees
that it will not settle or allow to be settled any Proceeding in respect of
a Tax Claim in a manner which could reasonably be expected to have a
material affect on the Jasc Stockholders for any taxable period that ends
before the Closing Date without the prior written consent of the
Stockholder Representative, which consent will not be unreasonably
withheld. In the case of any taxable period that includes (but does not end
on) the Closing Date (a "STRADDLE PERIOD"), the Jasc Stockholders will be
entitled to participate at their expense in any Tax Claim relating in any
part to Taxes attributable to the portion of that Straddle Period deemed to
end on or before the Closing Date, and with the written consent of Corel,
at the Jasc Stockholders' sole expense, may assume the control of the
entire Tax Claim.
5.11 CERTAIN PAYMENTS AND EXPENSES
5.11.1 Prior to the Effective Time, and except as set forth in section
5.16, the Jasc Stockholders will, or will cause the Corporation to, satisfy
any liability for severance pay, penalty, bonus (pro rata or otherwise) or
similar payment requirements to any employee, sales representative,
independent contractor, consultant, distributor, agent or Affiliate of the
Corporation (each, a "SEVERANCE PAYMENT") that were either (1) incurred
prior to the Time of Closing or (2) required to be satisfied in connection
with the consummation of the Transaction as a result of a change of control
or otherwise, including any amounts due to holders of Convertible
Securities pursuant to section 2.13 or amounts contemplated by section
4.1.11. Following the Closing Date, by way of pro rata cash payment
calculated based upon the Jasc Stockholder's Ownership Percentage, the Jasc
Stockholders will satisfy Severance Payments that are required by Contract
or Law to be satisfied as a result of the consummation of the Merger (and
the resulting change of control) and/or the Asset Sale. All of the
foregoing expenses shall include all associated payroll Taxes.
5.11.2 Prior to the Effective Time, the Jasc Stockholders will, or will
cause the Corporation to, satisfy all costs and expenses incurred by the
Corporation in connection with the consummation of the Merger, including
any costs in connection with the obtaining of the Consents referred to in
section 5.6.
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5.11.3 Prior to the Effective Time, the Jasc Stockholders will, or will
cause the Corporation to, satisfy 50% of any filing fees payable in
connection with any filings made under the HSR Act.
5.11.4 If the costs and fees specified in sections 5.11.1, 5.11.2 and/or
5.11.3 are not satisfied prior to the Effective Time or taken into account
in the calculation of the Asset Sale Cash Consideration and/or the Total
Adjusted Merger Cash Consideration, those costs and fees will be reflected
on the Working Capital Closing Balance Sheet as current liabilities.
5.11.5 The Jasc Stockholders will satisfy all fees, expenses and other
required payments relating to the exercise of dissenter's rights by Jasc
Stockholders under Minnesota Law.
5.11.6 The Jasc Stockholders will satisfy all fees and expenses of
investment bankers (including, for greater certainty, commissions and fees
due to Goldsmith Agio Helms as referenced in section 3.5) of the Jasc
Stockholders and/or the Corporation incurred in connection with negotiation
and settlement of this Agreement and the consummation of the Transaction.
5.11.7 Satisfaction of the payments set out in this section 5.11 will not
constitute a breach of any covenant in section 5.3 of this Agreement.
5.12 GOODWILL
Each Principal Stockholder and the Corporation covenants and agrees
that the Principal Stockholder and the Corporation will not take or omit to take
any action which could directly or indirectly impair the goodwill of the
Corporation or the Business or the business reputation or good name of the
Corporation.
5.13 COOPERATION
The parties will cooperate fully in good faith with each other and
their respective legal advisers, accountants and other representatives in
connection with any steps required to be taken as part of their respective
obligations under this Agreement.
5.14 TERMINATION
This Agreement may be terminated and the Transaction may be abandoned
at any time prior to the Closing (notwithstanding any approval of this Agreement
by the Jasc Stockholders) by:
5.14.1 mutual written agreement of Corel and the Corporation;
5.14.2 either Corel or the Corporation, by written notice to the other, if
the Transaction has not been consummated by October 31, 2004 or any later
date as Corel and the Corporation may mutually agree (provided that the
right to terminate this Agreement under this section 5.14.2 will not be
available to any party whose failure to fulfill any of its obligations
under this Agreement has been the cause of or resulted in the failure to
consummate the Transaction by such date). For greater certainly, (i) the
condition set out in section 4.1.7.3 does not constitute an "obligation"
for the purposes of this section; and (ii) without limitation, the
Corporation may not terminate pursuant to this section 5.14.2 in the event
that section 5.6 has been breached;
5.14.3 either Corel or the Corporation, by written notice to the other, if
the stockholder approval referred to in section 4.1.7.2 is not obtained by
reason of the failure to obtain the requisite vote
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upon a vote at a duly held meeting of Jasc Stockholders or at any
adjournment of that meeting or by written consent in lieu of a meeting; or
5.14.4 either Corel or the Corporation, by written notice to the other, if
there will be any applicable Law that makes the consummation of the
Transaction illegal or otherwise prohibited or if any order of a
Governmental Authority of competent jurisdiction restrains or prohibits the
consummation of the Transaction, and that order becomes final and
non-appealable.
Sections 3.5, 8.1 and 8.3 of this Agreement will survive the termination of
this Agreement pursuant to this section 5.14.
5.15 JASC STOCKHOLDER APPROVAL
5.15.1 The Corporation will promptly after the date of this Agreement take
all actions necessary to call a meeting of the Jasc Stockholders (including
the delivery to Jasc Stockholders of all material required by Minnesota
Law) to be held as promptly as practicable for the purpose of voting upon
this Agreement and the Transaction (the "JASC STOCKHOLDERS MEETING") or
obtain the unanimous written consent of all Jasc Stockholders approving
this Agreement and the Transaction. The Corporation will, through its board
of directors, unanimously recommend to the Jasc Stockholders approval of
this Agreement and the Transaction.
5.15.2 Each of the Principal Stockholders hereby agrees to vote that
Principal Stockholder's Jasc Shares in favor of this Agreement and the
Transaction at the Jasc Stockholders Meeting or in the written consent. If
requested by the Stockholder Representative, each Principal Stockholder
agrees to grant the Stockholder Representative a proxy to vote that
Principal Stockholder's Jasc Shares in favor of this Agreement and the
Transaction.
5.16 JASC YE BONUS PROGRAM
Notwithstanding anything to the contrary in this Agreement, the Jasc
Stockholders will not be liable for any amounts associated with the Jasc YE
Bonus Program, including to the extent those amounts should have been accrued on
the Initial Closing Balance Sheet or the Working Capital Closing Balance Sheet.
Corel agrees that any liability the Corporation has to make payments in
accordance with the Jasc YE Bonus Program will be solely the responsibility and
liability of the Merger Subsidiary or Corel following the Closing and the Corel
Indemnified Parties will have no right to indemnification for any losses,
damages or deficiencies from their obligation to make any payments that become
due.
5.17 JASC FOUNDER'S COMPUTER AND CELL PHONE
At the Closing, the Corporation will sell to Robert V. Voit the
computer and cell phone of the Corporation used by Mr. Voit for a total purchase
price of $1, which items will become the personal property of Mr. Voit.
5.18 POST-CLOSING ACCESS
Following the Closing Date, Corel will provide each Jasc Stockholder
and their accounting advisors with reasonable access to the books and records of
the Corporation and appropriate accounting and finance personnel of Corel, the
Merger Subsidiary and/or the Surviving Corporation (during standard business
hours and upon reasonable advance written notice from the Jasc Stockholder) in
connection with the filing of the Jasc Stockholder's "Sub S" tax return for the
2004 fiscal year or the audit
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of those tax returns for any prior year, and for purposes of taking actions
required by this Agreement, such as the actions specified in sections 2.9, 2.10,
2.14 and 5.10.3.
ARTICLE 6
INDEMNIFICATION
6.1 INDEMNIFICATION
6.1.1 Indemnification by the Principal Stockholders
Each of the Principal Stockholders, jointly and severally, hereby
agrees to defend, indemnify and hold harmless the Merger Subsidiary, Corel and
the Surviving Corporation (collectively, the "COREL INDEMNIFIED PARTIES") for
and from:
6.1.1.1 any loss, damages or deficiencies suffered by a Corel
Indemnified Party as a result of any breach of a representation and
warranty contained in section 3.1 or a covenant on the part of any
Principal Stockholder or on the part of the Corporation contained in
this Agreement or in any certificate or document delivered pursuant to
or contemplated by this Agreement; and
6.1.1.2 all claims, demands, costs and expenses, including legal fees
and applicable Taxes, in respect of the foregoing.
6.1.2 Indemnification by the Jasc Stockholders
Each of the Jasc Stockholders, severally and not jointly, hereby
agrees to defend, indemnify and hold harmless the Corel Indemnified Parties for
and from:
6.1.2.1 any loss, damages or deficiencies suffered by a Corel
Indemnified Party as a result of any breach of a representation and
warranty given by that Jasc Stockholder in section 3.2 or a covenant
on the part of that Jasc Stockholder in this Agreement or in any
certificate or document delivered pursuant to or contemplated by this
Agreement (including, for greater certainty, the Jasc Stockholder
Signature Page; and
6.1.2.2 all claims, demands, costs and expenses, including legal fees
and applicable Taxes, in respect of the foregoing.
6.1.3 Exceptions
Notwithstanding the foregoing, no Principal Stockholder or any other
Jasc Stockholder will have any obligation to defend, indemnify or hold harmless
the Corel Indemnified Parties for or from any loss, damages or deficiencies
suffered by a Corel Indemnified Party:
6.1.3.1 that relates to matters for which the Principal Stockholders
and the other Jasc Stockholders are entitled to be indemnified by
Corel and the Merger Subsidiary as set out in section 6.1.4 below; and
6.1.3.2 to the extent that loss, damage or deficiency has been
included in the Closing Working Capital Amount such that the Closing
Balance Sheet or the related working papers specifically identifies
that particular accrual or adjustment as relating to the particular
loss, damage or deficiency.
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6.1.4 Indemnification by Merger Subsidiary and Corel
Each of Corel and the Merger Subsidiary, jointly and severally, hereby
agree to defend, indemnify and hold harmless the Principal Stockholders and Jasc
Stockholders for and from any loss or damages suffered by the Principal
Stockholders and/or Jasc Stockholders as a result of a violation of applicable
Laws (including Laws related to privacy and sweepstakes) caused by the
solicitation for, distribution of or collection of the Surveys (as defined in
the letter agreement executed by Corel dated September 20, 2004) on the same
terms as set out in that letter.
6.2 NOTICE OF CLAIM
A Corel Indemnified Party will promptly give notice to the Stockholder
Representative of any claim for indemnification pursuant to section 6.1 (a
"CLAIM", which term will include more than one Claim), provided that any delay
or failure to so advise the Stockholder Representative will not relieve the
applicable Jasc Stockholders from any liability except to the extent that the
defense of that Claim is prejudiced by that delay or failure. That notice will
specify whether the Claim arises as a result of a claim by a Person against the
Corporation (a "THIRD PARTY CLAIM") or whether the Claim does not so arise (a
"COREL INDEMNIFIED PARTY'S CLAIM"), and will also specify with reasonable
particularity (to the extent that the information is available):
6.2.1 the factual basis for the Claim; and
6.2.2 the amount of the Claim, or, if an amount is not then determinable,
an approximate and reasonable estimate of the likely amount of the Claim.
6.3 PROCEDURE FOR INDEMNIFICATION
6.3.1 COREL INDEMNIFIED PARTY'S CLAIMS. With respect to Corel Indemnified
Party's Claims, following receipt of notice from the Corel Indemnified
Party of a Claim, the Stockholder Representative will have 30 days to make
any investigation of the Claim as the Stockholder Representative considers
necessary or desirable. For the purpose of that investigation, the Corel
Indemnified Party will make available to the Stockholder Representative and
its authorized representatives the information relied upon by the Corel
Indemnified Party to substantiate the Claim. If the Corel Indemnified Party
and the Stockholder Representative agree at or prior to the expiration of
that 30 day period (or any mutually agreed upon extension of that period)
to the validity and amount of the Claim, the applicable Jasc Stockholder(s)
will immediately pay to the Corel Indemnified Party the full agreed upon
amount of the Claim.
If the Corel Indemnified Party and the Stockholder Representative do not
agree within that period (or any mutually agreed upon extension of that
period), the Corel Indemnified Party and the Jasc Stockholders agree that
the Corel Indemnified Party will be entitled to bring an action in a court
of law to recover the full amount of the Claim and any costs incidental to
the action.
6.3.2 THIRD PARTY CLAIMS.
6.3.2.1 With respect to any Third Party Claim, the applicable Jasc
Stockholder(s) will have the right, at their own expense, to
participate in or assume control of the negotiation, settlement or
defense of the Third Party Claim and, in that event, the Jasc
Stockholder(s) will reimburse the Corel Indemnified Party for all the
Corel Indemnified Party's out-of-pocket expenses as a result of that
participation or assumption. If the Jasc Stockholder(s) elect to
assume that control, the Corel Indemnified Party will cooperate with
the Jasc
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Stockholders, will have the right to participate in the negotiation,
settlement or defense of the Third Party Claim at its own expense and
will have the right to disagree on reasonable grounds with the
selection and retention of counsel, in which case counsel satisfactory
to the Jasc Stockholders and the Corel Indemnified Party will be
retained by the Jasc Stockholders.
6.3.2.2 If the applicable Jasc Stockholders, having elected to assume
control as contemplated in section 6.3.2.1 then fail to defend the
Third Party Claim within a reasonable time, the Corel Indemnified
Party will be entitled to assume control and the applicable Jasc
Stockholders will be bound by the results obtained by the Corel
Indemnified Party with respect to the Third Party Claim.
6.4 ADDITIONAL RULES AND PROCEDURES
The obligation of the Jasc Stockholders to indemnify the Corel
Indemnified Parties in respect of Claims will also be subject to the following:
6.4.1 Any Claim arising as a result of a breach of a representation or
warranty contained in sections 3.1 or 3.2 will be made not later than the
date on which, pursuant to section 3.6, that representation or warranty
terminated.
6.4.2 The Jasc Stockholders' obligation to indemnify the Corel Indemnified
Parties will only apply if the Claims (including the latest Claim made but
excluding Claims set out in section 6.4.4), in total, exceed $250,000 net
of insurance proceeds and tax benefits, at which time the full amount of
all of those Claims will be indemnifiable under this Agreement.
6.4.3 The total amount payable by the Jasc Stockholders (either through the
Escrow Fund or directly) in respect of Claims under this Article will not
exceed $6.0 million.
6.4.4 Notwithstanding section 6.4.3, there will be no limit on the amounts
payable under this Article with respect to any Claim (1) based on the gross
negligence or fraud of a Jasc Stockholder or the Corporation or (2) arising
from a breach of a representation and warranty contained in one or more of
sections 3.1.1.1, 3.1.1.3, 3.1.2, 3.1.3, 3.1.5, 3.1.6(a), 3.1.24, 3.2.3,
3.2.4 and 3.2.5 and Sections 1.3, 1.4 and 1.5 of the Jasc Stockholder
Signature Page, and or a breach of a covenant contained in sections 5.11 or
8.3. For greater certainty, amounts payable in connection with any Claim
which, pursuant to this section 6.4.4, is not subject to any limit, will
not be aggregated with any other Claims that are subject to the limits set
out in section 6.4.3.
6.4.5 In the event that any Third Party Claim is of a nature that the Corel
Indemnified Party is required by applicable Law to make a payment to any
Person (a "THIRD PARTY") with respect to the Third Party Claim before the
completion of settlement negotiations or related Proceedings, the Corel
Indemnified Party may make that payment and the applicable Jasc
Stockholder(s) will, promptly after demand by the Corel Indemnified Party,
reimburse the Corel Indemnified Party for any such payment. If the amount
of any liability of the Corel Indemnified Party under the Third Party Claim
in respect of which that payment was made, as finally determined, is less
than the amount which was paid by the applicable Jasc Stockholder(s) to the
Corel Indemnified Party, the Corel Indemnified Party will, promptly after
receipt of the difference from the Third Party, pay the amount of that
difference to the applicable Jasc Stockholder(s).
6.4.6 Except in the circumstance contemplated by sections 6.4.5 and 6.3.2.2
and whether or not the applicable Jasc Stockholder(s) assume control of the
negotiation, settlement or defense of any
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Third Party Claim, the Corel Indemnified Party will not negotiate, settle,
compromise or pay any Third Party Claim except with the prior written
consent of the Stockholder Representative (which consent will not be
unreasonably withheld), unless that settlement includes an unconditional
release of the Corel Indemnified Party and the applicable Jasc
Stockholder(s).
6.4.7 The Corel Indemnified Party will not permit any right of appeal in
respect of any Third Party Claim to terminate without giving the
Stockholder Representative notice of the Third Party Claim and an
opportunity to contest the Third Party Claim.
6.4.8 The Corel Indemnified Party and the Jasc Stockholders will cooperate
fully with each other with respect to Third Party Claims, will keep each
other fully advised with respect to those claims (including supplying
copies of all relevant documentation promptly as it becomes available) and
will keep informed about and be prepared to discuss the Third Party Claim
with the other and with counsel at all reasonable times.
6.4.9 Notwithstanding section 6.3.2, the Jasc Stockholders will not settle
any Third Party Claim or conduct any related Proceeding in a manner which
would, in the opinion of the Corel Indemnified Party, acting reasonably,
have a material adverse impact on the Merger Subsidiary, Corel, the
Surviving Corporation or the Business.
6.4.10 Any payment by any Jasc Stockholder under this Agreement will be
treated for tax purposes as an adjustment to the Transaction Consideration.
6.5 ESCROW AGREEMENT
Claims will be satisfied first out of, and to the extent of, the
Escrow Fund (if then still in existence) in accordance with the terms of the
Escrow Agreement and thereafter by recourse directly to the applicable Jasc
Stockholders. For greater certainty, payments to a Corel Indemnified Party from
the Escrow Fund will be comprised of both cash and Corel Common Shares,
allocated pro rata based upon the ratio of cash to Corel Common Shares in the
Escrow Fund at the time of that payment. The Escrow Agreement will provide for
the payment, on the date which is 18 months after the Closing Date, to each Jasc
Stockholder of an amount equal to the remaining balance of that Jasc
Stockholder's portion of the Escrow Fund, if any, less amounts in respect of
which a Corel Indemnified Party has asserted Claims as provided in and subject
to the terms and conditions of this Agreement and the Escrow Agreement. The
Escrow Agreement will further provide that the portion of the Escrow Fund which
is comprised of Corel Common Shares will be valued at $5.0 million for the
duration of the term of the Escrow Fund (and that value will be proportionately
reduced to the extent that Claims are satisfied by the payment from the Escrow
Fund of Corel Common Shares) for the purpose of satisfying Claims.
6.6 LIMITATION OF REMEDIES
A Corel Indemnified Party's sole and exclusive remedy with respect to
any and all Claims relating to the subject matter of this Agreement (including
Claims for breaches of representations, warranties, covenants, and agreements
contained in this Agreement) will be pursuant to the indemnification provisions
set out in this Article 6. In furtherance of the foregoing, each Corel
Indemnified Party hereby waives, to the fullest extent permitted under
applicable Law, any and all rights, claims, and causes of action of that Corel
Indemnified Party against the Corporation and the Jasc Stockholders as a matter
of equity or under or based upon any Law or arising under or based upon common
law or otherwise, except to the extent specifically provided in this Article 6.
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ARTICLE 7
CLOSING
7.1 LOCATION AND TIME OF THE CLOSING
The Closing will take place at the Time of Closing on the Closing Date
at the offices of Merger Subsidiary's Counsel in New York.
7.2 DELIVERIES AT THE CLOSING
At the Closing, immediately following the consummation of the Asset
Sale as contemplated by section 2.1.1 and subject to section 2.12, each Jasc
Stockholder will deliver the share certificates representing that Jasc
Stockholder's Jasc Shares and all other documents as are required or
contemplated to be delivered by the Jasc Stockholders pursuant to this
Agreement, and Corel and the Merger Subsidiary will pay the Total Adjusted
Merger Cash Consideration, will deliver share certificates representing the
Total Merger Equity Consideration and will deliver all other documents required
or contemplated to be delivered by Corel and/or the Merger Subsidiary pursuant
to this Agreement.
ARTICLE 8
GENERAL MATTERS
8.1 PUBLIC NOTICES
No press release or other announcement concerning the Transaction will
be made by the Jasc Stockholders, the Corporation, the Merger Subsidiary or
Corel without, in the case of those to be made by the Jasc Stockholders or the
Corporation, the prior written consent of Corel, and in the case of those to be
made by the Merger Subsidiary or Corel, without the prior written consent of the
Stockholder Representative (which consent, in either case, will not be
unreasonably withheld). The Principal Stockholders will assist the Merger
Subsidiary and/or Corel in informing the personnel and management of the
Corporation of the change in the ownership of the Corporation; provided always
that those communications will be made only by or with the prior approval of the
Merger Subsidiary and/or Corel.
8.2 STOCKHOLDER REPRESENTATIVE
Unless this Agreement explicitly provides to the contrary, each of the
Jasc Stockholders agree that the Stockholder Representative is authorized on
behalf of that Jasc Stockholder to do all acts under this Agreement on behalf of
that Jasc Stockholder which the Jasc Stockholder could do itself, including
accepting notices, granting consents, approvals or waivers, entering into
amendments and executing and delivering all documents specified to be executed
and delivered by "the Jasc Stockholders" (as opposed to by "each Jasc
Stockholder" or "each of the Jasc Stockholders"). In furtherance of the
foregoing authority, each of the Jasc Stockholders hereby appoints the
Stockholder Representative as the Jasc Stockholders true and lawful attorney
with full power and authority in the Jasc Stockholder's place and stead to act
in the capacity set out above in this section.
8.3 EXPENSES
8.3.1 The Jasc Stockholders, on the one hand (and as further specified in
section 5.11), and Corel and the Merger Subsidiary, on the other hand, will
be responsible for the expenses (including fees and expenses of legal
advisers, accountants, brokers, investment bankers (including, for greater
certainty, commissions and fees due to Goldsmith Agio Helms as referenced
in section 3.5)
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and other professional advisers) incurred by them, respectively, (and, in
the case of the Jasc Stockholders, including those expenses incurred by or
on behalf of the Corporation) in connection with the negotiation and
settlement of this Agreement and the consummation of the Transaction
(provided, however, that the Jasc Stockholders may cause the Corporation,
prior to the Time of Closing, to satisfy any of those expenses (but not
including those set out in sections 5.11.5 or 5.11.6) incurred by them or
by or on behalf of the Corporation).
8.3.2 Notwithstanding section 8.3.1 and as further specified in section
5.11, any filing fees payable in connection with any filings made under the
HSR Act will be shared equally between the Jasc Stockholders (or the
Corporation if the Jasc Stockholders cause the Corporation to satisfy those
fees prior to the Time of Closing), on the one hand, and Corel and the
Merger Subsidiary, on the other hand.
8.3.3 Notwithstanding section 8.3.1, if the Closing does not occur, the
Jasc Stockholders will, or will cause the Corporation to, reimburse Corel
and the Merger Subsidiary for their reasonable and documented out-of-pocket
expenses related to investigating and consummating the Transaction
(including the negotiating and drafting of this Agreement), including the
fees and expenses of professional advisors (but excluding investment
banking fees), up to a maximum of $250,000; provided that Corel and the
Merger Subsidiary will only be entitled to those reimbursed expenses if the
Corporation and/or the Jasc Stockholders have, prior to July 7, 2005,
entered into a written agreement with respect to an alternate transaction
that would result in a change of control of the Corporation, in which
event, the reimbursement will be due and payable upon entering into that
written agreement to the alternate transaction.
8.3.4 If, following the Closing Date, Corel and/or the Jasc Stockholders
receive notice that a Stockholder Expense was not satisfied in full prior
to the Effective Time pursuant to section 5.11, the party receiving that
notice shall inform the other party of the deficiency within 3 Business
Days of receipt. Within 5 Business Days of delivery of the notice, to the
extent not otherwise addressed in section 5.11, the Jasc Stockholders will
pay to Corel the amount by which the applicable Stockholder Expense was not
satisfied prior to the Effective Time (the "STOCKHOLDER EXPENSE ADJUSTMENT
AMOUNT"). Each of the Jasc Stockholders will pay to Corel cash equal to a
pro rata portion of the Stockholder Expense Adjustment Amount based upon
the Jasc Stockholder's Ownership Percentage. If the entire Stockholder
Expense Adjustment Amount is not paid by the Jasc Stockholders within the 5
Business Day period, the unpaid balance of the Stockholder Expense
Adjustment Amount will be satisfied by a cash payment from the Escrow Fund
and each Jasc Stockholder that did not make its required payment during the
5 Business Day period will make a cash payment to the Escrow Fund equal to
that Jasc Stockholder's pro rata share of the Stockholder Expense
Adjustment Amount (based upon the Jasc Stockholder's Ownership Percentage),
all in accordance with the terms of the Escrow Agreement. Notwithstanding
the foregoing, the Jasc Stockholders will have no obligation to satisfy any
Stockholder Expense Adjustment Amount to the extent that Stockholder
Expense Adjustment Amount has been included in the Closing Working Capital
Amount such that the Closing Balance Sheet or the related working papers
specifically identifies that particular accrual as relating to the
particular Stockholder Expense Adjustment Amount. Any dispute under this
section 8.3.4 shall be handled in accordance with the dispute resolution
procedures described in section 2.11.
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8.4 ASSIGNMENT
Except as provided in this section, no party may assign its rights or
benefits under this Agreement. The Merger Subsidiary may, at any time prior to
the Time of Closing:
8.4.1 assign all (but not less than all) of its rights and benefits under
this Agreement to any Affiliate of the Merger Subsidiary who delivers to
the Jasc Stockholders an instrument in writing executed by the assignee
confirming that it is bound by and will perform all of the obligations of
the Merger Subsidiary under this Agreement as if it were an original
signatory; and
8.4.2 assign, and each of Corel and/or Holdings may assign, all or a
portion of its rights and benefits under this Agreement by way of security
to any Person who provides financing to the Merger Subsidiary or its
Affiliates;
provided that no assignment contemplated above will relieve the Merger
Subsidiary, Corel or Holdings, as the case may be, of its obligations under this
Agreement. In the event of an assignment contemplated above pursuant to section
8.4.1, any reference in this Agreement to "Merger Subsidiary" will be deemed to
include the assignee.
After the Closing, each of Corel and/or the Surviving Corporation may
assign its rights and benefits under this Agreement to any Person who purchases
all or substantially all of the shares of the Merger Subsidiary or all or
substantially all of the assets of the Surviving Corporation.
The provisions of this Agreement will be binding upon and inure to the
benefit of the parties to this Agreement and their respective heirs,
representatives, successors and assigns.
8.5 NOTICES
Any notice or other communication required or permitted to be given
under this Agreement will be in writing and will be given by prepaid mail, by
facsimile, e-mail or other means of electronic communication or by hand-delivery
as provided below. Any such notice or other communication, if mailed by prepaid
mail at any time other than during a general discontinuance of postal service
due to strike, lockout or otherwise, will be deemed to have been received on the
fourth Business Day after its post marked date, or if sent by facsimile, e-mail
or other means of electronic communication, will be deemed to have been received
on the earlier of the Business Day following the sending or the acknowledgement
of receipt by the recipient, or if delivered by hand will be deemed to have been
received at the time it is delivered to the applicable address noted below
either to the individual designated below or to an individual at that address
having apparent authority to accept deliveries on behalf of the addressee.
Notice of change of address will also be governed by this section. In the event
of a general discontinuance of postal service due to strike, lock-out or
otherwise, notices or other communications will be delivered by hand or sent by
facsimile, e-mail or other means of electronic communication and will be deemed
to have been received in accordance with this section. Notices and other
communications will be addressed as follows:
(a) if to the Corporation or the Jasc Stockholders:
c/o the Stockholder Representative, Robert V. Voit
18422 Bearpath Trail
Eden Prairie, Minnesota 55347
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Attention: Robert V. Voit
E-mail: bobvoit@yahoo.com
with a copy to the Jasc Counsel at:
Faegre & Benson LLP
2200 Wells Fargo Center
90 South Seventh Street
Minneapolis, Minnesota 55402
Attention: Kris Sharpe
Telecopier number: (612) 766-1600
E-mail: ksharpe@faegre.com
(b) if to the Merger Subsidiary or Corel at:
Corel Corporation (if in respect of the Merger Subsidiary, "c/o Corel
Corporation")
1600 CarlingAve.
Ottawa, Ontario K1Z 8R7
Canada
Attention: Chris DiFrancesco, Vice President, Legal & General
Counsel
Telecopier Number: (613)725-2691
E-mail: christopher.difrancesco@corel.com
with a copy to the Merger Subsidiary's Counsel at:
Torys LLP
237 Park Avenue
New York, New York 10017
Attention: Darren Sukonick
Telecopier number: (212)682-0200
E-mail: dsukonick@torys.com
The failure to send or deliver a copy of a notice to the Merger
Subsidiary's Counsel or Jasc Counsel, as the case may be, will not invalidate
any notice given under this section.
8.6 TIME OF ESSENCE
Time is of the essence of this Agreement.
8.7 CONSENT TO JURISDICTION
The parties hereby consent to the non-exclusive jurisdiction of the
United States Court for the Southern District of New York in connection with any
civil action concerning any controversy, dispute or claim arising out of or
relating to this Agreement or any Related Agreement, or the breach of
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this Agreement or any Related Agreement unless that court would not have subject
matter jurisdiction thereof, in which event the parties hereby consent to the
non-exclusive jurisdiction of the Supreme Court of the State of New York, County
of New York, and each party further agrees that the service of process or of any
other papers upon them or any of them by registered or certified mail at their
respective addresses set out in section 8.5 will be deemed good, proper and
effective service upon them.
8.8 WAIVER OF JURY TRIAL
EACH OF THE PARTIES WAIVES TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW ANY RIGHT IT MAY HAVE TO TRIAL BY JURY IN RESPECT OF ANY CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION BASED ON, OR ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING,
VERBAL OR WRITTEN STATEMENT OR ACTION OF ANY PARTY, IN EACH CASE WHETHER NOW
EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR
OTHERWISE. EACH OF THE PARTIES HEREBY AGREES THAT ANY SUCH CLAIM, DEMAND, ACTION
OR CAUSE OF ACTION WILL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT THE
PARTIES MAY FILE A COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY COURT AS
EVIDENCE OF THE CONSENT OF THE PARTIES TO THE WAIVER OF THEIR RIGHT TO TRIAL BY
JURY.
8.9 NO THIRD-PARTY BENEFICIARIES
This Agreement will be binding upon and inure solely to the benefit of
the parties and their permitted assigns and nothing in this Agreement, whether
express or implied, is intended to or will confer upon any other Person any
legal or equitable right, benefit or remedy of any nature whatsoever under or by
reason of this Agreement.
8.10 FURTHER ASSURANCES
Each of the parties will promptly do, make, execute, deliver, or cause
to be done, made, executed or delivered, all further acts, documents and things
as the other party to this Agreement may reasonably require from time to time
for the purpose of giving effect to this Agreement and will use reasonable
efforts and take all steps as may be reasonably within its power to implement to
their full extent the provisions of this Agreement.
8.11 COUNTERPARTS
This Agreement may be signed in counterparts and each counterpart will
constitute an original document and those counterparts, taken together, will
constitute one and the same instrument. Counterparts may be delivered by
facsimile, e-mail or other means of electronic communication.
IN WITNESS WHEREOF the parties to this Agreement have executed this
Agreement as of the date first written above.
JASC SOFTWARE, INC.
By: /s/ Robert V. Voit
------------------------------------
Name: Robert V. Voit
Title: Chairman
COREL JS ACQUISITION, INC.
By: /s/ Christopher Nicholson
------------------------------------
Name: Christopher Nicholson
Title: Authorized Signatory
COREL CORPORATION
By: /s/ Christopher Nicholson
------------------------------------
Name: Christopher Nicholson
Title: Authorized Signatory
COREL HOLDINGS CORPORATION
By: /s/ Christopher Nicholson
------------------------------------
Name: Christopher Nicholson
Title: Authorized Signatory
WITNESS ROBERT V. VOIT
/s/ JENNIFER KEELER /s/ ROBERT V. VOIT
- ------------------------------------- ----------------------------------------
BY: JENNIFER KEELER
[Signature page to the Agreement and Plan of Merger]
WITNESS JONATHAN C. ORT
/s/ JENNIFER KEELER /s/ JONATHAN C. ORT
- ------------------------------------- ----------------------------------------
BY: JENNIFER KEELER
WITNESS KRIS TUFTO
/s/ JENNIFER KEELER /s/ KRIS TUFTO
- ------------------------------------- ----------------------------------------
BY: JENNIFER KEELER
[Signature page to the Agreement and Plan of Merger]
JASC STOCKHOLDER SIGNATURE PAGE
This signature page is executed pursuant to the Agreement and Plan of
Merger among Corel Corporation, Corel JS Acquisition, Inc., Jasc Software, Inc.
and the Principal Stockholders dated as of October 25, 2004 (the "AGREEMENT").
All capitalized terms used in this signature page have the meanings given to
them in the Agreement. The undersigned Jasc Stockholder represents and warrants
to the Merger Subsidiary and Corel as follows and acknowledges that the Merger
Subsidiary and Corel are relying upon the following representations and
warranties in connection with the Transaction:
1.1 COREL COMMON SHARES. With respect to the Corel Common Stock, the Jasc
Stockholder:
1.1.1 understands that those shares have not been and will not be
registered under the Securities Act, and that the issuance of those shares is
being made in reliance on a private placement exemption;
1.1.2 is acquiring those shares for its own account;
1.1.3 acknowledges those shares are not freely transferable;
1.1.4 has had the opportunity to ask all questions and to obtain all other
information from the Merger Subsidiary and Corel as it has deemed necessary in
connection with its decision to acquire those shares; and
1.1.5 acknowledges that it is not acquiring those shares as a result of any
"general solicitation" or "general advertising," as those terms are used in
Regulation D under the Securities Act.
1.2 NO FOREIGN PERSON. The Jasc Stockholder that is acquiring shares forming
part of the Total Equity Consideration is not a foreign person within the
meaning of Section 1445(f)(3) of the Code.
1.3 INCORPORATION AND STATUS OF THE JASC STOCKHOLDER. If an Entity, the Jasc
Stockholder is duly formed and validly existing under the laws of its
jurisdiction of formation.
1.4 POWER OF THE JASC STOCKHOLDER AND DUE AUTHORIZATION. If an Entity, the Jasc
Stockholder has all necessary power and capacity to enter into, and to perform
its obligations under, this Agreement. Each of this Agreement and each of the
Related Agreements to which the Jasc Stockholder is a party has been duly
authorized by the Jasc Stockholder. This Agreement has been duly executed and
delivered by the Jasc Stockholder and is a valid and binding obligation of the
Jasc Stockholder, enforceable in accordance with its terms, subject to the usual
exceptions as to bankruptcy and the availability of equitable remedies. At the
Time of Closing, each of the Related Agreements to which the Jasc Stockholder is
a party will be duly executed and delivered by the Jasc Stockholder and will be
valid and binding obligations of the Jasc Stockholder, enforceable in accordance
with their respective terms, subject to the usual exceptions as to bankruptcy
and the availability of equitable remedies, provided that (i) no representation
as to enforceability is made with respect to the agreements described in section
4.1.6 of the Agreement, and (ii) the enforceability of the indemnification
provisions contained in Schedule B to the Corel Minority Shareholders' Agreement
may be limited by applicable federal or state securities laws.
1.5 TITLE TO, AND RIGHT TO SELL, PURCHASED SHARES. The Jasc Stockholder is the
sole registered and beneficial owner of those Jasc Shares set out opposite the
Jasc Stockholder's name on Schedule 3.1.3 with good and marketable title to
those Jasc Shares, free of all Charges. There are no subscriptions, warrants,
options, calls, or other rights or Contracts to which the Corporation or any
Jasc Stockholder is subject to or bound which in any way limit or restrict the
consummation of the Transaction (specifically in respect of that Jasc
Stockholder's Jasc Shares) and there are no shareholders agreements, pooling
agreements, voting trusts or other Contracts with respect to the voting of the
Jasc Shares other than as set out in Schedule 3.1.3. At or prior to the Time of
Closing, those agreements and restrictions will have been complied with or
terminated (and evidence in form and substance satisfactory to the Merger
Subsidiary to that effect will have been provided to the Merger Subsidiary).
1.6 NO CONTRAVENTION BY JASC STOCKHOLDERS. None of the entering into of this
Agreement or any Related Agreement, the consummation of the Transaction or the
performance by the Jasc Stockholder of that Jasc Stockholder's other obligations
under this Agreement or any Related Agreement to which it is a party (a) will
contravene, breach or result in any default under (1) if the Jasc Stockholder is
an Entity, the certificate of incorporation, by-laws, constating documents or
other organizational documents of that Jasc Stockholder, (2) any license,
permit, order, judgment, decree or Law to which the Jasc Stockholder is a party
or by which it may be bound or (b) contravenes, breaches or results in any
default under, or conflicts with or will conflict with or results in or will
result in any modification of any of the terms of or results in or will result
in the termination of or the creation of any Charge, acceleration right or other
right pursuant to the terms of any Contract to which the Jasc Stockholder is a
party or by which it may be bound or will in any way affect the continuation,
validity or effectiveness of any such Contract.
1.7 APPOINTMENT OF STOCKHOLDER REPRESENTATIVE. Each Jasc Stockholder designates
and appoints Robert V. Voit as the Stockholder Representative under this
Agreement and authorizes the Stockholder Representative to take such actions on
behalf of such Jasc Stockholder under this Agreement, including, but not limited
to, accepting notices, reviewing information provided to the Stockholder
Representative and executing the certificate required in section 4.1.1 on behalf
of each Jasc Stockholder, together with all such powers as are reasonably
incidental thereto. The Stockholder Representative may consult with legal
counsel, independent public accountants and other experts selected by it and
shall not be liable for any action taken, or omitted to be taken, by it in good
faith in accordance with the advice of such counsel, accountants or experts. The
Stockholder Representative shall not be liable for actions he takes or fails to
take in the absence of his own gross negligence or willful misconduct.
1.8 The undersigned Jasc Stockholder acknowledges that:
1.8.1 the Jasc Stockholder has received a copy of the Agreement and each of
the Related Agreements to which it is or will be a party (the "TRANSACTION
AGREEMENTS");
1.8.2 the Jasc Stockholder has had sufficient time to review and consider
the Transaction Agreements and the transactions contemplated by the Transaction
Agreements thoroughly;
1.8.3 the Jasc Stockholder has read and understands the terms of the
Transaction Agreements and the Jasc Stockholder 's obligations under the
Transaction Agreements;
1.8.4 the Jasc Stockholder has been given an opportunity to obtain
independent legal advice, or other advice as the Jasc Stockholder may desire,
concerning the interpretation and effect of the Transaction Agreements and the
transactions contemplated by the Transaction Agreements, and by signing this
Jasc Stockholder Signature Page the Jasc Stockholder has either obtained advice
or voluntarily waived the Jasc Stockholder's opportunity to receive that advice;
1.8.5 the Agreement is entered into voluntarily by the Jasc Stockholder;
and
1.8.6 the Jasc Stockholder is a "Jasc Stockholder" for all purposes of the
Agreement and is bound by and subject to all rights and obligations of Jasc
Stockholders under the Agreement.
/s/ Jennifer Keeler /s/ Laura J. Voit
- ------------------------------------ -----------------------------------------
Signature of Witness Signature of Jasc Stockholder or
Authorized Signatory
Jennifer Keeler Laura J. Voit
Name of Witness Name of Jasc Stockholder
(please print or type) (please print or type)
7905 Fuller Road, Eden Prairie,
MN 55344 -----------------------------------------
Address of Witness Name and Title of Authorized Signatory
(please print or type) (if the Jasc Stockholder is not an
individual)
1.8.6 the Jasc Stockholder is a "Jasc Stockholder" for all purposes of the
Agreement and is bound by and subject to all rights and obligations of Jasc
Stockholders under the Agreement.
/s/ Jennifer Keeler /s/ Robert V. Voit GRANTOR
- ------------------------------------ -----------------------------------------
Signature of Witness Signature of Jasc Stockholder or
Authorized Signatory
Jennifer Keeler Robert V. Voit GRAT
Name of Witness Name of Jasc Stockholder
(please print or type) (please print or type)
7905 Fuller Rd, Eden Prairie,
MN 55344 GRANTOR
Address of Witness Name and Title of Authorized Signatory
(please print or type) (if the Jasc Stockholder is not an
individual)
1.8.6 the Jasc Stockholder is a "Jasc Stockholder" for all purposes of the
Agreement and is bound by and subject to all rights and obligations of Jasc
Stockholders under the Agreement.
/s/ Jennifer Keeler /s/ Joseph J Fromn
- ------------------------------------ -----------------------------------------
Signature of Witness Signature of Jasc Stockholder or
Authorized Signatory
Jennifer Keeler Joseph J Fromn
Name of Witness Name of Jasc Stockholder
(please print or type) (please print or type)
7905 Fuller Rd, Eden Prairie,
MN 55344 -----------------------------------------
Address of Witness Name and Title of Authorized Signatory
(please print or type) (if the Jasc Stockholder is not an
individual)
1.8.6 the Jasc Stockholder is a "Jasc Stockholder" for all purposes of the
Agreement and is bound by and subject to all rights and obligations of Jasc
Stockholders under the Agreement.
/s/ Jennifer Keeler /s/ Susan K. Dub
- ------------------------------------ -----------------------------------------
Signature of Witness Signature of Jasc Stockholder or
Authorized Signatory
Jennifer Keeler Susan K. Dub
Name of Witness Name of Jasc Stockholder
(please print or type) (please print or type)
7905 Fuller Rd, Eden Prairie,
MN 55344 -----------------------------------------
Address of Witness Name and Title of Authorized Signatory
(please print or type) (if the Jasc Stockholder is not an
individual)
1.8.6 the Jasc Stockholder is a "Jasc Stockholder" for all purposes of the
Agreement and is bound by and subject to all rights and obligations of Jasc
Stockholders under the Agreement.
/s/ Jennifer Keeler /s/ Harold A. Fagley
- ------------------------------------ -----------------------------------------
Signature of Witness Signature of Jasc Stockholder or
Authorized Signatory
Jennifer Keeler HAROLD A. FAGLEY
Name of Witness Name of Jasc Stockholder
(please print or type) (please print or type)
7905 Fuller Rd, Eden Prairie,
MN 55344 -----------------------------------------
Address of Witness Name and Title of Authorized Signatory
(please print or type) (if the Jasc Stockholder is not an
individual)
EXHIBIT A
See Tab 8
EXHIBIT B
September __, 2004
[NAME]
[ADDRESS]
[CITY, STATE, ZIP]
Re: Consent to Jasc/Corel Transaction
Ladies and Gentlemen:
We are writing to give notice, and to the extent it is required to obtain your
consent, in connection with the [agreement title] (the "Agreement) between you
and Jasc Software, Inc. ("Jasc").
THE TRANSACTIONS - Jasc and Corel Corporation ("Corel") are proposing to enter
into a transaction that provides for (1) the transfer of certain of Jasc's
assets to Corel or a wholly owned subsidiary of Corel and (2) the merger of a
wholly owned subsidiary of Corel into Jasc, which will result in Jasc becoming a
wholly owned subsidiary of Corel. Following the merger, Corel may desire to
transfer the Agreement to another one of its wholly owned subsidiaries (a "Corel
Transfer") and/or assign all or a portion of its rights and benefits under the
Agreement as security to any person who provides financing to Corel or its
subsidiaries.
On completion of the transaction and subject to receiving any necessary consent,
either Corel or a wholly owned subsidiary of Corel (the "Resulting
Counterparty") will be entitled to receive all the benefits and be obligated to
pay amounts payable and discharge all other obligations and liabilities under
the Agreement. You will be entitled to enforce the Agreement directly against
the Resulting Counterparty, in respect of its obligations and liabilities under
the Agreement, as if that entity had executed and delivered the Agreement
instead of Jasc (as it existed prior to the merger).
YOUR CONSENT- To the extent that the Agreement (1) entitles you to terminate;
(2) requires you to receive notice of the transactions; and/or (3) requires your
prior written consent to the transactions, we request that you:
- acknowledge receiving notice of the transactions;
- waive any rights to terminate the Agreement upon a change of
control and/or a Corel Transfer; and
- consent to the transactions (including a Corel Transfer and/or
grant of security interests).
PLEASE INDICATE YOUR CONSENT, AND YOUR ACKNOWLEDGEMENT THAT THE AGREEMENT WILL
CONTINUE IN FULL FORCE AND EFFECT FOLLOWING THE TRANSACTIONS DESCRIBED ABOVE, BY
SIGNING BELOW ON THE ENCLOSED COPY OF THIS LETTER AND RETURNING THE SAME TO THE
UNDERSIGNED BY FAXING IT TO JENNIFER KEELER, CORPORATE COUNSEL AT JASC AT FAX
NUMBER (952) 937-1664 NO LATER THAN _____________, SEPTEMBER ______, 2004.
Jasc has always valued its business relationship with you. Corel, in becoming
Jasc's new owner, wishes to continue this important relationship in the future.
Thank you for your help with this matter. If you have any questions, please call
the undersigned at (952) 294-[2355].
Very truly yours,
[Kris Tufto]
[President and Chief Executive Officer]
Corel, and any wholly owned subsidiary of Corel that may be a party to the
Agreement, agrees to continue to be bound by the Agreement.
Date: September __, 2004 [COREL CORPORATION]
[Name]
[Title]
The undersigned hereby consents to the transactions described above.
Date: September __, 2004 [__________________________]
By
-------------------------------------
Name
-----------------------------------
Its
------------------------------------
SCHEDULE 1.1.11
FINANCIAL STATEMENTS
Jasc Software, Inc.
Years Ended December 31, 2003 and 2002
Jasc Software, Inc.
Financial Statements
Years Ended December 31, 2003 and 2002
CONTENTS
Report of Independent Auditors.............................................. 1
Financial Statements
Balance Sheets.............................................................. 2
Statements of Income........................................................ 4
Statement of Changes in Stockholders' Equity................................ 5
Statements of Cash Flows.................................................... 6
Notes to Financial Statements............................................... 7
(ERNST & YOUNG LOGO) - ERNST & YOUNG LLP - Phone:(612)343-1000
220 South Sixth Street, Ste 1400 www.ey.com
Minneapolis, MN 55402-4509
Report of Independent Auditors
The Board of Directors
Jasc Software, Inc.
We have audited the accompanying balance sheets of Jasc Software, Inc. as of
December 31, 2003 and 2002, and the related statements of income, changes in
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Jasc Software, Inc. as of
December 31, 2003 and 2002, and the results of its operations and its cash flows
for the years then ended, in conformity with accounting principles generally
accepted in the United States.
/s/ Ernst & Young LLP
January 30, 2004
A Member Practice of Ernst & Young Global
1
Jasc Software, Inc.
Balance Sheets
DECEMBER 31
-------------------------
2003 2002
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 867,667 $ 802,375
Accounts receivable (less allowances for uncollectible
accounts and product returns totaling $2,033,000 in
2003 and $613,000 in 2002) 7,935,331 7,055,901
Note receivable 60,000 --
Inventories 1,161,846 460,392
Prepaid expenses 1,139,067 335,234
----------- -----------
Total current assets 11,163,911 8,653,902
Property and equipment:
Equipment and software 3,545,408 3,218,391
Leasehold improvements 236,019 236,019
----------- -----------
3,781,427 3,454,410
Less accumulated depreciation and amortization (3,046,287) (2,581,881)
----------- -----------
735,140 872,529
Restricted cash -- 30,000
Deposits 43,324 55,113
Other assets, net 52,150 73,009
Acquired technology, net 588,547 663,042
----------- -----------
Total assets $12,583,072 $10,347,595
=========== ===========
2
DECEMBER 31
-------------------------
2003 2002
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,359,889 $ 802,949
Accrued compensation and withholdings 1,054,531 619,390
Accrued profit sharing -- 257,159
Accrued distributor discounts 812,759 538,892
Accrued royalties 574,608 466,082
Accrued rebates 784,039 514,451
Other accrued liabilities 576,804 832,426
Customer deposits 100,666 225,895
Current portion of capital lease obligation 2,500 --
----------- -----------
Total current liabilities 6,265,796 4,257,244
Capital lease obligation, less current portion 4,146 --
Stockholders' equity:
Preferred stock, $0.01 par value:
Authorized shares - 5,000,000
Issued and outstanding - none -- --
Common stock, $0.01 par value:
Authorized shares - 10,000,000
Issued and outstanding shares - 4,405,000 44,050 44,050
Additional paid-in capital 1,511,700 1,511,700
Retained earnings 4,757,380 4,534,601
----------- -----------
Total stockholders' equity 6,313,130 6,090,351
----------- -----------
Total liabilities and stockholders' equity $12,583,072 $10,347,595
=========== ===========
See accompanying notes.
3
Jasc Software, Inc.
Statements of Income
YEAR ENDED DECEMBER 31
-------------------------
2003 2002
----------- -----------
Net sales $32,841,317 $27,292,756
Cost of goods sold 6,736,000 5,076,938
----------- -----------
Gross profit 26,105,317 22,215,818
Operating expenses:
General and administrative 5,078,809 4,282,741
Marketing and selling 10,497,309 8,203,931
Product development 6,797,173 7,501,652
Profit sharing compensation 727,584 777,525
----------- -----------
23,100,875 20,765,849
----------- -----------
Income from operations 3,004,442 1,449,969
Interest expense (755) (36,716)
Interest income 12,240 3,514
Other (expense) income (34,804) 84,329
Foreign currency gain 389,623 350,218
----------- -----------
366,304 401,345
----------- -----------
Net income $ 3,370,746 $ 1,851,314
=========== ===========
See accompanying notes.
4
Jasc Software, Inc.
Statement of Changes in Stockholders' Equity
COMMON STOCK ADDITIONAL
------------------- PAID-IN RETAINED
SHARES AMOUNTS CAPITAL EARNINGS TOTAL
--------- ------- ---------- ----------- -----------
Balance, December 31, 2001 4,405,000 $44,050 $1,511,700 $ 4,284,778 $ 5,840,528
Distribution to stockholders -- -- -- (1,601,491) (1,601,491)
Net income -- -- -- 1,851,314 1,851,314
--------- ------- ---------- ----------- -----------
Balance, December 31, 2002 4,405,000 44,050 1,511,700 4,534,601 6,090,351
Distribution to stockholders -- -- -- (3,147,967) (3,147,967)
Net income -- -- -- 3,370,746 3,370,746
--------- ------- ---------- ----------- -----------
Balance, December 31, 2003 4,405,000 $44,050 $1,511,700 $ 4,757,380 $ 6,313,130
========= ======= ========== =========== ===========
See accompanying notes.
5
Jasc Software, Inc.
Statements of Cash Flows
YEAR ENDED DECEMBER 31
-------------------------
2003 2002
----------- -----------
OPERATING ACTIVITIES
Net income $ 3,370,746 $ 1,851,314
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 655,443 888,125
Loss (gain) on sale of property and equipment 351 (388)
Changes in operating assets and liabilities:
Accounts receivable (939,430) (2,049,782)
Inventories (701,454) 133,058
Prepaid expenses (803,833) (204,602)
Restricted cash 30,000 30,000
Deposits 11,789 43,099
Accounts payable 1,556,940 145,378
Accrued liabilities 574,341 1,547,278
Customer deposits (125,229) 68,350
----------- -----------
Net cash provided by operating activities 3,629,664 2,451,830
INVESTING ACTIVITIES
Purchases of property and equipment (324,631) (181,192)
Acquisition of technology (90,000) (52,821)
Proceeds from sale of property and equipment 100 --
----------- -----------
Net cash used in investing activities (414,531) (234,013)
FINANCING ACTIVITIES
Net payments under line of credit -- (670,702)
Distributions to stockholders (3,147,967) (1,601,491)
Payments on obligation under capital lease (1,874) (189,243)
----------- -----------
Net cash used in financing activities (3,149,841) (2,461,436)
----------- -----------
Net increase (decrease) in cash 65,292 (243,619)
Cash and cash equivalents at beginning of year 802,375 1,045,994
----------- -----------
Cash and cash equivalents at end of year $ 867,667 $ 802,375
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for interest $ 755 $ 36,716
=========== ===========
Property and equipment acquired through capital
lease obligation $ 8,520 $ --
=========== ===========
See accompanying notes.
6
Jasc Software, Inc.
Notes to Financial Statements
December 31, 2003
1. BUSINESS ACTIVITY
Jasc Software, Inc. (the Company) designs, develops, markets, and sells
general-use computer software throughout the world.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
The Company accounts for the licensing of software in accordance with American
Institute of Certified Public Accountants Statement of Position 97-2, Software
Revenue Recognition, as amended. The Company recognizes revenue when (i)
persuasive evidence of an arrangement exists; (ii) delivery has occurred or
services have been rendered; (iii) the sales prices is fixed or determinable;
and (iv) collectibility is reasonably assured. The Company recognizes revenue
upon shipment of its product in the United States from its distributors to
retailers and upon shipment to master representatives, internationally.
The Company has several retailers in the United States which operate on a
consignment basis, where revenue is recognized at the time the retailer sells
the Company's product to the end customer. The Company has two international
master representatives with whom it does business on a royalty basis, in which
profits are shared and recognized as royalty revenue at the time the master
representative sells the Company's product to the end customer. Royalty revenue
of $3,890,368 and $3,368,593 is included in net sales in 2003 and 2002,
respectively.
The Company offers product right of return terms to certain customers. This
right of return is accounted for in accordance with Financial Accounting
Standards Board Statement of Financial Accounting Standards (SFAS) No. 48,
Revenue Recognition When Right of Return Exists, with returns estimated based on
historical activity and reflected as a reduction of revenues.
SHIPPING AND HANDLING COSTS
The Company classifies costs incurred for shipping in costs of goods sold. Any
shipping costs billed to customers are included in revenue.
7
Jasc Software, Inc.
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
The Company considers all investments with an original maturity of 90 days or
less when purchased to be cash equivalents. The carrying cost of cash
equivalents at December 31, 2003 and 2002, approximates fair value.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined on a
first-in, first-out basis. Inventories consist of materials and finished goods.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are recorded at cost and depreciated using
the straight-line method over three to seven years. The Company leases equipment
under capital leases. Amortization of these leased assets is included in
depreciation expense.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates its long-lived assets for impairment losses when
indicators of impairment are present by comparing the undiscounted cash flows to
the assets' carrying amount. An impairment loss is recorded if necessary.
STOCK-BASED COMPENSATION
At December 31, 2003, the Company has A stock-based employee compensation plan
which is described more fully in Note 8. The Company accounts for this plan
under the recognition and measurement principles of Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. No stock-based employee compensation cost is reflected in net
income for 2003 and 2002, as all options granted under those plans had an
exercise price equal to the market value of the underlying common stock on the
date of grant. The following table illustrates the effect on net income if the
Company had applied the fair value recognition provisions of
8
Jasc Software, Inc.
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SFAS No. 123, Accounting for Stock-Based Compensation, to stock-based employee
compensation.
2003 2002
---------- ----------
Net income, as reported $3,370,746 $1,851,314
Deduct: total stock-based employee compensation
expense determined under fair-value-based
method for all awards (139,188) (74,623)
---------- ----------
Pro forma net income $3,231,558 $1,776,691
========== ==========
The fair value of these options was estimated at the date of grant using the
minimum value option pricing model. The minimum value option pricing model is
used by nonpublic companies and excludes stock price volatility of the stock in
the calculation of fair value of the option. The following assumptions were used
for options granted in 2003: risk-free interest rate of 4.06%; dividend yield of
0%; and an expected life of the option of ten years. The fair value of options
granted in 2003 and 2002 was $0.66 and $1.26 per share, respectively.
ADVERTISING
Advertising costs are expensed as incurred and totaled $2,217,687 and $1,418,174
in 2003 and 2002, respectively, and are included as marketing and selling
expense in the statements of income.
PRODUCT DEVELOPMENT
Product development expenditures are charged to operations as incurred. SFAS No.
86, Accounting for the Costs of Computer Software to Be Sold, Leased, or
Otherwise Marketed, requires capitalization of certain software development
costs subsequent to the establishment of technological feasibility and until the
product is generally available for sale. Costs incurred by the Company during
this phase have been immaterial. Therefore, the Company has not capitalized any
software development costs through December 31, 2003.
9
Jasc Software, Inc.
Notes to Financial Statements (continued)
2. SUMMARY of SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
OTHER ASSETS
Other assets include patent costs that are being amortized over five years. The
accumulated amortization as of December 31, 2003 and 2002, was $52,150 and
$31,290, respectively.
ACQUIRED TECHNOLOGY
In 2003 and 2002, the Company acquired the technology of certain products. The
cost is being amortized over five years. The accumulated amortization as of
December 31, 2003 and 2002, was $312,277 and $147,782, respectively.
INCOME TAXES
The Company has elected to be taxed under the provisions of Subchapter S of the
Internal Revenue Code. Under those provisions, the stockholders of an S
corporation are taxed on their proportionate share of the Company's taxable
income. As a result, no provision for federal taxes has been included in the
financial statements.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
RECLASSIFICATION
A certain prior year amount has been reclassified to conform to the current year
financial statement presentation.
10
Jasc Software, Inc.
Notes to Financial Statements (continued)
3. COMMITMENTS
ROYALTIES
The Company has entered into various licensing agreements requiring royalty
payments ranging from 0.65% to 50% of specified product sales. During 2003 and
2002, the Company recorded royalty expense of $1,771,700 and $1,389,814,
respectively, which is included in costs of goods sold in the statements of
income.
LEASES
The Company leases its office and warehouse space under a noncancelable
operating lease agreement. The current operating lease is effective until
December 31, 2008. Minimum future lease obligations under this lease, excluding
operating costs, are as follows for the years ending December 31:
2004 $ 415,654
2005 423,819
2006 432,726
2007 440,891
2008 449,797
----------
$2,162,887
==========
The Company is required to maintain a letter of credit to secure its operating
lease. The amount required at December 31, 2003 and 2002, was $30,000. The
Company has a certificate of deposit on hand at a bank for this letter of
credit. This amount has been reported as restricted cash in the balance sheet in
2002 and as cash and cash equivalents in 2003 as it becomes unrestricted in
January 2004.
Rent expense for the years ended December 31, 2003 and 2002, was $1,002,198 and
$979,648, respectively.
4. FINANCING AGREEMENTS
The Company has a line of credit agreement totaling $3,000,000 available for
borrowings at prime (4.00% at December 31, 2003) through September 15, 2004.
Borrowings under the agreement are secured by essentially all assets. The
agreement contains certain restrictive covenants. The Company was in compliance
with the covenants at December 31, 2003.
11
Jasc Software, Inc.
Notes to Financial Statements (continued)
5.401 (K) PIAN
The Company has a qualified 401(k) plan covering all employees meeting the
eligibility requirements. The Company made matching contributions of $346,874
and $455,158 for the years ended December 31, 2003 and 2002, respectively.
6. PROFIT SHARING PLAN
The Company has a nonqualified profit sharing plan covering all employees
meeting eligibility requirements. A fixed percentage of the Company's operating
income is paid out each quarter in the form of taxable distributions. Total
expenses under the plan during 2003 and 2002 were $727,584 and $777,525,
respectively.
7. SIGNIFICANT CONCENTRATIONS
One customer accounted for 16% of revenue for the year ended December 31, 2003.
Two customers accounted for 11% and 10% of revenue for the year ended December
31, 2002.
8. STOCK OPTIONS
The Company has a 1997 Omnibus Stock Plan (the Plan), pursuant to which
1,025,000 shares of common stock are reserved for issuance of incentive or
nonqualified stock options to employees, directors, and consultants. The number
of shares, exercise price, and option term are to be determined by a committee
designated by the Board of Directors. The options generally vest over five years
and expire in ten years.
Stock option activity is summarized as follows:
WEIGHTED
AVERAGE
OPTIONS OPTION PRICE
OUTSTANDING PER SHARE
----------- ------------
Balance at December 31, 2001 476,358 $3.76
Granted 60,000 3.75
Canceled (136,566) 3.75
--------
Balance at December 31, 2002 399,792 3.76
Granted 20,000 3.75
Canceled (1,652) 3.75
--------
Balance at December 31, 2003 418,140 3.76
========
12
Jasc Software, Inc.
Notes to Financial Statements (continued)
8. STOCK OPTIONS (CONTINUED)
The options outstanding at December 31, 2003 expire at various dates through
2013 and have a weighted average contractual life remaining of 5.55 years. The
exercise price of the outstanding options range from $3.75 to $3.90 per share.
The number of options exercisable as of December 31, 2003 and 2002, was 318,381
and 245,441, respectively, at a weighted average exercise price of $3.76 per
share.
13
SCHEDULE 1.1.29
COREL CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2003
AUDITOR'S REPORT
We have audited the consolidated balance sheet of Corel Corporation as at
November 30, 2003 and the related consolidated statements of operations,
shareholders' equity and cash flows for the period from December 1, 2002 through
August 28, 2003, and for the period from August 29, 2003 through November 30,
2003. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at November 30,
2003, and the results of its operations and its cash flows for the period from
December 1, 2002 through August 28, 2003, and for the period from August 29,
2003 through November 30, 2003, in accordance with generally accepted accounting
principles in Canada.
PricewaterhouseCoopers LLP Ottawa, Canada
Chartered Accountants January 27, 2004
CONSOLIDATED BALANCE SHEETS
(in thousands of US$)
Audited Unaudited Audited
NOVEMBER 30, AUGUST 29, NOVEMBER 30,
2003 2003 2002
Successor Successor Predecessor
------------ ----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 18,495 $ 14,222 $ 18,874
Restricted cash 1,830 1,867 1,558
Short-term investments 5,993 8,972 56,952
Accounts receivable
Trade 12,583 18,075 19,958
Other 104 791 250
Inventory 313 163 191
Prepaid expenses 1,244 3,857 2,786
--------- --------- ---------
Total current assets 40,562 47,947 100,569
Investments 8,590
Capital assets 4,899 5,536 7,944
Intangible assets 46,515 50,937 13,824
Goodwill 8,480 8,480
Deferred financing charge 528 552
--------- --------- ---------
Total assets $ 100,984 $ 113,452 $ 130,927
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 21,383 $ 21,661 $ 22,552
Operating line of credit 3,000
Current portion of term loan payable 2,619 1,904
Income taxes payable 6,085 5,658 5,685
Deferred revenue 6,822 3,600 8,875
--------- --------- ---------
Total current liabilities 36,909 35,823 37,112
Deferred revenue 1,204 790 879
Term loan payable 7,303 8,096
Future income tax liability 806
Subordinated debt 16,973 16,973
--------- --------- ---------
Total liabilities 62,389 61,682 38,797
========= ========= =========
Commitments and contingencies
SHAREHOLDERS' EQUITY
Share capital $ 66,001 $ 70,147 $ 405,124
Contributed surplus
Predecessor 271,241 271,241 4,990
Successor 49,676 49,676
Retained earnings
Predecessor deficit (339,294) (339,294) (317,984)
Successor deficit (9,029)
--------- --------- ---------
Total shareholders' equity 38,595 51,770 92,130
--------- --------- ---------
Total liabilities and shareholders' equity $ 100,984 $ 113,452 $ 130,927
========= ========= =========
(See accompanying Notes to Consolidated Financial Statements.)
Consolidated Statements OF OPERATIONS
(in thousands of US$)
FOR THE PERIODS
------------------------------
AUGUST 29, 2003 DECEMBER 1,
THROUGH 2002 THROUGH YEAR ENDED
NOVEMBER 30, AUGUST 28, NOVEMBER
2003 2003 30, 2002
Successor Predecessor Predecessor
--------------- ------------ -----------
Sales $23,806 $ 85,386 $ 126,701
Cost of sales 2,644 12,222 14,543
------- -------- ---------
Gross profit 21,162 73,164 112,158
Expenses:
Sales 8,622 27,699 38,802
Marketing 4,078 14,270 27,227
Research and development 3,642 12,669 23,583
General and administration 7,995 28,463 41,906
Depreciation and amortization 4,833 9,391 20,216
Restructuring charge 1,138
Impairment of goodwill 49,896
Write-down of technology 17,781
Gain on foreign exchange (641) (1,330) (1,797)
------- -------- ---------
29,667 91,162 217,614
------- -------- ---------
Loss from operations (8,505) (17,998) (105,456)
Loss on investments (48) (149)
Write-down of investments (7,400)
Interest income (expense) (206) 1,383 1,790
------- -------- ---------
Loss before the undernoted (8,711) (24,063) (103,815)
Income tax (recovery) expense 318 (3,895) (8,581)
Share of loss on equity investments 1,142 1,190
------- -------- ---------
Net loss $(9,029) $(21,310) $ (96,424)
======= ======== =========
(See accompanying Notes to Consolidated Financial Statements.)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands of US$ except share data)
NUMBER OF SHARES (000S) TOTAL
----------------------- CONTRIBUTED SHAREHOLDERS'
COMMON PREFERRED SHARE CAPITAL SURPLUS DEFICIT EQUITY
------- --------- ------------- ----------- --------- -------------
PREDECESSOR EQUITY
Balance at November 30, 2001 80,709 24,000 388,193 4,990 (221,560) 171,623
Issuance of common shares pursuant to stock
options 37 97 97
Issuance of common shares for acquisition of
SoftQuad 11,072 16,834 16,834
Net loss (96,424) (96,424)
------- ------ --------- -------- --------- --------
Balance at November 30, 2002 91,818 24,000 $ 405,124 $ 4,990 $(317,984) $ 92,130
------- ------ --------- -------- --------- --------
Issuance of common shares pursuant to stock
options 70 69 69
Transfer to contributed surplus (265,296) 265,296
Balance of Microsoft accrual 955 955
Conversion of Series A Preferred 13,610 (13,610)
Net loss (21,310) (21,310)
------- ------ --------- -------- --------- --------
Opening balance at August 28, 2003 105,498 10,390 139,897 271,241 (339,294) 71,844
------- ------ --------- -------- --------- --------
Shares converted to 3.5 Corel New Common Shares (12,500) (49,367) (49,367)
Shares converted 1 for 1 to New Series 'A" Pfd
shares (10,390) (20,780) (20,780)
Shares cancelled on capital reorganization (92,998) (69,750) (69,750)
------- ------ --------- -------- --------- --------
Closing balance at August 28, 2003 271,241 (339,294) (68,053)
-------- --------- --------
Balance at November 30, 2003 271,241 (339,294) (68,053)
-------- --------- --------
SUCCESSOR EQUITY
Shares converted from Predecessor equity 43,750 10,390 70,147 70,147
Comprehensive revaluation of assets 49,676 49,676
------- ------ --------- -------- --------
Balance at August 28, 2003 43,750 10,390 70,147 49,676 119,823
------- ------ --------- -------- --------
Acquisition costs (4,146) (4,146)
Net loss (9,029) (9,029)
------- ------ --------- -------- --------- --------
Balance at November 30, 2003 43,750 10,390 $ 66,001 $ 49,676 $ (9,029) $106,648
------- ------ --------- -------- --------- --------
(See accompanying Notes to Consolidated Financial Statements.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of US$)
FOR THE PERIODS
------------------------------
AUGUST 29, 2003 DECEMBER 1,
THROUGH 2002 THROUGH YEAR ENDED
NOVEMBER 30, AUGUST 28, NOVEMBER
2003 2003 30, 2002
Successor Predecessor Predecessor
--------------- ------------ -----------
Operating activities:
Net loss $ (9,029) $(21,310) $(96,424)
Items which do not involve cash or cash equivalents:
Depreciation 661 3,321 6,359
Amortization 4,422 6,919 16,027
Bad debt expense 327 755 596
Impairment of goodwill 49,896
Write down of assets 17,781
Future income taxes (139) (10,148)
Loss on investments 48 149
Write down of long term investments 7,400
Loss on capital assets 67 136
Share of loss of equity investments 1,142 1,190
Changes in operating assets and liabilities:
Restricted cash 37 (309) 1,473
Accounts receivable 5,852 (2,364) (221)
Inventory (150) 28 608
Prepaid expenses 2,613 (1,071) (998)
Accounts payable and accrued liabilities (278) (457) (6,696)
Income taxes payable 427 (27) 936
Deferred revenue 3,636 1,861 (406)
-------- -------- --------
Net cash provided by (used in) operating activities 8,518 (4,136) (19,742)
-------- -------- --------
Financing activities:
Issuance of common shares 69 97
Repayments of operating line of credit (3,078)
Acquisition costs (4,146)
Acquisition by Vector (47,158)
-------- -------- --------
Net cash provided by (used in) financing activities (7,224) (47,089) 97
-------- -------- --------
Investing activities:
Purchase of investments (43)
Redemption of short-term investments 2,979 47,980 21,185
Purchase of capital assets (1,440) (3,236)
Proceeds on disposal of assets 33
Acquisition of SoftQuad Software, Ltd. (3,631)
Acquisition of Micrografx, Inc., (680)
-------- -------- --------
Net cash provided by investing activities 2,979 46,573 13,595
-------- -------- --------
Increase (decrease) in cash and cash equivalents 4,273 (4,652) (6,050)
Cash and cash equivalents at beginning of period 14,222 18,874 24,924
-------- -------- --------
Cash and cash equivalents at end of period $ 18,495 $ 14,222 $ 18,874
======== ======== ========
(See accompanying Notes to Consolidated Financial Statements.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
All dollar amounts included herein are expressed in thousands of US$ unless
otherwise noted Certain per share information is expressed in units of US$
unless otherwise noted.
The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in Canada ("Canadian GAAP"). The
Company was acquired by Vector Capital ("Vector"), a venture capital company
based out of California, on August 28, 2003. The Company accounted for the
acquisition by allocating the purchase price paid by Vector to the Company's net
assets (push-down accounting). Because of the application of push-down
accounting, the consolidated financial statements for the periods ended prior to
August 29, 2003 (Predecessor) are not comparable to the consolidated financial
statements for the periods ended after August 28, 2003 (Successor) (Note 11).
Certain comparative figures in the consolidated financial statements have been
reclassified to conform to the current year presentation.
NATURE OF OPERATIONS
Founded in 1985, Corel Corporation is a technology company specializing in
content creation tools and business process management. Corel products are
available for users of most PCs, including International Business Machines
Corporation and IBM-compatible PCs.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of Corel and its
wholly-owned subsidiaries ("Corel"). All material intercompany transactions and
balances have been eliminated. Corel follows the equity method of accounting for
investments in other companies where it holds 20% or more of the outstanding
voting shares and has the ability to exert significant influence. Under the
equity method, Corel records its initial investment at cost and records its pro
rata share of earnings or losses of equity investments in its results of
operations.
DIFFERENTIAL REPORTING
The Successor Company, with the unanimous consent of its shareholders, has
elected to prepare its financial statements in accordance with Canadian
generally accepted accounting principles, using the differential reporting
options available to non-publicly accountable enterprises described below from
the date of acquisition:
(a) Income taxes
The Company has elected to apply the differential reporting measurement option
allowed for income taxes to account for income taxes using the taxes payable
method.
(b) Goodwill
The Company has elected to apply the differential reporting measurement option
allowed for goodwill and other intangible assets to elect to test goodwill for
impairment only when an event or circumstance occurs that indicates that the
fair value of a reporting unit may be less than its carrying amount. Goodwill
represents the excess of the purchase price of acquired companies over the
estimated fair value of the tangible and intangible net assets acquired and is
not amortized.
ESTIMATES AND ASSUMPTIONS
Preparing financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenue and
expenses, and the disclosure of contingent assets and liabilities. Examples of
estimates include the provisions for sales returns and bad debts, the length of
product cycles and related capital asset lives. Actual results may differ from
these estimates.
SOFTWARE REVENUE RECOGNITION
Corel recognizes revenue from packaged software and licence fees when the
software is delivered, when there is persuasive evidence that an arrangement
exists, when the fee is fixed and determinable, and when collection is probable.
Sales to distributors are subject to agreements allowing various rights of
return and price protection. Corel establishes provisions for estimated future
returns, exchanges and price protection. When telephone support is included for
a limited time (post contract support or "PCS", generally for 90 days) together
with the licence fee, the entire licence fee is recognized upon delivery of the
product and the insignificant costs to provide the support are accrued. When
support is provided together with an annual licensing fee, the entire fee is
deferred and recognized ratably over the term of the licence agreement since
Corel does not have vendor-specific objective evidence of fair
market value of this PCS. Revenue from professional services and other services
are recognized as the services are delivered.
RESEARCH AND DEVELOPMENT COSTS
Research costs are expensed as incurred. Development costs related to software
products developed for sale are expensed as incurred unless they meet the
criteria for deferral under generally accepted accounting principles.
CASH AND CASH EQUIVALENTS
Cash includes cash equivalents, which are investments that are highly liquid and
have terms to maturity of three months or less at the time of acquisition.
Cash equivalents typically consist of commercial paper, term deposits and
banker's acceptances issued by major North American banks, and corporate debt.
Cash and cash equivalents are carried at cost, which approximates their fair
value.
SHORT-TERM INVESTMENTS
Short-term investments are investments that are generally held to maturity and
have terms greater than three months at the time of acquisition. Short-term
investments typically consist of commercial paper, Government of Canada Treasury
Bills and banker's acceptances. Short-term investments are carried at cost plus
accrued interest, which approximates their fair value.
RESTRICTED CASH
Corel maintains restricted cash in investments with major financial institutions
as security against certain financial obligations.
FINANCIAL INSTRUMENTS
Corel utilizes certain derivative financial instruments to enhance its ability
to manage foreign currency exchange rate risk, which exists as part of its
ongoing operations. Gains and losses are recognized when realized.
INVENTORY
Inventory of product components is valued at the lower of average cost and
replacement cost. Finished goods are valued at the lower of average cost and net
realizable value.
LONG LIVED ASSETS
Capital assets are recorded at cost. Amortization of licences commences with the
market release of each new software product and version. Depreciation and
amortization are calculated using the following rates and bases:
Capital assets
Furniture and equipment 20 - 33.3% declining balance
Computer equipment 33.3% straight line
Research and development equipment 20 - 50% declining balance
Leasehold improvements Straight line over the term of the lease
Intangible assets
Technology Intangible assets are amortized over their
useful life, generally 3 years, unless the
life is determined to be indefinite, in
which case no amortization is taken.
Licences, purchased software, The greater of: a) the ratio that current
deferred royalties gross revenues bear to the total of current
gross revenues and anticipated future gross
revenues or, b) the straight line method
over the remaining economic life, generally
estimated to be three to five years
Corel regularly reviews the carrying value of its long lived assets. If the
carrying value of its long lived assets exceeds the amount recoverable, a
write-down is charged to the consolidated statement of operations to reflect the
fair value of the assets.
FOREIGN CURRENCY
The functional currency of Corel and its subsidiaries, which are accounted for
as integrated foreign operations, is the US dollar. Monetary assets and
liabilities denominated in foreign currencies are remeasured at the closing
period-end rates of exchange. The gains or losses resulting from the
remeasurement of these amounts have been reflected in earnings in the respective
periods. Non-monetary items and any related amortization of such items are
measured at the rates of exchange in effect when the assets were acquired or
obligations incurred. All other income and expense items have been remeasured at
the average rates prevailing during the respective periods.
INVESTMENT TAX CREDITS
Investments tax credits, which are earned as a result of qualifying research and
development expenditures, are recognized and applied to reduce research and
development expense in the year in which the expenditures are made and their
realization is reasonably assured.
FISCAL 2002 - INCOME TAXES
Corel accounted for income taxes under the asset and liability method. Under
this method, future tax assets and liabilities are recognized for the estimated
tax recoverable or payable, which would arise if assets were recovered and
liabilities settled at the financial statement carrying amounts. Future tax
assets and liabilities are measured using substantively enacted tax rates
expected to apply to taxable income in the years in which temporary differences
are expected to be recovered or settled. Changes to these balances are
recognized in income in the period in which they occur.
2. INVENTORY
AS AT NOVEMBER 30
-----------------------
2003 2002
Successor Predecessor
--------- -----------
Product components $226 $118
Finished goods 87 73
---- ----
$313 $191
==== ====
3. INVESTMENTS
AS AT NOVEMBER 30
-----------------------
2003 2002
Successor Predecessor
--------- -----------
Equity investments
Hemera Technologies, Inc. $ $8,116
LinuxForce, Inc. 192
------
8,308
Investments recorded at
cost, including GraphOn
Corporation 282
--- ------
$ $8,590
=== ======
HEMERA TECHNOLOGIES, INC.
On July 17, 2000, Corel purchased a 23% interest in Hemera Technologies, Inc.
("Hemera"), a privately held company. As consideration for these shares, Corel
transferred its GraphicCorp division and related assets to Hemera. As of the
effective date of the transaction, the fair value of the GraphicCorp division
and its related assets was estimated at $9.7 million and the shares were valued
at this amount. No gain or loss was recognized on the transfer. During fiscal
2001, Hemera received additional financing, which resulted in Corel's interest
in Hemera being diluted to 21%. Corel's share of Hemera's operating results have
been incorporated into the statement of operations. Due to the continued losses
experienced by Hemera, the Company wrote of the balance of the investment in the
third quarter of fiscal 2003.
LINUXFORCE, INC.
In December 1999, Corel purchased, and currently maintains, a 33% interest in
LinuxForce, Inc., a privately held company, for cash. Corel's share of
LinuxForce, Inc.'s operating results was nominal in fiscal 2003 and 2002. Due to
LinuxForce's continued losses and limited resources of funding, the Company
wrote off the balance of the investment in the third quarter of fiscal 2003.
INVESTMENTS RECORDED AT COST
Corel owns 1,193,824 shares of common stock of GraphOn Corporation ("GraphOn").
Corel has accounted for the cost of this investment under the first-in,
first-out method. GraphOn's most recent audited financial statements included a
"going-concern note" which raises substantial doubt on the company's ability to
continue as a going concern without further funding. GraphOn's cash reserves
have continued to deteriorate over the subsequent two quarters. Accordingly, the
Company wrote off its investment in GraphOn in fiscal 2003.
4. LONG LIVED ASSETS
NOVEMBER 30, 2003 NOVEMBER 30, 2002
Successor Predecessor
---------------------- -----------------------
ACCUMULATED ACCUMULATED
COST AMORTIZATION COST AMORTIZATION
------- ------------ -------- ------------
Capital assets
Furniture and equipment $13,764 $11,860 $ 13,888 $ 11,623
Computer equipment 33,726 32,034 84,205 80,217
Research and development equipment 12,389 11,168 12,389 10,896
Leasehold improvements 1,965 1,883 2,340 2,142
------- ------- -------- --------
61,844 56,945 112,822 104,878
Less: Accumulated amortization 56,945 104,878
------- --------
Net book value $ 4,899 $ 7,944
======= ========
Intangible assets
Licences and purchased software 11,138 10,137 27,121 25,188
Technology 49,652 4,138 31,625 19,734
------- ------- -------- --------
60,790 14,275 58,746 44,922
Less: Accumulated amortization 14,275 44,922
------- --------
Net book value $46,515 $ 13,824
======= ========
FISCAL 2002 TECHNOLOGY WRITE-DOWN
In fiscal 2002, circumstances suggested the possible impairment of technology.
An independent valuation of the majority of Corel's intangible assets indicated
an impairment in value existed. The independent valuator relied primarily on the
income approach, under which fair market value is a function of the future
revenue expected to be generated by an asset, net of all allocable expenses. The
income approach focuses on the income-producing capability of the developed
software and the core technology, and best represents the present value of the
future economic benefits expected to be derived. Corel prepared a valuation on
the intangible assets not covered in the independent valuator's report. This
valuation resulted in a total write off of $17.8 million, which included a
write-off of technology acquired from SoftQuad Software, Ltd. ("Softquad") of
$11.0 million and technology acquired from Micrografx, Inc. ("Micrografx") of
$6.7 million. The technology write-offs were non cash charges to income.
5. FISCAL 2002 IMPAIRMENT OF GOODWILL
In fiscal 2002, circumstances suggested that Corel's goodwill was impaired and
that its carrying amount may not be recoverable. Following a review, Corel
determined that the impairment loss to be recognized was the full carrying
amount. The total non cash charge was $49.9 million consisting of $36.3 million
associated with the acquisition of Micrografx and $13.6 million associated with
SoftQuad.
6. SOFTQUAD ACQUISITION
On March 15, 2002, Corel completed the acquisition of all of the issued and
outstanding stock of SoftQuad, a Canadian-based developer of XML-enabling
technologies and commerce solutions for e-Business. Corel's consolidated
statements of operations reflect the results of operations of SoftQuad from the
date of acquisition.
The aggregate purchase price paid was approximately $18.1 million, including
11,071,833 common shares of Corel at a value of $16.9 million. The components of
the aggregate purchase price were as follows (in thousands)
Common shares $16,897
Other costs of acquisition 1,226
-------
Total purchase price $18,123
=======
Other costs of acquisition include professional fees and other costs directly
related to the acquisition.
The purchase price has been allocated to identifiable tangible and intangible
assets acquired and liabilities assumed based on their estimated fair values as
follows:
Cash $ 771
Other current assets 839
Core technology 4,456
Developed software 10,858
Property and equipment 161
Future tax liabilities (5,957)
Bridge loan from Corel (2,150)
Other liabilities (4,488)
-------
Net assets acquired 4,490
Total purchase price 18,123
-------
Goodwill $13,633
=======
The estimates of fair value were determined by Corel's management based on
information furnished by the management of SoftQuad and an independent valuation
of developed software and in-process research and development projects.
To determine the fair market value of the core technology and the developed
software, Corel considered the three traditional valuation approaches: the cost
approach, the market approach and the income approach.
The independent valuator relied primarily on the income approach, under which
fair market value is a function of the future revenue expected to be generated
by an asset, net of all allocable expenses. The income approach focuses on the
income-producing capability of the developed software and the core technology,
in arriving at the present value of the future economic benefits expected to be
derived.
UNAUDITED PRO FORMA PREDECESSOR FINANCIAL INFORMATION
The following unaudited pro forma financial information gives effect to the
acquisition of SoftQuad made by Corel as if the transactions occurred at the
beginning of each of the fiscal year ending November 30, 2002. The pro forma
financial information below excludes the non-recurring charges related to the
goodwill impairment and technology write-down.
YEAR ENDED
NOVEMBER 30,
2002
Predecessor
------------
Sales $ 128,342
Cost of sales 14,559
---------
Gross profit 113,783
Expenses 155,470
---------
Operating loss (41,687)
Interest and other income (65,786)
---------
Net loss $(107,473)
=========
7. COMMITMENTS AND CONTINGENCIES
Corel rents office premises and sponsors various sporting events and venues. At
November 30, 2003, the minimum unaccrued commitments under long-term agreements,
are as follows:
LEASES SPONSORSHIP TOTAL
------ ----------- -------
2004 $3,351 $ 1,090 $ 4,441
2005 1,745 1,123 2,868
2006 1,014 1,157 2,171
2007 542 1,191 1,733
2008 96 1,227 1,323
2009 and thereafter 431 12,839 13,270
------ ------- -------
$7,179 $18,627 $25,806
====== ======= =======
Corel is a party to a number of additional claims arising in the ordinary course
of business relating to employment, intellectual property and other matters.
Based on its review of the individual matters, Corel believes that such claims,
individually, will not have a material adverse effect on its business, financial
position or results of operations but, in the aggregate, may have a material
adverse effect on its business, financial position or results of operations.
Such possible effect cannot be reasonably estimated at this time.
8. LONG TERM DEBT
TERM LOAN AND LINE OF CREDIT
The Company has a secured term loan with Wells Fargo Foothill for $10.0 million.
It is repayable in 42 equal monthly installments of $238 USD beginning January
1, 2004 and is secured by the assets of the Company. Interest of the greater of
i) 6.0% or ii) prime plus 3.5% is charged to the daily balance of the loan and
paid monthly. The principal payments due in fiscal 2004 are $2,619.
Associated with the term loan is a revolving line of credit secured by certain
accounts receivable. Wells Fargo Foothill will advance up to $7.5 million
subject to the borrowing base availability to the Company. The line of credit
expires on August 25, 2006. Any funds advanced on the line of credit are repaid
with collections from the related receivables. Interest of the greater of i)
6.0% or ii) prime plus 2.5% is charged to the outstanding daily balance. There
is also a letter of credit fee of 2.5% of the undrawn balance charged directly
to the line on a monthly basis. As of November 30, 2003 there were no funds
advanced on the line of credit.
SUBORDINATED DEBT
The Company has a note payable to a related party in the amount of $10.0 million
that is subordinated in favour of the debt to Wells Fargo Foothill. The note
payable matures August 25, 2006, is non-interest bearing and is secured by a
general security agreement.
The Company has a demand note payable to a related party in the amount of $6,973
million that is subordinated in favour of the debt to Wells Fargo Foothill.
Additional advances may be requested by the Company under this agreement and may
be fulfilled at the discretion of the lender. The demand note payable is
non-interest bearing and is secured by a general security agreement.
9. FINANCIAL INSTRUMENTS
CONCENTRATION OF CREDIT RISK
The primary objective of Corel with respect to short-term investments is
security of principal. Corel manages its investment credit risk through a
combination of the (i) selection of securities with an acceptable credit rating;
(ii) selection of term to maturity, which in no event exceeds one year in
length; and (iii) diversification of debt issuers.
Included in cash, cash equivalents and short-term investments as of November 30,
2003 and November 30, 2002 were corporate debt amounts of $8.0 million and $10.0
million, respectively. These amounts were repaid, in full, at maturity in
December 2003 and December 2002, respectively. All of Corel's short-term
investments as at November 30, 2003 had maturity dates of less than two months
from year end. Corel's cash, cash equivalents and short-term
investments are denominated predominantly in US dollars.
Concentration of credit risk, with respect to accounts receivable, is limited
due to the diversity of Corel's channel arrangements. Corel has credit
evaluation, approval and monitoring processes intended to mitigate potential
credit risks. Ingram Micro Inc. accounted for $2.8 million (22.2%) and $8.7
million (43.1%) of accounts receivable at November 30, 2003 and November 30,
2002, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts for cash and cash equivalents, restricted cash, short-term
investments, accounts receivable, accounts payable and accrued liabilities
approximate fair value due to the short maturity of these instruments, unless
otherwise noted.
FOREIGN EXCHANGE FORWARD CONTRACTS
Corel manages its financial exposure to certain foreign exchange fluctuations
with the objective of minimizing the impact of foreign currency exchange
movements on its operations.
To meet this objective Corel enters into foreign exchange forward contracts from
time to time for terms of less than twelve months. Contracts are with major
Canadian chartered banks, and therefore non-performance by a counterparty is
considered unlikely. As at November 30, 2003, Corel had US dollar foreign
exchange forward contracts with maturity dates from January 9, 2004 to November
26, 2004 to purchase a total of CDN $13.6 million (estimated fair value CDN
$14.1 million). As at November 30, 2002, Corel had US dollar foreign exchange
forward contracts with maturity dates from December 23, 2002 to August 8, 2003
to purchase a total of CDN $9.7 million (estimated fair value CDN $9.8 million).
10. SHARE CAPITAL
COMMON SHARES - PREDECESSOR
There were an unlimited number of common shares ("Predecessor Common Shares")
authorized at November 30, 2002.
On October 30, 2001, Corel completed the acquisition of Micrografx, Inc. The
aggregate purchase price paid, including acquisition costs of $1.5 million, was
approximately $33.8 million consisting of 6,894,250 Predecessor Common Shares
valued at $16.0 million and participation rights valued at $16.3 million, which
were settled for cash in October 2002
On March 15, 2002, Corel completed the acquisition of SoftQuad. The aggregate
purchase price paid was approximately $18.1 million, consisting of 11,071,833
Predecessor Common Shares valued at $16.9 million and the remaining amount
consisting of $1.2 million in acquisition costs.
Holders of stock options for Predecessor Common Shares were given the option to
elect to receive the amount above the exercise price up to $1.05 ($1.4820 CAD)
per share. All stock options not exercised or exchanged, expired on August 30,
2003.
COMMON SHARES - SUCCESSOR
On August 28, 2003 Vector purchased the outstanding Predecessor Common Shares of
the Company. As part of the Arrangement the Company was authorized to issue an
unlimited number of Series B Shares and an unlimited number of Corel New Common
Shares. Each of the Predecessor Common Shares that were not held by Vector were
converted into one fully paid and non-assessable Corel New Common Share and one
Corel Series B share. Vector purchased and subsequently canceled the balance of
the Corel New Common Shares for $0.30 per share and the Corel Series B Shares
for $0.75 per share. The Predecessor Common Shares held by Vector were converted
into 3.5 Corel New Common Shares resulting in 43,750,000 Corel New Common Shares
issued and outstanding.
PREFERRED SHARES - PREDECESSOR
There were an unlimited number of participating, convertible, non-voting,
non-redeemable Series "A" preferred shares ("Series "A" preferred shares')
authorized at November 30, 2002. The dividend rights were the same as for common
shares, other than dividends or other distributions to the extent payable in the
form of common shares. Dividends on each full and each fractional Series "A"
preferred shares were cumulative.
In the event of liquidation of Corel, the greater of the $5.625 per share
purchase price plus all accrued and unpaid dividends, and the amount per share
that could be distributed to common shareholders, assuming the conversion of the
Series "A" preferred shares, would be distributed to the holders of the
preferred shares. If such payment is made, Series A preferred shareholders will
have no further claim on assets. On March 24, 2003 Vector acquired 22,890,000 of
the Series "A" preferred shares. On August 18, 2003, Vector converted 12,500,000
shares into Predecessor Common Shares.
PREFERRED SHARES - SUCCESSOR
As a result of the acquisition by Vector, the balance of the Series A Preferred
Shares held by Vector (10,390,000 shares) were converted one for one into New
Series A preferred shares with the same rights and obligations as the
Predecessor Series 'A' Preferred shares..
11. VECTOR ACQUISITION
On August 28, 2003 Vector, including Vector cc Acquisition, Inc. ("Vector cc
Acquisition") acquired Corel (see note 10). The Company accounted for the
transaction as a business combination by applying push down accounting and
consequently revalued its balance sheet to reflect the fair market value of the
assets and liabilities of the Company with a corresponding $8.5 million increase
to goodwill. Subsequent to the acquisition, Corel Corporation amalgamated with
Vector cc Acquisition. The following charts summarizes the changes made to the
accounts of the Company as a result of the comprehensive revaluation.
BALANCE BEFORE ACQUISITION BALANCE AFTER VECTOR CC AMALGAMATED
ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS ACQUISTION COMPANY
-------------- ----------- ------------ ---------- -----------
Cash and cash equivalents $ 16,089 $ $ 16,089 $ $ 16,089
Accounts receivable 21,817 (2,951) 18,866 18,866
Note receivable 39,775 39,775 (39,775)
Other current assets 12,992 12,992 12,992
Long lived assets 13,420 43,605 57,025 57,025
Other current liabilities (26,973) (346) (27,319) (27,319)
Long term debt (29,973) (29,973)
Future Tax (667) 667
Deferred Revenue (11,615) 7,225 (4,390) (4,390)
-------- ------- -------- -------- --------
Net Assets (excluding Goodwill) 64,838 48,200 113,038 (69,748) 43,290
Purchase Price 121,518
-------- --------
Goodwill $ 8,480 $ 8,480
======== ========
PURCHASE PRICE
Series 'A' preferred shares $ 12,876
Purchase of employee stock option rights 753
Acquisition costs 10,242
Corel New Common Shares 27,899
New Series A preferred shares 69,748
--------
Net purchase price $121,518
========
12. RESTRUCTURING CHARGE
During the three months ended November 30, 2003 the company underwent an
organizational rationalization that resulted in the termination of 126
employees. All material amounts relating to this $1,138 charge were paid in the
quarter and there were no future service requirements from affected employees.
13. INCOME TAXES
Income tax expense (recovery) consists of the following:
Successor
Predecessor -----------------------------
3 MONTHS ENDED 9 MONTHS ENDED YEAR ENDED
NOVEMBER 30, AUGUST 28, NOVEMBER 30,
2003 2003 2002
-------------- -------------- ------------
Current:
Canadian $222 $(4,320) $ 662
Foreign 96 563 905
---- ------- --------
318 (3,757) 1,567
---- ------- --------
Future:
Canadian (5,181)
Foreign (138) (4,967)
------- --------
(138) (10,148)
---- ------- --------
Income tax expense (recovery) $318 $(3,895) $ (8,581)
==== ======= ========
The reported income tax provision differs from the amount computed by applying
the Canadian statutory rate to income before taxes for the following reasons:
Successor
Predecessor -----------------------------
3 MONTHS ENDED 9 MONTHS ENDED YEAR ENDED
NOVEMBER 30, AUGUST 28, NOVEMBER 30,
2003 2003 2002
-------------- -------------- ------------
Income (loss) before income taxes and share
of loss of equity Investments: $(8,711) $(24,075) $(103,815)
------- -------- ---------
Expected statutory rate 37.0% 37.0% 39.0%
------- -------- ---------
Expected tax expense (recovery) (3,223) (8,908) (40,488)
Foreign tax rate differences 85 254 (278)
Losses not recognized for tax purposes 1,850 6,318 14,290
Non-deductible expenses and non-taxable income 1,468 2,826 17,078
Prior years losses (84) (253)
Reassessment of prior years (4,756)
Withholding tax on foreign income 192 417 500
Other 30 207 317
------- -------- ---------
Reported income tax expense (recovery) $ 318 $ (3,895) $ (8,581)
======= ======== =========
As at November 30, 2003, Corel has tax loss carryforwards of approximately
$240.0 million, which expire during the years 2006 to 2020. Approximately $13.0
million of these losses acquired with the purchase of Micrografx are restricted
in the amount of the loss that may be claimed each year based on U.S. tax loss
limitations. Corel also has investment tax credits of approximately $7.0 million
which expire during the years 2008 to 2013.
SCHEDULE 1.1.33
See Tab 10
SCHEDULE 1.1.34
COREL CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF AUGUST 31, 2004 AND NOVEMBER 30, 2003
(IN '000'S)
AUGUST 31, 2004 NOVEMBER 30, 2003
--------------- -----------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents 18,312 18,495
Restricted cash 2,076 1,830
Short term investments 9,945 5,993
Accounts Receivable
Trade 12,563 12,583
Other 277 104
Inventory 156 313
Prepaids 1,254 1,244
------- -------
Total Current Assets 44,583 40,562
------- -------
LONG-LIVED ASSETS
Capital assets 3,389 4,899
Intangible assets 32,280 46,515
Goodwill 8,834 8,480
Deferred financing charge 1,482 528
------- -------
TOTAL ASSETS 90,568 100,984
======= =======
LIABILITIES
CURRENT
Accounts payable and accrued liabilities 18,018 21,383
Current portion of loans payable 15,960 2,619
Income taxes payable 5,985 6,085
Deferred Revenue 6,941 6,822
------- -------
Total Current Liabilities 46,904 36,909
------- -------
LONG-TERM LIABILITIES
Long-term portion of loans payable 30,600 7,303
Subordinated debt 16,973
Deferred revenue 1,646 1,204
------- -------
Total Liabilities 79,150 62,389
------- -------
OWNER'S EQUITY
Share Capital
Class A common shares 8,763 45,221
Class B common shares 1,527
Preferred Shares 14,936 20,780
Contributed surplus 320,917 320,917
Retained earnings
Predecessor (339,294) (339,294)
Successor 4,569 (9,029)
------- -------
Total Shareholders' equity 11,418 38,595
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 90,568 100,984
======== ========
COREL CORPORATION
OPERATING INCOME STATEMENT
(IN THOUSANDS OF US DOLLARS)
SUCCESSOR PREDECESSOR
9 MONTHS ENDING 9 MONTHS ENDING
AUGUST 31, 2004 AUGUST 31, 2003
--------------- ---------------
REVENUE 80,136 85,386
COST OF SALES 6,842 12,222
------- -------
GROSS MARGIN 73,294 73,164
------- -------
OPERATING EXPENSES
Sales and Marketing 27,552 41,969
Research and Development 7,567 12,669
General and Administration 15,630 28,463
Restructuring 3,250
------- -------
TOTAL OPERATING EXPENSES 53,999 83,101
------- -------
NET EBITDA 19,295 -9,937
OTHER NON CASH, NON OPERATING EXPENSES
Recovery on legal proceedings 2,895
Depreciation and Amortization -13,765 -9,391
Other non-operating gains (losses) 203 -48
Write-down of investments -7,400
Interest Expense -1,311
Interest Income 807 1,383
Foreign Exchange -38 1,330
------- -------
NET INCOME BEFORE UNDEMOTED 8,086 -24,063
Income Taxes -5,512 -3,895
Share loss on equity investments 1,142
------- -------
NET INCOME 13,598 -21,310
======= =======
NOTE
The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in Canada ("Canadian GAAP"). The
Company was acquired by Vector Capital ("Vector"), a venture capital company
based out of California, on August 28, 2003. The Company accounted for the
acquisition by allocating the purchase price paid by Vector to the Company's net
assets (push-down accounting). Because of the application of push-down
accounting, the consolidated financial statements for the periods ended prior to
August 29, 2003 (Predecessor) are not comparable to the consolidated financial
statements for the periods ended after August 28, 2003 (Successor)
COREL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIODS ENDING AUGUST 31, 2004 AND 2003
(IN '000'S)
SUCCESSOR PREDECESSOR
9 MONTHS ENDING 9 MONTHS ENDING
AUGUST 31, 2004 AUGUST 31, 2003
--------------- ---------------
Net income/loss 13,598 -21,310
Depreciation and amortization 14,314 10,240
Allowance for bad debts (18) 755
Future income taxes -139
Loss on investments 48
Write down of long term investments 7,400
Loss (gain) on fixed assets (453) 67
Share of loss of equity investments 1,142
Operating Assets
Restricted Cash (246) -309
Accounts Receivable 134 -2,364
Inventory 156 28
Prepaids (10) -1,071
Accounts Payable and Accrued Liabilities (3,199) -457
Taxes payable (100) -27
Deferred Revenue 751 1,861
------- -------
Cash flow from operations 24,927 -4,136
------- -------
Financing
Repayment of term loan (11,300)
Issuance of common shares 69
Term loan financing 47,500
Repayment of subordinated debt (16,973)
Paid up capital reduction (40,774)
Purchase by Vector (355) -47,158
Financing fees incurred (1,101)
Utilization (repayment) of operating line of credit 438
------- -------
Cash flow from Financing activities (22,565) -47,089
------- -------
Investing
Proceeds on disposal of fixed asset 1,851 33
Redemption (purchase) of short term investments (3,952) 47,980
Purchase long lived assets (444) -1,440
------- -------
Cash flow from Investing activities (2,545) 46,573
------- -------
Increase (Decrease) in cash (183) -4,652
Opening Cash 18,495 18,874
------- -------
Closing Cash 18,312 14,222
======= =======
SCHEDULE 1.1.45
See Tab 5
SCHEDULE 1.1.61
JASC STOCKHOLDER SIGNATURE PAGE
This signature page is executed pursuant to the Agreement and Plan of
Merger among Corel Corporation, Corel JS Acquisition, Inc., Jasc Software, Inc.
and the Principal Stockholders dated as of_____________, 2004 (the "AGREEMENT").
All capitalized terms used in this signature page have the meanings given to
them in the Agreement. The undersigned Jasc Stockholder represents and warrants
to the Merger Subsidiary and Corel as follows and acknowledges that the Merger
Subsidiary and Corel are relying upon the following representations and
warranties in connection with the Transaction:
1.1 COREL COMMON SHARES. With respect to the Corel Common Stock, the Jasc
Stockholder:
1.1.1 understands that those shares have not been and will not be
registered under the Securities Act, and that the issuance of those shares is
being made in reliance on a private placement exemption;
1.1.2 is acquiring those shares for its own account;
1.1.3 acknowledges those shares are not freely transferable;
1.1.4 has had the opportunity to ask all questions and to obtain all other
information from the Merger Subsidiary and Corel as it has deemed necessary in
connection with its decision to acquire those shares; and
1.1.5 acknowledges that it is not acquiring those shares as a result of any
"general solicitation" or "general advertising," as those terms are used in
Regulation D under the Securities Act.
1.2 NO FOREIGN PERSON. The Jasc Stockholder that is acquiring shares forming
part of the Total Equity Consideration is not a foreign person within the
meaning of Section 1445(f)(3) of the Code.
1.3 INCORPORATION AND STATUS OF THE JASC STOCKHOLDER. If an Entity, the Jasc
Stockholder is duly formed and validly existing under the laws of its
jurisdiction of formation.
1.4 POWER OF THE JASC STOCKHOLDER AND DUE AUTHORIZATION. If an Entity, the Jasc
Stockholder has all necessary power and capacity to enter into, and to perform
its obligations under, this Agreement. Each of this Agreement and each of the
Related Agreements to which the Jasc Stockholder is a party has been duly
authorized by the Jasc Stockholder. This Agreement has been duly executed and
delivered by the Jasc Stockholder and is a valid and binding obligation of the
Jasc Stockholder, enforceable in accordance with its terms, subject to the usual
exceptions as to bankruptcy and the availability of equitable remedies. At the
Time of Closing, each of the Related Agreements to which the Jasc Stockholder is
a party will be duly executed and delivered by the Jasc Stockholder and will be
valid and binding obligations of the Jasc Stockholder, enforceable in accordance
with their respective terms, subject to the usual exceptions as to bankruptcy
and the availability of equitable remedies, provided that (i) no representation
as to enforceability is made with respect to the agreements described in section
4.1.6 of the Agreement, and (ii) the enforceability of the indemnification
provisions contained in Schedule B to the Corel Minority Shareholders' Agreement
may be limited by applicable federal or state securities laws.
1.5 TITLE TO, AND RIGHT TO SELL, PURCHASED SHARES. The Jasc Stockholder is the
sole registered and beneficial owner of those Jasc Shares set out opposite the
Jasc Stockholder's name on Schedule 3.1.3 with good and marketable title to
those Jasc Shares, free of all Charges. There are no subscriptions, warrants,
options, calls, or other rights or Contracts to which the Corporation or any
Jasc Stockholder is subject to or bound which in any way limit or restrict the
consummation of the Transaction (specifically in respect
of that Jasc Stockholder's Jasc Shares) and there are no shareholders
agreements, pooling agreements, voting trusts or other Contracts with respect to
the voting of the Jasc Shares other than as set out in Schedule 3.1.3. At or
prior to the Time of Closing, those agreements and restrictions will have been
complied with or terminated (and evidence in form and substance satisfactory to
the Merger Subsidiary to that effect will have been provided to the Merger
Subsidiary).
1.6 NO CONTRAVENTION BY JASC STOCKHOLDERS. None of the entering into of this
Agreement or any Related Agreement, the consummation of the Transaction or the
performance by the Jasc Stockholder of that Jasc Stockholder's other obligations
under this Agreement or any Related Agreement to which it is a party (a) will
contravene, breach or result in any default under (1) if the Jasc Stockholder is
an Entity, the certificate of incorporation, by-laws, constating documents or
other organizational documents of that Jasc Stockholder, (2) any license,
permit, order, judgment, decree or Law to which the Jasc Stockholder is a party
or by which it may be bound or (b) contravenes, breaches or results in any
default under, or conflicts with or will conflict with or results in or will
result in any modification of any of the terms of or results in or will result
in the termination of or the creation of any Charge, acceleration right or other
right pursuant to the terms of any Contract to which the Jasc Stockholder is a
party or by which it may be bound or will in any way affect the continuation,
validity or effectiveness of any such Contract.
1.7 APPOINTMENT OF STOCKHOLDER REPRESENTATIVE. Each Jasc Stockholder designates
and appoints Robert V. Voit as the Stockholder Representative under this
Agreement and authorizes the Stockholder Representative to take such actions on
behalf of such Jasc Stockholder under this Agreement, including, but not limited
to, accepting notices, reviewing information provided to the Stockholder
Representative and executing the certificate required in section 4.1.1 on behalf
of each Jasc Stockholder, together with all such powers as are reasonably
incidental thereto. The Stockholder Representative may consult with legal
counsel, independent public accountants and other experts selected by it and
shall not be liable for any action taken, or omitted to be taken, by it in good
faith in accordance with the advice of such counsel, accountants or experts. The
Stockholder Representative shall not be liable for actions he takes or fails to
take in the absence of his own gross negligence or willful misconduct.
1.8 The undersigned Jasc Stockholder acknowledges that:
1.8.1 the Jasc Stockholder has received a copy of the Agreement and each of
the Related Agreements to which it is or will be a party (the "TRANSACTION
AGREEMENTS");
1.8.2 the Jasc Stockholder has had sufficient time to review and consider
the Transaction Agreements and the transactions contemplated by the Transaction
Agreements thoroughly;
1.8.3 the Jasc Stockholder has read and understands the terms of the
Transaction Agreements and the Jasc Stockholder's obligations under the
Transaction Agreements;
1.8.4 the Jasc Stockholder has been given an opportunity to obtain
independent legal advice, or other advice as the Jasc Stockholder may desire,
concerning the interpretation and effect of the Transaction Agreements and the
transactions contemplated by the Transaction Agreements, and by signing this
Jasc Stockholder Signature Page the Jasc Stockholder has either obtained advice
or voluntarily waived the Jasc Stockholder's opportunity to receive that advice;
1.8.5 the Agreement is entered into voluntarily by the Jasc Stockholder;
and
1.8.6 the Jasc Stockholder is a "Jasc Stockholder" for all purposes of the
Agreement and is bound by and subject to all rights and obligations of Jasc
Stockholders under the Agreement.
- -------------------------------------- ---------------------------------------
Signature of Witness Signature of Jasc Stockholder or
Authorized Signatory
- -------------------------------------- ---------------------------------------
Name of Witness (please print or Name of Jasc Stockholder (please print
type) or type)
- -------------------------------------- ---------------------------------------
Address of Witness (please print or Name and Title of Authorized Signatory
type) (if the Jasc Stockholder is not an
individual)
SCHEDULE 1.1.98
STOCKHOLDER EXPENSES
- - HSR - $22,500
- - Change in control, net of Kris Tufto loan repayment - $1,515,000, plus
associated payroll taxes of $25,782.50
- - Faegre & Benson LLP-$175,000
- - Eide Bailley - $39,000
- - Merchant & Gould - $4,635
- - Hensley, Kim & Edgington, LLC - $ 1,590
- - Severance Costs (including paid time-off) - Craig Letourneau: $89,723.08;
Jon Ort: $96,369.23 (plus associated payroll taxes of $3,135.59)
- - Goldsmith Agio Helms - $853,033.01 (includes $177,345.35 paid as of
September 30, 2004)
- - Estimated associated payroll taxes in connection with the Corporation's
cash out of all unexercised outstanding options under the Jasc Software,
Inc. 1997 Omnibus Stock Plan - $42,542.76
- - Estimated associated payroll taxes in connection with the exercise of
outstanding options expected to be exercised under the Jasc Software, Inc.
1997 Omnibus Stock Plan - $2,912.84
NOTE: The above costs are based on estimates as of the date of signing the
Agreement. Expenses of Faegre & Benson, Eide Bailey, Goldsmith Agio Helms and
the IP Lawyers and miscellaneous expenses associated with the Transaction will
not be known with certainty until the Closing Date.
SCHEDULE 1.1.115
See Tab 9
SCHEDULE 1.1.117
Jasc Software Inc
Detailed Bal Sheet
GAAP Final 9/30/2004
30/09/2004 Adjustments Balance Sheet
---------- ----------- ---------------
ASSETS
Current assets:
Cash and cash equivalents 2,531,337 2.531,337
12000 AR-TRADE 5,786,721 5,786,721
12003 A/R RECONCILING ITEMS 284,276 284,276
12048 ALLOWANCE FOR DOUBTFUL A/R -81 312 -81 312
12049 ALLOWANCE FOR SALES RETURNS -1,406,601 -1,406,601
12051 ACCRUED ROYALTY REPORTS 206,000 206,000
---------- ----------
Accounts receivable 4,789,084 4,789,084
---------- ----------
12060 NOTES RECEIVABLE 215,000 -215,000 0
12010 A/R EMPLOYEE RECEIVABLES 60,000 60,000
---------- ----------
Other receivable 275,000 60,000
---------- ----------
13000 INVENTORY 1,447,219 1,447,219
13007 CONSIGNED INVENTORY 35,314 35,314
13010 INVENTORY OBSOLESCENCE RESERV -412,000 -412,000
---------- ----------
Inventories 1,070,533 1,070,533
---------- ----------
14002 PREPAID INSURANCE 34,600 34,600
14003 PREPAID ADVERTISING 249,531 249,531
14004 PREPAID POSTAGE 29,483 29,483
14005 PREPAID MAINTENANCE 45,054 45,054
14006 PREPAID TRAVEL 0 0
14007 PREPAID LOCALIZATION 998,766 998,766
14008 PREPAID DEVELOPMENT 339,934 339,934
14009 PREPAID LICENSE FEES 224,652 224,652
---------- ----------
Prepaid expenses 1,922,020 1,922,020
---------- ----------
Total current assets 10,587,974 10,372,974
---------- ----------
Property & equipment
15001 COMPUTER EQUIPMENT 1,937,035 1,937,035
15003 OFFICE EQUIPMENT 177,359 177,359
15005 OFFICE FURNITURE 457,413 457,413
15007 SOFTWARE 1,094,567 1,094,567
---------- ----------
Equipment and software 3,666,374 3,666,374
---------- ----------
15011 LEASEHOLD IMPROVEMENTS 236,019 236,019
---------- ----------
Total fixed assets 3,902,393 3,902,393
---------- ----------
15999 ACCUMULATED DEPRECIATION -3,225,452 -3,225,452
---------- ----------
Net fixed assets 676,941 676,941
---------- ----------
Other assets:
16001 DEPOSITS 13,773 13,773
16005 LONG TERM NOTE RECEIVABLE 260,000 -260,000 0
---------- ----------
Other Assets 273,773 13,773
---------- ----------
17001 ACQUIRED TECHNOLOGIES 899,324 899,324
17002 ACCUMULATED AMORTIZATION -446,523 -446,523
17010 PATENT ACQUISITION COSTS 115,798 115,798
17011 ACC. AMORT. PATENT COSTS -67,794 -67,794
---------- ----------
Intangible assets, net of accumulated amortizatio 500,805 500,805
---------- ----------
19100 INVESTMENT IN SUBSIDIARY 1 1
19001 INCORPORATION COSTS 140 140
19002 INC COSTS ACCUMULATED AMORTZTI -140 -140
---------- ----------
Total assets 12,039,494 11,564,494
========== ==========
Jasc Software Inc
Detailed Bal Sheet
GAAP Final 9/30/2004
30/09/2004 Adjustments Balance Sheet
---------- ----------- ---------------
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
21000 ACCOUNTS PAYABLE 1,924,265 1,924,265
21005 UNBILLED RECEIVERS 236,099 236,099
---------- ----------
Accounts payable 2,160,364 2,160,364
---------- ----------
22010 ACCRUED DISTRIBUTION EXPENSES 699,005 699,005
22050 ACCRUED REBATES 434,688 434,688
22011 ACCRUED ROYALTIES 279,424 279,424
23000 ACCRUED PAYROLL 1 1
23001 ACCRUED VACATION 622,469 622,469
23002 ACCRUED BONUSES 55,471 55,471
23003 ACCRUED COMMISSIONS 91,029 91,029
23025 ACCRUED PROFIT SHARING -63,392 -63,392
23030 FLEX SPENDING 31,128 31,128
---------- ----------
Accrued employee expenses 736,706 736,706
---------- ----------
22000 ACCRUED EXPENSES 948,972 948,972
24001 SALES TAX PAYABLE - MN 3,062 3,062
24002 SALES TAX PAYABLE - CA 2,567 2,567
24003 SALES TAX PAYABLE - OH 2,472 2,472
24010 GST PAYABLE/RECEIVABLE 61,287 61,287
28001 USE TAX PAYABLE 7,793 7,793
---------- ----------
Other accrued expenses 1,026,153 1,026,153
---------- ----------
Current maturities of long-term debt
25500 CURRENT LEASE OBLIGATION 2,725 2,725
---------- ----------
Current maturities of lease payments 2,725 2,725
---------- ----------
29000 CUSTOMER DEPOSITS 88,659 88,659
29050 DEFERRED REVENUE - I.P. 107,013 107,013
29051 DEFERRED REVENUE - OTHER 475,000 -475,000 0
---------- ----------
Deferred Revenue 670,672 195,672
---------- ----------
Total current liabilities 6,009,737 5,534,737
---------- ----------
28000 LONG TERM LEASE OBLIGATION 2,073 2,073
---------- ----------
Long-term debt 2,073 2,073
---------- ----------
Shareholders' equity
31000 COMMON STOCK 44,052 44,052
32000 APIC 1,512,448 1,512,448
38000 RETAINED EARNINGS 4,757,379 4,757,379
28010 INTERNATIONAL TAX WITHHOLDING -206,316 -206,316
38020 SHAREHOLDER DISTRIBUTIONS -600,027 -600,027
---------- ----------
Shareholder distributions -806,343 -806,343
---------- ----------
NET INCOME YTD 520,148 520,148
---------- ----------
Retained earnings 4,471,184 4,471,184
---------- ----------
Total Shareholders' equity 6,027,684 6,027,684
---------- ----------
Total liabilities and shareholders' equity 12,039,494 11,564,494
========== ==========
Jasc Software, Inc.
September 2004 Income Statement
SEP-04
---------
Net sales 3,570,317
Cost of sales 1,174,991
---------
Gross profit 2,395,326
Operating expenses:
Research and development 482,230
Sales and marketing 921,083
General and administrative 329,765
Profit sharing/stock based compensation 138,245
---------
Operating expenses before bonus 1,871,323
---------
Operating income 524,004
---------
Other income (expense):
Interest expense (48)
Interest income 4,554
Other income (expense) 27,943
State tax filings --
---------
Total other income and expense 32,449
---------
Net income before taxes 556,452
---------
Income tax accrual
Net income (loss) 556,452
=========
SCHEDULE 3.1.7
APPROVALS AND CONSENTS
- - The filing of a certificate of merger with the State of Minnesota is
required to consummate the Merger
- - Each contract listed in these Schedules that is denoted with a "(Y)" may
require the approval or consent of the other party to such contract in
connection with the consummation of the Transactions or any subsequent
transfers to direct or indirect subsidiaries of Corel.
- - Revolving Credit Agreement, dated as of November 23, 1998, between the
Corporation and Bremer Bank, N.A. (formerly known as Firstar Bank, N.A.,
which was formerly known as Firstar Bank of Minnesota, N.A.)
- Amendment and Waiver No. 1 to Revolving Credit Agreement, dated as of
May 19, 1999
- Amendment No. 2 to Revolving Credit Agreement, dated as of September
22, 1999
- Amendment No. 3 to Revolving Credit Agreement, dated as of January 14,
2000
- Amendment No. 4 to Revolving Credit Agreement, dated as of April 19,
2000
- Amendment No. 5 to Revolving Credit Agreement, dated as of June 13,
2000
- Amendment No. 6 to Revolving Credit Agreement, dated as of October 5,
2000
- Amendment No. 7 to Revolving Credit Agreement, dated as of December
20, 2000
- Amendment No. 8 to Revolving Credit Agreement, dated as of June 12,
2001
- Amendment No. 9 to Revolving Credit Agreement, dated as of August 10,
2001
- Amendment No. 10 to Revolving Credit Agreement, dated as of June 12,
2002
- Amendment No. 11 to Revolving Credit Agreement, dated as of June 13,
2003
- Amendment No. 12 to Revolving Credit Agreement, dated as of September
12, 2003
- Amendment No. 13 to Revolving Credit Agreement, dated as of September
15, 2004
Closing Required Consents
1. Customer Agreement, dated June 4, 2004, between MessageLabs, Inc. and the
Corporation
2. UnityMail Enterprise License Agreement, dated May 25, 2001, between the
Corporation and MessageMedia, Inc.
3. Two Unlimited Copy License Agreements, undated, between the Corporation and
Access Softek, Inc.
4. Annual Distribution License Agreement, undated, between the Corporation and
AccuSoft Corporation
5. Quicktime 5 Software Distribution Agreement, dated December 7, 2001,
between the Corporation and Apple Computer, Inc., as amended August 2003
6. Software License Agreement, dated October 28, 2003, between the Corporation
and Bibble Labs, Inc.
7. Embedded Software Agreement, dated May 11, 1999, between Bengt Computer
Graphics LLC and the Corporation, including Customer Support Schedule, as
amended January 24, 2002
8. License Agreement for Software Development Kit, dated November 17, 1999,
between the Corporation and Digimarc Corporation
9. Software Development and License Agreement, dated April 13, 2004, between
ECI Technology Solutions and the Corporation, as addended April 13, 2004
10. Software License and Distribution Agreement, effective December 31, 1998,
between Enroute, Inc. and Sierra Imaging, Inc., as amended August 16, 2001,
as sublicensed to the Corporation pursuant to a Letter Agreement, dated
December 3, 2001, among the Corporation, Enroute, Inc. and Sierra Imaging,
Inc.
11. Software Distribution Agreement, dated September 23, 2003, between the
Corporation and Avery Dennison Office Products (PS Album); Promotional
Agreement, dated January 7, 2003, between the Corporation and Avery
Dennison Office Products (PSP 8); Promotional Agreement, dated January 28,
2003, between the Corporation and Avery Dennison Office Products (PS
Album); Promotional Agreement, dated May 17, 2004, between the Corporation
and Avery Dennison Office Products Company
12. License Agreement, dated June 26, 1999, between the Corporation and
Microgetics Corporation
13. Distribution Agreement, dated June 9, 1998, between the Corporation and
Ingram Micro
14. Navarre Corporation CPD Consignment Agreement, dated April 30, 2001,
between the Corporation and Navarre Corporation
15. Direct Sales Agreement, dated January 17, 2003, between the Corporation and
Software Spectrum, Inc.
16. Software Distribution Agreement, dated June 19, 1998, between Tech Data
Product Management, Inc. and the Corporation
17. Digital Imaging Software License Agreement, dated January 31, 2004, between
Dell Products L.P. and the Corporation
18. Source Code License Agreement, dated as of December 14, 2001, among
Conexant Systems, Inc., Sierra Imaging, Inc. and the Corporation
19. Kodak Digital Science Reference SDK for the FlashPix Format License
Agreement, undated, between the Corporation and Kodak Corporation
20. Online Services Agreement, dated November 12, 2003, between the Corporation
and MyPublisher, Inc., as amended October 7, 2004
21. Software License Agreement, dated March 18, 2004, between the Corporation
and LC Technology International, Inc. for PhotoRecovery
22. End-User License Agreement, dated March 31, 2004, between the Corporation
and InstallShield Software Corporation
23. Computer Software Distribution Agreement dated January 21, 1999 between the
Corporation and Navarre
24. License Agreement, undated, between the Corporation and BCGSoft Ltd. (BCG
Pro) [click through license]
25. License Agreement, undated, between the Corporation and BCGSoft Ltd. (BCG -
not Pro) [click through license]
26. The Corporation will obtain a signed copy of a letter agreement with
Shutterfly, Inc. dated October 2004 regarding inclusion of Shutterfly code
in the Corporation's products.
SCHEDULE 3.1.11
LIABILITIES AND GUARANTEES
- - Revolving Credit Agreement, dated as of November 23, 1998, between the
Corporation and Bremer Bank, N.A. (formerly known as Firstar Bank, N.A.,
which was formerly known as Firstar Bank of Minnesota, N.A.)
- Amendment and Waiver No. 1 to Revolving Credit Agreement, dated as of
May 19, 1999
- Amendment No. 2 to Revolving Credit Agreement, dated as of September
22, 1999
- Amendment No. 3 to Revolving Credit Agreement, dated as of January 14,
2000
- Amendment No. 4 to Revolving Credit Agreement, dated as of April 19,
2000
- Amendment No. 5 to Revolving Credit Agreement, dated as of June 13,
2000
- Amendment No. 6 to Revolving Credit Agreement, dated as of October 5,
2000
- Amendment No. 7 to Revolving Credit Agreement, dated as of December
20, 2000
- Amendment No. 8 to Revolving Credit Agreement, dated as of June 12,
2001
- Amendment No. 9 to Revolving Credit Agreement, dated as of August 10,
2001
- Amendment No. 10 to Revolving Credit Agreement, dated as of June 12,
2002
- Amendment No. 11 to Revolving Credit Agreement, dated as of June 13,
2003
- Amendment No. 12 to Revolving Credit Agreement, dated as of September
12, 2003
- Amendment No. 13 to Revolving Credit Agreement, dated as of September
15, 2004
- - Revolving Note issued by the Corporation to Firstar Bank, N.A. (formerly
known as Firstar Bank of Minnesota, N.A.) on November 23, 1998
- - Revolving Note issued by the Corporation to Firstar Bank, N.A. on September
22, 1999
- - Revolving Note issued by the Corporation to Firstar Bank, N.A. on June 13,
2000
- - The Corporation has made contributions to a grantor trust to fund its
obligations under the Deferred Compensation Plan for Directors. These
amounts are not included on the Corporation's balance sheet.
- - The Corporation has contingent obligations related to the Jasc YE Bonus
Program.
SCHEDULE 3.1.12
INDEBTEDNESS
- - Revolving Credit Agreement, dated as of November 23, 1998, between the
Corporation and Bremer Bank, N.A. (formerly known as Firstar Bank, N.A.,
which was formerly known as Firstar Bank of Minnesota, N.A.)
- Amendment and Waiver No. 1 to Revolving Credit Agreement, dated as of
May 19, 1999
- Amendment No. 2 to Revolving Credit Agreement, dated as of September
22, 1999
- Amendment No. 3 to Revolving Credit Agreement, dated as of January 14,
2000
- Amendment No. 4 to Revolving Credit Agreement, dated as of April 19,
2000
- Amendment No. 5 to Revolving Credit Agreement, dated as of June 13,
2000
- Amendment No. 6 to Revolving Credit Agreement, dated as of October 5,
2000
- Amendment No. 7 to Revolving Credit Agreement, dated as of December
20, 2000
- Amendment No. 8 to Revolving Credit Agreement, dated as of June 12,
2001
- Amendment No. 9 to Revolving Credit Agreement, dated as of August 10,
2001
- Amendment No. 10 to Revolving Credit Agreement, dated as of June 12,
2002
- Amendment No. 11 to Revolving Credit Agreement, dated as of June 13,
2003
- Amendment No. 12 to Revolving Credit Agreement, dated as of September
12, 2003
- Amendment No. 13 to Revolving Credit Agreement, dated as of September
15, 2004
- - Revolving Note issued by the Corporation to Firstar Bank, N.A. (formerly
known as Firstar Bank of Minnesota, N.A.) on November 23, 1998
- - Revolving Note issued by the Corporation to Firstar Bank, N.A. on September
22, 1999
- - Revolving Note issued by the Corporation to Firstar Bank, N.A. on June 13,
2000
SCHEDULE 3.1.14
DIVIDENDS
- - The Corporation's Board of Directors has approved a distribution of the
Asset Consideration to Jasc Stockholders payable immediately upon receipt
by the Corporation of the Asset Sale Consideration.
SCHEDULE 3.1.15
INSIDER INTERESTS
- - Promissory Note of Kris Tufto, the Corporation's President, dated June 16,
2003 in the aggregate principal amount of $60,000. The Corporation has
demanded repayment of the Note upon payment of the amount due to Mr. Tufto
under his Change-in-Control Agreement. The amount due under the Note will
be offset against the amount payable under the Change-in-Control Agreement.
- - Joel Ronning, who served as a member of the Corporation's Board of
Directors from August 12, 1998 to September 24, 2001, is the Chief
Executive Officer of Digital River, Inc. The Corporation is a party to a
distribution agreement with Digital River, Inc.
- - See Schedule 3.1.6.
- - The Corporation leases a Cadillac Escalade (automobile) that is used
primarily by the Corporation's President, including for personal use.
- - Robert Voit's sister and brother are employees of the Corporation.
- - Kris Tufto's cousin, Allison Pankratz, is an employee of the Corporation.
SCHEDULE 3.1.16
AS TO CERTAIN CONTRACTS IN AND OUT OF THE ORDINARY COURSE
Schedule 3.1.16.1
- - Jasc Software, Inc. Retail Service Contract - Best Buy, dated April 14,
2004, between the Corporation and National Retail Services Inc.
Schedule 3.1.16.2
- - Software Development Agreement, dated February 9, 2004, between the
Corporation and Ambient Design, Ltd.
- - Letter Agreement with Bowne Terms, undated, between Bowne Global Solutions
II, Inc. and the Corporation, including all ancillary statements of work
- - Online Services Agreement, dated November 12, 2003, between the Corporation
and MyPublisher, Inc., as amended October 7, 2004 (Y)
- - Book Publishing Agreement, dated July 25, 2003, between the Corporation and
David Huss
- - Book Publishing Agreement, dated September 15, 2003, between the
Corporation and Michelle Shefveland
- - Retainer Agreement, dated September 8, 2003, between the Corporation and
Michelle Shefveland of CottageArts.net
- - Agreement, dated September 4, 2002, between Global Fulfillment Services,
Inc. and the Corporation (Y)
- - Promotional Agreement, dated January 31, 2003, between the Corporation and
Imation Corp.
- - HP Newsletter Registration Marketing Agreement, dated July 25, 2003,
between Hewlett-Packard Europe BV and the Corporation (Y)
- - Promotional Agreement, dated July 15, 2003, between the Corporation and
McGraw-Hill/Osborne Media (Y)
- - Security Services Agreement, dated December 1, 1999, between Harmon
Security Services, Inc., and the Corporation (Y)
- - Customer Agreement, dated June 4, 2004, between MessageLabs, Inc. and the
Corporation (Y)
- - Internet Services Agreement, dated April 4, 2002, between US Internet Corp.
and the Corporation (Y)
- - Contract Agreements, dated March 2, 2003, May 7, 2003 and October 23, 2003,
between DWJ Television, Inc. and the Corporation (Y)
- - Services Agreement, dated February 1, 2001, between the Corporation and
Bell Telephone Incorporated
- - Agreement, dated July 12, 2004, between the Corporation and Olson & Co.
- - Agreement, dated August 19, 2003, between the Corporation and Third Wire
- - Agreement, dated July 1, 2004, between the Corporation and Wiley
Publishing, Inc.
- - Manifest Mailing System Agreement, dated March 12, 2003, between the U.S.
Postal Service and the Corporation
Schedule 3.1.16.3
Schedule 3.1.16.4
- - End User License Agreement, dated March 31, 2004, between the Corporation
and InstallShield Software Corporation (Y)
- - International Master Representative Agreement, dated as of January 1, 2004,
between the Corporation and Questar
- - International Master Representative Agreement, dated as of January 1, 2004,
between the Corporation and BerniSoft
- - International Master Representative Agreement, dated as of January 1, 2004,
between the Corporation and Flaming Pear
- - International Master Representative Agreement, dated as of January 1, 2004,
between the Corporation and Connect Distribution sp. z.o.o.
- - International Master Representative Agreement, dated as of January 1, 2004,
between the Corporation and CompuTrolley.com
- - International Master Representative Agreement, dated as of January 1, 2004,
between the Corporation and ProSoft
- - International Master Representative Agreement, dated as of January 1, 2004,
between the Corporation and Avanquest France
- - Distribution Agreement, dated December 1, 2003, between the Corporation and
Gem Distribution Ltd.
- - International Master Representative Agreement, dated as of January 1, 2004,
between the Corporation and Communique Software [2003 agreement expired,
but the 2004 agreement is unsigned]
- - International Master Representative Agreement between the Corporation and
BroCo software BV [unsigned]
- - International Master Representative Agreement between the Corporation and
Xpress Soft [unsigned]
- - International Master Representative Agreement, dated as of December 27,
2002, between the Corporation and H.C. Top Systems B.V. [2003 agreement
(signed December 27, 2002) expired, but the 2004 agreement is unsigned]
- - International Master Representative Agreement between the Corporation and
Sector Zero, Productos informaticos SA [unsigned]
- - International Master Representative Agreement between the Corporation and
Daou Data Systems Corp. [unsigned]
- - International Master Representative Agreement between the Corporation and
Qast Systems Solutions Inc. [unsigned]
- - International Master Representative Agreement between the Corporation and
The Bird Group [unsigned]
- - International Master Representative Agreement between the Corporation and
Version, S.A. de CV [unsigned]
- - International Representative/Repubisher Agreement, executed as of November
15, 2000, between the Corporation and Global Soft Distribution, Limited
[2000 agreement expired, but the 2004 agreement is unsigned]
- - License and Distribution Agreement, dated as of September 15, 2003, between
the Corporation and CottageArts.net, LLC (Y)
- - Letter Agreement, dated September 15, 2003, between the Corporation and
Michelle Shefveland
- - Programming Services Agreement, dated April 20, 1999, between the
Corporation and BAL
- - Programming Services Agreement, dated February 2, 2000, between the
Corporation and BAL, as amended February 21, 2000, May 20, 2000, April 1,
2001, January 16, 2002, March 21, 2003, April 15, 2004
- - Representative Agreement, dated June 1, 2004, between the Corporation and
CMI Sales, Inc.
- - Direct Sales Agreement, dated January 17, 2003, between the Corporation and
Software Spectrum, Inc. (Y)
- - Memorandum of Understanding, executed October 9, 2002, between the
Corporation and Siemens AG
- - Memorandum of Understanding, executed March 11, 2003, between the
Corporation and Siemens AG
- - Letter Agreement, dated January 17, 2003, between the Corporation and Sound
Vision Inc.
- - Jasc Authorized Direct Retail Agreement, dated August 22, 2002, between the
Corporation and B&H Photo and Video
- - Market Development Funds Agreement, dated June 1, 2004, between the
Corporation and Amazon.com LLC (Y)
- - Distribution and Licensing Agreement, dated October 24, 2002, between the
Corporation and Activision Value Publishing, Inc., as amended October 24,
2003
- - International Supplier Agreement, dated July 9, 2002, between the
Corporation and Softek International, Inc.
- - Distribution and Marketing Agreement, dated April 1, 2001, between the
Corporation and the Douglas Stewart Company (Y)
- - Agreement, dated July 1, 2001, between the Corporation and The McLendon
Group, Inc.
- - Agreement, dated June 1, 2002, between the Corporation and Lienau
Associates
- - Agreement, dated December 4, 2003, between the Corporation and Levin
Consulting and Agreement, dated October 7, 2003, between the Corporation
and Levin Consulting
- - Independent Contractor Agreement, dated January 13, 2004, between the
Corporation and Test & Automation Consulting, LLC
- - Independent Contractor Agreement, dated April 1, 2004, between the
Corporation and SWAT Solutions
- - Temporary Agency Agreement, dated June 21, 2004, between the Corporation
and The Creative Group and Temporary Agency Agreement, dated September 29,
2004, between the Corporation and The Creative Group
- - Temporary Agency Agreement, dated August 31, 2004, between the Corporation
and The Creative Group (Barb Prindle)
- - Temporary Agency Agreement, dated August 31, 2004, between the Corporation
and The Creative Group (Will Lotzow)
- - Temporary Agency Agreement, dated August 2, 2004, between the Corporation
and Mary Weise
- - Independent Contractor Agreement, dated June 1, 2004, between the
Corporation and Mary Weise, Independent Contractor Agreement, dated August
2, 2004, between the Corporation and Mary Weise and Independent Contractor
Agreement, dated September 1, 2004, between the Corporation and Mary Weise
- - Temporary Agency Agreement, dated September 8, 2003, between the
Corporation and Michelle Shefveland
- - Master Consulting Agreement, dated _________, between the Corporation and
BenchmarkQA, Inc.
- - Master Consulting Agreement, dated November 20, 2000, between the
Corporation and BenchmarkQA, Inc.
- - Master Consulting Agreement, dated December 18, 2003, between the
Corporation and BenchmarkQA, Inc.
- - Independent Contractor Agreement, dated July 15, 2004, between the
Corporation and Josh Thue
- - Temporary Agency Agreement, dated August 13, 2004, between the Corporation
and Ajilon Finance
- - Temporary Agency Agreement, dated June 20, 2004, between the Corporation
and Westaff (USA) Inc.; Temporary Agency Agreement, dated June 27, 2004,
between the Corporation and Westaff; Temporary Agency Agreement, dated July
14, 2004, between the Corporation and Westaff (USA), Inc.; Temporary Agency
Agreement, dated August 12, 2004, between the Corporation and Westaff
(USA), Inc.; Temporary Agency Agreement, dated August 30, 2004, between the
Corporation and Westaff; and Temporary Agency Agreement, dated September
14, 2004, between the Corporation and Westaff
- - Temporary Agency Agreement, dated August 10, 2004, between the Corporation
and Abby Blu
- - Temporary Agency Agreement, dated June 30, 2004, between the Corporation
and Remedy Intelligent Staffing, Inc.
- - Temporary Agency Agreement, dated June 2, 2004, between the Corporation and
Spherion, Temporary Agency Agreement, undated, between the Corporation and
Spherion and Temporary Agency Agreement, dated August 27, 2004, between the
Corporation and Spherion
- - Temporary Agency Agreement, dated July 8, 2004, between the Corporation and
TeamExcel Minneapolis
- - Independent Contractor Agreement, dated August 25, 2004, between the
Corporation and Jeanmarie Kabala
- - Temporary Agency Agreement, dated August 19, 2004, between the Corporation
and Masterson Personnel and Temporary Agency Agreement, dated September 14,
2004, between the Corporation and Masterson Personnel
- - Temporary Agency Agreement, dated September 1, 2004, between the
Corporation and Superior Services
- - Green Card Sponsorship Agreement, dated April 10, 2001, between the
Corporation and Pei-Lin Yap
- - Green Card Sponsorship Agreement, dated April 25, 2001, between the
Corporation and Satyasai Sanagavarapu
- - Green Card Sponsorship Agreement, dated May 2, 2001, between the
Corporation and Savita Mahabaleshwas
- - Consulting Agreement, dated September 17, 2003, between the Corporation and
Test & Automation Consulting, LLC
- - Reseller Agreement, dated May 1, 2004, between the Corporation and Digital
Workshop
- - Independent Contractor Agreement, dated February 28, 2002, between the
Corporation and Diane Walker and Independent Contractor Agreement, dated
September 16, 2002, between the Corporation and Diane Walker
- - Independent Contractor Agreement, dated October 1, 2003, between the
Corporation and Ambient Design, Ltd.; Independent Contractor Agreement,
dated November 5, 2003, between the Corporation and Ambient Design, Ltd.;
Independent Contractor Agreement, dated December 22, 2003, between the
Corporation and Ambient Design, Ltd.
- - Letter Agreement, dated July 23, 2004, between the Corporation and Jim
Fugelstad
- - Software Distribution Agreement, dated October 20, 1991, between the
Corporation and Micrographics
- - Master Consulting Services Agreement, effective April 15, 2003, between the
Corporation and Gartner, Inc. (Y)
- - US Master Client Agreement, effective April 1, 1998, between Gartner Group
and the Corporation (Y)
- - Translation Agreement, effective January 17, 2003, between the Corporation
and Alpha CRC Ltd.
- - Independent Contractor Agreement, dated November 8, 2002, between the
Corporation and Push Studio, Inc.
- - Independent Contractor Agreement, dated May 14, 2004, between the
Corporation and Posi Photography Inc.
- - Retail Package Design Proposal Agreement, dated April 6, 2004, between
MicroArts, LLC and the Corporation, including addendum
- - Retail Package Design Proposal Agreement, dated May 5, 2004, between
MicroArts, LLC and the Corporation, including addendum
- - Software Development and License Agreement, dated April 13, 2004, between
ECI Technology Solutions and the Corporation, as addended April 13, 2004
(Y)
- - Independent Contractor Agreement, dated August 3, 2004, between the
Corporation and Arvid Axelsson and Independent Contractor Agreement, dated
September 7, 2004, between the Corporation and Arvid Axelsson
- - Letter Agreement, undated, between the Corporation and Ofoto, Inc.
- - Temporary Agency Agreement, dated October 6, 2004, between the Corporation
and the Bloomington, Minnesota branch of Accountemps, a division of Robert
Half International Inc.
See Schedule 3.1.17.1
Schedule 3.1.16.5
- - Independent Contractor Agreement, dated June 18, 2003, between the
Corporation and Solution Design Group
- - Independent Contractor Agreement, dated February 24, 2003, between the
Corporation and Solution Design Group
- - The Corporation has entered into EULAs with parties for its software.
- - Electronic Software Distribution Agreement, dated February 18,1998, between
the Corporation and Digital River, Inc. (Y)
- Summary of Relationship Agreement, undated, between the Corporation
and Digital River regarding prepayment of royalties under the
Electronic Software Distribution Agreement
- Addendum, dated September 8, 1998, to Electronic Software Distribution
Agreement, dated February 18, 1998, between the Corporation and
Digital River
- Reseller Amendment to Electronic Software Distribution Agreement,
dated February 18, 1998, between the Corporation and Digital River
- Vendor Agreement (International Agreement), dated December 18, 2002,
between the Corporation and Digital River (Y)
- Vendor Agreement, dated September 2, 2003, between the Corporation and
Digital River, as amended and further amended August 24, 2004 (Y)
- - The VIGRA Artistic License, undated
- - Master Software Testing Agreement for Microsoft Compliance Programs at
VeriTest, a Service of Lionbridge Technologies, dated May 16, 2000, between
the Corporation and VeriTest, as addended
- - Master Software Testing Agreement for Microsoft Logo Programs at VeriTest,
inc., dated May 21,1998, between the Corporation and VeriTest, inc.
- - International World Wide Web Consortium Participation Agreement, dated
January 26, 2000, among Massachusetts Institute of Technology, Institut
Rocquencourt, Keio University and the Corporation (Y)
- - PERFORCE End User License Agreement, last executed December 31, 2001,
between the Corporation and Perforce Software, Inc. (Y)
- - Agreement, dated February 8, 2002, between the Corporation and Ambient
Design Limited
- - Programming Services Agreement, dated October 31, 2002, between the
Corporation and Ambient Design Limited
- - Professional Consulting Services Agreement, dated May 19, 2004, between the
Corporation and Ambient Consulting, LLC
- - Software Development Agreement, dated February 9, 2004, between the
Corporation and Ambient Design, Ltd.
- - Evaluation Agreement, dated March 25, 2003, between the Corporation and
Sonic Solutions and Evaluation Agreement, dated December 3, 2003, between
the Corporation and Sonic Solutions
- - Embedded Software Agreement, dated May 11, 1999, between the Corporation
and Bengt Computer Graphics LLC, as amended January 24, 2002
- - License Agreement, undated, between BeOpen.com and the Corporation
- - Software License Agreement, dated October 28, 2003, between the Corporation
and Bibble Labs, Inc. (Y)
- - Quicktime 5 Software Distribution Agreement, dated December 7, 2001,
between the Corporation and Apple Computer, Inc., as amended August 2003
(Y)
- - Beta License Agreement, undated, between the Corporation and AccuSoft
Corporation
- - Netscape Client Software (Browser Suite) End User License Agreement,
undated, between the Corporation and Netscape Communications Corporation
- - Netscape Browser Redistribution Program License Agreement, undated, between
the Corporation and Netscape Communications Corporation
- - License Agreement, dated June 26, 1999, between the Corporation and
Microgetics Corporation (Y)
- - Agreement, dated July 15, 1991, between the Corporation and Micrographics
Corporation
- - Macromedia Player License Agreement, undated, between the Corporation and
Macromedia (Y)
- - Macromedia Shockwave and Flash Player License Agreement, undated, between
Macromedia, Inc. and the Corporation (Y)
- - Annual Distribution License Agreement, undated, between the Corporation and
AccuSoft Corporation (Y)
- - JPL Image Release, undated, between the Corporation and California
Institute of Technology
- - Kodak Digital Science Reference SDK for the FlashPix Format License
Agreement, undated, between the Corporation and Kodak Corporation (Y)
- - Manufacturing Distribution Agreement, dated August 17, 1998, between the
Corporation and IXLA Ltd., as amended November 1, 2001 (Y)
- - Limited Use License Agreement, dated June 10, 2004, between the Corporation
and ISYS - Intelligent System Solutions Corporation
- - Intel Pentium 4 Processor Platform Enabling Program, dated December 3,
2002, between the Corporation and Intel Americas Inc (Y)
- - Software License Agreement, dated April 10, 2000, between the Corporation
and IMSI (Y)
- - Xerces-C XML Parser - Apache Software License, version 1.1, undated
- - Software Development and License Agreement, dated November 8, 2002, between
the Corporation and Enterprise Corporation International, as amended April
13, 2004
- - License Agreement for Software Development Kit, dated November 17, 1999,
between the Corporation and Digimarc Corporation (Y)
- - Macromedia Player Licensing Agreement, undated, between Macromedia, Inc.
and the Corporation (Y)
- - Bengt Computer Graphics LLC Embedded Software Agreement, dated May 11,
1999, between Bengt Computer Graphics LLC and the Corporation, including
Customer Support Schedule, as amended January 24, 2002 (Y)
- - Software License Agreement, dated March 18, 2004, between LC Technology
International, Inc. and the Corporation (Y)
- - Software License and Reproduction Agreement, dated August 25, 2003, between
the Corporation and Intuit Corporation (Y)
- - Courseware Licensing Agreement, dated January 7, 2004, between Quessing
Courseware Corp. and the Corporation, as amended April 7, 2004 (Y)
- - Distribution Agreement, dated November 14, 2003, between Corbis and the
Corporation (Y)
- - Software Distribution Agreement, dated June 19, 1998, between Tech Data
Product Management, Inc. and the Corporation; Tech Data Electronic Commerce
User Agreement and License, undated, between Tech Data Corporation and the
Corporation (Y)
- - Volume Software License Agreement (Corporation form)
- - Contractual License Program: Agreement to License (Corporation form)
- - Investment Protection Agreement (Corporation Form)
- - Software User License Agreement (Academic) (Corporation Form)
- - 2003 Staples Software Merchandising Terms and Conditions, dated December
29, 2002, between Staples, The Office Superstore, Inc. and the Corporation
- - Digital Imaging Software License Agreement, dated January 31, 2004, between
Dell Products L.P. and the Corporation (Y)
- - License Agreement, dated October 5, 2004, between the Corporation and Dell
Products, L.P. (Y)
- - Microgistix/Jasc Software, Inc. Bundled Software License & Distribution
Agreement, dated March 12, 2003, between Microgistix Operations, Inc. and
the Corporation, as addended March 24, 2003, December 4, 2003, June 4, 2004
and June 15, 2004 (Y)
- - Permission Agreements, dated August 29, 2000, February 16, 2001 and April
6, 2001, between Premier Press, Inc. (Prima Communications, Inc.) and the
Corporation, as amended October 14, 2002 and further amended June 30,2004
(with attached license agreement)
- - Quick View Plus Software OEM Agreement, dated September 16, 1998, between
IntraNet Solutions Chicago, Inc. (aka Inso Chicago Corporation) and the
Corporation, as amended March 30, __________ (Y)
- - Co-Marketing Agreement, dated May 7, 2001, between the Corporation and
Alien Skin, LLC (Y)
- - Digital Image License Agreement, dated February 9, 2004, between Hemera
Technologies Inc. and the Corporation (Y)
- - License to Incorporated Copyrighted Works, May 3, 2001, between the
Corporation and Muska & Lipman Publishing dated (Y)
- - Certified for Microsoft Windows Logo License Agreement, undated, between
Microsoft Corporation and the Corporation (Y), Certified for Microsoft
Windows Logo License Agreement, dated June 5, 2000, between Microsoft
Corporation and the Corporation (Y), Certified for Microsoft Windows Logo
License Agreement, dated August 25, 2000, between Microsoft Corporation and
the Corporation (Y) and Certified for Microsoft Windows Logo License
Agreement, dated March 23, 2001, between Microsoft Corporation and the
Corporation (Y)
- - Designed for Microsoft Windows Logo License Agreement, undated, between
Microsoft Corporation and the Corporation (Y), Designed for Microsoft
Windows Logo License Agreement, dated July 30, 1999, between Microsoft
Corporation and the Corporation (Y), Designed for Microsoft Windows Logo
License Agreement, dated December 22, 1999, between Microsoft Corporation
and the Corporation (Y) and Designed for Microsoft Windows Logo License
Agreement, dated May 16, 2000, between Microsoft Corporation and the
Corporation (including Permission to Release Logo Testing Information to
Microsoft Corporation dated May 16, 2000 (Y)
- - Internet Photo Sharing Agreement, dated March 29, 2001, between the
Corporation and BrightCube, Inc. (Y)
- - Order Agreement, effective November 3, 2003, between eCapital Advisors and
the Corporation
- - Order Agreement, effective February 28, 2003, between Cognos Corporation
and the Corporation (Y)
- - Private Label Marketing Agreement, dated December 8, 1999, between the
Corporation and PhotoLoft.com, Inc. (Y)
- - QVC Mail-in Product Submittal, dated April 10, 2003, between the
Corporation and QVC [click through license]
- - Redistributable Code-Microsoft Merge Modules License Agreement, undated,
between the Corporation and Microsoft Corporation [click through license]
(Y)
- - License Agreements, undated, between the Corporation and Python Software
Foundation [click through licenses] (Y)
- - Unlimited Copy License Agreement, undated, between the Corporation and
Access Softek, Inc. (Y)
- - Publishing Agreement, dated June 7, 1995, between the Corporation and
Access Softek, Inc. and Publishing Agreement, dated June 8, 1995, between
the Corporation and Access Softek, Inc.
- - License Agreement, undated, between the Corporation and Microsoft
Corporation (MSXML) [click through license] (Y)
- - License Agreement, undated, between the Corporation and Microsoft
Corporation (MFC) [click through license] (Y)
- - License Agreement, undated, between the Corporation and Microsoft
Corporation (MDAC) [click through license] (Y)
- - License Agreement, undated, between the Corporation and Microsoft
Corporation (Internet Explorer) [click through license] (Y)
- - License Agreement, undated, between the Corporation and Adobe Corporation
(Reader 5.1) [click through license] (Y)
- - License Agreement, undated, between the Corporation and Xceed Software,
Inc. [click through license] (Y - must provide notice of transfer within 30
days)
- - License Agreement, undated, between the Corporation and BCGSoft Ltd. (BCG
Pro) [click through license] (Y)
- - License Agreement, undated, between the Corporation and BCGSoft Ltd. (BCG -
not Pro) [click through license] (Y)
- - TIFF-LZW/GIF-LZW Software Patent License Agreement, dated March 8, 1995,
between the Corporation and Unisys Corporation (Y)
- - Software License and Distribution Agreement, effective December 31, 1998,
between Enroute, Inc. and Sierra Imaging, Inc., as amended August 16, 2001,
as sublicensed to the Corporation pursuant to a Letter Agreement, dated
December 3, 2001, among the Corporation, Enroute, Inc. and Sierra Imaging,
Inc. (Y)
- - Agreement for Purchase of Software Source Code, dated April 15, 1997,
between the Corporation and Michael Bradley
- - Agreement for Purchase of Software Source Code, dated May 2, 1997, between
the Corporation and Jeff Becker, doing business as Top Software
- - Tool Kit License and Sublicense Agreement, undated, between the Corporation
and Live Picture, Inc.
- - The Independent Group's JPEG Software Readme, undated
- - Limited Use License Agreement, dated June 10, 2004, between the Corporation
and ISYS - Intelligent System Solutions Corporation, with Mutual
Non-Disclosure Agreement (Y)
- - Programming Services Agreement, dated June 5, 2002, between the Corporation
and Ilya Vladimirovich Razmanov
- - Programming Services Agreement, dated March 26, 2003, between the
Corporation and Ilya Vladimirovich Razmanov
- - Programming Services Agreement, dated April 26, 2004, between the
Corporation and Ilya Vladimirovich Razmanov
- - Master Subscription Agreement, undated, between the Corporation and
salesforce.com [click-through license] (Y)
- - Order Form for Sales Automation Software, dated May 27, 2004, between the
Corporation and salesforce.com
- - Untitled Contract, dated July 23, 2003, between the Corporation and GfK
Marketing Services GmbH & Co. KG (Y)
- - Client Agreement, dated February 12, 2003, between the Corporation and
Nygard Dimensions
- - Data Storage and Service Agreement, dated June 10, 1999, between the
Corporation and Arcus Data Security, Inc. (Y)
- - Release Agreement, dated March 2003, between the Corporation and Diane M.
Calkins
- - Release Agreement, dated July 5, 2004, between the Corporation and Allison
Pankratz
- - Release Agreement, dated June 30, 2004, between the Corporation and
Jennifer Kellogg and Release Agreement, dated February 28, 2003, between
the Corporation and Jennifer Kellogg
- - Release Agreement, undated, between the Corporation and Jennifer Keeler
- - Release Agreement, July 5, 2004, between the Corporation and Shawn Kardell
- - Release Agreement, September 29, 2004, between the Corporation and James F.
Morris
- - Release Agreement, September 29, 2004, between the Corporation and Steve
Eiswirth
- - Release Agreement, February 26, 2003, between the Corporation and Jeannine
Kellogg
- - Release Agreement, February 26, 2003, between the Corporation and Bill
Kellogg
- - Release Agreement, dated February 25, 2003, between the Corporation and
Jason Knutson
- - Release Agreement, dated March 16, 2003, between the Corporation and
Christina Zimmer
- - Release Agreement, dated March 2, 2003, between the Corporation and Ian
Kellogg (signed by Joe Kellogg)
- - Release Agreement, dated March 2, 2003, between the Corporation and Sarah
Kellogg (signed by Joe Kellogg)
- - Release Agreement, dated January 6, 2003, between the Corporation and Joe
Kellogg (signed by Joe Kellogg)
- - Release Agreement, dated February 16, 2003, between the Corporation and
Dominick Bailey (signed by Tony Luna)
- - Release Agreement, dated May 10, 2004, between the Corporation and Shannon
Weber and Release Agreement, dated February 25, 2003, between the
Corporation and Shannon Weber
- - Release Agreement, dated February 27, 2003, between the Corporation and
Kristina M. Stewart
- - Release Agreement, dated September 30, 2004, between the Corporation and
Traci Lange
- - Release Agreement, dated September 30, 2004, between the Corporation and
Lee Gilmore (for Alissa and Blake Gilmore)
- - Release Agreement, dated January 15, 2004, between the Corporation and
Sonja Dahl
- - Release Agreement, dated October 6, 2004, between the Corporation and
Douglas Meisner
- - Release Agreement, dated August 30, 2004, between the Corporation and Jim
Fugelstad
- - Independent Contractor Agreement, dated November 2002, between the
Corporation and Michael Medford Photograph
- - License Agreement, undated, between the Corporation and PictureQuest
[click-through license] (Y)
- - Royalty-Free License Agreement, undated, between the Corporation and Corbis
[click-through license] (Y)
- - Royalty-Free License Agreement, undated, between the Corporation and Getty
Images, Inc. [click-through license] (Y)
- - License Agreements, undated, between the Corporation and Getty Images, Inc.
[click-through licenses] (Y)
- - Royalty-Free License Agreement, undated, between the Corporation and
imageshop b.v. [click- through license] (Y)
- - MPEG License for Animation Shop, undated, between the Corporation and MPEG
Software Simulation Group (Y)
- - FreeType Project License 1.2 Agreement, undated, between the Corporation
and FreeType [click through license] (Y)
- - Output variable length bit strings by Jean-loup Gailly [GNU General Public
License Version 2, June 1991; click through license] (Y)
- - Rogue Wave Stingray License (Y)
- - Xerces-C XML Parser - Apache Software License, Version 1.1 (Y)
- - Point of Sale License Agreement, date August 27, 1999, between the
Corporation and Ingram Micro, Inc. (Y)
- - Designed for Microsoft Windows Logo License Agreement (PSP8 & Suite) [click
through license] (Y)
- - Designed for Microsoft Windows Logo License Agreement (PSP9 & Studio)
[click through license] (Y)
Schedule 3.1.16.6
Schedule 3.1.16.7
Schedule 3.1.16.8
- - Software Distribution Agreement, dated September 23, 2003, between the
Corporation and Avery Dennison Office Products (PS Album); Promotional
Agreement, dated January 7, 2003, between the Corporation and Avery
Dennison Office Products (PSP 8); Promotional Agreement, dated January 28,
2003, between the Corporation and Avery Dennison Office Products (PS
Album); Promotional Agreement, dated May 17, 2004, between the Corporation
and Avery Dennison Office Products Company (Y)
- - Promotional Agreement, dated February 12, 2003, between the Corporation and
Shutterfly, Inc. (Y) and Letter Agreement, dated December 12, 2001, between
the Corporation, Dell Products L.P. and Shutterfly, Inc.; Dell
Acknowledgement, dated March 8, 2001, as amended
- - Translation Agreement, dated February 25, 2003, between the Corporation and
Alpha CRC Ltd.
- - Translation Agreement, dated December 19, 2003, between the Corporation and
Alpha CRC Ltd.
- - Translation Agreement, dated June 3,2002, between the Corporation and
Concorde TEC B.V.
- - Translation Agreement, dated June 3,2002, between the Corporation and
naturalmenteSOGET
- - Localization Proposals, dated September 10, 2003, August 25, 2003, August
13, 2003, August 25, 2003, August 25, 2003 and November 17, 2003, from
Rubric, Inc.
See Schedule 3.1.29.8.
Schedule 3.1.16.9
- - Lease Agreement, undated, between the Corporation and Bennett Material
Handling and Forklift lease, undated, between the Corporation and Stearns
Bank National Association (Y)
- - Lease Agreement, dated as of June 7, 2002, between the Corporation and Key
Cadillac Oldsmobile
Schedule 3.1.16.10
- - eBay Ad Insertion Order Standard Terms and Conditions, dated as of June 12,
2003, between the Corporation and eBay Inc.
- - eBay Standard Terms and Conditions for AGENCY Insertion Orders, undated,
between the Corporation and eBay Inc.
- - Order for Service, dated May 3, 2004, issued by the Corporation to Return
Path, Inc.
- - Proposal for the Purchase of UnityMail Enterprise License, dated May 16,
2001, between the Corporation and MessageMedia, Inc.
- - UnityMail Enterprise License Agreement, dated May 25, 2001, between the
Corporation and MessageMedia, Inc. (Y)
- - Letter Agreement, dated June 5, 2002, between the Corporation and Design
Guys
- - Confidential Disclosure Agreement, dated April 18, 2003, between the
Corporation and Lexmark International, Inc
- - Contract, dated December 12, 2002, between the Corporation and Pictos
Technologies, Inc.
- - Trademark and Domain Name Assignment, dated December 10, 2001, between the
Corporation and AutoFX Software
- - Loan Agreement, dated September 1, 2000, between the Corporation and BAL
Corp.
- - Letter of Understanding, dated March 26, 2003, between the Corporation and
BAL Corp.
- - Two Service Agreements, undated, between the Corporation and InfoTrends
Research Group, Inc.
- - Purchase of Service Agreement, dated April 29, 2003, between the
Corporation and Opportunity Partners
- - Internet Services Agreement, dated April 16, 1999, between the Corporation
and US Internet Corp.
- - Invoice from Paul Irmiter Shoots dated October 5, 2000
- - Work Proposals, dated July 1, 2003, June 2, 2003, March 13, 2003, June 11,
2003 and May 21, 2003, from Medialocate USA, Inc.
- - Letter of Understanding, dated March 21, 2003, between the Corporation and
Allsorts Distribution Ltd t/as Digital Workshop
- - Mutual Confidentiality Agreement, dated January 23, 2004, between the
Corporation and Ofoto, Inc.
- - Mutual Confidentiality Agreement, dated September 12, 2004, between the
Corporation and PhotoBox Limited
- - Mutual Confidential Disclosure Agreement, dated May 10, 2000, between the
Corporation and Shutterfly.com, Inc.
- - Promotion and Rebate Agreement, dated December 22, 2001, between Microsoft
Corporation and the Corporation
- - Limited Use Agreement, dated September 12, 2002, between Oak Technology,
Inc. and the Corporation (Y)
- - In the normal course of its business, the Corporation enters into
non-disclosure agreements with other parties.
- - Dedicated Internet Access and Dedicated Web Hosting Service Agreement
between the Corporation and Time Warner Telecom of Minnesota LLC
See Schedule 3.1.25 and Schedule 3.1.29.
SCHEDULE 3.1.17
CERTAIN DISTRIBUTION AGREEMENTS
Schedule 3.1.17.1
- - Distribution Agreement, dated June 9, 1998, between Ingram Micro Inc. and
the Corporation, as amended July 1, 2002*
- - Master Program Agreement, dated May 22, 2003, between Best Buy Canada Ltd.
and the Corporation, as addended June 3, 2003*
- - Computer Software Distribution Agreement, dated January 21, 1999, between
the Corporation and Navarre Corporation*
- - Navarre Corporation CPD Consignment Agreement, dated April 30, 2001,
between the Corporation and Navarre Corporation*
- - Agreement to Provide Special Marketing and Administration Funds for Office
Max, dated May 1, 2000, between the Corporation and Navarre Corporation*
- - Software Consignment Agreement - Office Depot, dated June 18, 2003, between
the Corporation and Navarre Corporation*
- - Software Consignment Agreement - Staples, dated July 1, 2003, between the
Corporation and Navarre Corporation*
- - Software Consignment Agreement - CompUSA, dated July 1, 2004, between the
Corporation and Navarre Corporation*
- - Marketing Accrual Program Agreement, dated January 1, 2000, between the
Corporation and Office Depot, Inc.*
- - Retail Service Contract - Best Buy, dated April 14, 2004, between the
Corporation and National Retail Services Inc.*
- - International Master Representative Agreement, dated as of January 1, 2004,
between the Corporation and Questar*
- - International Master Representative Agreement, dated as of January 1, 2004,
between the Corporation and BerniSoft*
- - International Master Representative Agreement, dated as of January 1, 2004,
between the Corporation and Flaming Pear*
- - International Master Representative Agreement, dated as of January 1, 2004,
between the Corporation and Connect Distribution sp. z.o.o.*
- - International Master Representative Agreement, dated as of January 1, 2004,
between the Corporation and CompuTrolley.com*
- - International Master Representative Agreement, dated as of January 1, 2004,
between the Corporation and ProSoft*
- - International Master Representative Agreement, dated as of January 1, 2004,
between the Corporation and Avanquest France*
- - Distribution Agreement, dated December 1, 2003, between the Corporation and
Gem Distribution Ltd.*
- - International Master Representative Agreement, dated as of January 1, 2004,
between the Corporation and Communique Software [2003 agreement expired,
but the 2004 agreement is unsigned]*
- - International Master Representative Agreement between the Corporation and
BroCo software BV [unsigned]*
- - International Master Representative Agreement between the Corporation and
Xpress Soft [unsigned]*
- - International Master Representative Agreement, dated as of December 27,
2002, between the Corporation and H.C. Top Systems B.V. [2003 agreement
(signed December 27, 2002) expired, but the 2004 agreement is unsigned]*
- - International Master Representative Agreement between the Corporation and
Sector Zero, Productos informaticos SA [unsigned]*
- - International Master Representative Agreement between the Corporation and
Daou Data Systems Corp. [unsigned]*
- - International Master Representative Agreement between the Corporation and
Qast Systems Solutions Inc. [unsigned]*
- - International Master Representative Agreement between the Corporation and
The Bird Group [unsigned]*
- - International Master Representative Agreement between the Corporation and
Version, S.A. de CV [unsigned]*
- - International Representative/Repubisher Agreement, executed as of November
15, 2000, between the Corporation and Global Soft Distribution, Limited
[2000 agreement expired, but the 2004 agreement is unsigned]*
- - Representative Agreement, dated June 1, 2004, between the Corporation and
CMI Sales, Inc.*
- - Distribution and Marketing Agreement, dated April 1, 2001, between the
Corporation and the Douglas Stewart Company*
- - Letter Agreement, dated March 29, 2004, between the Corporation and Office
Depot, Inc.*
- - Reseller Agreement, dated May 1, 2004, between the Corporation and Digital
Workshop *
- - Standard Distribution Agreement, undated, between the Corporation and
Academic Distributing, Inc. [unsigned]*
* These agreements may not be terminated by the Corporation on 60 days or
less than 60 days written notice without any requirement to pay any
amounts, deliver any property, grant any rights or restrict the activities
of the Corporation.
See Schedule 3.1.16.
Schedule 3.1.17.2
- - The Corporation makes no representations as to whether termination of the
international master representative Contracts may give rise to any
obligations under applicable Laws.
EFFECTIVE DATE TERMINATION
MASTER REPRESENTATIVE OF AGREEMENT FOR CONVENIENCE FINANCIAL PENALTIES FOR TERMINATION
- --------------------- ---------------- ----------------------- ----------------------------------------------
Questar January 1, 2004 90 days written notice All unsold inventory must be returned to the
Corporation. The Corporation will pay the
representative for any inventory and products
the actual cost of the inventory, including
the actual cost of assembly for any product
packaged for
retail sale.
BerniSoft January 1, 2004 90 days written notice All unsold inventory must be returned to the
Corporation. The Corporation will pay the
representative for any inventory and products
the actual cost of the inventory, including
the actual cost of assembly for any product
packaged for retail sale.
Flaming Pear January 1, 2004 90 days written notice All unsold inventory must be returned to the
Corporation. The Corporation will pay the
representative for any inventory and products
the actual cost of the inventory, including
the actual cost of assembly for any product
packaged for retail sale.
Connect Distribution January 1, 2004 90 days written notice All unsold inventory must be returned to the
sp. z.o.o Corporation. The Corporation will pay the
representative for any inventory and products
the actual cost of the inventory, including
the actual cost of assembly for any product
packaged for retail sale.
CompuTrolley.com January 1, 2004 90 days written notice All unsold inventory must be returned to the
Corporation. The Corporation will pay the
representative for any inventory and products
the actual cost of the inventory, including
the actual cost of assembly for any product
packaged for retail sale.
ProSoft January 1, 2004 90 days written notice All unsold inventory must be returned to the
Corporation. The Corporation will pay the
representative for any inventory and products
the actual cost of the inventory, including
the actual cost of assembly for any product
packaged for retail sale.
Avanquest France January 1, 2004 180 days written notice All unsold inventory must be returned to the
Corporation. The Corporation will pay the
representative for any inventory and products
the actual cost of the inventory, including
the actual cost of assembly for any product
packaged for retail sale.
Gem Distribution - UK December 1, 2003 90 days written notice All complete product may be returned to the
Corporation for full credit for the price paid
net of rebates, and/or price protection.
Communique Software unsigned Previous agreement All unsold inventory must be returned to the
expired December Corporation. The Corporation will pay the
31, 2003; operating representative for any inventory and products
under unsigned the actual cost of the inventory, including
the actual cost of assembly for any product
packaged for
agreement; retail sale.
previous agreement
did not provide for
termination without
cause
BroCo Software unsigned - 2004 Previous agreement All unsold inventory must be returned to the
agreement has expired December 31, Corporation. The Corporation will pay the
been executed by 2003; operating representative for any inventory and products
BroCo, but not under unsigned the actual cost of the inventory, including
countersigned by agreement; previous the actual cost of assembly for any product
the Corporation agreement did not packaged for retail sale.
per instructions provide for termination
from Vector without cause
Xpress Soft unsigned Previous agreement All unsold inventory must be returned to the
expired December 31, Corporation. The Corporation will pay the
2003; operating under representative for any inventory and products
unsigned agreement; the actual cost of the inventory, including
previous agreement did the actual cost of assembly for any product
not provide for packaged for retail sale.
termination without
cause
H.C. Top Systems B.V. December 27, Previous agreement All unsold inventory must be returned to the
2002 expired December 31, Corporation. The Corporation will pay the
2003; operating under representative for any inventory and products
unsigned agreement; the actual cost of the inventory, including
previous agreement did the actual cost of assembly for any product
not provide for packaged for retail sale.
termination without
cause
Sector Zero, unsigned No 2003 agreement; new All unsold inventory must be returned to the
Productos MR in 2004; working Corporation. The Corporation will pay the
informaticos SA under verbal agreement representative for any inventory and products
and purchase orders the actual cost of the inventory, including
the actual cost of assembly for any product
packaged for retail sale.
Daou Data Systems unsigned No 2003 agreement; new All unsold inventory must be returned to the
Corp. MR in 2004; working Corporation. The Corporation will pay the
under verbal agreement representative for any inventory and products
the actual cost of the inventory, including
the actual cost of
and purchase orders assembly for any product packaged for retail
sale.
Qast Systems unsigned No 2003 agreement; new All unsold inventory must be returned to the
Solutions Inc. MR in 2004; working Corporation. The Corporation will pay the
under verbal agreement representative for any inventory and products
and purchase orders the actual cost of the inventory, including
the actual cost of assembly for any product
packaged for retail sale.
The Bird Group unsigned Previous agreement All unsold inventory must be returned to the
expired December 31, Corporation. The Corporation will pay the
2003; operating under representative for any inventory and products
unsigned agreement; the actual cost of the inventory, including
previous agreement did the actual cost of assembly for any product
not provide for packaged for retail sale.
termination without
cause
Version, S.A. de CV unsigned 2002 MR (agreement All unsold inventory must be returned to the
terminated by the Corporation. The Corporation will pay the
Corporation); working representative for any inventory and products
under Verbal agreement the actual cost of the inventory, including
and purchase orders the actual cost of assembly for any product
packaged for retail sale.
Global Soft (aka P&A, November 15, Agreement expired All unsold inventory must be returned to the
Inc.) 2000 December 31, 2003; Corporation. The Corporation will pay the
operating under representative for any inventory and products
unsigned agreement; the actual cost of the inventory, including
previous agreement the actual cost of assembly for any product
did not provide for packaged for retail sale.
termination without
cause
SCHEDULE 3.1.20
LEASED REAL PROPERTY
The Corporation leases approximately 74,224 square feet located at the
Fuller Road Business Center, 7905 Fuller Road, Eden Prairie, Minnesota.
- - Lease Agreement, dated as of August 19, 1998, between the Corporation and
Liberty Property Limited Partnership
- Amendment to Lease Agreement, dated as of March 6, 2003, between the
Corporation and Liberty Property Limited Partnership
SCHEDULE 3.1.22
TITLE TO ASSETS
Schedule 3.1.22.1
Bremer Bank (successor to Firstar Bank of Minnesota, N.A.) has filed a blanket
security interest in connection with the revolving credit facility (No. 2097079
filed January 1, 1999, No. 2001131071 filed August 15, 2001 and #2003876236
filed September 17, 2003).
Schedule 3.1.22.3
The Corporation has in the past corrected defects in initial releases of the
versions of its products, which resulted in sending a modified version to
customers.
SCHEDULE 3.1.23
ENVIRONMENTAL MATTERS
None.
SCHEDULE 3.1.25
EMPLOYMENT MATTERS
Schedule 3.1.25.1
- - Employment Agreement, dated December 3, 1998, between the Corporation and
Robert Voit
- - Employment Agreement, dated December 15, 1998, between the Corporation and
Kris B. Tufto
- - Employment Agreement, dated December 3, 1998, between the Corporation and
Jon Ort
- - The Corporation is a party to certain Change-in-Control Agreements listed
in Schedule 3.1.6.
Schedule 3.1.25.3
The Corporation is a party to certain Change-in-Control Agreements listed in
Schedule 3.1.6. The Corporation has accrued or paid all earned bonuses, but not
has not accrued any unearned bonuses under the Jasc YE Bonus Program.
Schedule 3.1.25.4
The Corporation is a party to certain Change-in-Control Agreements listed in
Schedule 3.1.6.
Schedule 3.1.25.6
The Corporation may not have such agreements from employees that ceased to be
employees prior to September 2001.
Robert Voit, Jon Ort and Kris Tufto are not parties to the standard forms
because the relevant provisions are included in their employment agreements.
There are generally two generations of the Corporation's form agreements. The
Corporation has provided a copy of each individual's agreement to Corel and
Merger Subsidiary.
SCHEDULE 3.1.26
EMPLOYEE PLANS
- - 401(k) and Profit Sharing Plan (adopted 4/10/1996), effective 1/1/1996, as
amended
- Restatement of Company's 401(k) Plan, effective 1/1/2000
- Restatement of Company's 401(k) Plan, effective 12/3/2001
- Restatement of Company's 401(k) Plan, adopted 1/1/2003
- - Jasc Software, Inc. 1997 Executive Stock Plan, adopted 12/1/1997 -
terminated 10/27/1998
- Non-statutory Stock Option Agreement
- - Jasc Software, Inc. 1997 Omnibus Stock Plan, adopted 12/19/1997, as
amended.
- Incentive Stock Option Agreement - Employee
- Incentive Stock Option Agreement - Executive
- Non-statutory Stock Option Agreement - Employee
- Non-statutory Stock Option Agreement - Executive
- Non-Statutory Stock Option Agreement - Non-Employee Director
- - Jasc Software, Inc. Cafeteria Plan, adopted effective 1/1/1999
- - Jasc Software, Inc. Deferred Compensation Plan for Directors, adopted and
approved 12/21/2000
- - Employee Profit Sharing Plan
- - UNUM Life Insurance Company of America Life Insurance Plan
- - Jefferson Pilot Financial Life and AD&D Insurance
- - Jefferson Pilot Financial Short-Term Disability and Long-Term Disability
Plans
- - Tuition payment program
- - Medica Choice Select
- - Medica Elect
- - Delta Dental Benefit Plan
- - Short-Term and Long-Term Disability
- - Bonus program letter agreements (see the 2004 bonus columns in 3.1.25.2)
SCHEDULE 3.1.28
INSURANCE
INSURER RISKS COVERED AMOUNT OF COVERAGE
------- ------------- ------------------
Chubb Worldwide Property Insurance Blanket Personal Property, A/R, Papers $6,000,000
Business Income $500,000
Personal Property in Transit $25,000
Personal Property any Location $100,000
Property on Exhibition $50,000
Chubb Worldwide General Liability General Aggregate $2,000,000
Insurance Products/Completed Operations $2,000,000
Advertising Injury & Personal Injury $1,000,000
Each Occurrence limit $1,000,000
Damage to Rented Premises $1,000,000
Medical Expense limit $10,000
Employee Benefits liability:
aggregate limit $3,000,000
each claim limit $1,000,000
deductible $1,000
Information & Network Technology:
aggregate $2,000,000
deductible $50,000
Chubb International Auto Liability Excess Liability $1,000,000
Medical expenses - each $10,000
Non-owned Autos - Damage $10,000 (agg.)
Threshold Amount Benefit $10,000
Chubb International Workers Bodily Injury by Accident $1,000,000 (ea.)
Compensation Bodily Injury by Disease $1,000,000 (agg.)
Bodily Injury by Disease $1,000,000 (ea.)
Repatriation:
Each Employee $250,000
Policy Limit $500,000
Chubb Automobile Insurance Liability $1,000,000
Personal Injury Protection Statutory
Physical Damage:
Comprehensive Deductible $500
Collision Deductible $500
Hired Car:
Comprehensive Deductible $500
Collision Deductible $500
Physical Damage Limit ACV or Cost of Repair, whichever is
less, subject to the deductible
Underinsured Motorist $1,000,000
Uninsured Motorist $1,000,000.
Chubb Workers Compensation Bodily Injury by Accident $5000,000 (ea.)
Bodily Injury by Disease $500,000 (agg.)
Bodily Injury by Disease $500,000 (ea.)
Chubb Umbrella Insurance Excess Coverage over Aggregate limit $5,000,000
Umbrella Coverage limit $5,000,000
Products/Complete Operations limit $5,000,000
Advertising Injury & Personal Injury $5,000,000
Each Occurrence limit $5,000,000
Chubb Crime Coverage Employee Theft $400,000
Premises $400,000
In Transit $400,000
Forgery $400,000
Computer Fraud $400,000
Funds Transfer Fraud $400,000
($25,000 deductible per loss)
Carolina Management Liability Insurance Limit of liability for policy $2,000,000 subject to a Prior Acts
Casualty period Exclusion effective 5/1/04 which
Insurance applies a limit of $1,000,000 for
Company acts prior to 5/1/04 and reported
after 5/1/04
INSURER RISKS COVERED AMOUNT OF COVERAGE
------- ------------- ------------------
UNUM Life Life Insurance Plan Life Insurance Plan
Insurance Amount of Life Insurance - Employee $10,000 benefit units
Company Amount of Life Insurance - Spouse $5,000 benefit units
of Amount of Life Insurance - Children $2,000 benefit units
America Accidental Death & Dismemberment
Amount of Life Insurance - Employee $10,000 benefit units
Amount of Life Insurance - Spouse $5,000 benefit units
Amount of Life Insurance - Children $2,000 benefit units
Repatriation Benefit Up to $5,000
Education Benefit $100,000 (maximum)
Jefferson Life and AD&D Insurance Amount of Personal Life $50,000
Pilot Insurance AD&D Insurance $50,000
Financial Principal Sum
SCHEDULE 3.1.29
INTELLECTUAL PROPERTY
All of the representations and warranties in Schedule 3.1.29 are qualified by
reference to the Corporation's end-user and volume licenses issued pursuant to
license agreements in the ordinary course of the Business.
Schedule 3.1.29.1
PATENTS:
PATENT COUNSEL:
HENSLEY KIM & EDGINGTON; CONTACT: RICHARD HOLZER
LEE & HAYES (FOR THOSE NOTED BELOW WITH AN ASTERISK (*) AFTER THE TITLE
TITLE COUNTRY APPLICATION NUMBERS FILING DATE STATUS
- ----- ------- ------------------- ----------- ------
Adaptive Region Editing Tool US 10/781,572 2/17/2004 Pending - Missing Parts filed 8/10/04;
(Utility) assignment filed for recording 8/10/04
Assisted Adaptive Region Editing US 60/545,654 2/17/2004 Pending
Tool (Provisional)
Assisted Adaptive Region Editing US Not yet available 9/20/2004 New
Tool (Utility)
Adaptive Sampling Region for a US 10/940,596 9/14/2004 Pending - Filed with missing parts on
Region Editing Tool (Utility) 9/14/04
Method for Removing Defects from US 09/900,506 7/6/2001 Pending - Response to first office
Images (Utility) action filed 8/6/04
Histogram Adjustment Features for US 09/899,577 7/5/2001 Pending - An office action was
Use in Imaging Technologies (Utility) received and a response is due by
12/23/04.
Correction of "Red-eye" Effects in US 09/899,572 7/5/2001 Pending - Response to restriction
Images (Utility) requirement filed 8/11/04
Assisted Scratch Removal US 09/900,479 7/6/2001 Pending
(Utility)
Detection of Lines in Images US 09/897,736 7/2/2001 Pending
(Utility)
Fine Moire Correction in Images US 09/899,503 7/5/2001 Pending - No office actions received
(Utility)
Moire Correction in Images US 09/897,716 7/2/2001 Pending - Issue fee payment due
(Utility) 11/9/04; continuation to be filed
Removal of Block Encoding US 09/897,765 7/2/2001 Pending
Artifacts (Utility)
Manual Correction of an Image US 09/897,769 7/2/2001 Pending - No office actions received
Color (Utility)
Automatic Contrast Enhancement US 09/900,744 7/6/2001 Pending - Issue fee payment due
(Utility) 10/14/04; continuation to be filed
Automatic Saturation Adjustment US 09/900,441 7/6/2001 Pending - Issue fee payment due
(Utility) 10/14/04; continuation to be filed
Automatic Color Balance US 09/897,768 7/2/2001 Pending - No office actions received
(Utility)
Iterative Fisher Linear Discriminant US 60/545,652 2/17/2004 No action pending
Analysis* (Provisional)
Iterative Fisher Linear Discriminant US 10/888,441 7/9/2004 Notice of missing parts received;
Analysis* (Utility) formal action due by 10/25/04
Aspect Ratio Preserving Perspective US 60/545,655 2/17/2004 No action pending
Transform* (Provisional)
Method and Apparatus for US 10/878,984 6/28/2004 Awaiting notice of missing parts
Correction of Perspective Distortion* (Utility)
A Selection Tool Using Color US 60/545,653 2/17/2004 No action pending
Region and Edge Information* (Provisional)
Method and Apparatus for Selection US 10/886,937 7/8/2004 Notice of missing parts received;
an Object in an Image* (Utility) formal papers due 10/19/04
TRADEMARKS:
TRADEMARK COUNSEL: FAEGRE & BENSON LLP, CONTACT: PATRICIA REDDING
REGISTRATION REGISTRATION
COUNTRY REFERENCE NO. DATE FILED APPLICATION NO. DATE NO. STATUS
- ------- ------------- ---------- --------------- ------------ ------------ ----------
AFTER SHOT
EUROPEAN 245814 4/11/2002 002649283 ABANDONED
UNION
JAPAN 246488 4/12/2002 2002-030117 1/17/2003 4638175 ABANDONED
UNITED 240849 2/6/2002 76/367,492 6/24/2003 2,730,488 REGISTERED
STATES
IMAGE EXPERT
CANADA 246652 8/19/1997 854,052 10/26/1999 TMA518671 REGISTERED
EUROPEAN 246621 2/13/1997 000457143 5/3/2003 000457143 REGISTERED
UNION
EUROPEAN 249166 7/10/2002 002781466 ABANDONED
UNION
JAPAN 246569 4/1/1997 H09-101285 3/31/2000 4372092 REGISTERED
MEXICO 248870 9/2/1997 306431 2/24/1998 570408 REGISTERED
UNITED 243565 10/1/1996 75/175,059 2/8/2000 2,315,168 REGISTERED
STATES
IMAGECOMMANDER
UNITED 220064 2/14/1994 74/489,264 3/5/1996 1,959,599 ABANDONED
STATES
IMAGEROBOT
UNITED 220065 3/12/1997 75/256,160 ABANDONED
STATES
JASC
ARGENTINA 214698 10/9/1998 2180537 1/25/2000 1771868 REGISTER
ED
BRAZIL 214699 1/8/1999 821345478 2/17/2004 821345478 REGISTER
ED
CANADA 220059 12/17/1997 0864,475 4/28/1999 TMA511,210 REGISTER
ED
CHILE 214700 1/29/1999 439,539 4/26/2001 594,940 REGISTER
ED
EUROPEAN 220061 5/22/1997 550483 5/22/1997 550483 REGISTER
UNION ED
JAPAN 212641 7/7/1998 10-57718 3/31/2000 4372132 REGISTER
ED
MEXICO 214701 10/6/1998 349452 10/18/1999 628945 REGISTER
ED
UNITED 220066 2/6/1997 75/237,624 9/28/1999 2,280,283 REGISTER
STATES ED
VENEZUELA 214702 3/2/1999 2940/1999 11/2/1999 P-216,224 REGISTER
ED
JASC MEDIA PRESENTER
UNITED STATES 212434 7/1/1998 75/511,881 ABANDON
ED
JASC SOFTWARE & DESIGN
CANADA 242391 11/28/2000 1084254 1/6/2004 TMA598,597 REGISTER
ED
EUROPEAN 242392 12/14/2000 002014314 1/7/2002 002014314 REGISTER
UNION ED
JAPAN 242393 12/12/2000 2000-133483 8/10/2001 4498011 REGISTER
ED
UNITED STATES 242390 6/26/2000 76/077,208 3/25/2003 2,699,238 REGISTER
ED
MEDIA MECCA
UNITED 220067 6/28/1994 74/543,383 ABANDON
STATES ED
PAINT SHOP PRO PHOTO ALBUM
UNITED STATES 302482 10/28/2002 78/179,063 PENDING
PAINT SHOP PRO
ARGENTINA 214703 10/9/1998 2180538 1/25/2000 1.771.869 REGISTERED
BRAZIL 214704 1/8/1999 821345486 5/14/2002 821345486 REGISTERED
CANADA 220060 1/27/1998 0867,542 10/15/1999 517.985 REGISTERED
CHILE 214705 1/29/1999 439.540 8/23/1999 546.579 REGISTERED
EUROPEAN 220062 5/19/1997 543413 10/6/1998 543413 REGISTERED
UNION
JAPAN 212640 7/7/1998 10-57719 9/10/1999 4313533 REGISTERED
MEXICO 214706 10/6/1998 349453 4/23/1999 606668 REGISTERED
UNITED KINGDOM 220063 12/7/1994 2004112 11/1/1996 2004112 REGISTERED
UNITED STATES 216315 2/3/1999 75/633,592 12/3/2002 2,655264 REGISTERED
VENEZUELA 214707 3/5/1999 3311/1999 11/2/1999 P-216.265 REGISTERED
PAINT SHOP PRO (JAPANESE)
JAPAN 212639 7/7/1998 10-57720 9/10/1999 4313534 REGISTERED
PHOTOEXPERT
EUROPEAN 245265 3/13/2002 002616258 ABANDONED
UNION
JAPAN 246515 4/12/2002 2002-030116 1/31/2003 4642555 REGISTERED
THE POWER TO CREATE
UNITED STATES 220068 7/30/1996 75/142,439 1/13/1998 2,128,336 REGISTERED
TRAJECTORY PRO
UNITED STATES T32059USOO 2/28/2000 75/950,125 ABANDONED
WEBDRAW
ARGENTINA 242395 5/9/2001 2337738 11/7/2002 1,894.088 ABANDONED
BRAZIL 242396 5/9/2001 823909131 ABANDONED
CANADA 242397 5/8/2001 1102145 ABANDONED
CHILE 242398 5/8/2001 527.240 11/21/2001 609.184 REGISTERED
EUROPEAN 242399 5/8/2001 002207553 ABANDONED
UNION
JAPAN 242400 5/8/2001 2001-41172 12/21/2001 44531974 REGISTERED
MEXICO 242401 5/9/2001 484547 7/27/2001 708099 REGISTERED
UNITED STATES 242394 11/9/2000 78/034,599 7/29/2003 2,744,809 REGISTERED
VENEZUELA 242402 5/8/2001 7516/2001 ABANDONED
NAME OF LICENSED SOFTWARE
THIRD PARTY LICENSES LICENSOR SOURCE CODE IN POSSESSION
- ------------------------- -------- -------------------------
Image Expert Software Sierra Imaging, Inc., a subsidiary of Yes
Conexant Systems, Inc.
Independent JPEG Group - Release Independent JPEG Group No
of 6b
ImageGear2001 AccuSoft No
Quicktime 5 and 6.5 Apple No
Embedded Software Bengt Computer Graphics LLC No
Software License Agreement Bibble Labs, Inc. No
SDK Digimarc Corporation No
ECI Software Development ECI No
Kodak SDK for FlashPix Kodak Agreement No
Visual Studio Redistribution EULA Microsoft No
Macromedia Player Macromedia No
Macromedia Shockwave Macromedia No
Xerces-C XML Parser - Apache Apache Software No
Software License Version 1.1
(Xerces)
Python License 1.6/2.0, 2.2.1, 2.3.2 Beopen.com No
and 2.3.3
Microgetics (use of images) Microgetics No
nttdocomo (use of imode mark) nttdocomo No
Access Softek Access Softek No
MSXML Microsoft No
Live Picture Tool Kit (through PSP7) Live Picture Tool Kit No
Micrographics Micrographics No
World Wide Web Consortium World Wide Web Consortium No
Participation Agreement Participation Agreement
Digital Camera Interface SDK 1.0 IXLA No
InstallShield InstallShield No
JPL Image Release Agreement California Institute of Technology No
Netscape Client Software Netscape No
Netscape Browser Netscape No
Shutterfly Conexant/Sierra Imaging No
Enroute Conexant/Sierra Imaging No
Ofoto Ofoto No
PhotoBox PhotoBox No
Microsoft MDAC license Microsoft No
Microsoft MFC License Microsoft No
Microsoft XML license Microsoft No
Microsoft Internet Explorer Microsoft No
Xceed FTP Library Xceed No
Adobe Acrobat Reader Adobe No
FreeType Project License version 1.2 FreeType No
BCG Soft BCG Yes
BCGPro BCG Yes
PhotoRecovery LC Technology International, Inc. No
MyPublisher MyPublisher, Inc. No
Luminere IMSI Yes
Xerces XML Apache Software Yes
Output variable length bit strings Jean-loup Gailly Yes
Stingray libraries Rogue Wave No
Related Agreements:
- - The Independent Group's JPEG Software Readme, undated
- - Source Code License Agreement, dated as of December 14, 2001, among
Conexant Systems, Inc., Sierra Imaging, Inc. and the Corporation
- - Annual Distribution License Agreement, undated, between the Corporation and
AccuSoft Corporation
- - Quicktime 5 Software Distribution Agreement, dated December 7, 2001,
between the Corporation and Apple Computer, Inc., as amended August 2003
- - Embedded Software Agreement, dated May 11, 1999, between the Corporation
and Bengt Computer Graphics LLC, as amended January 24, 2002
- - Software License Agreement, dated October 28, 2003, between the Corporation
and Bibble Labs, Inc.
- - License Agreement for Software Development Kit, dated November 17, 1999,
between the Corporation and Digimarc Corporation
- - Software Development and License Agreement, dated April 13, 2004, between
ECI Technology Solutions and the Corporation, as addended April 13, 2004
- - Kodak Digital Science Reference SDK for the FlashPix Format License
Agreement, undated, between the Corporation and Kodak Corporation
- - Redistributable Code-Microsoft Merge Modules License Agreement, undated,
between the Corporation and Microsoft Corporation [click through license]
- - License Agreement, undated, between the Corporation and Microsoft
Corporation (MSXML) [click through license]
- - License Agreement, undated, between the Corporation and Microsoft
Corporation (MFC) [click through license]
- - License Agreement, undated, between the Corporation and Microsoft
Corporation (MDAC) [click through license]
- - License Agreement, undated, between the Corporation and Microsoft
Corporation (Internet Explorer) [click through license]
- - Macromedia Player License Agreement, undated, between the Corporation and
Macromedia
- - Macromedia Shockwave and Flash Player License Agreement, undated, between
Macromedia, Inc. and the Corporation
- - Xerces-C XML Parser - Apache Software License, version 1.1, undated
- - License Agreements, undated, between the Corporation and Python Software
Foundation [click through licenses]
- - License Agreement, dated June 26, 1999, between the Corporation and
Microgetics Corporation
- - Unlimited Copy License Agreement, undated, between the Corporation and
Access Softek, Inc.
- - Publishing Agreement, dated June 7, 1995, between the Corporation and
Access Softek, Inc. and Publishing Agreement, dated June 8, 1995, between
the Corporation and Access Softek, Inc.
- - Software Distribution Agreement, dated October 20, 1991, between the
Corporation and Micrographics
- - Agreement, dated July 15, 1991, between the Corporation and Micrographics
Corporation
- - International World Wide Web Consortium Participation Agreement, dated
January 26, 2000, among Massachusetts Institute of Technology, Institut
Rocquencourt, Keio University and the Corporation
- - Manufacturing Distribution Agreement, dated August 17, 1998, between the
Corporation and IXLA Ltd., as amended November 1, 2001
- - End User License Agreement, dated March 31, 2004, between the Corporation
and InstallShield Software Corporation
- - JPL Image Release, undated, between the Corporation and California
Institute of Technology
- - Netscape Client Software (Browser Suite) End User License Agreement,
undated, between the Corporation and Netscape Communications Corporation
- - Netscape Browser Redistribution Program License Agreement, undated, between
the Corporation and Netscape Communications Corporation
- - Promotional Agreement, dated February 12, 2003, between the Corporation and
Shutterfly, Inc. and Letter Agreement, dated December 12, 2001, between the
Corporation, Dell Products L.P. and Shutterfly, Inc.; Dell Acknowledgement
dated March 8, 2001, as amended
- - License Agreement, dated October 5, 2004, between the Corporation and Dell
Products, L.P. (Y)
- - Software License and Distribution Agreement, effective December 31, 1998,
as amended August 16, 2001, between Enroute, Inc. and Sierra Imaging, Inc.,
as sublicensed to the Corporation pursuant to a Letter Agreement, dated
December 3, 2001, among the Corporation, Enroute, Inc. and Sierra Imaging,
Inc.
- - Tool Kit License and Sublicense Agreement, undated, between the Corporation
and Live Picture, Inc.
- - Redistributable Code-Microsoft Merge Modules License Agreement, undated,
between the Corporation and Microsoft Corporation [click through license]
- - License Agreement, undated, between the Corporation and Xceed Software,
Inc. (No consent required - Corel must provide notice of transfer within 30
days)
- - License Agreement, undated, between the Corporation and Adobe Corporation
(Reader 5.1) [click through license]
- - License Agreement, undated, between the Corporation and BCGSoft Ltd. (BCG
Pro) [click through license]
- - License Agreement, undated, between the Corporation and BCGSoft Ltd. (BCG -
not Pro) [click through license]
- - Software License Agreement, dated March 18, 2004, between the Corporation
and LC Technology International, Inc.
- - Online Services Agreement, dated November 12, 2003, between the Corporation
and MyPublisher, Inc., as amended October 7, 2004
- - Output variable length bit strings by Jean-loup Gailly [GNU General Public
License Version 2, June 1991; click through license]
- - Rogue Wave Stingray License [click through license]
- - Xerces-C XML Parser - Apache Software License, Version 1.1 [click through
license]
EVALUATION LICENSES
Sonic AuthorScript Sonic
Sonic AuthorScript SDK and Sonic
PrimoSDK
AccuSoft ImageGear Version 13 AccuSoft
ISYS ISYS
Related Agreements:
- - Evaluation Agreement, dated March 25, 2003, between the Corporation and
Sonic Solutions and Evaluation Agreement, dated December 3, 2003, between
the Corporation and Sonic Solutions
- - Limited Use License Agreement, dated June 10, 2004, between the Corporation
and ISYS - Intelligent System Solutions Corporation
- - Beta License Agreement, undated, between the Corporation and AccuSoft
Corporation
DEVELOPMENT AGREEMENTS
- - Software Development Agreement, dated February 9, 2004, between the
Corporation and Ambient Design, Ltd.
- - Independent Contractor Agreement, dated October 1, 2003, between the
Corporation and Ambient Design, Ltd.
- - Independent Contractor Agreement, dated November 5, 2003, between the
Corporation and Ambient Design, Ltd.
- - Independent Contractor Agreement, dated December 22, 2003, between the
Corporation and Ambient Design, Ltd.
- - Agreement, dated February 8, 2002, between the Corporation and Ambient
Design Limited
- - Programming Services Agreement, dated October 31, 2002, between the
Corporation and Ambient Design Limited
- - Professional Consulting Services Agreement, dated May 19, 2004, between the
Corporation and Ambient Consulting, LLC
- - Software Development Agreement, dated February 9, 2004, between the
Corporation and Ambient Design, Ltd.
- - Agreement for Purchase of Software Source Code, dated April 15, 1997,
between the Corporation and Michael Bradley
- - Agreement for Purchase of Software Source Code, dated May 2, 1997, between
the Corporation and Jeff Becker, doing business as Top Software
- - Programming Services Agreement, dated June 5, 2002, between the Corporation
and Ilya Vladimirovich Razmanov
- - Programming Services Agreement, dated March 26, 2003, between the
Corporation and Ilya Vladimirovich Razmanov
- - Programming Services Agreement, dated April 26, 2004, between the
Corporation and Ilya Vladimirovich Razmanov
- - Programming Services Agreement, dated April 20, 1999, between the
Corporation and BAL
- - Programming Services Agreement, dated February 2, 2000, between the
Corporation and BAL, as amended February 21, 2000, May 20, 2000, April 1,
2001, January 16, 2002, March 21, 2003, April 15, 2004
- - License and Distribution Agreement, dated as of September 15, 2003, between
the Corporation and CottageArts.net, LLC (Y)
- - Retainer Agreement, dated September 8, 2003, between the Corporation and
Michelle Shefveland of CottageArts.net
- - Book Publishing Agreement, dated September 15, 2003, between the
Corporation and Michelle Shefveland
- - Reseller Agreement, dated May 1, 2004, between the Corporation and Digital
Workshop
INCLUDABLES
- - Online Services Agreement, dated November 12, 2003, between the Corporation
and MyPublisher, Inc., as amended October 7, 2004
- - Software License Agreement, dated March 18, 2004, between the Corporation
and LC Technology International, Inc. for PhotoRecovery
TESTING
- - Master Software Testing Agreement for Microsoft Compliance Programs at
VeriTest, a Service of Lionbridge Technologies, dated May 16, 2000, between
the Corporation and VeriTest, as addended
- - Master Software Testing Agreement for Microsoft Logo Programs at VeriTest,
inc., dated May 21, 1998, between the Corporation and VeriTest, inc.
- - Independent Contractor Agreement, dated January 13, 2004, between the
Corporation and Test & Automation Consulting, LLC
LICENSE TO
- - Software Distribution Agreement, dated October 20, 1991, between the
Corporation and Micrographics
ANIMATION SHOP LICENSES
- - JPEG Working Group
- - Kodak Digital Science Reference SDK for the FlashPix Format License
Agreement, undated, between the Corporation and Kodak Corporation
- - MPEG License for Animation Shop, undated, between the Corporation and MPEG
Software Simulation Group
The Corporation has the following domain names:
Aftershot.com
Aftershot.net
Aftershots.com
Aftershots.net
Aftershot.us
Aftershot.info
Aftershot.eu
AnimationShop.info
DarkRoomPlus.com
DarkRoomPro.com
FotoExpert.de
ImageExpert.eu
ImageExpert.us
lmageRobot.com
ImageRobot.info
Jasc.biz
Jasc.ca
Jasc.ch
Jasc.co.il
Jasc.com
Jasc.co.nz
Jasc.co.za
Jasc.de
Jasc.eu
Jasc.lu
Jasc.nl
Jasc.us
JascSoftware.biz
JascSoftware.com
JascSoftware.net
JascSoftware.org
JascSoftware.co.uk
JascPaintShopPro.co.uk
MediaCenterPlus.com
PaintShopPro.com
PaintShopPro.biz
PaintShopPro.de
PaintShopPro.eu
PaintShopPro.us
PaintShopPro.co.uk
PaintShopAlbum.com
PaintShopPhotoAlbum.com
PaintShopPocketAlbum.com
PaintShopProAlbum.com
PaintShopProPhotoAlbum.com
PhotoExpert.de
PSAlbum.com
PSP8.com
PSP9.com
PSPAlbum.com
PSPAlbum.com
StudioAvenue.com
StudioJasc.com
Webdraw.eu
Webdraw.us
wwwjasc.com
Schedule 3.1.29.2
See Schedule 3.1.16.
Schedule 3.1.29.4
The Corporation recently released Paint Shop Pro 9. As is customary, most newly
released Software programs have some defects that are identified within the
first several months of use and are corrected by the Corporation's creation and
issuance of a modified version of the program.
Schedule 3.1.29.8
Material Licensed Software:
- - The Independent Group's JPEG Software Readme, undated [click through
license; no consent to assignment needed]
- - Source Code License Agreement, dated as of December 14, 2001, among
Conexant Systems, Inc., Sierra Imaging, Inc. and the Corporation
- - Annual Distribution License Agreement, undated, between the Corporation and
AccuSoft Corporation
- - Quicktime 5 Software Distribution Agreement, dated December 7, 2001,
between the Corporation and Apple Computer, Inc., as amended August 2003
- - Embedded Software Agreement, dated May 11, 1999, between the Corporation
and Bengt Computer Graphics LLC, as amended January 24, 2002
- - Software License Agreement, dated October 28, 2003, between the Corporation
and Bibble Labs, Inc.
- - License Agreement for Software Development Kit, dated November 17, 1999,
between the Corporation and Digimarc Corporation
- - Software Development and License Agreement, dated April 13, 2004, between
ECI Technology Solutions and the Corporation, as addended April 13, 2004
- - Kodak Digital Science Reference SDK for the FlashPix Format License
Agreement, undated, between the Corporation and Kodak Corporation
- - Redistributable Code-Microsoft Merge Modules License Agreement, undated,
between the Corporation and Microsoft Corporation [click through license;
no consent to assignment needed]
- - License Agreement, undated, between the Corporation and Microsoft
Corporation (MSXML) [click through license]
- - License Agreement, undated, between the Corporation and Microsoft
Corporation (MFC) [click through license]
- - License Agreement, undated, between the Corporation and Microsoft
Corporation (MDAC) [click through license]
- - License Agreement, undated, between the Corporation and Microsoft
Corporation (Internet Explorer) [click through license]
- - Macromedia Player License Agreement, undated, between the Corporation and
Macromedia [click through license; no consent to assignment needed]
- - Macromedia Shockwave and Flash Player License Agreement, undated, between
Macromedia, Inc. and the Corporation [click through license; no consent to
assignment needed]
- - Xerces-C XML Parser - Apache Software License, version 1.1, undated [click
through license; no consent to assignment needed]
- - License Agreements, undated, between the Corporation and Python Software
Foundation [click through licenses; no consent to assignment needed]
- - License Agreement, dated June 26, 1999, between the Corporation and
Microgetics Corporation
- - Unlimited Copy License Agreement, undated, between the Corporation and
Access Softek, Inc.
- - Publishing Agreement, dated June 7, 1995, between the Corporation and
Access Softek, Inc. and Publishing Agreement, dated June 8, 1995, between
the Corporation and Access Softek, Inc.
- - Software Distribution Agreement, dated October 20, 1991, between the
Corporation and Micrographics
- - Agreement, dated July 15, 1991, between the Corporation and Micrographics
Corporation
- - End User License Agreement, dated March 31, 2004, between the Corporation
and InstallShield Software Corporation
- - Software License and Distribution Agreement, effective December 31, 1998,
as amended August 16, 2001, between Enroute, Inc. and Sierra Imaging, Inc.,
as sublicensed to the Corporation pursuant to a Letter Agreement, dated
December 3, 2001, among the Corporation, Enroute, Inc. and Sierra Imaging,
Inc.
- - Online Services Agreement, dated November 12, 2003, between the Corporation
and MyPublisher, Inc., as amended October 7, 2004
- - Software License Agreement, dated March 18, 2004, between the Corporation
and LC Technology -International, Inc. for PhotoRecovery
- - Redistributable Code-Microsoft Merge Modules License Agreement, undated,
between the Corporation and Microsoft Corporation [click through license]
- - License Agreement, undated, between the Corporation and Microsoft
Corporation (MSXML) [click through license]
- - License Agreement, undated, between the Corporation and Microsoft
Corporation (MFC) [click through license]
- - License Agreement, undated, between the Corporation and Microsoft
Corporation (MDAC) [click through license]
- - License Agreement, undated, between the Corporation and Microsoft
Corporation (Internet Explorer) [click through license]
- - License Agreement, undated, between the Corporation and Xceed Software,
Inc. [no consent required-- Corel must provide notice of transfer within 30
days]
- - License Agreement, undated, between the Corporation and Adobe Corporation
(Reader 5.1) [click through license; no consent needed]
- - License Agreement, undated, between the Corporation and BCGSoft Ltd. (BCG
Pro) [click through license; no consent needed]
- - License Agreement, undated, between the Corporation and BCGSoft Ltd. (BCG -
not Pro) [click through license; no consent needed]
- - License and Distribution Agreement, dated as of September 15, 2003, between
the Corporation and CottageArts.net, LLC [no consent needed]
- - Retainer Agreement, dated September 8, 2003, between the Corporation and
Michelle Shefveland of CottageArts.net [no consent needed]
- - Book Publishing Agreement, dated September 15, 2003, between the
Corporation and Michelle Shefveland [no consent needed]
- - Software Development Agreement, dated February 9, 2004, between the
Corporation and Ambient Design, Ltd. [no consent needed]
- - Independent Contractor Agreement, dated October 1, 2003, between the
Corporation and Ambient Design, Ltd. [no consent needed]
- - Independent Contractor Agreement, dated November 5, 2003, between the
Corporation and Ambient Design, Ltd. [no consent needed]
- - Independent Contractor Agreement, dated December 22, 2003, between the
Corporation and Ambient Design, Ltd. [no consent needed]
- - Agreement, dated February 8,2002, between the Corporation and Ambient
Design Limited [no consent needed]
- - Programming Services Agreement, dated October 31, 2002, between the
Corporation and Ambient Design Limited [no consent needed]
- - Professional Consulting Services Agreement, dated May 19, 2004, between the
Corporation and Ambient Consulting, LLC [no consent needed]
- - Software Development Agreement, dated February 9, 2004, between the
Corporation and Ambient Design, Ltd. [no consent needed]
- - Programming Services Agreement, dated June 5, 2002, between the Corporation
and Ilya Vladimirovich Razmanov [no consent needed]
- - Programming Services Agreement, dated March 26, 2003, between the
Corporation and Ilya Vladimirovich Razmanov [no consent needed]
- - Programming Services Agreement, dated April 26, 2004, between the
Corporation and Ilya Vladimirovich Razmanov [no consent needed]
- - Programming Services Agreement, dated April 20, 1999, between the
Corporation and BAL [no consent needed]
- - Programming Services Agreement, dated February 2, 2000, between the
Corporation and BAL, as amended February 21, 2000, May 20, 2000, April 1,
2001, January 16, 2002, March 21, 2003, April 15, 2004 [no consent needed]
- - Software License Agreement, dated April 10, 2000, between the Corporation
and IMSI [no consent needed]
- - Intel Pentium 4 Processor Platform Enabling Program, dated December 3,
2002, between the Corporation and Intel Americas Inc [no consent needed]
- - TIFF-LZW/GIF-LZW Software Patent License Agreement, dated March 8, 1995,
between the Corporation and Unisys Corporation [no consent needed]
- - License Agreement, undated, between the Corporation and BCGSoft Ltd. (BCG
Pro) [click through license; no consent needed]
- - License Agreement, undated, between the Corporation and BCGSoft Ltd. (BCG -
not Pro) [click through license; no consent needed]
- - Agreement for Purchase of Software Source Code, dated May 2, 1997, between
the Corporation and Jeff Becker, doing business as Top Software [no consent
needed]
- - FreeType Project License 1.2 Agreement, undated, between the Corporation
and FreeType [click through license, no consent needed]
Schedule 3.1.29.9
See Schedule 3.1.29.1
Schedule 3.1.29.11
The Corporation does not have any obligation to escrow its source code, but it
does have the right to require some third parties to escrow Licensed Source Code
for the benefit of the Corporation.
Schedule 3.1.29.12
The Corporation's rights to the Proprietary Intellectual Property, to the Key
Software Programs and to the Proprietary Software may, from to time, be
infringed by piracy that ordinarily occurs in the software industry.
Schedule 3.1.29.13
See Schedule 3.1.32.
Schedule 3.1.29.14
See Schedule 3.1.32.
Schedule 3.1.29.15
The Corporation's delivery of documents, agreements and information to Corel in
the course of negotiating the Agreement may have breached the Corporation's
confidentiality obligations under agreements to which the Corporation is a
party.
Schedule 3.1.29.16
Each contract listed in these Schedules that is denoted with a "(Y)" may require
the approval or consent of the other party to such contract in connection with
the consummation of the Transactions or any subsequent transfers to direct or
indirect subsidiaries of Corel.
Schedule 3.1.29.18
See Schedule 3.1.32.
Schedule 3.1.29.19
- - Source Code License Agreement, dated December 14, 2001, between Conexant
Systems, Inc., Sierra Imaging, Inc. and the Corporation
Schedule 3.1.29.20
- - Output variable length bit strings by Jean-loup Gailly [GNU General Public
License Version 2, June 1991; click through license]
- - Xerces-C XML Parser - Apache Software License [Xerces XML]
SCHEDULE 3.1.30
PERMITS, REGISTRATIONS AND ELECTIONS
PERMIT EXPIRATION DATE
- ------ ---------------
Defense Logistics Agency Trading Partner Program
SCHEDULE 3.1.37
CONDUCT OF BUSINESS
Previously in the Corporation's history (prior to approximately December 2002),
the Corporation published some software for games and utilities, which, during
the last 5 years, included Namo, Quick View Plus, SkyMap, Illuminations,
Pixel3D, Smart Address, Ornamatica and an arcade game pack.
SCHEDULE 3.3.4
CONSENTS
None.
SCHEDULE 3.4.3
CAPITALIZATION
NUMBER THE
CORPORATION IS NUMBER OF SHARES ISSUED
CLASS AUTHORIZED TO ISSUE AND OUTSTANDING
----- ------------------- ---------------------------------
Class A Common Shares unlimited 43,750,000 Class A Common Shares
issued to Vector CC Holdings, SRL
Class B Common Shares unlimited 92,997,891 Class B Common Shares
issued to Corel Holdings, L.P.,
held as nominee for Vector CC
Holdings III, SRL
Preferred Shares unlimited Nil
First series of the 10,390,000 10,390,000 Series A Preferred
Series A Preferred Shares issued to Vector CC
Shares Holdings, SRL
There are 12,800,000 common shares reserved for issuance pursuant to the Corel
Share Option and Phantom Share Unit Plan dated December 1, 2003. To date,
options to purchase 3,375,150 common shares have been granted by Corel.
SCHEDULE 3.4.6
CONSENTS
Consent required pursuant to the First Amended and Restated Loan and Security
Agreement by and among Corel Holdings, L.P., Corel, Corel Inc., Wells Fargo
Foothill, Inc. and Cornell Place, LLC dated as of June 28, 2004.
SCHEDULE 4.1.1
See Tab 26
SCHEDULE 4.1.2.1
See Tab 33
SCHEDULE 4.1.2.2
See Tab 34
SCHEDULE 4.1.6
See Tab 17
SCHEDULE 4.2.2.1
See Tab 31
SCHEDULE 4.2.2.2
See Tab 32
SCHEDULE 5.3
NEGATIVE COVENANTS
- - The Corporation will request that option holders waive the 30-day notice
period of the Fundamental Change under the 1997 Omnibus Stock Plan.
- - The Corporation may amend the Jasc Software, Inc. 1997 Omnibus Stock Plan
to allow optionees to exercise options by way of a net exercise.
- - The Corporation will offset the amount due under the Note issued by Kris
Tufto from the amount paid to him under his Change-in-Control Agreement.
- - The Corporation has agreed to terminate the employment of, and pay
severance to, Jon Ort and Craig Letourneau prior to the Closing Date.
- - The Corporation's Board of Directors has approved a distribution of the
Asset Consideration to Jasc Stockholders payable immediately upon receipt
by the Corporation of the Asset Sale Consideration.
- - The Corporation intends to enter into the following agreements:
- Co-Branding and Advertising Agreement between the Corporation and
Ofoto b.v.
- License and Distribution Agreement between the Corporation and P. & A.
America, Inc.
- Distribution Agreement between the Corporation and Gem Distribution
Ltd.
- Independent Contractor Agreement between the Corporation and Jim
Fugelstad
- Letter Agreement between the Corporation and Ofoto, Inc.
- New Deal Summary between the Corporation and Encore USA / Riverdeep
Interactive
- Standard Distribution Agreement between the Corporation and Academic
Distributing, Inc.
- Distribution Agreement between the Corporation and Take-Two
Interactive Software Inc.
- Agreement between the Corporation and EJ Enterprises
- Amendment to Vendor Agreement, dated September 2, 2003, between the
Corporation and Digital River, as amended
- Software Evaluation Agreement between the Corporation and Ligos
Corporation
- Internet Services Agreement between the Corporation and US Internet
Corp.
- Services Linking Agreement between the Corporation and Sonic Solutions
- Memo and Agreement between the Corporation and Olson & Company
- Public Relations Consulting Agreement between the Corporation and
Kingswood Consulting
- Letter of Intent between the Corporation and AccuSoft Corporation
- Agreement between the Corporation and Vector OEM Content Limited
- Dedicated Internet Access and Dedicated Web Hosting Service Agreement
between the Corporation and Time Warner Telecom of Minnesota LLC, as
addended
SCHEDULE 5.10.2
See Tab 11