EXHIBIT NO.
10.2
Software Acquisition Agreement
77
md\774-012\intent.let
md\774-012\intent.let
December 29th, 1998
SMD Group Inc.
Bedford Towers
444 Bedford Street
Suite 8S
Stanford, Connecticut
USA 06901
Attention: Mr. Joel Arberman
Dear Mr. Arberman:
RE: Letter of Intent - Development of a Software
Application for
SMD Group Inc.
Our File: 774-012
Cadnetics Inc. ("Cadnetics") desires to enter into the transaction, as hereunder
described, for the purpose of developing a software application for SMD Group
Inc. ("SMD"), the whole in accordance with and subject to the terms and
conditions hereinafter set forth. This letter of intent ("Letter of Intent") is
to confirm SMD's intention to hire Cadnetics to develop the Application (as
hereinafter defined) and is to be construed as an offer which, if accepted by
both parties, shall constitute an agreement binding upon Cadnetics and SMD,
subject to the terms, conditions and covenants hereunder set forth as well as
the terms, conditions and covenants to be set forth:
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1. Offer and Closing Date
1.1 This offer shall be open for acceptance until the 29th day of
December, 1998 (the "Offer").
1.2 The transaction contemplated herein shall take place no later
than within ten (10) days following
the acceptance of the Offer by SMD (the "Closing Date").
2. Development of Application
2.1 Cadnetics hereby undertakes to develop an application, which may
be generally described as follows: an interactive web enabled
audio CD music player (the "Application"), the whole subject to
the specifications set out in the requirement document entitled
IWEACDMP-req01.doc.
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2.2 SMD hereby undertakes to assume and be responsible for any and
all costs relating to the development, progress and furtherance
of the Application.
2.3 Cadnetics shall not assume any costs relating to the purchasing
and licensing of any external technology which may be necessary
for the development of the Application. Furthermore, all costs
relating to travel and lodging which are required for the
furtherance of the Application shall be chargeable to SMD. Any
purchases or charges shall require the prior approval of SMD.
2.4 Cadnetics shall remit the Application in final form (complied
executable) to SMD on a CD-ROM capable of reproduction.
2.5 Cadnetics shall remit to SMD all relevant documentation and the
source code on an "as is" basis every month for the Application.
2.6 Cadnetics hereby undertakes to provide SMD with a monthly
update as to the development of the Application.
2.7 SMD hereby gives the mandate to Cadnetics to develop upgrades of
the Application in consideration of further development fees, to
be agreed upon by the parties negotiating in good faith, the
amount of which shall be dependent upon the extent and complexity
of the desired upgrade and improvement.
2.8 In the event of a conflict or dispute between the parties, the
parties hereby undertake to enter into good faith negotiations in
order to attempt to resolve any such conflict or dispute.
3. Consideration
3.1 Cadnetics agrees to develop the Application for SMD in
consideration of a fee consisting of the following:
3.1.1 the sum of forty-two thousand U.S. dollars (US
$42,000.00); and
3.1.2 the issuance by SMD to Cadnetics of a number of common
fully voting and fully participating shares of its share
capital having a fair market value of two hundred and
forty thousand U.S. dollars (U.S. $240,000.00) and a
number of preferred shares of its share capital having a
fair market value of one hundred and thirty-eight
thousand U.S. dollars (U.S. $138,000.00) (the common
shares and preferred shares hereinafter collectively
referred to as the "Shares").
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3.2 On the Closing Date, SMD shall remit to Cadnetics forty-two
thousand dollars (US $42,000.00) in cash as well as the share
certificate representing the Shares, the whole in accordance with
paragraph 3.1 hereof.
4. Service of Application
For a fee in the amount of one hundred and twenty dollars (US $120.00)
per man hour (the "Service Call Fee"), Cadnetics shall provide SMD with
the necessary technical support services in respect of the Application.
Such Service Call Fee shall be receivable depending on the extent and
complexity of the services required and shall be adjusted upwards to
reflect any change in the market value for similar services.
5. Representations and Warranties of SMD
SMD hereby represents and warrants to Cadnetics as follows and confirms
that Cadnetics is relying on the accuracy of such representations and
warranties in connection with the execution of its obligations hereunder:
5.1 SMD is a corporation duly incorporated and validly subsisting in
all aspects under the laws of its respective jurisdiction of
incorporation. It has good right, full corporate power and
absolute authority to authorize and consent to the transaction as
herein provided.
5.2 SMD has taken all necessary or desirable actions, steps and
corporate and other proceedings to approve or authorize, validly
and effectively, the entering into of and the execution, delivery
and performance of this transaction.
5.3 SMD has the authority to issue the Shares so that the Shares
shall have a global value equal to the consideration paid at the
time of issuance, that is, three hundred and seventy-eight
thousand U.S. dollars (U.S. $378,000.00).
5.4 The execution, delivery and performance of this Letter of Intent
and the completion of the transaction contemplated herein will
not constitute or result in a violation, breach or default under
the terms or provisions of the articles or by-laws of SMD or of
any contract to which it is bound.
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5.5 SMD further represents and warrants that should it enter into any
agreement or commitment, to issue shares, by option, warrant or
otherwise, which will have the effect of dilution upon the
shareholdings of Cadnetics, said dilution shall occur on a
proportionate basis based on the shareholding of all the
shareholders in the company.
6. Representations and Warranties of Cadnetics
Cadnetics hereby represents and warrants to SMD as follows and confirms
that SMD is relying on the accuracy of such representations and
warranties in connection with the execution of its obligations hereunder:
6.1 Cadnetics is a corporation duly incorporated and validly
subsisting in all aspects under the laws of its respective
jurisdiction of incorporation. It has good right, full corporate
power and absolute authority to authorize and consent to the
transaction as herein provided.
6.2 Cadnetics has taken all necessary or desirable actions, steps and
corporate and other proceedings to approve or authorize, validly
and effectively, the entering into of and the execution, delivery
and performance of this transaction.
6.3 The execution, delivery and performance of this Letter of Intent
and the completion of the transaction contemplated herein will
not constitute or result in a violation, breach or default under
the terms or provisions of the articles or by-laws of Cadnetics
or of any contract to which it is bound.
6.4 Cadnetics makes no representation as to the value or potential
value of the Application.
7. Sale of Shares
7.1 SMD hereby acknowledges that Cadnetics shall have an unlimited right
to sell its common shares in SMD for the purpose of funding the
development of the Application.
7.2 The parties acknowledge that Cadnetics intends to finance the
development of the Application by selling its common shares in SMD on
a monthly basis within the six (6) month period following the Closing
Date in order to raise forty thousand U.S. dollars (U.S. $40,000.00)
per month. In the event that Cadnetics is unable to sell a number of
its common shares in SMD generating proceeds of at least forty
thousand U.S. dollars (U.S. $40,000.00) in any given month during the
six (6) month period following the Closing Date, Cadnetics shall have
the right to send a notice to SMD to enter into good faith
negotiations in order to resolve such situation. Cadnetics shall have
the right to suspend any further development of the Application upon
issuance of said notice until the parties arrive at an agreement
satisfactory to both parties, without SMD having any recourse against
Cadnetics in relation thereto.
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8. Present and Future Rights
8.1 SMD hereby acknowledges that Cadnetics and its associated companies
have extensive expertise in the development of applications of this
nature and that its said expertise is the basis for Cadnetics being
selected as the primary developer for the Application.
8.2 SMD also acknowledges that Cadnetics is an independent developer and
may be involved in the development of other applications which use a
similar architecture.
8.3 SMD and Cadnetics agree that they shall not impose any restrictions
upon each other in respect of their respective development of
applications of architecture similar to the Application.
8.4 Cadnetics shall retain all rights of ownership for internal use only
in respect of the developed Application until such time that SMD has
successfully fulfilled all of its financial obligations in respect of
Cadnetics.
9. Terms of Preferred Shares
Cadnetics shall have the right to convert its preferred shares into
common shares at any time until July 30th 1999, and the conversion price
for said shares shall be the lower of: (i) the average of the high
trading price plus the low trading price for the common shares at the
date of conversion, or (ii) two dollars and fifty cents (U.S. $2.50) per
common share at the date of conversion.
10. Conditions Precedent
10.1 Notwithstanding anything herein contained, the undertakings and
obligations of Cadnetics under the terms of this Letter of Intent
are, at the option of Cadnetics, subject to and conditional upon
the performance of or compliance with the following condition
precedent:
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10.1.1 SMD shall not be in default of its obligations herein created.
10.1.2 The representations and warranties of SMD shall be true
and correct and remain in full force and effect for the
benefit of Cadnetics as of the Closing Date, and shall
continue in full force and effect notwithstanding the
closing of the transaction contemplated herein.
10.2 Notwithstanding anything herein contained, the undertakings and
obligations of SMD under the terms of this Letter of Intent
are, at the option of SMD, subject to and conditional upon the
performance of or compliance with the following conditions
precedent:
10.2.1 Cadnetics shall not be in default of its obligations herein created.
10.2.2 The representations and warranties of Cadnetics shall be
true and correct and remain in full force and effect for
the benefit of SMD as of the Closing Date, and shall
continue in full force and effect notwithstanding the
closing of the transaction contemplated herein.
11. Indemnification
The parties shall mutually and reciprocally indemnify and hold each other
harmless from and against any damage, loss, cost, deficiency (including
the payment of attorneys fees) arising out of any inaccuracy in any
representation or warranty made hereunder.
12. Further Executions
The parties hereto agree and undertake in good faith to exert their best
efforts to agree upon and execute all documents and do all acts as may be
necessary or useful to conclude the transaction contemplated herein.
13. Related Costs
Each party shall assume and pay their respective costs and expenses
including legal and financial advisory fees incurred in connection with
the negotiation, agreement upon and performance of the transaction herein
contemplated.
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14. Interpretation
14.1 Entire Agreement - This Letter of Intent sets forth all of the
promises, covenants, agreements, conditions and undertakings between the
parties hereto with respect to the subject matter hereof and supersedes
all prior and contemporaneous agreements and undertakings, inducements or
conditions expressed or implied, oral or written.
14.2 Severability - It is intended by the parties hereto that the
provisions of this Letter of Intent be enforced to the fullest
extent permissible. Accordingly, if any paragraph, article or any
part thereof is adjudicated to be invalid or unenforceable, then
such paragraph or article shall be deemed amended to delete that
portion thus adjudicated to be invalid or unenforceable, such
deletion to apply only with respect to the operation of such
paragraph or article.
14.3 Waiver - No waiver by a party of a default and a performance of
any breach or series of breaches by another party hereto and
failure, refusal or neglect by a party to exercise all rights
hereunder or to insist upon strict compliance or performance of
another party hereto under this Letter of Intent shall constitute
a waiver of the provisions hereof.
14.4 Governing Laws - This Letter of Intent shall be governed and
construed in accordance with the laws of the province of Quebec.
14.5 Assignment - The present Letter of Intent may not be assigned by
a party hereto without the prior written consent of the other
parties.
14.6 Successors and Assigns - This Letter of Intent shall be binding
upon the parties hereto and their respective assigns, successors
and interests and shall not be modified or amended except by
written agreement.
14.7 Language - The parties hereto have requested that this Letter of
Intent and all documents relating hereto be drafted in the
English language. Les parties aux presentes ont exige que la
presente convention et tout document y afferent soit redige en
langue anglaise.
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If you are in agreement with the terms and conditions set forth herein, kindly
indicate your acceptance by signing and returning the enclosed copy of this
offer prior to the 29th day of December 1998.
Yours very truly,
CADNETICS INC.
Per: Raj Vadavia, Vice-President
Acknowledged and agreed this day of December 1998.
SMD GROUP INC.
Per: Joel Arberman
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