SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 12 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest even reported): January 29, 1999
ELECTROMAGNETIC SCIENCES, INC.
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(Exact name of registrant as specified in charter)
Georgia 0-6072 58-1035424
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(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification
incorporation) No.)
660 Engineering Drive, Norcross, Georgia 30092
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(Address of principal executive offices)
Registrant's telephone number, including area code 770-263-9200
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Item 2. Acquisition or Disposition of Assets
On January 29, 1999, EMS Technologies Canada, Ltd., an
indirect wholly owned subsidiary of the registrant, acquired the
assets and assumed specified liabilities (primarily normal
operating liabilities) of the Space Systems and Products Division
(the "Purchased Business") of Spar Aerospace Limited. The
Purchased Business operates from owned facilities located near
Montreal, Quebec, and also includes certain operations and leased
facilities at the David Florida Laboratories, near Ottawa,
Ontario. The acquisition was made pursuant to an Asset Purchase
Agreement dated December 30, 1999, between the registrant and
Spar. The purchase price for the assets was CAN$29,444,000, of
which CAN$9,444,000 was paid in cash at closing, CAN$5,000,000 is
due to be paid in cash or by delivery of freely tradable shares
of the registrant's common stock on May 10, 1999, and the balance
is evidenced by three notes. The registrant obtained the cash
delivered at closing under its existing operating credit facility
with SunTrust Bank, Atlanta.
The notes are due December 31, 1999, 2000 and 2001, are each in
the principal amount of CAN$5,000,000, are convertible at the
option of the holder into the registrant's common stock at US$20,
US$22, and US$24, respectively, and bear interest at 5.5% per
annum. The notes maturing in 2000 and 2001 are subject to
acceleration by not more than one year, upon the Purchased
Business receiving specified levels of business on a major
satellite program for which the Purchased Business is currently
competing. The notes are payable by the registrant at maturity
in cash or by delivery of freely tradable shares of the
registrant's common stock based on market values at the time of
payment.
The Purchased Business consists primarily of the design,
assembly and manufacture of satellite subsystems and components
for communications, remote sensing and manned spacecraft,
including antenna products, radio frequency products and digital
products. The registrant intends to continue to use the acquired
assets for such purposes.
EMS Technologies Canada, Ltd. also includes business
operations located in Ottawa, Ontario, that previously were
conducted by an indirect wholly owned subsidiary of the
registrant named CAL Corporation.
Item 7. Financial Statements, Pro Forma Financial Information,
and Exhibits
(a) Financial Statements of Businesses Acquired. Audited
financial statements required by this Item will be filed by
amendment. Such statements are currently being prepared, and are
expected to be available for filing during the last half of
March, 1999.
(b) Pro Forma Financial Information. Pro forma financial
information required by this item will be filed concurrently with
the audited financial statements specified in paragraph (a)
above.
Exhibits. The following exhibits are filed with this Report on
Form 8-K:
2.1 Asset Purchase Agreement, dated December 30, 1998, by and
between Electromagnetic Sciences, Inc. and Spar Aerospace
Limited, including Exhibits 1 and 2 but excluding all Schedules.
(The list of Schedules appears in Section 1.12 of the Agreement;
(I) the registrant hereby agrees to furnish supplementally a copy
of any Schedule to the Commission upon its request.)
2.2 Letter of Amendment to Purchase Agreement, dated January 29,
1999.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
ELECTROMAGNETIC SCIENCES, INC.
Date: February 15, 1999 By: /s/William S. Jacobs
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William S. Jacobs
Vice President
EXHIBIT 2.1 ASSET PURCHASE AGREEMENT
TABLE OF CONTENTS
Page
ARTICLE I - INTERPRETATION
1.1 Defined Terms
1.2 Currency
1.3 Sections and Headings
1.4 Number, Gender and Persons
1.5 Accounting Principles
1.6 Knowledge of Vendor
1.7 Entire Agreement
1.8 Time of Essence
1.9 Applicable Law
1.10 Successors and Assigns
1.11 Amendments and Waivers
1.12 Schedules and Exhibits
1.13 Currency Indemnity
ARTICLE II - PURCHASE AND SALE OF PURCHASED ASSETS
2.1 Purchased Assets
2.2 Excluded Assets
2.3 Non-Transferability
2.4 Reassignment of Rights
2.5 Access to Purchased Assets
ARTICLE III - PURCHASE PRICE
3.1 Purchase Price
3.2 Determination of Working Capital
3.3 Adjustment of Closing Date Payment
3.4 Allocation of Purchase Price
3.5 ETA Election
3.6 Transfer Taxes, etc.
3.7 Income Tax Election
ARTICLE IV - ASSUMPTION OF LIABILITIES
4.1 Assumption of Certain Liabilities by the Purchaser
4.2 Retained Liabilities
4.3 Product Liability and Warranty Obligations
4.4 Bulk Sales Legislation
ARTICLE V - REPRESENTATIONS AND WARRANTIES
OF THE VENDOR
5.1 Organization
5.2 Authorization
5.3 No Other Agreements to Purchase
5.4 No Violation
5.5 Sufficiency of Purchased Assets
5.6 Title to Purchased Assets
5.7 Real and Immovable Property
5.8 Idem
5.9 Leased Property
5.10 Inventories
5.11 Accounts Receivable
5.12 Intellectual Property
5.13 Insurance
5.14 No Expropriation
5.15 Agreements and Commitments
5.16 Compliance with Laws; Governmental Authorization
5.17 Consents and Approvals
5.18 Financial Statements
5.19 Books and Records
5.20 Absence of Changes
5.21 Non-Arm's Length Transactions
5.22 Taxes
5.23 Litigation
5.24 Residency
5.25 GST/QST Registration
5.26 Environmental
5.27 Customers and Suppliers
5.28 Year 2000 Compliance
5.29 Employee Plans
5.30 Collective Agreements
5.31 Employees
5.32 Employee Accruals
5.33 Authorized and Issued Capital of Holdings
5.34 Options
5.35 Ownership of Holdings Shares; Holdings Assets and Liabilities
5.36 Changes
5.37 Acquisition for Investment
5.38 Competition Act Requirements
ARTICLE VI - REPRESENTATIONS AND WARRANTIES
OF THE PURCHASER
6.1 Organization
6.2 Authorization
6.3 No Violation
6.4 Consents and Approvals
6.5 Competition Act Requirements
6.6 GST/QST Registration
6.7 Validity of and Good Title to the ELMG Stock
6.8 Capital Structure
6.9 SEC Documents, Undisclosed Liabilities
6.10 Information Supplied
6.11 Absence of Changes
ARTICLE VII - SURVIVAL OF COVENANTS, REPRESENTATIONS AND WARRANTIES
7.1 Survival of Covenants, Representations and Warranties
ARTICLE VIII - COVENANTS
8.1 Access to Purchased Business and Purchased Assets
8.2 Delivery of Books and Records
8.3 Conduct of Purchased Business and Other Matters Prior
to Closing
8.4 Delivery of Conveyancing Documents
8.5 Delivery of Vendor's Closing Documentation
8.6 Delivery of Purchaser's Closing Documentation
8.7 Employees
8.8 Employee Plans
8.8.1 Ontario Pension Plan Participants
8.9 Retiree Benefits
8.10 Post Closing Receipts
8.11 Spar Name
8.12 Employee Agreements
8.13 MIS Systems - Transitional Agreement
8.14 Audited Financial Statements
8.15 Purchaser's Registration Obligations
8.16 Protection of Confidential Information
8.17 Security for Convertible Notes and Subsection 3.1(b)
8.18 Letters of Credit
8.19 Release of CAL Corporation
8.21 Baan System - Transitional Arrangements
8.22 Brampton-Ste. Anne Contracts
ARTICLE IX - CONDITIONS OF CLOSING
9.1 Conditions of Closing in Favour of the Purchaser
9.2 Certain Events, Etc.
9.3 Conditions of Closing in Favour of the Vendor
9.4 Extension of Closing Date
ARTICLE X - CLOSING DATE AND TRANSFER OF POSSESSION
10.1 Transfer
10.2 Place of Closing
10.3 Further Assurances
10.4 Risk of Loss
ARTICLE XI - INDEMNIFICATION
11.1 Indemnification by the Vendor
11.2 Indemnification by the Purchaser
11.3 Threshold and Limitations
11.4 Notice of Claim
11.5 Direct Claims
11.6 Third Party Claims
11.7 Settlement of Third Party Claims
11.8 Cooperation
11.9 Exclusivity
ARTICLE XII - MISCELLANEOUS
12.1 Notices
12.2 Commissions, etc.
12.3 Consultation
12.4 Disclosure
12.5 Confidentiality
12.6 Assignment by Purchaser
12.7 Reasonable/Best Efforts
12.8 Counterparts
THIS AGREEMENT made the 30th day of December, 1998,
B E T W E E N:
ELECTROMAGNETIC SCIENCES, INC. a
corporation existing under the laws
of the state of Georgia, (hereinafter
called the "Purchaser"),
- and -
SPAR AEROSPACE LIMITED, a corporation
existing under the laws of Canada
(hereinafter called the "Vendor"),
THIS AGREEMENT WITNESSES THAT in consideration of the
respective covenants, representations, warranties and indemnities
of the parties herein contained and for other good and valuable
consideration (the receipt and sufficiency of which are
acknowledged by each party), the parties agree as follows:
ARTICLE I
INTERPRETATION
1.1 Defined Terms
For the purposes of this Agreement, unless the context
otherwise requires, the following terms shall have the respective
meanings specified or referred to below and grammatical
variations of such terms shall have corresponding meanings:
(a) "Act" means the Canada Business Corporations Act as
in effect on the date hereof;
(b) "Affiliate" has the meaning given to that term in the
Act;
(c) "Agreement" means this Asset Purchase Agreement and
all amendments made in writing by the parties hereto, "herein"
and similar expressions mean and refer to this Agreement and not
to any particular Article, section, subsection, Schedule or
Exhibit;
(d) "AMSC Litigation" means the lawsuit filed in Superior
Court, Los Angeles County, California by AGF Reassurances et al
(LASC Case No. BL 174 857), the lawsuit commenced in the Quebec
Superior Court, District of Montreal by the Vendor against Hughes
Communications Inc. et al (Case No. 50005041421981) and any and
all present or future lawsuits, arbitrations, mediations and
other proceedings relating to the supply by the Vendor to
American Mobile Satellite Corporation of a mobile communications
satellite;
(e) "Annual Financial Statements" means the
unconsolidated unaudited financial statements of the Purchased
Business as at and for the financial years ended December 31,
1996 and 1997, including the notes thereto, a copy of which is
annexed hereto as Schedule 1;
(f) "Associate" has the meaning given to that term in the
Act;
(g) "Assumed Liabilities" has the meaning set out in
section 4.1;
(h) "Business Day" means any day, other than a Saturday
or a Sunday or statutory holiday in either Toronto, Ontario or
Montreal, Quebec;
(i) "Cdn $" and "Cdn Dollars" shall mean the lawful money
of Canada;
(j) "Cdn $ Equivalent" means, at the date of
determination, the amount of Cdn Dollars that the Vendor could
purchase, in accordance with normal practice, with a specified
amount of US Dollars based on the rate quoted by The Bank of Nova
Scotia as the spot rate of exchange applicable at such bank's
main Toronto, Ontario office with the specific amount of US
Dollars on such date;
(k) "Cash on Hand" means cash on hand or in banks or
other depositories, term or time deposits and similar cash items
including all accrued interest thereon and any capital gains
relating thereto;
(l) "Claim" means any claim, action, suit or proceeding
or other demand, whether at law or in equity, before or by any
federal, provincial, state, municipal or other governmental
department, court, commission, board, bureau, agency or
instrumentality, domestic or foreign, or before or by any
arbitrator or arbitration board;
(m) "Closing" means the completion of the purchase and
sale of the Purchased Assets contemplated by this Agreement;
(n) "Closing Balance Sheet" has the meaning set out in
subsection 3.2(a);
(o) "Closing Date" means, subject to section 9.4,
January 29, 1999 or such other date as the Vendor and the
Purchaser may mutually determine;
(p) "Closing Date Payment" has the meaning set out in
section 3.1;
(q) "Closing Financial Statements" has the meaning set
out in subsection 3.2(c);
(r) "Collective Agreements" means the following
collective bargaining agreements: (i) the Collective Agreement
dated April 10, 1997 expiring March 31, 2000 between the Vendor
and National Automobile, Aerospace, Transportation and General
Workers Union of Canada (CAW Canada); (ii) Collective Agreement
dated April 29, 1996, between the Vendor and Spar Engineers and
Scientists Association; (iii) Collective Agreement dated
December 7, 1998 between the Vendor and Communication, Energy and
Paper Workers Local 508 (CEP); and (iv) Collective Agreement
dated January 1, 1997 between the Vendor and Spar Professional
Allied Technical Employees Association;
(s) "Contract" means any agreement, indenture, contract,
lease, deed of trust, licence, option, instrument or other
commitment, whether written or oral and shall include any open
invoice, tender, bid, quote or order which has been accepted or
which remains open for acceptance but for greater certainty does
not include any Employee Plans or any Collective Agreements;
(t) "David Florida Laboratories Premises" means the
facilities used by the Vendor at the Canadian government's David
Florida Laboratories, Kanata, Ontario pursuant to purchase order
No. 309580DB dated March 30, 1998;
(u) "Discounted Market Value" on any date means the
Market Value on such date less US $.125 per share, to compensate
Vendor for brokerage transaction costs in connection with sales
of ELMG Stock;
(v) "Ellipso Agreement" means the letter agreement dated
July 31, 1998 between the Vendor and Ellipso Inc. pertaining to
their proposed strategic alliance in support of the Boeing
Ellipso program;
(w) "ELMG Convertible Note" means a promissory note
issued by the Purchaser that: is convertible at any time into
ELMG Stock at the election of the holder at a specified
conversion price, subject to Purchaser's right upon conversion to
redeem such Note by payment in cash of an amount equal to the
principal and accrued interest owed thereunder plus a premium
equal to 50% of the excess of Market Value, calculated as at the
date on which the holder gave notice of conversion, over US$25.00
(subject to adjustment in accordance with the terms of such
Note), times the number of shares otherwise issuable upon such
conversion, but in any event not exceeding 50% of the US$
Equivalent (calculated as at the day preceding the date of
payment) of the principal amount converted; bears interest at a
specified rate payable semi-annually; may be paid at maturity,
together with accrued interest, by either, at ELMG's election,
electronic transfer of funds or delivery of shares of ELMG Stock
having an aggregate Discounted Market Value, calculated as at the
date of maturity, equal to US$ Equivalent, also calculated on the
date of maturity, of the amount being so paid; is prepayable in
cash upon ten days' notice to the holder thereof upon payment of
all of the outstanding principal and interest and the premium
payment, if any, that would have been payable if the Vendor had
attempted to convert such note and the Purchaser had elected to
pay cash therefor; is secured in the manner and to the extent
contemplated in section 8.16; and is in the form and subject to
the terms set forth in Exhibit 2 to this Agreement;
(x) "ELMG Stock" means the common stock, $.01 par value
per share, of Purchaser;
(y) "Employee Plans" has the meaning set out in section
5.29;
(z) "Employees" means all of those non-unionized and
unionized employees of the Vendor who are employed in the
Purchased Business immediately prior to the Time of Closing,
including employees then on disability or other leave of absence
and employees on lay off with recall rights, but excluding David
Masotti and, for greater certainty, those persons identified in
Schedule 8.1.1;
(aa) "Encumbrance" means any encumbrance, lien, charge,
hypothec, priority, pledge, mortgage, title retention agreement,
security interest of any nature, adverse claim, exception,
reservation, easement, right of occupation, any matter capable of
registration against title, option, right of pre-emption,
privilege or any Contract to create any of the foregoing;
(bb) "Environmental Laws" has the meaning set out in
subsection 5.26(a);
(cc) "ETA" means Part IX of the Excise Tax Act (Canada),
as amended from time to time;
(dd) "Excluded Assets" has the meaning set out in section
2.2;
(ee) "Excluded Liabilities" has the meaning set out in
section 4.2;
(ff) "Expert" has the meaning set out in subsection
3.2(c);
(gg) "Financial Statements" means the Annual Financial
Statements and the Interim Financial Statements;
(hh) "Freely Tradeable" has the meaning set out in section
3.1(b);
(ii) "GST" means all taxes payable under the ETA or under
any provincial legislation similar to the ETA, and any reference
to a specific provision of the ETA or any such provincial
legislation shall refer to any successor provision thereto of
like or similar effect;
(jj) "Hazardous Substances" has the meaning set out in
subsection 5.26(a);
(kk) "Holdings" means Spar Holdings, Inc., a company
incorporated under the laws of the State of Delaware;
(ll) "Holdings Shares" means the 110 common shares and the
990 preferred shares of Holdings that are issued and outstanding;
(mm) "Indemnified Party" has the meaning set out in
section 11.4;
(nn) "Indemnifying Party" has the meaning set out in
section 11.4;
(oo) "Intellectual Property" has the meaning set out in
subsection 2.1(j);
(pp) "Interim Financial Statements" means the
unconsolidated unaudited financial statements of the Purchased
Business as at and for the nine month period ended September 30,
1998, a copy of which is annexed hereto as Schedule 2;
(qq) "Inventory" has the meaning set out in subsection
2.1(e);
(rr) "Leased Property" has the meaning set out in section
5.7;
(ss) "Leases" has the meaning set out in section 5.9;
(tt)"Letter of Credit" has the meaning set out in subsection
4.1(b);
(uu) "Licences" has the meaning set out in section 5.16;
(vv) "Losses" means, in respect of any matter, all claims,
demands, proceedings, losses, fines, damages, liabilities,
deficiencies, costs and expenses (including, without limitation,
all legal and other professional fees and disbursements,
interest, penalties and amounts paid in settlement) arising
directly as a consequence of such matter less in all cases any
insurance received in respect thereof and, in all cases, net of
all tax benefits and liabilities received or incurred as a
consequence of such matter or as a result of any indemnity or
other payment received hereunder or pursuant hereto to compensate
for any such Loss;
(ww) "Market Value" on any date means the average, for the
ten trading days preceding such date, of the closing sales price
of a share of ELMG Stock as reported in the National Association
of Securities Dealers Automated Quotation system or if sales of
ELMG Stock are not reported on such system the primary stock
exchange or other trading system on which ELMG Stock trade;
(xx) "Material Adverse Effect" means, subject to section
9.2, any change or effect that is materially adverse to the
financial condition, properties, assets, operations or business
of the Purchased Business taken as a whole;
(yy) "Material Contracts" has the meaning set out in
section 5.15;
(zz) "1933 Act" means the United States Securities Act of
1933, as amended;
(aaa) "Pension Plans" means the Employee Plans identified
as pension plans in Schedule 8 but excluding for greater
certainty the Ontario Pension Plans as defined in Section 8.8.1;
(bbb) "Permitted Encumbrances" means:
(i) servitudes, easements, restrictions,
rights-of-way and other similar rights in real property or
immovables or any interest therein, provided the same are not of
such nature as to materially adversely affect the use of the
property subject thereto;
(ii) undetermined or inchoate liens, charges,
hypothecs, prior claims and privileges incidental to current
construction save and except for liens, charges, hypothecs, prior
claims and privileges related to Taxes that have not been paid
when due;
(iii) statutory liens, charges, adverse claims,
security interests, legal hypothecs, prior claims or encumbrances
of any nature whatsoever claimed or held by any governmental
authority that have not at the time been filed or registered
against the title to the asset or served upon the Vendor that
relate to obligations not due or delinquent;
(iv) assignments or hypothecations of insurance
provided to landlords (or their mortgagees) pursuant to the terms
of any lease, and liens or rights reserved in any lease for rent
or for compliance with the terms of such lease;
(v) security given in the ordinary course of the
Purchased Business to any public utility, municipality or
government or to any statutory or public authority in connection
with the operations of the Purchased Business, other than
security for borrowed money;
(vi) the reservations in any original grants from
the Crown of any real property or interest therein and statutory
exceptions to title, which do not materially detract from the
value of the real property concerned or materially impair its use
in the operation of the Purchased Business; and
(vii) the Encumbrances described in Schedule 13;
(ccc) "Prime Rate" means the annual variable rate of
interest quoted or published from time to time by The Bank of
Nova Scotia at its main branch in Toronto, Ontario as the "prime
rate" of interest charged by it for Canadian dollar commercial
loans made in Canada and for the purposes of this Agreement the
"Prime Rate" shall vary, upwards or downwards, as the case may
be, at the same time and in the same amount as the said "prime
rate" so varies;
(ddd) "Prospectus" has the meaning set out in paragraph
8.15 (a);
(eee) "Purchase Price" has the meaning set out in section
3.1;
(fff) "Purchased Assets" has the meaning set out in section
2.1;
(ggg) "Purchased Business" means the business carried on by
the Vendor through its Space Systems and Products division, which
business is carried on at or from the Ste Anne Premises and the
David Florida Laboratories Premises consisting primarily of the
design, assembly and manufacture of satellite subsystems and
components for communications, remote sensing and manned space,
including antenna products, radio frequency products and digital
products;
(hhh) "QST" means all taxes payable under the Act
respecting the Quebec Sales Tax and any reference to any specific
provision of the Act respecting the Quebec Sales Tax shall refer
to any successor provision thereto of like or similar effect;
(iii) "Real Property" has the meaning set out in section
5.7;
(jjj) "Replacement Plans" has the meaning set out in
section 8.8;
(kkk) "SEC" means the United States Securities and Exchange
Commission;
(lll) "Ste Anne Premises" means the real property and
buildings known municipally as 21025 Trans Canada Highway, Ste
Anne de Bellevue, Quebec, H9X 3R2;
(mmm) "Registration Statement" has the meaning set out in
paragraph 8.15 (a);
(nnn) "SkyBridge" means SkyBridge Limited Partnership, a
limited partnership formed under the laws of the State of
Delaware;
(ooo) "SkyBridge LPA" means the Second Amended and Restated
Agreement of Limited Partnership of SkyBridge dated as of June
30, 1998, as the same may be amended, replaced or restated from
time to time;
(ppp) "SkyBridge Units" means the eighty (80) units in
SkyBridge owned by Holdings;
(qqq) "Tax" or "Taxes" means any federal, provincial,
state, local, foreign or other income, gross receipts, profits,
franchise, transfer, sales, use, customs, payroll, occupation,
health, property, excise, GST, QST or other taxes, fees, duties,
assessments, withholdings or governmental charges of any nature
(including interest, penalties and additions to such taxes or
charges);
(rrr) "Tax Act" means the Income Tax Act (Canada), as
amended from time to time;
(sss) "Time of Closing" means 10:00 a.m. (Toronto time) on
the Closing Date, or such other time on the Closing Date as the
Vendor and the Purchaser may mutually determine;
(ttt) "Three-Year Milestone" means the acceptance by the
Purchaser, in its sole discretion, on a cumulative basis, of $90
million of orders from SkyBridge or any direct or indirect
supplier thereto for goods and services to be provided by the
Purchased Business (excluding any amounts attributable to
beam-forming networks or startrackers generally of the nature
heretofore proposed by Purchaser or its existing subsidiaries to
Alcatel Espace in connection with the SkyBridge project),
regardless of whether ultimately sold for use on the SkyBridge
project through the Purchased Business, such orders to be legally
binding on SkyBridge and to be suitable for inclusion in
Purchaser's publicly reported backlog;
(uuu) "Transferred Employees" has the meaning set out in
section 8.7;
(vvv) "Trust Agreements" means the trust agreements and
other funding contracts supporting the Pension Plans;
(www) "Two-Year Milestone" means the acceptance by the
Purchaser, in its sole discretion, on a cumulative basis, of $50
million of orders from SkyBridge or any direct or indirect
supplier thereto for goods and services to be provided by the
Purchased Business (excluding any amounts attributable to
beam-forming networks or startrackers generally of the nature
heretofore proposed by Purchaser or its existing subsidiaries to
Alcatel Espace in connection with the SkyBridge project),
regardless of whether ultimately sold for use on the SkyBridge
project through the Purchased Business, such orders to be legally
binding on SkyBridge and to be suitable for inclusion in
Purchaser's publicly reported backlog;
(xxx) "US $" and "US Dollars" shall mean lawful money of
the United States of America;
(yyy) US $ Equivalent" shall mean, at the date of
determination, the amount of US Dollars that the Vendor could
purchase, in accordance with its normal practice, with a
specified amount of Cdn Dollars based on the rate quoted by The
Bank of Nova Scotia as the spot rate of exchange applicable at
such bank's main Toronto, Ontario office for buying US Dollars
with the specified amount of Cdn Dollars on such date; and
(zzz) "Working Capital" has the meaning set forth in
subsection 3.2(b).
1.2 Currency
Unless otherwise indicated, all dollar amounts in this
Agreement are expressed in Cdn Dollars.
1.3 Sections and Headings
The division of this Agreement into Articles, sections and
subsections and the insertion of headings are for convenience of
reference only and shall not affect the interpretation of this
Agreement. Unless otherwise indicated, any reference in this
Agreement to an Article, section, subsection or Schedule or
Exhibit refers to the specified Article, section or subsection of
or Schedule or Exhibit to this Agreement.
1.4 Number, Gender and Persons
In this Agreement, words importing the singular number only
shall include the plural and vice versa, words importing gender
shall include all genders and words importing persons shall
include individuals, corporations, partnerships, associations,
trusts, unincorporated organizations, governmental bodies and
other legal or business entities of any kind whatsoever.
1.5 Accounting Principles
Unless otherwise expressly stated, any reference in this
Agreement to generally accepted accounting principles refers to
generally accepted accounting principles that have been
established in Canada, including those approved from time to time
by the Canadian Institute of Chartered Accountants or any
successor body thereto.
1.6 Knowledge of Vendor
Where any representation or warranty contained in this
Agreement is expressly qualified by reference to the knowledge of
the Vendor or words to similar effect, it shall be deemed to
refer solely to the actual knowledge of the following
individuals, in all cases after such individuals have reviewed
their files and conducted reasonable inquiries of their immediate
subordinates:
Colin Watson
Mark Steinman
David Masotti
Sheldon Polansky
Claudia Tuzi
Stephen McPherson
Gerry Bush
Don Osborne
Gilles Lefebvre
Phillipe Quenneville
Bruno Bugatto
Steve Droz
1.7 Entire Agreement
Except as otherwise provided herein and except for the
Confidentiality Agreement, as defined in section 12.5, this
Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof and supersedes all
prior agreements, understandings, negotiations and discussions,
whether written or oral. There are no conditions, covenants,
agreements, representations, warranties or other provisions,
express or implied, collateral, statutory or otherwise, relating
to the subject matter hereof except as expressly herein provided.
For greater certainty, other than those specific
representations and warranties herein contained, the Purchaser
shall purchase the Purchased Assets on an "as is" basis at its
own risk.
1.8 Time of Essence
Time shall be of the essence of this Agreement.
1.9 Applicable Law
This Agreement shall be construed, interpreted and enforced
in accordance with, and the respective rights and obligations of
the parties shall be governed by, the laws of the Province of
Ontario and the federal laws of Canada applicable therein, and
each party irrevocably and unconditionally submits to the
non-exclusive jurisdiction of the courts of such province and all
courts competent to hear appeals therefrom.
1.10 Successors and Assigns
This Agreement shall enure to the benefit of and shall be
binding on and enforceable by the parties and their respective
successors and permitted assigns. Subject to section 13.6,
neither party may assign any of its rights or obligations
hereunder without the prior written consent of the other party.
1.11 Amendments and Waivers
No amendment or waiver of any provision of this Agreement
shall be binding on either party unless consented to in writing
by such party. No waiver of any provision of this Agreement
shall constitute a waiver of any other provision, nor shall any
waiver constitute a continuing waiver unless otherwise provided.
1.12 Schedules and Exhibits
The following Schedules and Exhibits are attached to and
form part of this Agreement:
Schedule 1 - Annual Financial Statements
Schedule 2 - Interim Financial Statements
Schedule 3 - Owned and Leased Real or Immoveable
Property
Schedule 4 - Machinery and Equipment
Schedule 5 - Vehicles
Schedule 6 - Customer owned Property
Schedule 7 - Certain Contracts
Schedule 8 - Employee Matters
Schedule 9 - Licences and Permits
Schedule 10 - Intellectual Property
Schedule 11 - Intentionally Omitted
Schedule 12 - Location of Assets
Schedule 13 - Permitted Encumbrances
Schedule 14 - Insurance Policies
Schedule 15 - Legal and Regulatory Proceedings
Schedule 16 - Regulatory Consents
Schedule 17 - Intentionally Omitted
Schedule 18 - Environmental Matters
Schedule 19 - Major Customers and Suppliers
Schedule 20 - Excluded Assets
Schedule 21 - Material Changes
Schedule 22 - Material Contractual Consents
Schedule 23 - Exceptions to Generally
Accepted Accounting Principles
Schedule 24 - Y2K Policies
Schedule 25 - Retiree Benefit Plans;
Retirees
Schedule 26 - Baan Team Members
Exhibit 1 - Agreement
Exhibit 2 - Form of Convertible Note
Disclosure of information on any Schedule shall not be deemed to
be disclosure of such information on any other Schedule except as
incorporated by specific cross-reference. Inclusion of specific
information on any Schedule shall not constitute or be deemed to
constitute any admission that such information is material or is
required to be so disclosed.
1.13 Currency Indemnity
If, for the purposes of any party (the "Plaintiff")
obtaining judgment against another party (the "Defendant") in any
court in any jurisdiction with respect to this Agreement or any
document delivered pursuant hereto (including without limitation,
the convertible notes), it becomes necessary to convert into the
currency of such jurisdiction (the "Judgment Currency") any
amount due under this Agreement or any such document in any
currency other than the Judgment Currency (the "Currency Due"),
the conversion shall be made at the rate of exchange prevailing
on the Business Day before the day on which judgment is given.
For this purpose "rate of exchange" means the rate at which the
Plaintiff is able, on the relevant date, to purchase the Currency
Due with the Judgment Currency in accordance with its normal
practice in Toronto, Ontario. In the event that there is a
change in the rate of exchange prevailing between the Business
Day before the day on which the judgment is given and the date of
receipt by the Plaintiff of the amount due, the Defendant will,
on the date of receipt by the Plaintiff, pay such additional
amounts, if any, or be entitled to receive reimbursement of such
amount, if any as may be necessary to ensure that the amount
received by the Plaintiff on such date is the amount in the
Judgment Currency which when converted at the rate of exchange
prevailing on the date of receipt by the Plaintiff is the amount
then due under this Agreement or such document in the Currency
Due. The obligation of the Plaintiff or the Defendant, as the
case may be, set forth in the preceding sentence shall constitute
an obligation separate and independent from the other obligations
contained in this Agreement, shall give rise to a separate and
independent cause of action, shall apply irrespective of any
indulgence granted by the Defendant or the Plaintiff from time to
time and shall continue in full force and effect.
ARTICLE II
PURCHASE AND SALE OF PURCHASED ASSETS
2.1 Purchased Assets
Subject to the provisions of this Agreement, the Vendor
agrees to sell, assign and transfer to the Purchaser and the
Purchaser agrees to purchase from the Vendor, effective as of the
Closing, all right, title and interest of the Vendor in and to
all of the property and assets used in connection with or
otherwise relating to the Purchased Business (other than the
Excluded Assets), whether real or personal, tangible or
intangible, of every kind and description and wheresoever
situate, as a going concern (collectively, the "Purchased
Assets"), including without limitation:
(a) Real Property. All real or immoveable property,
together with the buildings, structures, improvements and
appurtenances situate thereon including, without limitation, the
real property described in Schedule 3;
(b) Leases of Real or Immoveable Property. All rights
(whether as lessee or lessor) under leases or subleases of real
or immoveable property, together with all leasehold improvements
relating thereto, including, without limitation, all rights under
the leases described in Schedule 3;
(c) Buildings, Machinery and Equipment. All buildings,
structures, machinery, equipment, fixtures, furniture,
furnishings, parts, tooling moulds, dies, jigs or patterns and
other fixed assets, including, without limitation, the machinery
and equipment described in Schedule 4;
(d) Vehicles. All trucks, cars and other vehicles (owned
or leased), including, without limitation, the vehicles described
in Schedule 5;
(e) Inventories. All inventories, including, without
limitation, raw materials, work-in-process, finished goods and
replacement parts (collectively, the "Inventory");
(f) Accounts Receivable. All accounts receivable, trade
accounts, notes receivable, book debts and other debts due or
accruing due to the Vendor and the benefit of all security for
such accounts, notes and debts including, without limitation,
loans and accounts receivable owing by Employees to the Purchased
Business;
(g) Prepaid Expenses. All prepaid expenses of the
Purchased Business (other than those related to the Excluded
Assets);
(h) Agreements. All rights under leases of personal or
movable property, orders or contracts for the provision of goods
or services (whether as buyer or seller), distribution and agency
agreements, employment and collective agreements and other
Contracts not otherwise referred to in this section 2.1,
including, without limitation, the Material Contracts described
in Schedules 7 and 8;
(i) Licences and Permits. All Licences used in the
Purchased Business to the extent that they may be transferred
with or without consent, including, without limitation, those
described in Schedule 9;
(j) Intellectual Property. All trade or brand names,
business names, trade marks, trade mark registrations and
applications, service marks, service mark registrations and
applications, copyrights, copyright registrations and
applications, patents, patent applications and other patent
rights, trade secrets, proprietary manufacturing information and
know-how, equipment and parts lists and descriptions, instruction
manuals, inventions, inventors' notes, research data, unpatented
blue prints, drawings and designs, formulae, processes,
technology and other intellectual property, together with all
rights under licences, technology transfer agreements and other
agreements or instruments relating to any of the foregoing
(collectively, "Intellectual Property"), including, without
limitation, the trade marks, copyrights, patents, licences and
agreements described in Schedule 10;
(k) Computer Hardware and Software. All computer
hardware and software, including all rights under licences and
other agreements or instruments relating thereto;
(l) Books and Records. All books of account, tax
records, personnel records, sales and purchase records, inventory
records, customer and supplier lists, lists of potential
customers, referral sources, research and development reports and
records, price lists and catalogues, sales literature and
advertising material, production reports and records,
manufacturing data, equipment logs, operating guidelines and
manuals, environmental reports and data, employee manuals,
business reports, plans and projections and all other documents,
files, correspondence and other information (whether in writing,
printed, electronic or computer print-out form) relating to the
Purchased Business but excluding any such books, records and
lists prepared in connection with this transaction or any other
proposed sale of the Purchased Business;
(m) Attorney Work Product. All notes, memoranda,
correspondence or similar material in the possession of the
Vendor reflecting the legal conclusions, recommendations or work
product of lawyers for the Vendor in respect of active files to
the extent the same relates to or arises out of the Purchased
Assets, the Assumed Liabilities or any Claims in respect thereof
(other than attorney work produced and prepared in connection
with the AMSC Litigation, this transaction or any other proposed
sale of the Purchased Business);
(n) Goodwill. All goodwill of the Purchased Business,
including all goodwill pertaining to the relationship between the
Purchased Business and Alcatel Espace related to the SkyBridge
program as evidenced by the Memorandum of Understanding dated
November 27, 1997 between the Vendor and Alcatel Espace for the
SkyBridge Program, together with the exclusive right for the
Purchaser to represent itself as carrying on the Purchased
Business in succession to the Vendor and the right to use any
words indicating that the Purchased Business is so carried on;
(o) Ellipso Agreement. The rights and benefits of the
Ellipso Agreement, including any contracts and/or securities
obtained or acquired pursuant thereto; and
(p) Holdings Shares. All of the Holdings Shares.
2.2 Excluded Assets
The Purchased Assets shall not include any of the following
property and assets (collectively, the "Excluded Assets"):
(a) all Cash on Hand;
(b) all liabilities and obligations of the Vendor or any
of its Affiliates to the Purchased Business existing, accrued or
accruing due at the Time of Closing in respect of any
administrative, telephone, MIS, accounts payable or general
ledger services or other similar services provided by or through
the Purchased Business;
(c) all income and corporate capital tax instalments paid
by the Vendor and the right to receive any refund of income,
corporate capital or other taxes paid by the Vendor including,
without limitation, any investment tax credit, any manufacturing
and processing profits tax reduction or refund together with the
right to receive any Quebec Labour Tax Credits for or in respect
of qualifying labour expenses incurred in the period before the
Closing Date;
(d) all rights of the Vendor to use the name "Spar" or
"Spar Aerospace" or any word or name containing such phrases or
words (including without limitation, all logos, trade or brand
names, business names, trade marks, trade mark registrations and
applications, service mark registrations and applications and
copyrights containing or in respect of such words or phrases);
(e) all rights of action and claims (and benefits arising
therefrom) of the Vendor against third persons (i) in the conduct
of the Purchased Business or otherwise arising by reason of any
facts or circumstances that occurred or existed prior to the
Closing Date (other than as necessary to enforce Purchaser's
rights under, in and to the Purchased Assets), or (ii) in respect
of the AMSC Litigation or arising out of or in connection with
the facts or circumstances related thereto and the civil
litigation identified in Schedule 15 as pertaining to MSAT
Incentives (being claims against TMI and HAC for incentive
payments), in each case whether or not an action or any other
proceeding shall have been commenced before such time;
(f) all rights to payment, credit or refunds and all
other rights or claims to receive payment for any retroactive
rate adjustments in respect of work performed for any government
or governmental agency by or on behalf of the Purchased Business
prior to Closing;
(g) subject to section 10.4, insurance policies of the
Vendor relating to the Purchased Business and the Purchased
Assets and all rights in connection therewith, including, without
limitation, any rights to outstanding claims thereunder or
refunds of insurance premiums;
(h) all rights of the Vendor to any refunds of workers'
compensation payments in respect of the period before the Closing
Date;
(i) all constating documents, minute books and
shareholder records of the Vendor;
(j) all rights of the Vendor under this Agreement and
agreements, instruments and certificates delivered pursuant to
this Agreement;
(k) all Employee Plans excluding the Pension Plans;
(l) the rights and benefits accruing to the Robotics
Division of the Vendor under the customer contracts with the
Purchased Business identified in Schedule 7;
(m) all shares and equity interests of Radarsat
International Inc. and all shareholder agreements and other
agreements related solely to such shares;
(n) the Class B I.P. address 142.65; and
(o) the assets and Contracts listed on Schedule 20.
2.3 Non-Transferability
(a) Subject to subsections 2.3(b), 2.3(c), 9.1(d) and
9.3(d), to the extent that any Purchased Asset is not capable of
being sold, assigned, transferred, delivered or subleased without
the consent or waiver of any person, or if such sale, assignment,
transfer, delivery or sublease, or attempted sale, assignment,
delivery or sublease would constitute a breach thereof or a
violation of any law, statute, ordinance, regulation, rule having
the force of law, judgment, decree, order, writ, injunction or
award, this Agreement shall not constitute a sale, assignment,
transfer, delivery or sublease thereof until such consent or
waiver, if applicable, is received, but instead shall be dealt
with as herein provided.
(b) The Vendor shall diligently attempt to obtain (and
the Purchaser shall diligently cooperate with the Vendor), on or
before the Closing Date and thereafter as required, the consents
and waivers referred to in subsection 2.3(a) and to resolve the
impediments to the sale, assignment, transfer, delivery or
sublease referred to in subsection 2.3(a) and to obtain any other
consents and waivers necessary to convey to the Purchaser any of
the Purchased Assets provided that, without limiting the Vendor's
obligations under subsection (d), in no event shall the Vendor be
required to incur any financial cost or burden (other than
incidental costs) to obtain such consents or waivers or resolve
such impediments.
(c) To the extent that the consents and waivers referred
to in subsection 2.3(a) are not obtained by the Vendor, or until
the impediments to the sale, assignment, transfer, delivery or
sublease referred to therein are resolved, the Purchaser shall,
for and on behalf of the Vendor, perform and satisfy all
obligations and liabilities of the Vendor under or in respect of
each of the Purchased Assets referred to in subsection 2.3(a) and
the Vendor shall, after the Closing Date:
(i) hold the benefits of any Purchased Asset
referred to in subsection 2.3(a) in trust for the Purchaser in
accordance with the provisions of this subsection 2.3(c);
(ii) cooperate in any reasonable and lawful
arrangement, approved by the Purchaser and the Vendor, designed
to provide such benefits to the Purchaser, such as entering into
a subcontract or supply arrangement provided that (subject to
subsection 2.3(d)) the Vendor shall not be required to thereby
incur any material additional financial obligation or liability
thereunder except incidental costs related to establishing and
maintaining such arrangement; and
(iii) enforce for the account of the Purchaser any
rights or obligations of the Vendor arising from any Purchased
Asset referred to in subsection 2.3(a) against or in respect of
any person, including the right to elect to terminate in
accordance with the terms thereof upon the advice of the
Purchaser.
This subsection 2.3(c) shall not constitute a waiver
of any right of the Purchaser or Vendor to require
delivery of the consents and waivers on the Closing
Date pursuant to sections 9.1 or 9.3.
(d) The Vendor shall be responsible for, and shall assume
and satisfy, that portion of all Losses suffered or incurred by
the Purchaser resulting from the Vendor having provided the
Purchaser with the use or benefits of any Purchased Asset
referred to in subsection 2.3 (a) without having obtained the
necessary consents and waivers referred to in that subsection or
from the failure of the Purchaser to receive the benefits or use
of any such Purchased Asset as a result of the failure to obtain
such consent. If either party receives notice of any Claim by
any third party in respect of any matter which may be covered by
this subsection 2.3(d), such party shall, as soon as practical,
provide notice thereof to the other party hereto and both parties
shall in good faith attempt to agree upon and implement a mutual
strategy to defend, resolve or satisfy such Claim. The Vendor
shall indemnify and save harmless the Purchaser from any Losses
suffered or incurred by the Purchaser as a result of or arising
out of, in connection with or pursuant to the failure of the
Vendor to comply with its obligations under the first sentence of
this subsection 2.3(d).
Notwithstanding anything contained herein to the contrary in
no event shall the Vendor be responsible or liable for, or
indemnify the Purchaser from or against any Losses arising out of
or resulting from the failure of Lockheed Martin Overseas
Corporation and Lockheed Martin Corporation to consent to the
assignment to the Purchaser of the Agreement for Co-Operation
Relating to Certain Business Development Opportunities dated
April, 1997 and the related Performance Guarantee Agreement
dated April 23, 1997, including without limitation, the failure
of the Purchaser to receive the use or benefit of such contracts.
Nothing in this subsection (d) shall relieve the Purchaser
from its obligations under subsection 4.1(a) to perform the
obligations of the Vendor in any Contract comprising a Purchased
Asset.
2.4 Reassignment of Rights
If any Claim is asserted against the Vendor in connection
with any Excluded Liability, the Purchaser shall, at the request
of the Vendor, cooperate in any reasonable and lawful arrangement
with the Vendor which assists the Vendor in its defence of such
Claim (including reassigning to the Vendor the applicable
Contract or rights thereunder, if any, providing the Vendor with
reasonable access to the relevant records and appropriate
employees of the Purchased Business and making such employees
available as reasonably needed to provide evidence in connection
with such defence), provided that such arrangement does not
adversely affect the Purchaser's right or ability to realize the
benefits from any of the Purchased Assets. The Vendor shall pay
to the Purchaser the reasonable out-of-pocket costs of the
Purchaser and the wages and benefits (such benefits to be deemed
to be 14.5% of such employees' wages) of employees of the
Purchaser for the time devoted to providing such assistance in
compliance with any such request.
2.5 Access to Purchased Assets
Following Closing, the Purchaser shall permit the Vendor
reasonable access to the books and records and Employees of the
Purchased Business for the purposes of satisfying its
obligations, and/or enforcing or defending its rights, under or
pursuant to, or in respect of, the Excluded Assets or the
Excluded Liabilities (including without limitation the AMSC
Litigation) and shall, if requested by the Vendor, provide to the
Vendor reasonable access to those employees of the Purchaser
whose assistance, testimony or presence is considered beneficial
by the Vendor, acting reasonably, to assist the Vendor in
evaluating, defending or prosecuting the AMSC Litigation or any
matter related thereto or in respect of the facts surrounding the
same (and shall make such employees available as needed to
provide evidence in connection with such litigation). The Vendor
shall pay to the Purchaser the reasonable out-of-pocket costs of
the Purchaser and the wages and benefits (such benefits to be
deemed to be 14.5% of such employees' wages) of employees of the
Purchaser for the time devoted to providing such assistance in
compliance with such requests.
ARTICLE III
PURCHASE PRICE
3.1 Purchase Price
(a) The purchase price (the "Purchase Price") payable by
the Purchaser to the Vendor for acquiring the Purchased Assets,
subject to Purchaser's assumption of and obligation to satisfy
the Assumed Liabilities as provided herein, shall be
$30,000,000.00, payable, and subject to adjustment, as follows:
(i) $10,000,000.00 (the "Closing Date Payment") to
be paid at the Time of Closing by electronic transfer of
immediately available funds in Canadian Dollars, to such bank
account in Toronto, Ontario as the Vendor may specify not later
than two Business Days prior to the Closing Date, which payment
shall be subject to adjustment, following Closing, pursuant to
section 3.3;
(ii) $5,000,000.00 to be paid on May 10, 1999, by
either, at Purchaser's election, (I) electronic transfer of funds
in Canadian Dollars as specified in (i) above, or (II) subject to
subsection (b), delivery of shares of ELMG Stock having on such
date an aggregate Market Value equal to the U.S. $ Equivalent, on
such date, of such amount;
(iii) $5,000,000.00 evidenced by an ELMG Convertible
Note delivered at Closing bearing interest at the rate of 5.5%
per annum, having a conversion price of US$20.00, subject to
adjustments, and maturing on December 31, 1999;
(iv) $5,000,000.00 evidenced by an ELMG Convertible
Note delivered at Closing bearing interest at the rate of 5.5%
per annum, having a conversion price or US$22.00, subject to
adjustment, and maturing on December 31, 2000 the Closing Date,
subject to acceleration to the sixtieth day following the
occurrence of the Two-Year Milestone, but not earlier than
December 31, 1999; and
(v) $5,000,000.00 evidenced by an ELMG Convertible
Note delivered at Closing bearing interest at the rate of 5.5%
per annum, having a conversion price of U.S. $24.00, subject to
adjustment, and maturing on December 31, 2001, subject to
acceleration to the sixtieth day following the occurrence of the
Three-Year Milestone, but not earlier than December 31, 2000.
The Purchase Price does not include any applicable GST, QST or
other Taxes described in section 3.6 hereof.
(b) The Purchaser shall ensure that all of the ELMG Stock
to be delivered to the Vendor pursuant to subsection
3.1(a)(ii)(II) hereof shall, at the date of delivery, be Freely
Tradeable. If for any reason the Purchaser is unable to so
deliver Freely Tradeable ELMG Stock on May 10, 1999 because such
stock has not then been registered with the SEC, the Purchaser
may, upon giving written notice to the Vendor not later than May
1, 1999, elect to defer the delivery of such Freely Tradeable
ELMG Stock to the date on which it is first able to do so
provided that the number of ELMG Stock so delivered shall be
adjusted such that it has an aggregate Market Value, calculated
as at the date preceding delivery, equal to the U.S. $
Equivalent, on such date, of $5,000,000. The Purchaser shall use
its best efforts to register the ELMG Stock with the SEC as soon
as possible after Closing. Notwithstanding the foregoing, if the
Purchaser has not delivered such Freely Tradeable ELMG Stock by
the ninetieth day after the Vendor shall have provided the
financial statements specified in section 8.14, it shall on such
date pay to the Vendor the amount specified in subsection
3.1(a)(ii) together with interest on such amount calculated at
5.5% per annum from May 10, 1999 to the date of payment.
For the purposes hereof, "Freely Tradeable" in respect of
any ELMG Stock means ELMG Stock that is either registered with
the SEC for immediate resale by the Vendor in open market
transactions in the United States or, in accordance with an
opinion of ELMG's counsel delivered to the Vendor at the time of
delivery of such ELMG Stock, is saleable by the Vendor in such
transactions without registration or any applicable holding
period restrictions.
3.2 Determination of Working Capital
(a) Closing Balance Sheet. Within 60 days following the
Closing Date, the Vendor shall deliver to the Purchaser an
audited balance sheet (the "Closing Balance Sheet") of the
Purchased Business as at the opening of business on the Closing
Date, audited by Ernst & Young and accompanied by the unqualified
opinion of such auditors to the effect that such balance sheet
has been prepared in accordance with generally accepted
accounting principles applied on a basis consistent with those
used in the preparation of the Annual Financial Statements
(except as provided herein and except that, for greater certainty
none of the Excluded Liabilities nor the Excluded Assets shall be
reflected on the Closing Balance Sheet). The parties agree that
the Closing Balance Sheet shall be prepared and audited using a
$500,000 materiality level. For the purpose of preparing the
Closing Balance Sheet, the Purchaser agrees to grant the Vendor's
authorized representatives reasonable access to relevant records,
facilities and personnel of the Purchaser.
(b) Working Capital Calculation. At the time of delivery
of the Closing Balance Sheet, the Vendor shall also deliver to
the Purchaser, a report of the Vendor's auditors on the Closing
Balance Sheet and a written statement setting forth a detailed
calculation (the "Working Capital Calculation") of the Working
Capital, herein defined, and the amount of the Working Capital.
The Working Capital Calculation shall be accompanied by:
(i) an itemized list of all Assumed Liabilities
reflected in the Closing Balance Sheet which comprise current
liabilities of the Purchased Business (excluding, for greater
certainty, the Excluded Liabilities); and
(ii) an itemized list of all Purchased Assets (and
reserves and provisions against the same) as reflected in the
Closing Balance Sheet which comprise current assets of the
Purchased Business (excluding, for greater certainty, the
Excluded Assets).
"Working Capital" is defined herein as the amount by
which the aggregate book value of the assets identified in (ii)
above exceeds the aggregate book value of the liabilities
identified in (i) above, all as set forth on the Closing Balance
Sheet; provided that (I) there shall be no reserves or provisions
for items representing Excluded Assets or Excluded Liabilities
(other than the Warranty Provision, as defined in section 4.3),
(II) no costs or expenses accrued or payable under the proposed
Preliminary Design Review contract to be entered into between the
Purchaser and the Vendor in respect of the Radarsat II project
shall be included or reflected in the Closing Balance Sheet or
the Assumed Liabilities and (III) there shall be no changes to
any reserve or provision for or in respect of any customer
program except to the extent only that changes are required to
reflect events occurring on or after November 30, 1998, if any.
For greater certainty, depreciation and amortization shall
continue to be calculated pro rata to Closing on the same basis
as depreciation and amortization has been calculated during the
current fiscal year of the Vendor.
(c) Approval of Closing Financial Statements. The
Purchaser shall have a period (the "Review Period") of 30 days
from the date it receives the Closing Balance Sheet, the report
of the Vendor's auditors thereon and the Working Capital
Calculation (collectively, the "Closing Financial Statements") in
which to review the same. For the purpose of such review, the
Vendor agrees to cause its auditors to permit the Purchaser and
its authorized representatives to examine all working papers,
schedules and other documentation used or prepared by the
Vendor's auditors. If no objection in writing to the Closing
Financial Statements is given to the Vendor by the Purchaser
within the Review Period, the Closing Financial Statements shall
be deemed to have been approved as of the last day of such Review
Period.
If the Purchaser objects to any of the Closing
Financial Statements within the Review Period by giving notice to
the Vendor setting out in reasonable detail the nature of such
objection and the related amount(s) in dispute, the parties agree
to attempt to resolve the matters in dispute within 30 days from
the date the Purchaser gives such notice to the Vendor. If all
matters in dispute are resolved by the parties, the Closing
Financial Statements shall be modified to the extent required to
give effect to such resolution and shall be deemed to have been
approved as of the date of such resolution.
If the parties cannot resolve all matters in dispute
within such 30-day period, all unresolved matters shall be
submitted to a nationally recognized firm of chartered
accountants acceptable to both parties (the "Expert") for
resolution, and the Expert shall be given access to all materials
and information reasonably requested by it for such purpose. The
rules and procedures to be followed in such proceeding shall be
determined by the Expert in its discretion. The Expert's
determination of all such matters shall be final and binding on
both parties and shall not be subject to appeal by either party,
absent manifest error. The fees and expenses of the Expert shall
be borne by the parties in the manner determined by the Expert
based on the relative success of each party in respect of such
disputes. The Purchase Price shall be modified to the extent
required to give effect to the Expert's determination and shall
be deemed to have been approved as of the date of such
determination.
3.3 Adjustment of Closing Date Payment
Within two Business Days after the Review Period:
(a) if the Working Capital exceeds $4,900,000, the Purchase Price
shall be increased by an amount equal to such excess together with interest
thereon at an annual rate equal to the Prime Rate as adjusted from time to
time plus 2% from and including the Closing Date to but excluding the date
of delivery of the ELMG Convertible Note, hereinafter referred to. The
Purchaser shall satisfy such increase in the Purchase Price and interest by
executing and delivering to the Vendor an ELMG Convertible Note,on the same
terms as the ELMG Convertible Note referred to in subsection 3.1(a)(iii) in
the principal amount equal to such increased Purchase Price and interest; and
(b) if the Working Capital is less than $3,900,000, the Purchase Price
shall be decreased by an amount equal to such deficiency and the ELMG
Convertible Note referred to in subsection 3.1(a)(iii) shall be reduced by
an amount equal to such decrease together with interest thereon at the Prime
Rate as adjusted from time to time plus 2% from and including the Closing
Date to but excluding the date of payment and the Vendor and the Purchaser
shall make such amendments to such Note to reflect such reduction,provided
that if the Purchaser has objected to any part of the Closing Financial
Statements no adjustment to the Purchase Price shall be made in respect of
the amount in dispute until two Business Days after the same has been
finally resolved by the parties or pursuant to section 3.2.
3.4 Allocation of Purchase Price
Prior to Closing the Vendor and the Purchaser shall agree to
allocate the Purchase Price among the Purchased Assets and the
Assumed Liabilities and to report the sale and purchase of the
Purchased Assets for all federal, provincial and local tax
purposes in a manner consistent with such allocation. It is
agreed that the Purchase Price allocated to machinery, equipment,
furniture, computer hardware and software, inventories and work
in process shall be paid in the form and as part of the
Convertible Note delivered pursuant to clause 3.1(a)(v) to the
extent of the principal amount thereof and as part of the
Convertible Note delivered pursuant to clause 3.1(a)(iv) to the
extent of a remaining amount.
3.5 ETA Election
Provided that the Purchaser is then a registrant for the
purposes of the ETA and the Act respecting Quebec Sales Tax, the
Purchaser and the Vendor shall elect jointly under subsection
167(1) of the ETA and section 75 of the Act respecting Quebec
Sales Tax, in the forms prescribed for the purposes of those
provisions to elect that GST and QST not apply in respect of the
sale and transfer of the Purchased Assets hereunder and the
Purchaser shall file such elections in its GST and/or QST returns
for the reporting period that includes the Closing Date. The
Purchaser shall indemnify the Vendor for any and all expenses,
costs and liabilities incurred by the Vendor as the result of the
failure of any taxing authority to accept any such election and
notwithstanding any other provision of this Agreement, the
obligation of the Purchaser to effect the indemnity shall survive
the closing of the transactions contemplated hereby, shall
continue indefinitely, and shall not be subject to, or taken into
account in determining the thresholds and limitations set out in
section 11.3 of this Agreement.
3.6 Transfer Taxes, etc.
Subject to section 3.5, the Purchaser shall be liable for
and shall pay at the applicable statutory rates, to the Vendor at
the Time of Closing, to the extent required under applicable
legislation to be collectible by the Vendor, or otherwise
directly to the relevant governmental authority, all federal and
provincial sales taxes (including any GST, QST, retail sales
taxes and land transfer taxes) and all other taxes, duties, fees
or other like charges of any jurisdiction properly payable in
connection with the transfer of the Purchased Assets by the
Vendor to the Purchaser (but not including income taxes payable
by the Vendor). The Purchaser shall pay all filing fees in
connection with any filings or notifications required to be made
under the pre-merger notification provisions of the Competition
Act (Canada).
3.7 Income Tax Election
The Purchaser and the Vendor agree to elect jointly in the
prescribed form and manner under section 22 of the Tax Act (and
the applicable section of the Taxation Act (Quebec)) as to the
sale of the accounts receivable and other assets that are
referred to in subsection 2.1(f) hereof and described in section
22 of the Tax Act (and the applicable section of the Taxation Act
(Quebec)) and to designate in such election an amount equal to
the portion of the Purchase Price allocated to such assets
pursuant to section 3.4 as the consideration paid by the
Purchaser therefor. The Purchaser and the Vendor shall make the
election provided for in section 20(24) of the Tax Act (and the
applicable section of the Taxation Act (Quebec)) in the
prescribed form and manner.
ARTICLE IV
ASSUMPTION OF LIABILITIES
4.1 Assumption of Certain Liabilities by the Purchaser
The Purchaser agrees to assume, pay, satisfy, discharge,
perform and fulfil, from and after the Time of Closing, only
those obligations and liabilities of the Vendor which are
described below (the "Assumed Liabilities"):
(a) all liabilities and obligations under or relating to
the Contracts comprising part of the Purchased Assets, including
those under or relating to the Contracts described in Schedules
3, 7, 8 and 10 and the Collective Agreements;
(b) all liabilities and obligations under all letters of
credit, surety bonds or performance bonds (including obligations
to reimburse the issuer thereof for any payments made thereunder)
issued to secure or ensure performance by the Vendor of its
obligations or liabilities under any Contract comprising part of
the Purchased Assets to the extent the same are set forth in
Schedule 7 (collectively the "Letters of Credit");
(c) all licences, liabilities and obligations under or
relating to the Licences comprising part of the Purchased Assets
which are to be performed following the Closing;
(d) all trade and other accounts payable and other
existing or accrued liabilities arising in respect of, or in the
ordinary course of the Purchased Business (including, without
limitation, capital lease payments, if any, taxes respecting Real
Property, liabilities in respect of Permitted Encumbrances and
unpaid, accrued or accumulated vacation pay obligations and
wages) to the extent the same are reflected in the Closing
Balance Sheet;
(e) all liabilities and obligations under or relating to the
Permitted Encumbrances which are to be performed following the Closing;
(f) all liabilities and obligations arising out of or resulting from
any breach or violation of Environmental Laws by or in respect of the Purchased
Business or the Purchased Assets prior to or after Closing whether known or
unknown except to the extent the same constitutes a breach of the
representation and warranty set forth in section 5.26 hereof;
(g) each of the grievances and complaints identified on
Schedule 8 and any other grievances under or pursuant to any of
the Collective Agreements commenced by or on behalf of any of the
Employees after the date hereof in the ordinary course of
business;
(h) all liabilities and obligations for which the Purchaser is
otherwise expressly responsible under this Agreement.
4.2 Retained Liabilities
For greater certainty, and without limiting the generality
of section 4.1, the Vendor shall remain liable for and shall pay,
satisfy, discharge, perform and fulfil, all other obligations and
liabilities of the Vendor which are not Assumed Liabilities (the
"Excluded Liabilities"), including, without limitation, the
following obligations and liabilities:
(a) any liability for Taxes payable, collectible or
remittable by the Vendor in respect of the Purchased Business and
the Purchased Assets in respect of the period prior to the
Closing Date to the extent not reflected in the Closing Balance
Sheet;
(b) any liability owing to a lender of the Vendor,
including without limitation, any bank overdrafts or bank
indebtedness and any indebtedness or liabilities owing under any
trust indenture, mortgage, promissory note, loan agreement,
guarantee or other Contract for the borrowing of money;
(c) any liability in respect of product liability,
product warranty and other claims and obligations respecting
products and services for which the Vendor is responsible
pursuant to subsection 4.3(a);
(d) any liability arising out of or in respect of the
AMSC Litigation;
(e) any liability to repay the unsecured interest-free
government loan in the principal amount of $5,257,496 as at
September 30, 1998 which is reflected in the Interim Financial
Statements;
(f) any liability relating to obligations of the
corporate office or other divisions of the Vendor (other than the
Purchased Business), including all cash or bank overdraft
balances recorded in the accounts of the Purchased Business at
Closing; and
(g) any liability or obligation relating to an Excluded
Asset.
4.3 Product Liability and Warranty Obligations
(a) Without in any way limiting section 11.1, the
Purchaser shall not assume, and the Vendor shall be solely
responsible for and shall indemnify and hold harmless the
Purchaser from and against any and all Losses (which shall
include the overhead cost allocation used to establish the
Warranty Provision, defined below, but shall be deemed not to
include any profits on direct labour and material costs) arising
out of or resulting from any product liability, product warranty
and other claims, liabilities and obligations respecting products
delivered and/or services provided by the Vendor in connection
with the Purchased Business up to Closing whether such Losses
arise before or after the Time of Closing and whether known or
unknown as of the Time of Closing to the extent such Losses
exceed any provision or allowance for product warranty or
liability claims reflected in the Closing Balance Sheet (the
"Warranty Provision").
Notwithstanding anything contained herein to the contrary,
the Purchaser may if the Purchaser, acting reasonably, determines
in good faith to do so for valid business reasons, and shall if
requested or otherwise authorized to do so in writing by the
Vendor, satisfy or perform any applicable product warranty
obligation of the Vendor not assumed by the Purchaser (for
greater certainty, consisting of any such obligation as to which
the related Losses to the Purchaser exceed or are not covered by
the Warranty Provision), provided however that, in either case,
the Purchaser shall first provide the Vendor with an opportunity
to assess the claim and comment on its validity, the proposed
response by the Purchaser and the Purchaser's cost estimate for
satisfying or performing such warranty. In any such case where
not requested or authorized in writing by the Vendor, provided
such product warranty obligation was a valid and enforceable
obligation or liability of the Vendor and the claim in respect
thereof was valid, the Vendor shall reimburse the Purchaser
forthwith following demand by the Purchaser for all direct costs
incurred by the Purchaser in repairing or replacing products
(which shall include the overhead cost allocation used to
establish the Warranty Provision but shall be deemed not to
include any profits on direct labour and material costs).
For greater certainty, the provisions of sections 11.4 to
11.9 inclusive, shall apply mutatis mutandis to any indemnity
claim pursuant to this subsection 4.3(a).
(b) Subject to the second paragraph hereof, the Vendor
shall not be responsible for, and the Purchaser shall be solely
responsible for and shall indemnify and hold harmless the Vendor
from and against, any and all Losses arising out of or resulting
from any product liability, product warranty and other claims and
obligations respecting products delivered and/or services
provided (i) by the Purchaser in connection with the Purchased
Business after the opening of business on the Closing Date
(including work performed or products produced following Closing
to complete unfinished Inventory) and (ii) by the Vendor in
connection with the Purchased Business prior to the Time of
Closing to the extent of the Warranty Provision. The provisions
of sections 11.4 to 11.9, inclusive, shall apply mutatis mutandis
to any indemnity claim pursuant to this subsection 4.3(b).
Notwithstanding the foregoing, nothing contained in this
subsection 4.3(b) shall affect the rights of the Purchaser under
Article XI hereof in respect of any Losses suffered or incurred
by it as a result of or arising out of any inaccuracy of any
representation or warranty of the Vendor hereunder including
section 5.10 hereof provided, however, that the Purchaser shall
not be entitled to recover more than the amount of its Loss in
respect of any one claim or circumstance.
4.4 Bulk Sales Legislation
The parties hereby waive compliance with any applicable bulk
sales legislation; provided however that the Vendor shall
indemnify and save harmless the Purchaser from and against all
losses suffered or incurred by the Purchaser as a result of such
non-compliance except to the extent such Losses arise from the
Purchaser's failure to satisfy or discharge any Assumed
Liabilities or other liabilities or obligations assumed by it
hereunder.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE VENDOR
The Vendor represents and warrants to the Purchaser as
follows and acknowledges that the Purchaser is relying on such
representations and warranties in connection with its purchase of
the Purchased Assets:
5.1 Organization
The Vendor is a corporation validly subsisting under the
laws of the jurisdiction of its incorporation and has the
corporate power to own or lease its property, to carry on the
Purchased Business as now being conducted by it and to enter into
this Agreement and to perform its obligations hereunder.
5.2 Authorization
This Agreement has been duly authorized, executed and
delivered by the Vendor and is a legal, valid and binding
obligation of the Vendor, enforceable against the Vendor by the
Purchaser in accordance with its terms, except as enforcement may
be limited by bankruptcy, insolvency and other laws affecting the
rights of creditors generally and except that equitable remedies
may be granted only in the discretion of a court of competent
jurisdiction.
5.3 No Other Agreements to Purchase
No person other than the Purchaser has any written or oral
agreement or option or any right or privilege (whether by law,
pre-emptive or contractual) capable of becoming an agreement or
option for the purchase or acquisition from the Vendor of any of
the Purchased Assets, other than as set forth in Schedule 3 and
pursuant to purchase orders for the sale of Inventory accepted by
the Vendor in the ordinary course of the Purchased Business.
5.4 No Violation
The execution and delivery of this Agreement by the Vendor
and the consummation of the transactions herein provided for will
not result in:
(a) the breach or violation of any of the provisions of,
or constitute a default under, or conflict with or cause the
acceleration of any obligation of the Vendor under:
(i) any Contract to which the Vendor is a party or
by which it is or the Purchased Assets are bound except for
Contracts which comprise the Purchased Assets (it also being
understood that the parties must comply with the provisions of
the SkyBridge LPA as a result of the sale of the Holding Shares);
(ii) any provision of the constating documents or
by-laws or resolutions of the board of directors (or any
committee thereof) or shareholders or any unanimous shareholder
agreement of the Vendor;
(iii) any judgment, decree, order, writ, injunction
or award of any court, governmental body or arbitrator having
jurisdiction over the Vendor;
(iv) any Licence held by the Vendor or necessary to
the operation of the Purchased Business, except for Licenses as
to which assignment or other transfer to the Purchaser is
required as a condition to the Closing; or
(v) any applicable law, statute, ordinance,
regulation or rule, including without limitation any
Environmental Laws, the breach or violation of which would
adversely affect the transactions contemplated hereby or the
Purchased Business as presently being conducted or impose any
liability on the Purchaser other than bulk sales legislation
relating to the sale of the Purchased Assets; nor
(b) the creation or imposition of any Encumbrance on any
of the Purchased Assets.
5.5 Sufficiency of Purchased Assets
Except for the customer owned and supplied property
described in Schedule 6, the Purchased Assets owned or leased by
the Vendor are all of the assets used by the Vendor in the
Purchased Business (other than the Excluded Assets) and are
sufficient to carry on the Purchased Business as presently being
conducted. Except for Excluded Assets or assets sold in the
ordinary course, all assets reflected in the Financial Statements
form part of the Purchased Assets. To the knowledge of the
Vendor, all machinery, equipment and vehicles comprising the
Purchased Assets owned and used by the Vendor in connection with
the Purchased Business are in good operating condition and are in
a state of good repair and maintenance normal wear and tear
excepted after taking into account the age and use of such
assets. All the material tangible assets of the Purchased
Business are situate at the locations set out in Schedule 11.
The Vendor does not own, or have any agreements to acquire,
directly or indirectly, any shares in the capital of or other
equity or proprietary interests in any person which comprises
Purchased Assets or carries on all or any portion of the
Purchased Business currently carried on by the Vendor except for
the Holdings Shares, Holdings' ownership of the SkyBridge Units
and as contemplated in the Ellipso Agreement.
5.6 Title to Purchased Assets
The Vendor legally and beneficially owns all of the tangible
Purchased Assets, free and clear of all Encumbrances other than
Permitted Encumbrances and Encumbrances that are discharged, or
for which legally binding undertakings to discharge are
delivered, on or prior to Closing and the leases described in
Schedule 7.
5.7 Real and Immovable Property
Schedule 3 sets forth the municipal addresses and complete
and accurate legal descriptions of all of the real and immovable
property that is used in connection with the Purchased Business
and of which the Vendor is the beneficial and registered owner
(the "Real Property") and the municipal addresses of all such
property that is leased by the Vendor (the "Leased Property").
The Vendor has not agreed to acquire any real or immovable
property or any interest in any real or immovable property which
is used in connection with or otherwise relating to the Purchased
Business other than the Real Property and the Leased Property.
5.8 Idem
All buildings, structures, improvements and appurtenances
situate on the Real Property or comprising the Leased Property
are, to the knowledge of the Vendor, in good operating condition
and do not require material repairs or replacement to satisfy the
purposes for which they are currently being used. Subject to the
Permitted Encumbrances, the Vendor has adequate rights of ingress
and egress for the operation of the Purchased Business in the
ordinary course. None of such buildings, structures, improvements
or appurtenances (or any equipment therein), nor the operation or
maintenance thereof, violates any restrictive covenant or any
provision of any federal, provincial or municipal law, ordinance,
rule or regulation, or encroaches on any property owned by others
other than violations or encroachments where the costs or effects
of compliance therewith would not constitute a Material Adverse
Effect. Without limiting the generality of the foregoing:
(a) the Real Property, the Leased Property, the current
uses thereof and the conduct of the Purchased Business comply
with all regulations, statutes, enactments, laws and by-laws,
including, without limitation, those dealing with zoning,
parking, access, loading facilities, landscaped areas, building
construction and fire (but excluding Environmental Laws which are
covered by the representation and warranty contained in section
5.26) except where the costs or effects of compliance and
penalties for such non-compliance would not constitute a Material
Adverse Effect;
(b) no material alteration, repair, improvement or other
work has been ordered, directed or requested to be done or
performed to or in respect of the Real Property or the Leased
Property, or to any of the plumbing, heating, elevating, water,
drainage or electrical systems, fixtures or works comprising part
of the same by any municipal, provincial or other competent
authority, which alteration, repair, improvement or other work
has not been completed, and the Vendor knows of no written
notification having been received by it of any such outstanding
work being ordered, directed or requested, other than those that
have been complied with;
(c) all accounts for work and services performed and
materials placed or furnished upon or in respect of the Real
Property or the Leased Property at the request of the Vendor have
been fully paid and satisfied in all material respects or accrued
in the Financial Statements, and no person is entitled to claim a
lien under the Construction Lien Act (Ontario) or legal hypothec
under the Civil Code of Quebec or similar legislation in other
provinces of Canada against the Real Property, the Leased
Property or any part thereof, other than current accounts in
respect of which the payment due date has not yet passed;
(d) the Leased Property and the Real Property are fit for
their present use; and none of the Leased Property or the Real
Property is currently undergoing any material alteration or
renovation nor is any such material alteration or renovation
contemplated; and
(e) there are no outstanding or proposed levies, charges
or fees assessed against the Leased Property or the Real Property
by any public authority (including development or improvement
levies, charges or fees) in excess of $25,000 in the aggregate of
which the Vendor is aware and which have not been accrued in the
Financial Statements.
5.9 Leased Property
The Vendor is not a party to any lease or agreement to lease
or sublease in respect of any real or immovable property used in
connection with or otherwise relating to the Purchased Business,
whether as lessor or lessee or sublessor or sublessee, other than
the leases and subleases (the "Leases") described in Schedule 3
relating to the Leased Property. Schedule 3 sets out the parties
to and dates of each of the Leases and any amendments thereto.
Except as described in Schedule 3, the Vendor occupies the Leased
Property and, subject to the terms and conditions of the relevant
Leases, has the exclusive right to occupy and use the Leased
Property. Except as set forth in Schedule 3, each of the Leases
is in good standing and in full force and effect, and neither the
Vendor nor, to the knowledge of the Vendor, any other party
thereto is in breach of any material covenants, conditions or
obligations contained therein. The Vendor has made available a
true and complete copy of each Lease and all amendments thereto
to the Purchaser.
5.10 Inventories
The finished inventories of the Vendor relating to the
Purchased Business are, in all material respects, in good and
merchantable condition and usable or saleable in the ordinary and
normal course of business of the Purchased Business for which
they are intended. The value of all inventory items relating to
the Purchased Business have been recorded at the lower of cost or
net realizable value and otherwise in accordance with generally
accepted accounting principles applied on a basis consistent with
the Vendor's past practice.
5.11 Accounts Receivable
All accounts receivable (including unbilled amounts), book
debts and other debts due or accruing to the Vendor in connection
with the Purchased Business are bona fide, have been reflected on
the books of the Vendor in accordance with generally accepted
accounting principles, and are not subject to any set-off or
counterclaim.
5.12 Intellectual Property
Schedule 10 sets out all Intellectual Property pertaining to
the Purchased Business which has been registered by the Vendor
under applicable legislation or in respect of which registrations
are pending (including particulars of registration or application
for registration) and all licences and other Contracts that
provide for the licensing, use or sale of Intellectual Property
and which are material to the Purchased Business. The
Intellectual Property set out in Schedule 10 or otherwise
included in the Purchased Assets, and all Intellectual Property
supplied by customers of the Purchased Business comprise all
trade or brand names, business names, trade marks, service marks,
copyrights, patents, trade secrets, know-how, inventions, designs
and other industrial or intellectual property necessary to
conduct the Purchased Business in the manner which the Purchased
Business is currently being conducted. The Vendor is not a party
to or bound by any Contract that limits or impairs its ability to
sell, transfer, assign or convey, or that otherwise affects, the
Intellectual Property except as set forth in Schedule 10 and
except as set forth in customer or supplier contracts entered
into by the Purchased Business. No person has been granted any
interest in or right to use all or any portion of the
Intellectual Property except as set forth in Schedule 10 and
except as set forth in customer or supplier contracts entered
into by the Purchased Business. To the knowledge of the Vendor,
the conduct of the Purchased Business does not infringe upon the
industrial or intellectual property rights, domestic or foreign,
of any other person. The Vendor is not aware of a claim of any
infringement or breach of any industrial or intellectual property
rights of any other person, nor has the Vendor received any
notice that the conduct of the Purchased Business, including the
use of the Intellectual Property, infringes upon or breaches any
industrial or intellectual property rights of any other person.
To the knowledge of the Vendor no third party is infringing or
violating any of the Vendor's rights in the Intellectual
Property. Except as reflected in the agreements identified in
Schedule 10 and except for claims of infringement or similar
claims of which the Vendor is not aware, the Vendor owns all of
the Intellectual Property described in Schedule 10. The Vendor
has made available to the Purchaser complete copies of all
material Contracts and amendments thereto that comprise or relate
to the Intellectual Property. Schedule 10 also sets out the
procedures that have been used by the Vendor to protect the
confidentiality of its proprietary information (including trade
secrets and know-how), and to assure its ownership of all
intellectual property developed by employees, consultants and
other contractors as a result of or in connection with their
responsibilities to the Vendor.
5.13 Insurance
Schedule 14 summarizes all insurance policies (specifying
the amount of the coverage, the type of insurance and any pending
claims thereunder) maintained by the Vendor on the Purchased
Assets or personnel as of the date hereof. Schedule 14 sets
forth a list of the most recent inspection reports, if any,
received from insurance underwriters or others as to the
condition of the Purchased Assets, true and complete copies of
which have been provided to the Purchaser, and a summary of all
insurance claims made in the last three years.
5.14 No Expropriation
No part of the Purchased Assets has been taken or
expropriated by any federal, provincial, municipal or other
authority, nor has any notice or proceeding in respect thereof
been given to the Vendor or commenced, nor is the Vendor aware of
any intent or proposal to give any such notice or commence any
such proceedings.
5.15 Agreements and Commitments
Except as described in Schedules 3, 7, 8 and 10 the Vendor
is not a party to or bound by any of the following Contracts in
connection with or relating to the Purchased Business:
(a) any distributor, sales, advertising, agency or
manufacturer's representative Contract;
(b) any collective bargaining agreement or other Contract
with any labour union;
(c) any continuing Contract for the purchase of
materials, supplies, equipment or services (other than Contracts
for capital expenditures) involving more than $200,000 in respect
of any one such Contract or more than $1,500,000 in respect of
all such Contracts;
(d) any employment or consulting Contract or any other
Contract with any of the Employees or any consultant (other than
oral Contracts of indefinite hire terminable by the Vendor
without cause on reasonable notice);
(e) any trust indenture, mortgage, promissory note, loan
agreement, guarantee or other Contract for the borrowing of money
or a leasing transaction of the type required to be capitalized
in accordance with generally accepted accounting principles
except where it constitutes an Excluded Liability;
(f) any Contract for the sale of any assets or supply of
services (including sales of inventory) in excess of $200,000 or
which expires more than one year from the date hereof;
(g) any Contract pursuant to which the Vendor is a lessor
or lessee of any machinery, equipment, motor vehicles, office
furniture, fixtures or other personal property that involves an
annual rental in excess of $25,000;
(h) any confidentiality, secrecy or non-disclosure
Contract (whether the Vendor is a beneficiary or obligor
thereunder) relating to any proprietary or confidential
information or any non-competition or similar Contracts; other
than confidentiality, secrecy or non-disclosure provisions or
agreements (I) entered into in the ordinary course of business
with customers, suppliers, employees, agents or consultants of
the Purchased Business or (II) entered into in connection with
any other proposed sale of the Purchased Business;
(i) any material licence, franchise or other agreement
that relates in whole or in part to any Intellectual Property;
(j) any agreement of guarantee, support, indemnification,
assumption or endorsement of, or any other similar commitment
with respect to, the obligations, liabilities (whether accrued,
absolute, contingent or otherwise) or indebtedness of any other
person, except for cheques endorsed for collection in the
ordinary course of the Purchased Business and except where it
constitutes an Excluded Liability;
(k) any other Contract in excess of $100,000 or that
expires, or may expire if the same is renewed or extended at the
option of any person other than the Vendor, more than one year
after the date of this Agreement; or
(l) any Contract entered into by the Vendor other than in
the ordinary course of the Purchased Business, (collectively, the
"Material Contracts").
The Vendor has performed in all material respects all of the
obligations required to be performed by it and is entitled to all
benefits under, and is not in default or alleged to be in default
in respect of, any Material Contract relating to the Purchased
Business or Purchased Assets to which it is a party or by which
it is bound except where the costs or effects of compliance and
penalties for such non-performance or default would not
constitute a Material Adverse Effect. To the knowledge of the
Vendor all such Material Contracts are in good standing and in
full force and effect and no other party thereto is in material
breach of any covenants, conditions or obligations contained
therein. The Vendor has made available to the Purchaser a true
and complete copy of each Material Contract listed or described
in Schedules 3, 7, 8 and 9 and all amendments thereto.
The Vendor has performed in all material respects all of the
obligations to be performed by it and is not in default or
alleged to be in default under any Contract or Permitted
Encumbrance which is not a Material Contract (collectively the
"other Contracts") comprising part of the Purchased Assets,
except where the costs or effects of curing such default or non-performance
and the penalties for such defaults or instances of non-performance
would not, individually or in the aggregate, constitute a Material Adverse
Effect. To the knowledge of the Vendor all such other Contracts are in good
standing and in full force and effect and to the knowledge of the Vendor no
other party thereto is in material breach of any covenants, conditions
or obligations contained therein.
5.16 Compliance with Laws; Governmental Authorization
Except for the matters addressed in section 5.27 (which are
represented and warranted therein), the Vendor has complied with
all laws, statutes, ordinances, regulations, rules, judgments,
decrees or orders applicable to the Purchased Business or the
Purchased Assets except where the costs or effects of compliance
and penalties for such non-compliance does not constitute a
Material Adverse Effect. Schedule 9 sets out a complete and
accurate list of all government or regulatory licences, permits,
approvals, consents, certificates, registrations and
authorizations held by or granted to the Vendor which are
material to the Purchased Business and its operation (the
"Licences"), including without limitation any license required
under any Environmental Laws, and except as disclosed in
Schedule 18 there are no other material licences, permits,
approvals, consents, certificates, registrations or
authorizations necessary to carry on the Purchased Business as
presently carried on by the Vendor or to own or lease any of the
Purchased Assets. Each Licence is valid, subsisting and in good
standing and the Vendor is not in default or breach of any
Licence except where the costs or effects of curing such default
or breach and penalties for such default or breach would not
constitute a Material Adverse Effect and no proceeding is pending
or, to the knowledge of the Vendor, threatened to revoke, limit
or refuse the renewal of any Licence. The Vendor has made
available a true and complete copy of each Licence and all
amendments thereto to the Purchaser.
5.17 Consents and Approvals
There is no requirement on the part of the Vendor to make
any filing with, give any notice to or to obtain any Licence,
consent or other approval from any government or regulatory
authority as a condition to the lawful consummation of the
transactions contemplated by this Agreement or for the Purchaser
to carry on the Purchased Business following the Closing as
presently carried on by the Vendor, except for the filings,
notifications and Licences described in Schedule 16 or that
relate solely to the identity of the Purchaser or the nature of
any business carried on by the Purchaser.
5.18 Financial Statements
The Financial Statements have been prepared in accordance
with generally accepted accounting principles applied on a basis
consistent with prior periods (except as set forth in Schedule
23), and present fairly, in all material respects, the assets,
liabilities, financial position and results of operations of the
Purchased Business as at the respective dates of the Financial
Statements and the sales, earnings and results of operations of
the Purchased Business for the respective periods covered by the
Financial Statements. The Vendor has provided true and complete
copies of the Financial Statements to the Purchaser.
5.19 Books and Records
The books and records of the Vendor accurately, fairly and
correctly set out and disclose, in all material respects, all
financial transactions of the Vendor relating to the Purchased
Business for the periods noted therein.
5.20 Absence of Changes
Since September 30, 1998, except as disclosed in Schedule
21, the Purchased Business has been carried on only in the
ordinary and normal course consistent with past practice and
there has not been:
(a) any material adverse change in the financial
condition, properties, assets, business, liabilities or
operations of the Purchased Business taken as a whole;
(b) any damage, destruction or loss (whether or not
covered by insurance) affecting the Purchased Assets resulting in
a cost in excess of $100,000;
(c) any material obligation or liability (whether
absolute, accrued, contingent or otherwise, and whether due or to
become due) incurred by the Vendor in connection with the
Purchased Business, other than those incurred in the ordinary and
normal course of the Purchased Business and consistent with past
practice;
(d) any payment, discharge or satisfaction of any
material Encumbrance, liability or obligation of the Vendor in
relation to the Purchased Business or the Purchased Assets
(whether absolute, accrued, contingent or otherwise, and whether
due or to become due) other than Excluded Liabilities and other
than payments in the ordinary and normal course of business
consistent with past practice;
(e) any labour trouble adversely affecting the Purchased
Business or the Purchased Assets in any material respect;
(f) any licence, sale, assignment, transfer, disposition,
pledge, mortgage or granting of a security interest or other
Encumbrance on or over any Purchased Assets, other than (i)
Permitted Encumbrances and (ii) sales of inventory to customers
in the ordinary and normal course of the Purchased Business;
(g) any write-down of the value of any inventory or any
write-off as uncollectible of any accounts or notes receivable or
any portion thereof relating to the Purchased Business in amounts
exceeding $500,000 in each instance or $1,000,000 in the
aggregate if such write-down or write-off pertains to a current
asset included in the Working Capital Calculation, and otherwise
$200,000 and $500,000 respectively;
(h) any cancellation of any debts or claims or any
amendment, termination or waiver of any rights of value to the
Purchased Business in amounts exceeding $500,000 in each instance
or $1,000,000 in the aggregate if such action pertains to a
current asset or liability included in the Working Capital
Calculation, and otherwise $200,000 and $500,000 respectively;
(i) any general increase in the compensation of employees
of the Vendor employed in the Purchased Business (including,
without limitation, any increase pursuant to any Employee Plan
except as may have been required by the terms of such Employee
Plan), any modification of any Employee Plan, or any increase in
any such compensation or bonus payable to any officer, employee,
consultant or agent thereof (having an annual salary or
remuneration in excess of $150,000) or the execution of any
employment contract with any officer or employee of the Purchased
Business (having an annual salary or remuneration in excess of
$150,000), or the making of any loan to, or engagement in any
transaction with, any employee, officer or director of the Vendor
in relation to the Purchased Business;
(j) any capital expenditures or commitments relating to
the Purchased Business or Purchased Assets in excess of
$1,000,000 in the aggregate;
(k) any material forward purchase commitments in excess
of the requirements of the Purchased Business for normal
operating inventories or at prices materially higher than the
current market prices;
(l) any forward sales commitments other than in the
ordinary and normal course of the Purchased Business or any
failure to satisfy in any material respect any accepted order for
goods or services;
(m) any material change in the accounting practices
followed by the Vendor in relation to the Purchased Business; or
(n) any change adopted in the depreciation or
amortization policies or rates, or any material change in the
credit terms offered to customers of, or by suppliers to, the
Purchased Business.
5.21 Non-Arm's Length Transactions
With respect to the Purchased Business:
(a) the Vendor has not since September 30, 1998 made any
payment or loan to, or borrowed any moneys from or is otherwise
indebted to, any Employee or, to the knowledge of the Vendor, any
other person not dealing at arm's length with the Employee,
except as reflected in the Financial Statements and except for
usual employee reimbursements and compensation paid in the
ordinary course of the Purchased Business; and
(b) except for Contracts of employment, the Collective
Agreements or trade secrets or confidentiality agreements with
employees, the Vendor is not a party to any Contract with any
officer, director, employee, shareholder or any other person not
dealing at arm's length with the Vendor (within the meaning of
the Tax Act) or any Affiliate or Associate of any of the
foregoing in connection with the Purchased Business.
5.22 Taxes
There are no outstanding liabilities for Taxes payable,
collectible or remittable by the Vendor, whether assessed or not,
which may result in a material Encumbrance on or other claim
against or seizure or sale of all or any part of the Purchased
Assets or would otherwise adversely affect the Purchased Business
or would result in the Purchaser becoming liable or responsible
therefor. There are no actions, suits or proceedings pending or,
to the knowledge of the Vendor, threatened against the Vendor,
and to the knowledge of the Vendor there are no investigations
being conducted, in respect of Taxes which may result in a
material Encumbrance on or other claim against or seizure or sale
of any of the Purchased Assets or liability or responsibility on
the part of the Purchaser for Taxes payable, collectible or
remittable by the Vendor. There are no material matters under
discussion by the Vendor or its representatives with any
governmental authority relating to any such Taxes nor has the
Vendor received any notices of assessment or demand for payment
of any such Taxes. The Vendor has withheld from all remuneration
(including taxable benefits) of employees of the Purchased
Business all Taxes and other deductions required to be withheld
therefrom and has remitted the same to the proper tax or other
receiving authority within the time required under applicable
legislation.
5.23 Litigation
Except as described in Schedule 15, there are no actions,
suits or proceedings (whether or not purportedly on behalf of the
Vendor) pending or, to the knowledge of the Vendor, threatened
against or affecting the Vendor at law or in equity or before or
by any federal, provincial, municipal or other governmental
department, court, commission, board, bureau, agency or
instrumentality, domestic or foreign, or before or by an
arbitrator or arbitration board and which do or could pertain to
the Purchased Business or the Purchased Assets or could affect
the ability of the Vendor to perform its obligations hereunder.
The Vendor is not aware of any ground on which any such action,
suit or proceeding might be commenced with any reasonable
likelihood of success which would constitute a Material Adverse
Effect.
5.24 Residency
The Vendor is not a non-resident of Canada for the purposes
of the Tax Act.
5.25 GST/QST Registration
The Vendor is a registrant for purposes of the ETA whose
registration number is R104951983 and is a registrant for the
purposes of the Act respecting the Quebec Sales Tax whose
registration number is 1002507371.
5.26 Environmental
(a) Except as disclosed in Schedule 18:
(i) The Purchased Business, the Real Property, the
Leased Property and the Purchased Assets have, since January 1,
1994, been and are in compliance with all applicable federal,
provincial, municipal and local laws, statutes, by-laws and
regulations, and orders, directives and decisions rendered by,
and policies, instructions, guidelines and similar guidance, in
each case to the extent it has the force of law, of any ministry,
department or administrative or regulatory agency ("Environmental
Laws") relating to the protection of the environment,
occupational health and safety or the use, storage, disposal,
discharge, transport, handling, remediation or corrective action
of any pollutants, contaminants, chemicals, deleterious
substances or industrial, toxic or hazardous wastes, substances
or materials ("Hazardous Substances") except for any non-compliance(s) for
which the costs or effects of compliance and penalties for non-compliance
would not, either individually or in aggregate, constitute a Material
Adverse Effect.
(ii) The Purchased Business is not using or
permitting to be used, and has not used or permitted to be used,
except in compliance with all Environmental Laws, the Real
Property or the Leased Property to store, deposit, dispose of or
handle any Hazardous Substance except for any non-compliance(s)
for which the costs or effects of compliance and penalties of
non-compliance would not, either individually or in aggregate,
constitute a Material Adverse Effect.
(iii) None of the Real Property or the Leased
Property are insulated with urea formaldehyde insulation and none
of the Real Property or the Leased Property contain asbestos,
PCBs, radon above exposure levels permitted by Environmental Laws
or employee safety laws or regulations, radioactive substances
requiring a License for use, storage or disposition, or
underground storage tanks or vessels.
(iv) The Purchased Business is not causing or
permitting, and has not caused or permitted, except in compliance
with all Environmental Laws, the release, spill, deposit,
migration, emission, leaching, leaking or other discharge of any
Hazardous Substance except for any non-compliance(s) for which
the costs or effects of compliance and the penalties for non-compliance
would not, either individually or in the aggregate,
constitute a Material Adverse Effect, and the Vendor is not aware
of any Hazardous Substance on, in, under, or migrating from the
Real Property or the Leased Property. All Hazardous Substances
and all other wastes and other materials used in whole or in part
by the Purchased Business have been and are being disposed of,
transported, treated, handled, reused and stored by the Vendor in
compliance with all Environmental Laws except for non-compliance(s) for
which the costs or effects of compliance and penalties for non-compliance
would not, either individually or in the aggregate, constitute a Material
Adverse Effect.
(v) The Real Property and the Leased Property are
not listed in any inventory of waste disposal or contaminated
sites kept or compiled by any federal, provincial, municipal or
other local authority.
(vi) Since January 1, 1989, the Vendor has not
shipped Hazardous Substances for disposition, whether by
landfill, incineration or other method, in the United States.
(b) The Vendor has delivered to the Purchaser true and
complete copies of all environmental audits, evaluations,
assessments, studies or tests prepared by third parties and the
most recent comprehensive internally prepared report which it has
in its possession relating to an environmental assessment of the
Purchased Business, the Real Property, the Leased Property, and
the Purchased Assets and their use which are or with reasonable
efforts could be within the possession or control of the Vendor.
5.27 Customers and Suppliers
Schedule 19 sets out the major customers and suppliers of
the Purchased Business (being those customers and suppliers of
the Purchased Business accounting for more than 10% of sales or
cost of goods sold, as the case may be, for the period January 1,
1998 to the date hereof) and there has been no material adverse
change in the Vendor's business relationship with any major
customer or supplier or group of major customers or suppliers or
any of the strategic partners identified in Schedule 19.
5.28 Year 2000 Compliance
Schedule 24 sets out the procedures used by the Vendor to
evaluate the readiness of, and to prepare, the Purchased Business
to conduct its business operations without interruption or
expense related to or arising from computer storing and
processing of dates occurring on or after January 1, 2000,
including procedures related to in-house computing systems,
production equipment with computerized controls (whether separate
or embedded), supplier reliability, and customer ability to
accept products and meet contractual obligations.
5.29 Employee Plans
Schedule 8 identifies each retirement, pension, bonus, stock
purchase, stock option, profit sharing, deferred compensation,
severance or termination pay, insurance, medical, hospital,
dental, vision care, drug, sick leave, disability, salary
continuation, legal benefits, unemployment benefits, vacation,
incentive or other compensation plan or arrangement or other
employee benefit that is maintained, or otherwise contributed to
or required to be contributed to, by the Vendor relating to the
Purchased Business or the Purchased Assets for the benefit of
employees or former employees of the Vendor (the "Employee
Plans") and, except as set forth in Schedule 8, a complete copy
of each Employee Plan has been made available to the Purchaser.
Each Employee Plan has been maintained in compliance in all
material respects with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations
that are applicable to such Employee Plan. Except as set forth
in Schedule 8, no improvements to the benefits provided under the
Employee Plans have been promised by the Vendor, are being
proposed by Vendor or are under discussion between Vendor and
employees of the Purchased Business and no amendments or
improvements to any Employee Plan will be made or promised, or so
proposed or discussed by the Vendor prior to the Closing.
The Vendor has provided the Purchaser with true and complete
copies of the audited financial statements as at and for the
fiscal year ended December 31, 1997, and the independent
actuarial valuation as at January 1, 1997 of the assets and
liabilities (being the most recent actuarial valuations that have
been filed with applicable pension regulatory authorities), of
the following Pension Plans: (i) Spar Aerospace Limited Pension
Fund for Quebec Non-Represented Employees; (ii) Spar Aerospace
Limited Pension Fund for Employees Represented by CEP Local 508;
(iii) Spar Aerospace Limited Pension Fund for Employees
Represented by CAW Local 188; and (iv) Spar Aerospace Limited
Pension for Employees Represented by SESA.
5.30 Collective Agreements
Except for the Collective Agreements or as described in
Schedule 8, the Vendor has not made any Contracts with any labour
union or employee association with or in respect of any of the
Employees of the Purchased Business nor made commitments to or
conducted negotiations with any such labour union or employee
association with respect to any future agreements and, except as
set out in Schedule 8, the Vendor is not aware of any current
attempts to organize or establish any labour union or employee
association with respect to any employees of the Vendor employed
in the Purchased Business nor, to the knowledge of the Vendor, is
there any certification of (or application for certification of)
any such union with regard to a bargaining unit comprising any of
the employees of the Vendor employed in the Purchased Business.
Except as set out in Schedules 8 and 15, there are no grievances
against the Vendor in respect of the Employees or the Purchased
Business for which the Vendor has received written notice under
any collective agreement.
5.31 Employees
Schedule 8 contains a complete and accurate list of the
names of all individuals who are employees or sales or other
agents or representatives of the Vendor employed or engaged in
the Purchased Business as of the date of this Agreement
specifying:
(a) with respect to the unionized employees, the rate of
hourly pay, length of service, age and whether or not such
employee is currently laid off and entitled to recall rights or
is currently absent from employment for any reason such as
disability, parental leave, leave of absence or workers'
compensation; and
(b) with respect to non-unionized employees, the length
of service, age, title, rate of salary and commission or bonus
structure for each such employee.
Except as disclosed in Schedule 8 or 15, there are no court,
administrative, regulatory or similar proceedings (whether civil,
quasi-criminal or criminal), arbitrations or other dispute
settlement procedures or similar proceedings pending, or to the
knowledge of the Vendor, threatened, against or by the Vendor,
nor is the Vendor aware of any investigation or inquiry by any
governmental, administrative, regulatory or similar body, in
respect of the Employees. Without limiting the generality of the
foregoing, no notice has been received by the Vendor of any
complaint or grievance filed by, on behalf of, or in respect of
any of the employees employed in the Purchased Business by the
Vendor, against the Vendor claiming that the Vendor has violated
any of the following : An Act Respecting Occupational Health and
Safety (Quebec), An Act Respecting Industrial Accidents and
Occupational Diseases (Quebec), An Act Respecting Labour
Standards (Quebec), The Quebec Labour Code, An Act Respecting
Manpower Vocational Training and Qualification (Quebec), An Act
Respecting Supplemental Pension Plan (Quebec), The Employment
Insurance Act (Quebec), and An Act to Foster the Development of
Manpower Training (Quebec) and any regulations thereunder (or any
applicable employee or human rights or similar legislation in the
other jurisdictions in which the Purchased Business is
conducted). To the Vendor's knowledge, no complaint against the
Vendor in respect of the Purchased Business is pending before any
labour relations board, arbitrator or other adjudicator, except
as disclosed in Schedule 8 or 15. All levies, assessments and
penalties made against the Vendor pursuant to applicable workers'
compensation legislation have been paid by the Vendor and the
Vendor has not been reassessed in respect of the Purchased
Business in any material respect under any such legislation
during the past five years.
5.32 Employee Accruals
All accruals for unpaid vacation pay for employees of the
Purchased Business, premiums for unemployment insurance, health
premiums, Canada and Quebec Pension Plan premiums, accrued wages,
salaries and commissions and employee benefit plan payments in
each case in respect of the Purchased Business have been
reflected in the books and records of the Vendor.
5.33 Authorized and Issued Capital of Holdings
The authorized capital of the Holdings consists of 1,000
common shares and 1,000 preferred shares of which 110 common
shares and 990 preferred shares (and no more) have been duly
issued and are outstanding as fully paid and non-assessable.
5.34 Options
No person, firm or corporation has any agreement or option
or any right or privilege (whether by law, pre-emptive or
contractual) capable of becoming an agreement or option for the
purchase or acquisition of the Holdings Shares or the SkyBridge
Units except as set forth in the SkyBridge LPA.
5.35 Ownership of Holdings Shares; Holdings Assets and
Liabilities
The Vendor is the beneficial owner of record of the Holdings
Shares and Holdings is the beneficial owner of record of the
SkyBridge Units, in each case with good and marketable title
thereto, free and clear of all Encumbrances and, without limiting
the generality of the foregoing, none of such Shares or Units are
subject to any voting trust, shareholder agreement or voting
agreement except for the SkyBridge LPA. Upon completion of the
transaction contemplated by this Agreement, all of the Holdings
Shares will be owned by the Purchaser as the beneficial owner of
record, with a good and marketable title thereto (except for such
Encumbrances as may have been granted by the Purchaser).
Except for the SkyBridge Units and the SkyBridge LPA,
Holdings has never carried on business in any material respect,
has no assets exceeding $25,000 in aggregate, has no liabilities
or obligations exceeding $25,000 in aggregate and has no
employees.
5.36 Changes
Subject to subsection 9.4(a), for the purposes of the
representations and warranties contained in this Article V the
occurrence on or after the date hereof of any of the events,
changes or developments described in section 9.2 (except to the
extent such events, changes or developments occur as a result of
any failure of the Vendor to comply with its covenants herein)
shall be deemed not to have or constitute a Material Adverse
Effect.
5.37 Acquisition for Investment
To the extent that Vendor receives ELMG Stock in payment of
the Purchase Price or in payment or upon conversion of notes
delivered as part of the Purchase Price, Vendor will acquire such
ELMG Stock, together with the ELMG Convertible Notes, to hold for
investment, for its own account, with no intention of dividing
the ELMG Stock or ELMG Convertible Notes with others or reselling
or otherwise participating, directly or indirectly, in a
distribution of the ELMG Stock or ELMG Convertible Notes, except
as permitted under applicable securities laws or as contemplated
in this Agreement. Vendor acknowledges and agrees that the ELMG
Stock may, and the ELMG Convertible Notes will, be issued in one
or more transactions that are not registered under the 1933 Act,
and may not be resold or otherwise distributed other than in a
transaction registered under the 1933 Act, pursuant to an
exemption from registration thereunder or otherwise as permitted
under applicable securities laws. Vendor understands and agrees
that the certificates evidencing the ELMG Stock may, and ELMG
Convertible Notes shall, bear a legend stating, in substance, as
follows:
"The securities evidenced by this
certificate have been issued without
registration under the Securities Act of
1933, as amended (the '1933 Act'),
pursuant to an exemption thereunder. Such
shares may not be transferred other than
in a transaction that is registered under
the 1933 Act, or as to which it is
established to the satisfaction of counsel
to the issuer that such transaction is
exempt from registration thereunder."
5.38 Competition Act Requirements
The Vendor, together with its affiliates (as defined in the
Competition Act (Canada)), have assets in Canada that are less
than $310 million in aggregate value, determined as of such time
and in such manner as is prescribed under the Competition Act
(Canada) and its regulations and have gross revenues from sales
in, from or into Canada, determined for such annual period and in
such manner as is prescribed under such Act and its regulations,
that are less than $310 million in aggregate value. For the
fiscal year ending December 31, 1998, the Purchased Business will
have sales in or into the United States attributable to it of
less than U.S. $25 million, based on current exchange rates. For
the purposes of the preceding sentence, the following shall not
be deemed to be sales made in or into the United States: (1)
sales of goods or services to non-United States persons that are
not controlled by the Vendor where (x) title, risk of loss,
invoicing, payment and delivery occur outside the United States,
(y) Vendor has no control over such person's subsequent resale or
disposition of such goods or services or any influence over the
resale price thereof, and (z) to the knowledge of the Vendor such
goods or services are intended to be integrated into, or be used
to design products for integration into satellites or higher
level products outside the United States by and at the risk of
Vendor's customer, and (2) sales of goods to the Canadian
government (or agency thereof) in connection with its
contribution to the International Space Station Project, and
which satisfy the criteria of subclauses 1(x) and 1(y) above.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants, and, where
applicable, covenants, to the Vendor as follows and acknowledges
and confirms that the Vendor is relying on such representations
and warranties in connection with its sale of the Purchased
Assets:
6.1 Organization
The Purchaser is a corporation validly subsisting under the
laws of Georgia and has the corporate power to enter into this
Agreement and to perform its obligations hereunder.
6.2 Authorization
This Agreement has been, and each of the ELMG Convertible
Notes will be on Closing, duly authorized, executed and delivered
by the Purchaser and is, or will be, as the case may be, a legal,
valid and binding obligation of the Purchaser, enforceable
against the Purchaser by the Vendor in accordance with its terms,
except as such enforcement may be limited by bankruptcy,
insolvency and other laws affecting the rights of creditors
generally and except that equitable remedies may only be granted
in the discretion of a court of competent jurisdiction.
6.3 No Violation
The execution and delivery of this Agreement and the ELMG
Convertible Notes by the Purchaser and the consummation of the
transactions herein provided for will not result in the violation
of, or constitute a default under, or conflict with or cause the
acceleration of any obligation of the Purchaser under:
(a) any Contract to which the Purchaser is a party or by
which it is bound;
(b) any provision of the constating documents or by-laws
or resolutions of the board of directors (or any committee
thereof) or shareholders of the Purchaser;
(c) any judgment, decree, order, writ, injunction or
award of any court, governmental body or arbitrator having
jurisdiction over the Purchaser the breach or violation of which
would adversely affect the transactions contemplated hereby or
impose liability on the Vendor; or
(d) any applicable law, statute, ordinance, regulation or
rule.
6.4 Consents and Approvals
Except as set forth in Schedule 16 there is no requirement
for the Purchaser to make any filing with, give any notice to or
obtain any Licence from any government or regulatory authority as
a condition to the lawful consummation of the transactions
contemplated by this Agreement.
6.5 Competition Act Requirements
The Purchaser together with its affiliates (as defined in
the Competition Act (Canada)), have assets in Canada that are
less than $50 million in aggregate value, determined as of such
time and in such manner as is prescribed under the Competition
Act (Canada) and its regulations and have gross revenues from
sales in, from or into Canada, determined for such annual period
and in such manner as is prescribed under such Act and its
regulations, that are less than $50 million in aggregate value.
6.6 GST/QST Registration
The Purchaser is not currently a registrant for purposes of
the ETA or the Act respecting the Quebec Sales Tax. The
Purchaser covenants that, prior to Closing, it (or such Affiliate
of the Purchaser that acquires the Purchased Assets at the
Closing) shall become a registrant for the purposes of both Acts
and shall provide its registration numbers thereunder to the
Vendor.
6.7 Validity of and Good Title to the ELMG Stock
Upon delivery to Vendor of ELMG Stock in payment of the
Purchase Price, or in payment or upon conversion of notes
delivered in payment of the Purchase Price, such ELMG Stock will
be duly authorized, validly issued and fully paid non-assessable
shares of the common stock, $.10 par value per share, of the
Purchaser, not subject to any preemptive rights, and the delivery
of the certificates representing same to Vendor will transfer to
Vendor good and valid title to such ELMG Stock, free and clear of
all Encumbrances (other than as contemplated in section 5.37)
based on any action or inaction of Purchaser.
6.8 Capital Structure
(a) As of the date of this Note, the authorized capital
stock of the Purchaser consists of 75,000,000 shares of ELMG
Stock, par value $0.10 per share and 10,000,000 shares of
Preferred Stock, par value $1.00 per share (the "Preferred
Stock"). At the close of business on December 29, 1998,
(i) 8,692,808 shares of ELMG Stock were issued and
outstanding;
(ii) no shares of the Preferred Stock were issued
and outstanding;
(iii) no shares of the ELMG Stock were held by the
Purchaser in its treasury;
(iv) 873,468 shares of the ELMG Stock were reserved
for issuance upon exercise of outstanding options under the
Purchaser's stock option plans (the "Stock Plans"); and
(v) 450,000 ELMG Stock are reserved for issuance
upon exercise of the ELMG Convertible Notes issued to the Vendor
on the date hereof. Except as set forth above, at the close of
business December 29, 1998, no shares of capital stock or other
voting securities of the Purchaser were issued, reserved for
issuance or outstanding.
Except as set forth above or in the Purchaser's SEC
Documents, hereinafter defined, or as otherwise contemplated by
the ELMG Convertible Notes, as of the date hereof, there are no
outstanding securities, options, warrants, calls, rights,
commitments, agreements, arrangements or undertakings of any
kind, to which the Purchaser is a party or by which it is bound,
or obligations of the Purchaser to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of
capital stock or other voting securities of the ELMG Convertible,
or obligating the Purchaser to issue, grant, extend or enter into
any such security, option, warrant, call, right, commitment,
agreement, arrangement or undertaking.
(b) As of the date hereof, there are no bonds,
debentures, notes or other indebtedness of the Purchaser having
the right to vote (or convertible into, or exchangeable for,
securities having the right to vote) on any matters on which
stockholders of the Purchaser may vote except for ELMG
Convertible Notes issued to the Vendor and except as described in
the Purchaser's SEC Documents.
(c) There are no outstanding securities, options,
warrants, calls, rights, commitments, agreements, arrangements or
undertakings of any kind, to which any subsidiary of the
Purchaser is bound, obligating such subsidiary to issue, deliver,
sell, or cause to be issued delivered or sold, additional shares
of capital stock or other voting securities of such subsidiary,
or obligating such subsidiary to issue, grant, extend or enter
into any such security, option, warrant, call, right commitment,
agreement, arrangement or undertaking.
(d) As of the date of this Agreement, there are no
outstanding contractual obligations of the Purchaser or any of
its subsidiaries to repurchase, redeem or otherwise acquire any
shares of capital stock of the Purchaser or any of its
subsidiaries.
6.9 SEC Documents, Undisclosed Liabilities
The Purchaser has filed with the SEC all reports, schedules,
forms, statements and other documents required to be filed since
January 1, 1996 (the "Purchaser's SEC Documents"). None of the
Purchaser's subsidiaries is required to file with the SEC any
report, form or other document. As of their respective dates,
each of the Purchaser's SEC Documents complied in all material
respects with the requirements of the Securities Act of 1933, as
amended (the "Securities Act"), or the Exchange Act, as the case
may be, and the rules and regulations of the SEC promulgated
thereunder applicable to the Purchaser's SEC Documents, and none
of the Purchaser's SEC Documents when filed contained any untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which
they were made, not misleading except to the extent that, prior
to the date hereof, such statement or omission has been corrected
by a subsequently filed amendment to such SEC Documents. The
financial statements of the Purchaser included in the Purchaser's
SEC Documents comply in all material respects with applicable
accounting requirements and the published rules and regulations
of the SEC with respect thereto, have been prepared in accordance
with U.S. generally accepted accounting principles (except, in
the case of unaudited statements, as permitted by the rules and
regulations of the SEC) applied on a consistent basis during the
periods involved (except as may be indicated in the notes
thereto) and fairly present, in all material respects, the
consolidated financial position of the Purchaser and its
consolidated subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the
periods then ended (subject, in the case of unaudited statements,
to normal year-end audit adjustments). Except for liabilities and
obligations incurred since September 30, 1998 in the ordinary
course of business consistent with past practice, as of the date
hereof, neither the Purchaser nor any of its subsidiaries has any
liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise) required by generally accepted
accounting principles to be recognized or disclosed on a
consolidated balance sheet of the Purchaser and its consolidated
subsidiaries or in the notes thereto and which, individually or
in the aggregate, would have a material adverse effect on the
Purchaser.
6.10 Information Supplied
None of the information to be filed with the SEC by the
Purchaser in connection with the issuance of shares of the ELMG
Stock under the terms of the ELMG Convertible Notes will, at the
time the Registration Statement is filed with the SEC, at any
time it is amended or supplemented or at the time it becomes
effective under the Securities Act, contain any untrue statement
of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein not
misleading.
6.11 Absence of Changes
Except as contemplated by this Agreement, since
September 30, 1998 the Purchaser has conducted its business only
in the ordinary course, and there has not been:
(a) any material adverse change in the Purchaser, other
than changes relating to or arising from legislative or
regulatory changes or developments generally affecting the types
of business operations conducted by the Purchaser or general
economic conditions (except as indicated in the press release of
the Purchaser issued immediately following the execution and
delivery hereof),
(b) any declaration, setting aside or payment of any
dividend or other distribution (whether in cash, stock or
property) with respect to any of the Purchaser's capital stock,
(c) any split, combination or reclassification of any of
its capital stock or any issuance or the authorization of any
issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock,
(d) any damage, destruction or loss, whether or not
covered by insurance, that has had or would have a material
adverse effect on the Purchaser, or
(e) except as required by a change in generally accepted
accounting principles, any change in accounting methods,
principles or practices by the Purchaser materially affecting the
basis of presenting or method of determining its results of
operations, assets, liabilities or businesses.
ARTICLE VII
SURVIVAL OF COVENANTS, REPRESENTATIONS
AND WARRANTIES
7.1 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 shall survive the closing of the transactions
contemplated hereby and shall continue for the applicable
limitation period notwithstanding such Closing nor any
investigation made by or on behalf of the party entitled to the
benefit thereof or any knowledge of such party (subject to
sections 11.1 and 11.2); provided, however, that:
(a) the representations and warranties set out in Articles V
and VI and the corresponding representations and warranties set
out or incorporated in the certificates to be delivered pursuant
to subsections 9.1(a) and 9.3(a) (other than those contained in
sections 5.1, 5.2, 5.3 5.6 5.22, 5.24, 5.25, 5.26, 6.1, 6.2 and
6.3) shall terminate on June 30, 2000;
(b) the representations and warranties set out in
sections 5.1, 5.2, 5.3, 6, 6.1, 6.2 and 6.3 and the corresponding
representations and warranties set out or incorporated in the
certificates to be delivered pursuant to subsections 9.1(a) and
9.3(a) shall terminate on December 31, 2002, and the
representation and warranty set out in section 5.6 shall
terminate on December 31, 2004;
(c) the representations and warranties contained in
section 5.22, 5.24 and 5.25 and the corresponding representations
and warranties set out or incorporated in the certificate to be
delivered pursuant to subsection 9.1(a) shall survive until the
expiration of all applicable time periods for assessment,
reassessment, liens and appeals relating thereto, and any claim
for breach of such representations and warranties, to be
effective, must be asserted in writing prior to ninety (90) days
after such expiration; and
(d) the representations and warranties contained in section
5.26 and the corresponding representations and warranties set out
or incorporated in the certificate to be delivered pursuant to
subsection 9.1(a) shall terminate on December 31, 2000.
Any claim for breach of such representations and warranties, to
be effective, must be asserted in writing on or prior to the
applicable expiration time.
ARTICLE VIII
COVENANTS
8.1 Access to Purchased Business and Purchased Assets
The Vendor shall forthwith make available to the Purchaser
and its authorized representatives and, if requested by the
Purchaser, provide a copy to the Purchaser of, all title
documents, Contracts, financial statements, policies, plans,
reports, licences, orders, permits, books of account, accounting
records and all other documents, information and data, including
without limitation any pertaining to the environment or
compliance with Environmental Laws, relating to the Purchased
Business which are in its possession or control. The Vendor
shall afford the Purchaser and its authorized representatives
every reasonable opportunity to have reasonable access to the
Purchased Assets and, subject to the consent of applicable third
parties, if any, all other property and assets utilized in the
Purchased Business. At the request of the Purchaser, the Vendor
shall execute such consents, authorizations and directions as may
be necessary to permit any inspection of the Purchased Business
or any of the Purchased Assets or to enable the Purchaser or its
authorized representatives to obtain full access to all files and
records relating to any of the Purchased Assets maintained by
governmental or other public authorities. At the Purchaser's
request, the Vendor shall co-operate with the Purchaser in
arranging any such meetings as the Purchaser should reasonably
request with:
(a) senior management of the Purchased Business;
(b) the auditors, solicitors or any other professionals
or consultants engaged or previously engaged to provide services
to the Vendor who have knowledge of matters relating to the
Purchased Business or Purchased Assets; and
(c) representatives of SkyBridge, provided that the Vendor shall
be entitled, at its request, to attend and participate in any and all
such meetings.
Except as set forth in subsection 11.1(a) hereof, the exercise of
any rights of inspection by or on behalf of the Purchaser under
this section 8.1 shall not mitigate or otherwise affect any of
the representations and warranties of the Vendor hereunder, which
shall continue in full force and effect as provided in section 7.1.
8.2 Delivery of Books and Records
At the Time of Closing, there shall be delivered to the
Purchaser by the Vendor all the books and records described in
subsection 2.1(l). The Purchaser agrees that it will preserve
the books and records so delivered to it for a period of six
years from the Closing Date, or for such longer period as is
required by any applicable law, and will permit the Vendor or its
authorized representatives reasonable access thereto.
8.3 Conduct of Purchased Business and Other Matters Prior to
Closing
Without in any way limiting any other obligations of the
Vendor and the Purchaser hereunder, during the period from the
date hereof to the Time of Closing:
(a) Conduct Business in the Ordinary Course. The Vendor
shall conduct the Purchased Business only in the ordinary and
normal course consistent with past practice and the Vendor shall
not, without the prior written consent of the Purchaser, which
consent shall not be unreasonably withheld, enter into any
transaction or refrain from doing any action that, if effected
before the date of this Agreement, would constitute a breach in
any material respect of any representation, warranty, covenant or
other obligation of the Vendor contained herein, and the Vendor
shall not enter into any Material Contracts with respect to the
Purchased Business without the consent of the Purchaser, which
consent shall not be unreasonably withheld (and the Purchaser
shall respond promptly to any request of the Vendor for consent
to enter into any Material Contract). The Purchaser acknowledges
and agrees that the Vendor will, during such period, enter into a
Preliminary Design Review Contract with Alcatel Espace (or an
entity related thereto) in respect of the TR Modules for the
Radarsat II project and that the Purchaser will consent to the
same provided such contract is on normal commercial terms;
(b) Continue Insurance. The Vendor shall continue to
maintain in full force and effect all policies of insurance or
renewals thereof now in effect and shall give all notices and
present all claims under all policies of insurance in a due and
timely fashion;
(c) Contractual Consents. The Vendor shall use its
reasonable efforts to give or obtain (and the Purchaser shall use
its reasonable efforts to cooperate with the Vendor), at or prior
to the Time of Closing, the notices, consents and approvals
described in Schedule 16;
(d) Preserve Business. The Vendor shall use its
reasonable efforts to preserve intact the Purchased Business and
Purchased Assets and to carry on the Purchased Business as
currently conducted;
(e) Discharge Liabilities. The Vendor shall pay and
discharge the liabilities of the Vendor relating to the Purchased
Business in the ordinary and normal course in accordance and
consistent with the previous practice of the Vendor, except those
contested in good faith by the Vendor (the Vendor shall consult
with the Purchaser before it so contests a liability after the
date hereof if such contestation could reasonably be expected to
have a material adverse effect on the Purchaser's relationship
with a customer or supplier who is material to the Purchased
Business);
(f) Corporate Action. The Vendor and the Purchaser shall
take or cause to be taken all necessary corporate action, steps
and proceedings to approve or authorize the transfer of the
Purchased Assets to the Purchaser and the execution and delivery
of this Agreement and the other agreements and documents
contemplated hereby and to cause all necessary meetings of
directors and shareholders of the Vendor and the Purchaser to be
held for such purpose; and
(g) Reasonable Efforts. Each of the Vendor and the
Purchaser shall use their respective reasonable efforts to
satisfy the conditions contained in sections 9.1 and 9.3.
8.4 Delivery of Conveyancing Documents
The Vendor shall deliver to the Purchaser all necessary
deeds, conveyances, bills of sale, assurances, transfers,
assignments and any other documentation necessary or reasonably
required to transfer the Purchased Assets to the Purchaser with a
good and marketable title, free and clear of all Encumbrances
whatsoever except for Permitted Encumbrances.
8.5 Delivery of Vendor's Closing Documentation
The Vendor shall deliver to the Purchaser a certificate of
status and two copies, certified by one of its senior officers as
of the Closing Date, of its constating documents and by-laws and
of the resolution authorizing the execution, delivery and
performance by it of this Agreement and any documents to be
provided by it pursuant to the provisions hereof. The Vendor
shall also execute and deliver or cause to be executed and
delivered to the Purchaser two copies of such other documents
relevant to the closing of the transactions contemplated hereby
as the Purchaser, acting reasonably, may request (including, in
the case of the Vendor, such conveyances, transfers and other
documents as may be reasonably requested to convey the Purchased
Assets of the Purchaser).
8.6 Delivery of Purchaser's Closing Documentation
The Purchaser shall deliver to the Vendor a certificate of
good standing and two copies, certified by one of its senior
officers of the Closing Date, of its constating documents and
by-laws and of the resolution authorizing the execution, delivery
and performance by it of this Agreement and any documents to be
provided by it pursuant to the provisions hereof. The Purchaser
shall also execute and deliver or cause to be executed and
delivered two copies of such other documents relevant to the
closing of the transactions contemplated hereby as the Vendor,
acting reasonably, may request.
8.7 Employees
(a) The Vendor agrees to provide the Purchaser with an
up-to-date list of the names of the Employees at least two
Business Days and not more than ten Business Days prior to the
Closing Date. The Purchaser acknowledges and agrees that it
shall become the employer of and shall employ all non-union
Employees, effective as at the Time of Closing, on substantially
the same terms and conditions of employment as are then
applicable to each of such Employees. The Purchaser further
acknowledges and agrees that effective as at the Time of Closing,
the Purchaser shall become the successor employer of all
Employees covered by the terms of the Collective Agreements and
shall assume, be bound by and observe all terms, conditions,
rights and obligations of the Vendor thereunder (including
without limitation the obligation, where applicable, to rehire
currently laid off employees in the event of any applicable
employee hirings). All Employees employed by the Vendor on
Closing are hereunder collectively called the "Transferred
Employees".
The Vendor shall indemnify and hold harmless the
Purchaser from and against all Losses suffered or incurred by the
Purchaser as a result of or arising directly or indirectly out
of, in connection with or pursuant to (i) any claims by any
employee of the Purchased Business, other than claims by
Transferred Employees, with respect to his or her employment with
the Vendor, or (ii) subject to section 8.8 any claims by
Transferred Employees as a result of or by reason of any acts,
omissions, events or circumstances occurring or existing on or
prior to Closing other than Assumed Liabilities.
The Purchaser shall indemnify and hold harmless the
Vendor from and against all Losses suffered or incurred by the
Vendor as a result of, or arising directly or indirectly out of,
in connection with or pursuant to any termination of employment
by the Purchaser after the Closing Date of any Transferred
Employees or any change in employment position, salary, benefits
or other change in compensation or employment status of a
Transferred Employee that occurs upon or subsequent to Closing.
The Purchaser acknowledges and agrees that it shall recognize the
length of service of the Transferred Employees with the Vendor up
to the Closing Date in respect of any termination of employment.
No employee of the Purchased Business shall be
entitled to any rights under this subsection 8.7(a) or under any
other provisions of this Agreement.
(b) The Vendor shall employ all of the Employees until
the Time of Closing, except for any employees who prior to the
Time of Closing:
(i) are terminated for cause;
(ii) are terminated with the Purchaser's consent,
which consent shall not be unreasonably withheld;
(iii) voluntarily resign; or
(iv) retire.
The Vendor shall not attempt in any way to discourage
any of the Employees from accepting any offer of employment to be made by
the Purchaser pursuant hereto.
8.8 Employee Plans
(a) Effective on the Closing Date, except as contemplated
by Section 8.8.1, the Vendor shall assign to the Purchaser, and
the Purchaser shall assume, the sponsorship and administration
of, and all rights and obligations of the Vendor under, the
Pension Plans and the Trust Agreements and the assets currently
in the Pension Plans, with the effect that following the Closing,
the Purchaser will be the administrator and sponsor of the
Pension Plans in place of the Vendor, and the Vendor shall be
relieved of all further obligations in respect of the Pension
Plans and the Trust Agreements. The Vendor and the Purchaser
shall cooperate in making such amendments to the Pension Plans
and making such filings with Revenue Canada and the pension
benefits regulatory authorities applicable to the Pension Plans
and entering into such arrangements with the other parties to the
Trust Agreements, in each case as may be necessary or desirable
to effect the assignment and assumption contemplated by this
section 8.8(a).
(b) Except to the extent provided under the Collective
Agreements, the Purchaser shall not assume any Employee Plans,
other than the Pension Plans, (the "Benefit Plans") or liability
for accrued benefits under any of the Benefit Plans. The
Purchaser shall establish replacement plans for the Benefit Plans
(which plans (or one or more successor plans) shall remain in
effect for at least two years following the Closing Date) (such
benefit plans to be established by the Purchaser, collectively
the "Replacement Plans"). The Replacement Plans shall provide
benefits (which benefits shall include, without limitation, a
health care benefit, dental benefit, life insurance, short term
disability and long term disability) for the Transferred
Employees in respect of their employment by the Purchaser from
and after the Time of Closing that are comparable, in the
aggregate, to the benefits provided under the Benefit Plans as at
the Time of the Closing (it being understood however that
Replacement Plans for unionized employees shall comply with the
applicable requirements of the relevant Collective Agreement).
For the purpose of determining entitlement for all purposes to
benefits of a Transferred Employee under the Replacement Plans:
(i) his or her period of employment shall include
employment with both the Vendor and the Purchaser and shall be
deemed not to have been interrupted at the Time of Closing; and
(ii) his or her period of membership shall include
membership in both the Ontario Benefit Plans and the Replacement
Plans and shall be deemed not to have been interrupted at the
Time of Closing.
Any Transferred Employee who, at Closing, is considered to be on
long-term or short-term disability and is receiving long-term or
short term disability insurance payments under the Vendor's
benefit plans (a "Disabled Employee") shall continue to receive
such benefits under the Vendor's long-term or short term
disability insurance for so long as the condition causing such
long-term or short term disability continues. For greater
certainty, except as set forth in the preceding sentence,
Disabled Employees shall be eligible for and entitled to the
benefits under the Replacement Plans in accordance with the terms
thereof on the Closing.
The Transferred Employees shall begin to accrue benefits under
the Replacement Plans as of the Time of Closing in respect of
their employment by the Purchaser and shall cease at that time to
accrue further benefits under the Benefit Plans. The Purchaser
agrees to apply as soon as practical following the Closing for
the required approvals of the applicable federal and provincial
regulatory authorities in connection with the establishment and
registration of the Replacement Plans.
8.8.1 Ontario Pension Plan Participants
(a) The Vendor has advised the Purchaser that two non-union
Employees (the "Non-Represented Participants") and five
Employees who are represented by Spar Professional Allied
Technical Employees Association ("SPATEA"; such Employees being
the "SPATEA Participants") are participants in the Vendor's
Ontario non-represented employees pension plan (the "Ontario Non-
Represented Plan") and the Ontario SPATEA pension plan (the
"SPATEA Plan"), in the latter case, as contemplated by the
applicable Collective Agreement. The Ontario Non-Represented
Plan and the SPATEA Plan are herein collectively called the
"Ontario Pension Plans" and the SPATEA Participants and the Non-
Represented Participants are herein collectively referred to as
the "Participants".
(b) The parties agree that, notwithstanding anything
contained in this Agreement to the contrary, the Vendor shall not
assign, and the Purchaser shall not assume, the sponsorship and
administration of, nor the rights and obligations of the Vendor
under, the Ontario Pension Plans. Instead the Purchaser shall,
effective as of the Closing Date, either (i) adopt one or more
defined benefit retirement plans covering the Non-Represented
Participants and the SPATEA Participants (the "New Plans") or
(ii) with such consents as may be required (under the Collective
Agreement, at law or otherwise), enroll the Non-Represented
Participants and the SPATEA Participants into one or more of the
Pension Plans referred to in subsection 8.8(a) (the "Continuing
Plans"). In any such case the applicable New Plans or the
Continuing Plans, as the case may be, and the benefits provided
thereunder for each Participant shall be substantially similar in
the aggregate to those provided under the Ontario Pension Plans,
except as shall otherwise be agreed by the Participants.
(c) The New Plans or the Continuing Plans, as the case
may be, (the "Subject Plans") shall provide for an accrued
benefit for each Participant as at the Closing Date equal to that
Participant's accrued benefits under the Ontario Pension Plans
(the total of such accrued benefits shall be referred to herein
as the "Accrued Benefits"). Subject to applicable law, the
Accrued Benefits shall be determined in accordance with the
provisions of the Ontario Pension Plans as at the Closing Date.
For the purpose of determining entitlement for all
purposes to benefits of a Participant under the Subject Plans
(including without limitation, continuous service, pensionable
service and earnings):
(iii) his or her period of employment shall include
employment with both the Vendor and the Purchaser and shall be
deemed not to have been interrupted at the Time of Closing; and
(iv) his or her period of membership shall include
membership in both the Ontario Pension Plans and the Subject
Plans and shall be deemed not to have been interrupted at the
Time of Closing.
(d) The Vendor shall cause the transfer of that amount of
assets (the "Transferred Amount") from the trust fund(s)
(collectively the "Trust Fund") established to fund the Ontario
Pension Plans, determined on a "going concern basis" in
accordance with such actuarial methods and assumptions as the
Vendor and the Purchaser or their independent actuaries may
determine. If the Vendor and the Purchaser are unable to agree
on the Transferred Amount, their differences shall be resolved by
an independent actuary mutually selected by the Vendor and the
Purchaser and the expense of such actuary shall be paid one half
by the Vendor and one half by the Purchaser. If any applicable
pension commission or other regulatory authority requires an
amount other than the Transferred Amount to be transferred, the
parties agree that such amount shall be the "Transferred Amount"
hereunder.
(e) The Purchaser shall, as soon as practicable following
Closing, file applications for registration of any Subject Plan
that has not theretofore been registered and the associated
funding media (the "Purchaser's Trust") and the Vendor or the
Purchaser, as applicable, shall as soon as practicable following
Closing, file for approval of the transfer of funds from the
Vendor's Trust to the Purchaser's Trust contemplated hereunder
with the applicable provincial pension regulatory authorities and
Revenue Canada pursuant to applicable pension benefits
legislation and the Tax Act, respectively. The Purchaser agrees
to diligently pursue such applications for registration and
approval of transfer. The Vendor agrees to diligently cooperate
with the Purchaser by amending the Ontario Pension Plans and
filing or otherwise providing to the Purchaser any information
with respect thereto to the extent necessary to allow the
Purchaser to effect the registration of the Subject Plans and to
obtain the necessary approvals for the transfer of funds from the
Vendor's Trust to the Purchaser's Trust as expeditiously as
possible.
(f) On the last Business Day of the month in which the
last of the registrations and approvals contemplated in paragraph
(e) is received by the Purchaser or as soon thereafter as is
practicable (the "Transfer Date"), the Vendor shall cause to be
transferred from the Vendor's Trust to the Purchaser's Trust cash
or marketable securities reasonably acceptable to the Purchaser
with a value equal to the Transferred Amount. The Vendor shall,
on behalf of the Subject Plans and the Purchaser's Trust, but out
of the Ontario Pension Plans and the Vendor's Trust, pay or cause
to be paid all benefits payable under the Subject Plans and the
Purchaser's Trust with respect to the Participants until the
completion of the transfer of funds to the Subject Plans and the
Purchaser's Trust as contemplated herein. On the Transfer Date,
the amount transferred from the Vendor's Trust to the Purchaser's
Trust shall be the Transferred Amount, adjusted for investment
earnings and losses for the period between the Closing Date and
the Transfer Date at the rate of return under the Vendor's Trust
for the Ontario Pension Plans and reduced by the amount of any
benefit payments and reasonable share of the investment and
administrative expenses for such period, as determined by the
Vendor. The Vendor shall provide the Purchaser such information
and reports as Purchaser may reasonably require in order to
administer the Subject Plans in respect of the Participants.
(g) The Purchaser shall not be entitled to any of the
assets of the Ontario Pension Plans, except as expressly provided
in this Section 8.8.1, whereby assets are transferred from the
Vendor's Trust to the Purchaser's Trust. For greater certainty,
the Purchaser shall have no right, interest or entitlement to
surplus assets under the Pension Plan.
8.9 Retiree Benefits
(a) Upon and following the Closing, the Purchaser shall
assume and be responsible for satisfying and discharging all
liabilities and obligations of the Vendor to provide the Post-Retirement
Benefits to those former employees of the Purchased Business identified on
Schedule 25 and any Employee who retires between the date hereof and the
Closing (including dependents and others as contemplated by the terms of
the Post-Retirement Benefits) and the Vendor shall be relieved of all further
obligations and liabilities to such former employees of the
Purchased Business in respect of the Post-Retirement Benefits.
Without limiting the generality of the foregoing, the Purchaser
shall maintain in place, administer, and pay all liabilities
under, the insurance plans included in the Post-Retirement
Benefits, or any similar successor plan thereto.
(b) The Vendor represents and warrants that, except as
described in Schedule 25 (and Schedule 8 in the case of current
employees), none of the former or current employees of the
Purchased Business are entitled to any other post-retirement
benefits from the Vendor.
(c) For the purposes of this section 8.9 "Post-Retirement
Benefits" means those benefit plans, insurance plans and other
benefits identified in Schedule 25.
8.10 Post Closing Receipts
(a) If at any time following the Time of Closing, the
Vendor receives, or comes into possession of, any of the
Purchased Assets or any receipts, proceeds, cheques, securities
or other property of any kind comprising, arising out of or
derived from the Purchased Assets (including, without limitation
any cheques, notes or cash in payment of any account receivable
or other intangible constituting part of the Purchased Assets),
the Vendor shall immediately deliver the same to the Purchaser,
with such endorsements, transfers or assignments as may be
necessary or desirable to ensure that the Purchaser receives the
immediate and full benefit thereof.
(b) On or immediately following the Time of Closing, the
Vendor shall provide such authorizations, approvals and/or
consents as may be necessary or desirable to permit the Purchaser
to deposit into the Purchaser's bank account all cheques or other
instruments made payable to the Vendor received by either the
Vendor or the Purchaser following the Time of Closing in payment
of any account receivable or other intangible comprising a part
of the Purchased Assets.
8.11 Spar Name
The Purchaser agrees that it shall not have any right or
entitlement to the words "Spar" or "Spar Aerospace" or any word
or expression similar thereto. The Purchaser and its Affiliates
shall as soon as practical and in any event within thirty (30)
days from Closing cease all public use and shall as soon as
practical and in any event within sixty (60) days from Closing
cease all internal use, of any logos, trademarks, trade names or
other references containing the words "Spar", "Spar Aerospace" or
any word or expression similar thereto. Any public use or
references to such words in connection with any statements,
representations, negotiations or other acts which could
reasonably be expected to create legal obligations shall clearly
state that the Purchased Business is being carried on by the
Purchaser and not by the Vendor. For greater certainty the
Purchaser shall have the right to represent itself as carrying on
the Purchased Business in succession to the Vendor and to use
words to such effect provided that such representations and words
do not create any liability to the Vendor.
8.12 Employee Agreements
Prior to Closing, the Vendor shall, to the extent required,
amend all agreements with Employees (or waive its rights
thereunder) to the extent necessary to permit such persons to
continue to be employed by, and work for, the Purchased Business
and the Purchaser without restriction.
8.13 MIS Systems - Transitional Agreement
The parties acknowledge that currently the Vendor uses or
has access to, among other things, the following property and
services of the Purchased Business: (i) MITROL and SQL financial
information system and related hardware required to operate such
systems (such enumerated property and services are herein called
the "Shared Services"). For the period from Closing until the
completion of the implementation of the Baan System at the
Robotics Division (as both terms are defined in Section 8.21)
(the "Transition Period"), the Purchaser shall cause the
Purchased Business to provide the Vendor, with access to and use
of the Shared Services in substantially the same manner and to
the same extent as the same are currently used by the Vendor.
The Vendor shall have access to the premises of the Purchased
Business for the purpose of ensuring its continued use of the
Shared Services during the Transition Period provided such access
does not unreasonably interfere with the business and operation
of the Purchased Business. The Purchaser shall maintain the
Shared Services during the Transition Period in the same manner
that the Vendor currently maintains such Shared Services. The
Vendor and the Purchaser shall share the costs of the Shared
Services during the Transition Period in the same manner as such
costs are currently shared between the Purchased Business and the
rest of the Vendor.
The Vendor shall, at its cost, implement security measures
(including fire walls, if appropriate) to reasonably prevent
either party from having access to the other party's information
as contained in the Shared Services; provided that such security
measures do not materially affect either party's access to or use
of the Shared Services with respect to its own information.
Following Closing, the Purchaser shall, as reasonably requested
by the Vendor, make available appropriate personnel from the
Purchased Business to assist in the implementation of such
security measures provided that the Vendor shall pay to the
Purchaser an amount representing the wages of such personnel for
the period of time they assist in such implementation.
8.14 Audited Financial Statements
On or prior to the later of the forty-fifth day following
Closing and March 9, 1999, Spar will deliver to ELMG audited
financial statements of the Purchased Business as of December 31,
1998 and for the year then ended, prepared in accordance with,
and accompanied by the opinion of Ernst & Young. Such statements
and opinion shall be as required by, Regulation S-X issued by the
U.S. Securities and Exchange Commission (the "SEC"), as
interpreted and applied by the SEC and its staff, for inclusion
by the Purchaser in periodic filings and registration statements
filed from time to time with the SEC. The Purchaser shall be
responsible for payment of the fees and expenses of the auditors
and each party shall be responsible for the salaries and other
costs of their own employees for the time devoted to such efforts
in preparing such statements. The Purchaser shall provide at its
own expense such access to books and records and relevant
employees, and such assistance in preparing such financial
statements, as Vendor or such auditors shall reasonably request.
Purchaser shall be responsible for all fees and expenses
associated with filing such audited financial statements with the
SEC, including any fees of the auditors related to providing
consents to the inclusion of their opinion in such filings.
The preparation and delivery of such statements is being
effected solely to permit the Purchaser to comply with its
obligations under applicable U.S. securities laws. The Vendor
shall not have any obligation or liability to the Purchaser
either hereunder or at law, in respect of the preparation or
contents of such statements or any portion thereof.
8.15 Purchaser's Registration Obligations
(a) Registration. Unless such shares shall otherwise be
immediately salable by Vendor in open-market transactions in the
United States without holding-period restrictions, Purchaser
will, prior to or not later than the twentieth Business Day
following delivery of the financial statements referred to in
Section 8.14, file with the SEC a registration statement on an
appropriate form under the 1933 Act (the "Registration
Statement") to register all shares of ELMG Stock that may be
issued under the terms of this Agreement (including under or
pursuant to any of the ELMG Convertible Notes) for resale by
Vendor in the United States in ordinary brokers' transactions or
in transactions with any market maker with respect to any such
ELMG Stock, and Purchaser shall thereafter use its best efforts
(i) to cause the Registration Statement to become effective, (ii)
to register, qualify, or obtain an exemption from such
registration or qualification of the ELMG Stock under the
applicable blue sky or other securities laws of such
jurisdictions as Vendor shall reasonably request if, in
Purchaser's reasonable opinion after consultation with qualified
securities counsel, such action is necessary (provided, however,
that Purchaser shall not be required to qualify to do business in
any jurisdiction where it is not otherwise so qualified or to
execute or file any general consent to service of process under
the laws of any jurisdiction where it has not previously done
so), and (iii) to make all such other filings with the SEC, the
National Association of Securities Dealers, and any other
regulatory body as shall be required in connection with the sale
of the ELMG Stock under the Registration Statement, in each case
as soon as practicable. Purchaser shall use its best efforts to
maintain the currency of the prospectus filed as part of the
Registration Statement ("the Prospectus") for a period expiring
two years after the last date of issuance of the ELMG Stock, and
shall file as necessary amendments to the Registration Statement
or supplements to the Prospectus, including without limitation
any necessary to satisfy the requirements of section 10(a) (3) of
the 1933 Act or any succeeding provision. The performance by
Purchaser of its obligations under this subsection shall be
subject to Vendor's compliance with all reasonable requests by
Purchaser or its counsel for information, documents and
certificates necessary for such performance by Purchaser.
Purchaser shall pay all expenses it incurs in connection with the
preparation, printing and filing of the Registration Statement,
the Prospectus, and all amendments and supplements thereto, and
shall furnish to Vendor (without charge) such number of copies
thereof as it shall reasonably request. Vendor shall pay any
expense incurred by it in reviewing the Registration Statement or
providing information for inclusion therein, or in offering or
selling ELMG Stock thereunder.
(b) Status of Prospectus. Notwithstanding any other
provision hereof, after the Registration Statement shall become
effective, upon receipt of notice from Purchaser (i) that the
Prospectus, as then in effect, contains an untrue statement of
material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing, or (ii)
that the Prospectus otherwise requires amendment or
supplementation in order to comply with any applicable provision
of the 1933 Act or applicable state securities laws, Vendor shall
cease making offers and sales of the ELMG Stock pursuant to such
Prospectus, and shall return to Purchaser any remaining copies of
such Prospectus. Purchaser shall promptly notify Vendor of any
event that results in such a situation or requires any such
amendment or supplementation, and shall use its best efforts to
promptly prepare and file such required amendment or supplement.
(c) Cooperation. Vendor and Purchaser shall cooperate
fully with each other and their respective counsel, accountants
and other authorized representatives in connection with any steps
required to be taken as part of their respective obligations
under this section 8.15.
8.16 Protection of Confidential Information
At all times following the Time of Closing Vendor will not
use, and will use its reasonable best efforts, including
procedures comparable to those described in Schedule 10, to
protect the confidentiality of, confidential proprietary
information included in the Purchased Assets, for so long as the
confidentiality of such information is otherwise maintained by
the Purchaser.
8.17 Security for Convertible Notes and Subsection 3.1(b)
The ELMG Convertible Notes and the obligations of the
Purchaser under subsection 3.1(b) shall be secured by (i) an
unsecured guarantee from Holdings (which will contain a covenant
by Holdings not to transfer the SkyBridge Units (except as
contemplated pursuant to Section 8.20) without the prior written
consent of the Vendor, which consent shall not be unreasonably
withheld) and (ii) a recorded security interest, hypothec or
other charge in and to all of the Purchased Assets (including,
without limitation, the Holdings Units) and all property and
assets acquired by the Purchaser after Closing in connection with
the Purchased Business, acceptable to the Vendor, subject only to
Permitted Encumbrances and security interests required by the
primary banker, from time to time, to the Purchased Business, to
secure financing to be used by Purchaser to fund payment of
amounts due hereunder (or to repay other loans used for such
purpose), and to establish a line of credit on reasonable
commercial terms to provide working capital as reasonably needed
to conduct the Purchased Business during periods following the
Closing and to purchase additional assets of the Purchased
Business that are subject to the Vendor's second-ranking security
interest. For greater certainty the security interests or other
charges granted to the Vendor hereunder shall not extend to any
assets now or hereafter acquired by the Purchaser (or Affiliate
of the Purchaser that acquires the Purchased Business on Closing)
that represent any assets or undertaking of the business carried
on by CAL Corporation or any other business division or unit
hereafter acquired by the Purchaser.
The Vendor shall, from time to time at the request and cost
of the Purchaser execute such documents or agreements as may be
reasonably requested by the main banker of the Purchased Business
to confirm the second-ranking nature of the Vendor's security on
the terms set out above and the Vendor will enter into a mutually
acceptable agreement with such banker whereby the Vendor and the
banker each agree to give reasonable notice to the other before
realizing on its security.
On Closing the Purchaser shall execute and deliver to the
Vendor all such registered hypothecs, charges, mortgages and
security interests as the Vendor may reasonably request to ensure
that the Vendor is granted, and receives, such second ranking
security.
8.18 Letters of Credit
The Purchaser shall use its best efforts to, on or
immediately following the Closing, (i) replace each of the
Letters of Credit with similar instruments issued by banks,
sureties or other institutions acceptable to the beneficiaries
thereof on the same terms as those contained in such Letters of
Credit (or terms otherwise acceptable to beneficiary) and (ii)
cause the Letters of Credit to be cancelled and returned to the
Vendor upon delivery to the beneficiary of the said replacement
instrument.
The Purchaser shall reimburse the Vendor on demand for any
costs incurred by the Vendor in maintaining each Letter of Credit
for the period following Closing and shall indemnify and hold
harmless the Vendor from and against any Losses suffered or
incurred by the Vendor as a result of or arising out of any
payment made or obligation incurred under any of the Letters of
Credit on or following Closing.
If for any reason the Purchaser is unable to replace any
Letter of Credit and cause the same to be cancelled on or prior
to March 26, 1999, the Purchaser shall, on such date deliver to
the Vendor a standby letter of credit or similar instrument from
a bank or financial institution reasonably acceptable to the
Purchaser in an amount at least equal to the amount of the
Letters of Credit and on terms reasonably acceptable to the
Vendor to secure the obligations of the Purchaser under the
preceding paragraph.
8.19 Release of CAL Corporation
On Closing the Purchaser shall cause its subsidiary, CAL
Corporation to execute and deliver to the Vendor, for nominal
consideration, a release releasing the Vendor from any liability
under or in respect of any claim or claims it has in connection
with the Vendor's Robotics division engaging the Purchased
Business to provide goods or services to the Robotics division
(including, without limitation, the claim described in the letter
dated April 27, 1998 from B.A. McIsaac of McCarthy Tetrault to
D.F. Masotti of the Vendor).
8.20 SkyBridge Units
(a) The parties acknowledge that the transactions
contemplated hereby, and in particular the transfer of the
Holdings Shares, will trigger the provisions of subsection 10.03
of the SkyBridge LPA such that upon Closing Holdings will be
required to offer the SkyBridge Units to the other partners of
SkyBridge and SkyBridge (the "Offerees") in the manner
contemplated by subsection 10.03(a) thereof.
(b) Upon and after Closing, the Purchaser shall cause
Holdings to comply with section 10.03 of the SkyBridge LPA
(except to the extent such obligations are waived by all
applicable parties to the SkyBridge LPA) and, to the extent
required thereunder, the Purchaser shall cause Holdings to offer
the SkyBridge Units to the Offerees as required under the
SkyBridge LPA.
(c) Whether or not the SkyBridge Units are acquired by
any of the Offerees pursuant to the provisions of the SkyBridge
LPA there shall be no adjustment to the Purchase Price as a
result thereof.
(d) The Purchaser acknowledges and agrees that the Vendor
shall not be liable for, and shall have no obligation to satisfy,
pay or indemnify the Purchaser or Holdings for any income or
other taxes payable by Holdings arising out of or resulting from
the sale of the SkyBridge Units pursuant to the terms hereof or
the SkyBridge LPA.
(e) If, prior to Closing, SkyBridge advises that the
proposed transfer of the Holdings Shares is subject to and/or
governed by subsection 10.02 of the SkyBridge LPA, the Vendor and
Purchaser shall use their reasonable best efforts to,
collectively, convince SkyBridge that the proposed transfer of
the Holdings Shares should be governed by subsection 10.03 of the
SkyBridge LPA. If the Vendor and the Purchaser are unsuccessful
in so convincing SkyBridge both parties shall, in good faith,
negotiate such changes to this Agreement to permit the parties to
comply with the provisions of subsection 10.02 provided that the
Vendor receive on Closing the same Purchase Price as set forth in
Article 3 and the Purchaser is entitled as promptly as is
practicable to receive the Holding Shares, and Holdings shall
then hold the SkyBridge Units and/or the proceeds from any sale
of the SkyBridge Units under section 10.02 of the SkyBridge LPA,
(subject to any tax liability of Holdings in respect of such
sale); and provided further that in no event shall such
compliance or changes in any way cause or effect a postponement
to the Closing Date as herein contemplated.
8.21 Baan System - Transitional Arrangements
The parties acknowledge that the Vendor is in the process of
establishing and implementing the information technology systems
(the "Baan System") as contemplated by the Baan Agreements at
both the Purchased Business and the Vendor's Robotics division
(the "Robotics Division") for the mutual benefit of both
operations (collectively, the "Baan Project").
In order to implement and complete the Baan Project in a
timely manner the Vendor has formed a jointly managed
implementation team (the "Baan Team") comprising those employees
of the Purchased Business and the Robotics Division identified in
Schedule 26 (the "Team Members") whose primary current job
function is to complete the Baan Project in accordance with a
mutually agreed schedule.
It is currently anticipated that the Baan Project will be
completed and the Baan System fully implemented at both the
Purchased Business and the Robotics Division by July 31, 1999
with the implementation of the Baan System scheduled to be
completed at the Purchased Business in April, 1999 and at the
Robotics Division by July 31, 1999. The scope and schedule for
the Baan Project will be fully defined by both parties within 30
days of Closing.
Each of the parties shall fully cooperate with each other on
the following terms to complete the Baan Project and implement
the Baan System at the Purchased Business and at the Robotics
Division:
(a) The Vendor shall use its best efforts to obtain the
consent of Baan and Interactive Software Systems Inc. and CGI
prior to Closing and/or to enter into such agreements or other
instruments so as to permit the Vendor and the Purchaser to each
obtain such benefits and rights and to assume the corresponding
liabilities and obligations under the Baan Agreements and the CGI
Agreement as may be reasonably required or appropriate to permit
both the Purchased Business and the Robotics Division to
implement and operate the Baan System in the manner currently
contemplated by the Vendor (or, in the case of the CGI Agreement,
to permit the continuation of the respective benefits and
obligations accruing to the Purchased Business and the Robotics
Division thereunder). The Purchased Business shall be entitled
to receive and operate 100, and the Robotics Division shall be
entitled to receive and operate 50, of the 150 sites contemplated
by the Baan System. The Vendor shall pay any costs or fees
charged by Baan to consent to the assignment of the relevant
portion of the Baan Agreements to the Purchaser. The Purchaser
will use its best efforts to provide reasonable assistance and
cooperation to the Vendor in connection with obtaining such
consent. The Vendor's use of its best efforts to obtain such
consent shall not relieve the Vendor of its indemnification
obligations under subsection 2.2(d) if such consent is not
obtained.
(b) Each of the Vendor and the Purchaser shall use their
respective best efforts to implement, test and verify the results
of the Baan Project in accordance with a mutually agreeable work
schedule until 60 days following the completion of the Baan
Project or such later date as the parties may agree (the
"Completion Date"). The Vendor and the Purchaser shall make
available to the Baan Project those Team Members who are its
employees until the Completion Date or until both parties agree
that such Team Member is no longer required for the Baan Project.
Unless otherwise agreed, each Team Member shall devote all or
substantially all of his or her time and attention to the Baan
Project or such lesser amount of time and attention as both
parties may determine is required to complete the Baan Project as
soon as practical.
(c) Neither the Purchaser nor the Vendor shall terminate
the employment of any of the Team Members who are then working on
the Baan Project without just cause prior to the Completion Date
unless such party provides to the Baan Project, as a substitute,
another of its employees, satisfactory to the other party, who is
equally capable of performing such Team Member's duties under the
Baan Project.
If the employment of any Team Member who is then
working on the Baan Project terminates for any other reason, the
party who employed such Team Member shall provide to the Baan
Project, as a substitute another of its employees, satisfactory
to the other party, who is equally capable of performing such
Team Member's duties under the Baan Project.
(d) To the extent permitted under the Baan Agreements,
each of the Vendor and the Purchaser shall permit the other party
to use, free of charge, any and all discoveries, inventions,
intellectual property, improvements or alterations (collectively
the "Improvements") relating to or improving the Baan System that
are developed, discovered or obtained prior to the Completion
Date by any Team Members or other employee, agent, subcontractor
or person of such party involved in the Baan Project.
Each party shall execute such licence agreements,
consents or other agreements or instruments reasonably required
by the other party to grant to such other party (its successors
and assigns) a royalty-free perpetual licence (with right to
sublicence) to use the Improvements in connection with the Baan
System.
(e) Neither party shall have any liability to the other,
whether at law or under this Agreement, for any acts or omissions
of any of its Team Members while carrying out, or purporting to
carry out their respective duties in respect of the Baan Project
other than for fraud or wilful misconduct. Neither the Vendor
nor the Purchaser shall be liable for any loss, damage or
liability suffered or incurred by any Team Member employed by the
other party while working on the Baan Project or working at the
premises of such first mentioned party and the other party shall
indemnify and save harmless such first mentioned party from any
and all such losses, damages or liabilities so suffered or
incurred by such first mentioned party.
(f) The costs and expenses incurred by each party in
connection with the Baan Project shall be allocated to and shared
by the parties as follows:
(i) on or prior to the 15th day following each
calendar month, the Vendor and the Purchaser shall aggregate all
Baan Project Expenses incurred (in the case of internal costs) or
paid (in the case of all other costs) by each of them during such
calendar month;
(ii) the Purchaser shall be responsible for, and
shall pay for, 2/3rds of all Baan Project Expenses paid or
incurred on or after the earlier of the Closing and February 15,
1999 and the Vendor shall be responsible for, and shall pay,
1/3rd of all Baan Project Expenses paid or incurred on or after
the earlier of the Closing and February 15, 1999;
(iii) to the extent that the amount of the Baan
Project Expenses incurred or paid by the Purchaser or the Vendor
for any month is not in the ratio of 2:1, the Purchaser and the
Vendor shall make the appropriate adjusting payments to each
other, on or prior to the 30th day following the end of such
calendar month; and
(iv) for greater certainty, if the Closing does
not occur the Purchaser shall not be liable for any Baan Project
Expenses notwithstanding the provisions of clause f(ii) above.
(g) Each party shall have access to, and the right to
audit, the books and records of the other party from time to time
and at any time it may reasonably require to verify the Baan
Project Expenses paid or incurred by such other party.
(h) If, for any reason, the implementation of the Baan
Project has not been completed at the Robotics Division on or
prior to the 150th day (the "Cost Reallocation Date") following
the completion of the implementation of the Baan Project at the
Purchased Business, the parties shall, in good faith, renegotiate
the allocation of liability for the Baan Project Expenses
incurred or paid by either party after the Cost Reallocation Date
to reflect the longer than anticipated time period required to
implement the Baan System at the Robotics Division and the
circumstances resulting in such extended time period. For
greater certainty, the Purchaser shall continue to provide to the
Baan Project Team Members who are its employees following the
Cost Reallocation Date until the Baan Project is fully
implemented at the Robotics Division.
(i) Neither party shall withdraw from or substantially
reduce their involvement in, the Baan Project prior to the
Completion Date without the prior written consent of the other
party. Each party agrees that if it wishes to so withdraw from
or substantially reduce its involvement in, the Baan Project, the
other party shall be entitled, as a condition of consenting to
the same, to require such first mentioned party to continue to
pay its pro rata share of the Baan Project Expenses in the
proportion set out in subsection (f) and the remaining party may
solicit Team Members of such other party to become employees or
consultants of such remaining party in order to complete the Baan
Project.
(j) For the purposes hereof:
(i) "Baan" means Baan Canada, Inc;
(ii) "Baan Agreements" means the Professional
Services Agreement executed February 13 and 25, 1998 between the
Vendor and Baan as amended by Amendment Number One dated February
13, 1998; the Software License and Support Agreement executed
February 10 and 16, 1998 between the Vendor and Baan, as amended
by Amendment Number One dated February 10, 1998; and the License
Agreement dated February 10, 1998 between the Vendor and
Interactive Software Systems Inc.;
(iii) "Baan Project Expenses" means:
(I) the salary and benefit costs of each
Team Member for the time devoted by such Team Member to the Baan
Project:
(II) all travel and living expenses of each
Team Member incurred in connection with carrying out his or her
duties in respect of the Baan Project;
(III) all fees and expenses (including sales
or services taxes but net of any tax credits or recoveries to be
received by such party in respect of such taxes) payable to Baan
under the Baan Agreement for professional or consulting services;
and
(IV) all fees and expenses (including sales
or services taxes but net of any tax credits or recoveries to be
received by such party in respect of such taxes) payable to CGI
under the CGI Agreement for professional and consulting services,
(iv) "CGI" means CGI Information Systems and
Management Consultants Inc.; and
(v) "CGI Agreement" means the Outsourcing
Services Agreement dated May 22, 1997 between the Vendor and CGI,
as amended by Amendment Number 1 and Amendment Number 2.
8.22 Brampton-Ste. Anne Contracts
On or prior to the Closing the Vendor shall cause its
Robotics division and the Purchased Business to enter into
agreements providing for the subcontracting to the Purchased
Business of work in respect of the MSSP, SRMS, RWS and SPDM
projects of the scope and substantially on the terms and
conditions as negotiated among such operations and the Purchaser
prior to the date hereof and as set forth in relevant draft
agreement dated December 10, 1998, in respect of each of the
MSSP, SRMS and RWS projects, and December 22, 1998, in respect of
the SPDM project. The rights and obligations of the Purchased
Business under each such subcontract shall be assigned to the
Purchaser on Closing.
8.23 Environmental Investigations
As set forth in Schedule 18, the Vendor has advised the
Purchaser that in or around 1985 part of a wastewater pipe was
replaced on the Ste. Anne Premises due to damage to the previous
sewer line (the "Damaged Sewer Line") but that no investigations
have been conducted to determine whether any Hazardous Substance
leaked from the Damaged Sewer Line.
Immediately following the execution of this Agreement, the
representatives of the Vendor and the Purchaser shall meet to
determine a mutually agreeable soil and ground water testing
program to determine, in a practical and cost-efficient manner,
whether there is environmental contamination in, around or
arising from the Damaged Sewer Line and shall jointly retain a
qualified environmental consultant to conduct and analyze the
results of such testing program and to report such results to
each of the Vendor and the Purchaser. The costs of such
environmental consultant , which are not expected to exceed
$15,000, shall be shared equally by the Vendor and the Purchaser.
If, as a result of such investigations, it is determined
that there are Hazardous Substances in, around or arising from
the Damaged Sewer Line in violation of applicable Environmental
Laws, the Vendor shall at its cost remediate such area to the
extent required for such area to comply with Environmental Laws
(such work being herein called the "Remediation Work"). Prior to
and during the conduct of the Remediation Work, the Vendor shall
consult with the Purchaser regarding the scope of work, the
remediation schedule and the status of the Remediation Work for
the purposes of permitting the Purchaser to satisfy itself,
acting reasonably, that such Remediation Work is being conducted
and completed in accordance with and complies with applicable
Environmental Laws.
The parties acknowledge that the Remediation Work, if any,
will likely be conducted following Closing. The Purchaser shall
cooperate with the Vendor and permit the Vendor and its
representatives reasonable access to the Ste. Anne Premises and
the Purchased Business for the purposes of conducting and
completing such Remediation Work and complying with its
obligations hereunder. To the extent practicable, any such
Remediation Work shall be conducted in a manner that does not
interfere with normal operations of the Purchased Business.
If at any time following Closing the Purchaser intends to
make any Claim against the Vendor under the terms of this
Agreement in respect of any breach of, or liabilities under,
Environmental Laws the Purchaser shall, except in the case of
emergency situations, forthwith provide written notice to the
Vendor (the "Purchaser's Notice") of such Claim and provide the
Vendor with the opportunity, at the Vendor's option and cost, to
conduct such remediation or similar activities as the Vendor may
deem necessary or appropriate to satisfy, in whole or in part, as
the case may be, the liabilities of the Vendor in respect of the
Claim. If the Vendor wishes to conduct any such remediation
activities in respect of a Claim, Vendor shall within forty-five
(45) days after receipt of the Purchaser's Notice, give notice in
writing to the Purchaser informing the Purchaser of its election
to do so and, in such event, the Vendor shall carry out such
remediation activities as soon as practical thereafter. The
Purchaser shall provide the Vendor and its representatives and
consultants with reasonable access to the Purchased Assets and
the Purchased Business (including records, correspondence or
reports in respect of the circumstances relating to the Claim)
and shall otherwise cooperate with the Vendor and its employees
for the purpose of permitting the Vendor to assess the Claim and
the type and scope of remediation work which may be required and,
if the Vendor so elects, to complete such remediation activities.
To the extent practicable, any such remediation work shall be
conducted in a manner that does not interfere with normal
operations of the Purchased Business.
For greater certainty the election by the Vendor to conduct
or not conduct such remediation activities (or the failure of the
Vendor to do so) shall not restrict, limit or terminate the
Vendor's liability under the Agreement for such Claim, nor shall
any remediation activities conducted by the Vendor relieve the
Vendor of its liability for any aspects of such Claim otherwise
recoverable from the Vendor hereunder that are not resolved by
such remediation work.
ARTICLE IX
CONDITIONS OF CLOSING
9.1 Conditions of Closing in Favour of the Purchaser
The sale and purchase of the Purchased Assets is subject to
the following terms and conditions for the exclusive benefit of
the Purchaser, to be performed or fulfilled at or prior to the
Time of Closing:
(a) Representations and Warranties. The representations
and warranties of the Vendor contained in this Agreement shall be
true and correct in all material respects at the Time of Closing
with the same force and effect as if such representations and
warranties were made at and as of such time, and a certificate of
the Vendor signed by one of its senior officers dated the Closing
Date, to that effect shall have been delivered to the Purchaser;
(b) Covenants. All of the terms, covenants and
conditions of this Agreement to be complied with or performed by
the Vendor at or before the Time of Closing shall have been
complied with or performed in all material respects, and a
certificate of the Vendor signed by a senior officer of the
Vendor, dated the Closing Date, to that effect shall have been
delivered to the Purchaser;
(c) Intentionally Omitted.
(d) Licenses and Contractual Consents. There shall have
been given or obtained the notices, consents, approvals and
License transfers or issuances described in Schedule 22, in each
case in form and substance satisfactory to the Purchaser, acting
reasonably, and provided that for greater certainty satisfaction
of this condition shall not require the delivery to either party
hereto by any other signatory thereto of a consent to the
pledging by the Purchaser, as security, of the relevant agreement
or the delivery of estoppel or similar certificates, or the
agreement by the Purchaser of any conditions or restrictions not
currently in effect that would, individually or in the aggregate,
materially affect Purchaser's ability to conduct the Purchased
Business as currently conducted by Vendor or the cost thereof;
(e) Agreements. The Vendor and the Purchaser shall have
executed and delivered to the Purchaser an agreements and
undertakings in the form of the agreements and undertakings
annexed hereto as Exhibit 1;
(f) No Action or Proceeding. No legal or regulatory
action or proceeding shall be pending or, to the knowledge of the parties,
threatened by any person to enjoin, restrict or prohibit the purchase and
sale of the Purchased Assets contemplated hereby;
(g) No Material Adverse Effect. Subject to section 9.2,
no event or events having, in the aggregate, a Material Adverse
Effect shall have occurred since September 30, 1998; and
(h) Legal Opinion. The Vendor shall have delivered to
the Purchaser an opinion of counsel to the Vendor in form
satisfactory to counsel for the Purchaser acting reasonably.
Subject to section 9.4, if any of the conditions contained
in this section 9.1 shall not be performed or fulfilled at or
prior to the Time of Closing to the satisfaction of the
Purchaser, acting reasonably, the Purchaser may, by notice in
writing to the Vendor, terminate this Agreement and the
obligations of the Vendor and the Purchaser under this Agreement,
other than the obligations contained in sections 12.2, 12.3, 12.4
and 12.5, provided that the Purchaser may also bring an action
against the Vendor for Losses suffered by the Purchaser where the
non-performance or non-fulfilment of the relevant condition is as
a result of a breach of a covenant by the Vendor. Any such
condition may be waived in whole or in part by the Purchaser in
writing. Nothing contained herein shall affect the right of the
Purchaser to obtain an order or judgment for specific performance
or injunctive relief.
9.2 Certain Events, Etc.
Except to the extent the same constitutes a failure by the
Vendor to satisfy the condition set forth in subsection 9.1(b),
and subject to subsection 9.4(a), the conditions in section 9.1
shall be deemed satisfied notwithstanding that any one or more of
the following events, changes or developments shall have occurred
on or after the date hereof and such events, changes or
developments have or could reasonably be expected to have a
Material Adverse Effect:
(a) new Contracts (or amendments to Contracts) entered
into by the Vendor with respect to which the Purchaser has given,
or is not required hereunder to give, its consent;
(b) delay, failure or inability by the Vendor to acquire
new customers or prospective orders, including, without limiting
the generality of the foregoing, the failure or inability to
execute contracts and agreements currently under discussion or
negotiation;
(c) changes in general market conditions related to the
Purchased Business, including, without limiting the generality of
the foregoing, the entry of new competitors into the markets
related to the Purchased Business or the expansion of existing
competitors within such markets;
(d) delays in product shipments in the ordinary course of
business;
(e) delays in the delivery of materials from suppliers in
the ordinary course of business;
(f) loss of customers due to a pre-existing competitive
relationship between the customer and Purchaser; or
(g) delays in the design or implementation process of
products in the ordinary course of business.
9.3 Conditions of Closing in Favour of the Vendor
The sale and purchase of the Purchased Assets is subject to
the following terms and conditions for the exclusive benefit of
the Vendor, to be performed or fulfilled at or prior to the Time
of Closing:
(a) Representations and Warranties. The representations
and warranties of the Purchaser contained in this Agreement shall
be true and correct in all material respects at the Time of
Closing with the same force and effect as if such representations
and warranties were made at and as of such time, and a
certificate of the Purchaser signed by one of its senior
officers, dated the Closing Date, to that effect shall have been
delivered to the Vendor;
(b) Covenants. All of the terms, covenants and
conditions of this Agreement to be complied with or performed by
the Purchaser at or before the Time of Closing shall have been
complied with or performed in all material respects, and a
certificate of the Purchaser signed by a senior officer of the
Purchaser, dated the Closing Date, to that effect shall have been
delivered to the Vendor;
(c) Agreement. The Purchaser and the Vendor shall have
executed and delivered to the Vendor an agreement in the form of
the non-competition agreement annexed hereto as Exhibit I;
(d) Contractual Consents. There shall have been given or
obtained the notices, consents and approvals described in
Schedule 22, in each case in form and substance satisfactory to
the Vendor, acting reasonably, and provided that for greater
certainty satisfaction of this condition shall not require the
delivery to either party hereto by any other signatory thereto of
a consent to the pledging by the Purchaser, as security, of the
relevant agreement or the delivery of estoppel or similar
certificates;
(e) No Action or Proceeding. No legal or regulatory
action or proceeding shall be pending or, to the knowledge of the
parties, threatened by any person to enjoin, restrict or prohibit
the purchase and sale of the Purchased Assets contemplated
hereby;
(f) Purchase Price. The Vendor shall have received the
payments and notes to be delivered to it on Closing as
contemplated by section 3.1; and
(g) Legal Opinion. The Purchaser shall have delivered to
the Vendor an opinion of counsel to the Purchaser in form
satisfactory to counsel for the Vendor acting reasonably.
Subject to section 9.4, if any of the conditions contained
in this section 9.3 shall not be performed or fulfilled at or
prior to the Time of Closing to the satisfaction of the Vendor
acting reasonably, the Vendor may, by notice to the Purchaser,
terminate this Agreement and the obligations of the Vendor and
the Purchaser under this Agreement, other than the obligations
contained in sections 12.2, 12.3, 12.4 and 12.5, provided that
the Vendor may also bring an action against the Purchaser for
Losses suffered by it where the nonperformance or non-fulfilment
of the relevant condition is as a result of a breach of covenant
by the Purchaser. Any such condition may be waived in whole or
in part by the Vendor in writing. Nothing contained herein shall
affect the right of the Vendor to obtain an order or judgment for
specific performance or injunctive relief.
9.4 Extension of Closing Date
(a) If any of the conditions contained in section 9.1 or
section 9.3 shall not be performed or fulfilled at or prior to
the Time of Closing to the satisfaction of the Purchaser or the
Vendor, as the case may be, acting reasonably, either party
hereto (provided such party is not in default of any of its
obligations hereunder) may, at or prior to the Time of Closing,
provide written notice to the other party extending the Closing
Date and, provided such condition may be performed or fulfilled
within twenty Business Days thereafter, the Closing shall be
postponed until such date as the parties may agree, provided
however that if the parties are unable to agree on a new Closing
Date the Closing Date shall occur on the twenty-fifth Business
Day following the original Closing Date. In attempting to
establish a new Closing Date the parties shall take into account
the date on which such unfulfilled condition is expected to be
satisfied. If such unfulfilled condition shall be subsection
9.1(b) the provisions of sections 5.35 and 9.2 (including the
reference thereto in the definition of "Material Adverse Effect")
shall have no force or effect with respect to any changes
occurring after the Closing Date as originally scheduled prior to
such extension.
(b) If the Closing is extended to a later date pursuant
to the terms of this section 9.4, the Closing Date shall mean,
for the purposes of this Agreement, such later date.
(c) The rights under this section 9.4 may only be
exercised once such that this section 9.4 shall permit only one
extension of the Closing Date.
ARTICLE X
CLOSING DATE AND TRANSFER OF POSSESSION
10.1 Transfer
Subject to compliance with the terms and conditions hereof,
the transfer of possession of the Purchased Assets shall be
deemed to take effect as at the Closing.
10.2 Place of Closing
The closing shall take place at the Time of Closing at the
offices of McCarthy Tetrault counsel for the Purchaser,
LeWindsor, 1170, rue Peel, Montreal, Quebec H3B 4S8.
10.3 Further Assurances
From time to time subsequent to the Closing Date, each party
to this Agreement covenants and agrees that it will at all times
after the Closing Date, at the expense of the requesting party,
promptly execute and deliver all such documents, including,
without limitation, all such additional conveyances, transfers,
consents and other assurances, and do all such other acts and
things as the other party, acting reasonably, may from time to
time request be executed or done in order to better evidence or
perfect or effectuate any provision of this Agreement or of any
agreement or other document executed pursuant to this Agreement
or any of the respective obligations intended to be created
hereby or thereby.
10.4 Risk of Loss
From the date hereof up to the Time of Closing, the
Purchased Assets shall be and remain at the risk of the Vendor.
If, prior to the Time of Closing, all or any part of the
Purchased Assets are destroyed or damaged by fire or any other
casualty or shall be appropriated, expropriated or seized by
governmental or other lawful authority (a "Property Loss"), the
Purchaser shall complete the purchase unless as a result of such
Property Loss the Purchaser has the right under section 9.1 to
terminate its obligations under this Agreement and elects to do
so in accordance with the terms of this Agreement.
If a Property Loss so occurs and the Purchaser so elects, or
is required to complete the purchase of the Purchased Assets, the
Purchase Price shall be reduced by an amount equal to the amount,
if any, by which the amount of the loss caused by such
destruction, damage, appropriation, expropriation or seizure
either (i) is not fully covered by insurance (whether because the
loss exceeds the insurance limits, is not covered by the
applicable insurance, represents the portion thereof that is an
insurance deductible or otherwise) or (ii) does not result in a
dollar for dollar reduction of the Purchase Price as a result of
being reflected in the Working Capital Calculation. In such
event, all proceeds of insurance or compensation for
appropriation, expropriation or seizure shall be paid to the
Purchaser at the Time of Closing and all right and claim of the
Vendor to any such amounts not paid by the Closing Date shall be
assigned at the Time of Closing to the Purchaser; provided that
if notwithstanding the reasonable efforts of the Purchaser, the
Purchaser is unable to collect all such proceeds or compensation
within one year from Closing, the Vendor shall pay to the
Purchaser such uncollected amount upon reassignment by the
Purchaser to the Vendor of any rights the Purchaser may have in
respect thereof.
ARTICLE XI
INDEMNIFICATION
11.1 Indemnification by the Vendor
Subject to the terms of this Article XI, the Vendor agrees
to indemnify and save harmless the Purchaser from all Losses
suffered or incurred by the Purchaser as a result of or arising
directly or indirectly out of or in connection with:
(a) any breach or inaccuracy, in any material respect, of
any representation or warranty of the Vendor contained in this
Agreement or in any agreement, certificate or other document
delivered pursuant hereto (provided that the Vendor shall not be
required to indemnify or save harmless the Purchaser in respect
of any breach or inaccuracy of any representation or warranty (i)
of which the Purchaser has actual knowledge thereof at Closing or
(ii) unless the Purchaser shall have provided notice to the
Vendor in accordance with section 11.4 on or prior to the
expiration of the applicable time period related to such
representation or warranty as set out in section 7.1);
(b) any breach or non-performance, in any material
respect, by the Vendor of any covenant to be performed by it that
is contained in this Agreement or in any agreement, certificate
or other document delivered pursuant hereto;
(c) all liabilities of the Vendor other than the Assumed
Liabilities; and
(d) to the extent permitted by law, any losses, claims,
damages or liabilities, joint or several, including any of the
foregoing incurred in settlement of any litigation commenced or
threatened, arising out of or based on (i) any untrue statement
of a material fact, or omission to state a material fact
necessary to make a statement not misleading, where contained in
a Registration Statement or Prospectus in reliance on information
furnished by Vendor in writing for use in preparation of such
Registration Statement or Prospectus or any amendment or
supplement thereto, or (ii) violations by Vendor or rules or
regulations applicable to it in connection with a Registration
Statement or offers and sales thereunder.
11.2 Indemnification by the Purchaser
Subject to the terms of this Article XI, the Purchaser
agrees to indemnify and save harmless the Vendor from all Losses
suffered or incurred by the Vendor as a result of or arising
directly or indirectly out of or in connection with:
(a) any breach or inaccuracy, in any material respect, of
any representation or warranty contained in this Agreement or in
any agreement, instrument, certificate or other document
delivered pursuant hereto (provided that the Purchaser shall not
be required to indemnify or save harmless the Vendor in respect
of any breach or inaccuracy of any representation or warranty (i)
of which the Vendor has actual knowledge of such breach or
inaccuracy on Closing or (ii) unless the Vendor shall have
provided notice to the Purchaser in accordance with section 11.4
on or prior to the expiration of the applicable time period
related to such representation or warranty as set out in
section 7.1);
(b) any breach or non-performance, in any material
respect, by the Purchaser of any covenant to be performed by it
that is contained in this Agreement or in any agreement,
certificate or other document delivered pursuant hereto;
(c) any of the Assumed Liabilities; and
(d) to the extent permitted by law, any losses, claims,
damages or liabilities, joint or several, including any of the
foregoing incurred in settlement of any litigation commenced or
threatened, arising our of or based on (i) any untrue statement
of a material fact contained in a Registration Statement or
Prospectus (or any supplement or amendment thereto), (ii) any
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, or (iii) any violation by Purchaser of any rule or
regulation promulgated under the 1933 Act applicable to Purchaser
and related to action or inaction required of Purchaser in
connection with such registration and offers and sales
thereunder, provided, however, that Purchaser shall not be liable
in any such instance to the extent that any such loss, claim,
damage or liability arises out of or is based upon any untrue
statement or omission made in the Registration Statement or
Prospectus or any amendment or supplement thereto in reliance
upon and in conformity with information furnished to Purchaser by
Vendor in writing for use in preparation thereof, and provided
further that the indemnification set forth in this paragraph (d)
shall extend also to any person who controls (within the meaning
of the 1933 Act) Vendor.
11.3 Threshold and Limitations
(a) Notwithstanding section 11.1, the Vendor's obligation
to indemnify the Purchaser in respect of Losses for breaches or
inaccuracies of one or more representations or warranties will be
applicable only to the extent that the aggregate of all such
Losses is in excess of $750,000 (the "Threshold") (and then only
with respect to that portion of the Losses that exceed the
Threshold) up to a maximum amount of $10,000,000.
(b) Notwithstanding section 11.2, the Purchaser's
obligation to indemnify the Vendor in respect of Losses for
breaches or inaccuracies of one or more representations or
warranties will be applicable only to the extent that the
aggregate of all such Losses is in excess of the Threshold (and
then only with respect to that portion of the Losses that exceed
the Threshold) up to a maximum amount of $10,000,000.
11.4 Notice of Claim
In the event that a party (the "Indemnified Party") shall
become aware of any claim, proceeding or other matter (a "Claim")
in respect of which the other party (the "Indemnifying Party")
agreed to indemnify the Indemnified Party pursuant to this
Agreement, the Indemnified Party shall promptly give written
notice thereof to the Indemnifying Party. Such notice shall
specify whether the Claim arises as a result of a claim by a
person against the Indemnified Party (a "Third Party Claim") or
whether the Claim does not so arise (a "Direct Claim"), and shall
also specify with reasonable particularity (to the extent that
the information is available):
(a) the factual basis for the Claim; and
(b) the amount of the Claim, if known.
If, through the fault of the Indemnified Party, the Indemnifying
Party does not receive notice of any Claim in time to effectively
contest the determination of any liability susceptible of being
contested, the Indemnifying Party shall be entitled to set off
against the amount claimed by the Indemnified Party the amount of
any Losses incurred by the Indemnifying Party resulting from the
Indemnified Party's failure to give such notice on a timely
basis.
11.5 Direct Claims
With respect to any Direct Claim, following receipt of
notice from the Indemnified Party of the Claim, the Indemnifying
Party shall have 45 days to make such investigation of the Claim
as is considered necessary or desirable. For the purpose of such
investigation, the Indemnified Party shall make available to the
Indemnifying Party the information relied upon by the Indemnified
Party to substantiate the Claim, together with all such other
information as the Indemnifying Party may reasonably request. If
both parties agree at or prior to the expiration of such 45-day
period (or any mutually agreed upon extension thereof) to the
validity and amount of such Claim, the Indemnifying Party shall
immediately pay to the Indemnified Party the full agreed upon
amount of the Claim, failing which the matter shall be referred
to binding arbitration in such manner as the parties may agree or
shall be determined by a court of competent jurisdiction.
11.6 Third Party Claims
With respect to any Third Party Claim, the Indemnifying
Party shall have the right, at its expense, to participate in or
assume control of the negotiation, settlement or defence of the
Claim and, in such event, the Indemnifying Party shall reimburse
the Indemnified Party for all the Indemnified Party's out-of-pocket
expenses as a result of such participation or assumption.
If the Indemnifying Party elects to assume such control, the
Indemnified Party shall have the right to participate in the
negotiation, settlement or defence of such Third Party Claim and
to retain counsel to act on its behalf, provided that the fees
and disbursements of such counsel shall be paid by the
Indemnified Party unless the Indemnifying Party consents to the
retention of such counsel or unless the named parties to any
action or proceeding include both the Indemnifying Party and the
Indemnified Party and a representation of both the Indemnifying
Party and the Indemnified Party by the same counsel would be
inappropriate due to the actual or potential differing interests
between them (such as the availability of different defences).
If the Indemnifying Party, having elected to assume such control,
thereafter fails to defend the Third Party Claim within a
reasonable time, the Indemnified Party shall be entitled to
assume such control and the Indemnifying Party shall be bound by
the results obtained by the Indemnified Party with respect to
such Third Party Claim. If any Third Party Claim is of a nature
such that the 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 legal proceedings, the Indemnified Party
shall provide prior written notice thereof to the Indemnifying
Party and thereafter may make such payment and the Indemnifying
Party shall, forthwith after demand by the Indemnified Party,
reimburse the Indemnified Party for such payment. If the amount
of any liability of the Indemnified Party under the Third Party
Claim in respect of which such a payment was made, as finally
determined, is less than the amount that was paid by the
Indemnifying Party to the Indemnified Party, the Indemnified
Party shall, forthwith after receipt of the difference from the
Third Party, pay the amount of such difference to the
Indemnifying Party.
11.7 Settlement of Third Party Claims
If the Indemnifying Party fails to assume control of the
defence of any Third Party Claim, the Indemnified Party shall
have the exclusive right to contest, settle or pay the amount
claimed. Whether or not the Indemnifying Party assumes control
of the negotiation, settlement or defence of any Third Party
Claim, the Indemnifying Party shall not settle any Third Party
Claim without the written consent of the Indemnified Party, which
consent shall not be unreasonably withheld or delayed; provided,
however, that the liability of the Indemnifying Party shall be
limited to the proposed settlement amount if any such consent is
not obtained for any reason and the proposed settlement does not
impose materially onerous covenants or business conditions on the
Indemnified Party and the Indemnified Party shall indemnify and
save harmless the Indemnifying Party from and against any Losses
resulting from or arising out of the failure of the Indemnified
Party to consent to such settlement.
11.8 Cooperation
The Indemnified Party and the Indemnifying Party shall co-operate
fully with each other with respect to Third Party Claims
and any defence thereof, and shall keep each other fully advised
with respect thereto (including supplying copies of all relevant
documentation promptly as it becomes available). Where the
defence of a Third Party Claim is being undertaken and controlled
by the Indemnifying Party, the Indemnified Party shall use all
reasonable efforts to make available to the Indemnifying Party
those employees whose assistance, testimony or presence is
reasonably necessary to assist the Indemnifying Party in
evaluating and defending such Third Party Claims.
11.9 Exclusivity
Except as otherwise expressly provided in this Agreement,
the provisions of this Article XI shall apply to any Claim for
breach of any covenant, representation, warranty or other
provision of this Agreement or any agreement, certificate or
other document delivered pursuant to this Agreement (other than a
claim for specific performance or injunctive relief), with the
intent that all such Claims and recourses shall be subject to the
limitations and other provisions applicable thereto under this
Article XI.
ARTICLE XII
MISCELLANEOUS
12.1 Notices
(a) Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be
delivered in person, transmitted by telecopy or similar means of
recorded electronic communication or sent by overnight courier,
charges prepaid, addressed as follows:
(i) if to the Purchaser:
Electromagnetic Sciences, Inc.
660 Engineering Drive
P.O. Box 7700
Norcross, Georgia
300091-7700
Attention: Chief Financial Officer and
Vice President and General
Counsel
Telecopier No.: (770) 447-4397
(ii) if to the Vendor:
Spar Aerospace Limited
Suite 2100
121 King Street West
Toronto, Ontario
M5H 4C2
Attention: Vice President, General
Counsel and Secretary
Telecopier No.: (416) 682-7631
(b) Any such notice or other communication shall be
deemed to have been given and received on the day on which it was
delivered (or, if by telecopy, confirmed by electronic answer
back) or transmitted (or, if such day is not a Business Day, on
the next following Business Day) or, if sent by overnight
courier, on the Business Day following the date of sending.
(c) Either party may at any time change its address for
notice from time to time by giving notice to the other party in
accordance with this section 12.1.
12.2 Commissions, etc.
Each of the Vendor and the Purchaser agrees to indemnify and
save harmless the other party from and against all Losses
suffered or incurred by such other party in respect of any
commission or other remuneration payable or alleged to be payable
to any broker, agent or other intermediary who purports to act or
have acted for or on behalf of the Vendor or the Purchaser, as
the case may be.
12.3 Consultation
The parties shall consult with each other before issuing any
press release or making any other public announcement with
respect to this Agreement or the transactions contemplated hereby
and, except as required by any applicable law or regulatory
requirement, neither of them shall issue any such press release
or make any such public announcement without the prior written
consent of the other, which consent shall not be unreasonably
withheld or delayed.
12.4 Disclosure
Prior to any public announcement of the transaction
contemplated hereby pursuant to section 12.3, neither party shall
disclose this Agreement or any aspects of such transaction except
as required to comply with its obligations under this Agreement
or to its board of directors, its senior management, its legal,
accounting, financial or other professional staff or advisors,
any financial institution contacted by it with respect to any
financing required in connection with such transaction and
counsel to such institution, or as may be required by any
applicable law or any regulatory authority or stock exchange
having jurisdiction.
12.5 Confidentiality
Without limiting the obligations of the Vendor and the
Purchaser under the confidentiality agreement between them dated
June 8, 1998 (the "Confidentiality Agreement"), but subject to
section 12.4, both the Vendor and the Purchaser shall maintain
the confidentiality of any information received from each other
in connection with the transactions contemplated by this
Agreement, whether received before or after the date of this
Agreement. If the transfer of the Purchased Assets to the
Purchaser is not consummated, each shall return to the other any
confidential schedules, documents, or other written information
obtained from the other in connection with this Agreement whether
received before or after the date of this Agreement and the
Purchaser agrees that, except as otherwise authorized by the
Vendor, neither the Purchaser nor its representatives, agents or
employees will disclose to third parties any confidential
information or confidential data relating to the Vendor, the
Purchased Business or the Purchased Assets discovered by the
Purchaser or its representatives as a result of the Vendor making
available to the Purchaser and its representatives the
information requested by them in connection with the transactions
contemplated herein.
Upon Closing all provisions of the Confidentiality Agreement
except sections 5 and 6 shall be terminated.
12.6 Assignment by Purchaser
The Purchaser may with written notice to the Vendor assign
its rights under this Agreement in whole or in part to any
Affiliate; provided, however, that any such assignment shall not
relieve the Purchaser from any of its obligations hereunder and
shall be subject to any equities which exist or may in the future
exist between the Vendor and the Purchaser.
12.7 Reasonable/Best Efforts
The parties acknowledge and agree that, except as otherwise
expressly provided in this Agreement, for all purposes of this
Agreement, an obligation on the part of either party to use its
reasonable efforts or best efforts to obtain any waiver, consent,
approval, permit, licence or other document shall not require
such party to make any payment to any person for the purpose of
procuring the same, other than payments for amounts due and
payable to such person, payments for incidental expenses incurred
by such person and payments required by any applicable law or
regulation.
12.8 Counterparts
This Agreement may be executed in counterparts, each of
which shall constitute an original and all of which taken
together shall constitute one and the same instrument.
IN WITNESS WHEREOF this Agreement has been executed by the
parties.
SPAR AEROSPACE LIMITED ELECTROMAGNETIC SCIENCES, INC.
By: /s/ Sheldon Polansky By: /s/ William S. Jacobs
------------------------ -------------------------
Secretary Vice President
EXHIBIT 1 TO EXHIBIT 2.1
NON-COMPETITION AGREEMENT
THIS AGREEMENT made the day of , 1999.
B E T W E E N:
SPAR AEROSPACE LIMITED, a corporation existing under
the laws of Canada (hereinafter called the "Vendor")
- and -
ELECTROMAGNETIC SCIENCES, INC., a corporation existing under the
laws of the State of Georgia (hereinafter called the "Purchaser")
[Note to draft: to include EMS and purchaser if EMS assigns its
obligation.]
WHEREAS pursuant to an agreement of purchase and sale dated
December __ , 1998, (the "Purchase Agreement") between the
Vendor and the Purchaser, the Purchaser agreed to purchase from
the Vendor substantially all of the property and undertaking
owned or held by the Vendor comprising the Purchased Business, as
defined therein, all on terms and conditions therein set out;
AND WHEREAS the obligations of the Purchaser and the Vendor
under the Purchase Agreement are expressly subject to the
satisfaction of certain conditions therein set out, including the
entering into of this Agreement by the Vendor and the Purchaser;
NOW THEREFORE THIS AGREEMENT WITNESSES THAT in consideration
of the entering into by the Vendor and the Purchaser of the
Purchase Agreement and for other good and valuable consideration
(the receipt and sufficiency of which are hereby acknowledged by
each party), the parties agree as follows:
1. Definitions
(a) "affiliate", "associate" and "subsidiary" shall mean bodies
corporate within the meaning of such respective terms as defined
in the Canada Business Corporations Act;
(b) "Brampton Work" means the design, development, manufacture,
repair and overhaul, spares provisioning, maintenance, operation,
utilization or support, for or in connection with space robotics
programs, of products or services of the nature or type currently
provided or performed and/or contemplated to be provided or
performed by the Purchased Business for the requirements of the
Vendor's Space Systems, Brampton Operations (the "Brampton
Operations"), including any such work currently, or to be,
performed by the Purchased Business for the Brampton Operations
in connection with the NASA Remote Work Station, the Mobile
Servicing System, the Special Purpose Dexterous Manipulator, and
the Shuttle Remote Manipulator System programs, and any follow-ons or
derivatives of these programs;
(c) "Business Day" means any day, other than a Saturday or a
Sunday or statutory holiday in either Toronto, Ontario or
Montreal, Quebec;
(d) "directly" or "indirectly", in relation to anything to be
done (or not done) by a person, means for or on behalf of:
(i) such person; or
(ii) any entity that is then a subsidiary of any such
entity;
(e) "incidental part" of a business operation or entity means
any part with annual revenues representing less than 10% of the
total consolidated annual revenues of such business operation or
entity;
(f) "including" means "including without limitation" and shall
not be construed as limiting any general statement which precedes
it to the specific items or matters which follows it or to items
or matters similar to those which follow it;
(g) "person" includes individuals, corporations, partnerships,
associations, trusts, unincorporated organizations, governmental
bodies and other legal or business entities of any kind
whatsoever;
(h) "Purchased Business" has the meaning ascribed to it in the
Purchase Agreement;
(i) "related corporation" in relation to a body corporate means
a body corporate which is a subsidiary, other affiliate or
associate of such body corporate; and
(j) "Ste. Anne Work" means the design, assembly, testing and
integration of radio frequency products, antenna products,
remote-sensing products, satellite-digital products, and
communication systems for satellite subsystems and components of
the type currently supplied and/or currently contemplated to be
supplied by the Purchased Business.
2. Vendor's Covenant Not to Compete
(a) The Vendor covenants and agrees that it shall not, either
individually or in partnership, or in conjunction with any person
or persons, whether as principal, agent, shareholder or in any
other manner whatsoever, directly or indirectly, for a period of
seven years following the date hereof, carry on or be engaged in
the Ste. Anne Work or otherwise compete with the Purchaser (or
its successors in the operations of the Purchased Business) for
such Work.
(b) Notwithstanding the foregoing, the foregoing restriction
shall not prevent or prohibit: (I) the Vendor or any subsidiary
from having directly or indirectly not more than 10% of the
voting securities of any person engaged in, or competing for,
Ste. Anne Work; (ii) the acquisition by the Vendor or any
subsidiary directly or indirectly of any person, business or
operation which as an incidental part of its normal business
carries on, or competes for Ste. Anne Work, provided that
following such acquisition such activities continue to constitute
an incidental part of the business of such person, business or
operation for the period set forth in subsection (a) hereof;
(iii) the Vendor or any subsidiary from supplying bona fide goods
or services that do not comprise, and are not competitive with,
the Ste. Anne Work to any person who otherwise supplies goods or
services that in whole or in part comprise, or are competitive
with, the Ste. Anne Work; (iv) the Vendor or any subsidiary from
carrying out Brampton Work; and (vi) the Vendor or any subsidiary
from participating in any teaming arrangement, joint venture,
alliance, partnership or similar relationship that comprises, or
competes for in whole or in part, Ste. Anne Work, provided that
the goods or services to be so supplied by the Vendor or any
subsidiary do not comprise, and are not competitive with, the
Ste. Anne Work.
3. Purchaser's Covenant Not to Compete
(a) The Purchaser covenants and agrees that it shall not, either
individually or in partnership, or in conjunction with any person
or persons, whether as principal, agent, shareholder or in any
manner whatsoever, directly or indirectly, for a period of seven
years following the date hereof, carry on or be engaged in the
Brampton Work or otherwise compete with the Vendor (or its
successors in the operation of the Vendor's Space Systems,
Brampton Operations) for the Brampton Work except as a supplier
or subcontractor to the Vendor.
(b) Notwithstanding the foregoing, the foregoing restriction
shall not prevent or prohibit: (i) the Purchaser or any
subsidiary from having directly or indirectly not more than 10%
of the voting securities of any person engaged in, or competing
for Brampton Work; (ii) the acquisition by the Purchaser or any
subsidiary directly or indirectly of any person, business or
operation which as an incidental part of its normal business
carries on, or competes for, Brampton Work, provided that
following such acquisition such activities continue to constitute
an incidental part of the business of such person, business or
operation for the period set forth in subsection (a) hereof;
(iii) the Purchaser or any subsidiary from supplying bonafide
goods or services that do not comprise, and are not competitive
with, the Brampton Work to any person who otherwise supplies
goods or services that in whole or in part comprise, or are
competitive with, the Brampton Work; (iv) the Purchaser or any
subsidiary from participating in any teaming arrangement, joint
venture, alliance, partnership or similar relationship that is
engaged in or competes for in whole or in part Brampton Work
provided that the goods or services to be supplied by the
Purchaser or any subsidiary do not comprise, and are not
competitive with, the Brampton Work; (v) the use by the
Purchaser or any subsidiary of any intellectual property
developed, used or usable in connection with the Brampton Work in
products or services that do not constitute, and are not
competitive with, the Brampton Work.
4. Injunctive Relief
Each party agrees that, in the event of a breach or
threatened breach by it of any of the provisions of this
Agreement, the other party, in addition to and not in limitation
of any other rights, remedies or damages available to the other
party at law or in equity, shall be entitled to an interim
injunction, interlocutory injunction and permanent injunction in
order to prevent or to restrain any such breach by such party.
5. Indemnification
Each party agrees to defend, indemnify and hold the other
party harmless against and in respect of any and all losses and
damages resulting from, relating or incident to, or arising out
of any breach of any covenant or agreement made or contained in
this Agreement; and any and all actions, suits, proceedings,
claims, demands, judgments, costs and expenses (including
reasonable lawyer's fees) incident to the foregoing.
6. Reasonableness of Restrictions
Each party acknowledges that it has given careful
consideration to the provisions of sections 2 through 5 above
and, having done so, agrees that the restrictions set forth in
those sections are fair and reasonable and are reasonably
required for the protection of the interests of the other party
and its business, and that it is being reasonably compensated for
the imposition of such restrictions.
7. Independent Effect
Each party agrees that the breach or alleged breach by the
other party of any covenant contained in another agreement (if
any) between the parties or any obligation owed to one party by
the other party, shall not affect the validity or enforceability
of the covenants and agreements set forth in this Agreement.
8. Entire Agreement
This Agreement constitutes the entire agreement between the
parties with respect to the subject matter hereof and supersedes
all prior agreements, understandings, negotiations and
discussions, whether oral or written. There are no warranties,
representations, conditions or other agreements between the
parties relating to the subject matter hereof except as herein
provided.
9. Amendment or Waiver in Writing
No amendment or waiver of any provision of this Agreement
shall be binding on any party unless consented to in writing by
such party. No waiver of any provision of this Agreement shall
constitute a waiver of any other provision, nor shall any waiver
constitute a continuing waiver unless otherwise expressly
provided.
10. Notices
(a) Any notice or other communication required or permitted to
be given hereunder shall be in writing and shall be delivered in
person, transmitted by telecopy or similar means of recorded
electronic communication or sent by overnight courier, charges
prepaid, addressed as follows:
(i) if to the Vendor:
(Address)
Attention:
Telecopier No.:
(ii) if to the Purchaser:
(Address)
Attention:
Telecopier No.:
(b) Any such notice or other communication shall be deemed to
have been given and received on the day on which it was delivered
or transmitted (or, if such day is not a Business Day, on the
next following Business Day) or, if sent via courier, on the day
on which it was delivered to the addressee (or, if such day is
not a Business Day, on the next following Business Day).
(c) Any party may at any time change its address for service
from time to time by giving notice to the other parties in
accordance with this section 10.
11. Further Assurances
Each party to this Agreement covenants and agrees that it
will at the request and expense of the requesting party, execute
and deliver all such further documents and do all such other acts
and things as any other party hereto, acting reasonably, may from
time to time request be executed or done in order to carry out
the purpose and intent of this Agreement.
12. Applicable Law
This Agreement shall be construed, interpreted and enforced
in accordance with, and the respective rights and obligations of
the parties shall be governed by, the laws of the Province of
Ontario and the federal laws of Canada applicable therein, and
each party hereby irrevocably and unconditionally submits to the
non-exclusive jurisdiction of the courts of such province and all
courts competent to hear appeals therefrom.
13. Sections and Headings
This division of the Agreement into sections and the
insertion of headings are for convenience of reference only and
shall not affect the interpretation of this Agreement. Unless
otherwise indicated, any reference in this Agreement to a section
refers to the specified section to this Agreement.
14. Successors and Assigns
This Agreement shall enure to the benefit of and shall be
binding on and enforceable by the parties and their respective
successors and permitted assigns. No party may assign any of its
rights or obligations hereunder without the prior written consent
of the other parties except that a party may, without such
consent, assign its rights and obligations hereunder to a
successor to the operations of the Purchased Business or the
Vendor's Space Systems, Brampton Operations, as the case may be,
if such assignor agrees to continue to be bound by the terms
hereof.
15. Severability
If any provision of this Agreement is determined by a court
of competent jurisdiction to be invalid, illegal or unenforceable
in any respect, such determination shall not impair or affect the
validity, legality or enforceability of the remaining provisions
hereof, and each provision is hereby declared to be separate,
severable and distinct.
16. Counterparts
This Agreement may be executed in counterparts, each of
which shall constitute an original and all of which taken
together shall constitute one and the same instrument.
IN WITNESS WHEREOF this Agreement has been executed by the
parties on the date first written above.
SPAR AEROSPACE LIMITED
By:
ELECTROMAGNETIC SCIENCES, INC.
By:
TO BE TYPED ON SPAR LETTERHEAD
TO BE DELIVERED ON CLOSING
January X, 1999
Electromagnetic Sciences, Inc.
660 Engineering Drive
P.O. Box 7700
Norcross, Georgia
30091-7700
Dear Sirs:
RE: Asset Purchase Agreement made effective December X, 1998
(the "Agreement") between Electromagnetic Sciences, Inc.
("EMS") and Spar Aerospace Limited ("Spar")
We refer to the Agreement which provides for the purchase by EMS
from Spar of the assets and liabilities of Spar's Ste. Anne de
Bellevue operations (i.e. the Purchased Business). Capitalized
terms not otherwise defined herein shall have the meaning set
forth in the Agreement.
For a period of 7 years from the date hereof, and subject to any
restrictions imposed by Spar's customers or by government
procurement regulations, Spar shall provide EMS with the first
opportunity to respond to proposals for Brampton Work (as defined
in the Non-Compete Agreement dated the date hereof between Spar
and EMS) which Spar desires to outsource (i.e. contract to have
work performed by entities other than Spar, its subsidiaries or
its affiliates). Spar shall use its reasonable efforts to ensure
no such restrictions are imposed (provided that such reasonable
efforts shall not require Spar to provide financial assistance or
otherwise expend funds). Subject to EMS's competitiveness, where
EMS meets Spar's terms and conditions including, without
limitation, Spar's technical, quality, schedule and price
requirements, Spar intends to award such Brampton Work to EMS
pursuant to the terms of the proposal. EMS shall not have any
right to match the bids of others for Brampton Work.
This foregoing intention shall not constitute a guarantee of the
award of Brampton Work to EMS. Spar shall have sole discretion to
evaluate and determine the competitiveness and acceptability of
all bids for Brampton Work and to select any of such bids or
perform the Brampton Work itself based on perceived
competitiveness.
Spar shall not be required to procure from the lowest price
bidder.
Spar shall not be liable hereunder for any accidental or
inadvertent failure to notify EMS of, or provide EMS with, an
opportunity to bid on work valued at less than $5O,OOO
Canadian.
Spar agrees to notify the relevant managers of the notification
requirements of this letter.
This letter constitutes the entire agreement of Spar and EMS
concerning the subject matter hereof and supersedes any and all
prior understandings, agreements, and commitments made by Spar to
or in favour of EMS concerning the right of EMS to be informed
of, to bid for, or to receive future Brampton Work from Spar.
Sincerely,
By
---------------------------
Colin D. Watson, President
& Chief Executive Officer
EXHIBIT 2 TO EXHIBIT 2.1
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
TRANSFERRED PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS
SO REGISTERED OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE
SECURITIES LAWS IS AVAILABLE.
ELECTROMAGNETIC SCIENCES, INC.
CONVERTIBLE PROMISSORY NOTE
Cdn $5,000,000.00 , Georgia
, 1999
ELECTROMAGNETIC SCIENCES, INC., a Georgia corporation,
(the "Company") for value received hereby promises to pay to SPAR
AEROSPACE LIMITED, or its successors or assigns, the sum of Five
Million Cdn Dollars (Cdn $5,000,000.00), or such lesser amount as
shall then equal the outstanding principal amount hereof and any
unpaid accrued interest hereon, as set forth below. Unless
sooner paid or payable, such amounts shall be due and payable on
the Maturity Date, which shall be the earlier to occur of (i)
December 31, * or (ii) when declared due and payable by the
Holder upon the occurrence of an Event of Default (as defined
below). Payment of all amounts due hereunder shall be made by
wire transfer to a bank account designated in writing by the
Holder at least three business days prior to payment. This Note
is issued pursuant to the provisions of Section 3.1 of that
certain Asset Purchase Agreement, dated as of December [ ], 1998,
by and between the Company and Spar Aerospace Limited (the
"Purchase Agreement").
The following is a statement of the rights of the Holder
of this Note and the conditions to which this Note is subject,
and to which the Holder hereof, by the acceptance of this Note,
agrees.
1. Definitions. As used in this Note, the following terms,
unless the context otherwise requires, have the following
meanings:
(a) "Business Day" means any day, other than a Saturday or a
Sunday or statutory holiday in Toronto, Ontario or Atlanta,
Georgia;
(b) "Cdn $" and "Cdn Dollars" shall mean the lawful money of
Canada;
(c) "Cdn $ Equivalent" means, at the date of determination,
the amount of Cdn Dollars that the Holder could purchase, in
accordance with normal practice, with a specified amount of US
Dollars based on the rate quoted by The Bank of Nova Scotia as
the spot rate of exchange applicable at such bank's main Toronto,
Ontario office with the specific amount of US Dollars on such
date;
(d) "Change of Control" means either
(i) the acquisition, directly or indirectly and by any
means whatsoever, by any person, or group of persons acting
jointly or in concert, of beneficial ownership or control or
direction over securities of the Company to which are attached
not less than 40 percent of the votes that may be cast to elect
directors of the Company; or
(ii) any transaction or series of transactions whether by
way of reconstruction, reorganization, consolidation, merger,
arrangement, amalgamation, transfer, sale or otherwise, whereby
all or substantially all of the assets of the Company become the
property of any other person or any merged entity (other than as
a result of a merger of the Company with a wholly-owned
subsidiary of the Company) (the "Successor Entity") unless:
(A) persons who were holders of voting securities of the
Company immediately prior to such transaction(s) hold, as a
result of such transaction(s), in the aggregate not less than 50%
of the voting securities of the Successor Entity;
(B) a majority of the members of the board of directors of
the Successor Entity is comprised of individuals who were members
of the board of directors of the Company immediately prior to
such transaction(s); and
(C) after such transaction, no person, or group of persons
acting jointly or in concert, holds more than 40% of the voting
securities of the Successor Entity.
(e) "Common Stock" means the common stock, $.01 par value per
share, of the Company;
(f) "Company" includes any corporation which shall succeed to
or assume the obligations of the Company under this Note;
(g) "Conversion Notice" has the meaning set forth in section 6;
(h) "Debt" means for any fiscal quarter the Funded Debt of
the Company and its subsidiaries on the last day of such fiscal
quarter determined on a consolidated basis in accordance with
GAAP;
(i) "Discounted Market Value" of any shares of Common Stock
on any date means the Market Value on such date less US $.125 per
share, to compensate the Holder for brokerage transaction costs
in connection with sales of Common Stock;
(j) "Equity" means the sum of capital stock (including any
preferred stock but excluding treasury stock and capital stock
subscribed but unissued) and surplus (including earned surplus,
capital surplus and the balance of the current profit and loss
account not transferred to surplus) accounts of the Company and
its subsidiaries on a consolidated basis determined in accordance
with GAAP;
(k) "Freely Tradeable" in respect of any shares of Common
Stock, means shares that are either registered with the SEC for
immediate resale by the Holder in open market transactions in the
United States or, in accordance with an opinion of the Company's
counsel delivered to the Holder at the time of delivery of such
Common Stock, is resaleable by the Holder in such transactions
without registration or any applicable holding period
restrictions;
(l) "Funded Debt" means (i) all obligations for money
borrowed (whether on a senior or subordinated basis) or evidenced
by bonds, debentures, notes or other similar instruments, (ii)
all obligations for the deferred purchase price of property or
services other than trade payables incurred in the ordinary
course of business and not overdue by more than ninety days, and
(iii) capital lease obligations;
(m) "GAAP" means those accounting principles which are
recognized as being generally accepted in the United States of
America applied on a basis consistent with the Company's past
practices;
(n) "Holder" when the context refers to a holder of this
Note, shall mean any person who shall at the time be the holder
of this Note. As of the date hereof the Holder is Spar Aerospace
Limited;
(o) "Market Value" on any date means the average, for the ten
trading days preceding such date, of the closing sales price of a
share of Common Stock as reported in the National Association of
Securities Dealers Automated Quotation system or, if such sales
price is not reported by such system, the primary stock exchange
or other trading system on which Common Stock trade;
(p) "Milestone" means the later of (i) December [ ], [ ]
and (ii) sixty days following the acceptance by the Company, in
its sole discretion, on a cumulative basis, of [Cdn $[ ]
million] of orders from SkyBridge Limited Partnership
("SkyBridge"), or any direct or indirect supplier to the
SkyBridge Project for goods and services to be provided by the
Purchased Business, as defined in the Purchase Agreement, (but
excluding for greater certainty, any amounts attributable to
beam-forming networks or startrackers generally of a nature
heretofore proposed by the Company or its existing subsidiaries
to Alcatel Espace in connection with the SkyBridge project,
regardless of whether ultimately sold for use on the SkyBridge
project through the Purchased Business), such orders to be
legally binding on SkyBridge and to be suitable for inclusion in
the Company's publicly reported backlog;
(q) "Net Income" shall mean for any period the net income (or
loss), after deducting all operating expenses, provisions for
taxes and reserves (including reserves for deferred income taxes)
and all other proper deductions, of the Company and its
subsidiaries determined on a consolidated basis in accordance
with GAAP, excluding (i) extraordinary items, (ii) any equity
interest of the Company in the unremitted earnings of any
corporation not a subsidiary, and (iii) the income (or loss) of
any person accrued prior to the date such person becomes a
subsidiary or is merged with the Company or any of its
subsidiaries or such person's assets are acquired by the Company
or any of its subsidiaries;
(r) "Note" means this convertible promissory note;
(s) "SEC" means the United States Securities and Exchange
Commission;
(t) "US $" and "US Dollars" shall mean lawful money of the
United States of America;
(u) "US $ Equivalent" shall mean, at the date of
determination, the amount of US Dollars that the Holder could
purchase, in accordance with its normal practice, with a
specified amount of Cdn Dollars based on the rate quoted by The
Bank of Nova Scotia as the spot rate of exchange applicable at
such bank's main Toronto, Ontario office for buying US Dollars
with the specified amount of Cdn Dollars on such date.
2. Interest. The principal amount of this Note shall bear
simple interest at 5.5% per annum on the principal of this Note
outstanding (the "Note Rate") during the period beginning on the
date of issuance of this Note and ending on the date that the
principal amount hereof is paid in full. Interest on the
principal amount outstanding hereunder shall be calculated and
payable, in Cdn Dollars, semiannually on June 30 and December 31
of each year and, subject to section 3, on the Payment Date. In
the event of a partial or full conversion of the Note, interest
on the converted amount shall accrue through the date of the
conversion and shall be paid, in Cdn Dollars, on such date of
conversion. Following the occurrence of an Event of Default (as
defined below), the Note Rate shall increase to and shall
thereafter be 12% per annum. Interest shall be computed daily at
the Note Rate on the basis of the actual number of days in which
all or any portion of the principal amount hereof is outstanding
computed on the basis of a 365 day year.
3. Repayment. Subject to section 4, unless sooner paid,
the outstanding principal amount hereof and any unpaid accrued
interest hereon shall be paid, in Cdn Dollars on a date (the
"Payment Date") that is the earlier of (i) the Maturity Date and
(ii) the achievement of the Milestone.
Provided no Event of Default has occurred and is
continuing, the Company may, by giving written notice to the
Holder not less than ten Business Days before the Payment Date,
elect to satisfy the entire amount payable hereunder (including
accrued interest) by the delivery of Freely Tradeable Common
Stock within three Business Days following the later of the
Payment Date or the Registration Deadline, as hereinafter
defined, having an aggregate Discounted Market Value, calculated
as at such date, equal to the US $ Equivalent (calculated as at
the Business Day prior to the delivery of such Common Stock) of
the amount being so paid together with an opinion of counsel to
the Company addressed to the Holder confirming that such Common
Stock is Freely Tradeable. If for any reason the Company fails
to so satisfy such amount within such three Business Days, the
Company shall, immediately thereafter, pay such amount to the
Holder in Cdn Dollars.
4. Events of Default. If any of the events specified in
this Section 4 shall occur (herein individually referred to as an
"Event of Default"), the Holder of the Note may, so long as such
condition exists, declare the entire principal and unpaid accrued
interest thereon immediately due and payable, by notice in
writing to the Company and upon such declaration such amount
shall be immediately payable without notice, demand, presentment
or other formality:
(a) Default in the payment of the principal or unpaid accrued
interest of this Note when due and payable if such default is not
cured by the Company within three (3) Business Days after the
Holder has given the Company written notice of such default;
(b) The institution by the Company or any subsidiary that
owns or operates the Purchased Business, as defined in the
Purchase Agreement, (the "Subsidiary") of proceedings to be
adjudicated as bankrupt or insolvent or any proceedings for
reorganization, arrangement or compromise of creditors' rights,
or the consent by it to the institution of any such proceedings
against it or the filing by it of a petition or answer or consent
seeking reorganization or release under the federal Bankruptcy
Act, or any other applicable federal, state or provincial law, or
the consent by it to the filing of any such petition or the
appointment of a receiver, liquidator, assignee, trustee or other
similar official of the Company or Subsidiary, or of any
substantial part of its property, or the making by it of an
assignment for the benefit of creditors, or the taking of
corporate action by the Company or Subsidiary in furtherance of
any such action;
(c) If, within thirty (30) days after the commencement of an
action against the Company or the Subsidiary (and service of
process in connection therewith on the Company or such
Subsidiary) seeking any bankruptcy, insolvency, reorganization,
liquidation, dissolution or similar relief under any present or
future statute, law or regulation, such action shall not have
been resolved in favour of the Company or the Subsidiary or all
orders or proceedings thereunder affecting the operations or the
business of the Company or the Subsidiary stayed, or if the stay
of any such order or proceeding shall thereafter be set aside, or
if, within thirty (30) days after the appointment without the
consent or acquiescence of the Company or the Subsidiary of any
trustee, receiver or liquidator of the Company or the Subsidiary
or of all or any substantial part of the properties of the
Company or the Subsidiary, such appointment shall not have been
vacated;
(d) If the Company sells, leases (as lessor) or otherwise
disposes of all or substantially all of the consolidated assets
of the Company, or sells, leases (as lessor) or otherwise
disposes of assets representing more than 60% of the Company's
total consolidated assets in any three-month period (other than
sales or other dispositions of inventory in the ordinary course
of business), or liquidates or dissolves;
(e) If a Change of Control shall have occurred;
(f) If any representation, warranty or statement made by the
Company herein, in Sections 6.1, 6.7 to 6.11, inclusive, of the
Purchase Agreement, or in Sections 6.2, 6.3 or 6.4 (to the extent
that they relate to this Note) of the Purchase Agreement is
incorrect or untrue in any material adverse respect when made or
when deemed to be made and, in the case only of any untrue or
incorrect representation or warranty that is capable of being
cured, such inaccuracy or incorrectness continues for a period of
10 Business Days after written notice thereof has been given by
the Holder to the Company;
(g) If the Company defaults in the performance or observance
of any term, condition or covenant contained in Section 8.15 of
the Purchase Agreement, [Note to draft: refer to security
agreements, hypothecs, etc.] or this Note (other than any term,
condition or covenant that is the subject of any other subsection
of this section 4) and, with respect to any of the covenants
contained herein which is capable of being cured, such default
continues for a period of 10 Business Days after written notice
thereof has been given by the Holder to the Company; or
(h) If the Company or any Subsidiary shall default in the
payment, whether at maturity or otherwise, of any debt of the
Company or such Subsidiary in an aggregate amount not less than
US $2,000,000, or if any lender or creditor, as the case may be,
of the Company or any Subsidiary shall have declared an event of
default to be existing or otherwise accelerate amounts owing
under any loan agreement or other agreements where the liability
of the Company or the Subsidiary to such lender or creditor
exceeds US $2,000,000.
5. Prepayment. The Company shall have the right,
exercisable from time to time on ten (10) days written notice to
the Holder, to call this Note, without prepayment penalty, and,
subject to Section 6 hereof, prepay the entirety or any portion
of the outstanding principal amount, together with all accrued
interest thereon.
6. Conversion.
(a) Subject to Section 6(b) below, Holder shall have the
right at any time prior to payment in full of the principal
amount and accrued interest of this Note (including at any time
after the Company shall have given notice of prepayment as
referred to in Section 5 above) to convert the then outstanding
principal amount of this Note in accordance with the provisions
of Section 7 hereof, in whole or in part, into shares (the
"Shares") of the Common Stock upon giving written notice of
conversion to the Company (a "Conversion Notice"). The number of
Shares into which this Note may be converted shall be determined
by dividing the US $ Equivalent (determined as at the date on
which the Holder shall have delivered the Conversion Notice to
the Company) of the aggregate principal amount by US $[ ], as such
price may be adjusted from time to time in accordance with the
terms of Section 8 hereof, (the "Conversion Price").
(b) Notwithstanding Section 6(a), upon the Company's
receipt of a Conversion Notice to convert any amount owing under
this Note into Common Stock, the Company may elect to pay to the
Holder, in Cdn. Dollars, an amount equal to the entire principal
amount outstanding hereunder and all accrued but unpaid interest
thereon plus a premium as calculated below. For purposes of this
paragraph (b), the premium shall equal the Cdn $ Equivalent
(calculated as at the date on which the Holder delivered the
Conversion Notice to the Company) of 50% of the excess, if any,
of the Market Value, calculated as at the date on which the
Holder gave such Conversion Notice to the Company, over US $25.00
(as adjusted in the same manner as the Conversion Price is
adjusted pursuant to Section 8) times the number of Shares of
Common Stock that would otherwise have been issuable upon such
conversion; provided however that the premium will not, in any
circumstances, exceed 50% of the principal which would otherwise
have been converted.
(c) If the Holder exercises its right of conversion
hereunder on or after the ninetieth day after the Company
receives the financial statements to be provided to it pursuant
to Section 8.14 of the Purchase Agreement (the "Registration
Deadline") the Company shall ensure that the Shares received by
the Holder on such conversion are Freely Tradeable and shall
deliver to the Holder, at the time of the delivery of the Shares,
an opinion of counsel to the Company addressed to the Holder
confirming that such Shares are Freely Tradeable.
(d) If the Holder exercises its right of conversion
hereunder prior to the Registration Deadline and at such time the
Company is unable to deliver Freely Tradeable Shares to the
Holder because such shares have not been registered with the SEC,
the Company shall defer the delivery of such Shares, as herein
provided, shall so advise the Holder and shall, as soon as such
Shares are registered but in any event not later than the date
(the "Registration Deadline") that is the earlier of the
Registration Deadline or 60 days after the date that the
financial statements referred to in Section 8.14 of the Purchase
Agreement are no longer required by the SEC for declaring
effective a registration statement with respect to the sale of
the Common Stock by the Holder, deliver to the Holder Freely
Tradeable Shares issuable on such conversion together with an
opinion of counsel to the Company addressed to the Holder
confirming that such Shares are Freely Tradeable. If the Company
does not so deliver any or all of such Shares (with such opinion)
by the Registration Deadline (each Share that is not so delivered
is herein called an "Undelivered Share"), the Company shall, on
the first Business Day after the Registration Deadline, pay to
the Holder for each Undelivered Share the greater of (i) the
Market Value of a share of Common Stock on the Registration
Deadline and (ii) the Market Value of a share of Common Stock as
in effect on the date on which the Holder delivered the relevant
Conversion Notice. Such amount shall be paid to the Holder in
[US Dollars] in immediately available funds.
7. Mechanics and Effect of Conversion. No fractional Shares
shall be issued upon conversion of this Note. In lieu of the
Company issuing any fractional shares to the Holder upon the
conversion of this Note, the Company shall pay to the Holder, in
US Dollars, the amount of outstanding principal and interest that
is not so converted. Upon any partial conversion of this Note,
the Holder shall surrender this Note, duly endorsed reflecting
such partial conversion, with the applicable Conversion Notice
and shall receive a new Note for the remaining principal amount.
Upon the full conversion of this Note, the Holder shall surrender
this Note, duly endorsed, at the principal office of the Company
with the applicable Conversion Notice. In either case, the
Company shall, at its expense and as soon as practicable, and in
any event within 7 days, thereafter, issue and deliver to such
Holder at such principal office a certificate or certificates for
the number of Shares to which the Holder shall be entitled upon
such conversion (bearing such legends as are required by
applicable state and federal securities laws in the opinion of
counsel to the Company), together with any other securities and
property to which the Holder is entitled upon such conversion
under the terms of this Note in respect of the portion of the
principal amount of this Note so converted, including a check
payable to the Holder for any cash amounts payable as described
above. Upon conversion of this Note, the Company shall be
forever released from all its obligations and liabilities under
this Note in respect of the portion of this Note so converted,
except as contemplated in subsection 6(d) and except that the
Company shall be obligated to pay the Holder, within seven (7)
days after the date of such conversion, any interest accrued and
unpaid or unconverted to and including the date of such
conversion, and no more.
8. Adjustments to Conversion Price.
(a) If the outstanding shares of the Common Stock of the
Company shall be subdivided into a greater number of shares, or a
dividend in Common Stock or other securities of the Company
convertible into or exchangeable for Common Stock (in which
latter event the number of shares of Common Stock issuable upon
the conversion or exchange of such securities shall be deemed to
have been distributed) shall be paid in respect to the Common
Stock of the Company, the Conversion Price in effect immediately
prior to such subdivision or at the record date of such dividend
shall, simultaneously with the effectiveness of such subdivision
or immediately after the record date of such dividend, be
proportionately reduced, and conversely, if outstanding shares of
the Common Stock of the Company shall be combined into a smaller
number of shares, the Conversion Price in effect immediately
prior to such combination shall simultaneously with the
effectiveness of such combination, be proportionately increased.
Any adjustment to the Conversion Price under this Section
8(a) shall become effective at the close of business on the date
the subdivision or combination referred to herein becomes
effective.
(b) In the event the Company at any time, or from time to
time, shall make or issue, or fix a record date for the
determination of holders of Common Stock entitled to receive, a
dividend or other distribution payable in securities of the
Company other than shares of Common Stock or securities
convertible into or exchangeable for Common Stock, then and in
each such event, provision shall be made so that the Holder shall
receive upon conversion of the Note, in addition to the number of
shares of Common Stock receivable thereupon, the amount and kind
of securities of the Company which it would have received had the
Note been converted into Common Stock on the date of such event
and had thereafter, during the period from the date of such event
to and including the date of conversion, retained such securities
receivable by them as aforesaid during such period, giving
application to all adjustments called for during such period
under this Section 8 with respect to the rights of the Holder.
(c) In the event of any capital reorganization, any
reclassification of the Common Stock (other than a change in par
value or as a result of a stock dividend, subdivision, split-up
or combination of shares), the consolidation or merger of the
Company with or into another person (collectively referred to
hereinafter as "Reorganizations"), the Holder shall thereafter be
entitled to receive, and provision shall be made therefor in any
agreement relating to a Reorganization, upon conversion of the
Note, the kind and number of shares of Common Stock or other
securities or property (including cash) of the Company, or other
corporation resulting from such consolidation or surviving such
merger, to which a holder of the number of shares of the Common
Stock of the Company into which this Note entitled the Holder to
convert immediately prior to the Reorganization would have been
entitled to receive with respect to such Reorganization; and in
any such case appropriate adjustment shall be made in the
application of the provisions herein set forth with respect to
the rights and interests thereafter of the Holder, to the end
that the provisions set forth herein (including the specified
changes and other adjustments to the Conversion Price) shall
thereafter be applicable, as nearly as reasonably may be, in
relation to any shares, other securities or property thereafter
receivable upon conversion of the Note. The provisions of this
Section 8(c) shall similarly apply to successive Reorganizations.
(d) (i) If at any time or from time to time the Company
shall issue or sell Additional Shares of Common Stock (as
hereinafter defined) other than as a dividend or other
distribution on any class of stock as provided in Sections 8(a)
and 8(b) above and other than as a subdivision or combination of
shares of Common Stock as provided in Section 8(a) above, for a
consideration per share less than the then existing Conversion
Price, then, and in each such case, the then existing Conversion
Price shall be reduced, as of the opening of business on the date
of such issuance or sale, to a price determined by dividing (1)
an amount equal to the sum of (A) the number of shares of Common
Stock outstanding immediately prior to that issuance or sale
(including as outstanding all shares of Common Stock issuable
upon conversion of the portion of the Note for which the
Conversion Price is being adjusted) multiplied by such Conversion
Price then in effect, and (B) the consideration, if any, received
by the Company upon that issuance or sale, by (2) the total
number of shares of Common Stock outstanding immediately after
that issuance or sale (including as outstanding all shares of
Common Stock issuable upon conversion of the portion of the Note
for which the Conversion Price is being adjusted).
(ii) For the purpose of making any adjustment in the
Conversion Price or number of shares of Common Stock issuable
upon conversion of the Note, as provided above, the consideration
received by the Company for any issue or sale of securities
shall:
(A) To the extent it consists of cash, be computed at the net
amount of cash received by the Company after deduction of any
underwriting or similar commissions, compensations, discounts or
concessions paid or allowed by the Company in connection with
such issuance or sale;
(B) To the extent it consists of property other than cash,
the consideration other than cash shall be computed at the fair
market value thereof as determined in good faith by the Board of
Directors, at or about, but as of, the date of the adoption of
the resolution specifically authorizing such issuance or sale,
irrespective of any accounting treatment thereof; and
(C) If Additional Shares of Common Stock, Convertible
Securities (as hereinafter defined) or rights or options to
purchase either Additional Shares of Common Stock or Convertible
Securities are issued or sold together with other stock or
securities or other assets of the Company for consideration which
covers both, the consideration received for the Additional Shares
of Common Stock, Convertible Securities or rights or options
shall be computed as that portion of the consideration so
received which is reasonably determined in good faith by the
Board of Directors to be allocable to such Additional Shares of
Common Stock, convertible Securities or rights or options.
(iii) For the purpose of making any adjustment in the
Conversion Price provided in this Section 8(d), if at any time,
or from time to time, the Company issues any stock or other
securities convertible into Additional Shares of Common Stock
(such stock or other securities being hereinafter referred to as
"Convertible Securities") or issues any rights or options to
purchase Additional Shares of Common Stock or Convertible
Securities (such rights or options being hereinafter referred to
as "Rights"), then, and in each such case, if the Effective
Conversion Price (as hereinafter defined) of such Rights or
Convertible Securities shall be less than the Conversion Price in
effect immediately prior to the issuance of such Rights or
Convertible Securities, the Company shall be deemed to have
issued at the time of the issuance of such Rights or Convertible
Securities the maximum number of Additional Shares of Common
Stock issuable upon exercise or conversion thereof and to have
received in consideration for the issuance of such shares an
amount equal to the aggregate Effective Conversion Price of such
Rights or Convertible Securities. For the purposes of this
Section 8(d)(iii), "Effective Conversion Price" shall mean an
amount equal to the sum of the consideration, if any, received or
receivable by the Company with respect to each Additional Share
of Common Stock upon issuance of the Rights or Convertible
Securities and upon their exercise or conversion, respectively.
No further adjustment of the Conversion Price adjusted upon the
issuance of such Rights or Convertible Securities shall be made
as a result of the actual issuance of Additional Shares of Common
Stock on the exercise of any such Rights or the conversion of any
such Convertible Securities. If any such Rights or the
conversion privilege represented by any such Convertible
Securities shall expire without having been exercised, such
Conversion Price as adjusted upon the issuance of such Rights or
Convertible Securities shall be readjusted to the Conversion
Price which would have been in effect had such adjustment been
made on the basis that the only Additional Shares of Common Stock
so issued were the Additional Shares of Common Stock, if any,
actually issued or sold on the exercise of such Rights or on the
conversion of such Convertible Securities, and such Additional
Shares of Common Stock, if any, were issued or sold for the
consideration actually received by the Company upon such
exercise, plus the consideration, if any, actually received by
the Company for the granting of all such Rights, whether or not
exercised, plus the consideration received for issuing or selling
the Convertible Securities actually converted plus the
consideration, if any, actually received by the Company (other
than by cancellation of liabilities or obligations evidenced by
such Convertible Securities) on the conversion of such
Convertible Securities.
(e) "Additional Shares of Common Stock" as used in this
Section 8 shall mean all shares of Common Stock issued by the
Company, whether or not subsequently reacquired or retired by the
Company, other than (i) shares of Common Stock issued upon the
conversion of the Note, (ii) shares of Common Stock issued in
connection with an Equity Offering the proceeds of which are used
to repay all outstanding principal and accrued but unpaid
interest on the Note; and (iii) shares issued upon the exercise
of employee stock options.
(f) In each case of an adjustment or readjustment of the
Conversion Price or the number of shares of Common Stock or other
securities issuable upon conversion of the Note, the Company, at
its expense, shall cause the Chief Financial Officer of the
Company to compute such adjustment or readjustment in accordance
with the provisions of this Note and prepare a certificate
showing such adjustment or readjustment, and shall mail such
certificate, by registered mail, postage prepaid, to the Holder
at the Holder's address as shown in the Purchase Agreement. The
certificate shall set forth such adjustment or readjustment,
showing in detail the facts upon which such adjustment or
readjustment is based, including a statement of (i) the
consideration received or to be received by the Company for any
Additional Shares of Common Stock issued or sold or deemed to
have been issued or sold, (ii) the Conversion Price at the time
in effect for the Note and (iii) the number of Additional Shares
of Common Stock and the type and amount, if any, of other
property which at the time would be received upon conversion of
the Note. Such notice may be given in advance of such adjustment
or readjustment and may be included as part of a notice required
to be given pursuant to Section 8(g) below.
(g) In the event the Company shall propose to take any action
of the type or types requiring an adjustment to the Conversion
Price as set forth herein, the Company shall give notice to the
Holder in the manner set forth in Section 5 below, which notice
shall specify the record date, if any, with respect to any such
action and the date on which such action is to take place. Such
notice shall also set forth such facts with respect thereto as
shall be reasonably necessary to indicate the effect of such
action (to the extent such effect may be known at the date of
such notice) on the Conversion Price and the number, kind or
class of shares or other securities or property which shall be
deliverable upon the occurrence of such action or deliverable
upon the conversion of the Note.
(h) The adjustments provided for in this Section 8 are
cumulative and shall apply to successive enumerated events
resulting in an adjustment to the Conversion Price or the number
of shares of Common Stock issued hereunder, provided that,
notwithstanding any other provision of this Section 8 no
adjustment to the Conversion Price shall be required unless such
adjustment would require an increase or decrease of at least 5%
in the Conversion Price; provided however that any adjustments
which by reason of this subsection (h) are not required to be
made shall be carried forward and taken into account in any
subsequent adjustment.
9. Reservation of Stock Issuable Upon Conversion. The
Company shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the
purpose of effecting the conversion of the Note, such number of
its shares of Common Stock as shall from time to time be
sufficient to effect a conversion of the Note, and if at any time
the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the conversion of the Note, the
Company shall promptly seek such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized
but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purpose. In the event of the
consolidation or merger of the Company with another corporation
where the Company is not the surviving corporation, effective
provisions shall be made in the certificate or articles of
incorporation, merger or consolidation, or otherwise of the
surviving corporation so that such corporation will at all times
reserve and keep available a sufficient number of shares of
Common Stock or other securities or property to provide for the
conversion of the Note in accordance with the provisions of this
Section 9.
10. Payment of Taxes. The Company shall pay all taxes and
other governmental charges (other than any income or other taxes
imposed upon the profits realized by the recipient) that may be
imposed in respect of the issue or delivery of shares of Common
Stock or other securities or property upon conversion of the
Note, except any tax or other charge imposed in connection with
any transfer involved in the issue and delivery of shares of
Common Stock or other securities in a name other than that in
which the Note was registered.
11. Covenants.
(a) The Company shall, concurrently with the mailing thereof
to the Company's shareholders, provide the Holder with copies of
all annual reports and reports on Forms 10-K, 10-Q and 8-K
prepared by the Company. The Company shall also provide the
Holder with copies of all registration statements and
prospectuses prepared and filed with the SEC with respect to the
Company.
(b) Forthwith, but in any event within 45 days after the end
of each fiscal quarter of the Company, the Company shall deliver
to the Holder a certificate signed by a senior financial officer
of the Company certifying that the Company is in compliance with
all of its covenants hereunder and that none of the events
enumerated in Section 4 has occurred and setting forth, as at the
end of such fiscal quarter, calculations as to the financial
ratios of the Company contemplated by subsections (h) and (i)
hereof together with supporting detail showing the calculation
thereof, all in form satisfactory to the Holder.
(c) The Company will permit any representative designated by
the Holder upon reasonable notice and during normal business
hours to discuss the affairs, finances and accounts of the
Company with the directors, officers, key employees and
independent accountants of the Company provided that no such
representative shall unduly interfere with the normal business
and operations of the Company during such visit or inspection.
(d) The Company will perform and observe all of its
obligations to the Holder set forth in this Agreement, as the
foregoing may from time to time be amended.
(e) The Holder shall maintain the confidentiality of all non-public
information obtained by it from the Company; provided,
that (a) the Holder may, to the extent required by law, disclose
such information in connection with the sale or transfer of the
Note (or the Common Stock issued upon conversion thereof) if the
Holder's transferee agrees in writing to be bound by the
provisions hereof and (b) after reasonable notice to the Company,
the Holder may disclose such information (i) at the request of
any applicable regulatory authority or in connection with an
examination of the Company by any such authority, (ii) pursuant
to subpoena or other court process, (iii) when required to do so
in accordance with the provisions of any applicable law, or (iv)
to the Holder's independent auditors and other professional
advisors provided such persons acknowledge and agree to be bound
by the Holder's confidentiality obligations hereunder.
(f) The Company shall not amend its certificate of
incorporation in a manner that materially adversely impacts or
may materially adversely impact the Holder without the prior
written consent of the Holder.
(g) The Company shall ensure that the shares of its Common
Stock are listed and traded on a recognized North American stock
exchange or that sales of Common Shares are reported in the
National Association of Securities Dealers Automated Quotation
system. The Company shall at all times comply with its
obligations under section 8.15 of the Purchase Agreement to
obtain appropriate registration of such shares under applicable
U.S. securities legislation.
(h) The Company shall ensure that at all times the ratio of
the Company's Debt to the Company's Debt plus Equity does not
exceed 0.55 to 1.00.
(i) The Company shall ensure that its Equity shall not be
less than U.S. $95,000,000 plus 35% of positive Net Income for
each full fiscal year beginning with the year ended December 31,
1999, provided that in no event shall the Equity so required be
less than that required on any previous date of determination,
and further provided that the calculation of minimum Equity shall
occur on an annual basis and be tested at the end of each of the
Company's fiscal quarters.
12. Assignment. The rights and obligations of the Company
and the Holder of this Note shall be binding upon and benefit the
successors, assigns, heirs, administrators and transferees of the
parties.
13. Waiver and Amendment. Any provision of this Note may
only be amended, waived or modified upon the written consent of
the Company and the Holder.
14. Treatment of Note. To the extent permitted by generally
accepted accounting principles, the Company will treat, account
and report the Note as debt and not equity for accounting
purposes and with respect to any returns filed with federal,
state or local tax authorities.
15. No Set-Off, etc. All payments under this Note, and all
deliveries of Shares of Common Stock hereunder shall be made to
the Holder without defence, set-off or counterclaim and in the
case of payments to be made hereunder shall be made in Cdn.
Dollars in immediately available funds at the office of the
Holder to which notices are to be sent hereunder or such other
office as the Holder may advise the Company in writing.
16. Withholding Taxes.
(a) All payments under this Note shall be made free and
clear of, and without withholding or deduction for, taxes imposed
by the United States of America or any political subdivision
thereof ("U.S. Tax"); except that if such withholding or
deduction for U.S. Tax is required by law or by the
administration thereof with respect to any payment, (i) such
payment shall be increased as may be necessary so that after all
such deductions or withholdings (including deductions or
withholdings required in respect of additional amounts payable
hereunder), the Holder shall receive such amount as it would have
received had no such U.S. Tax been withheld or deducted; (ii) the
Company shall pay the full amount withheld or deducted to the
relevant governmental authority in accordance with applicable
law; and (iii) within ten days after the date of such payment the
Company shall furnish to the Holder the original receipt of
payment thereof or a certified copy of such receipt.
(b) If the Holder shall become liable for any U.S. Tax
as a result of a payment having been made to it by the Company
without the required U.S. Tax having been deducted or withheld,
the Company shall indemnify the Holder for such U.S. Tax,
together with interest and penalties thereon, and the indemnity
payment shall be increased as necessary so that after the
imposition of any U.S. Tax on the indemnity payment (including
U.S. Tax in respect of any such increases in the indemnity
payment), the Holder shall receive the full amount of U.S. Tax,
interest and penalties for which it is liable.
17. Notice. Any notice, request or other communication
required or permitted hereunder shall be in writing and shall be
deemed to have been duly given if personally delivered or if
telecopied or sent via overnight courier, at the respective
addresses of the parties set forth in the Purchase Agreement.
Any party hereto may by notice so given change its address for
future notice hereunder. Any such communication shall be deemed
to have been given and received on the day it was delivered (or,
if by telecopy, confirmed by electronic answer back) or
transmitted (or if such a day is not a Business Day on the next
following Business Day) or, if sent by overnight courier, on the
Business Day following the date of sending.
18. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Georgia,
excluding that body of law relating to conflict of laws.
19. Headings; References. All headings used herein are used
for convenience only and shall not be used to construe or
interpret this Note. Except where otherwise indicated, all
references herein to Sections refer to Sections hereof.
20. Currency Indemnity. If, for the purposes of the Holder
obtaining judgment against the Company in any court in any
jurisdiction with respect to this Note, it becomes necessary to
convert into the currency of such jurisdiction (the "Judgment
Currency") any amount due under this Note in any currency other
than the Judgment Currency (the "Currency Due"), the conversion
shall be made at the rate of exchange prevailing on the Business
Day before the day on which judgment is given. For this purpose
"rate of exchange" means the rate at which the Holder is able, on
the relevant date, to purchase the Currency Due with the Judgment
Currency in accordance with its normal practice in Toronto,
Ontario. In the event that there is a change in the rate of
exchange prevailing between the Business Day before the day on
which the judgment is given and the date of receipt by the Holder
of the amount due, the Company will, on the date of receipt by
the Holder, pay such additional amounts, if any, or be entitled
to receive reimbursement of such amount, if any, as may be
necessary to ensure that the amount received by the Holder on
such date is the amount in the Judgment Currency which when
converted at the rate of exchange prevailing on the date of
receipt by the Holder is the amount then due under this Note in
the Currency Due. This liability or obligation of the Company in
the preceding sentence shall constitute an obligation separate
and independent from the other obligations contained in this
Note, shall give rise to a separate and independent cause of
action, shall apply irrespective of any indulgence granted by the
Holder from time to time and shall continue in full force and
effect.
IN WITNESS WHEREOF, the Company has caused this Note to
be issued this day of 1999.
ELECTROMAGNETIC SCIENCES, INC.
By:
------------------------------
Name:
---------------------------
Its:
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EXHIBIT 2.2
SPAR AEROSPACE LIMITED
January 29, 1999
EMS Technologies Canada, Ltd.
1725 Woodward Avenue
Ottawa, Ontario K2C 0P9
and
Electromagnetic Sciences, Inc.
660 Engineering Drive
P.O. Box 7700
Norcross, Georgia 300091-7700
Re: Amendment to Purchase Agreement
Dear Sirs:
We refer to the Asset Purchase Agreement dated December 30, 1998
(the "Purchase Agreement") between Spar Aerospace Limited (the
"Vendor") and Electromagnetic Sciences, Inc. ("ELMG") and the
Assignment and Assumption Agreement dated January 29, 1999
between the Vendor, the Purchaser and ELMG pursuant to which ELMG
assigned its rights under the Purchase Agreement to the
Purchaser.
This letter agreement confirms our mutual agreement that for
valuable consideration, the receipt and sufficiency of which is
hereby acknowledged by each of the parties hereto, the parties
have agreed as follows:
1. The Purchase Agreement is hereby amended:
1.1 by replacing the term "Thirty Million Dollars ($30,000,000)"
where it appears in Subsection 3.1(a) with the term "Twenty-Nine
Million Four Hundred and Forty-four Thousand Dollars
($29,444,000)" and replacing the term "Ten Million Dollars
($10,000,000)" where it appears in paragraph 3.1(a)(I) with the
term "Nine Million Four Hundred and Forty-four Thousand Dollars
($9,444,000)";
1.2 by adding the following contracts to Schedule 7 of the
Purchase Agreement (it being the intention that such contracts
shall become "Assumed Liabilities" for the purposes of the
Purchase Agreement):
(a) the DIPP Repayment Agreement dated March 31, 1998 between Her
Majesty the Queen in Right of Canada (PWGSC) and the Vendor; and
(b) the Minutes of Settlement dated March 31, 1998 between the
Vendor and Canada (Minister of Industry' Canada) regarding
Federal Court (Trial Division) No. T-1559-97.
1.3 by replacing the reference to "subsection 3.1(b)" where it
appears in the heading and second line of Section 8.17 and, in
both instances, replacing it with "clause 3.l(a)(ii)"; and
1.4 by replacing the balance of (he first paragraph of Section
8.17 following "(ii)" where it appears therein with the
following: "a recorded security interest, hypothec or other
charge in and to all of the property and assets of the Purchaser,
whether now owned or hereafter acquired, (including the Purchased
Assets and the Holdings Shares) subject to Permitted Encumbrances
and security interests required by the primary banker or banking
group, from time to time, of the Purchaser, such security
interest in favour of the said primary banker to have priority
over the Vendor's security up to an aggregate maximum principal
amount of $35 million (to be increased (I) to $40 million upon
payment or satisfaction by the Purchaser (or Electromagnetic
Sciences, Inc. ("ELMG"), as the case may be) of the $5,000.000
portion of the Purchase Price referred to in clause 3.1(a)(ii)
and the ELMG Convertible Note referred to in clause 3.l(a)(iii)
and (II) to $45 million upon payment or satisfaction by the
Purchaser or ELMG, as the case may be, of the obligations
referred to in (I) and the ELMG Convertible Note referred to in
clause 3.1(a)(iv)), plus interest and fees (to a maximum of
$3,500,000) and all costs and expenses of such banker or banking
group.
2. The parties confirm, acknowledge and agree that the
Purchased Assets described in Subsections 2.1(a) to (p),
inclusive, of the Purchase Agreement include only that property
and those assets of the type therein described to the extent that
the same are used in connection with or otherwise relate to the
Purchased Business.
3. Terms not otherwise defined herein shall have the meanings
respectively ascribed (hereto in the Purchase Agreement.
4. The Purchase Agreement, as amended hereby, is ratified and
confirmed by each of the parties hereto.
If the foregoing accurately sets forth our mutual
agreement, kindly execute, where indicated, and deliver to us one
copy of this letter.
Yours truly,
SPAR AEROSPACE LIMITED
By: /s/ Mark Steinman
-----------------------
Senior Vice President
AGREED TO AND ACCEPTED this 29th day of January, 1999.
EMS TECHNOLOGIES CANADA, LTD. ELECTROMAGNETIC SCIENCES,
INC.
By: /s/ William S. Jacobs By: /s/ William S. Jacobs
---------------------- ----------------------
Vice President - Legal Vice President
Affairs