EXHIBIT 2.6(a)
CORNERSTONE STRATEGIC HOLDINGS INC.
as Vendor
and
INTERNET SPORTS NETWORK, INC.
as Purchaser
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PURCHASE AGREEMENT
JUNE 1, 2000
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STIKEMAN ELLIOTT
TABLE OF CONTENTS
ARTICLE 1
INTERPRETATION
Section 1.1 Defined Terms................................................................................1
ARTICLE 2
PURCHASED SHARES AND PURCHASE PRICE
Section 2.1 Purchase and Sale............................................................................5
Section 2.2 Purchase Price...............................................................................5
Section 2.3 Payment of Purchase Price on Closing.........................................................5
Section 2.4 Purchase Price Adjustment....................................................................5
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE VENDOR
Section 3.1 Representations and Warranties of the Vendor.................................................7
Section 3.2 Securities Laws Matters.....................................................................17
Section 3.3 Piggyback Registration......................................................................19
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
Section 4.1 Representations and Warranties of the Purchaser.............................................20
ARTICLE 5
INDEMNIFICATION
Section 5.1 Indemnification in Favour of the Purchaser..................................................21
Section 5.2 Indemnification in Favour of the Vendor.....................................................22
Section 5.3 Time Limitations............................................................................23
Section 5.4 Procedure for Indemnification - Other Claims................................................23
Section 5.5 Procedure for Indemnification - Third Party Claims..........................................23
ARTICLE 6
POST-CLOSING COVENANTS
Section 6.1 Access to Books and Records.................................................................25
Section 6.2 Confidentiality.............................................................................26
Section 6.3 Further Assurances..........................................................................26
ARTICLE 7
MISCELLANEOUS
Section 7.1 Notices.....................................................................................26
Section 7.2 Time of the Essence.........................................................................28
Section 7.3 Brokers.....................................................................................28
Section 7.4 Announcements...............................................................................28
(i)
Section 7.5 Third Party Beneficiaries...................................................................28
Section 7.6 Expenses....................................................................................28
Section 7.7 Amendments..................................................................................28
Section 7.8 Waiver......................................................................................29
Section 7.9 Non-Merger..................................................................................29
Section 7.10 Entire Agreement............................................................................29
Section 7.11 Successors and Assigns......................................................................29
Section 7.12 Severability................................................................................29
Section 7.13 Governing Law...............................................................................29
Section 7.14 Counterparts................................................................................30
Section 7.15 Currency....................................................................................30
SCHEDULES
SCHEDULE 3.1(u) CONTRACTS
SCHEDULE 3.1(y) INTELLECTUAL PROPERTY MATTERS
SCHEDULE 3.1(cc) AUDITED FINANCIAL STATEMENTS AND INTERIM
FINANCIAL STATEMENTS
SCHEDULE 3.1(ff) BANK ACCOUNTS AND POWERS OF ATTORNEY
SCHEDULE 3.1(gg) EMPLOYEE MATTERS
SCHEDULE 3.1(jj) INSURANCE
(ii)
SHARE PURCHASE AGREEMENT
THIS SHARE PURCHASE AGREEMENT is made on June 1, 2000 between:
1. Cornerstone Strategic Holdings Inc., a corporation existing under the
laws of the Province of Ontario (the "VENDOR"); and
2. Internet Sports Network, Inc., a corporation existing under the laws of
Florida, United States of America (the "PURCHASER").
RECITALS:
A. St. Clair Group Investments Inc., a corporation incorporated under the
laws of the Province of Ontario (the "CORPORATION"), is engaged in the
business of the development and commercial exploitation of contracted
media and marketing rights (the "BUSINESS");
B. The Vendor owns 1,888,666 Class A Common Shares (the "PURCHASED
SHARES") in the capital of the Corporation; and
C. The Vendor has agreed to sell and the Purchaser, in reliance on the
representations and warranties of the Vendor contained herein, has
agreed to purchase the Purchased Shares on the terms and conditions
hereinafter set forth.
THE PARTIES AGREE in consideration of, among other things, the mutual
promises contained in this Agreement and for other consideration (the receipt
and sufficiency of which are hereby acknowledged):
ARTICLE 1
INTERPRETATION
SECTION 1.1 DEFINED TERMS
As used in this Agreement, the following terms have the following
meanings:
"ACCOUNTS RECEIVABLE" means all accounts receivable, notes receivable
and other debts due or owing to the Corporation.
"ASSETS" means all property and assets of the Corporation of every
nature and kind wheresoever situate.
"AGREEMENT" means this share purchase agreement and all schedules and
instruments in amendment or confirmation of it; and the expressions
"SECTION" followed by a number mean and refer to the specified Section
of this Agreement.
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"AUTHORIZATION" means, with respect to any Person, any order, permit,
approval, waiver, licence or similar authorization of any Governmental
Entity having jurisdiction over the Person.
"BENEFIT PLANS" means all employee benefit programmes of the
Corporation other than the Pension Plans.
"BEST EFFORTS" means the efforts that a prudent Person who desires to
complete the transaction would use in similar circumstances to ensure
that a closing occurs as expeditiously as possible but without the
necessity of such Person assuming any material obligations or paying
any material amounts to a third party.
"BOOKS AND RECORDS" means all books of account, tax records, sales and
purchase records, customer and supplier lists, computer software,
formulae, business reports, plans and projections and all other
documents, files, correspondence and other information of the
Corporation.
"BUSINESS" has the meaning as set out in the preamble to this
Agreement.
"BUSINESS DAY" means any day of the year, other than a Saturday, Sunday
or any day on which banks are required or authorized to close in
Toronto, Ontario.
"CLOSING" means the completion of the transaction of purchase and sale
contemplated in this Agreement.
"CLOSING DATE" means June 1, 2000.
"CONSENT" means the consent of a contracting party to a change in
control of the Corporation if required by the terms of any Contract.
"CONTRACTS" means all agreements to which the Corporation is a party
including all contracts, leases of personal property and commitments of
any nature, written or oral, including (i) unfilled purchase orders
received by the Corporation, (ii) forward commitments by the
Corporation for supplies or materials entered into the Ordinary Course,
and (iii) restrictive agreements and negative covenant agreements which
the Corporation has with its employees, past or present.
"CORPORATE RECORDS" means the corporate records of the Corporation,
including (i) all constating documents and by-laws, (ii) all minutes of
meetings and resolutions of shareholders and directors (and any
committees), and (iii) the share certificate books, securities
register, register of transfers and register of directors.
"CORPORATION" means St. Clair Group Investments Inc., an Ontario
corporation.
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"DAMAGES" has the meaning specified in Section 5.1.
"EBITDA" means, with respect to the Corporation and for any applicable
period, earnings before interest, taxes, depreciation and amortization,
all as determined in accordance with generally accepted accounting
principle consistently applied.
"ENVIRONMENTAL LAWS" means all applicable laws and agreements with
Governmental Entities and all other statutory requirements relating to
public health or the protection of the environment and all
Authorizations issued pursuant to such laws, agreements or statutory
requirements.
"GAAP" means, at any time, accounting principles generally accepted in
Canada including those set out in the Handbook of the Canadian
Institute of Chartered Accountants, at the relevant time applied on a
consistent basis.
"GOVERNMENTAL ENTITY" means any (i) multinational, federal, provincial,
state, municipal, local or other governmental or public department,
central bank, court, commission, board, bureau, agency or
instrumentality, domestic or foreign, (ii) any subdivision or authority
of any of the foregoing, or (iii) any quasi-governmental or private
body exercising any regulatory, expropriation or taxing authority under
or for the account of any of the above.
"INTELLECTUAL PROPERTY" means (i) any trade marks, trade names,
business names, brand names, service marks, computer software, computer
programs, copyrights, including any performing, author or moral rights,
designs, inventions, patents, franchises, formulae, processes,
know-how, technology and related goodwill, (ii) any applications,
registrations, issued patents, continuations in part, divisional
applications or analogous rights or licence rights therefor, and (iii)
other intellectual or industrial property, including the intellectual
property described in Schedule 3.1(y), in each case, owned or used by
the Corporation.
"INTERIM BALANCE SHEET DATE" means January 31, 2000.
"INTERIM FINANCIAL STATEMENTS" means the unaudited balance sheet of the
Corporation as at the Interim Balance Sheet Date and the accompanying
unaudited statement of income of the Corporation for the six month
period then ended and all notes in respect thereof.
"ISNI SHARES" means shares of common stock in the capital of the
Purchaser.
"LEASED PROPERTY" means the premises subleased by the Corporation,
comprising approximately 9,435 of rentable square feet, municipally
known as 1920 Yonge Street, Second Floor, Toronto, Ontario.
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"LEASE" means the sublease dated October 14, 1999 between Toronto
Transit Commission, as tenant, the Corporation, as subtenant, and the
Landlord (as defined therein) in respect of the Leased Property.
"LIEN" means any mortgage, charge, pledge, hypothecation, security
interest, assignment, lien (statutory or otherwise), title retention
agreement or arrangement, restrictive covenant or other encumbrance of
any nature or any other arrangement or condition which, in substance,
secures payment or performance of an obligation.
"ORDINARY COURSE" means, with respect to an action taken by a Person,
that such action is consistent with the past practices of the Person
and is taken in the ordinary course of the normal day-to-day operations
of the Person.
"PARTIES" means the Vendor and the Purchaser and any other Person who
may become a party to this Agreement.
"PENSION PLANS" means all the pension and retirement plans relating to
current and former employees of the Corporation, whether registered or
unregistered, funded or unfunded and written or oral.
"PERMITTED LIENS" means (i) Liens for taxes, assessments or
governmental charges or levies on property not yet due and delinquent,
(ii) easements, encroachments and other minor imperfections of title
which do not, individually or in the aggregate, materially detract from
the value of or impair the use or marketability of any property; and
(iii) security given in the ordinary course of the Business to any
public utility, municipality or government or to any statutory or
public authority in connection with the supply of any utility or
service used in the operation of the Business, other than security for
borrowed money.
"PERSON" means a natural person, partnership, limited liability
partnership, corporation, joint stock company, trust, unincorporated
association, joint venture or other entity or Governmental Entity, and
pronouns have a similarly extended meaning.
"PURCHASE PRICE" has the meaning specified in Section 2.1.
"PURCHASED SHARES" has the meaning as set out in the preamble of this
Agreement.
"PURCHASER" means Internet Sports Network, Inc., a Florida corporation.
"VENDOR" means Cornerstone Strategic Holdings Inc., an Ontario
corporation.
ARTICLE 2
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PURCHASED SHARES AND PURCHASE PRICE
SECTION 2.1 PURCHASE AND SALE.
Subject to the terms and conditions herein contained, the Vendor hereby
sells, assigns and transfers to the Purchaser and the Purchaser hereby purchases
from the Vendor the Purchased Shares, being all of the securities of the
Corporation of which the Vendor is the registered and beneficial owner. The
Purchaser hereby acknowledges receipt from the Vendor of share certificates
numbered A-1 and A-7 representing the Purchased Shares duly endorsed for
transfer.
SECTION 2.2 PURCHASE PRICE.
The purchase price (the "PURCHASE PRICE") for the Purchased Shares is
608,300 ISNI Shares (the "ISSUED SHARES"), which is payable as set out in
Section 2.3, and is subject to adjustment as provided in Section 2.4.
SECTION 2.3 PAYMENT OF PURCHASE PRICE ON CLOSING.
On the Closing Date, the Purchase Price for the Purchased Shares is
payable to the Vendor by the Purchaser by the issuance and delivery to the
Vendor of the Issued Shares.
SECTION 2.4 PURCHASE PRICE ADJUSTMENT.
(1) Following the Closing Date, the Vendor shall receive and the Purchaser
shall issue and deliver up to a maximum of 75,750 ISNI Shares (the
"ADDITIONAL SHARES") based upon the financial performance of the
Corporation for the twelve month period commencing on July 31, 2000 and
ending on July 31, 2001 (the "EVALUATION PERIOD"). Financial
performance of the Corporation shall be determined as follows:
(a) If the actual revenue and actual EBITDA achieved by the
Corporation during the Evaluation Period exceeds 100% of such
audited amounts for the Corporation's fiscal year ended July
31, 2000, then 100% of the Additional Shares shall be issued
by the Purchaser to the Vendor;
(b) If either actual revenue or actual EBITDA achieved by the
Corporation during the Evaluation Period is less than 80% of
the audited revenue or EBITDA, as applicable, of the
Corporation for the fiscal year ended July 31, 2000, then no
Additional Shares shall be issued by the Purchaser to the
Vendor; and
(c) Where both actual revenue and actual EBITDA achieved by the
Corporation during the Evaluation Period exceed 80% but are
less than 100% of the audited revenue or EBITDA, as
applicable, of the Corporation for the fiscal year ended July
31, 2000, the number of Additional Shares to be issued by the
Purchaser to the Vendor shall be calculated as follows
(rounded down to the nearest whole number of shares):
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[(A - 80%) + (B - 80%] / 40% MULTIPLIED BY 75,750 (ROUNDED
DOWN TO THE NEAREST WHOLE NUMBER OF SHARES) = NUMBER OF
ADDITIONAL SHARES
Where A = the lesser of: (i) actual revenue of the Corporation during the
Evaluation Period divided by audited revenue
of the Corporation for the fiscal year ended
July 31, 2000; and
(ii) 100%
Where B = the lesser of: (i) actual EBITDA of the Corporation during the
Evaluation period divided by audited EBITDA of
the Corporation for the fiscal year ended July
31, 2000; and
(ii) 100%
(d) The parties to this Agreement agree that they shall use their
best efforts to agree upon amended or alternative financial
performance measurements in the event the Corporation is
reorganized, merged or amalgamated with another entity, or the
Business or any of its Assets are sold, transferred or
materially affected, in each case with the result that actual
revenue and profitability of the Corporation would be
materially increased or decreased, as the case may be, so as
to preserve the true intent of the adjustment mechanism
otherwise contemplated by this Section 2.4.
(2) Subject to Section 2.4(3) below, on or prior to September 30, 2001, the
Purchaser shall deliver to the Vendor the applicable number of
Additional Shares, if any. For the purpose of Section 2.2 above, in the
event that any Additional Shares are issued and delivered to the Vendor
as provided above, the Purchase Price shall be adjusted by the number
of such securities.
(3) For the purposes of Subsection 2.4(1) above, the Purchaser shall cause
the Corporation, on or before September 30, 2001, to calculate, prepare
and deliver appropriate financial statements to the Vendor determining
whether the financial performance criteria set out above have been met.
Upon receipt of such financial statements, the Vendor shall have ten
days to confirm or reject in writing such financial statements by
delivering a notice in writing to the Purchaser and the Corporation. In
the event the Vendor disputes such financial statements, the parties
shall refer such matter to the Corporation's auditors who shall make a
determination whether such financial performance
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criteria have been met. The determination of the Corporation's auditors
shall be in writing and shall be final and binding on the parties. The
parties shall share equally any fees and disbursements of such
auditors. In the event the auditors determine that such financial
performance criteria have been met, in whole or in part, the Purchaser
shall deliver to the Vendor the applicable number of Additional Shares
within ten days of receipt of the auditor's written determination.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE VENDOR
SECTION 3.1 REPRESENTATIONS AND WARRANTIES OF THE VENDOR.
The Vendor represents and warrants as follows to the Purchaser and
acknowledges and confirms that the Purchaser is relying upon the representations
and warranties in connection with the purchase by the Purchaser of the Purchased
Shares:
(a) INCORPORATION AND QUALIFICATION. Each of the Corporation and
the Vendor is a corporation incorporated, organized and
existing under the laws of Ontario and has the corporate power
to own and operate its property, carry on its business and
enter into and perform its obligations under this Agreement.
The Corporation is duly qualified, licensed or registered to
carry on business in Ontario, being the only jurisdiction in
which the nature of the Assets or the Business makes such
qualification necessary or where the Corporation owns or
leases any material Assets or conducts any material business;
(b) VALIDITY OF AGREEMENT. The execution, delivery and performance
by the Vendor of this Agreement:
(i) Have been duly authorized by all necessary corporate
action on the part of the Vendor;
(ii) Do not (or would not with the giving of notice, the
lapse of time or the happening of any other event or
condition) result in a breach or a violation of, or
conflict with, or allow any other Person to exercise
any rights under, any of the terms or provisions of
its constating documents or by-laws or any contracts
or instruments to which it is a party or pursuant to
which any of its assets or property may be affected;
(iii) Will not result in a breach of, or cause the
termination or revocation of, any Authorization held
by the Vendor or the Corporation or necessary to the
ownership of the Purchased Shares or the operation of
the Business; and
(iv) Will not result in the violation of any applicable
law;
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(c) REQUIRED AUTHORIZATIONS. There is no requirement to make any
filing with, give any notice to, or obtain any Authorization
of, any Governmental Entity as a condition to the lawful
completion of the transactions contemplated by this Agreement,
except for the filings, notifications and Authorizations that
relate solely to the identity of the Purchaser or the nature
of the business carried on by the Purchaser;
(d) EXECUTION AND BINDING OBLIGATION. This Agreement has been duly
executed and delivered by the Vendor and constitutes a legal,
valid and binding obligation of the Vendor enforceable against
it in accordance with its terms subject only to any limitation
under applicable laws relating to (i) bankruptcy, winding-up,
insolvency, arrangement and other similar laws of general
application affecting the enforcement of creditors' rights
generally, and (ii) the discretion that a court may exercise
in the granting of equitable remedies such as specific
performance and injunction;
(e) AUTHORIZED AND ISSUED CAPITAL. The authorized capital of the
Corporation consists of an unlimited number of voting common
shares ("CLASS A COMMON SHARES") and an unlimited number of
non-voting convertible common shares ("CLASS B COMMON
SHARES"), of which at this date, 2,961,337 Class A Common
Shares and 489,948 Class B Common Shares (and no more) have
been duly issued and are outstanding as fully paid and
non-assessable. All of the Purchased Shares have been issued
in compliance with all applicable laws including, without
limitation, applicable securities laws;
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(f) NO OTHER AGREEMENTS TO PURCHASE. Except for the Purchaser's
right under this Agreement, no Person has any written or oral
agreement, option or warrant or any right or privilege
(whether by law, pre-emptive or contractual) capable of
becoming such for (i) the purchase or acquisition from the
Vendor of any of the Purchased Shares, or (ii) the purchase,
subscription, allotment or issuance of any of the unissued
shares or other securities of the Corporation;
(g) TITLE TO PURCHASED SHARES. The Purchased Shares are owned by
the Vendor as the registered and beneficial owner with a good
title, free and clear of all Liens other than those
restrictions on transfer, if any, contained in the articles of
the Corporation. Upon completion of the transaction
contemplated by this Agreement, the Purchaser will have good
and valid title to Purchased Shares, free and clear of all
Liens other than (i) those restrictions on transfer, if any,
contained in the articles of the Corporation, and (ii) Liens
granted by the Purchaser;
(h) DIVIDENDS AND DISTRIBUTIONS. Since the Interim Balance Sheet
Date, the Corporation has not, directly or indirectly,
declared or paid any dividends or declared or made any other
distribution on any of its shares of any class and has not,
directly or indirectly, redeemed, purchased or otherwise
acquired any of its shares of any class or agreed to do so;
(i) CORPORATE RECORDS. The Corporate Records are complete and
accurate in all material respects and all corporate
proceedings and actions reflected in the Corporate Records
have been conducted or taken in compliance with all applicable
laws and with the articles and by-laws of the Corporation.
Without limiting the generality of the foregoing (i) the
minute books contain complete and accurate minutes of all
meetings of the directors and shareholders held since
incorporation and all such meetings were properly called and
held, (ii) the minute books contain all resolutions passed by
the directors and shareholders (and committees, if any) and
all such resolutions were properly passed, (iii) the share
certificate books, register of shareholders and register of
transfers are complete and accurate in all material respects,
all transfers have been properly completed and approved, and
(iv) the registers of current directors and officers are
complete and accurate and all former and present directors and
officers were properly elected or appointed, as the case may
be. The Corporation has been subject to a unanimous
shareholder agreement, but is not currently subject to any
unanimous shareholders agreement. A true, correct and complete
copy of an Acknowledgement, Discharge and Release dated
November 2, 1999 executed by all of the then shareholders of
the Corporation terminating and discharging the previous
shareholder agreement has been delivered to the Purchaser;
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(j) RESIDENCE OF THE VENDOR. The Vendor is not a non-resident of
Canada within the meaning of the INCOME TAX ACT (Canada);
(k) CONDUCT OF BUSINESS IN ORDINARY COURSE. Since the Interim
Balance Sheet Date, the Business has been carried on in the
Ordinary Course. Without limiting the generality of the
foregoing, the Corporation has not:
(i) Sold, transferred or otherwise disposed of any
Assets, other than in the Ordinary Course, except for
Assets which are obsolete and the value of which
individually or in the aggregate did not exceed
$50,000;
(ii) Other than in respect of new furniture, office
equipment and leasehold improvements purchased and
made in connection with the relocation of the
Business to the Leased Property, made any capital
expenditure or commitment therefor which individually
or in the aggregate exceeded $50,000;
(iii) Discharged any secured or unsecured obligation or
liability (whether accrued, absolute, contingent or
otherwise) which individually or in the aggregate
exceeded $50,000;
(iv) Increased its indebtedness for borrowed money or made
any loan or advance, or assumed, guaranteed or
otherwise became liable with respect to the
liabilities or obligation of any Person;
(v) Made any bonus or profit sharing distribution or
similar payment of any kind;
(vi) Removed any auditor or director or terminated any
officer or other senior employee;
(vii) Written off as uncollectible any Accounts Receivable
which individually or in the aggregate was in excess
of $50,000;
(viii) Granted any general increase in the rate of wages,
salaries, bonuses or other remuneration of any
employees of the Corporation;
(ix) Suffered any extraordinary loss, whether or not
covered by insurance;
(x) Cancelled or waived any material claims or rights;
(xi) Compromised or settled any litigation, proceeding or
governmental action relating to the Assets, the
Business or the Corporation;
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(xii) Cancelled or reduced any of its insurance coverage;
(xiii) Authorized, agreed or otherwise committed, whether or
not in writing, to do any of the foregoing;
In addition, the Corporation has not (i) made, and has not
agreed to make, any change in any method of accounting or
auditing practice, or (ii) amended or approved any amendment
to its constating documents, by-laws or capital structure;
(l) NO MATERIAL ADVERSE CHANGE. Since the Interim Balance Sheet
Date, there has not been any material adverse change in the
affairs, prospects, operations or condition of the
Corporation, the Assets or the Business and, to the knowledge
of the Vendor, no event has occurred or circumstance exists
which is likely to result in such a material adverse change;
(m) COMPLIANCE WITH LAWS. The Corporation is conducting and has
always conducted the Business and any past business in
compliance with all applicable laws, including all applicable
Environmental Laws, other than acts of non-compliance which,
in the aggregate, are not material;
(n) AUTHORIZATIONS. The Corporation does not and is not required
to own, hold, possess or lawfully use any Authorizations in
the operation of the Business and no Authorizations are
necessary for it to conduct the Business as presently or
previously conducted or for the ownership and use of the
Assets in compliance with all applicable laws;
(o) SUFFICIENCY OF ASSETS. The Business is the only business
operation carried on by the Corporation and the Assets include
all rights and property necessary to the conduct the Business
after the Closing substantially in the same manner as it was
conducted prior to the Closing. All of the tangible Assets are
situate at the Leased Property;
(p) TITLE TO THE ASSETS. The Corporation owns (with good title)
all of the Assets (whether tangible or intangible) that it
purports to own including all the properties and assets
reflected as being owned by the Corporation in its financial
Books and Records. The Corporation has legal and beneficial
ownership of the Assets free and clear of all Liens, other
than Permitted Liens;
(q) NO OPTIONS, ETC. No Person has any written or oral agreement,
option, understanding or commitment, or any right or privilege
capable of becoming such for the purchase or other acquisition
from the Corporation of any of the Assets;
(r) CONDITION OF TANGIBLE ASSETS. The tangible personal property
of
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the Corporation is structurally sound, in good operating
condition and repair having regard to its use and age and is
adequate and suitable for the uses to which it is being put.
None of such property is in need of maintenance or repairs
except for ordinary routine maintenance and repairs that are
not material in nature or cost;
(s) OWNED PROPERTY. The Corporation has never owned and currently
does not own any real property. The Corporation is not subject
to any agreement or option to own or lease any real property
or any interest in any real property, other than in respect of
the Leased Property;
(t) LEASES. The Corporation is not a party to, or under any
agreement to become a party to, any lease with respect to real
property other than the Leased Property, a copy of which Lease
has been provided to the Purchaser. The Lease is in good
standing, creates a good and valid leasehold estate in the
Leased Property thereby demised and is in full force and
effect without amendment. With respect to the Lease (i) all
rents and additional rents which are due and payable have been
paid, (ii) no waiver, indulgence or postponement of the
Corporation's obligations has been granted by the sublandlord,
(iii) there exists no event of default or event, occurrence,
condition or act (including the purchase of the Purchased
Shares) which, with the giving of notice, the lapse of time or
the happening of any other event or condition, would become a
default under the Lease, and (iv) to the knowledge of the
Vendor, all of the covenants to be performed by any party
(other than the Corporation) under the Lease have been fully
performed. The Leased Property is adequate and suitable for
the purposes for which it is presently being used and the
Corporation has adequate rights of ingress and egress into the
Leased Property for the operation of the Business in the
Ordinary Course;
(u) CONTRACTS. Schedule 3.1(u) (collectively, the "CONTRACTS")
sets out all of the Contracts the Corporation is a party to or
bound by and a list of revenue generating clients of the
Business.
(v) NO BREACH OF CONTRACTS. The Corporation has performed all of
the material obligations required to be performed by it and is
entitled to all material benefits under, and is not alleged to
be in material default of any Contract. Each of the Contracts
is in full force and effect, unamended, and there exists no
material default or event of default or event, occurrence,
condition or act (including the purchase of the Purchased
Shares) on the part of the Corporation which, with the giving
of notice, the lapse of time or the happening of any other
event or condition, would become a material default or event
of default under any Contract. True, correct and complete
copies of all Contracts have been delivered to the Purchaser;
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(w) NO BREACH OF OTHER CONTRACTS. The Corporation has not violated
or breached, in any material respect, any of the terms or
conditions of any Contract, and to the knowledge of the
Vendor, all the covenants to be performed by any other party
to any of the Contracts have been fully performed in all
material respects;
(x) INFORMATION TECHNOLOGY SYSTEMS. The information technology
systems used, in whole or in part, or required for the
carrying on of the Business in the manner currently carried on
are sufficient to operate the Business and function in a
manner to permit the conduct of the Business as presently or
previously conducted.
(y) INTELLECTUAL PROPERTY. Attached as Schedule 3.1(y) is a list
of all Intellectual Property owned or licensed by the
Corporation in carrying on the Business, other than over the
counter commercially available software programs licensed to
the Corporation by third parties (the "LICENSED SOFTWARE").
Schedule 3.1(y) also includes complete and accurate
particulars of all registrations or applications for
registration of the Intellectual Property. The Intellectual
Property together with all intellectual property in the public
domain (to which the Corporation will continue to have access
after Closing) comprises all intellectual property necessary
to conduct the Business as it is currently being conducted.
Other than the Licensed Software, the Corporation is the
beneficial owner of the Intellectual Property, free and clear
of all Liens other than Permitted Liens, and is not a party to
or bound by any Contract or other obligation whatsoever that
limits or impairs its ability to sell, transfer, assign or
convey, or that otherwise affects, the Intellectual Property.
Other than the Licensed Software, no Person has been granted
any interest in or right to use all or any portion of the
Intellectual Property. The Vendor is not aware of a claim of
any infringement or breach of any intellectual property rights
of any other Person by the Corporation, nor has the Vendor
received any notice that the conduct of the Business,
including the use of the Intellectual Property, infringes upon
or breaches any intellectual property rights of any other
Person. The Vendor has no knowledge of any infringement or
violation of any of the rights of the Corporation in the
Intellectual Property. To the knowledge of the Vendor, the
conduct of the Business as it is currently being conducted
does not infringe upon the trade marks, licences, trade names,
business names, copyright or other intellectual property
rights, domestic or foreign, of any other Person. The Vendor
is not aware of any state of facts that casts doubt on the
validity or enforceability of any of the Intellectual
Property. There are no Contracts that comprise or relate to
the Intellectual Property as set out in Schedule 3.1(y);
(z) INVENTORIES. The Corporation does not have any material
inventory in respect of the Business;
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(aa) SUBSIDIARIES. The Corporation has no subsidiaries and holds no
shares or other ownership, equity or proprietary interests in
any other Person;
(bb) BOOKS AND RECORDS. All accounting and financial Books and
Records have been fully, properly and accurately kept and
completed in all material respects. The Books and Records and
other data and information are not recorded, stored,
maintained, operated or otherwise wholly or partly dependent
upon or held by any means (including any electronic,
mechanical or photographic process, whether computerized or
not) which are not available to the Corporation in the
Ordinary Course;
(cc) FINANCIAL STATEMENTS. The audited financial statements of the
Corporation dated July 31, 1999 and the Interim Financial
Statements have been prepared in accordance with GAAP applied
on a basis consistent with those of previous fiscal years and
each presents fairly in all material respects:
(i) The assets, liabilities, (whether accrued, absolute,
contingent or otherwise) and financial position of
the Corporation as at the respective dates of the
relevant statements; and
(ii) The sales and earnings of the Corporation during the
periods covered by the audited financial statements
of the Corporation dated July 31, 1999 or Interim
Financial Statements, as the case may be;
True, correct and complete copies of the audited financial
statements of the Corporation dated July 31, 1999 and the
Interim Financial Statements are attached as Schedule 3.1(cc);
(dd) WORKING CAPITAL. The amount of working capital of the
Corporation is consistent with amounts held in accordance with
its past practices and is sufficient for the purposes of
operating the Business in its present form and at its present
level of activity and for the purpose of fulfilling, in
accordance with their respective terms, all purchase orders,
projects and contractual obligations which have been placed
with or undertaken by the Corporation;
(ee) NO LIABILITIES. Except as disclosed in this Agreement or
reflected or reserved against in the balance sheet forming
part of the Interim Financial Statements, the Corporation has
no liabilities or obligations of any nature (whether absolute,
accrued, contingent or otherwise) except for current
liabilities incurred in the Ordinary Course since the Interim
Balance Sheet Date;
(ff) BANK ACCOUNTS AND POWERS OF ATTORNEY. Schedule 3.1(ff) is a
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correct and complete list showing the name of each bank in
which the Corporation has an account or safe deposit box and
the names of all Persons authorized to draw on the account or
to have access to the safety deposit box. The Corporation has
not granted any powers of attorney;
(gg) EMPLOYEES.
(i) The Corporation is in material compliance with all
laws respecting employment and employment practices,
terms and conditions of employment, pay equity and
wages and hours of work;
(ii) There is no collective agreement in force with
respect to the employees of the Corporation and no
collective agreement is currently being negotiated by
the Corporation; and
(iii) All amounts due or accrued due for all salary, wages,
bonuses, commissions, vacation with pay, pension
benefits or other employee benefits are reflected in
the Books and Records;
Schedule 3.1(gg) contains a correct and complete list of each
employee and consultant of the Corporation, whether actively
at work or not, their salaries, wage rates, commissions and
consulting fees, bonus arrangements, benefits, positions and
status as full-time or part-time employees. Except for John
Dunlop and Steven Hecht, no employee of the Corporation has
any agreement as to length of notice or severance payment
required to terminate his or her employment, other than such
as results by law from the employment of an employee without
an agreement as to notice or severance;
(hh) BENEFIT PLANS. The only Benefit Plan existing in respect of
the employees of the Corporation is the Great West Life
Selectpac Benefit Program issued to the Corporation on
December 13, 1999. A true, correct and complete copy of the
Benefit Plan and related documentation has been provided to
the Purchaser. The Benefit Plan is not required to be
registered and is in good standing under, all applicable laws.
All required employer and employee contributions and premiums
under the Benefit Plan have been made, no past service funding
liabilities exist, and there are no actions, claims or
proceedings pending or threatened (other than routine claims
for benefits) relating to the Benefit Plan. There is no
requirement to provide post-retirement profit sharing, medical
or health benefits to employees of the Corporation;
(ii) PENSION PLANS. The Corporation does not have any Pension Plans
existing in respect of the employees of the Corporation;
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(jj) INSURANCE. The Assets are insured against loss or damage by
all insurable hazards or risks on a replacement cost basis.
Schedule 3.1(jj) contains the information concerning the
insurance policies maintained by the Corporation and sets out,
in respect of each policy, a description of the type of
policy, the name of insurer, the coverage allowance, the
expiration date and the annual premium. The Corporation is not
in default with respect to any of the provisions contained in
the insurance policies, the payment of any premiums under any
insurance policy and has not failed to give any notice or to
present any claim under any insurance policy in a due and
timely fashion. The Vendor is not aware of any circumstances
where any Person could make a claim against the Corporation,
whether covered by insurance or not, and the Vendor is not
aware of any circumstances in respect of which it could make a
claim under the insurance policies. There has not been any
material adverse change in the relationship of the Corporation
with its insurers, the availability of coverage, or in the
premiums payable pursuant to the policies. Part of Schedule
3.1(jj) is a list setting forth any and all claims, with
reasonable particulars, made under any policies of insurance
maintained by or for the benefit of the Corporation over the
past three calendar years prior to this date;
(kk) LITIGATION. Except in respect of any proceedings commenced by
the Canadian Imperial Bank of Commerce against the
Corporation, there is no (i) action, suit or proceeding, at
law or in equity, by any Person (including, without
limitation, the Corporation), (ii) arbitration or alternative
dispute resolution process, or (iii) administrative or other
proceeding by or before (or to the knowledge of the Vendor any
investigation by) any Governmental Entity, pending, or, to the
knowledge of the Vendor, threatened against or affecting the
Corporation, the Business or any of the Assets, and the Vendor
knows of no valid basis for any such action, suit, proceeding,
arbitration or investigation. The Corporation is not subject
to any judgment, order or decree entered in any lawsuit or
proceeding. The Corporation is not the plaintiff or
complainant in any action, suit or proceeding;
(ll) CUSTOMERS AND SUPPLIERS. The Vendor has no reason to believe
that the material benefits of any relationship with any of the
major customers or suppliers of the Corporation (as determined
by dollar amount during the preceding twelve months) will not
continue after the Closing Date in substantially the same
manner as prior to the date of this Agreement;
(mm) TAXES. The Corporation has filed or caused to be filed, within
the times and in the manner prescribed by law, all federal,
provincial, local and foreign tax returns and tax reports
which are required to be filed by or with respect to the
Corporation. The information contained in such returns and
reports is correct and complete and, to the knowledge of
- 17 -
the Vendor, such returns and reports reflect accurately all
liability for taxes of the Corporation for the periods covered
thereby. All federal, provincial, local and foreign income,
profits, franchise, sales, use, occupancy, excise and other
taxes and assessments (including interest and penalties) that
are or may become payable by or due from the Corporation have
been fully paid or fully disclosed and fully provided for in
the Books and Records and the Interim Financial Statements.
The federal income tax liability of the Corporation has been
assessed for all fiscal years to and including its fiscal year
ended on July 31, 1999. There are no outstanding agreements or
waivers extending the statutory period providing for an
extension of time with respect to the assessment or
re-assessment of tax or the filing of any tax return by, or
any payment of any tax by, the Corporation, no notice of
assessment or reassessment has been received and to the
knowledge of the Vendor, no examination of any tax return of
the Corporation is currently in progress, other than in
respect of Goods and Services Tax (GST) and Provincial Sales
Tax (PST) of the Corporation. Other than in respect of any GST
payable by the Corporation, there are no claims, actions,
suits or proceedings (or, to the knowledge of the Vendor, any
investigation) pending or, to the knowledge of the Vendor,
threatened against the Corporation relating to taxes and the
Vendor knows of no valid basis for any such claim, action,
suit, proceeding, investigation or discussion. The Corporation
has withheld from each payment made by it the amount of all
taxes and other deductions required to be withheld therefrom
and has paid the same to the proper taxing or other authority
within the time prescribed under any applicable law; and
(nn) FULL DISCLOSURE. This Agreement does not (i) contain any
untrue statement of a material fact in respect of the Vendor,
the affairs, prospects, operations or condition of the
Corporation, the Assets or the Business, or (ii) to the
knowledge of the Vendor omit any statement of a material fact
necessary in order to make the statements in respect of the
Vendor, the affairs, prospects, operations or condition of the
Corporation, the Assets or the Business contained herein or
therein not misleading. There is no fact known to the
Corporation or the Vendor which materially and adversely
affects the affairs, prospects, operations or condition of the
Corporation, the Assets or the Business which has not been set
forth in this Agreement.
SECTION 3.2 SECURITIES LAWS MATTERS.
(1) In addition to the other representations, warranties and covenants set
forth herein, as a material inducement to the Purchaser to enter into
this Agreement and to consummate the transactions contemplated hereby,
the Vendor makes the following representations, warranties and
covenants, as applicable:
(a) The Vendor is acquiring the Issued Shares offered and sold to
it
-18-
hereunder and, to the extent applicable, the Additional
Shares as principal for its own account for investment
purposes only and not with a view to or for distributing or
reselling such Issued Shares, the Additional Shares or any
part thereof or interest therein, without prejudice, however,
to the Vendor's right, subject to the provisions of this
Agreement, at all times to sell or otherwise dispose of all or
any part of such Issued Shares or the Additional Shares
pursuant to an effective registration statement under the
Securities Act of 1933, as amended (the "SECURITIES ACT") and
in compliance with applicable state securities laws or under
an exemption from such registration. The Vendor is aware of
the resale restrictions imposed by Rule 144 of the Securities
Act and understands that its ability to resell the Issued
Shares and the Additional Shares pursuant to Rule 144 may be
subject to certain limitations, including minimum holding
period, volume limitations, manner of sale limitations and the
availability of current information by the Purchaser. By
making this representation, the Vendor does not represent that
it will hold such Issued Shares and the Additional Shares for
any period of time;
(b) At the time the Vendor was offered the Issued Shares, and, to
the extent applicable, the Additional Shares, it was, and at
the date hereof it is, and on the first anniversary date of
the Closing will be, an "accredited investor" as defined in
Rule 501(a) under the Securities Act. The Vendor has not been
formed solely for the purpose of acquiring the Issued Shares
or the Additional Shares;
(c) The Vendor, either alone or together with its representatives,
has such knowledge, sophistication and experience in business
and financial matters so as to be capable of evaluating the
merits and risks of the prospective investment in the Issued
Shares and the Additional Shares, and has so evaluated the
merits and risks of such investment;
(d) The Vendor is able to bear the economic risk of an investment
in the Issued Shares and the Additional Shares and, at the
present time, is able to afford a complete loss of such
investment;
(e) The Vendor has access to all of the Purchaser's public
documents, records, and other information, , including but not
limited to filings made by the Purchaser with the U.S.
Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended (the "SECURITIES EXCHANGE
ACT"), and has had adequate opportunity to ask questions of,
and receive answers from, the Purchaser's officers, employees,
agents, accountants, and representatives concerning the
Purchaser's business, operations, financial condition, assets,
liabilities, and other matters considered by the Vendor as
relevant to its investment in the Issued Shares and the
Additional Shares;
-19-
(f) The Vendor is not purchasing the Issued Shares or the
Additional Shares as a result of or subsequent to any
advertisement, article, notice or other communication
regarding the Issued Shares or the Additional Shares published
in any newspaper, magazine or similar media or broadcast over
television or radio or presented at any seminar or any other
general solicitation or general advertisement;
(g) The certificates representing the Issued Shares and, to the
extent applicable, the Additional Shares, shall bear the
following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF BY THE HOLDER
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
FILED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
IN COMPLIANCE WITH APPLICABLE SECURITIES LAWS OF ANY
STATE WITH RESPECT THERETO, OR IN ACCORDANCE WITH AN
OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO
THE ISSUER THAT AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE.
(h) The Vendor understands and acknowledges that (i) the Issued
Shares are being offered and, to the extent applicable, the
Additional Shares will be offered, and sold to it without
registration under the Securities Act in a private placement
that is exempt from the registration provisions of the
Securities Act and (ii) the availability of such exemption,
depends in part on, and the Purchaser will rely upon the
accuracy and truthfulness of, the foregoing representations
and such Vendor hereby consents to such reliance.
SECTION 3.3 PIGGYBACK REGISTRATION.
If, after the date of this Agreement, the Purchaser determines in its
sole discretion or as may be required by a third party to register any
registrable securities under the Securities Act for sale to the public or
otherwise, whether for its own account or for the account of any security holder
or both, it will give notice to the Vendor of its intention to do so and the
proposed method of distribution or registration of such securities. Upon the
written request of the Vendor, received by the Purchaser within a minimum of
twenty (20) days after the giving of any such notice by the Purchaser, to
include the Issued Shares and, if applicable, the Additional Shares, the
Purchaser will use commercially reasonable efforts to cause such shares as to
which registration shall have been so requested to be included in the securities
to be covered by the registration statement proposed to be filed by the
Purchaser, all to the extent and under the conditions such registration is
permitted under the Securities Act. In the event that any registration pursuant
to this Section 3.3 shall be, in whole or in part, an underwritten public
offering of common stock of the Purchaser, the number of shares of registrable
securities to be included in such
-20-
an underwriting may be reduced (pro rata among all requesting holders based upon
the number of shares of registrable securities owned by such holders) if and to
the extent that the managing underwriter shall be of the opinion that the
inclusion of some or all of the registrable securities would adversely affect
the marketing of the securities to be sold by the Purchaser therein. Any such
limitation shall be imposed in such manner so as to avoid any diminution in the
number of shares the Purchaser may register for sale by giving first priority
for the shares to be registered for issuance and sale by the Purchaser.
Notwithstanding the foregoing provisions, the Purchaser may, in its sole
discretion, terminate or withdraw any registration statement referred to in this
Section 3.3 without thereby incurring any liability to the Vendor.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
SECTION 4.1 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
The Purchaser represents and warrants as follows and acknowledges that
the Vendor is relying upon such representations and warranties in connection
with the sale by the Vendor of the Purchased Shares:
(a) The Purchaser is a corporation incorporated, organized,
existing and in good standing under the laws of the State of
Florida and has the corporate power to own and operate its
property, carry on its business and enter into and perform its
obligations under this Agreement;
(b) The execution, and delivery and performance by the Purchaser
of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Purchaser and will not
result in the violation of any law;
(c) This Agreement has been duly executed and delivered by the
Purchaser and constitutes a legal, valid and binding
obligation of the Purchaser enforceable against the Purchaser
in accordance with its terms subject only to any limitation
under applicable laws relating to (i) bankruptcy, winding-up,
insolvency, arrangement and other similar laws of general
application affecting the enforcement of creditors' rights
generally, and (ii) the discretion that a court may exercise
in the granting of equitable remedies such as specific
performance and injunction.;
(d) The Issued Shares issued to the Vendor pursuant to this
Agreement have been duly issued and are outstanding as fully
paid and non-assessable and, to the extent applicable, upon
the issuance of the Additional Shares to the Vendor pursuant
to this Agreement, such shares will have been duly issued and
shall be outstanding as fully paid and non-assessable. The
Issued Shares issued to the Vendor pursuant to this Agreement
and, to the extent applicable, the Additional Shares
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to be issued to the Vendor pursuant to this Agreement will be
offered, issued, sold and delivered in compliance with all
applicable Canadian and U.S. laws concerning the issuance of
securities;
(e) The shares of common stock in the capital of the Purchaser are
quoted on the Nasdaq Over The Counter Bulletin Board;
(f) The Purchaser has as of the date of this Agreement completed
all necessary filings with applicable regulatory authorities
in accordance with applicable laws; and
(g) The Issued Shares constitute less than ten percent (10%) of
the voting power of the capital stock of the Purchaser.
ARTICLE 5
INDEMNIFICATION
SECTION 5.1 INDEMNIFICATION IN FAVOUR OF THE PURCHASER.
(1) Subject to Section 5.3, the Vendor shall indemnify and save each of the
Purchaser and the Corporation harmless of and from any loss, liability,
claim, damage (including incidental and consequential damage) or
expense (whether or not involving a third-party claim) including legal
expenses (collectively, "DAMAGES") suffered by, imposed upon or
asserted against the Purchaser or the Corporation as a result of, in
respect of, connected with, or arising out of, under, or pursuant to:
(a) Any failure of the Vendor to perform or fulfil any covenant of
the Vendor under this Agreement;
(b) Any breach or inaccuracy of any representation or warranty
given by the Vendor contained in this Agreement;
(c) Any facts, circumstances, events, conditions or occurrences in
existence on or prior to the Closing Date, relating directly
or indirectly to the Corporation, the Business or the Assets,
even though such Damages may be suffered after the Closing
Date except to the extent that the liability in respect
thereof (i) is reflected on the Interim Financial Statements,
(ii) has been incurred by the Corporation in the Ordinary
Course since the Interim Financial Statement Date, or (iii) is
specifically disclosed (x) in this Agreement, or (y) in any of
the Contracts; and
(d) The non-compliance of the Assets or the Business on or prior
to the Closing Date with laws existing at any time on or prior
to Closing.
-22-
(2) The Vendor will have no liability (for indemnification or otherwise)
with respect to matters described in Section 5.1(1)(a), (b), (c) or (d)
until the total of all Damages with respect to such matters exceeds the
amount of $50,000, at which time any claim for indemnification in
favour of the Purchaser shall be for the total amount of any and all
Damages up to a maximum amount of the Purchase Price determined as of
the Closing Date (which, for the purposes of this Article 5 only, shall
be deemed to be an amount equal to the weighted average trading price
of the shares of common stock in the capital of the Purchaser on the
Nasdaq Over The Counter Bulletin Board during the five consecutive
trading days ending on the trading day preceding the Closing Date,
multiplied by that number of shares equal to the Issued Shares and such
number of the Additional Shares as may be issued pursuant hereto). Any
materiality qualifications contained in this Agreement in respect of
the Vendor's representations and warranties will not be taken into
account in determining the amount of the Damages resulting from any
failure or breach for the purposes of calculating whether the amount of
Damages set out above has been exceeded.
SECTION 5.2 INDEMNIFICATION IN FAVOUR OF THE VENDOR.
Subject to Section 5.3, the Purchaser shall indemnify and save the
Vendor harmless of and from any Damages suffered by, imposed upon or asserted
against the Vendor as a result of, in respect of, connected with, or arising out
of, under or pursuant to:
(a) Any failure of the Purchaser to perform or fulfil any covenant
of the Purchaser under this Agreement; and
(b) Any breach or inaccuracy of any representation or warranty
given by the Purchaser contained in this Agreement.
(2) The Purchaser will have no liability (for indemnification or otherwise)
with respect to matters described in Section 5.2(1)(a) or (b) until the
total of all Damages with respect to such matters exceeds the amount of
$50,000, at which time any claim for indemnification in favour of the
Vendor shall be for the total amount of any and all Damages up to a
maximum amount of the Purchase Price determined as of the Closing Date
(as determined above). Any materiality qualifications contained in this
Agreement in respect of the Purchaser's representations and warranties
will not be taken into account in determining the amount of the Damages
resulting from any failure or breach for the purposes of calculating
whether the amount of Damages set out above has been exceeded.
-23-
SECTION 5.3 TIME LIMITATIONS.
(1) The representations and warranties of the Vendor contained in this
Agreement shall survive the Closing and, notwithstanding the Closing
and any investigation made by or on behalf of the Purchaser, shall
continue for a period of 2 years after the Closing Date and any claim
in respect thereof shall be made in writing during such time period:
(a) The representations and warranties set out in Section 3.1(a),
Section 3.1(b), Section 3.1(c), Section 3.1(d), Section
3.1(e), Section 3.1(f) and Section 3.1(g) shall survive and
continue in full force and effect without limitation of time;
(b) The representations and warranties set out in Section 3.1(mm)
shall survive and continue in full force and effect until, but
not beyond, the expiration of the period, if any, during which
an assessment, reassessment or other form of recognized
document assessing liability for tax, interest or penalties
under applicable tax legislation in respect of any taxation
year to which such representations and warranties extend could
be issued under such tax legislation to the Corporation but
for any consent, agreement, waiver or other document made or
filed by the Corporation after the Closing.
(2) The representations and warranties of the Purchaser contained in this
Agreement shall survive the Closing and, notwithstanding the Closing
and any investigation made by or on behalf of the Vendor, shall
continue for a period of 2 years after the Closing Date and any claim
in respect thereof shall be made in writing during such time period.
(3) Notwithstanding the foregoing, a claim for any breach by the Vendor or
the Purchaser of any of the representations and warranties contained in
this Agreement involving fraud or fraudulent misrepresentation may be
made at any time and for any amount subject only to applicable
limitation periods imposed by law.
SECTION 5.4 PROCEDURE FOR INDEMNIFICATION - OTHER CLAIMS.
A claim for indemnification for any matter not involving a third-party
claim may be asserted by notice to the Party from whom indemnification is
sought.
SECTION 5.5 PROCEDURE FOR INDEMNIFICATION - THIRD PARTY CLAIMS.
(1) Promptly after receipt by an indemnified party (an "INDEMNIFIED PARTY")
under Section 5.1 or Section 5.2 of a notice of the commencement of any
proceeding against it by a third party, the Indemnified Party will, if
a claim is to be made against an indemnifying party under such Section,
give notice to the indemnifying party (an "INDEMNIFYING PARTY") of the
commencement of such claim. The failure to notify the Indemnifying
Party will not relieve the Indemnifying Party of any liability that it
may have to any Indemnified Party, except to the extent that the
Indemnifying Party demonstrates that the
-24-
defense of such action is prejudiced by the Indemnified Party's
failure to give such notice.
(2) If any proceeding referred to in Section 5.5(1) (a "PROCEEDING") is
brought against an Indemnified Party and it gives notice to the
Indemnifying Party of the commencement of the Proceeding, the
Indemnifying Party will, unless the claim involves taxes, be entitled
to participate in the Proceeding as hereinafter provided. Subject to
the next following sentence, to the extent that the Indemnifying Party
wishes to assume the defense of the Proceeding with counsel
satisfactory to the Indemnified Party, it may do so provided it
reimburses the Indemnified Party for all of its out-of-pocket expenses
(including solicitor's fees and disbursements) arising prior to or in
connection with such assumption. The Indemnifying Party may not assume
defence of the Proceeding if (i) the Indemnifying Party is also a party
to the Proceeding and the Indemnified Party determines in good faith
that joint representation would be inappropriate, or (ii) the
Indemnifying Party fails to provide reasonable assurance to the
Indemnified Party of its financial capacity to defend the Proceeding
and provide indemnification with respect to the Proceeding. After
notice from the Indemnifying Party to the Indemnified Party of its
election to assume the defense of the Proceeding as against the
Indemnified Party, the Indemnifying Party will not, as long as it
diligently conducts such defense, be liable to the Indemnified Party
under this Section 5.5 for any fees of other counsel or any other
expenses with respect to the defense of the Proceeding, in each case
subsequently incurred by the Indemnified Party in connection with the
defense of the Proceeding, other than reasonable costs of investigation
approved in advance by the Indemnifying Party. If the Indemnifying
Party assumes the defense of a Proceeding as against the Indemnified
Party (i) it will be conclusively established for purposes of this
Agreement that the claims made in that Proceeding are within the scope
of, and subject to, indemnification, (ii) no compromise or settlement
of such claims may be made by the Indemnifying Party without the
Indemnified Party's consent unless (y) there is no admission of any
violation of laws or any violation of the rights of any Person and no
adverse effect on any other claims that may be made against the
Indemnified Party, and (z) the sole relief provided is monetary damages
that are paid in full by the Indemnifying Party, and (iii) the
Indemnified Party will have no liability with respect to any compromise
or settlement of such claims effected without its consent. If notice is
given to an Indemnifying Party of the commencement of any Proceeding
and the Indemnifying Party does not, within ten days after receipt of
such notice, give notice to the Indemnified Party of its election to
assume the defense of the Proceeding, the Indemnifying Party will be
bound by any determination made in the Proceeding or any compromise or
settlement effected by the Indemnified Party, acting in good faith.
(3) Notwithstanding the foregoing, if an Indemnified Party determines in
good faith that there is a reasonable probability that a Proceeding may
adversely
-25-
affect it or its affiliates other than as a result of monetary damages
for which it would be entitled to indemnification under this Agreement,
the Indemnified Party may, by notice to the Indemnifying Party, assume
the exclusive right to defend, compromise, or settle the Proceeding. In
such case, the Indemnifying Party will not be bound by any compromise
or settlement effected without its consent (which may not be
unreasonably withheld) but shall be bound by a final and conclusive
judgment of a court of competent jurisdiction.
(4) Where the defence of a Proceeding is being undertaken and controlled by
the Indemnifying Party, the Indemnified Party will use its Best Efforts
to make available to the Indemnifying Party those employees whose
assistance, testimony or presence is necessary to assist the
Indemnifying Party in evaluating and defending any such claims.
However, the Indemnifying Party shall be responsible for the expense
associated with any employees made available by the Indemnified Party
to the Indemnifying Party pursuant to this Section 5.5(4), which
expense shall be equal to an amount to be mutually agreed upon per
person per hour or per day for each day or portion thereof that the
employees are assisting the Indemnifying Party and which expenses shall
not exceed the actual cost to the Indemnified Party associated with the
employees.
(5) With respect to any Proceeding at the request of the Indemnifying
Party, the Indemnified Party shall make available to the Indemnifying
Party or its representatives on a timely basis all documents, records
and other materials in the possession of the Indemnified Party, at the
expense of the Indemnifying Party, reasonably required by the
Indemnifying Party for its use in defending any such claim and shall
otherwise co-operate on a timely basis with the Indemnifying Party in
the defence of such claim.
(6) With respect to any Proceeding in respect of income, corporate, sales,
excise, or other tax or other liability enforceable by Lien against the
property of the Indemnified Party, the Indemnifying Party's right to so
defend the Proceeding shall only apply after payment of the
re-assessment.
ARTICLE 6
POST-CLOSING COVENANTS
SECTION 6.1 ACCESS TO BOOKS AND RECORDS.
For a period of 6 years from the Closing Date or for such longer period
as may be required by law, the Purchaser shall retain all original accounting
Books and Records and Corporate Records relating to the Corporation for the
period prior to the Closing Date, but the Purchaser shall not be responsible or
liable to the Vendor for any accidental loss or destruction of or damage to any
such Books and Records and Corporate Records. So long as such Books and Records
and Corporate Records are retained by the Purchaser pursuant to this Agreement,
the Vendor shall have the reasonable right to inspect and make copies (at its
own expense) of them upon
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reasonable request during normal business hours and upon reasonable notice
for any proper purpose and without undue interference to the business
operations of the Corporation or the Purchaser. The Purchaser shall have the
right to have its representatives present during any such inspection.
SECTION 6.2 CONFIDENTIALITY.
After the Closing, the Vendor will keep confidential and will not use
or disclose any information in its possession or under its control relating to
the Corporation and the Business unless such information is or becomes generally
available to the public other than as a result of a disclosure by the Vendor in
violation of this Agreement.
SECTION 6.3 FURTHER ASSURANCES.
From time to time after the Closing Date, each Party shall, at the
request of any other Party, execute and deliver such additional conveyances,
transfers and other assurances as may be reasonably required to effectively
transfer the Purchased Shares to the Purchaser and carry out the intent of this
Agreement.
ARTICLE 7
MISCELLANEOUS
SECTION 7.1 NOTICES.
Any notice, direction or other communication given under this Agreement
shall be in writing and given by delivering it or sending it by facsimile or
other similar form of recorded communication addressed:
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(a) to the Purchaser at:
101 Bloor Street West
Suite 200
Toronto, Ontario
M5S 2Z7
Attention: David Toews, Chief Financial Officer
Telephone: (416) 599-3049
Facsimile: (416) 921-1302
(b) to the Vendor at:
c/o 1920 Yonge Street
Suite 201
P. O. Box 14 and 15
Toronto, Ontario
M4S 3E2
Attention: J. Thomas Murray
Telephone: (416) 926-7595
Facsimile: (416) 926-0407
Any such communication shall be deemed to have been validly and effectively
given (i) if personally delivered, on the date of such delivery if such date is
a Business Day and such delivery was made prior to 4:00 p.m. (Toronto time) and
otherwise on the next Business Day, or (ii) if transmitted by facsimile or
similar means of recorded communication on the Business Day following the date
of transmission. Any Party may change its address for service from time to time
by notice given in accordance with the foregoing and any subsequent notice shall
be sent to such Party at its changed address.
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SECTION 7.2
TIME OF THE ESSENCE.
Time shall be of the essence of this Agreement.
SECTION 7.3 BROKERS.
The Vendor shall indemnify and save harmless the Purchaser and the
Corporation from and against any and all claims, losses and costs whatsoever for
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 the
Vendor or the Corporation. The Purchaser shall indemnify and save harmless the
Vendor from and against any and all claims, losses and costs whatsoever for 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 the Purchaser.
These indemnities shall not be subject to any limitations set out in Article 9
of this Agreement.
SECTION 7.4 ANNOUNCEMENTS.
Any press release or public statement or announcement (a "PUBLIC
STATEMENT") with respect to the transaction contemplated in this Agreement shall
be made only with the prior written consent and joint approval of the Vendor and
the Purchaser unless such Public Statement is required by law or by any stock
exchange, in which case the Party required to make the Public Statement shall
use its Best Efforts to obtain the approval of the other Party as to the form,
nature and extent of the disclosure.
SECTION 7.5 THIRD PARTY BENEFICIARIES.
The Vendor and the Purchaser intend that this Agreement shall not
benefit or create any right or cause of action in, or on behalf of, any Person
other than the Parties to this Agreement and no Person, other than the Parties
to this Agreement shall be entitled to rely on the provisions of this Agreement
in any action, suit, proceeding, hearing or other forum.
SECTION 7.6 EXPENSES.
Except as otherwise expressly provided in this Agreement, all costs and
expenses (including the fees and disbursements of legal counsel, investment
advisers and accountants) incurred in connection with this Agreement and the
transactions contemplated herein and therein shall be paid by the Party
incurring such expenses.
SECTION 7.7 AMENDMENTS.
This Agreement may only be amended, supplemented or otherwise modified
by written agreement signed by the Vendor and the Purchaser.
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SECTION 7.8 WAIVER.
(1) No waiver of any of the provisions of this Agreement shall be deemed to
constitute a waiver of any other provision (whether or not similar),
nor shall such waiver be binding unless executed in writing by the
Party to be bound by the waiver.
(2) No failure on the part of the Vendor or the Purchaser to exercise, and
no delay in exercising any right under this Agreement shall operate as
a waiver of such right; nor shall any single or partial exercise of any
such right preclude any other or further exercise of such right or the
exercise of any other right.
SECTION 7.9 NON-MERGER.
Except as otherwise expressly provided in this Agreement, the
covenants, representations and warranties shall not merge on and shall survive
the Closing and, notwithstanding such Closing and any investigation made by or
on behalf of any Party, shall continue in full force and effect as herein
provided. Closing shall not prejudice any right of one Party against any other
Party in respect of anything done or omitted under this Agreement or in respect
of any right to damages or other remedies.
SECTION 7.10 ENTIRE AGREEMENT.
This Agreement constitutes the entire agreement between the Parties
with respect to the transactions contemplated in this Agreement and supersedes
all prior agreements, understandings, negotiations and discussions, whether oral
or written, of the Parties. There are no representations, warranties, covenants,
conditions or other agreements, express or implied, collateral, statutory or
otherwise, between the Parties in connection with the subject matter of this
Agreement except as specifically set forth herein and therein and neither the
Vendor nor the Purchaser has relied or is relying on any other information,
discussion or understanding in entering into and completing the transactions
contemplated in this Agreement.
SECTION 7.11 SUCCESSORS AND ASSIGNS.
This Agreement shall become effective when executed by the Vendor and
the Purchaser and after that time shall be binding upon and enure to the benefit
of the Vendor, the Purchaser and their respective successors and permitted
assigns. Neither this Agreement nor any of the rights or obligations under this
Agreement shall be assignable or transferable by any Party without the prior
written consent of the other Party.
SECTION 7.12 SEVERABILITY.
If any provision of this Agreement shall be determined by an arbitrator
or any court of competent jurisdiction to be illegal, invalid or unenforceable,
that provision shall be severed from this Agreement and the remaining provisions
shall continue in full force and effect.
SECTION 7.13 GOVERNING LAW.
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This Agreement shall be governed by and interpreted and enforced in
accordance with the laws of the Province of Ontario and the federal laws of
Canada applicable therein.
SECTION 7.14 COUNTERPARTS.
This Agreement may be executed in any number of counterparts (including
counterparts by facsimile) and all such counterparts taken together shall be
deemed to constitute one and the same instrument.
SECTION 7.15 CURRENCY
All references to dollars in this Agreement shall be Canadian dollars.
IN WITNESS WHEREOF the parties have executed this Share Purchase
Agreement.
CORNERSTONE STRATEGIC HOLDINGS INC.
By: /s/ J. Thomas Murray
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Authorized Signing Officer
INTERNET SPORTS NETWORK, INC.
By: /s/ Andy DeFrancesco
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Authorized Signing Officer