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EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (this "Agreement") is made and entered
into as of January 4, 2002 by and among Genesta Inc., an Ontario corporation
("Buyer"), Pavaco Plastics Inc., an Ontario corporation ("Pavaco" or
"Seller"), 1238579 Ontario Inc., an Ontario corporation ("Lessor"), and Summa
Industries, a Delaware corporation and the parent of Buyer ("Parent").
RECITALS
WHEREAS, Pavaco, through one of its unincorporated divisions, is engaged
in the business of designing, manufacturing and selling plastic products for the
lighting, display and consumer products industries and related products and
accessories thereof (collectively, the "Genesta Business") and, through another
unincorporated division, is in the business of designing, manufacturing and
selling products for the automotive industry (the "Hematite Business");
WHEREAS, Lessor is the sole registered and beneficial owner of that
certain real property and improvements thereon located at 551 Imperial Road,
North, Guelph, Ontario, Canada N1H 7M2, which is currently used exclusively by
the Genesta Business, and 611 Imperial Road, North, Guelph, Ontario, Canada N1H
7M2, which is commonly used by both the Genesta Business and Pavaco
(collectively, the "Real Property"), as more particularly described in a lease
dated July 3, 1997 between Pavaco and Lessor (the "Existing Lease");
WHEREAS, Pavaco owns all of the Transferred Assets (as defined in
SECTION 1.1), which Transferred Assets are used in (intermittently or
otherwise) the conduct of the Genesta Business, other than the Real Property
owned by Lessor and leased or licensed assets set forth on SCHEDULE 3.8; and
WHEREAS, (a) Pavaco desires to sell and assign to Buyer, and Buyer desires
to purchase and assume from Pavaco, the Transferred Assets and the Assumed
Obligations (as defined in SECTION 1.4), and (b) Lessor desires to lease to
Buyer, and Buyer desires to lease from Lessor, a portion of the Real Property,
all on the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
covenants set forth herein and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto,
intending to be legally bound, hereby agree as follows:
ARTICLE I
SALE AND TRANSFER OF ASSETS
1.1 TRANSFERRED ASSETS. Subject to the terms and conditions set
forth herein, at the Closing (as defined in SECTION 2.6), Pavaco shall sell,
convey, transfer, assign and deliver to Buyer, and Buyer shall purchase, assume
and acquire from Pavaco, as a going concern, all of the
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assets, properties and rights of every kind, character and description used
in (intermittently or otherwise) the conduct of the Genesta Business, whether
tangible or intangible and wherever located, as of the Closing Date (as
defined in SECTION 2.5), all of which are listed and described in detail in
the "Transferred Assets Schedule" attached hereto as SCHEDULE 1.1
(collectively referred to herein as the "Transferred Assets"), as follows:
(a) All machinery, equipment, vehicles, tooling, molds, dies, cranes,
tables, spare parts and tools as listed and described in SCHEDULE 1.1(a),
including, without limitation, the Transmatic profile extruder, saw and puller;
(b) All office supplies and equipment and furniture (including, for
clarity, all furniture located in the 551 Imperial Road, North, building, but
only the furniture located in the two conference rooms of the 611 Imperial Road,
North, building), computers, maintenance supplies and other similar items as
listed and described in SCHEDULE 1.1(b);
(c) All inventories as listed and described in SCHEDULE 1.1(c);
(d) All accounts and notes receivable as listed and described in
SCHEDULE 1.1(d);
(e) All prepaid assets as listed and described in SCHEDULE 1.1(e);
(f) All leasehold and other tenant improvements as listed and
described in SCHEDULE 1.1(f);
(g) All Seller's right, title and interest in and to those contracts and
agreements (including proprietary agreements with suppliers) set forth on
SCHEDULE 1.1(g), and all right, title and interest in and to purchase or sales
orders, quotes or commitments related to the Transferred Assets or the Genesta
Business, whether written or oral, as listed and described in SCHEDULE 1.1(g)
(collectively, the "Assumed Contracts");
(h) Access to and the right to copy all of Pavaco's (i) records, accounts,
correspondence, production records for the three (3) years prior to the Closing
Date, and (ii) employment, payroll, personnel and workers' compensation records,
environmental control records and any other documents relating to the
Transferred Assets or the Genesta Business, and the right to copy all relevant
documents of Lessor's relating to the Real Property;
(i) All of Seller's rights under any and all express or implied warranties
from suppliers of the Genesta Business with respect to the Transferred Assets;
(j) All of Pavaco's right, title and interest in and to patents,
trademarks, service marks, trade names (including without limitation "Genesta
Manufacturing" and "Genesta"), internet domain names and service names and all
variants thereof (including without limitation "genestamfg.com"), copyrights,
inventions, customer lists, trade secrets (including processes and software
programs), registrations and all applications for any of the foregoing and works
in progress relating thereto, and all past, present and future causes of action
and remedies therefor, all as relate to the Genesta Business or the Transferred
Assets, including those set forth on SCHEDULE 3.10;
(k) All of Pavaco's right, title and interest in source code and computer
programs for systems and hardware used in the Genesta Business as listed and
described in SCHEDULE 1.1(k), and other intangibles owned or used by Pavaco
relating to the Transferred Assets or the Genesta Business and all of the
related goodwill;
(l) All claims as to which Pavaco, on behalf of the Genesta Business,
is a judgment creditor, if any;
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(m) The goodwill of Pavaco pertaining to the Genesta Business, including
the right to represent Buyer as carrying on the Genesta Business in continuation
of and in succession of Pavaco; and
(n) To the extent assignable, all of Seller's licenses, permits and
governmental authorizations relating to the Transferred Assets or the Genesta
Business as listed and described in SCHEDULE 1.1(n).
1.2 RETAINED ASSETS. Notwithstanding the terms of SECTION 1.1, the
following assets (collectively, the "Retained Assets") shall be retained by
Pavaco and/or Lessor, as applicable, and shall not be sold, transferred or
assigned to Buyer:
(a) All assets owned by Pavaco not listed in SCHEDULE 1.1 and which are
not used in (intermittently or otherwise) the conduct of the Genesta Business;
(b) Pavaco's Symix system and related hardware and software, other than
personal computers and related equipment listed in SCHEDULE 1.1;
(c) The Real Property, except for the leasehold rights referred to in
this Agreement and the New Leases (as defined below);
(d) The Pavaco group ball logo; provided that, Pavaco grants to Buyer the
nonexclusive limited right to continue to use all existing Genesta Business
stationary, business cards, forms, signs, etc. containing the logo until such
items are depleted;
(e) All minute books and other ownership records of Pavaco; and
(f) Any rights of Seller under this Agreement and any related agreement.
1.3 CUSTOMER ASSETS. Notwithstanding the terms of SECTION 1.1, Pavaco
shall sell, convey, assign and transfer only such rights as it may have at the
Closing, if any, to those molds, dies, toolings and inserts used in the Genesta
Business which are owned by customers of Pavaco ("Customer Assets").
1.4 ASSUMED OBLIGATIONS. Effective as of the Closing Date, Buyer shall
assume and shall thereafter pay, discharge or perform in the ordinary course
only the following (collectively, the "Assumed Obligations"), and Parent shall
guarantee such payment, discharge or performance, other than which neither Buyer
nor Parent shall assume nor be obligated to pay, discharge or perform any
liability or obligation of Seller and/or Lessor, whether direct or indirect,
known or unknown, absolute or contingent, and all such liabilities and
obligations shall remain with Seller and/or Lessor:
(a) Those trade payables incurred by the Genesta Business in the ordinary
and normal course of business on or before the Closing Date and to the extent
set forth on the Assumed Obligations Schedule attached hereto as SCHEDULE 1.4;
(b) Those accrued liabilities incurred by the Genesta Business in the
ordinary and normal course of business on or before Closing Date and to the
extent set forth on the Assumed Obligations Schedule attached hereto as
SCHEDULE 1.4;
(c) Obligations to Lessor pursuant to two new facilities leases in
substantially the form attached hereto as EXHIBIT A (the "New Leases"); and
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(d) Subject to the provisions of ARTICLE XIII, Seller's obligations
under those contracts and agreements included in the Transferred Assets as
set forth on SCHEDULE 1.1(g). In the event that Seller is in default of
performance under any Assumed Contract (other than a default of the type
described in SECTION 9.1(b) in obtaining consent to assignment of an Assumed
Contract waived in writing by Buyer), Buyer shall, nonetheless, if legally
possible, assume such Assumed Contract if, and to the extent that, Seller
indemnifies and holds Buyer harmless in respect of any claims (and costs
incurred incidental thereto, including reasonable attorneys' fees) arising in
connection with or pursuant to Seller's default.
1.5 NO OTHER DEBTS, OBLIGATIONS OR LIABILITIES ASSUMED. Unless and only to
the extent that any debt, liability or obligation of Seller is expressly
identified under this Agreement as being for the account of and assumed by
Buyer, Buyer shall not assume or indemnify Seller against any claim or demand
(and any costs incurred incidental thereto) with respect to such debt, liability
or obligation, whether absolute or contingent, and whether arising prior to, on
or after the Closing Date, and all such debts, liabilities and obligations shall
remain with Seller (the "Retained Obligations").
ARTICLE II
PURCHASE PRICE AND PAYMENT
2.1 PURCHASE PRICE. In exchange and as consideration for the Transferred
Assets and in full payment of the purchase price therefor, Buyer shall pay and
deliver, subject to adjustment as indicated below, the amounts set forth in
SECTION 2.4 below and shall assume the obligations set forth in SECTION 1.4
above, subject to exercise of the indemnification rights set forth in ARTICLE IX
(collectively, the "Purchase Price").
2.2 Allocation of Purchase Price The parties shall allocate the Purchase
Price for tax purposes amongst the Transferred Assets as set forth on SCHEDULE
2.2 (the "Purchase Price Allocation Table"). The parties shall file their
respective tax returns in a manner consistent with the Purchase Price Allocation
Table and shall not take a position on any federal, provincial or local tax
return, before any governmental or regulatory authority charged with the
collection of any tax or in any action or proceeding that is in any manner
inconsistent with the Purchase Price Allocation Table.
2.3 TAX ELECTIONS AND FILINGS.
(a) If Buyer so requests, Seller and Buyer shall execute a joint election
under Subsection 20(24) of the INCOME TAX ACT (Canada);
(b) Seller and Buyer shall execute a joint election as to the sale of
Accounts Receivable under Section 22 of the INCOME TAX ACT (Canada) designating
in such election the applicable portion of the Purchase Price set out in
SCHEDULE 2.2 paid by Buyer for the Accounts Receivable;
(c) Goods and Services Tax: Seller and Buyer shall make a joint election
under Subsection 167(1) of the EXCISE TAX ACT (Canada) ("ETA") to have
Subsection 167(1.1) of the ETA apply to the supplies of the Transferred Assets
contemplated in this Agreement. Seller represents and warrants that the
Transferred Assets constitute all or substantially all of the
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property that can reasonably be regarded as being necessary for Buyer
to be capable of carrying on the Genesta Business as a business. Pursuant to
Section 167 of the ETA, Buyer is required to file the GST Form 44 with the
Canada Customs and Revenue Agency. Buyer agrees to file GST Form 44 and all
necessary materials with the appropriate tax authorities within the
applicable time periods contemplated by the ETA; and
(d) Seller will apply to the Workplace Safety and Insurance Board
(Ontario) for a current purchase certificate in respect of employer premiums
under the WORKPLACE SAFETY AND INSURANCE ACT and deliver same to the Buyer
within its validity period on or before Closing Date.
2.4 PAYMENT OF PURCHASE PRICE. In addition to the Assumed
Liabilities pursuant to SECTION 1.4 hereof, the Purchase Price shall be paid
as follows:
(a) CASH. At Closing, Buyer shall pay to Pavaco (and Parent guarantees
such payment, subject to the terms and conditions of this Agreement) in cash, by
certified cheque or wire transfer of immediately available funds, the aggregate
amount of Three Million Eight Hundred and Fifty Thousand Canadian Dollars
(C$3,850,000.00); and
(b) PROMISSORY NOTE. At Closing, Buyer and Parent (as guarantor) shall
execute and deliver to Pavaco a non-transferable, unsecured promissory note
which will be a direct obligation of Buyer and Parent (as guarantor), in the
initial principal amount equal to One Million Canadian Dollars (C$1,000,000.00),
increased by the amount by which Working Capital for the Genesta Business at
Closing is greater than Nine Hundred Thousand Canadian Dollars (C$900,000.00),
or decreased by the amount by which Working Capital for the Genesta Business at
Closing is less than Eight Hundred Thousand Canadian Dollars (C$800,000.00),
calculated in accordance with SECTION 2.5 below, with a term of twelve (12)
months from Closing and bearing interest at the Prime Rate (defined below),
fixed quarterly (based on the Prime Rate in effect five (5) business days prior
to the end of each quarter), with interest only payable in arrears in four
quarterly payments, and principal paid in one lump sum twelve (12) months from
Closing, in substantially the form attached hereto as EXHIBIT B (the "Note"). As
used herein, "Working Capital" shall be the sum of (i) accounts receivable,
inventory and prepaid expenses, less (ii) trade accounts payable and liabilities
accrued in the ordinary course of business (including, without limitation, all
amounts due within one year of Closing under non-real property leases, including
that certain equipment lease with Bombardier Capital, any amounts due pursuant
to that certain agreement to purchase Transmatic equipment, and accruals for
rebates earned but not yet due to customers such as Cooper Lighting) all as
determined in accordance with Canadian generally accepted accounting principles
applied on a basis consistent with prior periods ("GAAP"). "Prime Rate" shall
mean, for any day, the rate of interest expressed as the rate per annum that the
Bank of Montreal establishes as a reference rate of interest that it will charge
on that date for Canadian dollar demand loans to its corporate customers in
Canada and which it at present refers to as its "prime rate"; and
(c) STOCK. At Closing, Buyer shall cause Parent to deliver to Pavaco Forty
Thousand (40,000) fully paid, nonassessable shares of Parent's unregistered
Common Stock, $.001 par value (the "Stock"). Pavaco acknowledges that (for
purposes of the Note and the Stock) it is an "accredited investor" under both
U.S. and Canadian law, that it purchases as principal and agrees that the Stock
will remain unregistered and that Pavaco will not transfer nor attempt to
transfer any portion of the Stock for a period of one year from Closing. For a
period of ninety (90) days following the eighteenth (18th) month after Closing,
Pavaco may, in its sole discretion, require Parent to repurchase some or all of
the Stock at a price equal to Thirteen United States Dollars
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and Twenty-Five Cents (U.S.$13.25) per share (adjusted for intervening stock
splits, consolidations and similar corporate reorganizations).
(d) CROSS BORDER INTEREST PAYMENTS. All payments to be made by or on
behalf of Buyer under or with respect to the Note are to be made free and clear
of and without deduction or withholding for, or on account of, any present or
future taxes, unless such deduction or withholding is required by applicable
law. If Buyer is required to deduct or withhold any taxes from interest amounts
payable to Seller (i) the amount payable shall be increased as may be necessary
so that after making all required deductions or withholdings (including
deductions and withholdings applicable to, and taking into account all taxes on,
or arising by reason of the payment of, interest under the Note), Seller
receives and retains an amount equal to the amount that it would have received
had no such deductions or withholdings been required, (ii) Buyer shall make such
deductions or withholdings, and (iii) Buyer shall remit the full amount deducted
or withheld to the relevant taxing authority in accordance with applicable laws.
2.5 WORKING CAPITAL ADJUSTMENT.
(a) Within thirty (30) days following the Closing, Seller will prepare and
deliver to Buyer an unaudited internal balance sheet of the Genesta Business
incorporating the Transferred Assets and Assumed Liabilities as of the Closing
Time (as hereinafter defined) in accordance with GAAP applied on a basis
consistent with the Financial Statements and based on a physical inventory as of
the Closing Time (the "Closing Balance Sheet"). Buyer has the right to be
present to observe such physical inventory. Seller shall also calculate the
amount of the Working Capital as of the Closing Time. Buyer shall be permitted
to review the working papers underlying the preparation of the Closing Balance
Sheet.
(b) Each party hereto shall cooperate fully, each at its own expense, in
said preparations and shall make available to each other working papers, data
and such other information as may be necessary or desirable in the preparation
of the Closing Balance Sheet and the calculation of the Working Capital.
(c) In the event Buyer is in disagreement with any determinations by
Seller in the Closing Balance Sheet or the calculation of the Working Capital,
each item of disagreement shall be set forth in writing and delivered to Seller
within twenty (20) business days from Buyer's receipt of the Closing Balance
Sheet. In the event that Buyer fails to deliver a notice of disagreement within
said 20 business day period, Buyer shall be deemed to have accepted as valid and
binding the Closing Balance Sheet and Working Capital amount as of Closing. If
Buyer and Seller do not, within the next twenty (20) business days following
Seller's receipt of Buyer's written notice of disagreement, resolve each such
item of disagreement, both Buyer and Seller are entitled to refer those
unresolved items of disagreement to a mutually acceptable member of a nationally
recognized accounting firm in Canada (the "Independent Accountant") for
resolution. The Independent Accountant's determination of any such item of
disagreement in accordance with the provisions of this SECTION 2.5 shall be
final and binding on both parties and not subject to appeal. Buyer and Seller
shall use their reasonable efforts to ensure that determination of the items in
dispute shall be made within sixty (60) days after such referral to the
Independent Accountant. In the event that Buyer and Seller are unable to agree
on the identity of the Independent Accountant, the Independent Accountant shall
be appointed by a judge of the Superior Court of Justice (Ontario) at Guelph,
Ontario.
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(d) The fees and disbursements of each party's auditors or other outside
representatives shall be paid by such party, and those of the Independent
Accountant shall be paid one-half by Seller and one-half by Buyer.
(e) Ten (10) business days after the parties have agreed upon the Closing
Balance Sheet and the calculation of the Working Capital, or the Independent
Accountant has determined the final form of the Closing Balance Sheet and the
calculation of the Working Capital, the parties shall cause the adjustment of
the Note pursuant to SECTION 2.4(b). Such adjustment shall be effected as
follows:
(i) if the Working Capital is greater than Nine Hundred Thousand
Canadian Dollars (C$900,000), then the principal payable by Buyer to Seller
under the Note shall be increased by the amount by which the Working Capital
exceeds such amount; and
(ii) if the Working Capital is less than Eight Hundred Thousand
Canadian Dollars (C$800,000), then the principal payable by Buyer to Seller
under the Note shall be reduced by the amount by which the Working Capital is
less than such amount.
2.6 CLOSING. The consummation of the transactions contemplated by this
Agreement (the "Closing") shall take place on January 4, 2002 or as soon
thereafter as possible upon satisfaction of the conditions set forth in ARTICLE
VII (the "Closing Date"), at the offices of Gowling Lafleur Henderson LLP, Suite
1020, 50 Queen Street North, Kitchener, Ontario, counsel to Seller, or at such
other date, time and place as may be mutually agreed upon in writing by the
parties. All proceedings to take place at the Closing shall take place
simultaneously, and no delivery shall be considered to have been made until all
such proceedings have been completed. The Closing shall be deemed to have taken
place at 12:01 a.m. USA EST on the Closing Date (the "Closing Time"). At
Closing:
(a) Buyer shall pay to Pavaco the cash portion of the Purchase Price
set forth in SECTION 2.4(a);
(b) Buyer and Parent shall execute and deliver to Pavaco the Note as
set forth in SECTION 2.4(b);
(c) Parent shall deliver to Pavaco the Stock as set forth in SECTION
2.4(c);
(d) Lessor and Buyer and Parent shall execute and deliver to Buyer
the New Leases;
(e) Pavaco shall execute and deliver to Buyer a General Instrument of
Conveyance, Transfer and Assignment in the form attached hereto as EXHIBIT C and
all such other instruments and documents of conveyance and assignment as are
requested by Buyer to vest in Buyer title to the Transferred Assets, including
without limitation assignments of intellectual property;
(f) Buyer and Parent (as guarantor) shall execute and deliver to Pavaco an
Assumption Agreement in the form attached hereto as EXHIBIT D;
(g) Pavaco, J. Charles Pavanel, John C. Pavanel and Joanne Pavanel
shall execute and deliver to Buyer Noncompetition Agreements in the form
attached hereto as EXHIBIT E;
(h) Seller and Buyer shall execute and deliver certificates regarding
the representations, warranties and covenants contained herein; and
(i) Solicitors to Seller and Buyer shall execute and deliver the legal
opinions in substantially the forms attached hereto as EXHIBIT F and EXHIBIT G,
respectively.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller (and where expressly indicated Lessor) represents and warrants to
Buyer and Parent as follows:
3.1 ORGANIZATION AND QUALIFICATION - PAVACO. Pavaco is a corporation duly
organized and validly existing under the laws of the Province of Ontario and is
duly qualified to do business as a foreign entity and is in good standing in
each other jurisdiction in which the character of its properties or the nature
of its business makes such qualification necessary. Pavaco has the requisite
power and authority to own, use or lease its properties and to carry on its
business as it is now being conducted and as it is now proposed to be conducted.
Pavaco is not in default in the performance, observation or fulfillment of any
provision of its articles of incorporation or bylaws. All entities merged with
and into Pavaco prior to the date hereof were duly organized, validly existing
and in good standing under the laws of their domicile until their respective
dates of merger, were duly qualified to do business as foreign corporations and
were in good standing in each jurisdiction in which the character of their
properties or the nature of their business made such qualification necessary,
and had the requisite corporate power and authority to own, use or lease their
properties and to carry on their business as conducted.
3.2 ORGANIZATION AND QUALIFICATION - LESSOR. Lessor is a corporation duly
organized and validly existing under the laws of the Province of Ontario, is
duly qualified to do business and is in good standing in each jurisdiction in
which the character of its properties or the nature of its business makes such
qualification necessary. Lessor has the requisite power and authority to own,
use or lease its properties, including the Real Property, and to carry on its
business as it is now being conducted. Lessor is not in default in any respect
in the performance, observation or fulfillment of its duties and obligations
with respect to the Existing Lease.
3.3 AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Seller and Lessor has
all requisite power, authority and capacity to execute and deliver this
Agreement and all related agreements and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and all
related agreements and the consummation of the transactions contemplated hereby
on the part of each of Seller and Lessor has been duly and validly authorized
and no other proceedings on the part of either are necessary, as a matter of law
or otherwise, to authorize this Agreement and the related agreements or to
consummate the transactions so contemplated. This Agreement has been duly and
validly executed and delivered by each and, assuming this Agreement constitutes
a valid and binding obligation of Buyer and Parent, this Agreement constitutes a
valid and binding agreement of each, enforceable against each of them in
accordance with its terms, except as such enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application affecting enforcement of creditors' rights or by general
principles of equity and the qualifications expressed in the opinion to be given
by Seller's solicitors pursuant to SUBSECTION 7.2(c).
3.4 CONSENTS AND APPROVALS; NO VIOLATION. Except as set forth on SCHEDULE
3.4, the execution and delivery of this Agreement and any related agreements by
Seller and Lessor, the
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consummation of the transactions contemplated hereby and/or the performance
by Seller and Lessor of their obligations hereunder will not:
(a) conflict with any provision of the articles of incorporation,
bylaws or other organizational documents of Pavaco or Lessor;
(b) require any material consent, approval, authorization or permit
of, or filing with or notification to, any governmental or regulatory
authority;
(c) conflict with, result in the breach of or constitute a default (or
give rise to any right of termination, cancellation or acceleration or
guaranteed payments) under any of the terms, conditions or provisions of any
note, lease, mortgage, license, agreement or other instrument or obligation to
which either Seller or Lessor is a party or by which Seller or Lessor or any of
their assets may be bound, including the Genesta Business and the Real Property,
except for such defaults (or rights of termination, cancellation or acceleration
or guaranteed payments) as to which requisite waivers or consents have been
obtained in writing;
(d) conflict with or violate the provisions of any order, writ,
injunction, judgment, decree, statute, rule or regulation; or
(e) result in the creation of any lien, charge or encumbrance upon
any of the Transferred Assets.
3.5 FINANCIAL STATEMENTS. The unaudited internal balance sheet of the
Genesta Business as of March 31, 2001 and the unaudited internal balance sheet
of the Genesta Business as of November 23, 2001 (collectively, hereinafter
referred to as the "Balance Sheet") and the related statements of income for the
twelve-month period and the April 1st to November 23rd periods then ended
(collectively, the "Financial Statements") are attached hereto as SCHEDULE 3.5.
The Financial Statements have been prepared in accordance with Canadian GAAP
applied on a consistent basis throughout the period indicated, and present
fairly in all material respects the financial position of the Genesta Business
as of the end of such fiscal periods and the results of operations for such
periods. Thereafter until Closing, Pavaco shall deliver to Buyer, within twenty
(20) days after each month end, monthly unaudited internal balance sheets and
statements of income which, at the time they are delivered to Buyer, will
present fairly in all material respects the assets and liabilities and results
of operations of the Genesta Business as of their respective dates, compiled in
the same manner as the Financial Statements.
3.6 ABSENCE OF CERTAIN CHANGES. Except as set forth on SCHEDULE 3.6, since
March 31, 2001, (i) Pavaco has conducted the Genesta Business only in, and since
such date, has not engaged in any transaction other than according to, the
ordinary and usual course of such business, and, (ii) there has not been (a) any
event, circumstance, condition, development or occurrence causing, resulting in
or having a material adverse effect on the financial condition, business,
prospects, properties or results of operations of either the Genesta Business or
the Transferred Assets (a "Material Adverse Change"); (b) any material change by
Pavaco in accounting principles, practices or methods; (c) any labour dispute or
difficulty which is reasonably likely to result in any Material Adverse Change,
and no such dispute or difficulty is now threatened; (d) any asset of the
Genesta Business transferred, sold or disposed of (except inventory sold in the
ordinary course of business), or any material asset mortgaged, pledged or
subjected to any lien, charge or other encumbrance; (e) any increase in excess
of C$5,000, individually or in the aggregate, in the compensation payable or
which could become payable by
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Pavaco to employees, distributors, dealers or sales representatives of the
Genesta Business; (f) any amendment by Pavaco of any employee benefit plan;
(g) any indebtedness incurred by Pavaco with respect to the Genesta Business,
except for indebtedness that will be repaid in full or assumed by Pavaco
prior to the Closing; (h) any loan made or agreed to be made by Pavaco with
respect to the Genesta Business, nor has Pavaco become liable or agreed to
become liable as a guarantor with respect to any such loan; or (i) any waiver
by Pavaco of any right or rights of value related to the Genesta Business.
3.7 ABSENCE OF UNDISCLOSED LIABILITIES. The Genesta Business has and will
have no indebtedness, obligations or liabilities, whether accrued, absolute,
contingent or otherwise and whether due or to become due, known or unknown, as
of date of the Balance Sheet and as of the Closing Date, which are not reflected
or reserved for in the Balance Sheet or set forth on SCHEDULE 3.7, including,
without limitation, any liabilities accrued under any employment legislation.
3.8 TITLE TO ASSETS. Each Transferred Asset is set forth and described in
detail on SCHEDULE 1.1. Pavaco has and at Closing will have good and marketable
title to all Transferred Assets other than the Real Property owned by Lessor and
the Customer Assets. The Transferred Assets constitute all of the assets and
interests in assets that are owned or are used in the conduct of the Genesta
Business as it is currently being conducted, other than leased or licensed
assets set forth on SCHEDULE 3.8, the Retained Assets and the Customer Assets.
All of the Transferred Assets will be conveyed to Buyer free and clear of
restrictions on or conditions to transfer or assignment, and free and clear of
all mortgages, liens, leases, security interests, pledges, charges,
encumbrances, equities, claims, easements, rights of way, or any other adverse
claims or rights whatsoever (collectively, "Liens"), other than (i) those items
set forth on SCHEDULE 3.8, (ii) rights of customers with respect to
work-in-process under orders or contracts entered into in the ordinary course of
business, and (iii) immaterial imperfections of title, easements, restrictions,
rights of way and encumbrances (collectively, the "Permitted Liens"). Pavaco has
the absolute and unrestricted right, power, authority and capacity to transfer
the Transferred Assets to Buyer and, upon Closing, Buyer will acquire from
Pavaco legal and beneficial ownership of, good and valid title to, the
Transferred Assets, free from any Lien other than Permitted Liens. At Closing,
except as set forth on SCHEDULE 3.8, none of the Transferred Assets will be
subject to any leasing arrangement. No partner, agent, owner or employee of
Seller, nor any spouse, child, sibling or other relative of any of these
persons, owns or has any interest, directly or indirectly, in any of the
Transferred Assets.
3.9 REAL PROPERTY. Set forth in SCHEDULE 3.9 is a complete and accurate
description of each parcel of real property leased and/or occupied or used in
any manner by the Genesta Business, including, to Seller's Knowledge, any
easement, covenants, rights of way or similar restrictions, and, except as set
forth in SCHEDULE 3.9, there is no other real property used in or related to the
Genesta Business. Except as indicated in SCHEDULE 3.9:
(a) Lessor has, and at the Closing Date will have, good and marketable fee
simple absolute title in and to the Real Property, free and clear of all title
defects, mortgages, pledges, security interests, easements, conditional sales
agreements, liens, restrictions or encumbrances whatsoever;
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(b) Other than the Real Property, there is no other real property
used in the Genesta Business;
(c) Each of the buildings and all fixtures and improvements and roofs
located on the Real Property are in good operating condition, ordinary wear and
tear excepted;
(d) To Seller's Knowledge, the Real Property is serviced by all municipal,
private and public utility services and facilities necessary for the conduct of
the Genesta Business as presently conducted including, water, hydro, telephone,
sewage, storm water and natural gas (and the cost of such services and
facilities has been paid); to Seller's Knowledge, all such utility services and
facilities required for the lands enter the lands through adjoining public
streets, or if they pass through adjoining private lands, do so in accordance
with valid easements or by operation of law;
(e) Neither Seller nor Lessor has received any notice, nor, to Seller's
Knowledge, is either aware, that any of the buildings, structures or other
improvements erected on the Real Property, or the present use thereof, (i) do
not conform in all respects with all applicable zoning and building laws (or
does not constitute a legal nonconforming use), ordinances, regulations or other
laws and applicable deed restrictions, or (ii) encroach on property of others;
(f) Neither Seller nor Lessor has received any written or oral notice of
any pending (i) change of such zoning and building laws, ordinances, regulations
or other laws affecting any of such properties, or (ii) condemnation of any such
properties;
(g) Neither Seller nor Lessor has received any notice from any municipal
body or other public authority requiring work to be done or improvements to be
made upon any of the Real Property and there has been no enactment or adoption
of any ordinance or resolution by any such body or authority authorizing work or
improvements for which any of the Real Property may be assessed;
(h) To Seller's Knowledge, all plants, structures, machinery and equipment
currently in use by Seller in the conduct of the Genesta Business are in
compliance in all material respects with applicable health and safety laws and
regulations.
3.10 INTELLECTUAL PROPERTY.
(a) Except as set forth on SCHEDULE 3.10, Pavaco does not have any right,
title or interest in any registered Intellectual Property (as defined below)
related in any manner to the Genesta Business, and no such Intellectual Property
is necessary for or used in any manner in the Genesta Business as now conducted.
With respect to registered patents and trademarks, SCHEDULE 3.10 contains a list
of all jurisdictions in which such patents and trademarks are registered or
applied for and all registration and application numbers. Except as set forth on
SCHEDULE 3.10, there are no unregistered material trademarks or tradenames
related in any manner to the Genesta Business.
(b) "Intellectual Property" includes Canadian, United States and other
foreign inventions, invention disclosures, patents, inventors' certificates,
utility models, trademarks, service marks, trade names, copyrights, mask work
registrations, trade secrets (including processes and software programs),
registrations and applications therefor and works in progress, and past, present
and future causes of action and remedies therefor, customer lists and
proprietary arrangements with vendors.
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(c) Except as set forth on SCHEDULE 3.10, Pavaco owns or has the
unrestricted perpetual right to use, free and clear of any rights of others and
without payment to any other party, the Intellectual Property listed on such
SCHEDULE 3.10 plus all trade secrets, customer lists, manufacturing and secret
processes owned by Pavaco or used or useful to the Genesta Business, and the
consummation of the transactions contemplated hereby will not alter or impair
any such items nor the unrestricted right of the Genesta Business to use such
items without violating any rights of third parties. To Seller's Knowledge,
Pavaco is not making use of any confidential information or trade secrets of any
present or past employee that has not been fully assigned to Pavaco.
(d) Pavaco has not received any communications alleging that Pavaco has
violated any other person's Intellectual Property rights or has engaged in
unfair competition against such person. Pavaco does not now infringe or
misappropriate any third party Intellectual Property rights and does not have
any liability for any past infringement or misappropriation; provided that with
regard to specifications, designs and/or tools provided to Pavaco by customers,
the representation given in this sentence is to Seller's Knowledge. No dispute
or disagreement involving Pavaco exists or, to Seller's Knowledge, is threatened
with regard to any third party's Intellectual Property rights, including any
allegation of Intellectual Property infringement or misappropriation or of any
breach or default of an Intellectual Property license or similar agreement. (e)
To Seller's Knowledge, (i) no third party is now infringing or misappropriating
any Intellectual Property rights of the Genesta Business, and (ii) there has not
been any past such infringement or misappropriation.
3.11 ACCOUNTS RECEIVABLE. The accounts receivable reflected on the Balance
Sheet constituted all accounts receivable of the Genesta Business as of the date
thereof, other than accounts receivable fully written off as uncollectible as of
such date in accordance with consistently applied prior practice, except as may
be reserved on the Balance Sheet. All such accounts receivable arose from valid
sales made (as opposed to consignments) or services rendered in the ordinary
course of business, and are not subject to any return privileges, set-off or
counterclaim, except as may be reserved on the Balance Sheet. Except as
disclosed on SCHEDULE 3.11, such accounts receivable have been collected in full
since the date of the Balance Sheet or remain valid, binding and legally
enforceable obligations at their full respective amounts (net of allowance for
doubtful accounts established in accordance with consistently applied prior
practice). All accounts receivable created after the date of the Balance Sheet
up to the Closing will arise from valid transactions in the ordinary course of
business, and will be valid, binding and legally enforceable obligations at
their full respective amounts (net of the allowance for doubtful accounts
established with consistently applied prior practice).
3.12 INVENTORIES. Pavaco has good and marketable title to all of its
inventories of raw materials, work-in-process and finished goods related in any
manner to the Genesta Business, free and clear of all Liens save and except
Permitted Liens. Except to the extent reserved for on the Balance Sheet, all
such inventories (i) consist of items that are usable in the ordinary course of
business for an amount at least equal to the book value thereof, (ii) represent
quantities, individually and in the aggregate, not in excess of twelve month's
requirements for the business as currently conducted, and/or (iii) have not been
present in inventory for more than twelve months.
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3.13 CONTRACTS. The Genesta Business, directly or indirectly through
Pavaco, does not have any contract, agreement, obligation or commitment, written
or oral, expressed or implied, which was not incurred in the ordinary course of
business, or involves a commitment or liability in excess of $10,000, or is for
a term of more than one year or whose terms do not permit cancellation without
liability on 30 days' notice or less (other than obligations which are included
in accounts payable), and has no union contracts, employee, representative or
consultant contracts, loan, credit or other financing agreements, inventory
flooring arrangements, debtor or creditor arrangements, security agreements,
licenses, franchise, manufacturing, distributorship or dealership agreements,
leases, or bonus, health or stock option plans, except for those described in
SCHEDULE 3.13 (collectively, the "Contracts"), copies of all of which have been
made available to Buyer prior to the execution hereof. As of the date hereof,
there exists no circumstances on Pavaco's part and, to Seller's Knowledge, on
the part of any third party, which would affect the validity or enforceability
of any such Contracts in accordance with their respective terms. Pavaco has
performed and complied in all respects with all obligations required to be
performed to date under, and is not in default (without giving effect to any
required notice or grace period) under, or in breach of, the terms, conditions
or provisions of any Contract. Except for consents to assignment required as set
forth on SCHEDULE 3.4, the validity and enforceability of each Contract
described herein has not been and shall not in any manner be affected by the
execution and delivery of this Agreement or any related agreement or the
consummation of the transactions contemplated hereby. There are no customer
sales contracts which will require future expenditures (including internal costs
and overhead) in excess of reasonably anticipated receipts. Seller is not in
default of performance in respect of any Assumed Contract which may involve a
liability, obligation or impact on annual revenue, expenses or an asset of the
Genesta Business in excess of Ten Thousand Canadian Dollars (C$10,000).
3.14 EMPLOYEE AND LABOUR MATTERS.
(a) SCHEDULE 3.14 sets forth a complete list of all employees, together
with the titles and material terms of employment, including current wages,
salaries or hourly rate of pay, bonuses (whether monetary or otherwise) paid
since the beginning of the most recently completed fiscal year or payable in the
current fiscal year to each such employee, the date upon which such wage,
salary, rate or bonus became effective, any non-competition, non-solicitation or
similar agreements, and the date upon which each such employee was first hired
by Pavaco. Except as disclosed, no employee is on long-term disability leave,
extended absence or receiving benefits pursuant to the WORKPLACE SAFETY AND
INSURANCE ACT (Ontario).
(b) Except for those written employment contracts with salaried employees
identified in SCHEDULE 3.14, there are no written contracts of employment
entered into with any employee or any oral contracts of employment which are not
terminable on the giving of reasonable notice in accordance with applicable law.
(c) Except as set out in SCHEDULE 3.14 and 3.15, there are no employment
policies or plans, or other terms or conditions of employment or terms or
conditions upon which employees may be terminated, which are binding upon
Pavaco.
(d) The Genesta Business has been and is being operated in full compliance
with all laws relating to employees, including employment standards,
occupational health and safety, and pay equity. There have been no claims nor,
to Seller's Knowledge, are there any threatened complaints, under such laws
against Pavaco in respect of the Genesta Business.
(e) Except as set out in SCHEDULE 3.14 and 3.15, there are no complaints
nor, to Seller's Knowledge, are there any threatened complaints, against Pavaco
with respect to the
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Genesta Business pursuant to any laws relating to employees, including
employment standards, human rights, occupational health and safety, workers
compensation, pay or employment equity. To Seller's Knowledge, nothing has
occurred which might lead to a complaint against Pavaco with respect to the
Genesta Business under any such laws. There are no outstanding decisions or
settlements or pending settlements which place any obligation upon Pavaco
with respect to the Genesta Business, to do or refrain from doing any act.
(f) All current assessments under the WORKPLACE SAFETY AND INSURANCE ACT
(Ontario) in relation to the Genesta Business have been paid or accrued by
Pavaco and the Genesta Business has not been subject to any special or penalty
assessment under such legislation which has not been paid.
(g) Pavaco has made available to Buyer for review, all inspection reports
under the OCCUPATIONAL HEALTH AND SAFETY ACT (Ontario) relating to the Genesta
Business. There are no outstanding inspection orders made under the OCCUPATIONAL
HEALTH AND SAFETY ACT (Ontario) relating to the Genesta Business. Except as set
forth in SCHEDULE 3.14, Pavaco is operating in compliance with all occupational
health and safety laws, including but not limited to the Workplace Hazardous
Materials Information Systems (WHMIS), relating to the Genesta Business. To
Seller's Knowledge, there are no pending or threatened charges under
occupational health and safety laws relating to the Genesta Business. There have
been no fatal or critical accidents relating to the Genesta Business in the five
(5) years preceding the date hereof which might lead to charges under
occupational health and safety laws. To Seller's Knowledge, there are no
materials present in the Genesta Business, exposure to which may result in an
industrial disease as defined in the WORKPLACE SAFETY AND INSURANCE ACT
(Ontario). If such materials, including asbestos, have to be removed within
three (3) years after the Closing to comply with occupational health and safety
laws as of the date hereof, Pavaco agrees to indemnify Buyer for any and all
costs arising from such removal. Pavaco has complied in all respects with any
remedial orders issued under occupational health and safety laws. To Seller's
Knowledge, there are no appeals of any remedial orders under occupational health
and safety laws relating to the Genesta Business which are currently
outstanding.
(h) Except as set forth in SCHEDULE 3.14, no affiliate, stockholder,
director, officer or, to Seller's Knowledge, employee of Pavaco is presently a
party to any transaction involving the Genesta Business, including without
limitation any contract, loan or other agreement or arrangements providing for
the furnishing of services by, the rental of real or personal property from or
to, or otherwise requiring loans or payments to, any such affiliate,
stockholder, director, officer or employee, or to any member of the family of
any of the foregoing or to any corporation, partnership, trust or other entity
in which any affiliate, stockholder, director, officer or employee or any member
of the family of any of them has a substantial interest or is a partner,
officer, director, trustee, or employee.
(i) To Seller's Knowledge, all current employees of Pavaco are
entitled to work in Canada.
3.15 COLLECTIVE AGREEMENTS.
(a) SCHEDULE 3.15 sets forth a complete list of the Collective Agreements,
either directly or by operation of law, with any trade union or association
which may qualify as a trade union.
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(b) There are no outstanding labour tribunal proceedings of any kind,
including any proceedings which could result in certification of a trade union
as bargaining agent for employees or dependent contractors of Pavaco not already
covered by the Collective Agreements, and there have not been any such
proceedings within the last two years as relates to the Genesta Business.
(c) There are no threatened or apparent union organizing activities
involving employees or dependent contractors of Pavaco in respect of the Genesta
Business, not already covered by the Collective Agreements.
(d) Pavaco is not in default in any material respect under any Collective
Agreement as relates to the Genesta Business.
(e) There is no strike or lock out occurring or to the Knowledge of Pavaco
threatened affecting the Genesta Business.
(f) Except as described in SCHEDULE 3.15, Pavaco does not have any
unresolved grievances or pending arbitration cases outstanding relating to the
Genesta Business. Pavaco does not have any labour problems that might materially
affect the value or operation of the Genesta Business.
(g) None of the Collective Agreements contain provisions relating to the
establishment or maintenance of any Pension Plan or contributions thereto.
3.16 PENSION AND BENEFIT PLANS.
(a) SCHEDULE 3.16 sets forth a complete list of the Pension Plans,
including all plans, arrangements, agreements, programs, policies or practices,
whether oral or written, formal or informal, funded or unfunded, registered or
unregistered, relating to retirement savings or pensions, including any defined
benefit pension plan, defined contribution pension plan, group registered
retirement savings plan, deferred profit sharing plan or supplemental pension or
retirement plan, and Benefit Plans, including any plans, arrangements,
agreements, programs, policies or practices, whether oral or written, formal or
informal, funded or unfunded, registered or unregistered, relating to bonuses,
profit sharing, deferred compensation, incentive compensation, share purchase,
share option, stock appreciation, phantom stock, savings, hospitalization,
health, medical or dental treatment or expenses, disability, supplementary
unemployment benefits, employee loans, vacation pay, severance or termination
pay or other benefits.
(b) Current and complete copies of all written Plans or, where oral,
written summaries of the material terms thereof, have been provided or made
available to Buyer together with current and complete copies of all documents
available to Pavaco relating to the Pension Plans and Benefit Plans, including,
as applicable,
(i) all documents establishing, creating or amending any Pension
Plans or Benefit Plans;
(ii) all trust agreements, funding agreements, insurance
contracts, investment management agreements and investment policies;
(iii) all financial statements and accounting statements and
reports, and investment reports for each of the last six years and the three
most recent actuarial reports;
(iv) all reports, returns, filings and material correspondence
with any regulatory authority in the last six years;
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(v) all legal opinions, consultants' reports, actuarial reports
and correspondence relating to the administration or funding of any Pension
Plan or the use of funds held thereunder;
(vi) all employee data necessary to administer any Pension Plan
or Benefit Plan in accordance with laws; and
(vii) all booklets, summaries, manuals, and written
communications of a general nature prepared for or distributed to any
employee concerning any Pension Plan or Benefit Plan.
(c) Except as disclosed in SCHEDULE 3.16 each Pension Plan and Benefit
Plan, and any amendment to any Pension Plan or Benefit Plan is, and has been,
established, registered, qualified, administered and invested, in compliance
with (i) the terms thereof, (ii) all laws and (iii) the Collective Agreements;
and Pavaco has not received, in the last six years, any notice from any person
questioning or challenging such compliance (other than in respect of any claim
related solely to that person), and has no Knowledge of any such notice from any
person questioning or challenging such compliance beyond the last six years.
(d) All obligations under the Pension Plan and Benefit Plans (whether
pursuant to the terms thereof of any laws) have been satisfied, and there are no
outstanding defaults or violations thereunder by Pavaco nor does Pavaco have any
Knowledge of any default or violation by any other party to any Pension Plan or
Benefit Plan.
(e) Except as required under any laws or Collective Agreement, there have
been no improvements, increases or changes to or promised improvements,
increases or changes to the benefits provided under the Pension Plans or Benefit
Plans. None of the Pension Plans or Benefit Plans provide for benefit increases
or the acceleration of funding obligations that are contingent upon or will be
triggered by the entering into of this Agreement or the completion of the
transactions contemplated herein.
(f) All payments, contributions and premiums required to be paid to or in
respect of each Pension Plan, Benefit Plan and Statutory Plan have been paid in
a timely fashion in accordance with the terms thereof and all laws, and no
Taxes, penalties or fees are owing or eligible under any Pension Plan, Benefit
Plan or Statutory Plan.
(g) There is no proceeding, action, investigation by governmental
authorities, suit or claim (other than routine claims for payment of benefits)
pending or threatened involving and Pension Plan or Benefit Plan or their
assets, and no facts exist which could reasonably be expected to give rise to
any such proceeding, action, investigation, suit or claim (other than routine
claims for payment of benefits).
(h) No event has occurred respecting any Pension Plan which would entitle
any person (without the consent of Pavaco) to wind-up or terminate any Pension
Plan, in whole or in part, or which could, reasonably be expected to adversely
affect the tax status thereof.
(i) There are no going concern unfunded actuarial liabilities, past
service unfunded liabilities or solvency deficiencies respecting any of the
Pension Plans.
(j) No material changes have occurred in respect of any Pension Plan since
the date of the most recent financial, accounting, actuarial or other report, as
applicable, issued in connection with any Pension Plan, which could reasonable
be expected to adversely affect the relevant report (including rendering it
misleading in any material respect).
(k) Pavaco has not received, or applied for, any payment of surplus
out of any Pension Plan.
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(l) Except as disclosed in SCHEDULE 3.16, Pavaco has not taken any
contribution or premium holidays under any Pension Plan, and Pavaco was entitled
under the terms of the Pension Plan and under all laws to take such contribution
holidays.
(m) There have been no improper withdrawals or transfers of assets from
any Pension Plan.
(n) All employee data necessary to administer each Pension Plan and
Benefit Plan is in the possession of Pavaco and is in a form which is sufficient
for the proper administration of each Pension Plan or Benefit Plan in accordance
with the terms thereof and all laws.
(o) Other than the Pension Plans and Benefit Plans, there are no other
arrangements, programs or plans which provide benefits to retired employees of
the Genesta Business or to the beneficiaries or dependents of retired employees
of the Genesta Business.
(p) None of the Pension Plans or Benefit Plans require or permit a
retroactive increase in premiums or payments.
3.17 PERMITS. Seller holds all material permits, licenses, franchises,
certificates and authorizations (collectively, the "Permits") that are required
by any governmental agency to permit the Genesta Business to be conducted as now
conducted, and all such Permits are valid and in full force and effect. To
Seller's Knowledge, no suspension, cancellation or termination of any of such
Permits is threatened or imminent. SCHEDULE 3.17 sets forth a complete list of
the Permits and indicates whether or not each such Permit is transferable by
Seller to Buyer.
3.18 TAXES. Except as set forth on SCHEDULE 3.18:
(a) Seller has made, when due, all required payments, withholdings and
remittances including, without limitation, with respect to the employees of the
Genesta Business, under all applicable laws in connection with the Business
including, without limitation, under provincial and federal sales tax
legislation, employer health tax legislation, unemployment insurance legislation
and the Canada Pension Plan.
(b) Seller is not a non-resident of Canada for the purposes of the
Income Tax Act (Canada).
(c) Seller is duly registered under subdivision (d) of Division V of Part
IX of the Excise Tax Act (Canada) in respect of goods and services tax and its
Business Number is 970104105 for the Genesta Business and 970104113 for the
Hematite Business. Seller is not required to be registered in respect of any
harmonized sales tax.
(d) Pavaco and Lessor have each withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing to any
employee, creditor, independent contractor, or other third party.
(e) There is no dispute or claim concerning any Tax liability relating in
any manner to the Genesta Business or the Transferred Assets either (i) claimed
or raised by any authority or (ii) to Seller's Knowledge threatened by any agent
of any authority.
(f) For purposes of this Agreement, "Tax" or "Taxes" means any federal,
provincial, county, local or foreign income, gross receipts, license, payroll,
employment, excise, severance, stamp, occupation, premium, windfall profits,
environmental (including taxes under Code Section 59A), customs duties, capital
stock, franchise, profits, withholding, social security (or similar),
unemployment, disability, real property, personal property, sales, use,
transfer,
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registration, value added, alternative or add-on minimum, estimated, or other
tax of any kind whatsoever, including any interest, penalty, or addition
thereto, whether disputed or not.
(g) None of the Transferred Assets has been the subject of a
tax-exempt transfer within the meaning of s.13 of Regulation 1013 made under
the RETAIL SALES TAX ACT (Ontario).
3.19 LITIGATION. Except as set forth on SCHEDULE 3.19, there is no claim,
action or proceeding pending or, to Seller's Knowledge, threatened against or
relating to Seller, the Genesta Business or any of the Transferred Assets before
any federal, provincial, municipal or other governmental department, commission,
court, board, bureau, agency, instrumentality or other person acting in an
adjudicative capacity, domestic or foreign. To Seller's Knowledge, there is no
basis for any claim, action or proceeding against or relating to Seller, the
Genesta Business or any of the Transferred Assets. Neither Pavaco nor, to
Seller's Knowledge, any employee of Pavaco has been permanently or temporarily
enjoined by any order, judgment or decree of any court or any other governmental
or regulatory authority from engaging in or continuing any conduct or practice
in connection with the Genesta Business or the Transferred Assets nor, to
Seller's Knowledge, is any employee or owner of Pavaco under investigation by
any governmental or regulatory authority. There is not in existence any order,
judgment or decree of any court or other tribunal or other agency enjoining or
requiring Seller to take any action of any kind with respect to the Genesta
Business or the Transferred Assets. Neither Seller nor the Genesta Business have
been threatened with any action, suit, proceeding or claim (including actions,
suits, proceedings or claims where its liabilities may be adequately covered by
insurance) for personal injuries allegedly attributable to products sold or
services performed by the Genesta Business asserting a particular defect or
hazardous property in any of products of the Genesta Business, services or
Genesta Business practices or methods, nor has Seller or the Genesta Business
been a party to or threatened with proceedings brought by or before any federal
or provincial agency; and there is no defect or hazardous property, claimed or
actual, in any such product, service, business practice or method, except as
reserved for in the Balance Sheet. Neither Seller nor the Genesta Business is
subject to any voluntary or involuntary proceeding under the Canadian or United
States Bankruptcy Code and neither has made an assignment for the benefit of
creditors. Except as described in detail on SCHEDULE 3.19, in the past seven (7)
years Seller has not been a party to or threatened with any material legal
claims, actions or proceedings of any type that resulted in any liability to
Seller, nor has Seller entered into any settlements or agreements of any kind
related in any manner to a dispute directly or indirectly involving the Genesta
Business or the Transferred Assets.
3.20 COMPLIANCE WITH APPLICABLE LAWS. Pavaco holds, and has at all times
held, all licenses, permits and authorizations then necessary for the lawful
conduct of the Genesta Business, as now conducted and all such licenses, permits
and authorizations are valid and sufficient for all business now conducted by
Pavaco. Pavaco has complied with, and is in compliance in all material respects
with, all applicable laws, orders, rules and regulations promulgated by any
federal, provincial, municipal or other governmental authority relating to the
operation and conduct of the Genesta Business and its properties, and there have
not been and are not any material violations of any such law, order, rule or
regulation, existing or threatened. Seller has not received any notice from any
authority or person that the Genesta Business has been or is being, conducted in
violation of any applicable zoning regulation or order, or other law, order,
regulation or requirement relating to the operation of its business or to its
properties.
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3.21 ENVIRONMENTAL MATTERS.
(a) Except as set forth on SCHEDULE 3.21 hereto:
(i) Seller, Lessor and the Genesta Business have complied in
all material respects with all applicable Environmental Laws;
(ii) The Property (including soils, groundwater, surface water,
buildings or other structures) is not contaminated with any Hazardous
Substances that may subject Seller, Lessor, Buyer, the Genesta Business or
the Transferred Assets to liability under any Environmental Law;
(iii) All properties formerly owned or operated by Seller or
Lessor are not contaminated with Hazardous Substances that may subject Buyer,
the Genesta Business or the Transferred Assets to liability under any
Environmental Law;
(iv) Neither Seller, Lessor nor the Genesta Business are
subject to liability under any Environmental Law for any Hazardous Substance
disposal or contamination on any third party property;
(v) Neither Seller, Lessor nor the Genesta Business have
caused or contributed to any release or threat of release of any Hazardous
Substance that may subject any Seller, Lessor, Buyer, the Genesta Business or
the Transferred Assets to liability under any Environmental Law;
(vi) None of Seller or Lessor have received any notice, demand,
letter, claim or request for information alleging that Seller, Lessor or the
Genesta Business may be in violation of, or liable under, any Environmental
Law;
(vii) Neither Seller, Lessor nor the Genesta Business are
subject to any orders, decrees, injunctions or other arrangements with any
governmental entity, nor subject to any indemnity or other agreement with any
third party relating to liability under any Environmental Law or relating to
Hazardous Substances;
(viii) To the Knowledge of Seller, there are no circumstances or
conditions involving Seller, Lessor or the Genesta Business that could
reasonably be expected to result in any claims, liability, investigations,
costs or restrictions on the ownership, use or transfer of any of Property
pursuant to any Environmental Law;
(ix) The Property has not and does not contain any underground
storage tanks, asbestos-containing material, lead-based products, halogenated
solvents or polychlorinated biphenyls;
(x) Seller has obtained all governmental approvals which are
required under Environmental Laws in respect of the facilities and the
Genesta Business, and all such government approvals are valid, in full force
and effect; Seller has not received any notice, nor is it aware of any
proposal, to amend, revoke or replace any governmental approval or requiring
the issue of any additional governmental approval under Environmental Laws in
respect of the facilities of the Genesta Business, and;
(xi) There are no registrations by or on behalf of a
governmental or regulatory authority nor any liens under the ENVIRONMENTAL
PROTECTION ACT (Ontario), ONTARIO WATER RESOURCES ACT, PESTICIDES ACT
(Ontario) or GASOLINE HANDLING ACT (Ontario) on or against any facility and
Seller is not aware of any actions which have been taken or are in the
process or pending which could subject any facility to such liens or
registrations
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(b) "Environmental Law" means any federal, provincial, local or foreign
law, statute, ordinance, rule, regulation, or treaty; all judicial
administrative, and regulatory orders, judgments, decrees, permits, and
authorizations; and common law relating to: (i) the protection of human health,
the environment or natural resources, (ii) the investigation, remediation or
restoration of the environment or natural resources, (iii) the handling, use,
storage, treatment, disposal, release or threatened release of any Hazardous
Substance; or (iv) noise, odour, pollution, contamination, land use, or any
injury or threat of injury to persons or property related thereto.
(c) "Hazardous Substance" means any substance, material or waste that is:
(i) listed, classified or regulated in any concentration pursuant to any
Environmental Law; (ii) any petroleum product or by-product, asbestos-containing
material, lead-containing paint or plumbing, polychlorinated biphenyls,
radioactive materials; or (iii) any other substance, material or waste which may
be the subject of regulatory action by any governmental entity pursuant to any
Environmental Law.
(d) "Property" means any real property and improvements owned, leased,
used, operated or occupied by Seller, Lessor or the Genesta Business, including
without limitation the Real Property.
3.22 RELATIONSHIPS WITH CUSTOMERS AND SUPPLIERS. To Seller's Knowledge, no
present customer or substantial supplier to the Genesta Business has indicated
an intention to terminate or adversely alter its existing business relationship
therewith, and Seller has no reason to believe that any of the present customers
of or substantial suppliers to the Genesta Business intends to do so.
3.23 WARRANTIES; PRODUCT RETURNS. Except as described in SCHEDULE 3.23
hereto, Pavaco does not offer any warranties for the products and services of
the Genesta Business. The warranty reserve reflected in the allowance for
doubtful accounts in the Financial Statements is and will be adequate to cover
all warranty claims pending as of the date hereof and pending as of the Closing
Date. None of the products manufactured by the Genesta Business have been
subject to recall.
3.24 INSURANCE. SCHEDULE 3.24 sets forth a true and correct list and a
general description of all insurance policies of any nature whatsoever
maintained by Pavaco or Lessor pertaining to the Genesta Business or the
Transferred Assets or Real Property, including all policies of life, group
medical and/or dental insurance. Such policies will be in full force and effect
through the Closing Date and, except as otherwise set forth on SCHEDULE 3.24,
such policies, or other policies covering the same risks, have been in full
force and effect, without gaps, continuously for the past five (5) years. Copies
of all such policies have been made available to Buyer for its inspection.
Neither Pavaco nor Lessor is in default under any of such policies or binders
nor has either failed to give any notice or to present any material claim under
any such policy or binder in a due and timely fashion.
3.25 BROKER'S COMMISSION OR INVESTMENT BANKER FEES. Other than KPMG
Corporate Finance, Inc., no person or entity has acted for Seller in connection
with the transactions provided for in this Agreement in a way which would
entitle such person to, and no person or entity is entitled to, any broker's
commissions or finder's fees (or other similar fees or
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commissions) in connection with this Agreement. Seller shall be solely
responsible for payment of all such commissions and fees.
3.26 THIRD PARTY BENEFITS; ALLOCATED COSTS. Except as described in
SCHEDULE 3.26, no related third party has provided, directly or indirectly, any
benefit, service, good or product to the Genesta Business, and the fair value of
all services provided by employees of Pavaco and other third parties to the
Genesta Business have been and are charged to the financial statements of the
Genesta Business. All costs that are or should be allocated between the Genesta
Business and the Hematite Business or any other third party have been and are
fairly allocated to the financial statements of the Genesta Business.
3.27 FULL DISCLOSURE; KNOWLEDGE. All instruments, agreements and other
documents delivered by Seller to Buyer on Closing are complete and correct in
all material respects. No representation or warranty made by Seller or Lessor in
this ARTICLE III or the Schedules to this Agreement contains or will contain any
untrue statement of a material fact or omits or will omit to state a material
fact required to be stated herein or therein necessary to make the statements on
behalf of Seller or Lessor in this ARTICLE III and the Schedules to this
Agreement, in light of the circumstances in which they are made, not misleading.
As used in this Agreement, "Knowledge" means, with respect to Seller, such
knowledge as would be obtained after due inquiry of Charles Pavanel, John C.
Pavanel, Mervyn Schwantz and/or Jacques Nadeau.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER AND PARENT
Buyer and Parent hereby jointly and severally represent and warrant to
Seller as follows:
4.1 ORGANIZATION. Buyer is a corporation duly organized and validly
existing under the laws of the Province of Ontario. Parent is a corporation duly
organized, validly existing and in good standing in the State of Delaware. Buyer
and Parent have the requisite corporate power to own, use or lease their
respective properties and to carry on their businesses as such are now being
conducted.
4.2 AUTHORITY RELATIVE TO THIS AGREEMENT. Subject only to approval and
ratification by Parent's board of directors, Buyer and Parent have all requisite
corporate power and authority to execute and deliver this Agreement and any
related agreements and to consummate the transactions contemplated hereby.
Subject only to approval and ratification by Parent's board of directors, the
execution and delivery of this Agreement, any related agreements and the
consummation of the transactions contemplated hereby on the part of Buyer and
Parent have been duly and validly authorized by Buyer and Parent and no other
corporate proceedings on the part of Buyer or Parent are necessary, as a matter
of law or otherwise, to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly and validly executed
and delivered by Buyer and Parent and, assuming this Agreement constitutes a
valid and binding obligation of Sellers, this Agreement constitutes a valid and
binding agreement of Buyer and Parent, enforceable against Buyer and Parent in
accordance with its terms, except as such enforcement may be limited by
applicable bankruptcy, insolvency,
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reorganization, moratorium or other laws of general application affecting
enforcement of creditors' rights or by general principles of equity, and the
qualifications expressed in the opinion to be given by Buyer's solicitors
pursuant to SUBSECTION 7.3(f).
4.3 CONSENT AND APPROVALS; NO VIOLATION. The execution and delivery of
this Agreement by Buyer and Parent, the consummation of the transactions
contemplated hereby and the performance by each of Buyer and Parent of its
obligations hereunder, will not:
(a) conflict with any provision of the certificate of incorporation
or bylaws of Buyer or Parent;
(b) require any consent, approval, authorization or permit of, or filing
with or notification to, any governmental or regulatory authority other than the
post-Closing filings by Parent on Form 8-K and Form D with the Securities and
Exchange Commission (the "SEC"), and by Buyer and Parent pursuant to Ontario
Securities Commission Policy 45-501;
(c) conflict with, result in the breach of or constitute a default (or
give rise to any right of termination, cancellation or acceleration or
guaranteed payments) under any of the terms, conditions or provisions of any
material note, lease, mortgage, license, agreement or other instrument or
obligation to which Buyer or Parent is a party or by which Buyer or Parent or
any of their assets may be bound, except for such defaults (or rights of
termination, cancellation or acceleration) as to which requisite waivers or
consents have been obtained; or
(d) conflict with or violate the provisions of any order, writ,
injunction, judgment, decree, statute, rule or regulation applicable to Buyer or
Parent.
4.4 BROKER'S COMMISSION OR FINDER'S FEES. No person or entity has acted
for Buyer and/or Parent in connection with the transactions provided for in this
Agreement in a way which would entitle such person to, and no person or entity
is entitled to, any broker's commissions or finder's fees (or other similar fees
or commissions) in connection with this Agreement or the transactions
contemplated hereby. Buyer and Parent shall be solely responsible for payment of
all such commissions and fees.
4.5 PENSION PLAN. If Buyer causes a partial or full wind-up of Pavaco's
Pension Plan with an effective date within the three year period commencing on
the Closing Date (including, without limitation, due to the establishment of a
group RRSP in the absence of a registered pension plan), or takes or causes to
be taken such action as a result of which any governmental or regulatory
authority requires a partial or full wind-up of Pavaco's Pension Plan, with an
effective date within the three year period commencing on the Closing Date,
Buyer shall pay to the funding medium for Pavaco's Pension Plan an amount
determined by an independent actuary mutually acceptable to the Buyer and Pavaco
to be the excess, if any, of
(a) the aggregate amount paid in respect of Pavaco's Pension Plan to
satisfy the entitlements of the employees affected by the wind-up; over
(b) the aggregate liability for the entitlements of such employees
determined as if each affected employee had voluntarily terminated employment on
the day before the Closing Date in circumstances that would not require a full
or partial wind-up of the Pavaco Pension Plan.
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Buyer's liability to make payments under this section is limited to C$100,000 in
the aggregate. Buyer shall have no obligation to make any payment under this
section if:
(c) the full or partial wind-up of Pavaco's Pension Plan occurs solely as
a result of a change of law or practice or policy of a governmental or
regulatory authority after the Closing Date; or
(d) the full or partial wind-up of Pavaco's Pension Plan occurs as a
result of or in connection with (1) the sale by Buyer of all or substantially
all of the Business or the Purchased Assets to a person who is not related to
Buyer within the meaning of the Income Tax Act (Canada), or (2) the disposition
by the Parent of a controlling interest in Buyer to a person who is acting at
"arm's length" and not related to the Parent (within the meaning given to such
term in the Income Tax Act (Canada)).
If any governmental or regulatory authority requires, or gives notice that it
will require, a full or partial wind-up of Pavaco's Pension Plan with an
effective date within the three year period commencing on the Closing Date,
Pavaco shall so advise Buyer and at the request, direction and expense of Buyer,
shall object to or appeal from the requirement of the governmental or regulatory
authority.
4.6 BUYER. Buyer is a corporation incorporated under the BUSINESS
CORPORATIONS ACT (Ontario) and as of the date hereof has no assets or
liabilities and has not carried on any business.
4.7 GST. Prior to Closing, Buyer will be a GST Registrant pursuant
to the Excise Tax Act (Canada).
4.8 CONTINUOUS DISCLOSURE. Parent is a reporting issuer under the federal
securities laws of the United States and is not in material violation of any of
the reporting provisions of the rules and regulations applicable thereunder. As
of the date hereof, Parent has timely filed all continuous disclosure filings
required by such laws, rules and regulations, and all such filings by Parent
have been in material compliance with applicable disclosure requirements. Pavaco
acknowledges that all such filings have been made available to Pavaco.
4.9 BUYER'S CONFIRMATION. Buyer confirms that it has not deliberately
concealed any information from Seller or Lessor regarding a material breach by
Seller or Lessor of any obligation or covenant of Seller or Lessor under this
Agreement or regarding any material inaccuracy in any representation or warranty
of Seller or Lessor under this Agreement.
ARTICLE V
COVENANTS OF SELLER
Seller agrees (except as expressly contemplated by this Agreement or to
the extent that Buyer shall otherwise consent in writing) as follows:
5.1 ACCESS TO INFORMATION.
(a) Seller shall (i) give Buyer and its authorized representatives
reasonable access upon reasonable notice during normal business hours in such a
manner as not unduly to disrupt normal business activities to the Transferred
Assets and to all plants, offices, warehouses and other facilities of the
Genesta Business and to all contracts, internal reports, data processing files
and records, commitments, books, records and affairs of Pavaco related to the
Genesta Business,
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and all such items of Lessor related to the Real Property, whether located on
the premises of the Genesta Business, the office facilities of Pavaco, Lessor
or at another location, (ii) permit Buyer to make such inspections and
inquiries as it may require, provided that Buyer shall not contact or attempt
to contact customers, suppliers or employees of the Genesta Business without
the prior express consent of an officer of Pavaco, not to be unreasonably
withheld, and (iii) cause its officers to furnish Buyer such financial,
operating, technical and product data and other information with respect to
the Genesta Business and the Transferred Assets as Buyer from time to time
may reasonably request, including without limitation financial statements and
schedules; provided, however, that no investigation pursuant to this SECTION
5.1 shall affect or be deemed to modify any representation or warranty made
by Seller herein.
(b) Seller shall give prompt notice to Buyer of any breach of any of
its covenants hereunder or the occurrence of any event that is reasonably
likely to cause any of its representations and warranties hereunder to become
incomplete or untrue in any respect.
5.2 ORDINARY COURSE. From October 1, 2001, Pavaco shall, relating in any
manner to the Genesta Business (a) carry on the Business in the usual, regular
and ordinary course, in substantially the same manner as heretofore conducted
and use all reasonable efforts consistent with past practice and policies to (i)
preserve its present business organizations, (ii) keep available the services of
its present officers and key employees (other than employees terminated for
cause or in the ordinary course of business, consistent with past practices),
and (iii) preserve its relationships with customers, suppliers, lessors, lessees
and others having business dealings with it; (b) maintain its books and records
in accordance with existing practices; (c) not pay distributions of any type;
(d) not hire additional employees, except in the ordinary course of business,
consistent with past practices, nor become obligated for additional rental
payments; (e) not modify the compensation or benefits paid to any employee,
except in the ordinary course of business, consistent with past practices; and
(f) not undertake material expenditures, including, without limitation, the
purchase or lease of equipment; provided that, expenditures less than C$25,000
individually and C$50,000 in the aggregate shall not be deemed material; further
provided that this Subsection 5.2(f) shall not apply with respect to expenses
incurred for the purchase of raw materials to be used in the production process
in the ordinary course of business consistent with past practices.
5.3 EXCLUSIVE NEGOTIATIONS.
(a) Seller shall not, directly or indirectly through any employee, agent
or representative (including without limitation investment bankers, attorneys,
accountants and consultants), or otherwise:
(i) solicit, initiate, discuss, respond to or further the
submission of proposals or offers from, or enter into any agreement with, any
firm, corporation, partnership, association, group (as defined in Section
13(d)(3) of the United States Securities Exchange Act of 1934, as amended) or
other person or entity, individually or collectively (including without
limitation any managers, employees or independent contractors of Pavaco or
any of its affiliates), other than Buyer (a "Third Party"), relating to any
acquisition or purchase of all or a material portion of the Transferred
Assets, or any equity interest in Pavaco (or the Genesta Business), or any
merger, consolidation or business combination with Pavaco;
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(ii) participate in any discussions or negotiations
regarding, or furnish to any Third Party any confidential information with
respect thereto; or
(iii) otherwise cooperate in any way with, or assist or
participate in, facilitate or encourage, any effort or attempt by any Third
Party to do or seek to do any of the foregoing.
(b) Seller shall promptly notify Buyer in writing if any such proposal
or offer, or any inquiry or contact with any Third Party with respect
thereto, is made or received.
(c) Seller shall immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any Third Party
conducted prior to the date of this Agreement with respect to any of the
foregoing.
(d) The terms set forth in this SECTION 5.3 shall remain in effect from
the date of this Agreement until such time, if ever, as terminated in writing
by Seller by delivery to Buyer of a termination notice referencing this
Section; provided that, no such termination shall be effective prior to the
earliest of (i) the termination of this Agreement by Buyer, (ii) sixty (60)
days after the date hereof, or (iii) the Closing Date.
5.4 NO DISPOSITIONS. From October 1, 2001, except for the sale of
inventory in the ordinary course of business and other than as may be required
by existing contracts, Seller shall not sell, lease or otherwise dispose of any
Transferred Assets and shall promptly notify Buyer in writing prior to any
dispositions of non-inventory items.
5.5 INDEBTEDNESS. From October 1, 2001, the Genesta Business shall not
incur, become subject to, or agree to incur or become subject to any obligation
or liability (absolute or contingent), except current liabilities incurred, and
obligations under existing contracts, in the ordinary course of business
consistent with prior practice. Seller shall not permit any liens or security
interests to attach to the Transferred Assets, other than Permitted Liens.
5.6 PENSION AND BENEFIT PLANS. Pavaco shall not:
(a) pay, agree to pay or make any accrual or arrangement for payment of
any Pension Plans or Benefit Plans, including, retirement allowance or other
employee benefit pursuant to any existing plan, agreement or arrangement to any
employee except in the ordinary course of business and consistent with past
practice;
(b) commit itself to adopt or pay, grant, issue or accrue salary or
benefits pursuant to any additional Pension Plan or Benefit Plan, including,
profit-sharing, bonus, extra compensation, incentive, deferred compensation,
group insurance, severance pay, retirement or other employee benefit plan,
agreement or arrangement, or any employment or consulting agreement with or for
the benefit of any employee, agent or consultant, whether past or present; or
(c) amend any such existing plan, agreement or arrangement.
5.7 MAINTENANCE OF WORKING CAPITAL. From October 1, 2001, consistent in
all respects with past practices, Pavaco shall (a) timely pay when due all
accounts payable and other expenses, and (b) collect all accounts receivable and
convert or use all other non-cash assets in the ordinary course.
5.8 CASH MANAGEMENT. Seller agrees that all cash, whether in currency,
check or wire form, and all other property received by Seller on or after the
Closing Date and related in any
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manner to the Genesta Business or the Transferred Assets shall be for the
account of Buyer, and Seller shall promptly deliver all such cash to Buyer
with a written accounting thereof. If requested, Seller shall provide
assistance to Buyer in identifying and notifying certain customers of changes
in bank accounts for the Genesta Business.
5.9 CHANGE OF NAME; TRANSFER OF DOMAIN NAME. Pavaco shall take all
necessary actions and make all necessary filings to modify its operations to
exclude any and all references to "Genesta" effective as of the Closing Date.
Pavaco shall take all necessary actions and make all necessary filings to
transfer all right, without limitation, to the domain name "genestamfg.com",
effective as of the Closing Date.
5.10 TAX MATTERS. All Tax Returns which relate to any Taxes with respect
to the Genesta Business or the Transferred Assets for periods prior to the
Closing Date shall be prepared and filed by Seller on a timely basis, and Seller
shall be responsible for the payment of all Taxes related to the Genesta
Business or the Transferred Assets, including the Real Property, attributable to
periods prior to the Closing. Buyer shall pay all sales, use and transfer taxes,
if any, payable to any governmental entity in connection with the transactions
contemplated by this Agreement and the Closing.
5.11 INSURANCE. Pavaco and Lessor shall take all necessary actions to
maintain in force all of their existing insurance policies (or replacements
therefor), subject only to variations in amounts required by the ordinary
operation of the Genesta Business, up to and including the date of Closing.
5.12 INFORMATION MANAGEMENT AND ACCOUNTING SUPPORT SERVICES. At Buyer's
request, Pavaco shall continue to provide some or all of the following existing
information management and accounting support services currently provided to the
Genesta Business for up to six (6) months from Closing (or such shorter period
as may be requested by Buyer) for the monthly fees set forth next to such
services, pro rated for any partial months:
Accounting (A/P, A/R, financial) C$4,800
Information services (Symix, network) C$4,400
Payroll &benefit administration C$2,000
Human resources C$1,600
All services C$12,800
5.13 EMPLOYEE COMPUTERS. The parties agree to waive obtainment of consent
to assignment, if required, relating to the lease of certain computers (as
listed in the Schedules hereto) for the benefit of certain employees of the
Genesta Business. The parties further agree that, following the Closing Time and
thereafter, (a) Buyer shall continue the practice of deducting from
participating employees' paychecks the amounts required per the employee
computer benefit policy, and shall remit the aggregate of such amounts and any
further amounts that are to be paid by Buyer on behalf of such employees as a
benefit, both consistent with past practices, on a monthly basis to Seller, and
(b) Seller shall continue the timely payment of all related lease payments for
such computers to the lessor thereof until full payment has been made.
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ARTICLE VI
MUTUAL COVENANTS
6.1 CONFIDENTIALITY. Between the date hereof and the Closing Date, the
parties hereto agree that no party shall, without the prior written consent of
the others as to substance, existence and timing, disclose publicly or to any
third party (except such party's professional advisors) the existence of this
Agreement or the terms and conditions hereof, or any prior correspondence or any
subsequent negotiations between the parties, including any confidential
information obtained thereby, except to the extent required by law. The parties
will cooperate with each other to coordinate any and all public statements and
releases with respect to the transactions contemplated hereby. From the date
hereof until the Closing, neither Seller nor any of its representatives shall
purchase, directly or indirectly, in the public marketplace or otherwise, any of
Summa's securities. Following the Closing, Seller shall keep confidential and
shall not disclose to any third party information not in the public domain from
time to time relating in any manner to the Genesta Business or the Transferred
Assets, except to Seller's professional advisors and to the extent required by
law.
6.2 SATISFACTION OF CONDITIONS. Each party will use all reasonable efforts
to cause all conditions to its obligations under this Agreement to be timely
satisfied and to perform and fulfill all covenants and obligations on its part
to be performed and fulfilled under this Agreement, to the end that the
transactions contemplated by this Agreement shall be effected substantially in
accordance with its terms as soon as reasonably practicable. The parties shall
cooperate with each other in such actions and in securing requisite approvals.
6.3 FURTHER ASSURANCES. Each party shall execute and deliver, both before
and after the Closing, such further certificates, agreements and other documents
and take such other actions as may be necessary or appropriate to consummate or
implement the transactions contemplated hereby, including without limitation the
transfer of all Transferred Assets to Buyer, or to evidence such events or
matters.
6.4 CERTAIN DEFAULTS. Seller, on the one hand, and Buyer and Parent,
on the other hand, will give prompt notice to each other of:
(a) any notice of default received by such party subsequent to the date of
this Agreement and prior to the Closing Date under any instrument or agreement
to which any such party is a party or by which it is bound, which default in the
case of Seller, would, if not remedied, result in a Material Adverse Change or
which, in the case of any such party, would render incomplete or untrue any
representation made herein; and
(b) any suit, action or proceeding instituted or, to Seller's Knowledge or
the knowledge of Buyer or Parent, threatened against or affecting any such party
subsequent to the date of this Agreement and prior to the Closing Date which
would render incorrect any representation made herein.
6.5 BROKERS OR FINDERS. Neither Seller, Buyer nor Parent shall enter into
any agreement or arrangement not existing as of the date hereof with any agent,
broker, investment banker or other firm or person pursuant to which such person
shall be entitled to any broker or
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finder's fee or any other commission or similar fee in connection with any of
the transactions contemplated by this Agreement.
6.6 NO EQUITABLE CONVERSION. Prior to the Closing Date, neither the
execution of this Agreement nor the performance of any provision contained
herein shall cause Seller, on the one hand, or Buyer and Parent, on the other
hand, to be or become liable for or in respect of the operations or business of
the other, for the cost of any labor or materials furnished to or purchased by
the other, for compliance with any laws, requirements or regulations of, or
taxes, assessments or other charges now or hereafter due to, any governmental
authority, or for any other charges or expenses whatsoever pertaining to the
conduct of the Genesta Business or the ownership, title, possession, use or
occupancy of the property of the other.
6.7 CERTAIN EMPLOYEE ISSUES.
(a) Prior to the Closing Date, Buyer shall offer in writing employment
(effective from the Closing Time) to all non-union employees of the Genesta
Business as listed on SCHEDULE 6.7(a) on substantially the same terms and
conditions as such employees were employed by Pavaco prior to the Closing. A
copy of the offers of employment shall be provided to Pavaco before being given
to such employees. Pavaco agrees to accept such employees resignations. Pavaco
shall be responsible for any and all applicable notice of termination, severance
and other obligations to such employees who do not accept employment with Buyer,
and shall indemnify and save Buyer harmless in respect of all such obligations.
(b) Buyer shall (effective from the Closing Time) employ all of the union
employees of the Genesta Business as listed on SCHEDULE 6.7(b) on the terms and
conditions of the Collective Agreement listed on SCHEDULE 3.15 (the "Collective
Agreement") as it applies to such employees.
(c) Buyer shall recognize the prior service with the Genesta Business of
the non-union employees who choose to accept Buyer's offer of employment and the
union employees who choose to continue employment in accordance with the
Collective Agreement for all purposes (collectively, the "Transferred
Employees") up to the Effective Time.
(d) Pavaco agrees that the Closing Balance Sheet used to calculate Working
Capital will provide accruals for all vacation pay, taxes, pension, health,
benefit plan and other obligations not yet paid consistent with Canadian GAAP
and all other applicable rules and regulations, and will pay on Closing all
employee salaries and wages through the Closing Time. For greater certainty, the
Closing Balance Sheet shall not include an accrual for termination or severance
pay for potential future terminations of employees by Buyer after Closing.
(e) Nothing in this Section shall be deemed to require the employment of
any Transferred Employee or the continuation of any benefits for any particular
time after the Closing Time. No Transferred Employee shall be considered an
intended beneficiary of any of the terms of this Agreement.
(f) Buyer shall be responsible for any and all obligations relating to the
Transferred Employees arising solely from Buyer's employment of the Transferred
Employees after the Closing Time, and shall indemnify and save Pavaco harmless
in respect of all such obligations.
6.8 PENSION AND BENEFIT PLANS.
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(a) Effective within a reasonable time following Closing, Buyer, at its
expense, shall establish a defined contribution pension plan effective as of the
Closing Time ("Buyer's Pension Plan") which shall comply with all registration
requirements of the PENSION BENEFITS ACT (Ontario) and the INCOME TAX ACT
(Canada) and which shall provide for pension benefits which are substantially
similar to the pension benefits currently provided in favour of the Transferred
Employees (as such term is defined above) under the pension plans listed in
SCHEDULE 3.16 (the "Pavaco Pension Plan").
(b) Effective at Closing Time, the Transferred Employees shall cease to
participate in and accrue benefits under the Pavaco Pension Plan.
(c) Subject to receipt of the Transfer Amount by the Buyer's Pension Plan,
Buyer shall cause the Buyer's Pension Plan to assume the obligations relating to
or in connection with the Transfer Amount, and Buyer's Pension Plan shall
recognize the service of the Transferred Employees which have accrued under the
Pavaco Pension Plan up to Closing for purposes of determining eligibility for
membership, entitlement to benefits and benefit accrual under the Buyer's
Pension Plan.
(d) The parties shall use reasonable commercial efforts to obtain the
approval of the Regulatory Authorities to the payment of the Transfer Amount
from the Pavaco Pension Plan to the Buyer's Pension Plan. The parties agree and
acknowledge that the payment of the Transfer Amount from the Pavaco Pension Plan
to the Buyer's Pension Plan shall not occur until a reasonable time after such
payment has been authorized and approved by the Regulatory Authorities under
Applicable Legislation.
(e) For purposes of this Section:
"Applicable Legislation" means the PENSION BENEFITS ACT (Ontario)
and the INCOME TAX ACT (Canada) and any other statutes or statutory instruments
applicable to the Pavaco Pension Plan and the Buyer's Pension Plan.
"Regulatory Authorities" means the Financial Services Commission of
Ontario, Canada Customs and Revenue Agency and any other relevant government
agencies or bodies having responsibility for the administration and regulation
of the Pavaco Pension Plan and the Buyer's Pension Plan.
"Transfer Amount" means the sum of all the balances of the accounts
of each of the Transferred Employees who are members of the Pavaco Pension Plan
as of the Closing, whether or not any such balances are vested or unvested.
(f) Effective within a reasonable time following Closing, Buyer, at its
expense, shall establish such benefits plans effective as of the Closing Time
("Buyer Benefit Plans") as it deems reasonable, which shall comply with all
applicable legislation and which shall provide for benefits which are
substantially comparable to the benefits currently provided in favour of the
Transferred Employees under the benefit plans listed in SCHEDULE 3.16 (the
"Pavaco Benefit Plans").
(g) With respect to the Pavaco Benefit Plans, Pavaco shall at all times
remain fully responsible for the payment to the Transferred Employees of any and
all claims relating in any manner to the period up to Closing. Buyer shall be
responsible for the payment to the Transferred Employees of any and all claims
relating in any manner to the period commencing with Closing.
(h) Buyer shall be responsible for any and all obligations under Buyer's
Pension Plan and Buyer's Benefit Plans arising solely from the creation and/or
operation of such plans after the Closing Time, and shall indemnify and save
Pavaco harmless in respect of all such obligations.
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6.9 COOPERATION. For a reasonable period following the Closing, each
party shall cooperate fully, each at its own expense, and shall make
available to each other party such working papers, data, records and other
materials as may be reasonably required by such party pursuant to the terms
and conditions hereof.
6.10 RESALES UNDER RULE 144/145. With a view to making available to Pavaco
the benefits of Rule 144 and Rule 145 (collectively, "Rule 144") promulgated
under the United States SECURITIES ACT OF 1933, as amended ("1933 Act") and any
other rule or regulation of the SEC that may at any time permit the sale of
common stock of Parent to the public without registration, Parent will: (a) use
its commercial reasonable efforts to make and keep public information available,
as those terms are understood and defined in Rule 144, at all times; (b) use its
commercial reasonable efforts to file with the SEC in a timely manner all
reports and other documents required of Parent under the 1933 Act and the United
States SECURITIES EXCHANGE ACT OF 1934, as amended ("1934 Act"); and (c) furnish
to Pavaco, so long as the Pavaco owns any common stock, forthwith upon written
request: (i) a written statement by Parent as to its compliance with the
reporting requirements of Rule 144, the 1933 Act and the 1934 Act; (ii) a copy
of the most recent annual or quarterly report of Parent and such other reports
and documents so filed by Parent with the SEC; and (iii) such other documents as
may be reasonably requested in availing Pavaco of any rule or regulation of the
SEC that permits the selling of any such common stock without registration.
6.11 REMOVAL OF CERTAIN RETAINED ASSETS. Buyer agrees to provide Seller
with access to the 611 Imperial Road North building during normal business hours
for a reasonable period of time following the Closing Time (not to exceed thirty
(30) days) to permit Seller, at its sole expense, to remove certain Retained
Assets located therein. Seller shall indemnify Buyer for any damages, injuries,
costs and expenses relating in any manner to such removal.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PARTIES
7.1 CONDITIONS TO THE OBLIGATIONS OF ALL PARTIES. The respective
obligations of Buyer, Parent and Seller set forth in this Agreement shall be
subject to the satisfaction on or prior to the Closing Date of the following
conditions, unless waived by each such party in writing:
(a) LEGAL ACTION. No temporary restraining order, preliminary injunction
or permanent injunction or other order preventing the consummation of the
transactions contemplated by this Agreement shall have been issued by any
federal, provincial or foreign court or other governmental or regulatory
authority and remain in effect, and no litigation seeking the issuance of such
an order or injunction, or seeking substantial damages against Buyer, Parent or
Seller if the transactions contemplated by this Agreement are consummated, shall
be pending which, in the reasonable good faith judgment of the party against
whom such damages or injunction is sought, have a reasonable probability of
resulting in such order, injunction or substantial damages. In the event any
such order or injunction shall have been issued, each party agrees to use its
reasonable efforts to have any such injunction lifted.
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(b) STATUTES. No federal, provincial, local or foreign statute, rule or
regulation shall have been enacted which would make the consummation of the
transactions contemplated by this Agreement illegal.
7.2 FURTHER CONDITIONS TO THE OBLIGATIONS OF BUYER AND PARENT. The
obligations of Buyer and Parent set forth in this Agreement are subject to the
satisfaction on or prior to the Closing Date of the following conditions, unless
waived by Buyer and/or Parent in writing:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Seller and Lessor set forth in ARTICLE III shall be true and correct as of the
date of this Agreement and, except as set forth on schedules to the Seller's
Certificate (as defined below), as of the Closing Date as though made at and as
of the Closing Date, except as otherwise contemplated by this Agreement, and
Buyer shall have received a certificate dated the Closing Date signed by each of
Seller and Lessor to such effect ("Seller's Certificate"). If the schedules to
the Seller's Certificate reflect a Material Adverse Change from the Schedules
attached hereto, Buyer and Parent shall have no obligation to consummate the
transactions contemplated by this Agreement.
(b) PERFORMANCE OF OBLIGATIONS OF OTHER PARTIES. Seller shall have
satisfied all of the conditions set forth in this SECTION 7.2 and performed all
obligations required to be performed by them under this Agreement prior to the
Closing Date and Buyer shall have received a certificate to such effect.
(c) OPINION OF COUNSEL TO SELLER. Buyer shall have received an
opinion dated as of the Closing Date of counsel to Seller containing the
opinions set forth in EXHIBIT F attached hereto.
(d) NO LITIGATION. Since the date hereof, there shall not have been
instituted and be continuing or threatened against Seller, any claims, actions
or proceedings relating in any manner to the Genesta Business or the Transferred
Assets which, if adversely determined, might, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Change.
(e) NO ADVERSE CHANGE. No Material Adverse Change shall have
occurred since the date of this Agreement.
(f) THIRD-PARTY APPROVALS. Any and all material consents required from
third parties relating to licenses, leases and other agreements and instruments
that are part of the Transferred Assets shall have been obtained.
(g) NONCOMPETITION AND NONSOLICITATION AGREEMENT. Each of Seller,
Charles Pavanel, John C. Pavanel and Joanne Pavanel shall have entered into a
five-year noncompetition and nonsolicitation agreement with Buyer and Parent
substantially in the form attached hereto as EXHIBIT E.
(h) DEBT; GUARANTEES. Save and except for Permitted Liens and Assumed
Obligations, there shall be no agreements or instruments evidencing loans to or
interest bearing indebtedness incurred by Seller related in any manner to the
Genesta Business or the Transferred Assets, and Seller, on or prior to the
Closing, shall have paid in full all such interest bearing indebtedness and
loans of any type, including current portions thereof, or shall have obtained
and delivered to Buyer full releases of all Liens encumbering the Genesta
Business and/or the Transferred Assets in any manner. All guarantees by Seller
of any type of obligation relating to the Genesta Business shall have been
terminated.
(i) TERMINATION OF ENCUMBRANCES. All liens and encumbrances on the
Transferred Assets shall have been terminated save and except for Permitted
Liens, and Seller shall have
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delivered to Buyer duly executed termination statements with respect to any
and all financing statements covering such assets and property.
(j) APPROVAL BY BOARD. The Board of Directors of Parent shall have
approved consummation of the transactions contemplated hereby in their sole
and absolute discretion.
(k) RECEIPT OF TRANSFER DOCUMENTS. Buyer shall have received the executed
General Instrument of Conveyance, Transfer and Assignment in the form attached
hereto as EXHIBIT C and all other documents required by Buyer to transfer title
of the Transferred Assets to Buyer.
(l) DUE DILIGENCE. Buyer shall have completed its due diligence
investigations to its sole and absolute satisfaction.
(m) ENVIRONMENTAL REPORT. Buyer shall have obtained a current Phase One
environmental assessment of the Real Property or equivalent environmental report
from an environmental consultant reasonably acceptable to Seller, the results of
which are satisfactory to Buyer in its sole and absolute discretion. Each of
Seller and/or Lessor shall have the option to remedy any deficiencies as may be
disclosed by such assessment to the satisfaction of Buyer, acting reasonably, in
full and final performance of this condition, subject to terms and conditions of
this Agreement.
(n) FINANCING. Buyer shall have consummated a new financing, on terms and
conditions acceptable to Buyer (the "Financing"), desired to fund the cash
portion of the Purchase Price payable to Seller hereunder. Buyer shall use
reasonable efforts to obtain the Financing on a timely basis.
(o) EMPLOYMENT AGREEMENTS. Each of the Key Employees listed on
SCHEDULE 3.14 shall have signed a reasonable form of employment contract with
Buyer.
7.3 FURTHER CONDITIONS TO THE OBLIGATIONS OF SELLER. The obligations of
Seller set forth in this Agreement are subject to the satisfaction on or prior
to the Closing Date of the following conditions, unless waived by Seller in
writing:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Buyer and Parent set forth in ARTICLE IV shall be true and correct in all
material respects as of the date of this Agreement and, except as set forth on
schedules to the Buyers' Certificate (as defined below), as of the Closing Date
as though made at and as of the Closing Date, except as otherwise contemplated
by this Agreement, and Pavaco shall have received a certificate dated the
Closing Date signed by an authorized officer of Buyer and Parent to such effect
("Buyers' Certificate"). If the schedules to the Buyers' Certificate reflect an
adverse change or changes from the representations made and schedules delivered
as of the execution of this Agreement, Seller shall have no obligation to
consummate the transactions contemplated by this Agreement.
(b) PERFORMANCE OF OBLIGATIONS OF OTHER PARTIES. Buyer and Parent shall
have satisfied all of the conditions set forth in this SECTION 7.3 and performed
in all material respects all obligations required to be performed by them under
this Agreement prior to or on the Closing Date, and Seller shall have received a
certificate signed by an authorized officer of Buyer and Parent to such effect.
(c) RECEIPT OF ASSUMPTION AGREEMENT. Pavaco shall have received the
executed Assumption Agreement in the form attached hereto as EXHIBIT D.
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(d) RECEIPT OF CONSIDERATION. Pavaco shall have received the cash
portion of the Purchase Price as set forth in SECTION 2.4(a), Pavaco shall
have received the stock portion of the Purchase Price as set forth in SECTION
2.4(c) and J. Charles Pavanel and John C. Pavanel shall have each received
CDN$200,000 respecting the Non-Competition Agreements, in the form attached
as Exhibit E executed by each of them in favour of Buyer.
(e) NOTE. Parent and Buyer shall have executed and delivered to Pavaco
the Note in the form attached hereto as EXHIBIT B.
(f) OPINION OF COUNSEL TO BUYER. Seller shall have received an
opinion dated as of the Closing Date of counsel to Buyer containing the
opinions set forth in EXHIBIT G attached hereto.
(h) NO LITIGATION. Since the date hereof, there shall not have been
instituted and be continuing or threatened against Parent or Buyer, any claims,
actions or proceedings which, if adversely determined, might, individually or in
the aggregate, reasonably be expected to materially affect the ability of Parent
and/or Buyer to consummate the transactions contemplated hereby, or the payment
of any part of the Purchase Price.
(i) THIRD-PARTY APPROVALS. Any and all material consents required
from third parties shall have been obtained.
(j) GST. Buyer shall have provided reasonably satisfactory evidence to
Seller that Buyer is a GST Registrant pursuant to the Excise Tax Act (Canada).
(k) NO ADVERSE CHANGE. No Material Adverse Change to the aggregate
business of Parent shall have occurred since the date of this Agreement.
(l) APPROVAL BY PARENT BOARD. The Board of Directors of Parent shall
have approved consummation of the transactions contemplated hereby in their
sole and absolute discretion.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 TERMINATION. This Agreement may be terminated at any time prior
to the Closing Date:
(a) BY MUTUAL CONSENT. By the mutual written consent of Buyer and
Seller;
(b) BY BUYER OR SELLERS. By either Buyer or Seller:
(i) if the transactions contemplated by this Agreement shall not
have been consummated on or before January 31, 2002; provided that the failure
of the transactions to be consummated by such date is not caused by any breach
of this Agreement by the party seeking such termination;
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(ii) if a court of competent jurisdiction or other governmental or
regulatory authority shall have issued an order, decree or ruling or taken any
other action, in each case permanently restraining, enjoining or otherwise
prohibiting the consummation of the transactions contemplated by this Agreement;
or
(iii) if any statute, rule or regulation is enacted, promulgated or
deemed applicable to the transactions contemplated by this Agreement by any
competent governmental or regulatory authority which makes the consummation of
the transactions illegal.
(c) BY BUYER. By Buyer, if a material default under or a material breach
of this Agreement by Seller shall have occurred and be continuing ten (10) days
after receipt of written notice thereof from Buyer.
(d) BY SELLER. By Seller, if a material default under or a material breach
of this Agreement by Buyer or Parent shall have occurred and be continuing ten
(10) days after receipt of written notice thereof from Seller.
Any action taken to terminate this Agreement pursuant to this SECTION 8.1
shall become effective when written notice of such termination is delivered by
the terminating party to the other party in accordance with the provisions of
SECTION 14.1 below.
8.2 EFFECT OF TERMINATION. In the event of termination of this Agreement
by any party in accordance with SECTION 8.1 above, this Agreement shall
forthwith become void and there shall be no liability or obligation on the part
of the terminating party or its respective partners, officers, directors or
employees, except that (a) SECTION 6.1 relating to the obligations to keep
confidential certain information and data, (b) SECTION 14.3 relating to certain
expenses, (c) SECTION 10.8 relating to attorneys' fees and expenses, (d)
SECTIONS 3.25 and 4.4 relating to finder's fees and broker's fees, (e) SECTION
14.9 relating to jurisdiction and forum selection, and (f) this ARTICLE VIII
shall survive any termination and that nothing set forth herein shall relieve a
party hereto from liability for its willful breach of this Agreement. Without
limitation, if all of the conditions to a party's obligations set forth in
ARTICLE VII have been satisfied or waived by January 31, 2002, the failure of
such party to perform its obligations on or before such date shall be deemed to
be a willful breach of this Agreement by such party.
8.3 AMENDMENT. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
8.4 EXTENSION; WAIVER. At any time prior to or on the Closing Date, to the
extent legally allowed, any party hereto (a) may extend the time for the
performance of any of the obligations owed to such party by the other parties
hereto, (b) may waive any inaccuracies in the representations and warranties
made to such party contained herein or in any document delivered pursuant
hereto, or (c) may waive compliance with any of the agreements or conditions for
the benefit of such party contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid if set forth in an
instrument in writing signed on behalf of such party and shall be effective only
to the extent set forth in such instrument. No extension or waiver of any single
condition, covenant, agreement, representation, warranty, breach, default or
other matter hereunder shall be deemed an extension or waiver of such or any
other condition, covenant, agreement, representation, warranty, breach, default
or other matter theretofore or thereafter occurring. The rights, remedies,
powers and privileges herein provided are cumulative
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and not exclusive of any rights, remedies, powers and privileges provided by
law. The failure of any party to insist upon a strict performance of any of
the terms or provisions of this Agreement, or to exercise any option, right
or remedy herein contained, shall not be construed as a waiver or as a
relinquishment for the future of such term, provision, option, right or
remedy, but the same shall continue and remain in full force and effect.
ARTICLE IX
INDEMNIFICATION
9.1 INDEMNIFICATION.
(a) INDEMNIFICATION BY SELLER. Subject to the provisions of this ARTICLE
IX, Seller agrees to indemnify and hold harmless Buyer, its affiliates
(including without limitation parent and sister corporations), and their
respective directors, officers, employees, agents and assigns from and against
any and all "Losses" (as defined below) incurred by, imposed on, borne by or
asserted against any of such indemnified parties in any way relating to, arising
out of or resulting from (i) any inaccuracy in or breach or nonperformance of
any of the representations, warranties, covenants or agreements made by Seller
in or pursuant to this Agreement or in any agreement delivered in connection
herewith or pursuant hereto (each, a "Related Agreement"), (ii) the conduct of
the business of Seller prior to the Closing Date (including, without limitation,
all liability for pre-closing tax periods, including amounts not paid or
provided for through estimated taxes or deposits for the partial period ending
at the close of business on the day preceding the Closing Date), (iii) any
claims or demands by any governmental authority or third party arising under any
Environmental Law to the extent attributable Seller's use and/or occupancy or
Lessor's ownership of the Real Property at any time prior to the Closing Date,
or to Hazardous Substances transported by or on behalf of Seller prior to the
Closing Date, and/or (iv) the failure by Seller to discharge or perform the
Retained Obligations.
(b) INDEMNIFICATION BY BUYER AND PARENT. Subject to the provisions of this
ARTICLE IX, Buyer and Parent shall indemnify and hold harmless Seller and its
affiliates (including without limitation, their directors, officers, employees,
agents and assigns from and against any and all "Losses" (as defined below)
incurred by, imposed on, borne by or asserted against any of such indemnified
parties in any way relating to, arising out of or resulting from any inaccuracy
in or breach or nonperformance of any of the representations, warranties,
covenants or agreements made by either in or pursuant to this Agreement or in
any Related Agreement, including, without limitation, any non-performance of any
Assumed Obligation (including, without limitation, with respect to any Assumed
Contract, the absence of consent to assignment of such Assumed Contract to the
extent that such absence was agreed to in writing by Buyer) or any environmental
liability to the extent attributable to Buyer's use and/or occupancy of the Real
Property after the Closing Date.
(c) LIMITATION ON LOSSES. The foregoing obligations of
indemnification in respect of any and all Losses shall be subject to the
following:
(i) if the subject matter of a Loss is insured by insurance
maintained by Buyer, or Seller, as the case may be, such party shall seek
payment under such insurance and each party shall provide all reasonable
assistance to the party making such claim, and the amount
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of any such claim shall be reduced by the amount of any insurance proceeds
actually received by Buyer or Seller, as the case may be; and
(ii) the aggregate liability of Seller in respect of all Losses
hereunder for which Seller indemnifies Buyer pursuant to this indemnification
shall not, in any event, exceed the Purchase Price.
(d) DE MINIMUS LIMITATION. Buyer shall not seek indemnification from
Seller until the aggregate amount of all Losses of Buyer for indemnification
pursuant to this Article exceeds $40,000 Canadian Dollars (the "Threshold
Amount"). In the event that the Threshold Amount is exceeded, Buyer may seek
indemnification from Seller with respect to the total amount of such Losses and
not only the amount by which such Losses exceed the Threshold Amount.
(e) DEFINITION OF LOSSES. For purposes of this Agreement, "Losses" or
"Loss" shall mean any and all liabilities, obligations, losses, damages, claims,
deficiencies, penalties, taxes, levies, actions, judgments, settlements, suits,
costs, legal fees, accountants' fees, experts' fees, disbursements and expenses.
(f) GST. The parties agree that should the amount of any indemnification
payable under this Agreement be deemed by the Excise Tax Act (Canada) to be
inclusive of GST, the amount of the indemnity shall be increased by the amount
of the GST otherwise deemed to be included.
9.2 THIRD PARTY CLAIMS, NOTICE AND OPPORTUNITY TO SETTLE.
(a) Within thirty (30) days after the receipt by the party entitled to
indemnity hereunder (the "Indemnified Party") of any claim or demand (including
but not limited to, notice of any action, suit or proceeding) by any third party
against an Indemnified Party which gives rise to a right to indemnification for
a Loss hereunder (a "Third Party Claim"), the affected Indemnified Party shall
give each party who may be obligated to provide indemnity hereunder (the
"Indemnifying Party") written notice of such claim or demand; provided, however,
that the failure to give such notice shall not relieve the Indemnifying Party of
its obligations hereunder except to the extent that such failure or delay in
giving notice causes irreversible prejudice to the rights and remedies available
to the Indemnifying Party at law or in equity.
(b) The Indemnifying Party shall (without prejudice to the right of any
Indemnified Party to participate at its own expense through counsel of its own
choosing) defend against such claim or demand at its sole expense and through
counsel of its own choosing (the choice of such counsel to be subject to the
consent of the affected Indemnified Parties, not to be unreasonably withheld)
and shall give written notice confirming its assumption of the defense within
five (5) days of the receipt of the notice referred to in SECTION 9.2(a) above.
If the Indemnifying Party fails to assume the defense of such claim or demand,
the affected Indemnified Parties shall have the right to assume control of such
defense at the sole expense of the Indemnifying Party. The Indemnified Parties
shall cooperate in the defense of such claim or demand, at the Indemnifying
Party's expense, and shall make available to the Indemnifying Party or its
counsel pertinent information under their control relating thereto. The
Indemnifying Party agrees to cooperate with the Indemnified Parties in order to
enable their counsel to participate in the defense (although control of the
defense shall remain with the Indemnifying Party) and to deliver to the
Indemnified Parties copies of all pleadings and other information within the
Indemnifying Party's knowledge or possession reasonably requested by the
Indemnified Parties that is relevant to the defense of any such claim or demand.
(c) The Indemnifying Party shall have the sole and absolute right to elect
to settle all
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such claims or demands for monetary damages only, provided that such party
receives an unconditional release of the Indemnified Party in such
settlement. The Indemnifying Party shall have the right to settle all other
claims, subject to the consent of the affected Indemnified Party, not to be
unreasonably withheld.
9.3 NON-THIRD PARTY CLAIMS. In the event any Indemnified Party should have
a claim against any Indemnifying Party hereunder which does not involve a Third
Party Claim, the Indemnified Party shall transmit to the Indemnifying Party a
written notice (the "Indemnity Notice") describing in reasonable detail the
nature of the claim, an estimate of the amount of damages attributable to such
claim, and the basis of the Indemnified Party's request for indemnification
under this Agreement. If the Indemnifying Party does not notify the Indemnified
Party within ten (10) days from the Indemnifying Party's receipt of the
Indemnity Notice that the Indemnifying Party disputes such claim and the reasons
therefore, the claim specified by the Indemnified Party in the Indemnity Notice
shall be deemed admitted in full and a liability of the Indemnifying Party
hereunder. The Indemnifying Party and the Indemnified Party shall negotiate in
good faith to resolve such claim for indemnification within 30 days (the
"Negotiation Period"). If such claim is not settled within the Negotiation
Period, dispute shall then be resolved through binding arbitration in accordance
with the provisions of ARTICLE X.
9.4 PAYMENTS. Payments of all amounts owed by an Indemnifying Party
pursuant to this ARTICLE IX relating to a Third Party Claim shall be made within
five (5) days after the latest of (i) the settlement of such Third Party Claim,
(ii) the final adjudication of such Third Party Claim or (iii) the final
adjudication of the Indemnifying Party's liability to the Indemnified Party
under this Agreement. Payments of all amounts owed by an Indemnifying Party
pursuant to SECTION 9.3 shall be made within five (5) days after the later of
(i) the expiration of the 10-day Indemnity Notice period or (ii) the agreement
or final adjudication of the Indemnifying Party's liability to the Indemnified
Party pursuant to SECTION 9.3 herein.
9.5 SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND COVENANTS. The
representations, warranties and covenants of each of the parties to this
Agreement shall survive the execution and delivery of this Agreement and the
consummation of the purchase and sale herein described for the following
periods: (a) eighteen months for claims made under Sections 3.6, 3.11,
3.22-3.26; (b) twenty-four months for claims made under Sections 3.5, 3.7,
3.12-3.20; (c) ten years for claims made under Sections 3.10, 3.21; and (d)
indefinitely for claims made under Sections 3.1-3.4, 3.8 and for claims based on
fraud; provided that, a representation or warranty related to any claim asserted
pursuant to ARTICLE IX within the applicable time period set forth in this
Section shall survive as to such claim until resolved.
9.6 ADJUSTMENT TO PURCHASE PRICE. Any indemnification received under
this ARTICLE IX shall be, to the extent permitted by law, an adjustment to
the Purchase Price.
9.7 NO SET OFF. Neither party shall have the right of set-off at law or in
equity with respect to the transactions contemplated herein unless and until
such time as a claim with respect to a Loss has been finally settled or
adjudicated as contemplated herein or the parties have agreed in writing to a
set-off.
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9.8 NO ADDITIONAL RIGHTS. Each party acknowledges and agrees that,
except for claims of fraud, its sole remedy with respect to any and all
claims under or in connection with this Agreement and the transactions
contemplated hereby shall be pursuant to the indemnification provisions set
forth in this ARTICLE IX. In furtherance of the foregoing, each party hereby
waives, to the fullest extent permitted by law, any and all other rights and
causes of action it may have against the other parties or their officers,
directors, employees, agents, representatives and affiliates under or in
connection with this Agreement or related to the transactions contemplated
hereby (whether in contract, tort or otherwise).
ARTICLE X
BOOKS AND RECORDS
All books, records and documents in the possession of Seller relating
specifically to the Genesta Business shall be delivered to and become
property of Buyer on Closing except to the extent required by law to be
retained by Seller in which case they shall be made available by Seller to
Buyer and its authorized representatives for inspection and copying during
the period of six years following the Closing Date or such longer period as
Seller is required by law to retain such books, records and documents. After
the expiration of such period of retention, Seller shall deliver to Buyer any
books, records and documents of the Genesta Business which were required by
law to be retained by Seller on Closing. For a period of six years following
the Closing Date or such longer period as Buyer is required by law to retain
the books, records and documents of the Genesta Business delivered by Seller
to Buyer hereunder, Buyer shall give Seller and its representatives the right
to inspect and to make copies of the same upon reasonable request during
normal business hours and upon reasonable notice for any proper purpose and
without undue interference to the Genesta Business. Buyer shall have the
right to have its representatives present during any such inspections.
ARTICLE XI
BULK SALES
Seller agrees to fully comply with applicable bulk sales legislation by
obtaining and delivering to Buyer a valid exemption order allowing the
purchase of the Transfer Assets to be made in compliance with the applicable
bulk sales legislation so as to fully protect Buyer from claims of trade
creditors of Seller. Seller represents and warrants that all affidavits and
other documentation provided to obtain such exemption order were true and
correct in all material respects when filed. Except as otherwise expressly
provided herein, Seller shall indemnify Buyer with respect to any loss,
liability or cost (including reasonable attorneys' fees) incurred by virtue
of non-compliance with applicable bulk sales legislation in Ontario and any
other relevant jurisdiction.
ARTICLE XII
RISK
Risk of loss or damage to the Acquired Assets shall be that of Seller
until completion of the Closing.
ARTICLE XIII
ASSIGNMENT OF CONTRACTS
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This Agreement and any document delivered hereunder shall not
constitute an assignment or an attempted assignment of any Assumed Contract
contemplated to be assigned to Buyer hereunder:
(a) that is not assignable without the consent of another party if such
consent has not been obtained and such assignment or attempted assignment
would constitute a breach thereof; or
(b) in respect of which the remedies for the enforcement thereof
available to Seller would not pass to Buyer.
In respect of the foregoing, Seller shall take or cause to be taken
such action in its name or otherwise as Buyer may reasonably require (other
than the payment of money or incurring of contractual obligations) so as to
provide to Buyer the benefits thereof and to effect collection of money to
become due and payable by the other party thereto and Seller shall promptly
pay over to Buyer all money received by Seller in respect of all of the
foregoing. Effective upon completion of the Closing, Seller authorizes Buyer,
at Buyer's expense, to perform all of Seller's obligations under the
foregoing and constitutes Buyer its attorney to act in the name of Seller
with respect thereto. Buyer shall assume all of Seller's obligations and
responsibilities under any of the foregoing and agrees to fully indemnify
Seller in respect of all such obligations and responsibilities to the same
extent and manner if such obligations and responsibilities were Assumed
Contracts.
ARTICLE XIV
GENERAL PROVISIONS
14.1 NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed given upon personal delivery, facsimile
transmission (with written or facsimile confirmation of receipt), or on the
first day following delivery by a reputable overnight commercial delivery
service (delivery, postage or freight charges prepaid), or on the third day
following deposit in the United States mail (if sent by registered or
certified mail, return receipt requested, delivery, postage or freight
charges prepaid), addressed to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice):
If to Buyer or Parent: With copy to:
Genesta Inc. Summa Industries
c/o Summa Industries One Park Plaza, Sixth Floor
21250 Hawthorne Blvd., Suite 500 Irvine, CA 92614
Torrance, CA 90503 Fax: (949) 852-7316
Fax: (310) 792-7079 Attn: Trygve M. Thoresen
Attn: James R. Swartwout
If to Sellers: With copy to:
Pavaco Plastics, Inc. Gowling Lafleur Henderson LLP
659 Speedvale Avenue West Suite 1020
Guelph, Ontario, Canada N1K 1E6 50 Queen Street North
Fax: (519) 823-1477 Kitchener, Ontario
Attn: John C. Pavanel N2H 6M2
Attn: W. David Petras
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14.2 INTERPRETATION. When a reference is made in this Agreement to an
Article, Section, Exhibit or Schedule, such reference shall be to an Article,
Section, Exhibit or Schedule to this Agreement unless otherwise indicated.
The words "include," "includes" and "including" when used herein shall be
deemed in each case to be followed by the words "without limitation." The
table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation
of this Agreement. This Agreement was drafted by all the parties hereto and
shall not be interpreted against any party as the drafter.
14.3 EXPENSES. Whether or not the transactions contemplated hereby are
consummated, and except as otherwise specifically provided in this Agreement,
all fees, costs and expenses incurred in connection with this Agreement and
the transactions contemplated hereby shall be paid by the party incurring
such fees, costs or expenses.
14.4 INTEGRATION. This Agreement and the Exhibits, Schedules,
documents, instruments and other agreements among the parties hereto that are
referred to herein constitute the entire agreement among the parties with
respect to the subject matter set forth herein or therein and supersede all
prior agreements and understandings, both written and oral, among the parties
with respect to the subject matter hereof or thereof, including, without
limitation, any term sheets or letters of intent.
14.5 ASSIGNMENT. No party hereto shall assign or transfer or permit the
assignment or transfer of this Agreement without the prior written consent of
the other parties; provided, however, that Buyer may assign any of its rights
and obligations hereunder to any Canadian entity that, directly or
indirectly, through one or more intermediaries, controls, or is controlled
by, or is under common control with Buyer; provided that, Parent shall
continue to remain bound pursuant to its obligations herein contained.
14.6 SEVERABILITY. Any portion or provision of the Agreement which is
invalid, illegal or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability, without affecting in any way the remaining portions or
provisions hereof in such jurisdiction or, to the extent permitted by law,
rendering that or any other portion or provision of the Agreement invalid,
illegal or unenforceable in any other jurisdiction.
14.7 GOVERNING LAW. This Agreement and the rights and obligations of
the parties hereunder shall be governed in all respects, including validity,
interpretation and effect, by the laws of the Province of Ontario, without
regard to its rules of conflicts of law.
14.8 ATTORNEYS' FEES. If any party to this Agreement shall bring any
action, suit, counterclaim or appeal for any relief against any other party,
declaratory or otherwise, to enforce the terms hereof or to declare rights
hereunder (collectively, an "Action"), the prevailing party shall be entitled
to recover as part of any such Action its reasonable attorneys' fees and
costs, including any fees and costs incurred in bringing and prosecuting such
Action and/or enforcing any order, judgment, ruling or award granted as part
of such Action. "Prevailing party" within the meaning of this section
includes, without limitation, a party who agrees to dismiss an Action
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upon the other party's payment of all or a portion of the sums allegedly due
or performance of the covenants allegedly breached, or who obtains
substantially the relief sought by it.
14.9 CONSENT TO JURISDICTION; FORUM SELECTION. The parties agree that
all actions or proceedings or arbitrations arising in connection with this
Agreement shall be tried and litigated or arbitrated exclusively in the
Superior Court of Justice of the Province of Ontario or arbitration
facilities located in the Province of Ontario . The aforementioned choice of
venue is intended by the parties to be mandatory and not permissive in
nature, thereby precluding the possibility of litigation or arbitration
between the parties with respect to or arising out of this Agreement in any
jurisdiction other than those specified in this section. Each party hereby
waives any right it may have to assert the doctrine of forum non conveniens
or similar doctrine or to object to venue with respect to any proceeding
brought in accordance with this section, and stipulates that the Superior
Court of Justice of the Province of Ontario or arbitration facilities located
in the Province of Ontario shall have in personam jurisdiction and venue over
each of them for the purpose of litigating or arbitrating any dispute,
controversy or proceeding arising out of or related to this Agreement. Each
party hereby authorizes and accepts service of process sufficient for
personal jurisdiction in any action against it as contemplated by this
section by registered or certified mail, return receipt requested, postage
prepaid, to its address for the giving of notices as set forth in this
Agreement, or in the manner set forth in SECTION 14.1 of this Agreement for
the giving of notice. Any final judgment rendered against a party in any
action or proceeding shall be conclusive as to the subject of such final
judgment and may be enforced in other jurisdictions in any manner provided by
law.
14.10 NO THIRD-PARTY BENEFICIARIES. Except as provided in ARTICLE IX as
to Indemnified Parties, this Agreement is for the sole benefit of the parties
hereto and their permitted assigns and nothing herein expressed or implied
shall give or be construed to give to any person or entity, other than the
parties hereto and such assigns, any legal or equitable rights hereunder.
14.11 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original, and all of which taken together
shall constitute one and the same instrument.
14.12 FACSIMILE SIGNATURES. Signatures on this Agreement received by a
party from another party or its agent by facsimile shall be deemed originals
for all purposes.
14.13 GUARANTEE. Parent hereby unconditionally and irrevocably
guarantees the performance of Buyer's obligations contemplated herein.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
[REMAINDER OF PAGE INTENTIONALLY DELETED]
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BUYER: PAVACO:
GENESTA INC., PAVACO PLASTICS INC.,
an Ontario corporation an Ontario corporation
By: /s/ Trygve M. Thoresen By: /s/ John C. Pavanel
---------------------------- ---------------------------------
Trygve M. Thoresen, Vice President John C. Pavanel, President
PARENT: LESSOR:
SUMMA INDUSTRIES, 1238579 ONTARIO INC.,
a Delaware corporation an Ontario corporation
By: /s/ Trygve M. Thoresen By: /s/ John C. Pavanel
---------------------------------- ---------------------------------
Trygve M. Thoresen, Vice President
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SCHEDULES
1.1 Transferred Assets
1.1(g) Assumed Contracts
1.4 Assumed Obligations
2.2 Allocation of Purchase Price
3.4 Consents and Approvals; No Violation
3.5 Financial Statements
3.6 Absence of Certain Changes
3.7 Undisclosed Liabilities
3.8 Leased and Licensed Transferred Assets
3.9 Real Property
3.10 Intellectual Property
3.11 Accounts Receivable
3.13 Contracts
3.14 Employee and Labour Matters
3.15 Collective Agreements
3.16 Pension and Benefit Plans
3.17 Permits
3.18 Taxes
3.19 Litigation
3.21 Environmental Matters
3.23 Warranties; Product Returns
3.24 Insurance
3.26 Third Party Benefits; Allocated Costs.
6.7(a) Non-union Employees
6.7(b) Union Employees
EXHIBITS
A. Form of New Leases
B. Form of Promissory Note
C. General Instrument of Conveyance, Transfer and Assignment - Pavaco
D. Assumption Agreement
E. Form of Noncompetition and Nonsolicitation Agreement
F. Form of Opinion of Counsel to Seller
G. Form of Opinion of Counsel to Buyer