EXHIBIT 2.1
SHARE PURCHASE AGREEMENT
dated as of the 21st day of October, 2002
Among
CERTAIN SHAREHOLDERS OF SITRAKA INC.
as Vendors
- and -
GREGORY J. KIESSLING
as the Vendors' Agent
- and -
881229 ALBERTA LTD.
as Purchaser
- and -
SITRAKA INC.
as the Company
- and -
QUEST SOFTWARE, INC.
as Guarantor
TABLE OF CONTENTS
PAGE
ARTICLE 1 INTERPRETATION............................................................................. 2
1.1 Definitions.............................................................................. 2
1.2 Schedules................................................................................ 11
1.3 Construction............................................................................. 12
ARTICLE 2 PURCHASE AND SALE.......................................................................... 13
2.1 Purchase and Sale........................................................................ 13
2.2 Purchase Price........................................................................... 14
2.3 Payment of Purchase Price................................................................ 14
2.4 Additional Payments...................................................................... 14
2.5 Allocation of Purchase Price and Additional Payments..................................... 16
2.6 Company Options.......................................................................... 17
2.7 Post-Closing Adjustments................................................................. 17
2.8 Payment Terms............................................................................ 19
ARTICLE 3 INTERIM MATTERS............................................................................ 19
3.1 General Maintenance...................................................................... 19
3.2 Restricted Activities.................................................................... 20
3.3 Interim Monitoring....................................................................... 23
3.4 Employee Matters......................................................................... 23
3.5 Facilitation............................................................................. 23
3.6 Breach of Representations and Warranties................................................. 23
3.7 Requisite Approvals; Reasonable Efforts.................................................. 23
3.8 Exclusivity.............................................................................. 24
3.9 Tax Reorganization....................................................................... 24
3.10 Other Shareholders and Option Holders.................................................... 24
3.11 Delivery of Estimates and Other Items.................................................... 26
ARTICLE 4 DUE DILIGENCE.............................................................................. 26
4.1 Effect of Due Diligence.................................................................. 26
ARTICLE 5 COMPLETION................................................................................. 26
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TABLE OF CONTENTS
(CONTINUED)
PAGE
5.1 Closing.................................................................................. 26
5.2 Vendors' Deliveries...................................................................... 26
5.3 Purchaser's Deliveries................................................................... 28
5.4 Purchaser's and Vendors' Conditions Precedent............................................ 28
5.5 Purchaser's Conditions Precedent......................................................... 29
5.6 Vendors' Conditions Precedent............................................................ 31
5.7 Post-Closing Covenants of the Purchaser.................................................. 31
ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE VENDORS.............................. 33
6.1 Corporate Status; Enforceability......................................................... 33
6.2 Capitalization........................................................................... 34
6.3 No Conflict.............................................................................. 35
6.4 Cultural Business........................................................................ 36
6.5 Subsidiaries............................................................................. 36
6.6 Financial Statements..................................................................... 36
6.7 Absence of Certain Changes............................................................... 37
6.8 Properties............................................................................... 39
6.9 Accounts Receivable...................................................................... 40
6.10 Indebtedness............................................................................. 40
6.11 Litigation............................................................................... 40
6.12 Employees and Employee Benefit Plans..................................................... 41
6.13 Insurance................................................................................ 42
6.14 Contracts and Permits.................................................................... 42
6.15 Corporate Records........................................................................ 43
6.16 Powers of Attorney; Bank Accounts........................................................ 44
6.17 Environmental Matters.................................................................... 44
6.18 Affiliate Relationships.................................................................. 44
6.19 No Termination of Business Relationship.................................................. 45
6.20 Compliance with Law; Requisite Approvals................................................. 45
6.21 Intellectual Property.................................................................... 45
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TABLE OF CONTENTS
(CONTINUED)
PAGE
6.22 Brokers or Finders....................................................................... 51
6.23 Taxes.................................................................................... 51
6.24 No Undisclosed Liabilities............................................................... 52
6.25 Change of Control Payments............................................................... 52
6.26 Workers' Compensation.................................................................... 52
6.27 Stock Rights............................................................................. 53
6.28 U.S. Antitrust Laws...................................................................... 53
6.29 Sitraka Shareco Inc. .................................................................... 53
6.30 Disclosure............................................................................... 53
ARTICLE 7 REPRESENTATIONS AND WARRANTIES OF THE VENDORS.............................................. 53
7.1 Representations and Warranties of Each Vendor............................................ 53
7.2 Representations and Warranties of Vendor Corporations.................................... 55
7.3 Representations and Warranties of Lycklama and L Newco................................... 55
ARTICLE 8 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER............................................ 57
8.1 Corporate Status; Enforceability......................................................... 57
8.2 No Conflict.............................................................................. 57
8.3 Governmental Approvals................................................................... 58
8.4 Litigation............................................................................... 58
8.5 Compliance with Law...................................................................... 58
8.6 Brokers or Finders....................................................................... 58
ARTICLE 9 REPRESENTATIONS AND WARRANTIES OF QUEST.................................................... 58
9.1 Corporate Status; Enforceability......................................................... 58
9.2 No Conflict.............................................................................. 59
9.3 Governmental Approvals................................................................... 59
ARTICLE 10 INDEMNIFICATION AND ESCROW FUND........................................................... 59
10.1 Indemnity and Escrow Fund................................................................ 59
10.2 Attempt to Resolve Conflicts; Arbitration................................................ 61
10.3 Vendors' Agent........................................................................... 62
10.4 Actions of the Vendors' Agent............................................................ 63
10.5 Third-Party Claims and Dissent Rights.................................................... 63
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TABLE OF CONTENTS
(CONTINUED)
PAGE
10.6 Limitations.............................................................................. 64
10.7 Recourse................................................................................. 65
ARTICLE 11 TERMINATION................................................................................ 66
11.1 Termination.............................................................................. 66
11.2 Obligations Upon Termination............................................................. 68
ARTICLE 12 GENERAL.................................................................................... 68
12.1 Public Announcement; Disclosure.......................................................... 68
12.2 Mutual Drafting.......................................................................... 68
12.3 Brokers' Fees............................................................................ 69
12.4 Notices.................................................................................. 69
12.5 Transaction Expenses..................................................................... 70
12.6 Assignment............................................................................... 71
12.7 Governing Law; Choice of Forum........................................................... 71
12.8 Enurement; No Third Party Beneficiaries Rights........................................... 71
12.9 Further Assurances....................................................................... 71
12.10 Amendment; No Waiver..................................................................... 71
12.11 Non-Merger; Survival..................................................................... 72
12.12 Severability............................................................................. 72
12.13 Other Remedies........................................................................... 72
12.14 Entire Agreement......................................................................... 72
12.15 Specific Performance..................................................................... 73
12.16 Guarantee of Quest....................................................................... 73
12.17 Counterpart Execution.................................................................... 73
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SCHEDULES
Schedule A Disclosure Schedule
Schedule B Form of Escrow Agreement
Schedule C Form of Option Holders Offer
Schedule D Initial Allocation Schedule
Schedule E Tax Reorganization Memo
Schedule F Tax Credits
Schedule G Form of L Holdco RDTOH Note
Schedule H Specific Indemnities
SHARE PURCHASE AGREEMENT
THIS SHARE PURCHASE AGREEMENT dated as of October 21st, 2002, BETWEEN:
GREGORY J. KIESSLING ("Kiessling") and EDWARD A. LYCKLAMA ("Lycklama"),
each an individual residing in the City of Toronto in the Province of
Ontario, 976206 ONTARIO INC., a company incorporated pursuant to the laws
of the Province of Ontario ("K Holdco"), and 2016969 ONTARIO INC., a
company incorporated pursuant to the laws of the Province of Ontario ("L
Newco")
(each, herein referred to individually as a "Vendor" and collectively, the
"Vendors")
- and -
GREGORY J. KIESSLING, as the Vendors' Agent
- and -
SITRAKA INC., a company incorporated pursuant to the laws of the Province
of Ontario and formerly known as "KL Group Inc."
(the "Company")
- and -
881229 ALBERTA LTD., a company continued under the Business Corporations
Act (Alberta)
(the "Purchaser")
- and -
QUEST SOFTWARE, INC., a company incorporated pursuant to the laws of the
State of California
("Quest")
A. The Vendors own, directly or indirectly, eighty-four percent (84%) of the
issued and outstanding common shares in the capital stock of the Company.
B. The Vendors have agreed to sell and transfer, and the Purchaser has agreed
to purchase and accept, on the terms and conditions hereinafter set forth,
all of the Vendors' right, title, estate and interest in and to the shares
in the capital stock of the Company currently held by them as well as any
additional common shares in
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the capital stock of the Company which the Vendors acquire, directly or
indirectly, on or prior to the Closing Date;
C. The Purchaser is a subsidiary of Quest;
Accordingly, the parties covenant and agree with one another as follows:
ARTICLE 1
INTERPRETATION
1.1 DEFINITIONS
In this Agreement, including the recitals and the Schedules hereto:
"Additional Payment" has the meaning given such term in Section 2.4(a).
"Affiliate" means, with respect to any person, any other person that is
affiliated with such person, and for the purposes of this Agreement:
(i) two persons will be considered to be affiliated with one another
if one of them controls the other, or if both of them are
controlled by a common third person, and
(ii) one person will be considered to control another person if it has
the power to direct or cause the direction of the management and
policies of the other person, whether directly or indirectly,
through one or more intermediaries or otherwise, and whether by
virtue of the ownership of shares or other equity interests, the
holding of voting rights or contractual rights, or otherwise.
"Agreement" means this Share Purchase Agreement together with the Schedules
hereto, as the same may be amended, supplemented or otherwise modified from
time to time.
"Allocation Schedule" has the meaning given such term in Section 2.5.
"Assets" means all of the assets and property of the Company and its
Subsidiaries, whether tangible or intangible, real or personal, and
including the Principal Assets.
"Base Price" means the amount of $51,700,000.
"Business Day" means any day of the week except Saturday, Sunday or any
statutory holiday in Toronto, Ontario.
"Claims" has the meaning given such term in Section 10.1(a).
"Closing" has the meaning given such term in Section 5.1.
"Closing Date" has the meaning given such term in Section 5.1.
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"Company" has the meaning given such term in the recitals to this
Agreement.
"Company Business" means the business of the Company and its Subsidiaries,
including the business of developing, distributing, supporting and
marketing Company Products.
"Company Options" means any options or warrants to acquire shares of the
capital stock of the Company or any of its Subsidiaries.
"Company Products" means all software, hardware, goods and services sold,
licensed, or distributed by the Company or any of its Subsidiaries, whether
on a wholesale or retail basis, to their respective distributors and
customers, including the Company's entire suite of application software.
"Company Shares" means the issued and outstanding shares in the capital
stock of the Company.
"Company Transaction Expenses" means the amount (subject to adjustment as
contemplated in Section 2.7) equal to any and all paid or unpaid costs and
expenses incurred by the Company and its Subsidiaries in connection with
this Agreement and the transactions contemplated herein, including (i) all
costs and expenses of the Company and its Subsidiaries in respect of the
tax reorganization contemplated in the Tax Reorganization Memo and other
steps taken by the Company, the Subsidiaries or the Vendors in
contemplation of the transactions contemplated herein, (ii) the JP Morgan
Expenses, and (iii) all fees and expenses of legal counsel, financial and
business advisers and accountants incurred in respect of any of the
foregoing; but excluding all audit, legal, corporate secretarial and other
costs incurred by the Company and its Subsidiaries in the normal course of
business and not in contemplation or implementation of the transactions
contemplated herein.
"Confidentiality Agreements" means the Confidentiality and Non-Disclosure
Agreement dated July 15, 2002 and the Supplemental Confidentiality and
Non-Disclosure Agreement dated August 27, 2002, each between Quest and the
Company.
"Current Liabilities" means current liabilities as determined in accordance
with GAAP, consistently applied, excluding the portion of deferred revenue
resulting directly from prepaid maintenance and other services.
"Damages" has the meaning given such term in Section 10.1.
"Disclosure Schedule" means the disclosure schedule of the Vendors attached
as Schedule A.
"Electronic Documents System" means a computer system or other similar
device by or in which data is recorded or stored and any procedures related
to the recording or storage of electronic documents.
"Encumbrance" means, in respect of any Asset, any encumbrance or title
defect, including any mortgage lien, charge, pledge, title retention
agreement or security interest
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or any assignment, lease, option, encumbrance or other claim of any kind or
nature which affects ownership of or title to such property or assets.
"Environmental Law" means any federal, provincial or local statute,
regulation or rule, any judicial or administrative order or judgment or
written administrative request of any Governmental Authority, or any
provision or condition of any permit, license or other operating
authorization of any Governmental Authority, applicable to the Company or
any of its Subsidiaries, the Company Business or the Assets, and relating
to protection of the environment, persons or the public welfare from actual
or potential exposure (or the effects of exposure) to any actual or
potential release, discharge, spill or emission (whether past or present)
of, or regarding the manufacture, processing, production, gathering,
transportation, use, treatment, storage or disposal of, any chemical raw
material, pollutant, contaminant or toxic, corrosive, hazardous or
non-hazardous substance or waste.
"Escrow Agent" means Equity Transfer Services Inc., in its capacity as the
Escrow Agent under the Escrow Agreement.
"Escrow Agreement" means an Escrow Agreement substantially in the form
attached hereto as Schedule B, dated as of the Closing Date, between the
Escrow Agent, the Purchaser, the Vendors, the Company and the Vendors'
Agent, as amended, supplemented or otherwise modified from time to time.
"Escrow Amount" has the meaning given such term in Section 10.1(c).
"Escrow Fund" means the "Escrow Fund" established by the Escrow Agent under
the Escrow Agreement.
"Escrow Monies" means the monies held in the Escrow Fund from time to time
in accordance with the terms of this Agreement and the Escrow Agreement.
"Final Company Transaction Expenses" has the meaning given to such term in
Section 2.7(a).
"Final Working Capital Payment" has the meaning given to such term in
Section 2.7(a).
"Financial Statements" means the audited annual consolidated financial
statements of the Company and its Subsidiaries attached as Section 6.6 of
the Disclosure Schedule, consisting of balance sheets and statements of
operations and cash flows, and related footnotes, as of March 31, 2000,
2001 and 2002 and each of the fiscal years then ended.
"GAAP" means generally accepted accounting principles in Canada.
"Governmental Authority" means any federal, provincial, state or local
governmental, or other regulatory authority.
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"Hardware" means all computer hardware and associated peripherals, machine
tools, administrative equipment and testing equipment owned, leased, or
used by the Company or any of its Subsidiaries, but excluding any Software.
"Hazardous Materials" shall mean any hazardous or toxic substances, wastes
or materials, defined as such or governed by any applicable Environmental
Law.
"Initial Allocation Schedule" has the meaning given such term in Section
2.5.
"Intellectual Property" means all (i) inventions, discoveries, designs and
all improvements thereto (whether patentable or not), and all patents,
patent applications and patent disclosures and utility models, together
with all re-issuances, continuations, continuations-in-part, revisions,
extensions and re-examinations thereof, (ii) trademarks, service marks,
trade names (in each case whether registered or not), Internet domain names
and corporate names and applications, registrations and renewals related
thereto (or portions thereof), (iii) copyrights, including applications,
registrations, and renewals related thereto, (iv) trade secrets,
confidential business information, know-how and any designs, methods,
processes, techniques and systems relating to know-how, (v) databases, (vi)
industrial designs, (vii) integrated circuit topographies or mask works and
(viii) other intellectual property rights of any kind whatsoever.
"Interim Period" means the period from the date of this Agreement to the
earlier of the Closing Date and the termination of this Agreement.
"JP Morgan Expenses" means any and all fees, costs, expenses and
liabilities of any nature whatsoever incurred by the Company under, in
connection with or arising out of the JP Morgan Letter Agreements.
"JP Morgan Letter Agreements" means the letter agreements between the
Company and J.P. Morgan Securities Inc. dated March 16, 2002 and August 21,
2002.
"K Holdco" has the meaning given such term in the preamble to this
Agreement.
"Key Employees" means Kiessling, Lycklama, Steve Rosenberg and Larry
Humphries.
"Kiessling" has the meaning given such term in the preamble to this
Agreement.
"Liabilities" means all debts, obligations and liabilities of any nature
whatsoever (whether absolute or contingent, known or unknown, accrued or
unaccrued, or due or to become due) to which the Company or any of its
Subsidiaries is subject, including all accrued and contingent debts,
obligations and liabilities in respect of Taxes, all accrued and contingent
debts, obligations and liabilities to the current and former employees of
the Company or any of its Subsidiaries or any of them for salary, wages,
bonuses, holiday pay, vacation and other earned time off with pay and other
forms of recompense or reward, and all accrued and contingent guarantee and
indemnification obligations and other liabilities of any nature.
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"Licensed Software" means all software that has been licensed to the
Company or any of its Subsidiaries and that is a component of, incorporated
in, bundled with, or specifically required to develop, modify, use or
support the Company Products.
"L Holdco" means 976205 Ontario Inc.
"L Holdco RDTOH Note" means the promissory note, substantially in the form
attached as Schedule G to be issued at or prior to the Closing Date in the
amount of CDN $500,000 pursuant to which L Holdco has acknowledged itself
indebted to L Newco.
"L Newco" has the meaning given such term in the preamble to this
Agreement.
"Lycklama" has the meaning given such term in the preamble to this
Agreement.
"Material Adverse Effect" means any change or effect that, when taken
individually or together with all other adverse changes and effects, is or
is reasonably likely to be materially adverse to: (i) the condition
(financial or otherwise) of the Company and its Subsidiaries, taken as a
whole, (ii) the operations, results of operations or prospects of the
Company and its Subsidiaries, taken as a whole, (iii) the Assets, or (iv)
the Company Business.
"Material Authorizations" means, with respect to the Company and each of
its Subsidiaries, all governmental licences, permits, concessions,
franchises and other governmental and regulatory endorsements, approvals
and authorizations required to conduct the Company Business, or to own, use
or protect any of the Assets, in each case in a proper and lawful manner.
"Material Contracts" means, with respect to the Company and each of its
Subsidiaries, all agreements, contracts and commitments, whether written or
oral, which are currently in effect or by which the Company or any of its
Subsidiaries continue to be bound:
(i) between the Company or any of its Subsidiaries and any party to
whom the Company or any such Subsidiary directly provides products
or services, which are either out of the ordinary course of
business consistent with past practice or involve or could
reasonably be expected to involve payments to the Company or any
such Subsidiary of more than $100,000 in the aggregate during any
12-month period beginning April 1, 2001;
(ii) between the Company or any of its Subsidiaries and any party
(except for real property leases, equipment lease contracts,
evidence of indebtedness, insurance contracts and agreements for
compensation to employees of the Company and of each of its
Subsidiaries disclosed in Section 6.12 of the Disclosure Schedule)
to whom the Company or any such Subsidiary is obligated, or can
reasonably be expected to be obligated, to pay more than $25,000
individually during the 12-month period after the date of this
Agreement and that cannot be terminated without a cost or penalty
to the Company or any of its Subsidiaries of less than $25,000 in
the aggregate;
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(iii) for the license of the Company's Intellectual Property, including
any marketing, development, sublicense, original equipment
manufacturer, reseller or other strategic distribution agreement
but excluding (A) license agreements with customers not otherwise
included in the definition of Material Contracts and (B) licenses
to distribute JClass and XRT, provided such licenses to distribute
restrict the licencee's ability to expose the application
programming interface;
(iv) limiting or restricting in any manner whatsoever the use,
licensing or distribution by the Company or any of its
Subsidiaries of any of the Proprietary Software or the Company's
Intellectual Property;
(v) containing any covenant limiting the freedom of the Company or any
of its Subsidiaries to engage in any line of business or compete,
directly or indirectly, with any person;
(vi) to the knowledge of the Company and the Vendors, containing any
covenant limiting the freedom of any specific employee or
consultant of the Company or any of its Subsidiaries to engage in
any line of business or compete, directly or indirectly, with any
person;
(vii) of indemnification or guaranty, other than warranty and
indemnification of end user customers, resellers, distributors or
third party suppliers in the ordinary course of business
consistent with past practice, which, in the aggregate, are not
material to the Company or any of its Subsidiaries;
(viii) relating to the disposition or acquisition of (a) material assets
not in the ordinary course of business consistent with past
practice or (b) any ownership interest in any corporation,
partnership, joint venture or other business enterprise;
(ix) constituting Proprietary Rights Agreements;
(x) pursuant to which the Company or any of its Subsidiaries grants
exclusive rights to a third party, including those granting
exclusive territories for the distribution of the Company Products
or exclusive use of any Intellectual Property of the Company;
(xi) relating to the sale, licensing or transfer of source code of the
Company (other than license agreements with customers on customary
terms relating to the Olectra, JClass or XRT products), including
any source code escrow agreements;
(xii) pursuant to which any person grants rights to the Company or any
of its Subsidiaries relating to any Licensed Software or Hardware
required to develop, use, modify, operate or support the
Proprietary Software or the Company Products and that could not
individually be replaced for less than $10,000;
-8-
(xiii) with any current or former employee or consultant of the Company
or of any of its Subsidiaries relating to severance payments that
become payable as a result of the Closing or the consummation of
any of the transactions contemplated herein; and
(xiv) to the extent not included in any of the foregoing, the loss of
which either individually or in the aggregate would reasonably be
expected to have a Material Adverse Effect.
"Notice of Objection" has the meaning given to such term in Section 2.7(e).
"Nasdaq" means the Nasdaq National Market or, if the shares of Quest common
stock are not then quoted on the Nasdaq National Market, such other stock
exchange or automated quotation system on which the shares of Quest common
stock are listed or quoted.
"Option Holders Base Payment" means the aggregate amount equal to the sum
of (a) the Cash Amount (as such term is defined in the Option Holders
Offer) and (b) the Escrow Amount (as such term is defined in the Option
Holders Offer) (and, for greater certainty, including any source deductions
made from such payments pursuant to applicable employment and income tax
laws) that would be payable to all holders of Company Options if they each
agree to sell such Options in accordance with the terms of the Option
Holders Offer.
"Option Holders Offer" means the offer which the Company shall make during
the Interim Period to each holder of Company Options, substantially in the
form attached hereto as Schedule C, pursuant to which the Company shall
offer to purchase for cancellation all Company Options held by each such
holder on the terms and conditions set out in such offer. The Option
Holders Offer will provide for consideration for the cancellation of
Company Options, net of applicable exercise price, based on substantially
the same consideration and allocation described in Article 2 hereof.
"Permitted Encumbrance" means, with respect to any Asset, any inchoate
encumbrances or liens including any encumbrance for Taxes, assessments,
charges or levies of any Governmental Authority not yet due or being
contested in good faith by appropriate proceedings diligently pursued or
any carrier's, contractor's, warehouseman's or like liens in respect of
charges accruing in favour of any person, similarly not yet due or being
contested in good faith by appropriate proceedings diligently pursued.
"Principal Assets" means the Intellectual Property, Software, Hardware and
other assets and property owned, licensed or leased by the Company or any
of its Subsidiaries that is material to the Company Business.
"Proprietary Rights Agreement" means any written agreement or contract
with, or contractual commitment of, any employee or consultant of the
Company or any of its Subsidiaries relating to non-disclosure,
confidentiality, assignment of inventions or proprietary rights,
non-competition and/or non-solicitation.
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"Proprietary Software" means all software assigned to, purchased by or
created by or for the Company, including all software listed as proprietary
software in the Disclosure Schedule and all derivative works from, and
modifications and developments of, Licensed Software that are owned by the
Company or any of its Subsidiaries or as provided for in the Licensed
Software licenses, but excluding Third Party Software.
"Purchase Price" has the meaning given such term in Section 2.2.
"Purchaser" has the meaning given such term in the preamble to this
Agreement.
"Quest" has the meaning given such term in the preamble to this Agreement.
"RDTOH Refund" means any amount that becomes payable to the Company
pursuant to subsection 129(1) of the Income Tax Act (Canada) as a result of
the entering into, on or prior to the Closing Date, of the transactions
contemplated in the Tax Reorganization Memo exclusive of any such amounts
that become payable pursuant to the L Holdco RDTOH Note.
"Receivables" means the aggregate amount of accounts receivable which are
not more than 60 days past due and are as recorded in the Company's books
and records and that have arisen from bona fide, arm's length transactions
in the ordinary course of business and consistent with past practice and
such receivables are valid and binding obligations of the account debtors
which obligations are, to the knowledge of the Vendors, without
counterclaims, set-offs or other defences thereto.
"Remaining Option Holders" means holders of Company Options other than
Selling Option Holders.
"Remaining Shareholders" means the holders of Company Shares immediately
prior to the Closing other than the Vendors. L Holdco shall be deemed not
to be a Remaining Shareholder for all purposes of this Agreement.
"Requisite Approvals" means, with respect to the Company and each of its
Subsidiaries, all consents, approvals and authorizations of any nature
whatsoever required to be obtained in connection with the sale and transfer
of the Company Shares by the Vendors to the Purchaser pursuant hereto and
all other transactions contemplated hereunder.
"Selling Option Holders" means the holders of Company Options who have
accepted the Option Holders Offer and holders whose Company Options have
been acquired by the Company or cancelled in consideration of payment by
the Company pursuant to the terms of the option plan pursuant to which the
Company Options were issued.
"Selling Option Holders Base Payment" means the aggregate amount equal to
the sum of (a) the Cash Amount (as such term is defined in the Option
Holders Offer) and (b) the Escrow Amount (as such term is defined in the
Option Holders Offer) (and, for greater certainty, including any source
deductions made from such payments pursuant to applicable employment and
income tax laws) payable to all Selling Option Holders.
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"Software" means all of the computer software programs (or portions
thereof) and all components thereof, including Proprietary Software and
Licensed Software and all related source and object codes and all related
user guidelines and other similar documentation, and all derivatives and
versions thereof, including all those in development, used, developed,
marketed, distributed or licensed by the Company or any of its
Subsidiaries.
"Statement of Adjustments" has the meaning given to such term in Section
2.7(a).
"Subsidiary" means, with respect to any person, any corporation,
association or other business entity of which more than fifty percent (50%)
of the securities or other ownership interests having ordinary voting power
is, or with respect to which rights to control management (pursuant to any
contract or other agreement or otherwise) are, at the time as of which any
determination is being made, owned, controlled or held by such person or
one or more subsidiaries of such person, provided that, for the purposes of
this Agreement, L Holdco shall not be considered a Subsidiary of the
Company.
"Tax Credit Adjustment Date" has the meaning given to such term in Section
2.4(a)(iii)(B).
"Tax Credits" means the total of all amounts which are received or
receivable by the Company on account of or in respect of "refundable
investment tax credit" as defined in the Income Tax Act (Canada), "Ontario
innovation tax credit" within the meaning of the Corporations Tax Act
(Ontario), non refundable investment tax credits earned with respect to the
periods prior to June 30, 2002 (whether or not the tax returns to which
these tax credits relate have been filed), Corporation Minimum Tax paid in
the province of Ontario and with respect to the taxation year end of the
Company ended January 31, 2002, net overpayments of federal or provincial
income taxes for any tax years ended up to and including the period ended
March 31, 2002 less amounts accrued in the books of the Company relating
thereto, or any other amounts as described in Schedule F, and in all cases,
less any amounts related to any of the above after the date of this
Agreement but received prior to Closing and in all cases, net of any taxes
or other charges which are incurred by the Company as a result of such
amounts being received or becoming receivable by the Company. For purposes
of this Agreement, the amount of Tax Credits received or applied by the
Company shall be converted into U.S. Dollars determined as of the date so
received or applied, it being understood that Tax Credits applied (i.e.,
not "received") shall be deemed to have been applied as of the date of
filing of the applicable Tax return reflecting application of such Tax
Credit.
"Tax Reorganization Memo" means the memo attached hereto as Schedule E,
together with such parts of the closing agenda attached thereto as are
specifically referred to in such memo, as such documents may be amended in
accordance with Section 3.9.
"Taxes" means any federal, provincial, municipal or foreign jurisdiction
taxes, or assessments in the nature of taxes, of any nature whatsoever
(including income taxes, capital taxes, sales taxes, goods and services
taxes, property taxes, social security taxes,
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stamp taxes, value added taxes and use taxes), and includes any interest,
penalty or other additional obligation associated therewith.
"Third Party Software" means all third party software which is a component
of or incorporated in or specifically required to develop, use or support
the Software.
"Threshold" has the meaning given such term in Section 10.6(a).
"Trade Payables" means accounts payables, employee related costs, Taxes and
accrued liabilities incurred in the ordinary course of business consistent
with past practice.
"Vendors" has the meaning given such term in the preamble to this
Agreement.
"Vendors' Agent" has the meaning given such term in Section 10.3.
"Warranty Obligations" means all contracts, licenses, policies and
agreements, whether written or oral, entered into with customers,
distributors or licensees of the Company or any of its Subsidiaries wherein
or whereby the Company or any of its Subsidiaries has agreed to, or has
assumed any obligation or duty to, warrant, indemnify, reimburse, hold
harmless, guarantee or otherwise assume or incur any obligation or
liability in respect of any of the Company's products or services, or to
provide a right of rescission with respect to the infringement or
misappropriation by the Company or another person of the Intellectual
Property of any person.
"Working Capital Payment" means the amount (subject to adjustment as
contemplated in Section 2.7) equal to the lesser of: (i) the amount equal
to the aggregate of the cash (excluding any amounts received by the Company
during the Interim Period from the exercise of Company Options or cash
received in respect of Tax Credits received prior to Closing) and
Receivables of the Company less the Current Liabilities of the Company, all
determined as of the Closing Date; and (ii) One Million Seven Hundred
Thousand Dollars ($1,700,000).
"Year 2000 Compliant" means that the information technology is designed to
be used prior to, during and after the calendar year 2000 A.D., and the
information technology used during each such time period will accurately
receive, provide and process date/time data (including calculating,
comparing and sequencing) from, into and between the 20th and 21st
centuries, including the years 1999 and 2000, and leap year calculations
and will not malfunction, cease to function, or provide invalid or
incorrect results as a result of date/time data, to the extent that other
information technology, used in combination with the information technology
being acquired, properly exchanges date/time data with it.
1.2 SCHEDULES
The following schedules are annexed to this Agreement and form a part
hereof:
Schedule A Disclosure Schedule
Schedule B Form of Escrow Agreement
Schedule C Form of Option Holders Offer
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Schedule D Initial Allocation Schedule
Schedule E Tax Reorganization Memo
Schedule F Tax Credits
Schedule G Form of L Holdco RDTOH Note
Schedule H Specific Indemnities
1.3 CONSTRUCTION
(a) In this Agreement, unless otherwise expressly stated:
(i) references to a "party" or "parties" are references to a
party or parties to this Agreement, and references to
"herein", "hereby", "hereunder", "hereof" and similar
expressions are references to this Agreement and not to any
particular Article, Section, subsection, clause or
Schedule;
(ii) references to an "Article", "Section", "subsection",
"clause" or "Schedule" are references to an Article,
Section, subsection, clause or Schedule of or to this
Agreement;
(iii) except as provided herein, references to dollar amounts are
references to United States dollars;
(iv) words importing the singular shall include the plural and
vice versa, words importing gender shall include the
masculine, feminine and neuter genders;
(v) references to a "person" or "persons" shall include
individuals, corporations, partnerships, associations,
Governmental Authorities and other entities, all as may be
applicable in the context;
(vi) the table of contents and the use of headings is for
convenience of reference only and shall not affect the
construction or interpretation hereof;
(vii) the words "include," "includes" and "including" when used
herein shall be deemed in each case to be followed by the
words "without limitation";
(viii) where a word or phrase is defined, its derivatives or other
grammatical forms have a corresponding meaning;
(ix) "knowledge" and the phrase "to the knowledge", as the case
may be, and similar expressions shall mean and be
interpreted, with respect to any person, as being to the
knowledge, information and belief of such person after
reasonable inquiry, and to the extent that such reasonable
inquiry was not conducted, to the knowledge, information
and belief that a reasonable person would have had if such
inquiry had been conducted; and the phrase "to the
knowledge of the Company and the Vendors" and similar
expressions shall mean and be interpreted as being to the
knowledge,
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information and belief, as described above, of the Company
or of any of the Vendors, provided that in reference to the
Company, "knowledge" shall mean the knowledge, as defined
above, of the Chief Technology Officer, the Chief Operating
Officer, the Vice President of Research and Development,
the Chief Executive Officer and Tom Cronin, independent
consultant to the Company, and in reference to a Vendor,
"knowledge" shall mean the knowledge, as defined above, of
all Affiliates of such Vendor, including Kiessling and
Lycklama;
(x) references to a statute, regulation or other legal
enactment include all of its amendments and re-enactments;
(xi) references to a manner of conduct include any omission,
representation, statement or undertaking, whether or not in
writing; and
(xii) time is of the essence.
(b) Applicable information disclosed with specificity in the
Disclosure Schedule with reference to any section of Article 6 or
7 of this Agreement shall not be deemed to be disclosed under and
incorporated into any other section of Article 6 or 7 of this
Agreement relating to the same subject matter unless such other
section is expressly cross-referenced where such information is
disclosed.
(c) In circumstances where it is necessary to convert from Canadian
dollars to United States dollars in administering any aspect of
this Agreement, the conversion shall be done on the basis of the
rate quoted in the Wall Street Journal on the date on which the
conversion is made.
(d) Regardless of whether the transaction contemplated in step 10.F of
the Tax Reorganization Memo is implemented, for the purposes of
this Agreement, as of the Closing Date, L Holdco shall be deemed
to have been wound up or liquidated as contemplated in such step
and any Company Shares held by L Holdco shall be deemed to have
been cancelled and no longer be outstanding.
ARTICLE 2
PURCHASE AND SALE
2.1 PURCHASE AND SALE
Each of the Vendors agrees to sell, assign, transfer and convey the
Company Shares owned, directly or indirectly, by such Vendor (as of the Closing
Date, after giving effect to the transactions contemplated in the Tax
Reorganization Memo and the transactions contemplated in Section 3.10) to the
Purchaser, and the Purchaser agrees to purchase and accept such Company Shares,
all on the terms and conditions set forth in this Agreement.
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2.2 PURCHASE PRICE
The aggregate purchase price (the "Purchase Price") to be paid by the
Purchaser for all of the Company Shares, including all Company Shares owned by
persons other than the Vendors, shall be an amount equal to the Base Price less
the sum of:
(a) the amount of Company Transaction Expenses set forth in the
statement to be delivered to the Purchaser by the Vendors' Agent
pursuant to Section 3.11, to the extent not paid by the Vendors
at or prior to the Closing; and
(b) the Option Holders Base Payment.
2.3 PAYMENT OF PURCHASE PRICE
The Purchase Price payable with respect to the Company Shares delivered
by the Vendors at the Closing shall be payable to the Vendors at the Closing
provided that (i) an amount equal to the Vendors' ratable share of the Escrow
Amount (determined in accordance with the Allocation Schedule) shall be withheld
from the Purchase Price payable at the Closing and paid into the Escrow Fund in
accordance with Section 10.1(c).
2.4 ADDITIONAL PAYMENTS
(a) For the purposes of this Agreement, the following shall each be
considered an "Additional Payment":
(i) the Working Capital Payment in the amount set forth in the
statement to be delivered to the Purchaser pursuant to
Section 3.11, which amount shall be payable at the Closing;
(ii) the amount, if any, equal to the aggregate exercise price
received by the Company for the Company Options exercised
during the Interim Period (but, for greater certainty,
excluding the Closing Date), which amount shall be payable
at the Closing;
(iii) an amount equal to One Million Three Hundred Thousand
Dollars ($1,300,000) in the aggregate (subject to downward
adjustment as provided below) in respect of the Tax Credits
due to the Company following the date hereof, which amount
shall be due and payable as follows:
(A) at Closing, with respect to an amount (not to exceed
$1,300,000) equal to the greater of (1) $650,000 and
(2) such amount of Tax Credits, if any, as is,
during the Interim Period, received by the Company
or applied against Taxes otherwise payable by the
Company, and
(B) after Closing, any difference between $1,300,000 and
the amount paid at Closing under this Section 2.4 in
respect of amounts under
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2.4(a)(iii)(A) shall be due and payable if, when and to the
extent Tax Credits are received by the Company or
applied against Taxes otherwise payable by the Company,
provided that (1) all such amounts owing under this
Section 2.4 in respect of amounts under this Section
2.4(a)(iii)(B) in respect of Tax Credits received or
applied prior to January 30, 2004 shall be deposited
with the Escrow Agent and held as part of the Escrow
Fund; and (2) on the date that is 36 months following
the Closing Date (the "Tax Credit Adjustment Date") the
aggregate amount payable under this Section 2.4 in
respect of amounts under this Section 2.4(a)(iii) shall
be reduced to the actual amount of Tax Credits received
by the Company or applied against Taxes otherwise
payable by the Company as of the Tax Credit Adjustment
Date (and for greater certainty there shall be credited
against such aggregate amount payable the amounts in
respect thereof claimed from the Escrow Fund in
accordance with Article 10 and the amounts paid in
respect of amounts under Section 2.4(a)(iii)(A) or this
Section 2.4(a)(iii)(B)); and further provided that the
Purchaser shall be entitled to claim against the Escrow
Fund, without being subject to the limitations of
Section 10.6, in the event (and to the extent) that the
actual aggregate amount of Tax Credits received by the
Company or applied against Taxes otherwise payable by
the Company as of January 30, 2004 (including the
amounts paid under this Section 2.4 in respect of
amounts under Section 2.4(a)(iii)(A)) is less than
$650,000 and provided that any amounts of Tax Credits
received or applied following January 30, 2004 and
prior to the Tax Credit Adjustment Date shall be paid
as and when received by the Company or applied against
Taxes otherwise payable by the Company, in six (6)
month intervals from January 30, 2004; and
(iv) an amount equal to Four Million Four Hundred Thousand
Canadian Dollars (Cdn. $4,400,000) in the aggregate
(subject to downward adjustment as provided below) in
respect of the RDTOH Refund due to the Company
following the date hereof, which amount shall be due
and payable in Canadian dollars as and when the RDTOH
Refund is received by the Company, provided however
that the timing of the payment of such amounts by the
Purchaser shall be as and when received by the
Purchaser, in six (6) month intervals from the Closing
Date, and provided further that the aggregate amount
payable by the Purchaser pursuant to this Section
2.4(a)(iv) shall be reduced to the actual amount of
RDTOH Refund actually received by the Company as of the
date which is eighteen (18) months following the
Closing Date (to the extent that such actual amount is
less than Cdn. $4,400,000 on such date) (and for
greater certainty there shall be credited against such
aggregate amount payable the amounts paid in respect of
amounts under this Section 2.4(a)(iv)).
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(b) Vendors. In addition to the Purchase Price, the Purchaser shall
pay to each of the Vendors, in consideration for the Company
Shares delivered by such Vendor at Closing, such Vendor's ratable
share (determined in accordance with the Allocation Schedule) of
the Additional Payments set forth in Sections 2.4(a)(i),
2.4(a)(ii), 2.4(a)(iii) and 2.4(a)(iv), which payments shall be
made at such times as are contemplated in such subsections of
Section 2.4.
(c) Option Holders. In addition to the Selling Option Holders Base
Payment, the Purchaser acknowledges that each of the Selling
Option Holders will become entitled to receive, by reason of the
Option Holder Offer, such holder's ratable share (determined in
accordance with the Allocation Schedule) of the Additional
Payments set forth in Sections 2.4(a)(i), 2.4(a)(ii) and
2.4(a)(iii), which payments shall be made at such times as are
contemplated in such subsections of Section 2.4.
(d) Remaining Shareholders. Each Remaining Shareholder, if any, who
agrees to accept the offer described in Section 3.10(a), shall
become entitled to receive such shareholder's ratable share
(determined in accordance with the Allocation Schedule) of the
Purchase Price and the Additional Payments set forth in Sections
2.4(a)(i), 2.4(a)(ii), 2.4(a)(iii) and 2.4(a)(iv), which payments
shall be made at such times as are contemplated in such
subsections of Section 2.4.
(e) L Newco. The Purchaser shall cause L Holdco, the Company or the
Purchaser to pay to L Newco amounts owing in respect of the L
Holdco RDTOH Note in accordance with the terms of such note.
(f) No interest shall be payable by the Purchaser in respect of the
Additional Payments and all accrued interest on Additional
Payments deposited in the Escrow Fund shall be for the account of
the Purchaser.
2.5 ALLOCATION OF PURCHASE PRICE AND ADDITIONAL PAYMENTS
The Vendors and the Purchaser shall, not less than one (1) Business Day
prior to the Closing, jointly prepare and agree to a schedule, consistent with
the terms and conditions hereof and of the Initial Allocation Schedule (the
"Allocation Schedule") which shall provide for:
(a) the allocation of the Purchase Price amongst the Vendors;
(b) the allocation of the Selling Option Holders Base Payment amongst
the Selling Option Holders;
(c) the allocation of the Additional Payments amongst the Vendors and
the Selling Option Holders;
(d) the allocation of the beneficial entitlement of the Vendors and
the Selling Option Holders in respect of the Escrow Fund; and
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(e) the allocation of the Purchase Price, the Option Holders Base
Payment, the Additional Payments and the assumed beneficial
entitlement of the Escrow Fund amongst the Remaining Shareholders
and Remaining Option Holders.
Attached for illustrative purposes only as Schedule D hereto is a
schedule showing the above allocation as it would be as of the date of this
Agreement, assuming that (a) all holders of Company Options accept the Option
Holders Offer; (b) all holders of Company Shares other than the Vendors accept
the Vendors' offer described in Section 3.10(a); (c) completion of the
transactions described in the Tax Reorganization Memo as of the date hereof (and
the corresponding provisions of Section 1.3(d)); and (d) reasonable estimates
for the Company Transaction Expenses and the Working Capital Payment (the
"Initial Allocation Schedule").
2.6 COMPANY OPTIONS
(a) At Closing, the Purchaser shall provide to the Company an amount
equal to the Selling Option Holders Base Payment, provided that an
amount equal to the ratable share of the Escrow Amount in respect
of the Selling Option Holders (determined in accordance with the
Allocation Schedule) shall be withheld from the Option Holders
Base Payment and paid into the Escrow Fund in accordance with
Section 10.1(c).
(b) Promptly following the Closing, but in no event later than 15 days
after the Closing Date, the Company shall pay the Selling Option
Holders Base Payment and the Selling Option Holders' portion of
the Additional Payments to the Selling Option Holders pursuant to
the terms and conditions of the Option Holders Offer in accordance
with the allocation set out in the Allocation Schedule, provided
that an amount equal to the Selling Option Holders' ratable share
of the Escrow Amount (determined in accordance with the Allocation
Schedule) shall have been withheld from the Selling Option Holders
Base Payment and paid into the Escrow Fund as provided in Section
2.6(a).
2.7 POST-CLOSING ADJUSTMENTS
(a) Within 30 days after the Closing, the Purchaser shall prepare and
deliver to the Vendors' Agent an unaudited statement of
adjustments (the "Statement of Adjustments") which shall contain a
calculation of the Working Capital Payment (the "Final Working
Capital Payment") as of the Closing Date and the Company
Transaction Expenses (the "Final Company Transaction Expenses").
The Statement of Adjustments shall be prepared on a basis
consistent with the preparation of the Financial Statements.
(b) If:
(i) the Final Working Capital Payment is greater than the
Working Capital Payment paid by the Purchaser at the
Closing; or
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(ii) the Final Company Transaction Expenses are less than the
Company Transaction Expenses deducted from the Purchase
Price as contemplated by Section 2.2,
the Purchaser shall pay such difference or differences to the
Escrow Agent and such amount shall be held by the Escrow Agent as
part of the Escrow Fund, provided that in no event shall the sum
of the difference under Section 2.7(b)(i) and the Working Capital
Payment paid by the Purchaser at the Closing exceed $1,700,000.
(c) If:
(i) the Final Company Transaction Expenses are greater than the
Company Transaction Expenses deducted from the Purchase
Price as contemplated by Section 2.2; or
(ii) the Final Working Capital Payment is less than the Working
Capital Payment paid by the Purchaser at the Closing,
the Purchaser may claim such difference or differences from the
Escrow Fund and any such claim shall not be subject to the
limitations of Section 10.6 or the procedures required by Section
10.2.
(d) Subject to Section 2.7(e), any payment or claim contemplated in
Sections 2.7(b) and 2.7(c) shall be made by the Purchaser within
15 Business Days from the delivery of the Statement of Adjustments
to the Vendors.
(e) If the Vendors have any objections to the calculations contained
in the Statement of Adjustments, the Vendors' Agent may, within
fifteen (15) Business Days following delivery of the Statement of
Adjustments, provide to the Purchaser a notice of objection (the
"Notice of Objection") containing a statement on the basis of each
of the Vendors' objections and each amount in dispute. If the
Purchaser disputes the objections contained in the Notice of
Objection, the parties shall work expeditiously and in good faith
in an attempt to resolve such dispute within a further twenty (20)
Business Days after the date the Notice of Objection was delivered
to the Purchaser. In the absence of an agreement by the parties,
the final amount of the payment or payments as contemplated in
this Section 2.7 shall be determined within forty (40) Business
Days by a nationally-recognized Canadian firm of chartered
accountants as may be agreed to by the parties and such
determination shall be conclusive, final and binding on the
Vendors and the Purchaser. The Vendors and the Purchaser shall
share equally in all fees and expenses charged by such accountants
for resolving such matter. The party required to make payment to
the other party as determined by the accountants shall pay such
amount within five (5) Business Days of such determination.
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2.8 PAYMENT TERMS
Unless otherwise stated, all payments to the Vendors contemplated in this
Agreement shall be in the form of cash by wire transfer or other immediately
available funds unless otherwise agreed to by the party receiving such payment.
ARTICLE 3
INTERIM MATTERS
3.1 GENERAL MAINTENANCE
Throughout the Interim Period, each of the Company and its Subsidiaries
shall, and the Vendors shall cause each of the Company and its Subsidiaries to:
(a) carry on the Company Business in the usual, regular and ordinary
course of business consistent with past practice;
(b) maintain its corporate existence and good standing under the laws
of the jurisdiction of its incorporation and maintain its
qualification and good standing and all required and appropriate
licenses in each jurisdiction in which its failure to obtain or
maintain such qualification, good standing or licensing would,
individually or in the aggregate, have, or reasonably could be
expected to have, a Material Adverse Effect;
(c) maintain good relations with all of its employees, suppliers,
customers, licensors, licensees and other business associates, and
in all respects conduct the Company Business in a proper, prudent
and lawful manner, in keeping with good industry and business
practices, and with a view to the promotion and enhancement of the
goodwill of the Company and its Subsidiaries in respect of the
Company Business;
(d) maintain its books and records in keeping with GAAP, applied on a
consistent basis, and good industry and business practices;
(e) pay when due all expenses and other amounts payable by it in the
ordinary course of business, and observe, perform and comply with
all of its covenants, agreements and obligations under the
Material Contracts, the Material Authorizations and otherwise;
(f) comply in all material respects with all laws, regulations,
ordinances, orders and decrees applicable to it and to the Company
Business;
(g) continue to maintain insurance coverage on the Assets and
operations of the Company and its Subsidiaries that is in place as
at the date of this Agreement; and
(h) generally take all such other reasonable and ordinary course
actions as may be required to protect and preserve the Company
Business and the Assets and to
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avoid any event or occurrence that would or is reasonably likely
to result in a Material Adverse Effect.
3.2 RESTRICTED ACTIVITIES
Throughout the Interim Period, neither the Company nor any of its
Subsidiaries shall, and the Vendors shall ensure that neither the Company nor
any of its Subsidiaries does, without the prior written consent of the
Purchaser:
(a) enter into or engage in any transaction or activity outside of the
ordinary course of business consistent with past practice;
(b) sell, trade, abandon, mortgage, charge or otherwise dispose of or
encumber in any manner any of the Principal Assets, other than
property sold or disposed of for a reasonable price pursuant to a
bona fide arm's length transaction in the ordinary course of
business consistent with past practice;
(c) purchase or otherwise acquire any new property or assets of any
kind other than:
(i) capital property acquired in the ordinary course of
business consistent with past practice and having a cost of
less than $50,000 in the aggregate, and
(ii) office supplies and similar incidental items purchased in
the ordinary course of business consistent with past
practice and having a cost of less than $25,000 in the
aggregate,
and in each case purchased or otherwise acquired for a reasonable
price pursuant to a bona fide arm's length transaction;
(d) other than in the ordinary course of business, incur any
Liabilities of any nature other than Trade Payables;
(e) guarantee any indebtedness or issue or sell any debt securities or
guarantee any debt securities of others;
(f) license any source code of the Software or make any escrow or
other deposit of a copy of the source code of the Software other
than license agreements with customers on customary terms relating
to the JClass or XRT products;
(g) commence any litigation other than for the routine collection of
bills;
(h) terminate, surrender or amend in any material respect any of the
Material Contracts or the Material Authorizations, or enter into
any new agreement or arrangement which would individually
constitute a Material Contract;
(i) introduce any new method of conducting the Company Business or
dealing with any of the Principal Assets;
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(j) introduce any new accounting methods or any new methods of
preparing, maintaining or otherwise dealing with the Company's
books, records, accounts or files;
(k) pay or agree to pay any management fees, salaries, bonuses,
severance or termination pay or other remuneration to any of its
directors, officers, employees, consultants, contractors or agents
except as required to be paid pursuant to the terms of contractual
obligations existing as at the date of this Agreement and
expressly disclosed in Section 6.12(b) of the Disclosure Schedule;
(l) enter into any employment agreement, whether oral or written, with
any person for the position level of director or above or for
compensation of greater than $60,000 per annum, or grant any stock
options;
(m) enter into any new stock option, bonus or benefit plans for the
employees, officers, consultants or directors of the Company or
any of its Subsidiaries, or amend any stock options, stock option
plans, or benefit plans;
(n) terminate, amend or otherwise modify any plan for the benefit of
the employees of the Company or any of its Subsidiaries;
(o) dispose of, license or transfer to any person any rights to the
Principal Assets, except for customer licenses of commercially
available software on customary terms and in the ordinary course
of business consistent with past practice;
(p) acquire or agree to acquire by merging, consolidating or entering
into a joint venture arrangement with, or by purchasing a
substantial portion of the assets of, or by any other manner, any
business or any corporation, partnership, association or other
business organization or division thereof;
(q) except as contemplated in the Tax Reorganization Memo, declare or
pay any dividends or otherwise make any distributions in respect
of any of its shares of capital stock, redeem, purchase for
cancellation or otherwise acquire or retire any of its shares of
capital stock, make loans to, or repay any portion of any
indebtedness owing by it to, any of its Affiliates, or to any
person associated with any of its Affiliates;
(r) except as contemplated in the Tax Reorganization Memo, issue any
shares (other than shares issued upon, and as required by, the
exercise of the Company Options), warrants, options or other
securities, amend its articles or by-laws, increase or decrease
its paid-up capital, or pass, repeal or amend any resolutions
other than those required to authorize and approve the
consummation of the transactions contemplated by this Agreement;
(s) defer the payment of any accounts payable related to the Company
Business beyond the payment deferral periods considered part of
the ordinary course of business consistent with past practice;
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(t) except as contemplated in the Tax Reorganization Memo, reorganize
its Assets, capital or debt or enter into any re-organization by
way of merger, amalgamation or liquidation;
(u) revalue any of its Assets, including writing off notes or accounts
receivable other than in the ordinary course of business
consistent with past practice;
(v) pay, discharge or satisfy in an amount in excess of $25,000 in the
aggregate, any claims or Liabilities, other than the payment,
discharge or satisfaction of (i) obligations in the ordinary
course of business consistent with past practice, and (ii)
Liabilities reflected or reserved against in the Financial
Statements;
(w) make any election with respect to any Taxes other than in the
ordinary course of business consistent with past practice, change
any election with respect to any Taxes, adopt any accounting
method with respect to any Taxes other than in the ordinary course
of business consistent with past practice, change any accounting
method with respect to any Taxes, file any tax return (other than
any estimated tax returns, payroll tax returns, sales tax returns
or final tax returns for the tax year of the Company ended January
31, 2002, federal and provincial, which are currently due) or any
amendment to a tax return, enter into any closing agreement,
settle any claim or assessment with respect to any Taxes, or
consent to any extension or waiver of the limitation period,
applicable to any claim or assessment with respect to any Taxes;
(x) waive or commit to waive any rights with a value in excess of
$25,000 in the aggregate, or forgive any indebtedness owed to the
Company;
(y) cancel, materially amend or renew any insurance policy other than
in the ordinary course of business consistent with past practice;
(z) alter, or enter into any commitment to alter, its interest in any
corporation, association, joint venture, partnership or business
entity in which the Company directly or indirectly holds any
interest;
(aa) enter into any transactions with its officers, directors or
shareholders or any of their respective Affiliates (other than
matters incidental to employment relationships with employees of
the Company or its Subsidiaries in the ordinary course of business
and consistent with past practice);
(bb) fail to pay or otherwise satisfy its material monetary obligations
as they become due in the ordinary course of business and in any
event not later than 60 days of becoming due, except such as are
being contested in good faith by appropriate proceedings
diligently pursued;
(cc) cause the total number of employees of the Company and its
Subsidiaries to exceed 215;
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(dd) take or fail to take any action that is reasonably likely to
result in a Material Adverse Effect; or
(ee) agree or commit to do any of the foregoing.
3.3 INTERIM MONITORING
Throughout the Interim Period, the Purchaser shall be entitled to monitor
the activities of the Company and its Subsidiaries and the operation, management
and administration of the Company Business and the Principal Assets, and the
Company and its Subsidiaries and each of the Vendors shall ensure that the
Purchaser is kept fully apprised of, and is consulted on, all developments and
decisions of a material nature relating to the Company, its Subsidiaries, the
Company Business or the Principal Assets. The Company and the Vendors shall
promptly notify the Purchaser of any event or occurrence not in the ordinary
course of business consistent with past practice, and any event of which the
Company or any of the Vendors is aware that would or could reasonably be
expected to have a Material Adverse Effect which would cause the condition in
Section 5.5(c) to not be satisfied (even if the likelihood of such event has
been disclosed or could result from anything set forth in the Disclosure
Schedule).
3.4 EMPLOYEE MATTERS
Throughout the Interim Period, the Company and its Subsidiaries shall,
and the Vendors shall ensure that the Company and its Subsidiaries shall,
facilitate and cooperate in the conduct of all such discussions, interviews and
other communications as the Purchaser may wish to have with the employees of the
Company or any of its Subsidiaries.
3.5 FACILITATION
Each of the parties shall proceed reasonably, diligently and in good
faith to facilitate or secure the satisfaction of the conditions precedent set
forth in Sections 5.4, 5.5 and 5.6, to the extent that the same is within its
reasonable control, and otherwise to perform and satisfy its covenants,
agreements and other obligations hereunder with a view to completing the
purchase and sale of the Company Shares and Company Options and the other
transactions contemplated hereunder at the times and in the manner provided
herein.
3.6 BREACH OF REPRESENTATIONS AND WARRANTIES
In the event of, and promptly after becoming aware of, the occurrence or
pending or threatened occurrence of any event which would cause any of the
representations and warranties contained herein not to be true and correct, the
party becoming aware of such occurrence shall give detailed notice thereof to
the other parties.
3.7 REQUISITE APPROVALS; REASONABLE EFFORTS
Subject to the terms and conditions of this Agreement, each of the
parties shall use its reasonable good faith efforts to: (i) make all necessary
filings with respect to, and obtain, all Requisite Approvals required of it; and
(ii) take, or cause to be taken, all appropriate action, and do, or cause to be
done, all things necessary, proper or advisable to consummate and make
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effective the transactions contemplated by this Agreement as promptly as
practicable. Each party, at the reasonable request of any other party, shall
execute and deliver such other instruments and do and perform such other acts
and things as may be necessary or desirable for effecting completely the
consummation of the transactions contemplated hereby.
3.8 EXCLUSIVITY
Unless and until this Agreement shall have been terminated pursuant to
Section 11.1, neither the Company nor any of its Subsidiaries nor any of the
Vendors shall, directly or indirectly (and each such party shall ensure that its
respective officers, directors, employees, shareholders, Affiliates and legal,
accounting, financial and other advisers do not on its behalf), take any action
to solicit, initiate, seek, encourage or support any inquiry, proposal or offer
from, furnish any information to, or participate in any negotiations with, any
person (other than negotiations with the Purchaser) regarding any acquisition of
the Company or any of its Subsidiaries, any merger or consolidation with or
involving the Company or any of its Subsidiaries, or any acquisition of all or a
portion of the stock or assets of the Company or any of its Subsidiaries. Each
of the Company and its Subsidiaries and the Vendors will notify the Purchaser
immediately upon receipt by the Company or any of its Subsidiaries or any of the
Vendors (or any of their respective officers, directors, employees,
shareholders, Affiliates or advisers) of any proposal for, or inquiry
respecting, any such acquisition, merger or consolidation or any request for
nonpublic information in connection with such any proposal or inquiry relating
thereto or for access to the properties, books or records of the Company or any
of its Subsidiaries by any person that informs the Company or any of its
Subsidiaries that it is considering making, or has made, such a proposal or
inquiry. Such notice to the Purchaser will be made orally and in writing and
will set forth the identity of the person making the proposal or inquiry, and
the terms and conditions of such proposal or inquiry in reasonable detail.
3.9 TAX REORGANIZATION
Notwithstanding anything contained in this Article 3, the Company and its
Subsidiaries shall consummate the transactions set out in the Tax Reorganization
Memo (subject to any modifications which would not have an adverse effect on the
Company or the Purchaser or its Affiliates from a tax-planning perspective or
otherwise, and which have been consented to by the Purchaser, acting
reasonably), and nothing contained in this Article 3 shall be interpreted to
prevent such consummation; provided that such consummation shall not affect the
indemnification obligations of the Vendors, or any other obligations of the
Company or the Vendors under this Agreement. Notwithstanding the foregoing, but
subject to the provisions of Section 1.3(d), the transaction described in step
10.F of the Tax Reorganization Memo shall not be required to be consummated
prior to the Closing unless the Purchaser requests.
3.10 OTHER SHAREHOLDERS AND OPTION HOLDERS
(a) During the Interim Period:
(i) The Vendors shall use reasonable commercial efforts to
purchase the Company Shares owned by persons other than the
Vendors in order that such Company Shares may be
transferred to the Purchaser under the terms
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of this Agreement and for a period of 90 days following
Closing, the Vendors shall continue to use reasonable
commercial efforts to cause the Remaining Shareholders to
sell their Company Shares to the Purchaser. The
consideration for such purchases shall be as set forth in
Section 2.4(d).
(ii) The Company shall use reasonable commercial efforts to
purchase the Company Options for cancellation pursuant to
the Option Holders Offer or to cause the holders of the
Company Options to exercise such options and to sell their
Company Shares to the Vendors in order that such Company
Shares may be transferred to the Purchaser under the terms
of this Agreement.
(b) If any such holders of Company Shares or Company Options is
indebted to the Company or to any Subsidiary, including Sitraka
Shareco Inc., pursuant to a loan or otherwise, such indebtedness
shall be repaid from the amount to be paid by the Vendors or the
Company to such person for his or her Company Shares or Company
Options, respectively.
(c) The Vendors and the Company shall provide the Purchaser with a
reasonable opportunity to review and comment on the forms of
offers being made to holders of Company Shares and holders of
Company Options pursuant to Section 3.10(a).
(d) Remaining Shareholders, if any, who agree to accept an offer made
by the Purchaser pursuant to Section 3.10(a) to acquire Company
Shares within 90 days after the Closing, shall have a beneficial
interest in the Escrow Fund in an amount representing their
respective ratable share (determined in accordance with the
Allocation Schedule), and if and to the extent they expressly
agree to accept the terms of the Escrow Agreement and the
retention in the Escrow Fund of the consideration to be paid for
such Company Shares by an amount representing their respective
ratable share (determined in accordance with the Allocation
Schedule) of the Escrow Fund, such Remaining Shareholders shall be
entitled to such share of the Escrow Fund and the Purchaser shall
forthwith provide notice to the Escrow Agent of such entitlement.
(e) Remaining Option Holders, if any, whose Company Options have been
acquired after the Closing by the Company or cancelled in
consideration of payment by the Company pursuant to the terms of
the option plan pursuant to which such Company Options were
issued, shall, upon acknowledgement by the Company and such
holders that they are entitled to their ratable shares (determined
in accordance with the Allocation Schedule) of the Escrow Fund, be
entitled to such share of the Escrow Fund and the Purchaser shall
forthwith provide notice to the Escrow Agent of such entitlement.
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3.11 DELIVERY OF ESTIMATES AND OTHER ITEMS
(a) The Vendors' Agent shall deliver to the Purchaser at least one (1)
Business Day prior to the Closing Date a statement setting out (i)
the reasonable good faith estimate of the Company and the Vendors
of the Company Transaction Expenses as of the Closing Date, which
estimate shall show the estimated Company Transaction Expenses to
each payee thereof, and (ii) the reasonable good faith estimate of
the Company and the Vendors of the Working Capital Payment as of
the Closing Date, which estimate shall show the estimated amount
of cash, Receivables and Current Liabilities used in determining
such estimate.
(b) The Vendors' Agent shall deliver to the Purchaser three (3)
Business Days prior to the Closing Date a current list of accounts
receivable and amounts for doubtful accounts and allowances of the
Company and its Subsidiaries.
ARTICLE 4
DUE DILIGENCE
4.1 EFFECT OF DUE DILIGENCE
The respective representations, warranties, covenants, agreements and
other obligations of the Company and the Vendors hereunder shall not in any
manner be, or be deemed to be, waived or otherwise affected by any examination,
investigation or due diligence conducted by or on behalf of the Purchaser.
ARTICLE 5
COMPLETION
5.1 CLOSING
The closing of the purchase and sale contemplated hereby (the "Closing")
shall take place at the offices of Macleod Dixon LLP, Suite 3900, Canada Trust
Tower, BCE Place, 161 Bay Street, Toronto, Ontario, Canada, at 10:00 am on
November 1, 2002 (the "Closing Date"). If any condition precedent under Sections
5.4, 5.5 or 5.6 has not been satisfied on the Closing Date, notwithstanding the
reasonable commercial efforts of the party(s) responsible to fulfil such
condition, the Closing Date shall be extended to the date that is fifteen (15)
days following the original Closing Date (or the next Business Day if such
fifteenth day is not a Business Day) or such earlier date as the parties may
agree, and, subject to Section 11.1, shall subsequently be extended in 15-day
increments if any such condition precedent is not satisfied on the Closing Date
as previously extended.
5.2 VENDORS' DELIVERIES
At Closing, the Vendors shall deliver or cause to be delivered (or, in
the case of subsection (e) below, make available) to the Purchaser:
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(a) share certificates representing the Company Shares owned by the
Vendors, duly endorsed for transfer in favour of the Purchaser;
(b) the Vendors' certificates contemplated by Sections 5.5(b), (c) and
(e) and the Company's certificate contemplated by Section 5.5(g);
(c) valid and binding assignment agreements, in form and substance
satisfactory to the Purchaser, duly executed by each of the
Vendors, whereby such Vendor shall transfer, sell, assign and
otherwise convey to the Company all right, title and interest held
by such Vendor, individually or jointly with any other person,
directly or indirectly, in or to any of the Principal Assets and
any other assets used in and material to the Company Business;
(d) the Requisite Approvals contemplated by Section 5.5(f);
(e) all of the books, records, accounts, files, Software and other
documentation and computer information, data and materials of any
nature of the Company and its Subsidiaries (which shall include
all corporate and financial books and records required to be
maintained by either the laws of the respective jurisdictions of
incorporation of the Company or its Subsidiaries, as the case may
be, or good business practices);
(f) valid and binding employment agreements and non-competition
agreements duly executed by each of the Key Employees;
(g) the written resignations of each of the directors and officers of
the Company and each of its Subsidiaries, solely in their
respective capacities as director and/or officer and not as an
employee, effective as of the Closing Date, together with written
releases, in form and substance satisfactory to the Purchaser,
acting reasonably, releasing the Company and each of its
Subsidiaries and the Purchaser and its Affiliates from any
liabilities or claims of any nature whatsoever that such directors
and officers might have in such capacities (and, for greater
certainty, excluding amounts owing in respect of compensation);
(h) the Escrow Agreement, duly executed by all parties thereto other
than the Purchaser and the Escrow Agent;
(i) the valid and binding termination of the engagement of J.P. Morgan
Securities Inc. under the JP Morgan Letter Agreements (subject to
the survival of certain indemnities in favour of J.P. Morgan
Securities Inc. and its related parties) in form and substance
satisfactory to the Purchaser;
(j) copies of all correspondence and documentation sent by the Company
to the holders of Company Options and all documentation and
correspondence received by the Company from the holders of Company
Options, evidencing that the vesting and termination dates of all
Company Options have been accelerated so that all Company Options
shall have vested and been exercised (or terminated) prior to the
Closing;
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(k) the opinions of the Vendors' counsel contemplated by Section
5.5(h);
(l) evidence satisfactory to the Purchaser acting reasonably that the
transactions contemplated in the Tax Reorganization Memo have been
completed;
(m) the valid and binding termination of the shareholder agreements
dated February 24, 1992 among the Company, Kiessling, K Holdco, L
Holdco and Lycklama, and dated January 31, 1991 among the Company,
Kiessling and Lycklama, which termination shall be in form and
substance satisfactory to the Purchaser; and
(n) a revised and updated version of Section 6.2 of the Disclosure
Schedule reflecting the capitalization of the Company as at the
Closing after giving effect to the transactions contemplated by
the Tax Reorganization Memo, purchases or exercises of Company
Options and transfers of Company Shares.
5.3 PURCHASER'S DELIVERIES
At Closing, the Purchaser shall deliver or cause to be delivered:
(a) to the Vendors:
(i) the portion of the Purchase Price payable to the Vendors in
accordance with Section 2.3 and the Additional Payments
payable to the Vendors at Closing in accordance with
Section 2.4;
(ii) the certificates of the Purchaser and Quest contemplated by
Section 5.6(b);
(iii) the Escrow Agreement, duly executed by the Purchaser;
(iv) valid and binding employment agreements with the Key
Employees duly executed by Quest and by the Company or an
Affiliate of Quest; and
(v) the opinions of the Purchaser's and Quest's counsel
contemplated by Section 5.6(c);
(b) to the Company an amount equal to the Selling Option Holders Base
Payment as required by Section 2.6(a); and
(c) to the Escrow Agent the Escrow Amount as contemplated by Section
10.1(c) (including the portion of the Escrow Amount to be
contributed by the Company in respect of the Option Holders Base
Payment).
5.4 PURCHASER'S AND VENDORS' CONDITIONS PRECEDENT
The respective obligation of each party to effect the transactions
contemplated hereunder shall be subject to the satisfaction on or prior to the
Closing of the following conditions:
(a) No action shall have been taken, and no statute, rule, regulation
or order shall have been enacted, promulgated or issued or deemed
applicable to the
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transactions contemplated hereunder by any Governmental Authority
which would (i) make the consummation of any of the transactions
contemplated hereunder illegal; (ii) prohibit the Purchaser's or
Quest's ownership or operation of all or a material portion of the
business or assets of the Company and each of its Subsidiaries or
Quest, or compel the Company or any of its Subsidiaries, the
Purchaser or Quest to dispose of or hold separate all or a
material portion of the business or assets of the Company or any
of its Subsidiaries, the Purchaser or Quest, respectively, as a
result of the transactions contemplated hereunder; or (iii) render
any of the parties hereto unable to consummate the transactions
contemplated hereunder.
(b) No temporary restraining order, preliminary injunction or
permanent injunction or other order preventing the consummation of
the transaction contemplated hereunder shall have been issued by
any court or other governmental entity and remain in effect, and
no litigation seeking the issuance of such an order or injunction,
or seeking relief against the Company or any of its Subsidiaries,
the Purchaser or Quest if the transactions contemplated hereunder
are consummated, shall be pending which can reasonably be expected
to result in such order, injunction or relief. In the event any
such order or injunction shall have been issued, each party agrees
to use all reasonable commercial efforts to have any such
injunction lifted.
(c) All authorizations, consents, orders or approvals of, or
declarations or filings with, or expiration of waiting periods
imposed by, any Governmental Authority necessary for the
consummation of the transactions contemplated by this Agreement
shall have been filed, occurred or been obtained.
(d) The Escrow Agreement has been duly executed and delivered by the
Escrow Agent.
5.5 PURCHASER'S CONDITIONS PRECEDENT
The obligation of the Purchaser to effect the transactions contemplated
hereunder shall be subject to the satisfaction on or prior to the Closing of the
following conditions:
(a) The Vendors shall have complied with their covenants that are
contemplated under this Agreement.
(b) During the Interim Period, the Company and each of the Vendors
shall have complied with their respective covenants, agreements
and obligations herein, including those under Article 3, and each
of the Vendors and the Company shall on the Closing Date have
delivered to the Purchaser a certificate, dated as of the Closing
Date, confirming such compliance.
(c) During the Interim Period, except as has been disclosed in writing
to, and approved in writing by, the Purchaser, there shall not
have occurred any event or occurrence which has had, or is
reasonably likely to have, a Material Adverse Effect, and each of
the Vendors and the Company shall on the Closing Date have
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delivered to the Purchaser a certificate, dated as of the Closing
Date, to such effect. For purposes of this Section 5.5(c), a
Material Adverse Effect shall not include (i) any effects that
result from changes affecting any of the industries in which the
Company operates generally or the Canadian or United States
economies generally (which changes in each case do not
disproportionately affect the Company or its Subsidiaries in any
material respect), (ii) any changes, circumstances, conditions or
other effects that result from changes affecting general economic
or capital market conditions in Canada, the United States, Europe
or other foreign economies where the Company and its Subsidiaries
have operations or sales (which changes in each case do not
disproportionately affect the Company or its Subsidiaries in any
material respect), or (iii) a general change in the market
valuation in the United States or Canada of companies engaged in
businesses which, for valuation purposes, may be considered to be
comparable (which changes in each case do not disproportionately
affect the Company or its Subsidiaries in any material respect).
(d) During the Interim Period, there shall not have occurred:
(i) any material adverse change in the nature or quantum of
Taxes payable by the Company and its Subsidiaries taken as
a whole (other than changes arising from the operation of
the Company Business in the ordinary course) or by a
non-resident shareholder of the Company and its
Subsidiaries or the Purchaser, or
(ii) any change in the laws relating to foreign investment and
repatriation of capital and income that would, in the
Purchaser's reasonable opinion, have a material adverse
effect on the Purchaser or Quest in respect of the
transactions contemplated hereunder.
(e) With respect to the representations and warranties of the Company
and the Vendors, contained in Articles 6 and 7, such
representations and warranties shall, except as otherwise
expressly provided herein, (i) have been true and correct as of
the date hereof and (ii) be true and correct as of the Closing
Date without reference to any Material Adverse Effect
qualification or other materiality qualifications (but giving full
effect to any dollar thresholds set out in such sections) as of
the Closing Date, as though made on and as of the Closing Date,
such that the aggregate effect of any inaccuracies in such
representations and warranties as though made on and as of the
Closing Date will not have a Material Adverse Effect, and the
Vendors and the Company in the case of Article 6, and all of the
Vendors in respect of their individual representations in the case
of Article 7 shall on the Closing Date have delivered to the
Purchaser a certificate, dated as of the Closing Date, to such
effect.
(f) The parties shall by the Closing Date have received all Requisite
Approvals and copies thereof shall have been delivered to the
Purchaser.
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(g) All of the Company Options set forth in Section 6.2 of the
Disclosure Schedule shall have been exercised or terminated prior
to the Closing, and the Company shall at the Closing have
delivered to the Purchaser a certificate, dated as of the Closing
Date, confirming such exercise or termination, as the case may be.
(h) The Purchaser shall at the Closing have received opinions from
Byrne, Crosby and Aird & Berlis LLP, counsel to the Vendors, dated
as of the Closing Date, in form and substance acceptable to the
Purchaser, acting reasonably.
(i) The Company shall have received all consents required in respect
of the transactions contemplated by this Agreement pursuant to the
leases for premises at Building A, Suite 4-21, 260 King Street
East, Toronto and at Suite 301, Ontario Design Centre, 260 King
Street East, Toronto.
The foregoing conditions shall be for the sole benefit of the Purchaser and may
be waived in whole or in part by the Purchaser in writing. Subject to the second
sentence of Section 5.1, in the event that any of the foregoing conditions are
not satisfied or waived at or before the Closing, the Purchaser shall be
entitled to terminate this Agreement by notice given to the Company and the
Vendors' Agent.
5.6 VENDORS' CONDITIONS PRECEDENT
The obligation of each of the Vendors to effect the transactions
contemplated hereunder shall be subject to the satisfaction on or prior to the
Closing of the following conditions:
(a) The Purchaser shall on or prior to the Closing Date have complied
with its covenants that are contemplated under this Agreement.
(b) The representations and warranties of the Purchaser and Quest
contained in Article 8 and Article 9, respectively, shall be true
and correct as at the date hereof and as at the Closing Date, and
the Purchaser and Quest shall on the Closing Date have delivered
to the Vendors a certificate of a senior officer of the Purchaser
and Quest, respectively, dated as of the Closing Date, to such
effect.
(c) The Vendors shall on the Closing Date have received an opinion of
the Purchaser's and Quest's Canadian and U.S. counsel, dated as of
the Closing Date, in form and substance acceptable to the Vendors,
acting reasonably.
The foregoing conditions shall be for the sole benefit of the Vendors and may be
waived in whole or in part by the Vendors' Agent in writing. Subject to the
second sentence of Section 5.1, in the event that any of the foregoing
conditions is not satisfied or waived by the Closing Date, the Vendors shall be
entitled to terminate this Agreement by notice given to the Purchaser.
5.7 POST-CLOSING COVENANTS OF THE PURCHASER
In addition to the other covenants of the Purchaser contemplated in this
Agreement to be completed after the Closing, the Purchaser agrees to cause the
Company:
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(a) to file with the Canada Customs and Revenue Agency within 90 days
after the Closing Date, the federal tax return of the Company
(which, for greater certainty, shall include a claim for any
applicable RDTOH Refund) for the taxation year end of the Company
which, pursuant to subjection 249(4) of the Income Tax Act
(Canada), will end immediately prior to the Closing;
(b) with respect to all other tax returns not referred to in Section
5.7(a), to punctually (but in no event later than required by
applicable tax legislation) execute and file all tax returns to
enable the Company to receive the Tax Credits and the RDTOH Refund
in a timely manner;
(c) to allow the Vendors' Agent and its representatives reasonable
access to the financial books and records of the Company so that
the Vendors may confirm the Final Working Capital Payment and
Final Company Transaction Expenses as contemplated in Section 2.7
and to obtain such information as is reasonably necessary to
enable the preparation and filing of their respective tax returns;
(d) to allow the Vendors' Agent and its representatives reasonable
access to the books, records and other information of the Company
as is reasonably necessary to enable the Vendors' Agent to assess
and/or defend any claims made by the Purchaser against the Vendors
for a breach of any representation, warranty or covenant under
this Agreement or for a claim of indemnity under Article 10 or to
otherwise enable either of the Vendors to fulfill their
obligations contemplated by this Agreement;
(e) not to refile with any taxing authorities any tax returns of the
Company filed prior to the Closing Date unless such tax returns
contain a material error or the refiling of such returns does not
adversely affect any amounts payable to the Vendors under this
Agreement or apply any loss carry-backs which would reduce amounts
payable to the Vendors under Section 2.4;
(f) to allow the Vendors' Agent and its representatives to assist
representatives of the Company in pursuing the RDTOH Refund, any
Tax Credits and the L Holdco RDTOH Note which would result in
Additional Payments, and to allow the Vendors' Agent and its
representatives the opportunity to review and comment on proposed
submissions by the Company and its representatives to applicable
authorities; and
(g) to file with the Canada Customs and Revenue Agency within 90 days
after the Closing Date, the federal tax return of L Holdco (which
for greater certainty, shall include a claim for any refund of
income taxes under subsection 129(1) of the Income Tax Act
(Canada)) for the taxation year ends of L Holdco which, pursuant
to subsection 249(4) of the Income Tax Act (Canada), will end
immediately prior to the Closing.
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The Purchaser shall not liable for breach of its covenants set out in Section
5.7(a) or 5.7(b) if any delays are caused by the failure of the Vendors to
provide reasonable assistance to the Purchaser in respect of fulfillment of such
covenants.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
THE VENDORS
The Company and the Vendors jointly and severally represent and warrant
to the Purchaser as follows:
6.1 CORPORATE STATUS; ENFORCEABILITY
(a) The Company is a corporation duly incorporated and validly
existing under the laws of the Province of Ontario. Each of the
Company's Subsidiaries is a corporation duly incorporated and
validly existing under the laws of the jurisdiction of its
incorporation.
(b) Each of the Company and its Subsidiaries have all requisite
corporate power and authority to carry on its business as now
being conducted or currently proposed to be conducted and to own,
lease or operate the Assets now owned, leased or operated by it,
and has no operations or employees and conducts no business
outside of the provinces, states and countries listed in Section
6.1 of the Disclosure Schedule. The Company's Subsidiaries do not
own, lease or operate any assets other than office furnishings and
equipment and automobiles used in the ordinary course of business
and the lease of office space for the conduct of their business.
The Company's Subsidiaries do not carry on any business other than
acting primarily as sales and support representative offices for
the Company's Software.
(c) Each of the Company and its Subsidiaries is qualified to do
business and has all required and appropriate licenses in each
jurisdiction in which its failure to obtain or maintain such
qualification, good standing or licensing would, individually or
in the aggregate, have, or reasonably could be expected to have, a
Material Adverse Effect.
(d) The Company has all requisite corporate power and authority to
enter into this Agreement and all agreements and other documents
to be entered into in connection herewith and to consummate the
transactions contemplated hereby and thereby.
(e) All corporate action on the part of the Company and, to the extent
applicable, its Subsidiaries and their respective directors and
shareholders, necessary for the authorization, execution and
delivery of this Agreement and all agreements and other documents
to be entered into in connection herewith by the Company and, to
the extent applicable, its Subsidiaries, and the performance of
the obligations of the Company and, to the extent applicable, its
Subsidiaries hereunder and thereunder, has been taken or will be
taken prior to the Closing Date.
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(f) This Agreement has been, and all other agreements and other
documents to be entered into in connection herewith have been or
will be prior to or at the Closing, duly executed and delivered
by, and this Agreement constitutes, and all agreements and other
documents to be entered into in connection herewith constitute or
will constitute prior to or at the Closing, legal, valid and
binding obligations of, the Company and, to the extent applicable,
its Subsidiaries, enforceable against the Company and its
Subsidiaries in accordance with their respective terms, except as
such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, preference and other laws
relating to or affecting enforcement of creditors' rights
generally.
(g) No dissolution, winding-up, bankruptcy, liquidation or similar
proceedings have been commenced or are pending or proposed in
respect of the Company or any of its Subsidiaries.
6.2 CAPITALIZATION
(a) The authorized capital stock of the Company and each of its
Subsidiaries, the issued and outstanding shares of capital stock
of the Company and each of its Subsidiaries, and all Company
Options, in each case as of the date of this Agreement, are set
forth in Part I of Section 6.2 of the Disclosure Schedule. The
authorized capital stock of the Company and each of its
Subsidiaries, the issued and outstanding shares of capital stock
of the Company and each of its Subsidiaries, and all Company
Options, in each case as of the Closing Date, are set forth in
Part II of Section 6.2 of the Disclosure Schedule.
(b) All of the Company Shares and Company Options are owned, of
record, only by the persons listed in Section 6.2 of the
Disclosure Schedule, and Section 6.2 of the Disclosure Schedule
sets forth a true, correct and complete list of the name and, to
the knowledge of the Company and the Vendors address of each such
person. Section 6.2 of the Disclosure Schedule sets forth the
number of Company Shares and the number of shares of capital stock
in the Company or any of its Subsidiaries issuable upon exercise
of all Company Options, held by the holder thereof, including each
Vendor. All of the issued and outstanding shares of capital stock
of each of the Company's Subsidiaries are owned, of record and
beneficially, by the Company.
(c) All of the Company Shares and the shares of capital stock of each
of the Company's Subsidiaries have been duly authorized, validly
issued and are fully paid and non-assessable, and were issued in
compliance with all applicable corporate laws and all federal and
provincial securities laws (including any filing, notice,
qualification or registration requirements of any Governmental
Authority).
(d) Except for the Company Options set forth in Section 6.2 of the
Disclosure Schedule, there are no options, warrants, calls,
conversion rights, rights of exchange, or other rights, plans,
agreements or commitments of any nature whatsoever (including
conversion or preemptive rights), written or oral, granted
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or issued by the Company or any Subsidiary of the Company
providing for the purchase, issuance, sale or pledge of any shares
of capital stock of the Company or any such Subsidiary or any
securities convertible into or exchangeable for any shares of the
capital stock of the Company or any such Subsidiary. As of the
Closing Date, all of the Company Options will have been exercised
or terminated.
(e) Except as disclosed in Section 6.2(e) of the Disclosure Schedule,
there are no obligations, contingent or otherwise, of the Company
or any of its Subsidiaries to repurchase, redeem or otherwise
acquire any shares of the capital stock of the Company or any such
Subsidiary or make any investment (in the form of a loan, capital
contribution or otherwise) in any other entity.
(f) Except as disclosed in Section 6.2(f) of the Disclosure Schedule,
there are no voting trusts, proxies or other agreements or
understandings with respect to the voting of, and no rights of
first refusal, co-sale rights, or other restrictions on transfer
on or in respect of, the Company Shares or the shares of capital
stock of any Subsidiary of the Company.
(g) The Company is not a "reporting issuer" as defined in the
Securities Act (Ontario), there is not a published market in
respect of the Company Shares, and the number of holders of
Company Shares is not more than fifty (50), exclusive of holders
who are in the employment of the Company or a Subsidiary of the
Company, and exclusive of holders who were formerly in the
employment of the Company or a Subsidiary of the Company and who
while in that employment were, and have continued after that
employment to be, security holders of the Company.
6.3 NO CONFLICT
Except as disclosed in Section 6.3 of the Disclosure Schedule, neither
the execution and delivery of this Agreement and the other agreements and
documents to be entered into in connection herewith nor the completion of the
sale and transfer of the Company Shares in accordance with the provisions hereof
nor the consummation of the other transactions contemplated hereunder will
result in or constitute any of the following:
(a) a conflict with, violation of or default under, or any event that,
with notice or lapse of time or both would be a default, breach or
violation of any provision of the articles of incorporation or
bylaws, unanimous shareholders agreement or other charter or
governing corporate document of the Company or any of its
Subsidiaries, any Material Authorization or any agreement,
instrument or document to which the Company or any of its
Subsidiaries is a party or by which it is bound;
(b) an event that would permit any party to terminate any Material
Contract or to accelerate the maturity of any obligation of or
permit the subordination of any right of the Company or any of its
Subsidiaries,
(c) the termination or impairment of any of the Company's Intellectual
Property;
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(d) the creation or imposition of any lien, charge, interest or
encumbrance on any of the Assets of the Company or the Company
Shares or Company Options, or of any new Liability exceeding
$25,000 individually or $50,000 in the aggregate; or
(e) a conflict with or violation or breach of any law, rule or
regulation of any Governmental Authority, or any judgment, decree,
order or injunction applicable to the Company or any of its
Subsidiaries or the Assets;
or otherwise cause or could reasonably be expected to cause a Material Adverse
Effect.
6.4 CULTURAL BUSINESS
The Company Business is not a "Cultural Business" as such term is defined
in Section 14.1(6) of the Investment Canada Act, as amended.
6.5 SUBSIDIARIES
Section 6.5 of the Disclosure Schedule sets forth each Subsidiary of the
Company and its jurisdiction of incorporation. Except as disclosed in Section
6.5 of the Disclosure Schedule, the Company has never been a subsidiary of any
other entity and does not currently own, nor has it ever owned, directly or
indirectly, any interest in any other corporation, partnership, association,
joint venture or other entity. Neither the Company nor any of its Subsidiaries
controls, directly or indirectly, the management or policies of any other
corporation, partnership, association, joint venture or other entity.
6.6 FINANCIAL STATEMENTS
(a) The internal financial books and records of the Company and its
Subsidiaries from which the Financial Statements were prepared
contain all financial information of any material nature in
respect of the Company and its Subsidiaries, the Company Business
and the Assets and do not contain any information that is false or
misleading in any material respect.
(b) Except as disclosed in Section 6.6 of the Disclosure Schedule, the
Financial Statements and the unaudited quarterly consolidated
financial statements of the Company and its Subsidiaries dated as
of June 30, 2002, complete and correct copies of which have been
delivered to the Purchaser: (i) were prepared in accordance with
such books and records; (ii) were prepared in accordance with
GAAP, applied on a consistent basis throughout the periods
presented; and (iii) accurately, completely and fairly present in
all material respects the financial position of the Company and
its Subsidiaries, taken as a whole, and the results of their
operations and cash flows at the dates and for the periods
reflected therein.
(c) The reserves set forth in the Financial Statements are adequate in
light of the contingencies with respect to which they were
established.
(d) Neither the Company nor any of its Subsidiaries is a party to, or
has any commitment to become a party to, any joint venture
agreement, partnership
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agreement or any similar contract or arrangement (including any
contract or arrangement relating to any transaction or
relationship between or among the Company or any of its
Subsidiaries, on the one hand, and any unconsolidated Affiliate,
any structured finance, special purpose or limited purpose entity
or person, on the other hand), where the result, purpose or
intended effect of such commitment, joint venture agreement,
partnership agreement, similar contract or arrangement is to avoid
disclosure in the Financial Statements of any material transaction
involving the Company or any of its Subsidiaries or of any
material Liabilities.
6.7 ABSENCE OF CERTAIN CHANGES
Since March 31, 2002, except as set forth in Section 6.7 of the
Disclosure Schedule, there has not been:
(a) any event or occurrence relating to the Company or any of its
Subsidiaries that has or could reasonably expected to have a
Material Adverse Effect;
(b) any Company Business or other activity of the Company or any of
its Subsidiaries carried on other than in the ordinary course of
business consistent with past practice;
(c) except as contemplated in the Tax Reorganization Memo, the
entering into of any agreement, commitment or transaction or the
incurrence of any Liabilities outside the ordinary course of
business consistent with past practice;
(d) any increase in the compensation paid or payable by the Company or
any of its Subsidiaries to any of their respective officers,
directors or shareholders (other than employees of the Company or
any of its Subsidiaries below the levels of Vice President and
Director);
(e) any increase in the compensation paid or payable by the Company or
any of its Subsidiaries to any of their respective employees,
agents, consultants or contractors outside the ordinary course of
business consistent with past practice;
(f) any settlement or payment of any portion of any Liability of the
Company or any of its Subsidiaries to any of their Affiliates, or
to any person associated or affiliated with any of their
Affiliates,
(g) any waiver or cancellation of any rights or claims, or any gifts
by the Company or any of its Subsidiaries of cash or property with
a value in excess of $25,000 in the aggregate;
(h) except as contemplated in the Tax Reorganization Memo, any
declaration, setting aside or payment of dividends or
distributions in respect of the capital stock of the Company or
any of its Subsidiaries, or any split-up or other recapitalization
in respect of the capital stock of the Company or any of its
Subsidiaries or any direct
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or indirect redemption, purchase or other acquisition of any such
capital stock, or any agreement to do any of the foregoing;
(i) Liabilities incurred by the Company or any of its Subsidiaries
outside of the normal course of business consistent with past
practice and individually greater than $25,000;
(j) any loan made or agreed to be made by the Company or any of its
Subsidiaries, nor has the Company or any of its Subsidiaries
become liable or agreed to become liable as a guarantor with
respect to any loan or other liability;
(k) any amendment to the articles of incorporation or bylaws or other
charter or governing corporate documents of the Company or any of
its Subsidiaries;
(l) any change in the accounting methods, practices or policies
followed by the Company or any of its Subsidiaries, whether for
general financial or Tax purposes, from those in effect during the
past three fiscal years of the Company and its Subsidiaries;
(m) any sale, assignment, transfer, licensing or distribution of any
interest or rights in the Company's Intellectual Property other
than (i) licenses to customers to use Software on the Company's
standard terms and conditions, and (ii) licenses to distribute
JClass and XRT, provided such licenses to distribute restrict the
licensee's ability to expose the applications programming
interface;
(n) any licensing by the Company or any of its Subsidiaries of any
source code of the Software, other than licenses to customers of
source code relating to the JClass or XRT products in the ordinary
course of business;
(o) any escrow or other deposit of a copy of the source code of the
Software;
(p) any purchase or other acquisition of, or any sale, lease,
disposition of, mortgage, pledge or subjection to any lien or
encumbrance on, any Asset of the Company or any of its
Subsidiaries in an amount exceeding $25,000 individually, other
than licenses of products in the ordinary course of business
consistent with past practice;
(q) any capital expenditure commitments for additions to the Assets,
not disclosed in the Financial Statements, constituting capital
assets in an amount exceeding $10,000 individually;
(r) any payment, discharge or satisfaction in an amount in excess of
$50,000 in the aggregate, of any Liabilities, other than the
payment, discharge or satisfaction of (i) obligations in the
ordinary course of business consistent with past practice, and
(ii) Liabilities reflected or reserved against in the Financial
Statements;
(s) any failure to pay or otherwise satisfy any Liabilities presently
due and payable (other than Liabilities incurred within 90 days
prior to the date of this Agreement)
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except such Liabilities which are being contested in good faith by
appropriate means or proceedings diligently pursued;
(t) except as contemplated in the Tax Reorganization Memo and other
than pursuant to Company Options, any issuance of shares of
capital stock of the Company or any of its Subsidiaries or any
options, warrants, or other rights to purchase the shares of
capital stock of the Company or any of its Subsidiaries;
(u) any actual or, to the knowledge of the Company and the Vendors,
threatened termination or loss of any Material Contract, any
Material Authorization or other material revenue source;
(v) any resignation or termination of any officer, employee or
consultant of the Company or any of its Subsidiaries, or, to the
knowledge of the Company and the Vendors, any impending or
threatened resignation or termination of any such officer,
employee or consultant;
(w) except as contemplated in the Tax Reorganization Memo, the
entering into of any transaction with any officer, director or
shareholder of the Company or any of its Subsidiaries other than
pursuant to any Material Contract;
(x) any change in any election in respect of Taxes, adoption or change
in any accounting method in respect of Taxes, the entering into
any Tax allocation agreement, Tax sharing agreement, tax indemnity
agreement, any settlement or compromise of any claim or assessment
in respect of Taxes, or any consent to any extension or waiver of
the limitation period applicable to any claim or assessment in
respect of Taxes with any taxing authority or otherwise; or
(y) any agreement or commitment by the Company or any of its
Subsidiaries to do any of the things described in this Section
6.7.
6.8 PROPERTIES
Neither the Company nor any of its Subsidiaries owns or holds, or has
owned or held, title to any real property. With respect to the Assets it leases,
each of the Company and its Subsidiaries, as applicable, is in compliance with
such leases and holds a valid leasehold interest in such Assets free of any
liens, claims or encumbrances of any kind whatsoever. Section 6.8 of the
Disclosure Schedule sets forth: (i) a true, correct and complete description of
the Principal Assets, (ii) a true, correct and complete list of all leases or
rental contracts under which the Company or any of its Subsidiaries is a lessee,
lessor, sublessee or sublessor, and (iii) a true, correct and complete list of
all equipment purchased by the Company within the thirty-six (36) month period
immediately preceding the date of this Agreement and used by the Company or any
of its Subsidiaries in the operation of its business which is owned or leased by
the Company or any such Subsidiary and which had an original cost of $50,000 or
more and which, in the reasonable opinion of the Company and the Vendors, could
not be replaced for less than $25,000. Subject to any applicable Permitted
Encumbrances, each of the Company and its Subsidiaries has beneficial ownership
of and good and marketable title to all Assets that it owns and that are used in
its operations or necessary for the conduct of the Company Business, and,
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except as disclosed in Section 6.8 of the Disclosure Schedule, such Assets are
not subject to any mortgages, liens, pledges, loans or encumbrances of any kind
whatsoever. All real and tangible personal property, including machinery,
equipment and fixtures currently used in the operation of the Company Business
is, and at the time of Closing will be, in good operating condition and repair,
ordinary wear and tear excepted, and, in the reasonable opinion of the Company
and the Vendors, are adequate and suitable for the purposes for which they are
presently being used. All improvements on leased property used in the operation
of the Company Business and the present use thereof are in accordance with all
applicable laws and the agreements under which such improvements are leased. The
accounting value of any fixed asset used in the operation of the Company
Business has not been written up or down, other than pursuant to depreciation or
amortization expenses in accordance with GAAP, applied on a consistent basis.
6.9 ACCOUNTS RECEIVABLE
Section 6.9 of the Disclosure Schedule sets forth (i) a true, correct and
complete list of the accounts receivable of the Company and each of its
Subsidiaries as at September 30, 2002; and (ii) a complete and accurate schedule
showing the aging of such accounts receivable. Such accounts receivable arose in
bona-fide, arms length transactions in the ordinary course of business
consistent with past practice and such accounts receivable are valid and binding
obligations of the account debtors (which obligations are, to the knowledge of
the Company and the Vendors, without counterclaims, set-offs or other defenses
thereto). In the reasonable opinion of the Company and the Vendors, the amounts
carried for doubtful accounts and allowances as at the date of this Agreement is
sufficient. The values at which accounts receivable are carried on the books and
records of the Company and its Subsidiaries reflect the accounts receivables
valuation policy of the Company which is consistent with its past practice and
in accordance with GAAP, applied on a consistent basis.
6.10 INDEBTEDNESS
Section 6.10 of the Disclosure Schedule contains a true, correct and
complete list of each and every agreement or other instrument under or pursuant
to which the Company or any of its Subsidiaries has outstanding indebtedness for
borrowed money. The Company has furnished the Purchaser with true, correct and
complete copies of each such agreement and instrument, including all amendments
with respect thereto through the date of this Agreement. Neither the Company nor
any of its Subsidiaries is in default under any such agreement or instrument
and, to the knowledge of the Company and the Vendors, no other party to any such
agreement or instrument is in default under any such agreement or instrument.
6.11 LITIGATION
(i) No litigation, arbitration or other judicial or regulatory proceeding
is pending or, to the knowledge of the Company and the Vendors, threatened by or
against the Company, any of its Subsidiaries, its or their Assets or the
officers or directors of the Company or any of its Subsidiaries (in such
capacity) before any court or any Governmental Authority and, (ii) to the
knowledge of the Company and the Vendors, no facts exist which might form the
basis for any such litigation, arbitration or other proceeding which would or
could reasonably be expected to have a Material Adverse Effect. The Company is
not the subject of any investigation for
-41-
violation of any laws, regulations or administrative orders applicable to its
business by any Governmental Authority or any other person, and no facts exist
which might form the basis for any such investigation. There is no judgment,
writ, decree, injunction, rule or order of any Governmental Authority
outstanding against the Company or any of its Subsidiaries or the Assets.
6.12 EMPLOYEES AND EMPLOYEE BENEFIT PLANS
(a) Section 6.12(a) of the Disclosure Schedule sets forth a true,
correct and complete listing of all of the employees of the
Company and of each of its Subsidiaries and information with
respect to each such employee's position, salary or wage, length
of service, benefits entitlement and accrued holiday pay or paid
vacation entitlement.
(b) Any and all employment agreements, consulting agreements,
directorship agreements, pension plan arrangements, benefits
arrangements, union contracts and other labour contracts and
arrangements, and all amendments thereto are listed in Section
6.12(b) of the Disclosure Schedule, and there are no employment
agreements, consulting agreements, directorship contracts, pension
plan arrangements, benefits arrangements, employee stock options,
stock purchase, phantom stock or stock appreciation agreements,
union contracts or other labour or personal service contracts to
which the Company or any of its Subsidiaries is a party or by
which it is bound other than those described in Section 6.12(b) of
the Disclosure Schedule.
(c) No trade union, council of trade unions, employee bargaining
agency or affiliated bargaining agent (i) holds bargaining rights
with respect to the employees of the Company or any of its
Subsidiaries by way of certification, interim certification,
voluntary recognition, designation or successor rights or (ii) to
the knowledge of the Company and the Vendors, has applied to be
certified as the bargaining agent of the employees of the Company
of any of its Subsidiaries.
(d) Neither the Company nor any of its Subsidiaries is involved in any
dispute, disagreement or grievance proceeding with any union or
other labour organization representing any of the employees of the
Company or any of its Subsidiaries.
(e) To the knowledge of the Company and the Vendors, none of the
current or former employees of the Company or any of its
Subsidiaries is in violation of any term of any employment
contract, or any other contract, agreement or commitment or of any
fiduciary duty, relating to the relationship of any such employee
with the Company or any of its Subsidiaries or, to the knowledge
of the Company and the Vendors, any other party because of the
nature of the Company Business.
(f) Except as Disclosed in Section 6.12(f) of the Disclosure Schedule,
the consummation of the transactions contemplated by this
Agreement will not entitle any current or former employee or
consultant of the Company or any of its Subsidiaries to severance
benefits or any other payment, or accelerate the time of
-42-
payment or vesting, or increase the amount of, compensation due
any such employee or consultant.
(g) All independent contractors of the Company and each of its
Subsidiaries have been properly classified and treated as
independent contractors for the purposes of all applicable laws.
(h) All salaries and wages paid and benefits made available by the
Company and each of its Subsidiaries are in compliance in all
material respects with all applicable laws.
6.13 INSURANCE
Section 6.13 of the Disclosure Schedule sets forth a true, correct and
complete list and summary of all policies of insurance of any nature whatsoever
maintained by the Company or any of its Subsidiaries, showing, among other
things, the amount of coverage, the company issuing the policy, the expiration
date of each policy and the amount of any premiums thereunder which are due and
payable. Such policies are in full force and effect and such policies, or other
policies covering the same risks, have been in full force and effect, without
gaps, continuously since the dates of their respective purchase. True and
correct copies of all current insurance policies of the Company and each of its
Subsidiaries have been made available to the Purchaser for inspection. Neither
the Company nor any of its Subsidiaries is in default under any of such
policies, has not made any claim in respect of any such policies except as
otherwise disclosed in Section 6.13 of the Disclosure Schedule, and neither the
Company nor any of its Subsidiaries has failed to give any notice or to present
any claim under any such policy in a due and timely fashion. Neither the Company
nor any of its Subsidiaries has withheld any material facts with respect to the
Company Business, operations, Assets or Liabilities, which, but for the
transactions contemplated herein, would or could reasonably be expected to
justify an insurer in reducing coverage or increasing premiums on existing
policies. There is no claim pending under any of such policies as to which
coverage has been questioned, denied or disputed by the underwriters of such
policy.
6.14 CONTRACTS AND PERMITS
Part I of Section 6.14 of the Disclosure Schedule sets forth a true,
correct and complete list of all Material Contracts, and Part II of Section 6.14
of the Disclosure Schedule sets forth a true, correct and complete list of all
Material Authorizations. True and complete copies of each Material Authorization
and written Material Contract and true and complete written summaries of each
oral Material Contract have been delivered to the Purchaser. Except as set forth
in Section 6.14 of the Disclosure Schedule:
(a) each of the Material Contracts is a valid, binding and enforceable
agreement of the Company or its Subsidiaries, as the case may be,
and, to the knowledge of the Company and the Vendors, the other
parties thereto, and will continue to be a valid, binding and
enforceable agreement of the Company or its Subsidiary, as the
case may be, and such other parties thereto after the Closing;
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(b) none of the Company, any of its Subsidiaries or any of the Vendors
has any reason to believe that the Company or any of its
Subsidiaries, as the case may be, will not be able to fulfill all
of its material obligations under the Material Contracts which
remain to be performed after the date hereof and neither the
Company nor any of its Subsidiaries has been notified by any
Governmental Authority or other party that such Governmental
Authority or other party intends to cancel, terminate or modify
any of such Material Contracts or the basis upon which the Company
or any of its Subsidiaries is paid thereunder, and to the
knowledge of the Company and the Vendors, there are no valid
grounds for any such cancellation, termination or modification;
(c) there has not occurred any material default (or event which upon
the provision of notice or lapse of time or both would become a
default) under any of the Material Contracts on the part of the
Company or any of its Subsidiaries or, to the knowledge of the
Company and the Vendors, any other party thereto;
(d) the Material Authorizations are the only governmental and other
permits, licenses, franchises, and other certificates and
authorizations that are required for and are material to the
operation of the Company Business;
(e) the Material Authorizations are in full force and effect and the
continuing validity and effectiveness of such Material
Authorizations will not be affected by the transactions
contemplated by this Agreement;
(f) the Company and each of its Subsidiaries is in compliance in all
material respects with all conditions or requirements of the
Material Authorizations, and neither the Company nor any of its
Subsidiaries has been notified by any Governmental Authority that
such authority intends to cancel, terminate or modify any of such
Material Authorizations, and none of the Company, any of its
Subsidiaries or any of the Vendors knows of any valid grounds for
any such cancellation, termination or modification; and
(g) neither the Company nor any of its Subsidiaries is contractually
liable, nor has the Company or any of its Subsidiaries made any
contract or arrangement whereby any of them may become liable, to
any person for any royalty or other consideration for the use of
any of the Principal Assets.
6.15 CORPORATE RECORDS
The Company and the Vendors have provided to the Purchaser for its
examination the corporate records and minute books of the Company and each of
its Subsidiaries, which contain complete, accurate and up-to-date versions of:
(a) the articles of incorporation and all by-laws, unanimous
shareholder agreements and other charter or governing corporate
documents of the Company and each of its Subsidiaries, each
current to the date hereof;
-44-
(b) minutes of all meetings of the directors and shareholders of the
Company and each of its Subsidiaries held since the date of their
respective incorporation, and copies of all written resolutions of
the directors and shareholders of the Company and each of its
Subsidiaries passed in lieu of the holding of meetings; and
(c) registers of shareholders, share transfers, directors and officers
of the Company and each of its Subsidiaries.
6.16 POWERS OF ATTORNEY; BANK ACCOUNTS
Section 6.16 of the Disclosure Schedule sets forth a true, correct and
complete list of (i) the names and addresses of all persons holding a power of
attorney on behalf of the Company or any of its Subsidiaries; and (ii) the names
and addresses of all banks or other financial institutions in which the Company
or any of its Subsidiaries has an account, deposit, or safe-deposit box, with
the number and a description of the account and the names of all persons
authorized to draw on such accounts or deposits or to have access to such boxes.
6.17 ENVIRONMENTAL MATTERS
Neither the Company nor any of its Subsidiaries has received any notices,
directives, violation reports, actions or claims from or by any Governmental
Authority concerning the Company or any of its Subsidiaries and any
Environmental Laws or any person alleging that conditions at any real properties
leased by the Company or any of its Subsidiaries have resulted in or caused or
threatened to result in or cause injury or death to any person or damage to any
property, including damage to natural resources, and no such notices,
directives, violation reports, actions, claims, assessments or allegations
exist. Throughout the period of operation of any real properties by the Company
or any of its Subsidiaries, (i) the Company and each of its Subsidiaries have
operated and continue to operate such real properties in compliance with all
Environmental Laws; (ii) there has been no spill, discharge, release,
contamination or cleanup of or by any Hazardous Materials used, generated,
treated, stored, disposed of or handled by the Company or any of its
Subsidiaries at such real properties; (iii) neither the Company nor any of its
Subsidiaries has used, generated, treated, stored, disposed of, handled,
transported or released any Hazardous Material in a manner which would give rise
to any liability under any Environmental Laws; (iv) to the knowledge of the
Company and the Vendors, there are no facts, events, or conditions (including
the generation, treatment, transport, storage, emission, disposal, release or
other placement, deposit or location of any substance) which interfere with or
prevent continued compliance by the Company and each of its Subsidiaries with,
or give rise to any present or potential liability (including with respect to
past activities) of the Company or any of its Subsidiaries under any
Environmental Laws; and (v) the Company and each of its Subsidiaries have
obtained all applicable permits, licenses and other authorizations which are
required to be obtained under all applicable Environmental Laws.
6.18 AFFILIATE RELATIONSHIPS
Except as set forth in Section 6.18 of the Disclosure Schedule, no
Vendor, officer, director or, to the knowledge of the Vendors and the Company,
shareholder of the Company or any of its Subsidiaries (nor, to the knowledge of
the Vendors and the Company, any spouse of
-45-
any of such persons, or any trust, partnership or corporation in which any of
such persons has or has had an economic interest) has or has had, directly or
indirectly, (i) any interest in any entity that purchases from or sells or
furnishes to the Company or any of its Subsidiaries any products or services; or
(ii) a beneficial interest in any contract to which the Company or any of its
Subsidiaries is a party or by which any of them or any of the Assets is bound;
provided that ownership of no more than one percent (1%) of the outstanding
voting stock of a publicly traded corporation shall not be deemed an "interest
in any entity" for purposes of this Section.
6.19 NO TERMINATION OF BUSINESS RELATIONSHIP
Except as disclosed in Section 6.19 of the Disclosure Schedule, none of
the entities, governmental or otherwise, with which the Company or any of its
Subsidiaries has a material business relationship or any other present material
customer of the Company or any of its Subsidiaries has given notice or other
indication of any intention to cancel or otherwise terminate a material business
relationship with the Company or any of its Subsidiaries and neither the Company
nor any of the Vendors has any knowledge of any event (including the
transactions contemplated hereby) which would precipitate the cancellation or
termination of, or entitle any such entity or material customer to terminate,
such a business relationship.
6.20 COMPLIANCE WITH LAW; REQUISITE APPROVALS
(a) The business and operations of the Company and each of its
Subsidiaries have been and are being conducted in compliance, in
all material respects, with all laws, rules, regulations and
regulatory licensing requirements applicable thereto, including
federal, provincial and local laws and regulations affecting the
protection of consumers and the health and safety of employees and
equal employment opportunities except where such non-compliance
would not have a Material Adverse Effect.
(b) Section 6.20 of the Disclosure Schedule sets forth a true, correct
and complete list of all Requisite Approvals, and all Requisite
Approvals have been obtained and are in full force and effect.
(c) Neither the Company nor any of its Subsidiaries nor any of the
Vendors are bound by any oral or written agreement with any third
party to sell the Company or any of its Subsidiaries or any
interest in the Company or any of its Subsidiaries or the Assets,
including by way of merger, asset sale, sale of shares or
otherwise.
6.21 INTELLECTUAL PROPERTY
Except as set forth in Section 6.21 of the Disclosure Schedule:
(a) The Company owns exclusively or has all rights, free and clear of
all Encumbrances and restrictions (other than restrictions in the
agreements that created such rights, except to the extent
otherwise required to be disclosed hereunder), to all Intellectual
Property, Software and Hardware necessary and reasonably required
for the Company Business as now conducted, and the Company is not
infringing upon the right of any person under or with respect to
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any of the foregoing. In furtherance and not in limitation of the
foregoing, to the knowledge of the Company and the Vendors, no
activity of the Company or its Subsidiaries in relation to the
Company Products, including the reproduction, use, and sale or
distribution of all or any part thereof by them, infringes any
Intellectual Property right of any third party.
(b) No claim has been made or threatened (and to the knowledge of the
Company and the Vendors, there are no specific claims that are
likely to be asserted against the Company or any of its
Subsidiaries) that the Intellectual Property rights of any third
party or of any party to this Agreement other than the Company
have been infringed by the Company or any of its Subsidiaries or,
to the knowledge of the Company and the Vendors, by any person for
whom the Company or any of its Subsidiaries is legally or
contractually responsible, nor has any claim been made against the
Company or any of its Subsidiaries or, to the knowledge of the
Company and the Vendors, against any third party or, to the
knowledge of the Company and the Vendors, threatened against the
Company, any of its Subsidiaries or against any third party
seeking to challenge, deny or restrict the use, license,
sublicense, distribution, display, copying, transmission or
creation of derivative works of any of the Company Products or the
making, using, licensing or selling of the Company Products by the
Company, its Subsidiaries or its distributors.
(c) Section 6.21 of the Disclosure Schedule sets forth a complete
listing of all source code relating to the Proprietary Software
or, to the extent it is in the Company's possession and control,
the Licensed Software, identifies each location of any copy of
such source code (other than customer copies of source code
relating to the Olectra, JClass or XRT products licensed by
customers of the Company in the ordinary course of business or any
copies thereof made or distributed by or for such customers), and
identifies each patent, trademark registration, service mark
registration, domain name registration and copyright registration
with respect to the Intellectual Property, which is owned by the
Company, has been issued to the Company or has been submitted or
applied for by the Company for issuance or registration and lists
the application and registration number, date of application, date
of registration, names of all registered owners and the country of
filing for each such right, if applicable. All applications for
registration of such Intellectual Property were, to the knowledge
of the Company and the Vendors, true and accurate at the time of
filing. The Company does not own any patents and has not filed any
patent applications. Neither the Company nor any of its
Subsidiaries have received notice of, nor does the Company or any
of the Vendors have any knowledge of, any registrar proceeding or
third party oppositions having been commenced or threatened
against such registrations or applications, and all registration
and maintenance fees to maintain such Intellectual Property which
have become due and payable, and all invoiced professional fees
incurred in connection therewith, have been paid or accrued on the
Company's books and records.
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(d) The Principal Assets include all of the Software and Intellectual
Property used in or currently required to conduct the Company
Business and all Software and Intellectual Property required for
products under development by the Company as of the date hereof.
(e) The Company and its Subsidiaries have taken or are taking all
actions that they are contractually obligated to take, and are
taking all actions that, at the time they were taken, were
customary and reasonable, to protect the confidentiality of the
Software and of the Intellectual Property owned or licensed by the
Company and its Subsidiaries (it being understood that the Company
will have disclosed such of its Intellectual Property as necessary
and required to support applications and registrations of patents,
trade-marks and copyrights). There has been no release of any
source code relating to the Software from any escrow pursuant to
which such source code is held by a third party. Except as set
forth in Section 6.21 of the Disclosure Schedule, all of the
current and former employees of the Company and of each of its
Subsidiaries developing, modifying or supporting the Proprietary
Software have executed a Proprietary Rights Agreement in the
Company's standard form at the time of such execution, a
substantially similar copy of which standard form has been
provided to the Purchaser.
(f) Except as set forth in Section 6.21 of the Disclosure Schedule,
there are no outstanding options, licenses, or agreements of the
Company or any of its Subsidiaries of any kind relating to the
provision of the Proprietary Software, the Company Products or the
Company's Intellectual Property other than licenses to use or
distribute granted by or to the Company in the ordinary course of
business consistent with past practice, nor is the Company bound
by or a party to any options, licenses or agreements of any kind
with respect to the Intellectual Property of any other person
other than licenses for Licensed Software and other licenses for
software or other Intellectual Property used by the Company in the
ordinary course of business. Neither the Company nor any of its
Subsidiaries have granted (other than licenses of source code
relating to the Olectra, JClass or XRT products to customers in
the ordinary course of business) (i) a development license in
relation to its Proprietary Software or in relation to its
Intellectual Property, or (ii) any right (including an escrow
agreement) capable of being converted into a development license
in relation to its Proprietary Software or in relation to its
Intellectual Property, nor has any one of them otherwise
disclosed, licensed, transferred or released the source code of
any of its Proprietary Software to any person other than
disclosures to those of its employees and contractors involved in
the development, modification or support of the Proprietary
Software.
(g) To the knowledge of the Company and the Vendors, no person has
interfered with, infringed upon or misappropriated any rights of
the Company or its Subsidiaries with respect to the Software or
the Company's Intellectual Property or illegally exported the
Software.
(h) To the knowledge of the Company and the Vendors:
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(i) no current or former employees, consultants, contractors or
agents of the Company or any of its Subsidiaries have
misappropriated any Intellectual Property of any other
person in the course of the performance of their duties as
employees, consultants, contractors or agents of the
Company or its Subsidiaries;
(ii) none of the employees of the Company or any of its
Subsidiaries is obligated under any fiduciary duty or any
contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment,
decree or order of any court or Governmental Authority,
that interferes with such employee carrying out his or her
duties to the Company and its Subsidiaries or that
conflicts with the Company Business as now conducted; and
(iii) neither the execution and delivery of this Agreement, nor
the consummation of the transactions contemplated
hereunder, nor the carrying on of the Company Business by
the employees of the Company and of its Subsidiaries, nor
the conduct of the Company Business as now conducted, will
conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default under,
or a violation of any fiduciary duty or any contract,
covenant or instrument under which any of such employees is
now obligated.
(i) It is not and will not be necessary to utilize any Intellectual
Property owned by any of the current or former employees of the
Company or any of its Subsidiaries prior to their employment by
the Company or its Subsidiaries (which has not since such hiring
been purchased by the Company or its Subsidiaries), and none of
the Vendors has any right, title or interest, individually or
jointly with the Company or any other party, in or to any of the
Software or the Company's Intellectual Property.
(j) The Intellectual Property owned by or, to the knowledge of the
Company and the Vendors, licensed to the Company is subsisting,
valid and enforceable and has not been adjudged invalid or
unenforceable in whole or in part. Neither the Company, nor any of
its Subsidiaries has received any written legal opinion or
notification from any regulatory authorities that any of their
respective Intellectual Property is invalid, unregistrable or
unenforceable. The Company has not abandoned any trademark,
copyright or other applications relating to the Proprietary
Software.
(k) The Company has obtained all approvals necessary for exporting the
Company Products outside the United States or Canada and importing
the Company Products into any country in which the Company
Products are now sold or licensed for use, and all such export and
import approvals in the United States and Canada and throughout
the world are valid, current and in full force and effect.
-49-
(l) Section 6.21 of the Disclosure Schedule sets forth a true, correct
and complete list of all Proprietary Software and of any
restrictions on the Company's right to use, modify, incorporate,
bundle or distribute any Proprietary Software. Neither the Company
nor any of its Subsidiaries have violated or are violating any
license, sublicense, or agreement with respect to any Software.
(m) Subject to any agreed restrictions in connection with Licensed
Software as set forth in the license agreement for such Licensed
Software, the Company is entitled to make, use, sell, transmit,
display, copy or otherwise reproduce, develop, distribute, bundle,
modify or otherwise create derivative works regarding, market,
license, sublicense and assign the Proprietary Software and the
Company's Intellectual Property, and otherwise exploit all the
rights related thereto, in the ordinary course of Company
Business. With respect to each license or agreement by which the
Company has obtained the rights to exploit the Intellectual
Property rights of any other person, including the rights to make,
use, sell, transmit, display, copy or otherwise reproduce,
develop, distribute, bundle, modify or otherwise create derivative
works regarding, market, license, sublicense or assign
Intellectual Property or by which the Company has granted to any
third party the right to so exploit Intellectual Property:
(i) such license or agreement is a valid, binding and
enforceable agreement of the Company or a Subsidiary of the
Company, as the case may be, and represents the entire
agreement between the parties thereto with respect to the
subject matter thereof;
(ii) subject to Section 6.21 of the Disclosure Schedule, the
consummation of the transactions contemplated by this
Agreement will not constitute a breach or default under
such license or agreement, or otherwise give any party
thereto a right to terminate or amend such license or
agreement;
(iii) with respect to each such license or agreement, (A) the
Company has not received any written notice of termination
or cancellation under such license or agreement, and no
party thereto has any right of termination or cancellation
thereunder except in accordance with its terms, (B) the
Company has not received any written notice of a breach or
default under such license or agreement which breach or
default has not been cured or is not curable, and (C) the
Company has not granted to any other person any rights,
adverse or otherwise, under such license or agreement,
except as permitted therein; and
(iv) to the knowledge of the Company and the Vendors, no other
party to such license or agreement is in breach or default
thereof and no event has occurred that, with notice or
lapse of time would constitute such a breach or default or
permit termination, modification or acceleration under such
license or agreement.
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(n) No person has revoked the right of the Company to display,
reproduce, distribute, create derivative works regarding, market,
license, sublicense or otherwise exploit the use of any
Intellectual Property owned or controlled by such person.
(o) The Company Products function and perform in all material respects
in accordance with the functional and performance characteristics
attributed to the Company Products in the Company's marketing
materials and in the related technical specifications for the time
periods under their applicable warranties. Section 6.21 of the
Disclosure Schedule contains a complete listing of all warranty
claims that required repayment to any customers of the Company
during the twenty-four (24) month period preceding the Closing
Date. To the knowledge of the Company and the Vendors, the
Software is free of all viruses, worms, Trojan horses and other
known contaminants, and the Software has no problems known to the
Vendors that following Closing would result in (i) gross revenue
derived from the sale of Company Products for the 12-month period
ending October 31, 2003 to decrease by more than 25% as compared
to the 12-month period ending October 31, 2002, or (ii) the value
of warranty claims on sold Company Products to exceed 10% of the
value of the revenues derived from the sale of such Company
Products over the 12-month period ending on the first anniversary
of the Closing Date.
(p) All Proprietary Software and, to the knowledge of the Company and
the Vendors, all Licensed Software which forms a part of the
Company's or its Subsidiaries' current product offerings or in
respect of which a warranty claim could be made, is Year 2000
Compliant, and to the knowledge of the Company and the Vendors,
all other software currently used by the Company in the ordinary
course of its business is Year 2000 Compliant.
(q) Neither the Company nor any of its Subsidiaries have received
notice of, nor, to the knowledge of the Company and the Vendors,
is there any law, regulation, order, action or proceeding (other
than export regulations of general application not specifically
pertaining to software or encryption) that restricts, or that
could reasonably be expected to restrict in any manner, the
development, use, export, import, transfer or licensing of any of
the Company Products or the Company's Intellectual Property or
that could reasonably be expected to affect the validity, use,
registration or enforceability of any of the Company's
Intellectual Property.
(r) Section 6.21 of the Disclosure Schedule sets forth the current
standard Warranty Obligations contained in the Company's standard
licensing agreement and a true, correct and complete list of (a)
all contracts containing other Warranty Obligations individually
exceeding $100,000 in force and effect that have not been
contained in the Company's standard form agreements and the
duration of each such other Warranty Obligation, (b) each of the
material Warranty Obligations which is, to the knowledge of the
Company and the Vendors, the subject of any dispute or threatened
dispute, and (c) any unsatisfied material claims under any
Warranty Obligations. None of the employees or agents of the
Company or any of its Subsidiaries are authorized to undertake
obligations to any
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customer or other person in excess of such Warranty Obligations
other than pursuant to the terms of contracts for professional
services engagements for training, installation and implementation
services provided by the Company and/or its Subsidiaries. The
Financial Statements reflect adequate reserves for Warranty
Obligations in accordance with GAAP.
(s) The computer system or other similar device used by the Electronic
Documents System operates properly, or if not, the fact of its
operating improperly does not affect the integrity of any
electronic document in such a way as to materially adversely
affect the Company Business and there are no other reasonable
grounds to doubt the integrity of the Electronic Documents System.
(t) None of the Proprietary Software or, to the knowledge of the
Vendors or the Company, Licensed Software is subject to any
"copyleft" or other similar obligation or condition (including any
obligation or condition under any "open source" license such as
the GNU Public License, Lesser GNU Public License or Mozilla
Public License) that (i) could require, or could condition the use
or distribution of such Proprietary Software or Licensed Software
on, the use, disclosure, licensing or distribution of any source
code for any portion of such Proprietary Software or Licensed
Software, or (ii) could require the use, disclosure, licensing or
distribution of any Proprietary Software or, to the knowledge of
the Company and the Vendors, Licensed Software at a reduced or
discounted royalty rate or for free.
6.22 BROKERS OR FINDERS
Neither the Company nor any of its Subsidiaries has incurred, or will
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or any similar charges in connection with this Agreement or
any transaction contemplated hereby other than as contemplated by the JP Morgan
Letter Agreements.
6.23 TAXES
(a) Except in respect of its Subsidiaries, the Company is not by
agreement or otherwise subject to taxation by any jurisdiction
outside of Canada, and no claim has ever been made by a taxing
authority of any jurisdiction in which the Company does not file
Tax returns that the Company is or may be subject to taxation by
that jurisdiction.
(b) Except as set forth in Section 6.23 of the Disclosure Schedule,
the Company and each of its Subsidiaries has in a timely manner
filed all Tax returns required to be filed by it, and, as at the
date of this Agreement and as at the Closing Date, has paid all
Taxes required to be paid by it, and adequate provision has been
made in the Financial Statements for all Taxes of any nature
whatsoever for which the Company or any of its Subsidiaries may at
any time in the future have any liability or obligation in respect
of operations, activities or transactions occurring prior to the
Closing Date.
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(c) The Company and each of its Subsidiaries have withheld and paid
all Taxes required to have been withheld and paid in connection
with amounts paid or owing to any current or former employee of
the Company or any of its Subsidiaries, creditor or independent
contractor.
(d) There are no actions by any taxing authority in connection with
assessing additional Taxes against or in respect of the Company or
any of its Subsidiaries for any past period. To the knowledge of
the Company and the Vendors, there is no dispute or claim
concerning any Tax liability of the Company or any of its
Subsidiaries threatened, claimed or raised by any taxing
authority. There are no liens for Taxes upon the Assets.
(e) There are no outstanding agreements or waivers extending the
statutory period of limitation applicable to any Tax returns
required to be filed by, or which include or are treated as
including, the Company or any of its Subsidiaries or with respect
to any Tax assessment or deficiency affecting the Company or any
of its Subsidiaries.
(f) Neither the Company nor any of its Subsidiaries is a party to or
bound by any obligations under any Tax sharing, Tax allocation,
Tax indemnity or similar agreement or arrangement.
6.24 NO UNDISCLOSED LIABILITIES
Except for Liabilities expressly disclosed in the Financial Statements,
Liabilities incurred in the ordinary course of business consistent with past
practice since March 31, 2002, and the Liabilities specifically disclosed in
Section 6.24 of the Disclosure Schedule, neither the Company nor any of its
Subsidiaries has any Liabilities exceeding $25,000 individually or $100,000 in
the aggregate.
6.25 CHANGE OF CONTROL PAYMENTS
Except as disclosed in Section 6.25 of the Disclosure Schedule, there are
no agreements, commitments, employment policies, plans or arrangements binding
on the Company or any of its Subsidiaries pursuant to which any amounts may
become payable by the Company or any of its Subsidiaries (whether currently or
in the future) to current or former officers, directors or employees of the
Company or any of its Subsidiaries or others as a result of or in connection
with the transactions contemplated by this Agreement.
6.26 WORKERS' COMPENSATION
The Company and each of its Subsidiaries have continually observed and
are presently in full compliance with all workers' compensation and similar
legislation, and there are no pending claims against the Company or any of its
Subsidiaries under any workers' compensation plan.
-53-
6.27 STOCK RIGHTS
Other than pursuant to the Company Options, neither the Company nor any
of its Subsidiaries is obligated to issue any shares of its capital stock under
any written or unwritten agreement or contingent obligation whatsoever.
6.28 U.S. ANTITRUST LAWS
The Company (including all entities controlled by the Company within the
meaning of the Regulations under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976) does not hold assets located in the United States (other than
investment assets, voting or non-voting securities of another person and assets
included pursuant to Section 801.40(d)(2) of the Regulations under the
Hart-Scott Rodino Antitrust Improvements Act of 1976) having an aggregate total
value of over $50,000,000, nor did it make aggregate sales in or into the United
States of over $50,000,000 in its most recent fiscal year.
6.29 SITRAKA SHARECO INC.
Sitraka Shareco Inc. has never conducted any business other than the
purchase of Company Shares from employees of the Company whose employment has
been terminated and the borrowing of money from the Company for that purpose,
and immediately prior to the effectiveness of the transactions contemplated in
step 7 of the Tax Reorganization Memo will have no assets other than Company
Shares and no Liabilities, except as provided in step 7 of the Tax
Reorganization Memo (provided that for the purposes of the definition of
"Liabilities", references to the "Company" shall be read as references to
"Sitraka Shareco Inc.").
6.30 DISCLOSURE
No statement (including the representations and warranties set forth in
Articles 6 and 7 of this Agreement) by the Company or any of the Vendors
contained in this Agreement, the other agreements and documents to be entered
into or filed in connection herewith, the exhibits and schedules attached hereto
and any document, written statement or certificate to be furnished to the
Purchaser and its representatives pursuant hereto or in connection with the
transactions contemplated hereby, contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the statements
contained herein or therein not misleading.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF THE VENDORS
7.1 REPRESENTATIONS AND WARRANTIES OF EACH VENDOR
Each Vendor represents and warrants to the Purchaser, with respect to
itself only, as follows:
(a) Such Vendor holds of record and owns beneficially the number of
Company Shares set forth opposite its name on Section 6.2 of the
Disclosure Schedule. Such Vendor has good and marketable title to
the Company Shares held by it. The Company Shares held by such
Vendor will be transferred to the Purchaser at
-54-
Closing, free and clear of all liens, encumbrances, security
interests, restrictions on transfer, Taxes, options, warrants,
purchase rights, contracts, commitments, equities, claims, demands
or other interests of third parties of any nature whatsoever. Such
Vendor holds no Company Options.
(b) Except as provided in the Tax Reorganization Memo, such Vendor is
not a party to any option, warrant, purchase right or other
contract or commitment that could require such Vendor to sell,
transfer or otherwise dispose of any of the Company Shares to
another person as a consequence of entering into this Agreement or
otherwise.
(c) All corporate action on the part of the Company and its
Subsidiaries and, to the extent applicable, their respective
directors and shareholders, necessary for the authorization,
execution and delivery of this Agreement and all agreements and
other documents to be entered into in connection herewith, and the
performance of the obligations of the Vendors hereunder and
thereunder, has been taken.
(d) This Agreement and all agreements and other documents to be
entered into by such Vendor in connection herewith have been or
will, on or prior to the Closing Date, be duly executed and
delivered by, and constitute legal, valid and binding obligations
of, such Vendor, enforceable against such Vendor in accordance
with their respective terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization,
moratorium, preference and other laws relating to or affecting
enforcement of creditors' rights generally.
(e) Neither the execution and delivery of this Agreement and the other
agreements and documents to be entered into in connection herewith
nor the completion of the sale and transfer of the Company Shares
in accordance with the provisions hereof nor the consummation of
the other transactions contemplated hereunder or under such other
agreements and documents will result in or constitute any of the
following:
(i) a conflict with, violation of or default under, or any
event that, with notice or lapse of time or both would be a
default, breach or violation of any agreement, instrument
or document to which such Vendor is a party or by which it
is bound (other than the agreements contemplated in Section
5.2(m), which agreements shall be terminated effective upon
the Closing);
(ii) the creation or imposition of any lien, charge, interest or
encumbrance on any of the Company Shares of such Vendor; or
(iii) a conflict with or violation or breach of any law, rule or
regulation of any Governmental Authority, or any judgment,
decree, order or injunction applicable to such Vendor.
(f) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Authority is required
to be obtained by such Vendor in connection with (i) the execution
and delivery of this Agreement and
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the other agreements and documents to be entered into in
connection herewith, (ii) the completion of the sale and transfer
of the Company Shares owned by such Vendor in accordance with the
provisions hereof, or (iii) the consummation of the other
transactions contemplated hereunder or under such other agreements
and documents.
(g) No bankruptcy or similar proceedings have been commenced or are
pending or proposed in respect of such Vendor.
(h) No litigation, arbitration or other judicial or regulatory
proceeding is pending or, to the knowledge of such Vendor,
threatened by or against such Vendor before any court or any
Governmental Authority which could reasonably be expected to have
a material adverse effect on the ability of such Vendor to
consummate the transactions contemplated hereunder and under the
other agreements and documents to be entered into in connection
herewith.
(i) Except as set forth in Section 7.1 of the Disclosure Schedule,
such Vendor is not a non-resident of Canada within the meaning of
the Income Tax Act (Canada).
7.2 REPRESENTATIONS AND WARRANTIES OF VENDOR CORPORATIONS
Each of the Vendors that is a corporation represents and warrants to the
Purchaser, with respect to itself only, as follows:
(a) Such Vendor is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction of its
incorporation.
(b) Such Vendor has all requisite corporate power and authority to
enter into this Agreement and all agreements and other documents
to be entered into by it in connection herewith and to consummate
the transactions contemplated hereby and thereby. All corporate
action on the part of such Vendor necessary for the authorization,
execution and delivery of this Agreement and all other agreements
to be entered into in connection herewith by it, and the
performance of the obligations of such Vendor hereunder and
thereunder, has been taken.
(c) Neither the execution and delivery of this Agreement and the other
agreements and documents to be entered into in connection herewith
nor the completion of the sale and transfer of the Company Shares
owned by such Vendor in accordance with the provisions hereof nor
the consummation of the other transactions contemplated hereunder
will result in or constitute a default under, or be in
contravention or breach of any provision of, the articles of
incorporation, bylaws, unanimous shareholders agreement or other
charter or governing corporate document of such Vendor.
7.3 REPRESENTATIONS AND WARRANTIES OF LYCKLAMA AND L NEWCO
Lycklama and L Newco jointly and severally represent and warrant to the
Purchaser as follows:
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(a) As of the Closing, L Holdco will not be conducting any active
business and will have no assets (other than the Company Shares
referred to in Section 1.3(d)) and no Liabilities other than the L
Holdco RDTOH Note (provided that for the purposes of the
definition of "Liabilities", references to the "Company" shall be
read as references to "L Holdco").
(b) As of the Closing, the following representations and warranties
will be true and correct when read as if references therein to (1)
the "Company" were read as references to "L Holdco", (2) except
for purposes of Section 6.3, "Company Shares" were read as
references to shares of any class of L Holdco and (3) "Company
Options" were read as if the definition of "Company Options"
referred to "L Holdco" instead of the "Company"):
(i) Sections 6.2(b), 6.2(c), 6.2(d), 6.2(e) and 6.2(f)
(provided that references to Section 6.2 of the Disclosure
Schedule shall be read as references to Section 7.3.2 of
the Disclosure Schedule);
(ii) Section 6.3(a) (provided that the reference to "any
Material Authorization" shall be deleted therefrom) or (e)
(provided that references to Section 6.3 of the Disclosure
Schedule shall be read as references to Section 7.3.3 of
the Disclosure Schedule);
(iii) Section 6.5 (provided that the second sentence thereof
shall be modified to delete the phrases "has never been a
subsidiary of any other entity and", and ", nor has it ever
owned," (provided that references to Section 6.5 of the
Disclosure Schedule shall be read as references to Section
7.3.5 of the Disclosure Schedule);
(iv) Sections 6.10, 6.11, 6.15 and 6.17 (provided that the
references therein to "and the Vendors" shall be deemed to
amended to be read as references to ", L Newco and
Lycklama") (provided that references to Sections 6.10,
6.11, 6.15 and 6.17 of the Disclosure Schedule shall be
read as references to Sections 7.3.10, 7.3.11, 7.3.15 and
7.3.17 of the Disclosure Schedule);
(v) Section 6.16 (provided that references to Section 6.16 of
the Disclosure Schedule shall be read as references to
Section 7.3.16 of the Disclosure Schedule);
(vi) Section 6.23 (provided that references to Section 6.23 of
the Disclosure Schedule shall be read as references to
Section 7.3.23 of the Disclosure Schedule);
(vii) Section 6.26; and
(viii) Section 6.27 (provided that the reference to "Other than
Company Options" shall be deemed to have been deleted
therefrom).
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ARTICLE 8
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Vendors as follows:
8.1 CORPORATE STATUS; ENFORCEABILITY
(a) The Purchaser is a corporation duly incorporated under the
Business Corporations Act (Alberta).
(b) The Purchaser has all requisite corporate power and authority to
enter into this Agreement and all agreements and other documents
to be entered into by it in connection herewith and to consummate
the transactions contemplated hereby and thereby. All corporate
action on the part of the Purchaser necessary for the
authorization, execution and delivery of this Agreement and all
agreements and other documents to be entered into in connection
herewith by it, and the performance of the obligations of the
Purchaser hereunder and thereunder, has been taken.
(c) This Agreement has been, and all other agreements and other
documents to be entered into by the Purchaser in connection
herewith will be prior to or at the Closing, duly executed and
delivered, and this Agreement constitutes (or, in the case of
agreements other than this Agreement, will constitute prior to or
at the Closing) legal, valid and binding obligations of the
Purchaser, enforceable against the Purchaser in accordance with
their respective terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization,
moratorium, preference and other laws relating to or affecting
enforcement of creditors' rights generally.
8.2 NO CONFLICT
Neither the execution and delivery of this Agreement and the other
agreements and documents to be entered into in connection herewith nor the
completion of the purchase and transfer of the Company Shares in accordance with
the provisions hereof nor the consummation of the other transactions
contemplated hereunder will result in or constitute any of the following:
(a) a conflict with, violation of or default under, or any event that,
with notice or lapse of time or both would be a default, breach or
violation of the articles of incorporation, bylaws, unanimous
shareholders agreement or other charter or governing corporate
document of the Purchaser or any agreement, instrument or document
to which the Purchaser is a party or by which it is bound;
(b) the creation or imposition of any lien, charge, interest or
encumbrance on any of the assets of the Purchaser; or
(c) a conflict with or violation or breach of any law, rule or
regulation of any Governmental Authority, or any judgment, decree,
order or injunction applicable to the Purchaser.
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8.3 GOVERNMENTAL APPROVALS
No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Authority is required to be
obtained by the Purchaser in connection with (i) the execution and delivery of
this Agreement and the other agreements and documents to be entered into in
connection herewith, (ii) the completion of the purchase and transfer of the
Company Shares owned by the Vendors in accordance with the provisions hereof, or
(iii) the consummation of the other transactions contemplated hereunder or under
such other agreements and documents, other than the filing of a notification
with Industry Canada pursuant to Section 12 of the Investment Canada Act.
8.4 LITIGATION
No litigation, arbitration or other judicial or regulatory proceeding is
pending or, to the knowledge of the Purchaser, threatened by or against the
Purchaser before any court or any Governmental Authority which could reasonably
be expected to have a material adverse effect on the ability of the Purchaser to
consummate the transactions contemplated hereunder and under the other
agreements and documents to be entered into in connection herewith.
8.5 COMPLIANCE WITH LAW
The business and operations of the Purchaser have been and are being
conducted in compliance, in all material respects, with all laws, rules,
regulations and licensing requirements applicable thereto.
8.6 BROKERS OR FINDERS
The Purchaser has not incurred, and will not incur, directly or
indirectly, any liability for brokerage or finders' fees or agents' commissions
or any similar charges in connection with this Agreement or any transaction
contemplated hereby.
ARTICLE 9
REPRESENTATIONS AND WARRANTIES OF QUEST
Quest represents and warrants to the Vendors as follows:
9.1 CORPORATE STATUS; ENFORCEABILITY
(a) Quest is a corporation duly incorporated and validly existing
under the laws of the State of California.
(b) Quest has all requisite corporate power and authority to enter
into this Agreement and all agreements and other documents to be
entered into by it in connection herewith and to consummate the
transactions contemplated hereby and thereby. All corporate action
on the part of Quest necessary for the authorization, execution
and delivery of this Agreement and all agreements and other
documents to be entered into in connection herewith by it, and the
performance of the obligations of Quest hereunder and thereunder,
has been taken.
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(c) This Agreement has been, and all other agreements and other
documents to be entered into by Quest in connection herewith will
be prior to or at the Closing, duly executed and delivered, and
this Agreement constitutes (or, in the case of agreements other
than this Agreement, will constitute prior to or at the Closing)
legal, valid and binding obligations of Quest, enforceable against
Quest in accordance with their respective terms, except as such
enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, preference and other laws
relating to or affecting enforcement of creditors' rights
generally.
9.2 NO CONFLICT
Neither the execution and delivery of this Agreement and the other
agreements and documents to be entered into in connection herewith nor the
consummation of the other transactions contemplated hereunder will result in or
constitute any of the following:
(a) a conflict with, violation of or default under, or any event that,
with notice or lapse of time or both would be a default, breach or
violation of the articles of incorporation, bylaws, or other
charter or governing corporate document of Quest or any agreement,
instrument or document to which Quest is a party or by which it is
bound;
(b) the creation or imposition of any lien, charge, interest or
encumbrance on any of the assets of Quest; or
(c) a conflict with or violation or breach of any law, rule or
regulation of any Governmental Authority, or any judgment, decree,
order or injunction applicable to Quest.
9.3 GOVERNMENTAL APPROVALS
No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Authority is required to be
obtained by Quest in connection with (i) the execution and delivery of this
Agreement and the other agreements and documents to be entered into in
connection herewith, or (ii) the consummation of the other transactions
contemplated hereunder or under such other agreements and documents, other than
the filing of a notification with Industry Canada pursuant to Section 12 of the
Investment Canada Act.
ARTICLE 10
INDEMNIFICATION AND ESCROW FUND
10.1 INDEMNITY AND ESCROW FUND
(a) Subject to the limitations contained in this Article 10, the
Vendors shall indemnify and hold harmless the Purchaser from and
against any and all liability, loss, costs, expenses, claims or
damages of any nature (after taking into account any insurance
proceeds in respect of any such liability, loss, costs, expenses,
claims or damages received after the Closing Date by the Company
or the
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Purchaser under their respective insurance policies), including
reasonable legal costs on a full indemnity basis, reasonable
accountants' fees, and all other reasonable costs and expenses of
litigation, investigation, defense or settlement of claims
(including costs of all appeals related thereto) or threats
thereof and amounts paid in settlement to the extent of the amount
of such liability, loss, cost, expense, claim or other damage
suffered or incurred by the Purchaser (whether directly or by
virtue of any third party claim) (collectively, "Claims") by
reason of:
(i) the breach by any of the Vendors of any representation,
warranty, covenant, agreement or other obligation of the
Vendors or any of them hereunder,
(ii) the breach by the Company of any representation or warranty
hereunder, or
(iii) the breach by the Company of any covenant, agreement or
other obligation hereunder, to the extent that such
covenant agreement or other obligation is to be performed
at or prior to the Closing,
but excluding any such breaches disclosed to, and waived in
writing by, the Purchaser prior to the Closing (collectively,
"Damages").
(b) From and after the Closing Date, the Vendors shall (subject to the
provisions of 10.7(c) and the other provisions of this Article 10)
indemnify and hold harmless the Purchaser from and against any and
all Claims arising out of, relating to or resulting from the items
described in Schedule H (provided that in respect of paragraph 7
of Schedule H, such indemnity shall be limited to out-of-pocket
costs and expenses up to $20,000).
(c) To secure performance of the indemnification obligations set forth
in Sections 10.1(a) and 10.1(b), but not in limitation of the
obligations of the Vendors under Section 10.7, cash in the amount
of Five Million Two Hundred Thousand Dollars ($5,200,000) (the
"Escrow Amount") shall be withheld in the aggregate from the
Purchase Price by the Purchaser and from the Option Holders Base
Payment by the Company, and deposited by the Purchaser and the
Company in the Escrow Fund on the Closing Date. The Escrow Amount
shall consist of (i) the Vendors' ratable share of the Escrow
Amount, (ii) the Selling Option Holders' ratable share of the
Escrow Amount, and (iii) the ratable share of the Escrow Amount in
respect of the Remaining Shareholders and the Remaining Option
Holders, subject to the provisions of Sections 3.10(d) and (e).
The Purchaser shall also deposit in the Escrow Fund the amounts,
if any, to be deposited therein in accordance with Sections
2.4(a)(iii)(B) and 2.7(B).
(d) The Escrow Fund shall be governed by the terms set forth herein
and in the Escrow Agreement and shall be held by the Escrow Agent
for the benefit of the Purchaser, the Vendors, the Selling Option
Holders and, subject to the provisions
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of Sections 3.10(d) and (e), the Remaining Shareholders and the
Remaining Option Holders.
(e) The parties acknowledge and agree that (i) the Purchaser shall be
entitled to obtain compensation for Damages from the Escrow Fund
for any breach of any representation or warranty set forth in
Article 6 and for any breach by the Company of any covenant,
agreement or other obligation of the Company hereunder to be
performed on or before Closing, in each case to the full extent of
the Escrow Fund and without regard to the beneficial entitlement
in the Escrow Fund of the Vendors, the Selling Option Holders and,
subject to the provisions of Sections 3.10(d) and (e), the
Remaining Shareholders and the Remaining Option Holders, or the
amount of Escrow Monies contributed or accruing to the Escrow Fund
by or for the benefit of any such person, and (ii) each of the
Vendors, the Selling Option Holders and, subject to the provisions
of Sections 3.10(d) and (e), the Remaining Shareholders and the
Remaining Option Holders shall be fully liable for such Damages to
the full extent of its share of the Escrow Fund. The Parties
further acknowledge and agree that the Purchaser shall be entitled
to obtain compensation for Damages from the Escrow Fund for any
breach by any Vendor of any representation or warranty of such
Vendor set forth in Article 7 and for any breach by any Vendor of
any covenant, agreement or other obligation of such Vendor
hereunder, in each case to the full extent of such Vendor's share
of the Escrow Fund.
(f) The Purchaser shall, subject to the provisions of Sections 3.10(d)
and (e), be entitled to the share of the Escrow Fund held in
respect of the Remaining Shareholders and the Remaining Option
Holders until the Purchaser shall, as contemplated in Section
3.10(d) or (e), as the case may be, have given notice to the
Escrow Agent that such Remaining Shareholders or Remaining Option
Holders are entitled to their ratable share of the Escrow Fund
(determined in accordance with the Allocation Schedule).
10.2 ATTEMPT TO RESOLVE CONFLICTS; ARBITRATION
(a) All claims by the Purchaser pursuant to Article 10.1 shall be made
in writing to the Vendors' Agent. The Vendors' Agent shall have
thirty (30) days from the receipt of any such claim to deliver to
the Purchaser an objection in writing to the claim, failing which
the claim shall be deemed to be accepted. The Purchaser shall have
thirty (30) days from the receipt of an objection from the
Vendors' Agent to deliver to the Vendors' Agent a written response
to the objection, failing which the Purchaser's claim shall be
deemed to be abandoned. On receipt of a response to the objection,
the Vendors' Agent and the Purchaser shall attempt in good faith
to resolve the dispute. If the Vendors' Agent and the Purchaser
are able to resolve the dispute, a memorandum setting forth the
terms of the resolution shall be prepared and signed by both
parties and shall, if a claim is being made against the Escrow
Fund, be furnished to the Escrow Agent. The Escrow Agent shall be
entitled to rely on any such memorandum and shall distribute the
Escrow Monies in accordance with the terms thereof.
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(b) In the event that any claim by the Purchaser is not resolved
within thirty (30) days following delivery of a response to an
objection in accordance with subparagraph (a) hereof, the
Purchaser may, by delivery of a notice in writing to the Vendors'
Agent within fifteen (15) days of the end of the said thirty (30)
day period, require that the dispute be put to arbitration. In the
event that Damages which are the subject matter of the Purchaser's
claim are at issue in pending litigation with a third party, then
the arbitration shall not, unless the Vendors' Agent otherwise
agrees, be commenced until such litigation is resolved. Within
fifteen (15) days after receipt by the Vendors' Agent of a notice
of requirement to arbitrate, the Purchaser and the Vendors' Agent
shall select a single mutually acceptable arbitrator. If they are
unable to agree on a single arbitrator within such fifteen (15)
day period, either one of them may apply to a judge sitting in
motions court in the Ontario Superior Court of Justice at Toronto
for appointment of the arbitrator.
(c) Any arbitration hearing constituted pursuant to this Section 10.2
shall be held in the City of Toronto in accordance with the
Arbitration Act (Ontario). The decision of the arbitrators shall
be binding and conclusive upon the parties. A true and correct
copy of such decision shall be delivered by the parties to the
Escrow Agent and shall be the Escrow Agent's sufficient authority
to disburse Escrow Monies from the Escrow Fund in accordance with
the Escrow Agreement and such decision.
(d) The parties hereto irrevocably attorn to the jurisdiction of the
Courts of Ontario with respect to any issue arising pursuant to
constitution or conduct of the arbitration contemplated by this
Section 10.2 and agree that all proceedings with respect to
constitution or conduct of the arbitration contemplated by this
Section 10.2 or the enforcement of any arbitration award shall be
brought before the Ontario Superior Court of Justice at Toronto,
Ontario.
10.3 VENDORS' AGENT
(a) Kiessling is constituted and appointed as agent ("Vendors' Agent")
for and on behalf of the Vendors to give and receive all notices
and communications under or in connection with this Agreement and
the Escrow Agreement, to make all determinations under this
Agreement and the Escrow Agreement for and on behalf of the
Vendors or any of them (including the waiver of any conditions
precedent as provided in Section 5.6), to authorize delivery to
the Purchaser of the Escrow Monies from the Escrow Fund in
satisfaction of claims by the Purchaser, to settle any other
claims for indemnification, to object to such withdrawal, to agree
to, negotiate, enter into settlements and compromises of, and
comply with orders and awards of arbitrators and/or courts with
respect to such claims, and to take all actions necessary or
appropriate in the judgment of the Vendors' Agent for the
accomplishment of the foregoing. Such agency may be changed after
the Closing Date by the Vendors holding a majority of the
beneficial interest of the Escrow Fund from time to time upon not
less than ten (10) days' prior notice to the Purchaser. In the
event of the death or incapacity of Kiessling, Lycklama (or
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such other person as Lycklama shall notify Purchaser of in
writing) shall immediately and without further action by the
Vendors be constituted and appointed as the new Vendors' Agent,
and shall thereupon execute a counterpart of the Escrow Agreement.
No bond shall be required of the Vendors' Agent, and the Vendors'
Agent shall receive no compensation for its services. Notices and
communications to and from the Vendors' Agent shall constitute
notice to and from, respectively, each of the Vendors and, prior
to the Closing, the Company.
(b) The Vendors' Agent shall not be liable for any act done or omitted
hereunder as Vendors' Agent while acting in good faith and in the
exercise of reasonable judgment, and any act done or omitted
pursuant to the advice of counsel shall be conclusive evidence of
such good faith. The Vendors shall severally, in proportion to
their ownership of the Company Shares immediately prior to the
sale of such shares to the Purchaser, indemnify the Vendors' Agent
and hold it harmless against any loss, liability or expense
incurred without gross negligence or bad faith on the part of the
Vendors' Agent and arising out of or in connection with the
acceptance or administration of its duties hereunder.
10.4 ACTIONS OF THE VENDORS' AGENT
Any decision, act, consent or instruction of the Vendors' Agent shall
constitute a decision of all of the Vendors and, prior to the Closing, the
Company, and shall be final, binding and conclusive upon each Vendor and, prior
to the Closing, the Company, and the Escrow Agent and the Purchaser may rely
upon any decision, act, consent or instruction of the Vendors' Agent as being
the decision, act, consent or instruction of each and every such Vendor and,
prior to the Closing, the Company. The Escrow Agent and the Purchaser shall be
relieved from any liability to any person for any acts done by the Purchaser in
accordance with such decision, act, consent or instruction of the Vendors'
Agent.
10.5 THIRD-PARTY CLAIMS AND DISSENT RIGHTS
(a) In the event that a third party asserts or threatens a claim which
the Purchaser believes may result in a demand against the Escrow
Fund, the Purchaser shall notify the Vendors' Agent of such claim,
and the Vendors' Agent on behalf of the Vendors shall be entitled,
at the Vendors' expense, to participate in any defense of such
claim. Unless the Vendors' Agent elects to assume such defense
(with counsel reasonably acceptable to the Purchaser, and provided
that the Vendors have reasonable means to put on such a defense),
the Purchaser shall have the right to settle any such claim (with
its own counsel); provided that the Purchaser may not effect the
settlement of any such claim without the consent of the Vendors'
Agent, which consent shall not be unreasonably withheld. In the
event that the Vendors' Agent has consented to any such
settlement, the Vendors' Agent and the Vendors shall have no power
or authority to object under any provision of this Article 10 or
the Escrow Agreement to the amount of any claim by the Purchaser
against the Escrow Fund for indemnity with respect to such
settlement. The Purchaser and the Company shall use reasonable
commercial efforts to mitigate the amount of any such claim.
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(b) In the event that any holder or holders of Company Shares exercise
their rights under section 185 of the Business Corporations Act
(Ontario), (i) the Purchaser shall notify the Vendors' Agent of
such exercise of rights, (ii) the Company shall allow the Vendors'
Agent and its representatives to assist representatives of the
Company in responding to such exercise of rights and the
opportunity to review and comment on proposed submissions by the
Company in connection with such exercise of rights, and (iii) the
Company shall not make an offer to pay for such holders' Company
Shares or otherwise agree with such holders' as to the fair value
of such holders' Company Shares without the consent of the
Vendors' Agent, not to be unreasonably withheld, unless such offer
or agreement specifies an amount which would not trigger the
Purchaser's rights under paragraph 8 of Schedule H
10.6 LIMITATIONS
(a) The Purchaser may not receive any funds pursuant to the indemnity
provided for in Section 10.1 or from the Escrow Fund and shall not
otherwise be entitled to any indemnification for Damages under
this Article 10 (other than as provided in Section 10.1(b)) unless
and until the aggregate of the Damages claimed is at least One
Hundred Thousand Dollars ($100,000) (the "Threshold"), provided
that if the aggregate amount of the Damages claimed is at least
equal to the Threshold, the Purchaser shall be entitled to receive
funds pursuant to the indemnity provided for in Section 10.1 or
Escrow Monies equal to the full amount of any and all Damages,
including the initial Damages up to the Threshold. Notwithstanding
the foregoing, the parties acknowledge and agree that the
Threshold shall not be applicable to, and the Vendors shall be
fully liable for (i) any and all Company Transaction Expenses not
applied to reduce the Purchase Price pursuant to Section 2.2(a),
(ii) any and all amounts owing to the Purchaser pursuant to
Section 2.7(c) claimed by the Purchaser pursuant to Section
2.4(a)(iii)(B) and, (iii) any and all amounts necessary to satisfy
the indemnifications set forth in Section 10.1(b).
(b) The parties understand and agree that the liability of the Vendors
for the breach of any representation, warranty, covenant,
agreement or other obligation under this Agreement, including the
indemnity obligations of the Vendors under this Article 10 and
arising under Section 10.1(a), shall terminate on the date that
is:
(i) two (2) years following the Closing Date with respect to
claims based on a breach of any of the representations and
warranties set forth in Sections 6.1, 6.2, 6.21, 7.1 or
7.2;
(ii) four (4) years following the Closing Date or, if later with
respect to any item, the applicable statute of limitations
for such item, with respect to claims based on a breach of
any of the representations and warranties set forth in
Section 6.23; and
(iii) one (1) year following the Closing Date for all other
claims;
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except insofar as a claim for indemnification under this Article
10 has been asserted and such claim has not been resolved on or
prior to such date in accordance with the terms of this Agreement,
the Escrow Agreement or otherwise, in which case the indemnity
obligations of the Vendors relating to such dispute shall survive
until the resolution of such dispute. Notwithstanding the
foregoing or anything else contained in this Agreement, the
parties acknowledge and agree that the time limitations set out
above shall not be applicable to, and the Vendors shall be fully
liable for, the indemnifications set forth in Section 10.1(b)
regardless of when any Claims in respect thereof shall arise.
10.7 RECOURSE
(a) Notwithstanding anything contained herein, each Vendor shall
remain severally liable to the extent of, but not greater than,
its respective share of the Purchase Price for Damages arising
from the breach of any representations, warranties, covenants,
agreements or other obligations of the Company or such Vendor
hereunder if the Escrow Fund is insufficient to satisfy such
claims. If the Purchaser makes a claim for Damages hereunder, the
claim shall be made against each Vendor based on an amount equal
to its respective proportionate share of the Purchase Price
multiplied by the amount of Damages being claimed and shall only
seek Damages from any Vendor beyond its proportionate share of the
Damages if the Purchaser is unable to recover Damages from any of
the other Vendors within ninety (90) days after the date upon
which the Purchaser becomes entitled to such Damages (subject, for
greater certainty, to the maximum liability stated in the first
sentence of this Section). Nothing herein shall limit the
Purchaser's right to seek recourse against any person, including
any Vendor, for claims based on fraud.
(b) Notwithstanding anything contained in this Agreement or any
instrument or document relating hereto, each of the Vendors
acknowledges and agrees that if the Closing occurs, none of the
Vendors shall have any recourse of any kind whatsoever against the
Company for any breach by the Company of any representation,
warranty, covenant, agreement or other obligation of the Company
hereunder, and each Vendor hereby waives any and all rights and
remedies, including any right of set-off, that it may have against
the Company for any such breach. In furtherance and not in
limitation of the foregoing, it is the intent of the Parties that
each of the Purchaser and the Company and its Subsidiaries shall
have the full benefit of the rights granted to them under this
Article 10 and that such rights shall not be affected by any claim
of any Vendor relating to any breach by the Company of any of its
representations, warranties, covenants, agreements or other
obligations hereunder.
(c) Notwithstanding anything contained herein, with respect any claim
for indemnification under Section 10.1 or otherwise:
(i) Kiessling and K Holdco and his and its Affiliates shall be
jointly and severally liable for any such claim relating to
step 1 set forth in the Tax
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Reorganization Memo or pursuant to Article 7 (to the extent
that Article 7 relates to K Holdco or Kiessling) and, for
greater certainty, Lycklama and L Newco shall have no
liability with respect to any such claim except as provided
in Section 10.7 (e);
(ii) Lycklama and L Newco and his and its Affiliates shall be
jointly and severally liable for any such claim relating to
steps 2, 6 and, subject to the limitations referred to in
paragraph 2 of Schedule H, step 10 set forth in the Tax
Reorganization Memo or pursuant to Article 7 (to the extent
that Article 7 relates to L Newco or Lycklama) or relating
to any liabilities or other obligations of L Holdco
existing prior to the Closing and, for greater certainty,
Kiessling and K Holdco shall have no liability with respect
to any such claim except as provided in Section 10.7(e);
and
(iii) the Vendors and their Affiliates shall be jointly and
severally liable for any such claim relating to steps 3, 4,
5, 7, 8, 9, 11 and 12 set forth in the Tax Reorganization
Memo.
(d) Nothing herein shall limit the Purchaser's right to seek recourse
against any or all of the Vendors for any amounts owing to the
Purchaser pursuant to Section 2.7(c) or require the Purchaser to
first make a claim against the Escrow Fund to recover such
amounts.
(e) Subject to Section 10.2, the Purchaser shall be entitled to
satisfy any claims under Section 10.7(c) by claiming against the
Escrow Fund and such a claim may extend beyond the interest of any
particular Vendor in the Escrow Fund and may extend to the entire
Escrow Fund; provided that the Purchaser has first attempted to
claim against such Vendor outside of the Escrow Fund and has not
received satisfaction of such claim within thirty (30) days of the
date of the claim.
(f) Except as provided in Section 10.7(e), any claims made by the
Purchaser under this Article 10 shall first be made against the
Escrow Fund, and to the extent such claims are not satisfied from
the Escrow Fund, the Purchaser may pursue such claims against the
Vendors directly.
ARTICLE 11
TERMINATION
11.1 TERMINATION
This Agreement may be terminated at any time prior to the Closing Date:
(i) by mutual written agreement of the Vendors, the Company and
the Purchaser;
(ii) by the Purchaser (provided the Purchaser is not in material
breach of this Agreement), if there has been a breach by
any of the Vendors or the Company of any representation,
warranty, covenant, agreement or other
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obligation set forth in this Agreement on the part of any
of the Vendors or the Company which breach, if not cured,
would cause the condition set forth in Section 5.5(c) not
to be satisfied and which breach by its nature cannot be
cured by such Vendor or the Company, as the case may be;
(iii) by the Vendors (provided none of the Vendors or the Company
is in material breach of this Agreement), if there has been
a breach by the Purchaser of any representation, warranty,
covenant, agreement or other obligation set forth in this
Agreement on the part of the Purchaser which breach, if not
cured, would cause the condition set forth in Section
5.6(a) not to be satisfied and which breach by its nature
cannot be cured by the Purchaser;
(iv) by the Purchaser, by giving notice to the Vendors' Agent,
if the Closing shall not have occurred on or before
November 27, 2002 by reason of the failure of any condition
precedent under Section 5.4 or 5.5 (unless the failure
results primarily from a breach by the Purchaser of any
representation, warranty, covenant, agreement or other
obligation of the Purchaser contained in this Agreement or
the Purchaser's failure to fulfill a condition precedent to
Closing);
(v) by the Vendors, by giving notice to the Purchaser, if the
Closing shall not have occurred on or before November 27,
2002 by reason of the failure of any condition precedent
under Section 5.4 or 5.6 (unless the failure results
primarily from a breach by any of the Vendors or the
Company of any representation, warranty, covenant,
agreement or other obligation of any of the Vendors or the
Company contained in this Agreement or failure of such
Vendor or the Company, as the case may be, to fulfill a
condition precedent to Closing); or
(vi) by the Vendors or the Purchaser:
(A) if any permanent injunction or other order of a
court or other competent authority preventing the
consummation of the transactions contemplated in
this Agreement shall have become final and
non-appealable; or
(B) if there shall be any final action taken, or any
statute, rule, regulation or order enacted,
promulgated or issued or deemed applicable to the
consummation of the transactions contemplated in
this Agreement by any Governmental Authority which
would make consummation of the transactions
contemplated in this Agreement illegal or which
would prohibit the Purchaser's ownership or
operation of all or a material portion of the
Company Business or the Principal Assets, or compel
the Purchaser to dispose of or hold separately all
or a material portion of the Company Business or the
Principal Assets.
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11.2 OBLIGATIONS UPON TERMINATION
If this Agreement is terminated pursuant to this Article 11, all
obligations of the parties hereunder shall terminate without any liability of
any party to any other party, except for (i) any liability of any party for
breach of this Agreement prior to such termination, and (ii) the provisions of
Article 12, all of which shall survive such termination.
ARTICLE 12
GENERAL
12.1 PUBLIC ANNOUNCEMENT; DISCLOSURE
(a) No party shall make any public announcement concerning this
Agreement or the matters contemplated herein, their discussions or
any other memoranda, letters or agreements between the parties
relating to the matters contemplated herein without the prior
consent of the other parties; provided that the parties may at any
time make disclosure if it is advised by independent counsel that
such disclosure is required by Nasdaq or under applicable law or
regulatory authority, which disclosure shall be subject to the
prior review of the Purchaser or the Company, the Vendors, K
Holdco and L Newco, as the case may be.
(b) Except as permitted by Section 12.1(a), under no circumstances
will the parties (or any of their respective officers, directors,
employees, shareholders, Affiliates or advisers) discuss or
disclose the existence or terms of this Agreement or any other
agreement or document to be executed and delivered by any of the
parties with or to any third party other than such legal,
accounting and financial advisers of such parties who have a need
to know such information.
(c) Notwithstanding anything contained in this Section 12.1, the
Vendors shall be permitted to (i) make an announcement to the
employees of the Company and its Subsidiaries upon the signing of
this Agreement by the parties hereto, and (ii) make disclosure to
the other shareholders of the Company and holders of Company
Options, provided that the Vendors shall first provide the
Purchaser a reasonable opportunity to review (or, in the case of
non-written disclosure, discuss the general substance in advance
of delivery) and comment on such disclosure.
12.2 MUTUAL DRAFTING
This Agreement is the joint product of the Company, the Vendors and the
Purchaser and each provision hereof has been subject to the mutual
consideration, negotiation and agreement of all of the parties and shall not be
construed for or against any party as a result of which party was responsible
for the drafting of any provision hereof.
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12.3 BROKERS' FEES
In furtherance and not in limitation of Section 12.5, no party shall be
liable to any other party for the payment of any brokerage or finders' fees or
agents' commissions or any similar charges in connection with this Agreement or
any transaction contemplated hereby, and each of the parties agrees to indemnify
the others from any such payment or claim therefor and from any liability, loss,
costs (including legal costs on a full indemnity basis) or damages suffered or
incurred in connection therewith.
12.4 NOTICES
All notices and other communications given in connection with this
Agreement shall be in writing, and the respective addresses of the parties for
the service of any such notices or other communications shall be as follows:
Vendors' Agent: Gregory J. Kiessling
70 Baby Point Road
Toronto, Ontario M6S 2G3
Fax No.: (416) 763-7404
With a copy to: Aird & Berlis LLP
BCE Place
Suite 1800, Box 754
181 Bay Street
Toronto, Ontario M5J 2T9
Attention: Jay A. Lefton
Fax No.: (416) 863-1515
And with a copy to: Edward A. Lycklama
8 Alderton Court
Toronto, Ontario M9A 3X8
Fax No.: (416) 643-3599
Kiessling or Gregory J. Kiessling
K Holdco 70 Baby Point Road
Toronto, Ontario M6S 2G3
Fax No.: (416) 763-7404
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Lycklama or Edward A. Lycklama
L Newco: 8 Alderton Court
Toronto, Ontario M9A 3X8
Fax No.: (416) 643-3599
Purchaser: 881229 Alberta Ltd.
c/o Quest Software, Inc.
8001 Irvine Center Drive
Irvine, California 92618
Attention: General Counsel
Fax No.: (949) 754-8977
With a copy to: Macleod Dixon LLP
3700 Canterra Tower
400 Third Avenue S.W.
Calgary, Alberta T2P 4H2
Attention: Joel S. Friley
Fax No.: (403) 264-5973
All notices and communications given in connection with this Agreement shall be
sufficiently given if addressed as aforesaid and either delivered by hand or by
reputable courier or overnight courier service or overnight registered mail to
the intended recipient's address for service as set forth above, or sent by
direct facsimile telecommunication to such party at its fax number as set forth
above (with receipt confirmed). Any notice so given shall be deemed to have been
given and received on the first Business Day on which it is presented during
normal business hours at the address for service of the addressee thereof, or,
in the case of a direct facsimile telecommunication, on the day on which it is
transmitted if transmitted prior to or during normal business hours on a
Business Day, or on the first Business Day following the day on which it is
transmitted if transmitted otherwise. A party may change its address for service
by giving written notice thereof to the other parties. All notices and
communications shall be deemed to be sufficiently given with respect to each of
the Vendors and the Company if addressed to the Vendors' Agent and delivered in
accordance with this Section 12.4.
12.5 TRANSACTION EXPENSES
Each party shall bear its own fees and expenses in connection with this
Agreement and the transactions contemplated herein; provided that all Company
Transaction Expenses shall be deemed expenses of the Vendors, the Remaining
Shareholders and the Selling Option Holders, and will be borne and paid by such
persons determined in accordance with the Allocation Schedule as contemplated in
Article 2 hereof. The amount of the Company Transaction Expenses shall be
deducted from the Base Price as provided in Section 2.2, subject to adjustment
after the Closing as provided in Section 2.7.
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12.6 ASSIGNMENT
None of the Vendors shall assign any rights or obligations under or in
respect of this Agreement without the prior written consent of the Purchaser,
acting reasonably. The Company shall not assign any rights or obligations under
or in respect of this Agreement. The Purchaser shall be entitled to assign the
whole or any portion of its interest in and in respect of this Agreement at any
time, provided that it shall not thereby be relieved of its liability to the
Vendors for the performance of its obligations hereunder, unless the Vendors
otherwise agree. Any assignment or purported assignment in violation of this
Agreement shall be null and void.
12.7 GOVERNING LAW; CHOICE OF FORUM
This Agreement shall be governed by and construed in accordance with the
laws of the Province of Ontario, Canada, and the laws of Canada applicable
therein. Each of the parties hereby irrevocably attorn to the non-exclusive
jurisdiction of the courts of the Province of Ontario with respect to matters
arising out of this Agreement.
12.8 ENUREMENT; NO THIRD PARTY BENEFICIARIES RIGHTS
(a) This Agreement shall enure to the benefit of and be binding upon
the parties and their respective heirs, administrators, trustees,
legal representatives, receivers, successors and permitted
assigns.
(b) No provision of this Agreement is intended, nor will be
interpreted, to provide to create any third party beneficiary
rights or any other rights of any kind in any client, customer,
Affiliate, shareholder, officer, director, employee or partner of
any party or any other person unless specifically provided
otherwise herein, and, except as so provided, all provisions
hereof will be solely for the benefit of the respective parties to
this Agreement.
12.9 FURTHER ASSURANCES
Each of the parties shall from time to time and at all times following
the Closing, without further consideration, do and perform all such further acts
and things, and execute and deliver all such further agreements, assurances,
deeds, assignments, conveyances, notices, releases and other documents and
instruments, as may reasonably be required to more fully assure the transfer of
the Company Shares and Company Options to the Purchaser in accordance with the
provisions of this Agreement, and otherwise to assure the carrying out of the
intent and purpose of this Agreement.
12.10 AMENDMENT; NO WAIVER
(a) This Agreement may be amended only by written instrument executed
by the Vendors' Agent, the Vendors, the Company, the Purchaser and
Quest.
(b) No failure by any party to exercise, and no delay by any party in
exercising, any right, power or remedy hereunder shall impair any
right, power or remedy which such party may have, nor shall such
delay be construed to be a waiver of any such
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rights, powers or remedies or an acquiescence in any breach or
default under this Agreement or in connection with the
transactions contemplated hereby. No waiver of any breach or
default hereunder of any party shall be deemed a waiver of any
default or breach subsequently occurring hereunder. Any agreement
on the part of a party to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on
behalf of such party, and a waiver shall affect only the matter,
and the occurrence thereof, specifically identified in the writing
granting such waiver and shall not extend to any other matter or
occurrence.
12.11 NON-MERGER; SURVIVAL
All representations, warranties, covenants, agreements and other
obligations contained in this Agreement or in any other agreement or document
delivered pursuant hereto shall survive the Closing and shall not merge in any
conveyance, transfer, assignment or other document or instrument issuing
pursuant hereto or in connection herewith. Without limiting the generality of
the foregoing, the liability of a party for any breach of any of its
representations, warranties, covenants, agreements or other obligations
hereunder prior to the completion of the purchase and sale contemplated hereby
shall not be extinguished or in any manner diminished by such completion.
12.12 SEVERABILITY
If any provision of this Agreement, or the application thereof, will for
any reason and to any extent be invalid or unenforceable, the remainder of this
Agreement and application of such provision to other persons or circumstances
will be interpreted so as reasonably to effect the intent of the parties. The
parties further agree to replace such void or unenforceable provision of this
Agreement with a valid and enforceable provision that will achieve, to the
extent possible, the economic, business and other purposes of the void or
unenforceable provision.
12.13 OTHER REMEDIES
Except as otherwise provided herein, any and all remedies herein
expressly conferred upon a party will be deemed cumulative with and not
exclusive of any other remedy conferred hereby or by law or equity on such
party, and the exercise of any one remedy will not preclude the exercise of any
other.
12.14 ENTIRE AGREEMENT
Except for the Confidentiality Agreements, this Agreement expresses and
constitutes the entire agreement among the parties with respect to the purchase
and sale of the Company Shares and Company Options and the other transactions
contemplated in this Agreement, and supersedes any previous agreements or
understandings with respect to the purchase and sale of the Company Shares and
Company Options, including the Summary of Proposed Terms dated August 27, 2002
among Quest, the Company, and Gregory J. Kiessling, Edward A. Lycklama, 976206
Ontario, Inc. and 976205 Ontario Inc., as principal shareholders of the Company,
as amended. The Confidentiality Agreements shall survive the execution and
delivery of this
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Agreement and shall remain in full force and effect until terminated in
accordance with their respective terms.
12.15 SPECIFIC PERFORMANCE
THE PARTIES AGREE THAT IRREPARABLE DAMAGE WOULD OCCUR IN THE EVENT THAT
ANY OF THE PROVISIONS OF THIS AGREEMENT WERE NOT PERFORMED IN ACCORDANCE WITH
THEIR SPECIFIC TERMS OR WERE OTHERWISE BREACHED. THE PARTIES SHALL BE ENTITLED
TO AN INJUNCTION OR INJUNCTIONS TO PREVENT BREACHES OF THIS AGREEMENT AND TO
ENFORCE SPECIFICALLY THE TERMS AND PROVISIONS HEREOF IN COURT, IN ADDITION TO
ANY OTHER REMEDY TO WHICH THEY ARE ENTITLED AT LAW OR IN EQUITY.
12.16 GUARANTEE OF QUEST
If, for any reason, the Purchaser shall fail to perform any of its
obligations under this Agreement, Quest shall forthwith perform or cause the
performance of such obligations subject to all of the terms, conditions,
qualifications, provisions and limitations set forth herein and in the other
agreements and documents to be entered into in connection herewith; provided
that Quest may assert any defense, claim, counterclaim, set-off or other right
or remedy that may be available to the Purchaser in connection with the
performance of such obligations.
12.17 COUNTERPART EXECUTION
This Agreement may be executed in separate counterparts, and the executed
counterparts shall together constitute one instrument and have the same force
and effect as if all parties had executed the same instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF the parties have executed and delivered this Agreement
as of the date first above written.
/s/ GREGORY J. KIESSLING
- -------------------------------------- ----------------------------------
Witness GREGORY J. KIESSLING
/s/ EDWARD A. LYCKLAMA
- -------------------------------------- ----------------------------------
Witness EDWARD A. LYCKLAMA
976206 ONTARIO INC.
/s/ GREGORY J. KIESSLING
By: ------------------------------
Name:
Title:
Authorized Signing Officer
2016969 ONTARIO INC.
/S/ EDWARD A. LYCKLAMA
By: ------------------------------
Name:
Title:
Authorized Signing Officer
SITRAKA INC.
/s/ GREGORY J. KIESSLING
By: ------------------------------
Name:
Title:
Authorized Signing Officer
[Signing page to the Share Purchase Agreement]
/s/ GREGORY J. KIESSLING
- -------------------------------------- ----------------------------------
Witness GREGORY J. KIESSLING,
as the Vendors' Agent
881229 ALBERTA LTD.
/s/ JULI ACKERMAN
By: ------------------------------
Name: Juli Ackerman
Title: VP Business Development
Authorized Signing Officer
QUEST SOFTWARE, INC.
/s/ JULI ACKERMAN
By: ------------------------------
Name: Juli Ackerman
Title: VP Business Development
Authorized Signing Officer
[Signing page to the Share Purchase Agreement]