EARTH SOURCE ENERGY INC.
-and-
PACIFIC GEO EXCHANGE INC.
-and-
MUELLER FAMILY TRUST
-and-
JADE EAGLE TRUST
-and-
ARIES DEVELOPMENTS LTD.
-and-
LYNN MUELLER
-and
MARK MCCOOEY
-and-
PAUL CALLON
-and-
ESSENTIAL INNOVATIONS TECHNOLOGY CORP.
SHARE PURCHASE AGREEMENT
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SHARE PURCHASE AGREEMENT
THIS SHARE PURCHASE AGREEMENT made as of the 3rd day of February, 2005, BETWEEN:
Earth Source Energy Inc., a corporation existing under the
laws of the Province of British Columbia (hereinafter called
"ESE")
-and-
Pacific Geo Exchange Inc., a corporation existing under the
laws of the Province of British Columbia (hereinafter called
"PacGeo")
-and-
Lynn Mueller of the Province of British Columbia (hereinafter
called "Lynn")
-and-
Lynn Mueller, sole trustee of the Mueller Family Trust, a
trust settled and constituted under the laws of the Province
of British Columbia (hereinafter called the "Mueller Trust")
-and-
Mark McCooey of the Province of British Columbia (hereinafter
called "Mark")
-and-
Mark McCooey, sole trustee of the Jade Eagle Trust, a trust
settled and constituted under the laws of the Province of
British Columbia (hereinafter called the "Jade Eagle Trust")
-and-
Aries Developments Ltd., a corporation existing under the laws
of the Province of British Columbia (hereinafter called
"Aries")
-and-
Paul Callon of the Province of British Columbia (hereinafter
called "Callon")
-and-
(Mueller Trust, Jade Eagle Trust, and Aries hereinafter
individually referred to as a or the "Vendor" and collectively
referred to as the "Vendors")
-and-
Lynn, and Mark (hereinafter individually referred to as the
"Principal" and collectively referred to as the "Principals")
-and-
Essential Innovations Technology Corp., a corporation existing
under the laws of the State of Nevada (hereinafter called the
"Purchaser")
WHEREAS:
1. PacGeo is the owner, of record and beneficially, of 100 Class A shares
without par value and 100 Class C shares without par value of ESE;
2. In aggregate the Vendors and Principals are the owners, of record and
beneficially, of 1,000,001 Common shares without par value and 1,000
Class B Preferred shares without par value in the capital of PacGeo and
as a consequence of the foregoing, the Vendors and Principals are the
direct owners, of record and beneficially, of all of the issued and
outstanding shares of all classes in the capital of PacGeo;
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3. The Vendors, the Principals and Callon have agreed to sell and the
Purchaser has agreed to purchase all of the issued and outstanding
shares of PacGeo and the Shareholder's Loan (as hereinafter described)
upon the terms and conditions hereinafter set out; and
4. The Mueller Family Trust, Jade Eagle Trust and Principals have agreed
to jointly and severally guarantee the obligations of the Vendors.
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the respective
covenants herein contained and for other good and valuable consideration, the
receipt and sufficiency of which is acknowledged, the parties hereto agree as
follows:
ARTICLE 1
DEFINITIONS AND SCHEDULES
1.1 Definitions
In addition to the words and phrases defined in the recitals or
elsewhere in this Agreement, as used in this Agreement, in any schedule
hereto, in any amendment hereof, in any documents to be executed and
delivered pursuant to this Agreement and in any documents executed and
delivered in connection with the completion of the transactions
contemplated herein, the following words and phrases shall have the
following meanings, respectively:
(a) "Accounts Receivable" means all accounts receivable, trade
accounts, notes receivable and other book debts due or
accruing due shown on the books of ESE as at the Closing Date,
which, for greater certainty, include accounts receivable
which are included as part of certain statutory holdbacks held
pursuant to the Builder's Lien Act (British Columbia);
(b) "Acquired Corporation" means individually Earth Source Energy
Inc. and Pacific Geo Exchange Inc.;
(c) "Acquired Corporations" means collectively Earth Source Energy
Inc. and Pacific Geo Exchange Inc.;
(d) "Affiliate" has the meaning given to such terms in the
Business Corporations Act (British Columbia);
(d-1) "Agent" has the meaning given such term in section 7.16
herein;
(e) "Agreement" means this agreement, including the exhibits and
the schedules to this agreement, as it or they may be amended
or supplemented from time to time, and the expressions
"hereof", "herein", "hereto", "hereunder", "hereby" and
similar expressions refer to this Agreement and not to any
particular section or other portion of this Agreement;
(f) "Aries" has the meaning given such term in the initial recital
of the parties to this Agreement;
(f-1) "Audited Financial Statements" means, the comparative and
consolidated audited financial statements of the Acquired
Corporations for the periods ended December 31, 2004 and 2005,
with the audit opinion qualified only by the qualification
described in Schedule 2.4;
(g) "Auditors" means MacKay LLP, Chartered Accountants;
(h) "Balance Sheet Date" means December
31, 2005;
(i) "Bank Debt" means the aggregate amounts owing to the Royal
Bank of Canada and the Business Development Bank of Canada by
the Acquired Corporations at the close of business of each
Acquired Corporations as at the Closing Date (which includes,
without limitation, unpaid principal; accrued and unpaid
interest; fees and other costs of any nature and kind payable
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by the Acquired Corporations to Royal Bank of Canada or the
Business Development Bank of Canada; any prepayment fees,
costs, bonuses, penalties or other charges; and any and all
costs to discharge and release any security held by Royal Bank
of Canada and the Business Development Bank of Canada);
(j) "Base Net Assets" has the meaning given such term in Section
2.4;
(k) "BCABC" means the Business Corporations Act (British
Columbia);
(l) "Benefit Program or Agreement" means each personnel policy,
plan, program, arrangement or understanding (whether funded or
not) which provides benefits to any present or former employee
of an ESE, including any stock option plan, stock purchase
plan, stock appreciation rights plan, phantom stock plan,
collective bargaining agreement, bonus plan or arrangement,
profit sharing plan, incentive award plan or arrangement,
vacation policy, severance pay plan, policy or agreement,
deferred compensation agreement or arrangement, executive
compensation or supplemental income arrangement, consulting
agreement, employment agreement, disability, medical, dental,
hospitalization and death benefit insurance plan, and the
terms "Benefit Programs or Agreements" means more than one of
the foregoing;
(m) "Business" means the business heretofore and currently carried
on by ESE, which includes, without limitation, the business of
designing and installing conventional geo-exchange heating
systems in residential and commercial properties where heat is
extracted from the earth through a ground based fluid loop
system with the fluid circulated though the loop by a pump to
a heat pump or exchanger, which in turn circulates the heat
through the building;
(n) "Business Day" means a day other than a Saturday, Sunday or
day on which the chartered banks are closed in the City of
Vancouver;
(o) "Canadian Securities Legislation" means the securities
legislation and the regulations thereto applicable in each of
the provinces and territories of Canada and the rules, blanket
decisions, orders and published policy statements of the
securities commissions in such provinces and territories;
(p) "Callon" has the meaning given such term in the initial
recital of the parties to this Agreement;
(q) "Certificate" has the meaning ascribed to it in subsection
2.4(f) herein;
(r) "Charter Documents" means charter documents of a corporate
entity, including without limitation the Articles (as that
term is defined in the legislation pursuant to which a
particular provincial or Canadian federally corporation was
incorporated or equivalent organizational documents), Notice
of Articles, Articles and by-laws;
(s) "Closing Date" means a date which is the later of
(a) ten (10) Business Days after the date the Vendors and
Principals deliver to the Purchaser the Audited
Financial Statements; or
(b) such other date as may be agreed to in writing by the
Purchaser, the Vendors and the Principals, provided
that the Closing Date must be a date no later than
July 1, 2006;
(t) "Competing Proposal" has the meaning given such term in
Section 10.1;
(u) "Contract" means any agreement, contract, undertaking, letter
of intent, understanding, license, instrument, arrangement or
other binding commitment or arrangement, written or oral
(including any amendments and other modifications thereto);
(v) "CRA" means the Canada Revenue Agency;
(v-1) "Deposit" means the portion of the Purchase Price paid to the
Agent, in trust pursuant to the provisions of sub-sections
2.3(a) and (b) herein;
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(v-2) "Disability" means the inability of a Person to provide
services pursuant to an employment contract for a period of
sixty (60) consecutive days, as required to be provided
pursuant to the terms of such contract, or for an aggregate of
ninety (90) working days over one hundred (180) working days;
(w) "Employee Benefit Plan" means all Pension Plans and all
Benefit Programs or Agreements providing benefits to any
current or former employee of the Acquired Corporations
maintained, sponsored or contributed to by any such entity
within six (6) years prior to the Closing Date or as to which
any of the Vendors and/or Principals or the Acquired
Corporations have any liability or obligation;
(x) "Environmental Costs or Liabilities" means with respect to the
Acquired Corporations any losses, liabilities, obligations,
damages, fines, penalties, judgments, settlements, actions,
claims, costs or expenses (including, without limitation,
reasonable fees, disbursements and expenses of legal counsel,
experts, engineers and consultants, and the costs of
investigation or feasibility studies and performance of
remedial or removal actions and cleanup activities) arising
from, under or in connection with (i) any Environmental Laws;
(ii) any order of, or contract of the Acquired Corporations
with, any Governmental Entity or any private or public
Persons; or (iii) any exposure of any Person or property to
Hazardous Substances;
(y) "Environmental Laws" means all common, civil, federal,
provincial, state, territorial, regional, municipal or local
laws which relate to protection of the environment, health and
safety, or Hazardous Substances contained in statutes or
regulations or in written policies, guidelines, orders,
directives or notices which have the force of law or Permits,
approvals or court or other tribunal orders having
jurisdiction over the Acquired Corporations, their respective
assets and the Business;
(z) "Escrow Agent" has the meaning given such term in Section
2.3(e);
(aa) "Escrow Agreement" has the meaning given such term in Section
2.3(a);
(bb) "ESE" is a party to this Agreement. ESE carries on the
Business and is a 100% owned subsidiary of PacGeo, as
described in Section 3.1(a);
(cc) "ETA" means the Excise Tax Act;
(dd) "Final Balance Sheet" has the meaning given such term in
Section 2.4(f);
(ee) "Final Net Asset Amount" has the meaning given such term in
Section 2.4(f);
(ff) "Financial Statements" means, collectively, the consolidated
unaudited financial statements of the Acquired Corporations
for the periods ended December 31, 2003, 2004 and 2005, copies
of which are attached hereto as Schedule 2.4;
(gg) "GAAP" means generally accepted accounting principles in
Canada;
(hh) "Governmental Authorization" means any (i) Permit, license,
certificate, franchise, permission, easement variance,
clearance, registration, qualification, exemption, order,
approval or authorization issued, granted, given or otherwise
made available by or under the authority of any Governmental
Entity or pursuant to any Legal Requirement; or (ii) right
under any Contract with any Governmental Entity;
(ii) "Governmental Entity" means any federal, provincial, state,
regional or municipal government or other political
subdivision thereof and any entity or person of competent
jurisdiction exercising executive, legislative, judicial,
regulatory or administrative functions of, or pertaining to
government;
(jj) "GST" means goods and services tax;
(kk) "Hazardous Substances" means (i) any hazardous materials,
hazardous wastes, hazardous substances, toxic wastes and toxic
substances as those or similar terms are defined under any
Environmental Laws; (ii) any asbestos or any material which
contains any hydrated mineral silicate, including chrysolite,
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amosite, crocidolite, tremolite, anthophylite and/or
actinolite, whether friable or non-friable; (iii) PCBs, or
PCB-containing materials, or fluids; (iv) radon; (v) any other
hazardous, radioactive, toxic or noxious substance, material,
pollutant, contaminant, constituent, or solid, liquid or
gaseous waste; (vi) any petroleum, petroleum hydrocarbons,
petroleum products, crude oil and any fractions or derivatives
thereof, any oil or gas exploration or production waste, and
any natural gas, synthetic gas and any mixtures thereof; (vii)
any substance that, whether by its nature or its use, is
subject to regulation under any Environmental Laws or with
respect to which any Environmental Laws or Governmental Entity
requires environmental investigation, monitoring or
remediation; and (viii) any underground storage tanks, dikes
or impoundments as defined under any Environmental Laws;
(ll) "Holdback 1" has the meaning set forth in Section 2.3(e);
(ll-1) "Holdback 2" has the meaning set forth in Section 2.3(f);
(mm) "Indebtedness" means, any liability contingent or otherwise
relating to: (a) indebtedness, including interest and any
prepayment penalties thereon, created, issued or incurred by
the Acquired Corporations for borrowed money (whether by loan
or the issuance or sale of debt securities or the sale of
property to another person subject to an understanding or
agreement, contingent or otherwise, to repurchase such
property from such person); (b) obligations of the Acquired
Corporations to pay the deferred purchase or acquisition price
of property or services, other than trade accounts payable
arising, and accrued expenses incurred in the ordinary course
of business and consistent with the Acquired Corporations'
customer trade practices; (c) indebtedness of another person
secured by a lien on the property of the Acquired
Corporations, whether or not the respective indebtedness so
secured has been assumed by the Acquired Corporations; (d)
payment obligations of the Acquired Corporations in respect of
letters of credit, bankers' acceptances or similar instruments
issued, or accepted by banks and other financial institutions
for account of the Acquired Corporations; (e) capital lease
obligations of the Acquired Corporations; (f) indebtedness of
other persons guaranteed by the Acquired Corporations; and (g)
payables more than thirty (30) days past due.
(nn) "Indemnifying Party" has the meaning given such term in
Section 9.3;
(oo) "Intellectual Property" means collectively all rights to and
interest in: (A) all trade-marks including the goodwill
attaching to such trade-marks related to the Business; (B) all
trade names, brand names, brands and slogans related to the
Business; (C) all inventions, patents, patent rights and
patent applications (including all reissues, divisions,
continuations and extensions of any patent or patent
application) related to the Business; (D) all copyright,
registrations and applications for copyright (and all future
income from such copyright) related to the Business, including
computer software programs; (E) all rights and interests in
and to designs, know-how, trade secrets, manufacturing,
engineering and other drawings and manuals, technology,
blueprints, patterns, dies, research and development reports,
technical information, technical assistance, engineering data,
design and engineering specifications, and similar materials
recording or evidencing expertise related to the Business; (F)
all other intellectual and industrial property rights
throughout the world related to the Business; and (G) all
rights to damages and profits by reason of the infringement of
any of the intellectual property listed in items (A) to (F);
(pp) "Interim Period" means the period between the date of
execution of this Agreement and the Time of Closing;
(qq) "Jade Eagle Trust" has the meaning given such term in the
initial recital of the parties to this Agreement;
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(rr) "Knowledge" means a statement of the declarant's knowledge of
the facts or circumstances to which such phrase relates having
undertaken reasonable enquiry or investigation in connection
with such facts and circumstances and, if a corporate entity,
includes the knowledge of any of the directors and officers of
such declarant;
(ss) "Leases" means each personal property lease described in
Section 3.1(cc) hereto, to which ESE is a party as lessee or
sub-lessee, as amended to the date hereof;
(tt) "Leased Premises" means the premises that are the subject of
the Real Property Leases;
(uu) "Legal Requirements" means any federal, provincial, state,
regional, local, municipal, or other law, statute,
constitution, principle of common law, resolution, ordinance,
code, edict, decree, rule, regulation, ruling or requirement
issued, enacted, adopted, promulgated, implemented or
otherwise put into effect by or under the authority of any
Governmental Entity and all requirements set forth in
applicable Contracts, and includes, without limitation, all
North American (and the provinces', states' and any other
divisions thereof) laws, regulations, policies and guidelines
relating to labelling, packaging and advertising;
(vv) "Liens" means liens, pledges, claims charges, infringements,
interferences, security interests, restrictions, mortgages,
deeds of trust, tenancies and other possessory interests,
conditional sale or other title retention agreements,
assessments, easements, rights of way, covenants,
restrictions, rights of first refusal pre-emptive rights,
defects in title, encroachments and other burdens, options or
encumbrances or restrictions of any kind;
(ww) "Lynn" has the meaning given such term in the initial recital
of the parties to this Agreement;
(xx) "Material Adverse Effect" means any change, event, violation,
inaccuracy, circumstance or effect, individually or when
aggregated with other changes, events, violations,
inaccuracies, circumstances or effects (considered together
with all other matters that would constitute exceptions to the
representations and warranties set forth in the Agreement but
for the presence of "Material Adverse Effect" or other
materiality qualifications, or any similar qualifications, in
such representations and warranties), that is or would
reasonably be expected to be materially adverse to or have a
material adverse effect on the Business, assets (including
intangible assets), capitalization, condition, liabilities,
financial performance, results of operations or prospects of
either of the Acquired Corporations;
(yy) "Material Contracts" has the meaning given such term in
Section 3.1(n);
(zz) "Mark" has the meaning given such term in the initial recital
of the parties to this Agreement;
(aaa) "Mueller Trust" has the meaning given such term in the initial
recital of the parties to this Agreement;
(bbb) "Negative Amount" has the meaning given such term in Section
2.4(h);
(ccc) "Net Assets" has the meaning given such term in Section
2.4(b);
(ddd) "Neutral Auditor" has the meaning given such term in Section
2.4(g);
(eee) "Ordinary Course of Business" means the ordinary course of
normal day-to-day business consistent with past practices and
customs (including with respect to both quantity and
frequency);
(fff) "PacGeo" is a party to this Agreement. PacGeo is an owner of
100% of the issued and outstanding share capital of ESE, as
described in Section 3.1(a);
(ggg) "Pension Plans" means all pension plans which have been
registered under the Tax Act and under applicable pension
Legal Requirements;
(hhh) "Permits" means all permits, licenses, certificates,
approvals, authorizations, registrations or the like
-8-
attainable from or required by any Governmental Entity which
are material and are, under applicable law, necessary for the
conduct of the Business or the utilization by ESE of its
assets;
(iii) "Permitted Liabilities" means, with respect to the Acquired
Corporations, the aggregate of liabilities incurred in the
Ordinary Course of Business, whether current or long-term
shown on the Financial Statements and the Final Balance Sheet;
(jjj) "Person" means and includes any individual, entity,
partnership, limited partnership, corporation, joint venture,
association, joint stock company, trust, unincorporated
organization or a government or an agency thereof;
(kkk) "Positive Amount" has the meaning given such term in Section
2.4(h);
(lll) "Prepaid Expenses" means all prepayments, prepaid charges,
deposits, sums and fees related to the Business;
(mmm) "Purchase Price" means the amounts payable to the Vendors, the
Principals and Callon for the Purchased Shares and
Shareholder's Loan;
(nnn) "Purchased Shares" means all of the issued and outstanding
shares in the capital of the PacGeo, being the aggregate of
1,000,001 Common shares without par value and 1,000 Class B
Preferred shares without par value, owned beneficially and of
record as follows:
Number and Beneficial and
Class of Shares Registered Owner
--------------- ----------------
450,000 Common Jade Eagle Trust
450,000 Common Mueller Family Trust
100,001 Common Aries Developments Ltd.
431 Class B Preferred Mark McCooey
569 Class B Preferred Lynn Mueller
(ooo) "Purchaser" has the meaning given such term in the initial
recital of the parties to this Agreement;
(ppp) "Purchaser Indemnified Costs" means (i) any and all damages,
losses, claims, liabilities, demands, charges, suits,
penalties, costs and expenses (including court costs and
reasonable legal fees and expenses incurred in investigating
and preparing for any litigation or proceeding) that any of
the Purchaser Indemnified Parties incurs and that arise out of
any breach or default by the Vendors, the Principals or Callon
of any of their respective representations, warranties or
covenants under this Agreement or any agreement or document
executed in connection herewith; (ii) any and all damages,
losses, claims, liabilities, demands, charges, suits,
penalties, costs, and expenses (including court costs and
reasonable legal fees and expenses incurred in investigating
and preparing for any litigation or proceeding) that any of
the Purchaser Indemnified Parties incurs and that arise out of
the operation or control of the Acquired Corporations or the
Business on or prior to the Closing Date not disclosed herein;
(iii) any and all actions, suits, proceedings, claims,
demands, assessments, judgments, costs, and expenses,
including reasonable legal fees and expenses, relating to or
incurred in connection with the indemnity provided in Section
4.3(a)(iii) any and all actions, suits, proceedings, claims,
demands, assessments, judgments, costs, and expenses,
including reasonable legal fees and expenses, incidental to
any of the foregoing;
(qqq) "Purchaser Indemnified Parties" means the Purchaser, and each
officer, director, employee and consultant of the Purchaser;
(rrr) "Purchaser's Shares" means those shares of the Purchaser
issued to the Vendors as described in paragraphs 2.3(d) and
(e) of this Agreement;
(sss) "Purchaser's Solicitors" means Stephen Holmes of Holmes &
Company;
(ttt) "Real Property" means, collectively the Leased Premises;
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(uuu) "Real Property Leases" means, the lease for real property to
which the ESE is a party, being the property municipally known
as Unit 150, 4620 Viking Way, Richmond, British Columbia;
(vvv) "Shareholder's Loan" means the amount of the loans owed to the
Principals and Callon by either of the Acquired Corporations;
(vvv1) "Sublease" means the Sublease between ESE as sub-landlord and
Free Energy Solutions Ltd. as sub-tenant dated June 1, 2005
for the lease of a portion of the Real Property;
(www) "Subsidiary" means an entity which shall be deemed to be a
"Subsidiary" of another Person if such Person directly or
indirectly owns, beneficially or of record, (i) an amount of
voting securities or other interests in such entity that is
sufficient to enable such Person to elect at least a majority
of the members of such entity's board of directors or other
governing body; or (ii) at least fifty percent (50%) of the
outstanding equity or financial interests of such entity;
(xxx) "Tax" or "Taxes" refers to any and all federal, provincial,
regional, state, municipal, local and foreign taxes,
assessments and other governmental charges, tariffs, duties
(including customs duties), levies, assessments, deficiencies,
fees, impositions and liabilities including interest penalties
and additional taxes thereon, relating to taxes, including
taxes based upon or measured by gross receipts, income,
capital stock, capital gains, profits, sales, use and
occupation, premiums, and value added, ad valorem, transfer,
surtax, stamp, franchise, license, production, withholding,
payroll, recapture, employment, excise, goods and services,
health insurance, use, business, workers' compensation and
personal real property taxes, special assessments, transfer
and any related charge or amount (including any fine, penalty
or interest), and any obligations under any agreements or
arrangements with any other Person with respect to such
amounts and including any liability for Taxes of a predecessor
entity;
(yyy) "Tax Act" means the Income Tax Act (Canada), as amended from
time to time;
(zzz) "Tax Return" means any return (including any information
return), report, statement, declaration, estimate, schedule,
notice, notification, form, election, certificate or other
document or information filed with or submitted to, or
required to be filed with or submitted in connection with the
determination, assessment, collection or payment of any Tax or
in connection with the administration, implementation or
enforcement of or compliance with any Legal Requirement
relating to any Tax;
(aaaa) "Third Party Action" has the meaning given such term in
Section 9.3;
(bbbb) "Time of Closing" means 10:00 o'clock a.m. (Vancouver City
time) on the Closing Date, or such other time on the Closing
Date as may be agreed to by the Vendors and the Purchaser;
(cccc) "Uncollected Accounts Receivable" means Accounts Receivable
which are:
(i) outstanding for more than ninety (90) days but which
do not form part of any statutory holdback;
(ii) amounts due from employees or other Persons not
dealing at arm's length with the Acquired
Corporations;
(iii) amounts due from the Vendors, Principals, officers or
directors of the Acquired Corporations or any
Affiliates of any of such Persons or the Acquired
Corporations; or
(iv) amounts in respect of income taxes recoverable,
and which have not been collected in full within 90 days
following the Closing Date;
(dddd) "Vendor" and "Vendors" have the meanings given such terms in
the initial recital of the parties to this Agreement;
(eeee) "Vendor Group" has the meaning given such term in Section
10.1;
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(ffff) "Vendor Indemnified Costs" means (i) any and all damages,
losses, claims, liabilities, demands, charges, suits,
penalties, costs and expenses (including court costs and
reasonable legal fees and expenses incurred in investigating
and preparing for any litigation or proceeding) that any of
the Vendor Indemnified Parties incurs and that arise out of
any breach or default by the Purchaser of any of its
representations or warranties under this Agreement or any
agreement or document executed in connection herewith; (ii)
any and all damages losses, claims, liabilities, demands,
charges, suits, penalties, costs and expenses (including court
costs and reasonable legal fees and expenses incurred in
investigating and preparing for any litigation or proceeding)
that any of the Vendor Indemnified Parties incurs and that
arise out of the Purchaser's operation or control of the
Acquired Corporations or the Business after the Closing Date;
(iii) any and all actions, suits, proceedings, claims,
demands, assessments, judgments, costs, and expenses,
including reasonable legal fees and expenses, relating to or
incurred in connection with the indemnity provided in Section
4.3(a)(iii) any and all actions, suits, proceedings, claims,
demands, assessments, judgments, costs and expenses, including
reasonable legal fees and expenses, incidental to any of the
foregoing;
(gggg) "Vendor Indemnified Parties" means the Vendors, the Principals
and Callon and each officer, director, employee, consultant
and shareholder of any such Person;
(hhhh) "Vendors' Solicitors" means Darcy L. Wray of Synergy Business
Lawyers; and
(iiii) "Weighted Average Price" means the price determined by
multiplying the daily close price of the Purchaser's shares on
the United States OTC Bulletin Board by the daily trading
volume of such shares for the thirty trading days prior to the
Closing Date and dividing such figure by the total trading
volume of such shares over the same 30 day trading period.
1.2 Schedules
The following are the schedules and exhibits attached hereto which
shall be deemed to be a part of this Agreement and are incorporated
herein by this reference:
Schedule No. Description of Schedule
------------ -----------------------
2.3(e) Escrow Agreement
2.4 Financial Statements and Audited Financial Statements
2.4(f) Extraordinary Charges and expenses incurred during the
stub period
2.7 Form of the legal opinion letter
3.1(c) Jurisdictions
3.1(g) Consents
3.1(l) No Material Adverse Change
3.1(m) Ordinary Course of Business
3.1(n) Material Contracts
3.1(o) Compliance with the Material Contracts
3.1(p) Grants, Incentives and Subsidies
3.1(r) Related Party Indebtedness
3.1(s) No Guarantees
3.1(u) Title to Assets
3.1(v) Condition and Sufficiency of Assets
3.1(y) Intellectual Property
3.1(aa) Real Property
3.1(cc) Personal Property Leases
3.1(dd) Capital Property Purchase Agreement
3.1(ee) Environmental
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3.1hh) Employment
3.1mm) Banking
3.1(nn) Insurance
3.1(pp) Customer Relations
7.5 Consulting and Employment Agreements
7.6 Non-Competition Agreements
ARTICLE 2
AGREEMENT TO PURCHASE AND PURCHASE PRICE
2.1 Agreement of Purchase and Sale
At the Time of Closing and with effect from and after the close of
business of ESE on the Closing Date, subject to the terms and
conditions hereof, the Vendors, the Principals and Callon hereby agree
to sell, assign and transfer to the Purchaser and the Purchaser agrees
to purchase, all of the Purchased Shares and Shareholder's Loan.
2.2 Amount of Purchase Price
Subject to adjustment as contemplated in this Agreement, the purchase
price payable by the Purchaser to the Vendors, the Principals and
Callon for the Purchased Shares and Shareholder's Loan shall be ONE
MILLION SEVEN HUNDRED AND FORTY THOUSAND Canadian dollars
(CDN$1,740,000) subject to adjustment pursuant paragraph 2.4(h) herein.
2.3 Payment of Purchase Price
Subject to the other terms and conditions herein the Purchase Price
shall be paid to the Vendors and Principals as follows:
(a) ONE HUNDRED THOUSAND Canadian Dollars (CDN$100,000.00), by way
of a deposit previously paid to "NAI Goddard & Smith, in
trust", to be applied against the Purchase Price at the Time
of Closing or be refunded if transaction does not close;
(b) THREE HUNDRED THOUSAND Canadian dollars (CDN$300,000.00), by
way of deposit, payable to "NAI Goddard & Smith, in trust",
within 24 hours of execution of this Agreement and which
deposit funds shall be applied against the Purchase Price at
the Time of Closing or be refunded if transaction does not
close;
(c) SIX HUNDRED AND FORTY FOUR THOUSAND Canadian dollars
(CDN$644,000.00) in immediately available funds, payable to
the Vendors and Principals at the Time of Closing;
(d) FOUR HUNDRED AND FORTY TWO THOUSAND Canadian dollars (CDN
$442,000.00), by way of issuance to the Vendors on the Closing
Date of such number of common shares of the Purchaser that is
equal to $442,000.00 divided by the Weighted Average Price;
(e) EIGHTY THOUSAND Canadian dollars (CDN $80,000.00) subject to
adjustment as contemplated in Section2.4(h), by way issuance
to the Vendors and Principals on the Closing Date of such
number of common shares of the Purchaser that is equal to
$80,000.00 divided by the Weighted Average Price (the
"Holdback 1"), such Purchaser's Shares to be delivered to
Synergy Business Lawyers, in trust, as escrow agent (the
"Escrow Agent"); and
(f) ONE HUNDRED SEVENTY FOUR THOUSAND Canadian dollars (CDN
$174,000.00) by way of payment of $116,000.00 Canadian dollars
and by issuance to the Vendors and Principals on the Closing
Date of such number of common shares of the Purchaser that is
equal to $58,000.00 Canadian dollars divided by the Weighted
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Average Price (the "Holdback 2"), such payment and Purchaser's
Shares to be delivered to the Escrow Agent.
The parties covenant and agree to file all tax returns to reflect any
required adjustment to the Purchase Price to be an adjustment to the
Purchase Price pursuant to the terms hereof.
2.3a Holdback
The Holdback 1 shall be held by the Escrow Agent for the benefit of
Vendors, the Principals and the Purchaser pursuant to the terms of an
escrow agreement (the "Escrow Agreement"), which Escrow Agreement,
attached as Schedule 2.3(e), shall provide for release to the
Vendors/Principals or Purchaser of the Holdback 1, subject to
adjustment as contemplated in subsection 2.4(h), on the date which is
five (5) Business Day after acceptance (deemed or actual) or settlement
of the Final Balance Sheet and the calculation of the Final Asset
Amount, to be released in accordance with the provisions of the
subsection 2.4(h) and the Escrow Agreement.
The Holdback 2 shall be held by the Escrow Agent for the benefit of
Vendors, the Principals and the Purchaser pursuant to the terms of the
Escrow Agreement, which shall provide for release to the
Vendors/Principals or Purchaser of the Holdback 2, subject to
adjustment as contemplated in the Escrow Agreement, on the date which
is one (1) year after the Closing Date.
2.4 Closing Balance Sheet
(a) It is expressly agreed that if the Net Assets indicated on the
Certificate (as defined herein) is greater or less than
$(211,070.00) (the "Base Net Assets") then the Purchase Price
shall be increased or reduced, as the case may be, by an
amount equal to such excess or deficiency;
(b) For the purposes hereof, "Net Assets" means the absolute
aggregate value of:
(i) The Acquired Corporations total assets, both current
and fixed, minus
(ii) The aggregate of:
(A) the Acquired Corporations total liabilities,
both current and long term (including
Shareholder's Loan);
(B) the Uncollected Accounts Receivable, and
(C) any Prepaid Expenses which in the reasonable
opinion of the Auditors, are not reasonably
usable in connection with the Business,
all calculated on a consolidated basis, without duplication,
as of the Closing Date.
(c) The Purchaser shall conduct a physical count of ESE's
inventories as of 11:59AM on the Closing Date to facilitate
the preparation of the Final Balance Sheet (as defined below)
and the calculation of the Final Net Asset Amount (as defined
below). The Vendors and Principals or their representatives
shall be entitled to be present during the physical count.
(d) All income taxes and other governmental charges calculated up
to and including the Closing Date even if not yet due having
regard to the fact that the Closing Date is the end of a tax
year shall reflect as current liabilities and, for these
purposes, effect shall be given to the transactions
contemplated herein;
(e) The amounts described in this paragraph (e) shall, to the
extent payable, be paid by the relevant Acquired Corporations,
but shall not be reflected on the Final Balance Sheet as
current liabilities of the Acquired Corporations:
(i) all charges to the Acquired Corporations by the
Auditors; and
(ii) the cost of the Auditors preparing the Final Balance
Sheet, Financial Statements as at the Closing Date,
the December 31, 2005 Financial Statements and tax
returns of the Acquired Corporations and the
Certificate,
and for greater certainty, all of the aforesaid charges shall
be either paid by the Purchaser or charged to the year end of
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the Acquired Corporations immediately subsequent to the
Closing Dated, and shall not be reflected on the Final Balance
Sheet;
(f) On or before the date which is sixty (60) days following the
Closing Date, the Auditors will prepare and deliver to the
Purchaser and the Vendors and Principals a consolidated
unaudited balance sheet for the Acquired Corporations (the
"Final Balance Sheet") as at the close of business on the
Closing Date, prepared in conformity with GAAP applied on a
basis consistent with prior fiscal periods of the Acquired
Corporations and in the same format as the Financial
Statements (except to the extent required for purposes of
consolidation and except that such statements shall not
include any notes to such statements), which will set forth
the book values (net of applicable reserves) of the assets and
liabilities of the Acquired Corporations as of the close of
business on the Closing Date. The Final Balance Sheet shall be
accompanied by a certificate (the "Certificate") prepared by
Mark, the CFO of ESE, setting forth the Net Assets of the
Acquired Corporations based on the Final Balance Sheet but
having regard to the matters referred to in this section 2.4
(and in particular subsection 2.4(b)), together with a
reasonable explanation of all calculations (the "Final Net
Asset Amount"). In the event there is a difference between
GAAP and the Company's accounting policies, GAAP shall prevail
in the preparation of the Final Balance Sheet and the
calculation of the Final Net Asset Amount (except to the
extent required for purposes of consolidation). All
extra-ordinary charges or expenses incurred outside the
Ordinary Course of Business and described in Schedule 2.4(f)
herein shall be deemed to have been incurred during the fiscal
period ended on the Closing Date.
(g) After receipt of the Final Balance Sheet and the calculation
of the Final Net Asset Amount, each of the Purchaser and the
Vendors shall have twenty (20) Business Days to review them.
During such twenty (20) Business Day period, each of the
Purchaser and the Vendors and Principals and their authorized
representatives shall have access to all books and records of
the Acquired Corporations and the Auditor to the extent
required to complete their review of the Final Balance Sheet
and the calculation of the Final Net Asset Amount, including,
but not limited to, the Auditor's working papers used in
preparation thereof. Within such twenty (20) Business Day
period, either the Purchaser or the Vendors and Principals
shall be entitled by written notice to the other to dispute
such Final Balance Sheet or the calculation of the Final Net
Asset Amount, which notice will set out the reasons for the
amount in dispute and reasonable details of the calculation of
such amount. Upon receipt of such notice, such disputed items
will be reviewed and, if necessary, revised by the Vendors and
Principals and the Purchaser by mutual agreement within ten
(10) Business Days of the receipt by the other party of such
dispute notice. If within such ten (10) Business Day period
the Vendors and Principals and the Purchaser cannot
unanimously settle such dispute by either amending, or
agreeing not to amend, such disputed items of the Final
Balance Sheet and the calculations of the Final Net Asset
Amount, then the disputed items will be referred to as soon as
possible thereafter by either the Vendors and Principals or
the Purchaser to a Canadian nationally recognized independent
firm of Chartered Accountants (in this section, the "Neutral
Auditor").
The fees and expenses of such accounting firm for reviewing
and revising the Final Balance Sheet and the calculation of
the Final Net Asset Amount, as applicable, will be paid by the
party disputing the figures set out in the Certificate and if
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both parties dispute such figures, to be shared equally
between the parties. However, if resulting adjustment amount
shall be either greater than or less than 5% of the Final Net
Asset Amount, the parties shall pay equally.
The Neutral Auditor shall act as an expert and not as an
arbitrator and will be required to determine the items in
dispute that have been referred to them as soon as reasonably
practicable, based solely on the presentations made to them by
the Vendors and Purchaser, and not by independent review. The
Neutral Auditor's determination shall be made within thirty
(30) days of its engagement, shall be set forth in a written
statement delivered to the Vendors and the Purchaser and shall
be final and binding on the parties hereto.
If neither the Vendors, Principals nor the Purchaser dispute
the Final Balance Sheet or the calculation of the Final Net
Asset Amount within such initial ten (10) Business Day period
or if the Vendors and Principals and the Purchaser mutually
agree to settle such dispute within the second ten (10)
Business Day period, such Final Balance Sheet and the
calculation of the Final Net Asset Amount shall be final and
binding on the parties to this Agreement.
(h) In any event:
(i) If the Final Net Asset Amount as specified in the
Certificate is finally determined to be greater than
the Base Net Asset Amount within ten (10) Business
Days after the Final Balance Sheet is completed and,
if necessary, reviewed and revised pursuant to this
section, (the amount of such excess being hereinafter
referred to as the "Positive Amount"), the Purchaser
shall be obliged to forthwith thereafter pay to the
Vendors and Principals the Positive Amount by way of
issuance of common shares of the Purchaser equal to
the amount of the Positive Amount divided by the
Weighted Average Price.
(ii) If the Final Net Asset Amount as specified in the
Certificate is finally determined to be less than the
Base Net Asset Amount within ten (10) Business Days
after the Final Balance Sheet is completed and, if
necessary, reviewed and revised pursuant to this
section, the Vendors and Principals agree to be
jointly and severally liable to forthwith thereafter
pay to the Purchaser an amount equal to the aggregate
of such deficiency (the "Negative Amount"). Any
payment of the Negative Amount required to be made
pursuant to this Section 2.4(h)(ii) shall first be
satisfied out of the Holdback 1 by transfer of such
number of Purchaser's Shares that is equal to the
amount of the Negative Amount divided by the Weighted
Average Price. If the Negative Amount exceeds the
amount of the Holdback 1, the difference shall be
satisfied by the Vendors and Principals by way of
delivery of such additional Purchaser's Shares equal
to the balance to be refunded to the Purchaser
divided by the Weighted Average Price, after
offsetting the Negative Amount owing against the
Holdback 1.
(i) Following the Closing Date and until the date that is ninety
(90) days thereafter, the Purchaser shall cause ESE to use
reasonable commercial efforts to collect the Accounts
Receivable in accordance with the past collection policies and
procedures of ESE. For these purposes, any payment received by
ESE with respect to the Accounts Receivable which does not
specify the specific invoice of ESE to which such payment
relates shall be applied to the oldest Accounts Receivable due
from the person making such payment. Forthwith following the
Closing Date, the Purchaser shall cause ESE to transfer and
assign the Uncollected Accounts Receivables to the Vendors and
Principals, for no additional consideration and free of any
encumbrances and shall thereafter cause ESE to receive and
hold in trust and remit to the Vendors and Principals, as and
when received, any amounts received on account of the
Uncollected Accounts Receivables.
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(j) Any Positive or Negative Amount shall bear interest from the
Closing Date through the date of payment at a compound
interest rate of five percent (5%) per annum, calculated and
accruing daily.
(k) Any amounts payable in cash pursuant to Sections 2.3 shall be
payable by wire transfer, certified cheque or other
immediately available funds to accounts designated by the
recipient or recipients thereof.
2.5 Allocation of Purchase Price
The parties hereto acknowledge and agree that the aggregate Purchase
Price as finally determined, shall be allocated as follows:
(a) to the Shareholder Loan an amount equal to the principal
amount outstanding on the Closing Date, together with accrued
and unpaid interest thereon, if any, up to and including the
Closing Date;
(b) then to the Purchased Shares as follows:
Class of Share Purchase Price
-------------- --------------
Class B Preferred $185.53 per share
Common as to the balance, if any
The parties covenant and agree to do all things necessary and desirable
and to file all Tax Returns in a manner consistent with the foregoing
allocation of the Purchase Price. Any change in the Purchase Price
shall be allocated first to the Common shares, secondly to the Class B
Preferred shares and lastly to the Shareholder's Loan.
2.6 Additional Agreement Re: Billing and Collection
The Purchaser agrees that it will not cause ESE to change the
billing/collecting methodology employed by ESE as at the Closing Date
at any time prior to the date, which is sixty (60) days after the
Closing, without the Vendors' prior written consent, which shall not be
unreasonably withheld.
2.7 Filing of S(B)2
The Vendors acknowledge that the Purchaser's Shares shall be subject to
a statutory restriction on trading at the time of their issuance. The
Purchaser agrees to use reasonable best efforts, including engaging
such accountants or legal counsel, paying such fees, or such other
steps which may be reasonably required to prepare and file a
registration statement in regard to the Purchaser's Shares issued to
the Vendors, by way of a Form S(B)2 or similar registration document on
or before forty-five (45) business days after the Closing Date. The
intention of the parties is that the Purchaser's Shares will be
tradable without trade restrictions within six (6) months from the
Closing Date. If the Purchaser is unable to file a Form S(B)2 as
contemplated herein, the Purchaser agrees, at its sole cost, to provide
the Vendors such legal opinions as may be reasonably required to allow
for the free and unrestricted trade of the Purchaser's Shares on a date
which is one (1) year after the Closing Date, the form of the opinion
letter is attached as Schedule 2.7.
2.8 Indemnity of Mark
The Purchaser agrees to indemnify and save harmless Mark in respect of
the guarantee and/or primary obligation owed by Mark in respect of
outstanding debt owed by the Company for the purchase of the 2002 Ford
F250 Truck and the 2001 29" Frontier Trailer owned by the Company
(copies of which are attached in Schedule 3.1(dd)), if such guarantees
or liabilities of Mark are not released after the Closing Date. The
Purchaser agrees to sign such documents of indemnity or to do such
things as may be reasonably requested by Mark to give effect or to the
evidence the terms of the indemnity contemplated in this Paragraph 2.8.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE VENDORS, THE PRINCIPALS AND CALLON
3.1 Representations and Warranties of the Vendors and/or Mueller Trust,
Jade Eagle Trust and the Principals Regarding the Business and Acquired
Corporations Mueller Trust, Jade Eagle Trust and the Principals hereby
jointly and severally represent and warrant that except as otherwise
disclosed in this Agreement or in any Schedule attached hereto and
hereby acknowledge and confirm that the Purchaser is relying on such
representations and warranties in connection with the purchase by the
Purchaser of the Purchased Shares and Shareholder's Loan:
(a) Issued Capital
The issued capital of the Acquired Corporations are as
follows:
The issued capital of PacGeo consists of only (the Purchased
Shares as defined in Section 1(nnn)):
(i) 1,000,001 Common shares without par value;
(ii) 1,000 Class B Preferred shares without par value.
The issued capital of ESE, 100% owned subsidiary of PacGeo,
consists of only:
(i) 100 Class A shares without par value;
(ii) 100 Class C shares without par value.
Any and all of such shares of the Acquired Corporations are
issued and outstanding as fully paid and non-assessable shares
in the capital of the Acquired Corporations, as applicable, as
of the date hereof. The Purchased Shares represent all of the
issued and outstanding shares in the capital of PacGeo and the
Purchased Shares are owned, beneficially and of record, by the
Vendors and Principals, in those numbers set forth in
Subsection 1.1(nnn). All outstanding shares in the capital of
the Acquired Corporations have been issued and granted in
compliance with (i) all applicable securities laws and other
applicable Legal Requirements; and (ii) all requirements set
forth in applicable Contracts.
(b) Unissued Shares
There are no subscriptions, options, calls, warrants, equity
securities, partnership interests or any other interests,
rights (including pre-emptive rights), commitments or
agreements of any character (whether or not currently
exercisable) to which the Acquired Corporations are a party or
are bound, obligating either of the Acquired Corporations to
issue, deliver or sell, or cause to be issued, delivered or
sold, or repurchased, redeemed or otherwise acquired, or cause
the repurchase, redemption or acquisition of, any shares in
their capital, partnership interests or similar ownership
interests of the Acquired Corporations or obligating either of
the Acquired Corporations to grant, extend, accelerate the
vesting of or enter into any such subscription, option,
warrant, equity security, call, right, commitment or agreement
and no condition or circumstance that may give rise to or
provide a basis for the assertion of a claim by any Person to
the effect that such Person is entitled to acquire or receive
any shares in the issued or unissued capital of either of the
Acquired Corporations or any other securities of either of the
Acquired Corporations. No Person has any agreement or option
or any right capable of becoming an agreement for the
purchase, subscription or issuance of any of the unissued
securities in the capital of either of the Acquired
Corporations.
(c) Organization; Good Standing
Each of the Acquired Corporations is a corporation duly
organized, validly existing and in good standing under its
laws of incorporation, has all requisite corporate power and
authority and has all requisite Government Authorizations to
own, lease and operate its properties and the properties it
purports to own and to carry on the Business as is now being
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conducted, to perform its obligations under all agreements or
contracts by which it is bound and is duly qualified or
licensed and is in good standing to do business in each
jurisdiction listed on Schedule 3.1(c), which jurisdictions
represent every jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes
such qualification necessary.
PacGeo does not currently carry on nor was it ever engaged in
any active business other than holding the shares of ESE for
investment purposes.
(d) No Unanimous Shareholders Agreement
None of the Vendors and Principals, as the sole shareholders
of the Purchased Shares, is a party to any shareholder
agreement governing the manner of their ownership of any of
the Purchased Shares.
(e) Subsidiaries
Except ESE as a Subsidiary of PacGeo, neither of the Acquired
Corporations has any Subsidiaries, own any shares of any other
corporation partnership, joint venture business association or
unincorporated entity or any rights, options, warrants or
other securities of any other exchangeable or exercisable for
any equity or similar interest in any other entity, or have
any agreement, lease, binding understanding, instrument, note,
option, license, sublicense, insurance policy benefit plan,
commitment or undertaking of any nature for the purchase,
subscription or issuance of any of the unissued shares or
securities in the capital for any other entity or for any
other future investment in or capital contribution to any
other entity.
(f) Minute Books Complete
The minute books of each of the Acquired Corporations contain
complete copies of their respective Charter Documents. Neither
of the Acquired Corporations is in violation of any of the
provisions of its respective Charter Documents. There are no
outstanding applications or filings which would alter in any
way the Charter Documents or corporate status of either of the
Acquired Corporations. No resolutions or by-laws have been
passed, enacted, consented to or adopted by the directors or
shareholders of either of the Acquired Corporations, except
those contained in the said minute books. The Mueller Trust,
Jade Eagle Trust and Principals have furnished to the
Purchaser a complete and correct copy of the Charter Documents
of each of the Acquired Corporations.
(g) No Conflict; Required Filings and Consents
The execution and delivery of this Agreement by each of the
Vendors and Principals does not, and the performance by each
of the Vendors and Principals of the transactions contemplated
hereby will not, subject to obtaining the consents, approvals,
authorizations, and permits and making the filings described
in Schedule3.1(g):
(i) violate, conflict with, or result in any breach of
any provision of either of the Acquired Corporations'
Charter Documents;
(ii) violate, conflict with, or result in a violation or
breach of, or constitute a default (with or without
due notice or lapse of time or both) under, or permit
the termination of, or result in the acceleration of
or alter rights or obligations of either of the
Acquired Corporations or third parties, or entitle
any party to accelerate (whether as a result of a
change of control of the Acquired Corporations or
otherwise) any obligation, or result in a loss of any
benefit, or give any Person the right to require any
security to be repurchased, or give rise to the
creation of any Lien upon any of the assets of either
of the Acquired Corporations under any of the terms,
conditions, or provisions of any loan or credit
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agreement, note, bond, mortgage, indenture or deed of
trust, or any license, lease, agreement or other
instrument or obligation to which any of the Vendors
and Principals or either of the Acquired Corporations
is a party or by which or to which either of the
Acquired Corporations or any of the assets of either
of the Acquired Corporations may be bound or subject;
(iii) violate any order, writ, judgment, injunction,
decree, statute, law, rule or regulation, of any
Governmental Entity applicable to either of the
Acquired Corporations or any of the Vendors or
Principals or by which or to which either of the
Acquired Corporations or any of the assets of either
of the Acquired Corporations are bound or subject; or
(iv) invalidate or adversely affect any Permit used in the
conduct of the Business. No consent of, or
registration, declaration or filing with any
Governmental Entity nor any Governmental
Authorization is required by or with respect to any
of the Vendors and Principals or either of the
Acquired Corporations in connection with the
execution and delivery of this Agreement by the
Vendors and Principals or the consummation of the
transactions contemplated hereby.
(h) No Bankruptcy/Insolvency
Neither of the Acquired Corporations is insolvent, has
committed an act of bankruptcy, has proposed a compromise or
arrangement to its creditors generally, has had any petition
for a receiving order in bankruptcy filed against it, has
taken any proceeding with respect to a compromise or
arrangement, has taken any proceeding to have itself declared
bankrupt or wound-up, has taken any proceeding to have a
receiver appointed of any part of its assets, has had any
encumbrance take possession of any of its property, nor has it
had any execution or distress become enforceable or become
levied upon any of its property.
(i) Books and Records Complete
The books of account and financial records of each of the
Acquired Corporations have been kept in accordance with
applicable law on a consistent basis and fairly and correctly
set out and disclose in all material respects the current
financial position of each of the Acquired Corporations. All
transactions involving either of the Acquired Corporations
have been accurately recorded in such books and records. The
Mueller Trust, Jade Eagle Trust and Principals have provided
full access to such books and records to the Purchaser. All
vacation pay, bonuses, commissions and other emoluments
relating to each of the employees of ESE have been accrued to
date in such books.
(j) Financial Statements
(i) The Mueller Trust and Jade Eagle Trust have delivered
to the Purchaser copies of the Financial Statements.
The Financial Statements, including the notes
thereto, if any, were (i) prepared in accordance with
GAAP applied on a consistent basis throughout the
periods covered thereby (except to the extent
disclosed in the Schedule 2.4 or required by changes
in GAAP); (ii) fairly, fully and correctly present
the assets, liabilities and financial position of
each of the Acquired Corporations, as applicable, at
the dates thereof and the results of operations of
each of the Acquired Corporations, as applicable for
the respective periods indicated; (iii) are in
accordance with the books and records of each of the
Acquired Corporations; (iv) contain and reflect all
necessary adjustments for a fair presentation of the
results of operations and cash flows and the
financial condition of the Business for the periods
covered thereby; and (v) contain and reflect adequate
provision or allowance for all reasonably anticipated
liabilities, expenses and losses.
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(ii) The Mueller Trust, the Jade Eagle Trust and
Principals shall deliver to the Purchaser the Audited
Financial Statements. The Audited Financial
Statements, including the notes thereto, shall be (i)
prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered
thereby (except for the audit opinion qualification
described in Schedule 2.4 or required by changes in
GAAP); (ii) fairly, fully and correctly present the
assets, liabilities and financial position of each of
the Acquired Corporations, as applicable, at the
dates thereof and the results of operations of each
of the Acquired Corporations, as applicable for the
respective periods indicated; (iii) are in accordance
with the books and records of each of the Acquired
Corporations; (iv) contain and reflect all necessary
adjustments for a fair presentation of the results of
operations and cash flows and the financial condition
of the Business for the periods covered thereby; and
(v) contain and reflect adequate provision or
allowance for all reasonably anticipated liabilities,
expenses and losses.
(iii) There is no liability or obligation of any kind,
whether accrued, absolute, fixed, contingent or
otherwise, of either of the Acquired Corporations
that is not reflected or reserved in the applicable
Financial Statements other than (i) liabilities
incurred in the Ordinary Course of Business in a
manner consistent with past practices since the
Balance Sheet Date, or (ii) any such liability or
obligation which would not have a Material Adverse
Effect.
(k) Taxation
(i) Each of the Acquired Corporations has timely filed
all Tax Returns required to be filed by each of the
Acquired Corporations and such Tax Returns are true
and correct and have been completed in accordance
with applicable law.
(ii) Each of the Acquired Corporations has (i) paid within
the time required by law, or accrued on the Financial
Statements all Taxes whether asserted or unasserted,
contingent or otherwise, they were required to pay or
accrue; and (ii) have withheld from each payment made
to each of their past or present employees, officers,
directors and independent contractors, creditors,
shareholders, non-residents or other third parties
all Taxes and other material deductions required to
be withheld and have, within the time required by
law, paid such withheld amounts to the proper
authority.
(iii) Neither of the Acquired Corporations has been
delinquent in the payment of any Tax nor is there any
Tax deficiency outstanding, proposed or assessed
against either of the Acquired Corporations nor have
either of the Acquired Corporations executed any
waiver of any statute of limitations on or extensions
of the period for the assessment or collection of any
Tax. There are no matters relating to Taxes under
discussion between any taxing authority and either of
the Acquired Corporations.
(iv) No audit or other examination of any Tax Return of
either of the Acquired Corporations is currently in
progress, nor has either of the Acquired Corporations
been notified of any request for such an audit or
other examination nor has any taxing authority
requested any information that could affect the Tax
payable or paid by either of the Acquired
Corporations, nor is any taxing authority asserting
or to the Mueller Trust, Jade Eagle Trust and
Principals' Knowledge without any enquiries
threatening to assert against either of the Acquired
Corporations any claim for Taxes.
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(v) No adjustment relating to any Tax Returns filed by
either of the Acquired Corporations has been proposed
in writing, formally or informally, by any Tax
authority to either of the Acquired Corporations or
any representative thereof.
(vi) There are (and as of immediately following the
Closing Date there will be) no Liens of any sort on
the assets of either of the Acquired Corporations
relating to or attributable to Taxes nor has either
of the Acquired Corporations granted any waiver of
any statute of limitations with respect to, or any
extension of a period for the assessment of, any tax.
(vii) Neither of the Acquired Corporations is a party to a
tax sharing, tax indemnity or tax allocation
agreement and neither of the Acquired Corporations is
liable for the Taxes of any other Person, whether as
a transferee or successor or by contract or
otherwise, nor do any of the Vendors owe any amount
under any such agreement.
(viii) The Acquired Corporations tax basis in their assets,
the class in which such asset is included for tax
purposes, its loss carry forwards and investment tax
credits are accurately reflected on the tax books,
records and Tax Returns of each of the applicable
Acquired Corporations.
(ix) No circumstances exist which would make either of the
Acquired Corporations subject to the application of
any of sections 79 to 80.04 of the Tax Act in a
manner that would result in a material liability to
either of the Acquired Corporations.
(x) Neither of the Acquired Corporations has acquired
property or services from or disposed of property or
provided services to, a Person with whom it does not
deal at arm's length (within the meaning of the Tax
Act) for an amount that is other than the fair market
value of such property or services, or has been
deemed to have done so for purposes of the Tax Act.
(xi) Neither of the Acquired Corporations has deducted any
amounts in computing its income in a taxation year
which may be included in a subsequent taxation year
under section 78 of the Tax Act.
(xii) All money borrowed by either of the Acquired
Corporations was, at the time it was borrowed and
throughout the period of the borrowing, used for a
purpose which will result in any interest expense
incurred by such Acquired Corporation in connection
with such borrowing being deductible in accordance
with section 20(1)(c) of the Tax Act and the
equivalent provisions of any applicable provincial
taxing legislation.
(xiii) Each of the Acquired Corporations is registered under
Part IX of the ETA and their registration numbers are
869824912-RT-0001 as to ESE and 869723965-RT-0001as
to PacGeo;
(xiv) Each of the Acquired Corporations has duly and on a
timely basis filed all GST returns under Part IX of
the ETA that were required to be filed on or prior to
the date hereof and has remitted to the Receiver
General for Canada, the net tax, as defined for
purposes of the GST, for each of its completed
reporting periods, for GST purposes.
(l) No Material Adverse Change
Except as set out in Schedule 3.1(l) since December 31, 2003:
(i) there has not been any change in the business,
condition, capitalization, assets, liabilities,
operations, financial performance or prospects of
either of the Acquired Corporations, and no event has
occurred that has had or would reasonably be expected
to have a Material Adverse Effect on either of the
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Acquired Corporations, provided that the completion
of the transactions contemplated herein will result
in a default of the terms of the Bank Debt; and
(ii) there has not been any loss, damage or destruction
to, or any material interruption in the use of, any
of the assets either of the Acquired Corporations
(whether or not covered by insurance) that has had or
would reasonably be expected to have a Material
Adverse Effect on either of the Acquired
Corporations.
(m) Ordinary Course of Business
Since incorporation, the Acquired Corporations have carried on
the Business in the ordinary course. Schedule 3.1(m) hereof
sets forth the management, senior employee, senior executive
and/or director compensation (including base salary, bonuses,
capital charges, management fees paid to any Person not
dealing at arm's length with the recipient of such money) for
or in respect of the fiscal year ending December 31, 2005 or
accrued to the date hereof, whether or not paid in the
relevant fiscal period or paid before or after such period.
Without limiting the generality of the foregoing, since
December 31, 2005, except as otherwise also disclosed in
Schedule 3.1(m), neither of the Acquired Corporations have:
(i) failed to pay, satisfy and discharge its obligations
and liabilities in the Ordinary Course of Business;
(ii) disposed of any of its inventories, other than in the
Ordinary Course of Business;
(iii) sold or transferred any tangible assets or cancelled
or released any debts or claims, except in each case,
in the Ordinary Course of Business or not exceeding
one thousand Canadian dollars (CDN$$1,000) in any
single transaction or five thousand Canadian dollars
(CDN$5,000) in the aggregate;
(iv) sold, leased, mortgaged, pledged or otherwise
encumbered or disposed of any of its tangible or
intangible assets or properties or relating to the
Business, except in the Ordinary Course of Business;
(v) made any capital expenditures or leasehold
improvements, except in the Ordinary Course of
Business or, in any event, exceeding, in the
aggregate, five thousand Canadian dollars
(CDN$5,000), with the exception of the capital
expenditures listed on the "Capital Additions"
summary dated December 31, 2005 included in Schedule
3.1(m), and previously provided to the Purchaser;
(vi) purchased or agreed to purchase, leased or agreed to
lease, acquired or agreed to acquire any additional
assets or property, except for purchases of materials
and supplies for use in the Ordinary Course of
Business;
(vii) suffered any material damage, destruction or loss,
whether or not covered by insurance;
(viii) incurred any debt, liability or obligation
whatsoever, absolute or contingent, secured or
unsecured, other than current liabilities in the
Ordinary Course of Business, nor entered into any
transaction or into any contract or agreement
whatsoever, other than in the Ordinary Course of
Business;
(ix) assured, guaranteed or otherwise become liable for
the obligations of any other Person;
(x) authorized, declared or paid any unusual management
fees, fringe benefits or bonuses, dividends or other
distributions on any of the shares except in the
Ordinary Course of Business;
(xi) changed, altered or amended the accounting methods,
practices or principles or re-valued or written down
any of its assets, including without limitation, the
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value of capitalized Intellectual Property or
inventory, and notes or accounts receivable except in
the ordinary course of business; or
(xii) agreed or committed to take any of the actions
referred to above.
(n) Material Contracts
Other than as disclosed in Schedule 3.1(n), neither of the
Acquired Corporations is a party to, nor bound by, or entitled
to rights or bound by obligations under any Contract:
(i) relating to the employment of, or the performance of
services by, any employee or consultant; (ii)
pursuant to which either of the Acquired Corporations
is or may become obligated to make any severance,
termination or similar payment to any current or
former employee or director; or (iii) pursuant to
which either of the Acquired Corporations is or may
become obligated to make any bonus or similar payment
(other than payments in respect of salary) in excess
of one thousand Canadian dollars (CDN$1,000) to any
current or former employee or director;
(ii) with any customer;
(iii) which provides for indemnification of any officer,
director, employee or agent;
(iv) imposing any restriction on the right or ability of
either of the Acquired Corporations (i) to compete
with any other Person; (ii) to acquire any product or
other asset or any services from any other Person;
(iii) to solicit, hire or retain any Person as an
employee, consultant or independent contractor; (iv)
to develop, sell, supply, distribute, offer, support
or service any product or any technology or other
asset to or for any other Person;
(v) to perform services for any other Person; or (vi) to
transact business or deal in any other manner with
any other Person; (v) (i) relating to the
acquisition, issuance, voting, registration, sale or
transfer of any securities; (ii) providing any Person
with any pre-emptive right, right of participation,
right of maintenance or any similar right with
respect to any securities; or (iii) providing either
of the Acquired Corporations with any right of first
refusal with respect to, or right to purchase or
otherwise acquire, any securities;
(vi) incorporating or relating to any guarantee, warranty,
indemnity or similar obligation;
(vii) relating to any currency hedging,
(viii) imposing any confidentiality obligation on either of
the Acquired Corporations;
(ix) (i) to which any Governmental Entity is a party or
under which any Governmental Entity has any rights or
obligations; or (ii) directly or indirectly
benefiting any Governmental Entity (including any
subcontract or other between either of the Acquired
Corporations and any contractor or subcontractor to
any Governmental Entity);
(x) requiring that either of the Acquired Corporations
give any notice or provide any information to any
Person prior to considering or accepting any
proposal, or prior to entering into any discussions,
agreement, arrangement or understanding relating to,
any transaction for the sale of any securities in the
capital of either of the Acquired Corporations;
(xi) that has a term of more than sixty (60) days and that
may not be terminated by either of the Acquired
Corporations (without penalty) within sixty (60) days
after the delivery of a termination notice by the
applicable Acquired Corporation, excluding employment
contracts with full-time employees of ESE;
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(xii) that contemplates or involves the payment or delivery
of cash or other consideration in an amount or having
a value in excess of one thousand Canadian dollars
(CDN$1,000) in the aggregate, or contemplates or
involves the performance of services having a value
in excess of one thousand Canadian dollars
(CDN$1,000) in the aggregate, excluding employment
contracts with full-time employees of ESE; or
(xiii) not otherwise identified in clauses "(I)" through
"(xii)" above that could reasonably be expected to
have a (i) material effect on the Business,
condition, capitalization, assets, liabilities,
operations, financial performance or prospects of
either of the Acquired Corporations or to any of the
transactions contemplated by this Agreement; or (ii)
Material Adverse Effect on either of the Acquired
Corporations, taken as a whole.
(collectively, the "Material Contracts").
(o) Compliance with Material Contracts
Neither of the Acquired Corporations is in default in any
respect of any obligation under any Material Contract to which
it is a party or by which it is bound. To the Knowledge of the
Mueller Trust, Jade Eagle Trust and Principals there exists no
state of facts, conditions, events or circumstances which,
after notice or lapse of time or both, would constitute a
default in any material respect of any obligation under any
Material Contract by the Acquired Corporations or, to the
Mueller Trust, Jade Eagle Trust and Principals' Knowledge, by
any other party thereto, and each Material Contract is in good
standing and in full force and effect and ESE is entitled to
all its benefits thereunder. Except as disclosed in Schedule
3.1(o) herein, the execution of this Agreement and the
consummation of the transactions herein contemplated will not,
in any material way, affect the validity, enforceability or
continuity of any Material Contract, require the obtaining of
any consent or approval in order to remain in good standing or
result in an increase or decrease in any amounts payable
thereunder. Neither of the Acquired Corporations has made any
assignment or sub-lease of any of its rights under any of the
Material Contracts. True and complete copies of all written
Material Contracts are listed in Schedule 3.1(n) hereto and an
accurate summary description of all the material terms of all
oral Material Contracts listed therein have been provided to
the Purchaser. Except as disclosed in Schedule 3.1(n) hereto,
none of the written Material Contracts have been amended or
modified except pursuant to a written document, complete and
accurate copies of which have been delivered to the Purchaser.
Each of the Material Contracts is a legal, valid and binding
obligation of the applicable Acquired Corporation, enforceable
against it in accordance with its terms and is enforceable
except as the enforceability thereof may be limited by
bankruptcy, insolvency, reorganization and other laws
affecting creditors rights and by general principles of
equity.
(p) Regulatory Compliance
(i) Neither of the Acquired Corporations is in conflict
with, or in default or violation of, (i) any law,
rule, regulation, order, judgment or decree
applicable to the Acquired Corporations or by which
their respective properties are bound or affected; or
(ii) any Contract, Governmental Authorization or
other instrument or obligation to which any of the
Acquired Corporations is a party or by which either
of the Acquired Corporations or their respective
properties are bound or affected. No investigation or
review by any Governmental Entity is pending or, to
the Mueller Trust, Jade Eagle Trust and Principals'
Knowledge, without making any investigation or
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enquiry, threatened against either of the Acquired
Corporations, nor has any Governmental Entity given
to either of the Acquired Corporations written notice
of its intention to conduct the same.
(ii) The Acquired Corporations are, and have at all times
since incorporation been, in compliance with all
applicable Legal Requirements. Neither of the
Acquired Corporations have received any notice or
other communication from any Governmental Entity or
other Person regarding any actual or possible
violation of, or failure to comply with, any Legal
Requirement.
(iii) In attempting to secure or securing any Material
Contract the Acquired Corporations have not, nor to
the Mueller Trust, Jade Eagle Trust and Principals'
Knowledge, have any director, officer, shareholder,
agent or employee of the Acquired Corporations (i)
used any funds for unlawful contributions, gifts,
entertainment or other unlawful expenses relating to
political activity; (ii) made any unlawful payment
(whether money or property) to foreign or domestic
government officials or employees or to foreign or
domestic political parties or campaigns; (iii) made
any other unlawful payment (whether money or
property); or (iv) committed any other offence.
(iv) The Acquired Corporations hold all Governmental
Authorizations necessary to enable ESE to conduct the
Business in the manner in which such business is
currently being conducted. All such Governmental
Authorizations are valid, in full force and effect
and have been provided to the Purchaser. Each of the
Acquired Corporations (as applicable) is, and at all
times, has been, in material compliance with the
terms and requirements of such Governmental
Authorizations. Neither of the Acquired Corporations
has received any notice or other communication from
any Governmental Entity regarding (i) any actual or
possible violation of or failure to comply with any
term or requirement of any material Governmental
Authorization; or (ii) any actual or possible
revocation, withdrawal, suspension, cancellation,
termination or modification of any material
Governmental Authorization.
(v) Schedule 3.1(p)((v) describes the terms of each
grant, incentive or subsidy provided or made
available to or for the benefit of either of the
Acquired Corporations, and in connection with which
the Purchaser has received correct and complete
copies of all related documents, and each of the
Acquired Corporations is in full compliance with all
of the terms and requirements of each such grant,
incentive and subsidy. Neither the execution,
delivery or performance of this Agreement, nor the
consummation of the transactions contemplated hereby
will, with or without notice or lapse of time, give
any Person the right to revoke, withdraw, suspend,
cancel, terminate or modify any such grant, incentive
or subsidy.
(q) Related Party Transactions
Since December 31, 2005, no payments has been made or
authorized by either of the Acquired Corporations to, and
neither of the Acquired Corporations has entered into any
transaction with, its officers, directors, shareholders or
employees or any of the Affiliates of such persons except to
employees in the Ordinary Course of Business and at the rates
of salary or remuneration, including bonuses payable to such
persons in accordance with past practices, consistently
applied.
(r) Related Party Indebtedness
Except as set forth in Schedule 3.1(r) herein, neither of the
Acquired Corporations is indebted to any of their employees,
officers, directors or shareholders in any manner whatsoever
or to any of such Person's or either of the Acquired
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Corporations' Affiliates, including, without limitation, any
of the Vendors and Principals and in connection therewith the
Purchaser has received correct and complete copies of all
related documentation.
(s) No Guarantees
Except as set forth in Schedule 3.1(r) herein neither of the
Acquired Corporations has guaranteed or otherwise given
security for or agreed to guarantee or give security for any
liability, debt or obligation of any other Person and correct
and complete copies of any such guarantees have been provided
to the Purchaser, as applicable.
(t) Dividends
No dividends or other distributions (in cash or other
property) on any of the shares of either of the Acquired
Corporations has been authorized, declared or paid since
December 31, 2005.
(u) Title of Assets
Except as set forth in Financial Statements (which includes
the Permitted Liabilities) and except as disclosed in Schedule
3.1(u), the Acquired Corporations are the owners of all the
property and assets shown in the Financial Statements or used
by ESE in connection with the Business (excluding property and
assets leased to or licensed by ESE and disclosed) with good
and marketable title thereto free of any Lien, claim, security
interest or encumbrance of any nature or kind and of any
rights or privileges capable of becoming Liens, claims,
security interests or encumbrances except those which will be
released and discharged in full prior to or at the Time of
Closing, including the current Bank Debt to be discharged by
the Purchaser at the Time of Closing. Without limiting the
generality of the foregoing, none of the Vendors and
Principals, any of their Affiliates, the Acquired
Corporations' consultants or clients, nor any employees of
either of the Acquired Corporations own or possess any of the
assets (including, without limitation, any intellectual
property) used by the Acquired Corporations in the Business.
(v) Condition and Sufficiency of Assets
Except as set out in Schedule 3.1(v) and having regard to
their age and the use to which they have been put, all
facilities, machinery, equipment and vehicles owned or used by
either of the Acquired Corporations, as applicable, in
connection with the Business are in good operating condition
and in a state of good repair and maintenance, reasonable wear
and tear excepted.
(w) No Broker
There is no broker, finder or other person who has any valid
claim against the Purchaser or either of the Acquired
Corporations, for a commission, finder's fee or brokerage fee
in connection with this Agreement or the consummation of the
transactions contemplated hereby, by virtue of any action
taken by the Vendors and Principals or either of the Acquired
Corporations except commission payable by the Vendors and
Principals to NAI Goddard & Smith.
(x) Accounts Receivable
All Accounts Receivable have been bona fide created in the
Ordinary Course of Business and the provision for doubtful
accounts established in connection therewith are reasonable.
The Accounts Receivable of ESE are free of all claims, Liens,
security interests, encumbrances and rights of set off
whatsoever, other than security granted in connection with the
Bank Debt.
(y) Intellectual Property
(i) PacGeo does not and never did own any Intellectual
Property.
(ii) ESE is the sole owner of all right, title and
interest in and are entitled to use, without payment
of any royalty or other fee, all Intellectual
Property now used in the course of carrying on the
Business. All registered Intellectual Property held
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by ESE is valid and subsisting. Schedule 3.1(y)
annexed hereto contains a complete and accurate list
of all Intellectual Property, together with full
registration and other particulars thereof, including
any fees payable in connection therewith. To the best
of the Knowledge of the Mueller Trust, Jade Eagle
Trust and Principals, the Intellectual Property used
in conjunction with the Business has not been and is
not at present being used by any other Person. To the
best of the Knowledge of the Mueller Trust, Jade
Eagle Trust and Principals, the right of ESE to use
the Intellectual Property used by them in connection
with the Business has never been called into question
or challenged and to the best of the Knowledge,
without any enquiry or investigation made by them, of
the Mueller Trust, Jade Eagle Trust and Principals,
ESE is not infringing upon any industrial or
intellectual property rights of any other person,
firm or corporation. To the best of the Knowledge of
the Mueller Trust, Jade Eagle Trust and Principals,
ESE, the Mueller Trust, Jade Eagle Trust or
Principals have not received any notice (written or
oral) that, and is not otherwise aware that, any
person, firm or corporation claims that the conduct
of the Business infringes upon the Intellectual
Property rights of any person, firm or corporation.
ESE have not granted any right, title or interest in
and to the Intellectual Property used by them in
connection with the Business to any other firm,
person or corporation.
(z) Computer Systems
The computer systems of ESE, including but not limited to,
mini-computers, personal computers and special purpose systems
are fully operational and have all required licences.
(aa) Real Property
(i) PacGeo is not and has never been a party to any Real
Property Leases.
(ii) PacGeo is not the registered or beneficial owner of
any real property.
(iii) The Real Property is the only real property occupied
by ESE which is necessary to conduct the Business as
carried out on the date hereof.
(iv) ESE is not the registered or beneficial owner of any
real property.
The Real Property Lease is the only agreement under
which the ESE leases any real property. Copies of
such lease in its entirety have been provided to the
Purchaser. The Real Property Lease is in full force
and effect and, save as disclosed in Schedule
3.1(aa), is unmodified. ESE is entitled to all rights
and benefits as lessee under the Real Property Lease
and, other than in respect of the Sublease, have not
sublet, assigned, licensed or otherwise conveyed any
rights in the Leased Premises or the Real Property
Lease to any other person. All rental and other
payments and other obligations required to be paid
and performed by ESE pursuant to the Real Property
Lease have been duly paid and performed; ESE is not
in material default of any of its obligations under
the Real Property Lease; and, except as set forth in
Schedule 3.1(aa), to the Knowledge of the Mueller
Trust, Jade Eagle Trust and Principals, without
making any investigation or enquiry, the landlord or
other parties to the Real Property Lease are not in
default of any of their obligations under the Real
Property Lease. The Mueller Trust, Jade Eagle Trust
and Principals have obtained, or will have obtained
prior to the Closing Date, written consents from the
lessors to the completion of the transaction
contemplated by this Agreement which also confirm
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that there are no outstanding defaults under the Real
Property Lease. Copies of the consents are attached
in Schedule 3.1(aa). Subject to obtaining such
consents, the terms and conditions of the Real
Property Lease will not be affected by, nor will any
of the Real Property Leases be in default as a result
of, the completion of the transactions contemplated
hereunder.
To the best of the Mueller Trust, Jade Eagle Trust
and Principals' Knowledge, without any enquiry or
investigation made by them, the title of the
respective landlords to the Leased Real Property is
not subject to any registered or unregistered Liens
that could adversely impact the marketability of the
Real Property Leases. If title to the Leased Real
Property is subject to any mortgages with priority
over the Real Property Leases, the Mueller Trust,
Jade Eagle Trust and Principals covenant that they
will request the landlord provide to the Acquired
Corporations prior to the Closing Date, if requested
by the Purchaser, a non-disturbance agreement from
all mortgagees, provided that the inability of the
Acquired Corporations to obtain such non-disturbance
agreements shall not result in any rights to the
Purchaser or liabilities or obligations to the
Vendors or the Principals.
(v) The Business is not being carried on, and the Real
Property is not being operated, in a manner which is
in contravention of any statute, regulation, rule,
code, standard or policy except for such
contraventions which would not, or could not, have a
material adverse effect on the condition of the
Business. No amounts are owing by ESE or any
Affiliate thereof in respect of the Leased Premises
to any governmental authority or public utility,
other than current accounts which are not in arrears.
The Business is not being carried on in the Leased
Premises contrary to the terms of the Real Property
Leases.
(vi) The Leased Real Property, is currently zoned in a
manner which permits its present use and occupation
and to the knowledge of the Vendors and the
Principals, without having made any investigation or
enquiry, such use and occupation are not in breach of
any statute, by-law, regulation, ordinance, order,
covenant, restriction or plan (including, without
limitation, those relating to environmental
protection). No charges or violations have been
filed, served, made or to the Vendors' and
Principals' Knowledge, without any enquiry or
investigation made by them, threatened against or
relating to the Leased Real Property as a result of
any violation or alleged violation of any of the
aforesaid. There are no outstanding work orders or
other requirements or notices relating to the
Business, to the Mueller Trust, Jade Eagle Trust and
Principals' Knowledge, without having made any
investigation or enquiry, any of the Leased Real
Property issued by any police or fire department,
sanitation, health or factory authorities,
departments or by any federal, provincial or
municipal or other governmental authority, agency,
department or board or any board of fire underwriters
or any insurer or any notices or matters under
discussion with any such departments or authorities
relating to work orders or other requirements or
notices. There are no matters under discussion by any
of the Mueller Trust, Jade Eagle Trust and Principals
or ESE with any such department or authority relating
to work orders, non-compliance orders, deficiency
notices or other such notices. There are no pending
or to the Mueller Trust, Jade Eagle Trust and
Principals' Knowledge, without any enquiry or
investigation made by them, threatened requests,
applications or proceedings to alter or restrict the
zoning or other restrictions applicable to the said
property or changes or events which might curtail or
interfere with the current use of any of the said
properties.
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(vii) To the Mueller Trust, Jade Eagle Trust and
Principals' Knowledge, without any enquiry or
investigation made by them, with respect to the
Leased Real Property, except as set forth in Schedule
3.1(aa) hereto:
(A) the structures, appurtenances, fixtures and
improvements on the said properties do not
encroach on property of others, and are not
encroached upon by structures or
improvements of others;
(B) ESE has full, uninterrupted and unencumbered
rights of ingress to and egress from each of
the said properties, to and from the public
roads abutting or adjacent to each of the
said properties for all pedestrians and
vehicles utilizing each of the said
properties adequate to operate the Business
in the ordinary course;
(C) there are no structural defects or
weaknesses in the buildings and improvements
on any of the said properties including,
without limitation, in any of the structural
elements thereof, in any roofing or roof
membrane or in any of the mechanical,
electrical or HVAC or sprinkler systems
therein;
(D) no Hazardous Substances including, without
limitation, any asbestos, PCB's and urea
formaldehyde foam insulation, is or has been
located, stored, or incorporated in or on
any of the said properties or any properties
adjacent thereto and, without qualification,
ESE has complied with all federal,
provincial and local statutes, laws,
ordinances, regulations and orders relating
to environmental matters including, but not
limited to, matters related to air
pollution, water pollution, noise control,
on-site or off-suite Hazardous Substance
handling, discharge, disposal or recovery,
Hazardous Substances (whether products or
waste), including without limitation,
asbestos, urea formaldehyde foam insulation
and PCB's;
(E) the buildings and all other improvements,
fixtures and structures located on each of
the properties (including all walls, roofs,
floors, sub-floors, foundations, partitions
and ceilings) and the pavement, sidewalks,
driveways and parking areas situate upon
each of the said properties are in good
working order and sound condition and in a
good state of repair and maintenance
reasonable wear and tear excepted given the
age and use of the Leased Real Property and
free from all structural defects, weaknesses
and leakages;
(F) the heating, ventilating, plumbing,
drainage, electrical and air conditioning
systems and all other systems used in the
Leased Premises and all machinery,
equipment, tools, furniture, furnishings and
materials used in the Business are in good
working order, fully operational and free of
any defect, except for normal wear and tear.
(G) all hydro, water, sewer, gas, electric,
telephone, drainage and other utility
equipment, facilities and services and all
mechanical systems (as aforesaid), in each
case as required by law and/or necessary for
the proper operation of the said properties
as they are now being operated, are
installed and connected pursuant to valid
permits, and are adequate to service the
said properties and the cost thereof is not
chargeable against any of the said
properties by way of local improvement
charges;
(H) all buildings, fixtures, structures and
other improvements upon each of the said
properties and the purposes for which each
of the said properties is currently used by
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ESE comply in all respects with all relevant
governmental laws, by-laws, ordinances,
requirements, rules and regulations
(including municipal and provincial fire
regulations and pollution control
regulations) except for any failure to
comply which currently does not and cannot
in the future result in a material cost or
material damages to ESE or any of them;
(I) ESE nor any of the Mueller Trust, Jade Eagle
Trust and Principals nor anyone on their
behalf has received any notice from any
insurance carrier of defects or inadequacies
in the said properties which, if not
corrected, could result in termination of
insurance coverage or an increase in the
cost thereof, and there are no such defects
or inadequacies;
(J) ESE nor any of the Mueller Trust, Jade Eagle
Trust and Principals nor anyone on their
behalf has received any notice with respect
to any by-law change affecting any of the
said properties nor any notice relating to
any threatened or pending condemnation or
expropriation of any of the said properties
from any governmental department, branch,
agency, office or other authority, and there
are no pending or threatened requests,
applications or proceedings to alter or
restrict the zoning or other use
restrictions applicable to the said
properties or changes or events which might
curtail or interfere with the use of the
said properties; and
(K) none of the said properties, nor any lands
adjacent thereto have ever been used for the
purpose of the storage or disposal of
Hazardous Substances.
(bb) Sublease
The Sublease is the only agreement under which ESE subleases
any real property. Copies of the Sublease in its entirety have
been provided to the Purchaser. The Sublease is in full force
and effect and is unmodified. ESE is entitled to all rights
and benefits as lessor under the Sublease. All rental
obligations required to be paid and performed by the subtenant
pursuant to the Sublease have been duly paid and performed;
ESE and the subtenant are not in material default of any of
the obligations under the Sublease. The Sublease will not be
affected by, nor will any of the Sublease be in default as a
result of, the completion of the transactions contemplated
hereunder.
(cc) Personal Property Leases
(i) The Leases with the lessors listed and attached
hereto as Schedule 3.1(cc) as lessors, and PacGeo and
ESE, are the only Leases to which any of PacGeo and
ESE is a party or in respect of which it has provided
security. Copies of each such Lease is attached in
Schedule 3.1(cc) attached hereto. The Leases are in
good standing and none of PacGeo or ESE is in default
in payment of rent or any other amount payable
thereunder or in the performance in any material
respect of any of its other obligations thereunder.
The Vendors have provided to the Purchaser true and
complete copies of all such Leases, including
supplements, amendments and modifications thereof.
None of such Leases has been or is being further
modified or amended or assigned. In addition the
lessors under the Leases are not in breach, in any
material respect, of any of their obligations
thereunder. No state of facts exists which after
notice or lapse of time or both or otherwise would
result in a breach or default, in any material
respect, under any of the Leases. Neither PacGeo or
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ESE has any interest in, or any right or obligation
to acquire any interest in, any other real or leased
property. The Vendors, PacGeo and ESE, as lessee
under the Leases, have not entered into or agreed to
enter into any subleases, licences or concessions
with respect to any such Lease.
(ii) Assuming proper authorization and execution thereof
by the lessors, the Leases are valid, legally binding
and enforceable, except that the rights and remedies
of the parties thereto may be subject to and affected
by the law relating to bankruptcy, insolvency,
reorganization and creditors' rights generally and
except that a court may or may not order an
injunction, specific performance or other equitable
remedies with respect to any particular provision of
the Leases. The execution of this Agreement and the
consummation of the transactions contemplated hereby
in accordance with the terms hereof will not, in any
way, affect the validity, enforceability or
continuity of any of the Leases or require the
obtaining of any consent or approval in order to
maintain such lease in good standing.
(dd) Capital Property Purchase Agreements
(i) The Capital Property Purchase Agreement (hereinafter
referred to as "CPPA") with the sellers listed and
attached hereto as Schedule 3.1(dd), as sellers, and
PacGeo and ESE, as buyer, are the only CPPA's to
which any of PacGeo and ESE is a party or in respect
of which it has provided security. The terms of such
CPPA are detailed in Schedule 3.1(dd). The CPPA's are
in good standing and none of PacGeo or ESE is in
default in payment of rent or any other amount
payable thereunder or in the performance in any
material respect of any of its other obligations
thereunder. The Vendors have provided to the
Purchaser true and complete copies of all such
CPPA's, including supplements, amendments and
modifications thereof. None of such CPPA's has been
or is being further modified or amended or assigned.
In addition, except as set out in Schedule 3.1(dd)
hereto, the sellers under the CPPA's are not in
breach, in any material respect, of any of their
obligations thereunder. No state of facts exists
which after notice or lapse of time or both or
otherwise would result in a breach or default, in any
material respect, under any of the CPPA's. Neither
PacGeo or ESE has any interest in, or any right or
obligation to acquire any interest in, any other
CPPA's.
(ii) Assuming proper authorization and execution thereof
by the sellers, the CPPA's are valid, legally binding
and enforceable, except that the rights and remedies
of the parties thereto may be subject to and affected
by the law relating to bankruptcy, insolvency,
reorganization and creditors' rights generally and
except that a court may or may not order an
injunction, specific performance or other equitable
remedies with respect to any particular provision of
the Leases. The execution of this Agreement and the
consummation of the transactions contemplated hereby
in accordance with the terms hereof will not, in any
way, affect the validity, enforceability or
continuity of any of the CPPA's or require the
obtaining of any consent or approval in order to
maintain such lease in good standing.
(ee) Environmental
Except as set out in Schedule 3.1(ee):
(i) The assets of ESE, the Real Property and facilities,
operated, and/or leased by ESE and the operations of
ESE thereon or in connection therewith (which
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includes without limitation the Business) presently
comply with, and have at all times complied with, all
Environmental Laws.
To the Mueller Trust, Jade Eagle Trust and Principals'
Knowledge, without any enquiry or investigation made by them:
(ii) No judicial proceedings are pending or threatened
against ESE alleging the violation of any
Environmental Laws, and there are no administrative
proceedings pending or threatened against ESE,
alleging the violation of any Environmental Laws and
no notice from any Governmental Entity or any private
or public Person has been received by ESE claiming
any violation of any Environmental Laws in connection
with the assets of ESE, or any Real Property or
facility owned, operated or leased by the ESE, or
requiring any remediation, clean-up, modification,
repairs, work, construction, alterations or
installations on or in connection with the assets of
ESE, or any Real Property or facility owned, operated
or leased by ESE that are necessary to comply with
any Environmental Laws and that have not been
complied with or otherwise resolved to the
satisfaction of the party giving notice.
(iii) All Permits, orders, consents and the like required
to be obtained or filed by ESE under any
Environmental Laws in connection with ESE's
operations, including those activities relating to
the generation, use, storage, treatment, disposal,
release or remediation of Hazardous Substances, have
been duly obtained or filed and or valid and in full
force and effect, and each of ESE is and has at all
times complied in all material respects with the
terms and conditions of all such Permits. The list of
all Permits, orders, consents and the like are set
out in Schedule (ii)(ee).
(iv) All Hazardous Substances used or generated by ESE in
connection with any of their assets or which are
located on, in, or under any of the operated, or
leased Real Property or facilities of the ESE is and
have at all times been generated, stored, used,
treated, disposed of and released by such on their
behalf in such manner as not to result in any
Environmental Costs or Liabilities. A list of all
Hazardous Substances used or generated by ESE or any
of their predecessors are set out in Schedule
3.1(ee).
(v) There are not now, on, in or under any property or
facilities when owned, leased or operated by ESE, any
Hazardous Substances that are in a condition or
location that violates any Environmental Law or that
reasonably could be expected to require remediation
under any Environmental Laws or give rise to a claim
for damages or compensation by any affected Person or
to any Environmental Costs or Liabilities; and ESE
nor their predecessors has ever conducted or caused
to be conducted an environmental audit, assessment or
study of any of the assets or real properties owned,
leased or operated by ESE or their predecessors.
(vi) ESE has not received, and Mueller Trust, Jade Eagle
Trust and Principals' do not expect to receive, any
notification from any Person advising ESE that it is
a potentially responsible party under any
Environmental Laws.
(ff) Other Liabilities
Neither of the Acquired Corporations is now subject to any
liabilities or obligations, direct or indirect, absolute or,
to the Mueller Trust, Jade Eagle Trust and Principals'
Knowledge, without having made any independent investigation
or enquiry, contingent or otherwise, other than the
liabilities or obligations set forth in the Financial
Statements and those arising since December 31, 2005 in the
Ordinary Course of Business, none of which is materially
adverse and all of which in the aggregate would not have a
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Material Adverse Effect on ESE or the Business. To the Mueller
Trust, Jade Eagle Trust and Principals' Knowledge, there are
no facts or circumstances which might reasonably serve as the
basis for, or give rise to, any material liabilities or
obligations on the part of either of the Acquired
Corporations, other than liabilities or obligations disclosed
in the Financial Statements, or arising thereafter in the
Ordinary Course of Business (none of which is materially
adverse).
(gg) No Judgments; No Litigation
There are no judgments or executions outstanding against
either of the Acquired Corporations nor are there any suits,
actions or legal, administrative, arbitration or other
proceedings or governmental investigations affecting the
Business, operations, prospects, property or affairs of either
of the Acquired Corporations pending or, to the Mueller Trust,
Jade Eagle Trust and Principals' Knowledge, threatened against
either of the Acquired Corporations. None of the customer
complaints received by ESE in connection with the Business
have involved serious or significant injury or damages,
whether alleged or actual.
(hh) Employment Arrangements
(i) PacGeo has never had employees, agents or
consultants;
(ii) Schedule 3.1(hh) hereto contains a complete list of:
(A) all written or oral contracts or
arrangements for the employment of any
officer, employee, agent or consultant
including, but not limited to
confidentiality and non competition
agreements, to which ESE is a party;
(B) all full-time employees (other than
hourly-paid employees), their salaries, wage
rates and other compensation arrangements,
their positions and their length or service
and particulars of any contracts,
arrangements or understandings with them,
including any particulars relating to
relocations, repatriation, expatriation,
visas or work permits.
(iii) ESE is not a party to or otherwise bound by, any
consent decree with, or citation by, any Governmental
Entity relating to employees or employment practices,
wages, hours, and terms and conditions of employment.
(iv) ESE has withheld all amounts required by law or by
agreement to be withheld and reported with respect to
wages, salaries and other payments to employees,
current or former, is not liable for any arrears of
wages or any taxes or penalties for failure to comply
with any of the foregoing and is not liable for any
payment respecting unemployment, compensation
benefits, pension plans, workplace safety and
insurance, social security or other benefits or
obligations related to employees, except routine
payments made on the Ordinary Course of Business.
(v) ESE has paid in full to all of its employees, or
accrued in its financial books and records, all
wages, salaries, commissions, bonuses, benefits, and
other compensation due to such employees, or
otherwise arising under any policy, practice,
agreement, plan, program, statute or other law.
(vi) ESE is not liable for any notice of termination,
severance pay or other payments to any employee or
former employee arising from the termination of
employment nor to any former employee in respect of
any right to reinstatement, and ESE will not have
liability under any benefit or severance policy,
practice, agreement, plan or program which exists or
arises, or may be deemed to exist or arise, under any
applicable law or otherwise, as a result of or in
connection with the transactions contemplated
hereunder or as a result of the termination by ESE of
any persons employed by ESE on or prior to the date
hereof.
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(vii) ESE has not closed any plant or facility, effectuated
any lay-offs of employees or implemented any early
retirement program within the past five (5) years,
except in the Ordinary Course of Business, nor has
ESE planned or announced any such action or program
for the future.
(viii) ESE nor any of the Vendors has entered into any
agreement or made any arrangements with any of the
employees of ESE which would have the effect of
depriving the Purchaser or ESE of the continued
services of any such employees following the Closing
Date, other than arrangements with Mark and Lynn as
contemplated herein.
(ii) Change of Control Payments
There does not exist any plan or agreement pursuant to which
any amounts may become payable in cash or otherwise (whether
currently or in the future) to any current or former officer,
director or employee of either of the Acquired Corporations as
a result of or in connection with the transactions
contemplated herein.
(jj) Employee Benefit Matters; Labour
(i) ESE has not entered into nor offered to any of it
employees any Employee Benefit Plan;
(ii) ESE is not a party to any collective bargaining
agreement and, to the Mueller Trust, Eagle Jade Trust
and Principals' Knowledge, without any enquiry or
investigation made by them, no union organizational
campaign or representation petition is currently
pending with respect to any of the employees of ESE.
(iii) No grievance is pending or, to the Mueller Trust,
Eagle Jade Trust and Principals' Knowledge, without
any enquiry or investigation made by them,
threatened, and there are no pending or outstanding
arbitration awards in respect of ESE.
(iv) There is no labour strike or labour dispute,
slowdown, work stoppage or lockout pending or
threatened against or affecting ESE, and ESE has
never experienced any labour strike or labour
dispute, slowdown, work stoppage or lockout.
(v) ESE (i) is, and has always been, in substantial
compliance with all applicable laws and regulations
regarding labour and employment practices, including,
without limitation, terms and conditions of
employment, equal employment opportunity, employee
compensation, employee benefits, affirmative action,
wages and hours, plant closing and mass layoff,
occupational safety and health, immigration, workers'
compensation, disability, unemployment compensation,
whistleblower laws or other employment or labour
relations laws; (ii) is not engaged, nor has it,
engaged, in any unfair labour practices, and has no,
and has not had, any, unfair labour practice charges
or complaints pending or, to the Mueller Trust, Eagle
Jade Trust and Principals' Knowledge, without any
enquiry or investigation made by them, threatened
against it; (iii) has no, and has not had, any,
grievances, arbitrations, or other proceedings
arising or asserted to arise under any collective
bargaining agreement, pending or, to the Mueller
Trust, Eagle Jade Trust and Principals' Knowledge,
without any enquiry or investigation made by them,
threatened, against it; (iv) has no, and has not had,
any charges, complaints, or proceedings before any
Governmental Entity responsible for regulating labour
or employment practices, pending or threatened
against it; and (v) has not granted any increase in
severance or termination pay under any currently
effective employment, severance, termination or
indemnification agreement.
(kk) Workers' Compensation Matters
ESE has paid all assessments pursuant to worker's compensation
legislation levied by all Governmental Entities and, to the
Mueller Trust, Jade Eagle Trust and Principals' Knowledge, ESE
does not have any liability for and there is not pending any
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state of facts which may result in the levying of a special
assessment or a penalty charge of any nature with respect to
the period prior to the Time of Closing. ESE has filed on a
timely basis all payroll statements and other returns and
statements required to be filed pursuant to applicable
worker's compensation legislation. To the Mueller Trust, Eagle
Jade Trust and Principals' Knowledge, without any enquiry or
investigation made by them, ESE is not liable to indemnify any
of its employees or any governmental body in respect of
compensation and/or health-care payable to its employees
pursuant to applicable worker's compensation legislation. ESE
has notified the relevant Governmental Entities, within the
time periods specified by applicable legislation, of all
occurrences of accidents for which notification is required by
applicable legislation and has provided requisite details
thereof. The Purchaser has been provided a summary of all
outstanding claims made by employees of ESE to any applicable
workers' compensation board.
(ll) Pay Equity
ESE has complied with all of its obligations under applicable
"pay equity" legislation and is not required to and has not
filed or published any "pay equity" plans with any
governmental or regulatory authority or with its employees.
(mm) Banking
Included in Schedule 3.1(mm) is a true and complete list
showing the name and address of each financial institution in
which either of the Acquired Corporations has an account or
safety deposit box (and the details of the said accounts and
safety deposit box(es)) and the names of all persons
authorized to draw thereon or who have access thereto, and a
complete list and brief description of each power of attorney
presently in force and given by either of the Acquired
Corporations.
(nn) Insurance
(i) The Acquired Corporations maintain insurance policies
and fidelity bonds covering its assets, employees,
officers and directors, as applicable, which are of
the type and in the amounts customarily covered by
persons conducting businesses similar to the
Business.
(ii) Included in Schedule 3.1(nn) hereto is a true and
complete list setting forth all insurance policies
now in full force and effect (specifying the insurer,
the amount of the coverage, the type of insurance,
the annual premium, the amount of deductible, if any,
the policy number and any pending claims thereunder)
maintained by the Acquired Corporations on the assets
of the Acquired Corporations or in relation to the
Business and true and complete copies of the most
recent inspection reports, if any, received from
insurance underwriters as to the condition of the
assets of the Acquired Corporations. Neither the
Vendors nor either of the Acquired Corporations is in
default in any material respect under any of the
provisions contained in any insurance policy or has
failed to pay all premiums due under any such
insurance policy to date or to give any notice or
present any claim under any such insurance policy in
due and timely fashion. Since December 31, 2005,
there have been no material claims under any such
insurance policy.
(oo) Forward Commitments
All forward commitments by or to ESE for inventories, supplies
or services for use in connection with the Business (whether
or not there are any contracts in writing with respect
thereto) which are in existence as of the date of this
Agreement have been entered into by it in the Ordinary Course
of Business and upon terms and conditions consistent with
ESE's past practices.
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(pp) Customer Relations
Since December 31, 2004, there has not been any material
adverse change in relations with customer or suppliers of the
Business, except as to dealings with those Accounts Receivable
listed in Schedule 3.1(pp) attached hereto. ESE has not had a
significant problem in obtaining in a timely manner and at
reasonable cost any and all materials, goods or services (raw,
finished or otherwise) used or to be used in the Business nor
do the Vendors have any reason to believe ESE will have any
significant problem in obtaining such materials, goods or
services in the future. ESE has not received written notice of
intent to terminate any material contracts or agreements for
the purchase of the services of ESE.
(qq) No Undisclosed Facts
No representation or warranty by the Vendors contained in this
Agreement or in any exhibit, schedule, written statement,
certificate or other document delivered or to be delivered by
the Vendors pursuant to this Agreement or in connection with
the consummation of the transactions contemplated hereby
contains or will contain any untrue statement of a material
fact, or omits or will omit to state any material facts known
to the Vendors necessary, in light of the circumstances under
which it was or will be made, in order to make the statements
herein or therein not misleading.
(rr) Shareholder's Loans
The Shareholder's Loan, the details, terms and conditions of
which are described in Schedule 3.1(r), shall be free and
clear of all encumbrances, assignable in the ordinary course,
due and payable without set off. The amount of the
Shareholder's Loan shall be no less than the aggregate amount
recorded on the books of the Acquired Corporations as at
September 30, 2005, provided that the relative allocation of
the Shareholder Loans among the Principals and Callon my
change prior to the Closing Date.
3.2 Representations and Warranties of Aries and Callon Regarding Certain of
the Purchased Shares
Each of Aries and Callon hereby jointly and severally represent and
warrant that except as otherwise disclosed in this Agreement or in any
schedule attached hereto (and hereby acknowledges and confirms that the
Purchaser and are relying on such representations and warranties in
connection with the purchase by the Purchaser of the Purchased Shares
and Shareholder's Loan):
(a) Good Title
Aries is the owner, beneficially and of record, of the part of
the Purchased Shares as described in Section 1.1(nnn) and
Callon is the owner of a portion of the Shareholder's Loan as
described in Schedule 3.1(r) with good and marketable title
thereto, free of any claim, Lien, security interest or
encumbrance of any nature or kind, and as such Aries has the
exclusive right and full power to sell, transfer and assign
its part of the Purchased Shares and Callon has the exclusive
right and full power to sell, transfer and assign
Shareholder's Loan to the Purchaser free of any claim, Lien,
security interest or encumbrance of any nature or kind. In
addition, neither Aries nor Callon has any agreement or option
or any right capable of becoming an agreement for the purchase
of the part of the Purchased Shares owned by Aries and/or
Shareholder's Loan owned by Callon. There is not pending any
suit, action or other legal proceeding of any sort to, in any
manner, restrain or prevent Aries and/or Callon from
effectually and legally transferring the part of the Purchased
Shares and Shareholder's Loan owned by them respectively to
the Purchaser, free and clear of all claims, Liens, security
interests and encumbrances of any nature or kind, or any
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action or proceeding, the effect of which would be to cause a
Lien, security interest or encumbrance of any nature or kind
to attach to any of such part of the Purchased Shares and/or
Shareholder's Loan or to divest title to or ownership of any
of such part of the Purchased Shares and/or Shareholder's Loan
in any manner whatsoever, or to make the Purchaser or Aries
and/or Callon liable for damages as a result of the execution
and delivery of this Agreement by Aries and/or Callon or the
completion by Aries and/or Callon of the transactions
contemplated herein and Aries and Callon know of no such claim
in connection with any of the foregoing.
(b) No Bankruptcy/Insolvency
Neither Aries nor Callon is insolvent, has committed an act of
bankruptcy, has proposed a compromise or arrangement to its
creditors generally, has had any petition for a receiving
order in bankruptcy filed against it, has taken any proceeding
with respect to a compromise or arrangement, has taken any
proceeding to have itself declared bankrupt or wound-up, has
taken any proceeding to have a receiver appointed of any part
of its assets, has had any encumbrances take possession of any
of its property, nor has it had any execution or distress
become enforceable or become levied upon any of its property.
(c) Related Agreements
There are no agreements, written or oral, to which Aries or
any of its Affiliates or Callon is a party to or by which any
of them is bound in respect of the Purchased Shares owned by
Aries and Shareholder's Loan owned by Callon.
(d) Shareholder's Loan
The part of Shareholder's Loan is legally and beneficially
owned by Callon, the details, terms and conditions of which
are described in Schedule 3.1(r), shall be free and clear of
any and all encumbrances, assignable in the ordinary course,
due and payable without set off.
Due Execution and Delivery - Aries and Callon
The execution and delivery of this Agreement by Aries and
Callon as contemplated herein has been duly authorized by all
necessary action. Aries and Callon have the legal capacity to
enter into this Agreement and to carry out the transactions of
purchase and sale contemplated herein and to perform their
respective obligations hereunder and pursuant to all other
agreements required to be delivered hereunder. This Agreement
has been duly and validly executed and delivered by Aries and
Callon and constitutes a valid and legally binding agreement,
enforceable in accordance with its terms subject to and
affected by the laws relating to bankruptcy, insolvency,
reorganization and creditors' rights generally and except that
a court may or may not order an injunction, specific
performance or other equitable remedies with respect to any
particular provision of this Agreement.
3.3 Representations and Warranties of the Lynn and the Mueller Trust
Regarding Certain of the Purchased Shares
Each of Lynn and the Mueller Trust hereby jointly and severally
represent and warrant that except as otherwise disclosed in this
Agreement or in any Schedule attached hereto (and hereby acknowledges
and confirms that the Purchaser are relying on such representations and
warranties in connection with the purchase by the Purchaser of the
Purchased Shares and Shareholder's Loan.):
(a) Good Title
Each of Lynn and the Mueller Trust is the owner, beneficially
and of record, of the part of the Purchased Shares as
described in Section 1.1(nnn) and part of the Shareholder's
Loan as described in Schedule 3.1(r). Each of Lynn and the
Mueller Trust has a good and marketable title thereto, free of
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any claim, Lien, security interest or encumbrance of any
nature or kind, and as such has the exclusive right and full
power to sell, transfer and assign the part of the Purchased
Shares and part of the Shareholder's Loan owned by Lynn and
the Mueller Trust to the Purchaser free of any claim, Lien,
security interest or encumbrance of any nature or kind. In
addition, neither Lynn and/or the Mueller Trust has any
agreement or option or any right capable of becoming an
agreement for the purchase of the part of the Purchased Shares
and part of the Shareholder's Loan owned by them. There is not
pending any suit, action or other legal proceeding of any sort
to, in any manner, restrain or prevent Lynn and/or the Mueller
Trust from effectually and legally transferring the part of
the Purchased Shares and the part of the Shareholder's Loan
owned by Lynn and/or the Mueller Trust to the Purchaser, free
and clear of all claims, Liens, security interests and
encumbrances of any nature or kind, or any action or
proceeding, the effect of which would be to cause a Lien,
security interest or encumbrance of any nature or kind to
attach to any of such part of the Purchased Shares and part of
the Shareholder's Loan or to divest title to or ownership of
any of such part of the Purchased Shares and part of the
Shareholder's Loan in any manner whatsoever, or to make the
Purchaser or Lynn and/or the Mueller Trust liable for damages
as a result of the execution and delivery of this Agreement by
Lynn and/or the Mueller Trust or the completion by Lynn and/or
the Mueller Trust of the transactions contemplated herein and
neither Lynn nor the Mueller Trust knows of such claim in
connection with any of the foregoing.
(b) No Bankruptcy/Insolvency
Each of Lynn and the Mueller Trust is not insolvent, has
committed an act of bankruptcy, has proposed a compromise or
arrangement to its creditors generally, has had any petition
for a receiving order in bankruptcy filed against it, has
taken any proceeding with respect to a compromise or
arrangement, has taken any proceeding to have itself declared
bankrupt or wound-up, has taken any proceeding to have a
receiver appointed of any part of its assets, has had any
encumbrances take possession of any of its property, nor has
it had any execution or distress become enforceable or become
levied upon any of its property.
(c) Related Agreements
There are no agreements, written or oral, to which Lynn and/or
the Mueller Trust or any of its Affiliates is a party to or by
which any of them is bound in respect of the Purchased Shares
and Shareholder's Loan.
(d) Shareholder's Loan
The part of the Shareholder's Loan are legally and
beneficially owned by Lynn, the details, terms and conditions
of which are described in Schedule 3.1(r), shall be free and
clear of all encumbrances, assignable in the ordinary course,
due and payable without set off.
(e) Due Execution and Delivery - Lynn and the Mueller Trust
The execution and delivery of this Agreement by Lynn and the
Mueller Trust as contemplated herein has been duly authorized
by all necessary action and Lynn and the Mueller Trust has the
legal capacity to enter into this Agreement and to carry out
the transactions of purchase and sale contemplated herein and
to perform their respective obligations hereunder and pursuant
to all other agreements required to be delivered hereunder.
This Agreement has been duly and validly executed and
delivered by Lynn and the Mueller Trust and constitutes a
valid and legally binding agreement, enforceable against Lynn
and/or the Mueller Trust in accordance with its terms subject
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to and affected by the laws relating to bankruptcy,
insolvency, reorganization and creditors' rights generally and
except that a court may or may not order an injunction,
specific performance or other equitable remedies with respect
to any particular provision of this Agreement.
3.4 Representations and Warranties of the Mark and the Jade Eagle Trust
Regarding Certain of the Purchased Shares
Each of Mark and the Jade Eagle Trust hereby jointly and severally
represent and warrant that except as otherwise disclosed in this
Agreement or in any Schedule attached hereto (and hereby acknowledges
and confirms that the Purchaser are relying on such representations and
warranties in connection with the purchase by the Purchaser of the
Purchased Shares and Shareholder's Loan.):
(a) Good Title
Each of Mark and the Jade Eagle Trust is the owner,
beneficially and of record, of the part of the Purchased
Shares as described in Section 1.1(nnn) and part of the
Shareholder's Loan as described in Schedule 3.1(r). Each of
Mark and the Jade Eagle Trust has good and marketable title
thereto, free of any claim, Lien, security interest or
encumbrance of any nature or kind, and as such has the
exclusive right and full power to sell, transfer and assign
the part of the Purchased Shares and part of the Shareholder's
Loan owned by Mark and the Jade Eagle Trust to the Purchaser
free of any claim, Lien, security interest or encumbrance of
any nature or kind. In addition, neither Mark nor the Jade
Eagle Trust has any agreement or option or any right capable
of becoming an agreement for the purchase of the part of the
Purchased Shares and part of the Shareholder's Loan owned by
Mark and the Jade Eagle Trust. There is not pending any suit,
action or other legal proceeding of any sort to, in any
manner, restrain or prevent Mark and/or the Jade Eagle Trust
from effectually and legally transferring the part of the
Purchased Shares and part of the Shareholder's Loan owned by
Mark and the Jade Eagle Trust to the Purchaser, free and clear
of all claims, Liens, security interests and encumbrances of
any nature or kind, or any action or proceeding, the effect of
which would be to cause a Lien, security interest or
encumbrance of any nature or kind to attach to any of such
Purchased Shares and Shareholder's Loan or to divest title to
or ownership of any of such Purchased Shares and Shareholder's
Loan in any manner whatsoever, or to make the Purchaser or
Mark and the Jade Eagle Trust liable for damages as a result
of the execution and delivery of this Agreement by Mark and
the Jade Eagle Trust or the completion by Mark and the Jade
Eagle Trust of the transactions contemplated herein and each
of Mark and the Jade Eagle Trust knows of no such claim in
connection with any of the foregoing.
(b) No Bankruptcy/Insolvency
Each of Mark and the Jade Eagle Trust is not insolvent, has
committed an act of bankruptcy, has proposed a compromise or
arrangement to its creditors generally, has had any petition
for a receiving order in bankruptcy filed against it, has
taken any proceeding with respect to a compromise or
arrangement, has taken any proceeding to have itself declared
bankrupt or wound-up, has taken any proceeding to have a
receiver appointed of any part of its assets, has had any
encumbrances take possession of any of its property, nor has
it had any execution or distress become enforceable or become
levied upon any of its property.
(c) Related Agreements
There are no agreements, written or oral, to which Mark and
the Jade Eagle Trust or any of its Affiliates is a party to or
by which any of them is bound in respect of the part of the
Purchased Shares and part of the Shareholder's Loan.
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(d) Shareholder's Loan
The part of the Shareholder's Loan are legally and
beneficially owned by Mark, the details, terms and conditions
of which are described in Schedule 3.1(r), shall be free and
clear of all encumbrances, assignable in the ordinary course,
due and payable without set off.
Due Execution and Delivery - Mark and the Jade Eagle Trust
The execution and delivery of this Agreement by Mark and the
Jade Eagle Trust as contemplated herein has been duly
authorized by all necessary action and Mark and the Jade Eagle
Trust have the legal capacity to enter into this Agreement and
to carry out the transactions of purchase and sale
contemplated herein and to perform their respective
obligations hereunder and pursuant to all other agreements
required to be delivered hereunder. This Agreement has been
duly and validly executed and delivered by Mark and the Jade
Eagle Trust and constitutes a valid and legally binding
agreement, enforceable against Mark and/or the Jade Eagle
Trust in accordance with its terms subject to and affected by
the laws relating to bankruptcy, insolvency, reorganization
and creditors' rights generally and except that a court may or
may not order an injunction, specific performance or other
equitable remedies with respect to any particular provision of
this Agreement.
ARTICLE 4
COVENANTS OF THE VENDORS, PRINCIPALS AND CALLON
4.1 Interim Period
The Vendors, Principals and Callon hereby jointly and severally
covenant that, during the Interim Period except as otherwise provided
in this Agreement, the Vendors, Principals and Callon will and will
cause the Acquired Corporations to:
(a) conduct the Business and its operations in the Ordinary Course
of Business and in material compliance with all applicable
Legal Requirements and the material requirements of all
Contracts to which any of them is a party;
(b) maintain the accounting methods principles and practices used
by the Acquired Corporations;
(c) preserve intact each of the Acquired Corporations' current
business organization, use reasonably commercial efforts to
keep available the services of its current officers and other
employees and use reasonable commercial efforts to maintain
its relations and goodwill with all suppliers, customers,
landlords, creditors, licensors, licensees, employees and
other Persons having business relationships with either of the
Acquired Corporations;
(d) take all steps commercially reasonably required by the
Purchaser to assist it in retaining the goodwill of ESE,
including, if requested by the Purchaser, introducing the
Purchaser or representatives of the Purchaser to the customers
and suppliers of ESE, arranging the opportunity for the
Purchaser or its representatives to meet such employees,
customers and suppliers;
(e) use reasonable commercial efforts to preserve and prevent any
damage to, destruction or loss of any assets of ESE, whether
or not such assets are covered by insurance;
(f) take all action necessary to prevent the loss, cancellation,
abandonment, forfeiture or expiration of any Intellectual
Property of ESE;
(g) give to the Purchaser, the Purchaser's Solicitors, the
Purchaser's advisors and other representatives of the
Purchaser, full access during normal business hours to
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management, employees, properties, books, contracts,
commitments and records of each of the Acquired Corporations;
provided such access does not unreasonably interfere with the
day-to-day operations of the Business;
(h) furnish the Purchaser with all information concerning the
affairs of either of the Acquired Corporations as the
Purchaser may reasonably request;
(i) instruct and authorize the Vendors' and the Auditors and
solicitors to cooperate with the Purchaser's advisors and the
Purchaser's Solicitors and instruct the Auditors to give to
the Purchaser's advisors full access during such period to
their files and working papers with respect to the Acquired
Corporations and the Business;
(j) permit the Purchaser to observe all operations of ESE and
authorize the Purchaser's advisors to contact the owner of the
Real Property in respect of the status of the Leases;
(k) promptly advise the Purchaser in writing of any material
change in the condition, financial or otherwise, in the
Business, or the Acquired Corporations;
(l) provide the Purchaser with all information required to enable
the Purchaser to prepare and file all notices and applications
required to be filed for the purposes of obtaining of any
regulatory consent which is required in connection with the
transactions contemplated herein;
(m) do all reasonable things and cause all reasonable things to be
done to ensure that all of the representations and warranties
contained in this Agreement remain materially true and correct
throughout the Interim Period as if such representations and
warranties were continuously made throughout such period;
(n) keep in full force and effect the insurance referred to
herein;
(o) not enter into nor modify, amend or terminate any Contracts,
commitments or transactions nor waive, relinquish or assign
any Contracts or rights or claims under any Contract,
pertaining to the Business, except, unless otherwise herein
provided, in the Ordinary Course of Business;
(p) not incur any indebtedness, obligations or liability or make
any payment in respect thereof, nor cancel or forgive any
indebtedness except in the Ordinary Course of Business;
(q) not increase the wages or salaries or any other form of
remuneration, direct or indirect, nor increase any benefits or
entitlements, of any of the employees of ESE, except in the
Ordinary Course of Business;
(r) not acquire or agree to acquire (by merger, consolidation, or
acquisition of shares or assets) any additional assets, except
inventories and supplies purchased in the Ordinary Course of
Business;
(s) not sell, agree to sell or otherwise dispose of or license,
pledge or encumber any of the assets of either of the Acquired
Corporations, except Inventories sold in the Ordinary Course
of Business;
(t) not sell, transfer, license, sublicense or otherwise dispose
of any Intellectual Property of ESE, or amend or modify any
existing agreements or rights with respect to any Intellectual
Property of, or used by, ESE, other than nonexclusive object
and source code licenses in the Ordinary Course of Business
provided that in no event shall ESE license on an exclusive
basis or sell any Intellectual Property of ESE;
(u) not make any material Tax election or settle or compromise any
material federal, state, provincial, local or foreign Tax
liability or agree to an extension of a statute of limitations
except to the extent the amount of any such settlement has
been reserved for on the Financial Statements;
(v) not waive the benefits of, agree to modify in any manner,
terminate, release any person from or knowingly fail to
enforce any confidentiality or similar agreement to which
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either of the Acquired Corporations is a party or of which
either of the Acquired Corporations is a beneficiary;
(w) not pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise) or litigation (whether or not
commenced prior to the date of this Agreement), other than the
payment, discharge or satisfaction in the Ordinary Course of
Business or in accordance with their terms, or liabilities
reflected or reserved against in the Financial Statements or
incurred in the Ordinary Course of Business;
(x) not declare, accrue, set aside or pay any dividend or make any
other distribution in respect of any shares, or repurchase,
redeem or otherwise reacquire any shares or other securities;
(y) not propose to or sell, issue, deliver, pledge, grant or
authorize the issuance or grant of (i) any of its shares or
other securities; (ii) any option, call, warrant or right to
acquire any of its shares or other securities; or (iii) any
instrument convertible into or exchangeable for any of its
shares or other securities or enter into other agreements or
commitments of any character obligating the issuance of any
such shares or convertible securities, or any other ownership
interest (including without limitation, any phantom interest)
in either of the Acquired Corporations;
(z) not split, combine or reclassify the share capital of either
of the Acquired Corporations;
(aa) not amend or waive any of its rights under, or accelerate the
vesting under, any provision of any stock option plans, any
provision of any agreement evidencing any outstanding stock
option or any restricted stock purchase agreement, or
otherwise reprise, extend the term of or in any other way
amend or modify any of the terms of any outstanding option,
warrant or other security;
(bb) not form any Subsidiary or acquire any equity interest or
other interest in any other entity;
(cc) not amend or permit the adoption of any amendment to its
Charter Documents or effect or become a party to any merger,
consolidation, amalgamation, share exchange, business
combination, recapitalization, reclassification of shares,
stock split, division or subdivision of shares, reverse stock
split, consolidation of shares or similar transaction;
(dd) not make any individual or series of related payments outside
of the Ordinary Course of Business of any kind in connection
with either of the Acquired Corporations;
(ee) not oblige either of the Acquired Corporations to pay or
otherwise be responsible for the payment of any brokerage fees
or other commissions relating to the purchase and sale of the
Purchased Shares and Shareholder's Loan contemplated herein;
and
(ff) not take, or agree in writing or otherwise to take, any of the
actions described in (a) through (ff) above, or any action
which would make any of the representations or warranties in
this Agreement untrue or incorrect in any material respect or
prevent the Vendors, Principals and Callon from performing
their respective covenants hereunder or result in any of the
conditions to the Agreement set forth herein not being
satisfied.
4.2 Time of Closing
The Vendors and the Principals hereby jointly and severally covenant
and, as applicable, Callon covenants that, at the Time of Closing:
(a) the Vendors, Principals and Callon will furnish the Purchaser
with a statutory declaration that the representations and
warranties of Jade Eagle Trust, Mueller Trust, Aries and the
Principals contained in this Agreement are true as at the Time
of Closing, as though then made, and that the covenants of the
Vendors, Principals and Callon to be complied with at or prior
to the Time of Closing have been materially complied with;
provided that the receipt of such statutory declaration and
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the closing of the transactions contemplated herein shall not
be a waiver of the representations, warranties and covenants
of all the parties, which are contained in this Agreement;
(b) the Vendors, Principals and Callon will deliver to the
Purchaser evidence satisfactory to the Purchaser's Solicitors
that all necessary corporate, trust and other necessary
authorizations authorizing and approving the transactions
contemplated herein have been obtained;
(c) the Vendors, Principals and Callon will deliver or cause to be
delivered any consents, waivers or approvals which may be
required from third parties to the sale of the Purchased
Shares and Shareholder's Loan;
(d) the Vendors, the Principals and Callon will provide the
Purchaser with a statutory declaration that each of them is
not then a "non-resident" of Canada within the meaning of the
Tax Act;
(e) the Vendors, the Principals and Callon will execute all
assignments and documents delivered pursuant to this Agreement
at the Time of Closing which require execution by them;
(f) the Vendors, the Principals and Callon will cause all
necessary steps and proceedings as may reasonably be approved
by the Purchaser's Solicitors to be taken so that the
Purchased Shares and Shareholder's Loan may be properly
transferred to the Purchaser at the Time of Closing; and in
that regard, to deliver to the Purchaser at the Time of
Closing certificates representing the Purchased Shares, such
certificates being duly endorsed for transfer to the Purchaser
and cause transfers of the Purchased Shares and the
Shareholder's Loan to be duly and regularly recorded in the
name of the Purchaser or as it may in writing direct;
(g) the Vendors, Principals will:
(i) cause all of the directors and officers of the
Acquired Corporations to resign in favour of nominees
of the Purchaser, in each case at no expense or
liability to the Acquired Corporations; and
(ii) deliver, and cause to be delivered by the Vendors and
Principals, and all the directors and officers of the
Acquired Corporations, and all members of the
Vendors' and Principals' immediate families who were
employed by or were paid by the Acquired
Corporations, a mutual release, with effect from the
Time of Closing, of any claims by and against the
Acquired Corporations which any of such parties may
have, in form satisfactory to the Purchaser
(excepting non-compliance with law, fraud or anything
contemplated in this Agreement);
(h) the Vendors and the Principals will deliver to the Purchaser
the written covenant of the Royal Bank of Canada and the
Business Development Bank of Canada as to the terms and
conditions upon which it will discharge the Bank Debt and
release the Acquired Corporations from all obligations
thereunder or under any related security;
(i) the Vendors and Principals will, excluding under the Bank
Debt, cause the Acquired Corporations to be released from all
guarantees or other covenants in favour of the Vendors and/or
the Purchasers and/or Callon, the directors, officers or
shareholders of the Acquired Corporations or any Person with
whom any of such persons does not deal "at arm's length" (as
defined in the Tax Act), and to obtain and, where appropriate,
arrange for the registration of the discharge of all security
given by the Acquired Corporations in support of any such
guarantee or covenant;
(j) the Vendors, Principals and Callon will except in respect of
the Shareholder's Loan, pay and cause to be paid to the
Acquired Corporations all amounts owing by them, any of their
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respective Affiliates or any other Person with whom any of the
Vendors and the Principals and Callon does not deal "at arm's
length" (as defined in the Tax Act); and
(k) the Vendors, Principals and Callon will deliver and cause to
be delivered to the Purchaser the corporate seals, minute
books, share certificates, share certificate books, share
transfers, share register books, directors' registers and any
and all documents, records, books, instruments and agreements
of or pertaining or relating to the Acquired Corporations and
the Business.
4.3 Tax Matters
(a) Returns
(i) The Vendors and the Principals shall prepare or cause
PacGeo to prepare all Tax Returns for the Acquired
Corporations for all periods ending on or before the
Closing Date that are to be filed after the Closing
Date, shall allow Purchaser to review and comment on
each such Tax Return and shall consider any such
comments as the Purchaser may reasonably provide.
(ii) For income tax purposes the parties agree to
apportion income for the year of Closing based upon
an interim closing of the Acquired Corporations'
books on or immediately prior to the Closing Date (as
applicable) in a manner consistent with the past
practices of the Acquired Corporations for reporting
income Tax items. In order to appropriately apportion
any non-income Taxes relating to any taxable year
beginning before (and ending after) the Closing Date,
the parties hereto shall apportion such non-income
Taxes to the taxable period ending on or before the
Closing Date as follows: (x) ad valorem Taxes
(including, without limitation, real and personal
property taxes) shall be accrued on a monthly basis
over the period for which such Taxes are levied, or
if it cannot be determined over the period such Taxes
are being levied, over the fiscal period of the
relevant taxing authority, in each case irrespective
of the lien or assessment date of such Taxes, (y) all
Taxes relating to actions outside the ordinary course
of business occurring on or after the Closing Date
shall be apportioned to the period ending after the
Closing Date, and (z) franchise and other privilege
Taxes not measured by income shall be accrued on a
monthly basis over the period to which the privilege
relates.
(iii) The Vendors and Principals shall be liable for, and
shall jointly and severally indemnify and hold the
Purchaser (including any successors thereof) harmless
against all Taxes of the Acquired Corporations
payable for any taxable year, taxable period or
portion thereof ending on or before the Closing Date
which tax liability is not disclosed in the Audited
Financial Statements or in the Final Balance Sheet
and to the extent such tax liability is not
disclosed, the Vendors and the Principals will be
liable to the Purchaser pursuant to this sub-section.
The Purchaser and the Acquired Corporations shall be
liable for, and shall indemnify and hold the Vendors
and the Principals harmless against any and all Taxes
imposed on the Acquired Corporations relating or
apportioned to any taxable year or portion thereof
ending on or after the Closing Date, except as
otherwise disclosed or accrued in the Final Balance
Sheet.
(b) Refunds or Credits
The Purchaser, or the Acquired Corporations shall promptly pay
to the Vendors and Principals any refunds or credits of Taxes
to the extent such refunds or credits are not included on the
Final Balance Sheet for which the Vendors and Principals may
be liable under Section 4.3(a) hereof or that relate to Tax
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periods or portions thereof ending on or prior to the Closing
Date. For purposes of this Section 4.3(b), the term "refund"
shall include a reduction in Taxes and the use of an
overpayment of Taxes as an audit or other Tax offset and
receipt of a refund shall occur upon the filing of a return or
an adjustment thereto using such reduction, overpayment or
offset, or upon the receipt of cash. Upon the reasonable
request of any Vendor and/or Principal, the Vendors and/or
Principals shall prepare and file, or cause to be prepared and
filed, all claims for refunds relating to such Taxes. In no
event shall the Purchaser amend any of the Acquired
Corporations' Tax Returns relating to any Taxes for a period
(or portion thereof) ending on or prior to the Closing Date or
the carry-back of an item to a period ending prior to Closing
Date without the Vendors' and Principals' prior written
consent (which will not be unreasonably withheld).
(c) Mutual Cooperation
As soon as practicable, but in any event within fifteen (15)
days after either the Vendors'/Principals' or the Purchaser's
request, as the case may be, the Purchaser shall deliver to
the Vendors and Principals or the Vendors and Principals shall
deliver to the Purchaser, as the case may be, such information
and other data relating to the Tax Returns and Taxes of the
Acquired Corporations and shall provide such other assistance
as may reasonably be requested, to cause the completion and
filing of all Tax Returns or to respond to audits by any
taxing authorities with respect to any Tax Returns or taxable
periods or to otherwise enable the Vendors, the Principals,
the Purchaser, or the Acquired Corporations to satisfy their
accounting or Tax requirements.
(d) Contests
Whenever any taxing authority asserts a claim, makes an
assessment, or otherwise disputes the amount of Taxes for
which the Vendors are or may be liable under this Agreement,
the Purchaser shall, if informed of such an assertion,
promptly inform the Vendors, and the Vendors shall have the
right to control any resulting proceedings and to determine
whether and when to settle any such claim, assessment or
dispute to the extent such proceedings or determinations
affect the amount of Taxes for which any Vendor may be liable
under the Agreement. Whenever any taxing authority asserts a
claim, makes an assessment or otherwise disputes the amount of
Taxes for which the Purchaser is liable under this Agreement,
the Purchaser shall have the right to control any resulting
proceedings and to determine whether and when to settle any
such claim, assessment or dispute, except to the extent such
proceedings affect the amount of Taxes for which the Vendors
are liable under this Agreement.
(e) Resolution of Disagreements Between the Sellers and Purchaser
If either the Vendors and Principals or the Purchaser disagree
as to the amount of Taxes for which either the Vendors and
Principals or the Purchaser may be liable under this
Agreement, either the Vendors and Principals or the Purchaser
shall promptly consult each other in an effort to resolve such
dispute. If any such point of disagreement cannot be resolved
within sixty (60) days of the date of consultation, the
dispute shall be settled by a Neutral Auditor. The fees and
expenses of the Neutral Auditor for such dispute resolution
work will be paid by the Purchaser as to 50% of the costs, and
by the Vendors and Principals as to 50% of the costs. The
Neutral Auditor shall act as an expert and not as an
arbitrator and will be required to determine the items in
dispute that have been referred to them as soon as reasonably
practicable, based solely on the presentations made to them by
the Vendors, the Principals and Purchaser, and not by
independent review. The Neutral Auditor's determination shall
be made within thirty (30) days of its engagement, shall be
set forth in a written statement delivered to the Vendors, the
Principals and the Purchaser and shall be final and binding on
the parties hereto.
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(f) Survival of Obligations
Notwithstanding anything else herein, the obligations of the
parties set forth in this Section 4.3 shall be unconditional
and absolute, and shall remain in effect without limitation as
to time or amount of recovery.
(g) Adjustment
Any payment to the Vendors and Principals under this Section
4.3 will be deemed to be an adjustment to the Purchase Price
unless, under applicable law, such payment is not treated as
received by such other parties.
4.4 Additional Covenants
The Vendors, the Principals and Callon hereby jointly and severally
covenant that, subsequent to the Closing Date, they will:
(a) at the request of the Purchaser, execute and deliver such
additional conveyances, transfers and other assurances as may,
in the reasonable opinion of the Purchaser's Solicitors, be
required to carry out the intent of this Agreement.
4.5 Integrity of Representations and Warranties
No investigation or due diligence of the Purchaser, or any lack
thereof, or disclosures of the Vendors or of any other Person, shall
qualify, prejudice reduce, detract from, mitigate or otherwise
compromise the integrity or authority of the Vendor's representations
and covenants under this Agreement.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants as follows and hereby acknowledge
and confirm that the Vendors, the Principals and Callon are relying on such
representations and warranties in connection with the entering into this
Agreement by them and the transactions contemplated herein:
5.1 Organization; Good Standing
The Purchaser is a corporation duly organized, validly existing and in
good standing under the laws of the State of Nevada. The Purchaser has
all requisite corporate power and authority to own, lease and operate
its properties and to carry on its business as now being conducted, to
perform its obligations under all agreements or contracts by which it
is bound and is duly qualified and in good standing to do business in
each jurisdiction in which the nature of its business or the ownership
or leasing of its properties makes such qualification necessary.
5.2 Due Execution and Delivery
The execution and delivery of this Agreement by the Purchaser
hereunder, and the execution and delivery of this Agreement by the
Purchaser and its purchase of the Purchased Shares and Shareholder's
Loan contemplated herein, have been duly authorized by all necessary
corporate action and the Purchaser has all requisite corporate power
and authority to enter into this Agreement and to carry out the
transactions of purchase and sale contemplated herein to which it is a
party and to perform its obligations hereunder and pursuant to all
other agreements required to be delivered by it hereunder. This
Agreement has been duly and validly executed and delivered by the
Purchaser and constitutes a valid and legally binding agreement,
enforceable against such parties in accordance with its terms subject
to and affected by the laws relating to bankruptcy, insolvency,
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reorganization and creditors' rights generally and except that a court
may or may not order an injunction, specific performance or other
equitable remedies with respect to any particular provision of this
Agreement.
5.3 No Bankruptcy/Insolvency
The Purchaser is not insolvent, has not committed an act of bankruptcy,
has not proposed a compromise or arrangement to its creditors
generally, has had any petition for a receiving order in bankruptcy
filed against it, has taken any proceeding with respect to a compromise
or arrangement, has taken any proceeding to have itself declared
bankrupt or wound-up, has taken any proceeding to have a receiver
appointed of any part of its assets, has had any encumbrances take
possession of any of its property, nor has it had any execution or
distress become enforceable or become levied upon any of its property.
5.4 No Legal Proceedings
There is not pending any suit, action or other legal proceeding of any
sort to in any manner restrain or prevent the Purchaser from
effectually and legally purchasing the Purchased Shares and
Shareholder's Loan or to make the Vendors, the Principals and/or Callon
liable for damages as a result thereof and the Purchaser knows of no
such claims in connection with any of the foregoing.
5.5 No Conflict; Required Filings and Consents
The execution and delivery of this Agreement by the Purchaser and the
observance and performance of the terms and provisions of this
Agreement on the part of the Purchaser to be observed and performed do
not constitute a violation of applicable law or violation or breach of
the Purchaser's Charter Documents or any provision of any contract,
indenture, undertaking or other instrument to which either the
Purchaser is a party or by which it is bound, or any order, writ,
injunction, decree, statute, rule, by-law or regulation applicable to
it, nor do they constitute a default (or would with the passage of time
or the giving of notice for both, or otherwise, constitute a default)
under any contract, agreement or instrument to which the Purchaser is a
party or by which it is bound.
5.6 No Broker
There is no broker, finder or other person who has any valid claim
against the Vendors for a commission, finder's fee or brokerage fee in
connection with this Agreement or the consummation of the transactions
contemplated hereby, by virtue of any action taken by the Purchaser.
ARTICLE 6
COVENANTS OF THE PURCHASER
6.1 Time of Closing
The Purchaser hereby covenants that, at the Time of Closing, the
Purchaser will:
(a) furnish the Vendors, the Principals and Callon with a
certificate from an officer of the Purchaser that the
representations and warranties of the Purchaser contained in
this Agreement are true as at the Time of Closing, as though
then made, and that the covenants of the Purchaser to be
complied with at or prior to the Time of Closing have been
complied with; provided that the receipt of such evidence and
the closing of the transactions contemplated herein shall not
be a waiver of the representations, warranties and covenants
of the Purchaser which are contained in this Agreement;
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(b) deliver to the Vendors and Principals and Callon evidence
satisfactory to the Vendors and Principals and Callon's
Solicitors that all necessary corporate and other
authorizations authorizing and approving the transaction
contemplated herein have been obtained;
(c) execute all assignments and documents delivered pursuant to
this Agreement at the Time of Closing which require execution
by the Purchaser;
(d) provide the Vendors, the Principals and Callon with a
favourable opinion of the Purchaser's Solicitors to the effect
that this Agreement has been duly executed and delivered by
the Purchaser and constitutes a valid and binding obligation
of the Purchaser enforceable against it in accordance with its
terms (subject to bankruptcy laws and the availability of
equitable remedies), in a form reasonably satisfactory to the
Vendors and Principals and Callon's Solicitors; and
(e) pay the Purchase Price as contemplated in Section 2.3; and
(f) advise the Vendors, Principals and Callon in writing if it has
actual notice of any fact or circumstance which would cause
any representation and warranty of the Vendors and/or
Principals and/or Callon contained in this Agreement to be
untrue at the Time of Closing.
6.2 Interim Period
The Purchaser covenants that, during the Interim Period, the Purchaser
will perform its due diligence investigation of the Business.
6.3 Post Closing
The Purchaser covenants that, immediately after the acquisition of the
Purchased Shares and the Shareholder Loans, and as part of the closing
of the transactions contemplated herein, it shall either:
(a) advance to the Acquired Corporations, in a manner to be
determined by the Purchaser, sufficient funds to retire in
full the Bank Debt against releases from each of Royal Bank of
Canada and Business Development Bank of Canada of all charges
and security interests it has on the assets of the Acquired
Corporations for such debt, together with the releases of any
guarantees of any of the Vendors or the Principals in
connection therewith; or
(b) secure such financing on behalf of the Acquired Corporations
to retire in full the Bank Debt, together with the releases of
any guarantees of any of the Vendors or the Principals in
connection therewith;
In addition, the Purchaser shall do all such acts and things as may be
required to comply with the provisions of subsection 2.7 herein.
ARTICLE 7
CONDITIONS
The completion of the purchase and sale of the Purchased Shares and
Shareholder's Loan contemplated herein is subject to the following conditions
having been satisfied. All of the conditions contained in Sections 7.1 through
7.10 inclusive, are declared to be for the exclusive benefit of the Purchaser.
The conditions contained in Sections 7.11 and 7.12 are declared to be for the
exclusive benefit of the Vendors and Principals and Callon. The condition
contained in Section 7.13 is declared for the benefit of each of the Vendors and
Principals and Callon and the Purchaser, which condition may only be waived in
writing by all of such parties. All the conditions referred to herein are to be
satisfied at the Time of Closing. The following are the conditions:
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7.1 Vendor Representations
(a) Each representation, warranty and covenant of the Vendors, the
Principals and Callon contained in this Agreement:
(i) shall have been true and correct as of the date of
this Agreement; and
(ii) shall be true and correct on and as at the Time of
Closing with the same force and effect as if made at
the Time of Closing except:
(A) for changes contemplated by this Agreement;
and
(B) for those representations and warranties
which address matters only as of a
particular date (which representations shall
have been true and correct subject to the
qualifications as set forth in the preceding
clause (i) as of such particular date).
7.2 Financial Statements
The difference between the "Total Equity" as disclosed in the December
31, 2005 management prepared financial statements attached hereto as
Schedule 2.4 (being the aggregate of the share capital and retained
earnings of the Acquired Corporations) and the Total Equity disclosed
in the Audited Financial Statements for the same period shall not
reflect a reduction of the equity of the Acquired Corporations by an
amount greater than ONE HUNDRED AND FIFTY THOUSAND Canadian dollars
(CDN $150,000.00), provided:
(a) such reduction is not a result of the application of GAAP
resulting in the re-allocation of the accounts receivable of
the Acquired Corporations from accounts receivable to doubtful
accounts; and
(b) the Vendors and the Principals shall be entitled to make such
cash advances to the Acquired Corporations as may be required
to ensure satisfaction of this condition precedent, such
advances to be by way of loan to the Acquired Corporations
(which loan(s) shall be included as part of the Shareholder
Loans to be sold to the Purchaser, shall be deemed to have
been advanced as at December 31, 2005 notwithstanding the
actual date of advance, and shall not be included as a
liability when calculating the equity of the Acquired
Corporations for the purposes of determining satisfaction of
this condition precedent).
7.3 Vendor Performance
The Vendors, the Principals and Callon shall have performed or complied
in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by them on or prior to
the Time of Closing.
7.4 Approvals
All appropriate approvals and consents, including but not limited to
any required Governmental Authorizations, shall have been obtained in
form and upon terms satisfactory to the Purchaser's Solicitors in order
to permit the change of ownership of the Purchased Shares and
Shareholder's Loan contemplated herein in compliance with applicable
laws and without affecting or resulting in the cancellation or
termination of any licence or Permit held by the Acquired Corporations
or agreement to which the Acquired Corporations are subject.
7.5 Consulting/Employment Agreement
(a) Lynn shall have executed an employment agreement for two (2)
years in favour of ESE and its respective Affiliates (the
"Employment Agreement"), in the form attached hereto as
Schedule 7.5, to provide advisory and consulting services to
such parties in connection with the Business.
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(b) Pursuant to the Employment Agreement:
(i) If Lynn is terminated from his employment by ESE for
just cause as contemplated at Article 15.01 of the
Employment Agreement or if Lynn terminates his
employment with ESE for any reason other than as
contemplated at Article 14.01 of the Employment
Agreement, at any time during the first year of his
employment, the Vendors and the Principals jointly
and severally agree to pay to the Purchaser a penalty
in the amount of FIVE HUNDRED THOUSAND Canadian
dollars (CDN $500,000.00);
(ii) If Lynn is terminated from his employment by ESE for
just cause as contemplated at Article 15.01 of the
Employment Agreement or if Lynn terminates his
employment with ESE for any reason other than as
contemplated at Article 14.01 of the Employment
Agreement, during the second 12 months of his
employment, the Vendors and Principals jointly and
severally agree to pay to the Purchaser a penalty
equal to:
(A) FIVE HUNDRED THOUSAND Canadian dollars (CDN
$500,000) during months one to three of such
second 12 months;
(B) THREE HUNDRED AND SEVENTY FIVE THOUSAND
Canadian dollars (CDN $375,000) during month
four to six of such second 12 months;
(C) TWO HUNDRED AND FIFTY THOUSAND Canadian
dollars (CDN $250,000) during month seven to
nine of such second 12 months; and
(D) ONE AND TWENTY FIVE THOUSAND Canadian
dollars (CDN $125,000) during month ten to
twelve of such second 12 months,
all without duplication, and for the purposes of this
subsection if Lynn's employment is terminated other
than at the end of a month, he shall be deemed to
have worked through to the end of the applicable
month,
(iii) If Lynn becomes Disabled during the first 12 months
of his employment pursuant to the Employment
Agreement, the Vendors and Principals jointly and
severally agree to pay to the Purchaser a penalty in
the amount of TWO HUNDRED FIFTY THOUSAND Canadian
dollars (CDN $250,000.00),
which penalties may be paid, at the discretion of the Vendors,
either (I) entirely in cash or (II) by delivery cash and an
appropriate number of common shares of the Purchaser, with
such payment made as to 2/3rd of such amount in cash and 1/3rd
of such amount in common shares of the Purchaser, and for
greater certainty, the inability of Lynn to provide employment
services pursuant to the Employment Agreement for reasons of
death shall not constitute grounds for the Vendors and the
Principals to pay the penalty contemplated herein.
(c) Mark shall have executed a consulting agreement in favour of
ESE and its respective Affiliates, in the form attached hereto
as Schedule 7.5, to provide advisory and consulting services
to such parties in connection with the Business.
7.6 Non-Competition and Non-Solicitation Agreement
Lynn and Mark shall have executed a non-competition and
non-solicitation agreement in favour of the Purchaser and ESE their
respective Affiliates, in the form attached hereto as Schedule 7.6,
restricting their interest or participation in any business or
enterprise carrying on business similar to the Business.
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7.7 Vendors' Solicitors' Opinion
The Vendors and Principals and Callon shall provide the Purchaser with
a favourable opinion of the Vendors and Principals and Callon's
Solicitors addressed to the Purchaser and (if so requested) their
lenders with respect to the Acquired Corporations, the Vendor and
Principals and Callon and the transactions herein contemplated, in a
form reasonably satisfactory to the Purchaser's Solicitors.
7.8 Legal Proceedings
There shall not be pending or threatened any legal proceeding in which
a Governmental Entity is or is threatened to become a party or is
otherwise involved, and neither the Vendors and Principals and Callon
or the Acquired Corporations, shall have received any communication
from any Governmental Entity in which such Governmental Entity
indicates the possibility of commencing any legal proceeding or taking
any other action:
(a) challenging or seeking to restrain or prohibit the
consummation of the transactions contemplated by this
Agreement;
(b) relating to the transactions contemplated herein and seeking
to obtain from the Purchaser, the Vendors and Principals and
Callon or the Acquired Corporations, any damages or other
relief;
(c) seeking to prohibit or limit in any material respect the
Purchaser's ability to vote, receive dividends with respect to
or otherwise exercise ownership rights with respect to the
shares of the Acquired Corporations; or
(d) which would materially and adversely affect the right of the
Purchaser or the Acquired Corporations to own their assets or
operate the Business.
7.9 Material Adverse Change
There shall have been no material adverse change, financial or
otherwise, in the Acquired Corporations, or the Business from the date
of this Agreement through to the Closing Date.
7.10 Liabilities
At the Time of Closing, the Acquired Corporations will not be subject
to any liabilities or obligations, direct or indirect, absolute or
contingent, or otherwise, other than Permitted Liabilities. As at the
Time of Closing, there will be no facts or circumstances which might
reasonably serve as a basis for, or give rise to, any material
liabilities or obligations on the part of the Acquired Corporations
other than Permitted Liabilities.
7.11 Purchaser Representations
Each representation and warranty of the Purchaser contained in this
Agreement:
(a) shall have been materially true and correct as of the date of
this Agreement; and
(b) shall be materially true and correct on and as at the Time of
Closing with the same force and effect as if made at the Time
of Closing except:
(i) for changes contemplated by this Agreement; and
(ii) for those representations and warranties which
address matters only as of a particular date (which
representations shall have been true and correct
(subject to the qualifications as set forth in the
preceding clause (i) as of such particular date),
and for the purposes of this paragraph "material" shall mean such
circumstance is material in respect of any particular fact or state of
affairs, but shall also include any single or multiple facts, events or
state of affairs when considered in light of all such facts, events or
circumstances, whether material or immaterial, when taken as a whole
would constitute materiality.
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7.12 Purchaser Performance
The Purchaser and shall have performed or complied in all material
respects with all agreements and covenants required by this Agreement
to be performed or complied with by it on or prior to the Time of
Closing.
7.13 Legal Restraints
No court of competent jurisdiction or other Governmental Entity shall
have issued an order, decree, ruling or other legal restraint or
prohibition or taken any other action (which order, decree or ruling
the parties hereto shall use their best efforts to lift), in each case
restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement.
7.14 Purchaser Remedies
In case any of the foregoing conditions hereinbefore declared to be for
the benefit of the Purchaser shall not be satisfied at the Time of
Closing, the Purchaser may:
(a) refuse to complete the transactions contemplated herein by
notice to the Vendors and Principals and Callon and in such
event the Purchaser shall be released from all obligations
hereunder, it being expressly understood and agreed that the
Purchaser may rely, notwithstanding such refusal, upon the
representations, warranties, covenants and conditions
contained in this Agreement. The deposit of FOUR HUNDRED
THOUSAND Canadian dollars (CDN $400,000.00) paid by the
Purchaser shall be refunded by the Vendors and Principals and
Callon to the Purchaser; or
(b) complete the transaction contemplated herein, it being
expressly understood and agreed that the Purchaser may rely,
notwithstanding such completion, upon the representations,
warranties, covenants and conditions contained in this
Agreement.
Provided that any of the said conditions may be waived in whole or in
part by the Purchaser without prejudice to its rights of rescission in
the event of the non-fulfilment and/or non-performance of any other
condition or conditions, any such waiver prior to the Time of Closing
to be binding on the Purchaser only if the same is in writing.
7.15 Vendor Remedies
In case any of the foregoing conditions hereinbefore declared to be for
the benefit of the Vendors and Principals and Callon shall not be
satisfied at the Time of Closing, the Vendors and Principals and Callon
may:
(a) refuse to complete the transaction contemplated herein by
notice to the Purchaser advising of such determination, with
the Vendors entitled to receive the sum of $100,000 of the
Deposit, together will all accrued interest on such funds,
together with the issuance of such number of common shares of
the Purchaser equal to $50,000 divided by the Weighted Average
Price (to be free trading in the manner contemplated at
paragraph 2.7 herein) as liquidated damages for the Vendors
failure to satisfy such conditions, which amounts shall be
released by the Agent in accordance with the its obligations
as a stakeholder under the provisions of s. 59 of the Real
Estate Act (British Columbia). In such event the Vendors,
Principals and Callon shall be released from all obligations
hereunder. The balance of the Deposit, being THREE HUNDRED
THOUSAND Canadian Dollars (CDN $300,000), shall be released to
the Purchaser upon confirmation by the Vendors of receipt of
the shares of the Purchaser contemplated in this paragraph
7.15(a); or
(b) complete the transaction contemplated herein, it being
expressly understood and agreed that following such
completion, the Vendors and Principals and Callon may rely,
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notwithstanding such completion, upon the representations,
warranties, covenants and conditions contained in this
Agreement.
Provided that any of the said conditions may be waived in whole or in
part by the Vendors and Principals and Callon without prejudice to
their rights of rescission in the event of the non-fulfilment and/or
non-performance of any other condition or conditions, any such waiver
prior to the Time of Closing to be binding on the Vendors and
Principals and Callon only if the same is in writing.
7.16 Deposit
Subject to paragraph7.17 below, NAI Goddard & Smith (the "Agent") will
hold the Deposit paid to them in trust, pursuant to the terms of this
Agreement and the provisions of the Real Estate Act (British Columbia),
and on the Closing Date, the Deposit will be credited on account of the
Purchase Price. If the transaction contemplated by this Agreement is
not completed on the Closing Date by reason of the non fulfilment by
the Vendors, the Principals or Callon of one or more of the conditions
precedent contained in paragraph 7.1 through 7.10 and 7.13 herein or
such condition precedent is not removed on the dates provided for
therein, or as a consequence of the default of the Vendors, the
Principals or Callon in the performance of any of their obligations
hereunder, the Deposit will forthwith be returned to the Purchaser,
without deduction. If the transaction contemplated by this Agreement is
not completed on the Closing Date by reason of the non fulfilment by
the Purchaser of one or more of the conditions precedent contained in
paragraph 7.11 through 7.13 herein or such condition precedent is not
removed on the dates provided for therein, or as a consequence of the
default of the Purchaser in the performance of any of its obligations
hereunder, the Deposit will be dealt with in accordance with the
provisions of paragraph 7.15.
7.17 Agent Authorization
The Agent is authorized to pay all or any portion of the deposit to the
Vendors' or Purchaser's conveyancer (the "Conveyancer") without further
written direction of the Vendors or Purchaser, provided that (a) the
Conveyancer is a lawyer; (b) such money is to be held in trust by the
Conveyancer as a stakeholder, pursuant to the provisions of the Real
Estate Act and this Agreement pending the completion of the transaction
and not on behalf of any of the principals to the transaction.
ARTICLE 8
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
8.1 Survival
All the representations, warranties and covenants made herein or in any
agreement, certificate or other document delivered or given pursuant to
this Agreement shall survive the execution and delivery of this
Agreement and the completion of the transactions contemplated herein
and, notwithstanding such completion and any investigations made by or
on behalf of the party to this Agreement to whom or in whose favour
such covenants, representations and warranties were made, shall
continue in full force and effect for a period ending on the second
(2nd) anniversary of the Closing Date, after which period the
respective parties shall be released from their respective obligations
and liabilities hereunder, except in respect of claims made in writing
prior to the expiry of such period, provided that:
(a) all covenants, representations and warranties relating to
Taxes, tax liability or other tax matters for any period
ending prior to or on the Closing Date shall survive the
closing of the transactions contemplated herein for any period
during which any taxing authority may make any claim or
assessment based on any Tax Return filed, after which period
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the party making such covenants, representations and
warranties shall be released from their obligations and
liabilities hereunder, except in respect of claims made in
writing prior to the expiry of such period;
(b) any claims based upon or with respect to the inaccuracy or
non-performance or non-fulfilment or breach of any
representation, warranty or covenant respecting Taxes, tax
liability or other tax matters set out herein may be brought
at any time, if such claim is based upon any failure or
omission to file a Tax Return or any misrepresentation made or
fraud committed in filing a return or in supplying information
under any legislation pursuant to which any Taxes are imposed;
(c) any claims based upon any misrepresentation, or breach or
inaccuracy in any of the representations and warranties set
out herein may be brought against such party at any time if
such claim is based upon fraud in respect of or relating to
such misrepresentation, breach or inaccuracy at the time such
representation or warranty was made by such party;
(d) any claim based upon the representations and warranties
contained in Section 3.1(ee), environmental, and any claim
based upon the representations and warranties otherwise
contained in Sections 3.1(a) -(i), which relate to the
incorporation or corporate status of the Acquired
Corporations, the capacity of or due authorization of this
Agreement by any Vendors or the Acquired Corporations, the
enforceability of any Vendors' obligations under this
Agreement or to the title of any Person to any property
(whether real, personal or intangible) shall survive for and
until the limitation period under the applicable statute for
bringing a claim in respect of such matter has expired; and
(e) for greater certainty, any claim under an indemnity, or for
breach of any representation, warranty or covenant under this
Agreement, shall not be considered to have been made before
the date on which the claiming party gives proper notice to
the other party or parties that are the subject of the claim
in accordance with the terms hereof.
8.2 Effective Date of Representations
All representations and warranties contained herein are as at the date
of the execution and delivery of this agreement unless specifically
stated to be as at an earlier date or as at the Closing Date.
ARTICLE 9
INDEMNITY
9.1 Indemnification of Purchaser Indemnified Parties
From and after the Closing Date and subject to the provisions of this
Article 9, the Mueller Trust, Jade Eagle Trust, and the Principals
jointly and severally agree to indemnify and hold harmless the
Purchaser Indemnified Parties from and against any and all Purchaser
Indemnified Costs.
9.2 Indemnification of Vendor Indemnified Parties
From and after the Closing Date and subject to the provisions of this
Article 9, the Purchaser agrees to indemnify and hold harmless the
Vendor Indemnified Parties from and against any and all Vendor
Indemnified Costs.
9.3 Defence of Third-Party Claims
An Indemnified Party shall give prompt written notice to any entity or
Person who is obligated to provide indemnification hereunder (an
"Indemnifying Party") of the commencement or assertion of any action,
proceeding, demand, or claim by a third party (collectively, a "Third
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Party Action") in respect of which such Indemnified Party shall seek
indemnification hereunder. Any failure to notify an Indemnifying Party
shall not relieve such Indemnifying Party from any liability that it,
he, or she may have to such Indemnified Party under this Article 9
unless, and then only to the extent that, the failure to give such
notice materially and adversely prejudices such Indemnifying Party. The
Indemnifying Party shall have the right to assume control of the
defence of, settle, or otherwise dispose of such Third Party Action on
such terms as it deems appropriate, provided that:
(a) the Indemnified Party shall be entitled, at its own expense,
to participate in the defence of such Third Party Action
(provided, however, that the Indemnifying Party shall pay the
legal fees of the Indemnified Party if the employment of
separate counsel shall have been authorized in writing by such
Indemnifying Party in connection with the defence of such
Third Party Action, the Indemnifying Party shall not have
employed counsel reasonably satisfactory to the Indemnified
Party to have charge of such Third Party Action, or the
Indemnified Party's counsel shall have advised the Indemnified
Party in writing, with a copy delivered to the Indemnifying
Party, that there is a conflict of interest that could make it
inappropriate under applicable standards of professional
conduct to have common counsel);
(b) the Indemnifying Party shall obtain the prior written approval
of the Indemnified Party before entering into or making any
settlement, compromise, admission, or acknowledgment of the
validity of such Third Party Action or any liability in
respect thereof if, pursuant to or as a result of such
settlement, compromise, admission, or acknowledgment,
injunctive or other equitable relief would be imposed against
the Indemnified Party or if, in the opinion of the Indemnified
Party, such settlement, compromise, admission, or
acknowledgment could have an adverse effect on its business
acting reasonably;
(c) no Indemnifying Party shall consent to the entry of any
judgment or enter into any settlement that does not include as
an unconditional term thereof the giving by each claimant or
plaintiff to each Indemnified Party of a release from all
liability in respect of such Third Party Action; and
(d) the Indemnifying Party shall not be entitled to control (but
shall be entitled to participate at its own expense in the
defence of), and the Indemnified Party shall be entitled to
have sole control over, the defence or settlement, compromise,
admission, or acknowledgment of any Third Party Action as to
which the Indemnifying Party fails to assume the defence
within a reasonable length of time or to the extent the Third
Party Action seeks an order, injunction, or other equitable
relief against the Indemnified Party which, if successful,
would materially adversely affect the business, operations,
assets, or financial condition of the Indemnified Party;
provided, however, that the Indemnified Party shall make no
settlement, compromise, admission, or acknowledgment that
would give rise to liability on the part of any Indemnifying
Party without the prior written consent of such Indemnifying
Party.
The parties hereto shall extend reasonable cooperation in connection
with the defence of any Third Party Action pursuant to this Article 9
and, in connection therewith, shall furnish such records, information,
and testimony and attend such conferences, discovery proceedings,
hearings, trials, and appeals as may be reasonably requested.
9.4 Direct Claims
In any case in which an Indemnified Party seeks indemnification
hereunder which is not subject to Section 9.3 because no Third Party
Action is involved, the Indemnified Party shall notify the Indemnifying
Party in writing of any Indemnified Costs which such Indemnified Party
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claims are subject to indemnification under the terms hereof. The
failure of the Indemnified Party to exercise promptness in such
notification shall not amount to a waiver of such claim unless the
resulting delay materially prejudices the position of the Indemnifying
Party with respect to such claim. Any Indemnifying Parties shall
promptly (but in no event later than fifteen (15) days after the date
on which the Indemnifying Party receives notice from the Indemnified
Party of a claim for Indemnification under the terms hereof) pay,
reimburse, repay or otherwise discharge any Indemnified Costs of the
Indemnified Party.
9.5 Determination of Breach
For purposes of determining whether an Indemnifying Party shall be
required to indemnify an Indemnified Party under this Article 9, each
representation and warranty contained in this Agreement for which
indemnification can be or is sought hereunder shall be read (including
for purposes of determining whether a breach of such representation or
warranty has occurred) without regard to materiality (including
Material Adverse Effect) qualifications that may be contained therein
provided that no claim will be made unless the aggregate of all claims
exceed fifteen thousand Canadian dollars (CDN$15,000.00), in which
event the Vendors and the Principals shall only be liable for the
amount by which such claim and any previous claims exceeds such fifteen
thousand Canadian dollars (CDN$15,000.00) amount.
9.6 Tax Related Adjustments
The Vendors, the Principals and the Purchaser agree that any payment of
Indemnified Costs made hereunder will be treated by the parties on
their Tax Returns as an adjustment to the Purchase Price. If,
notwithstanding such treatment by the parties, any payment of
Indemnified Costs is determined to be taxable income rather than
adjustment to Purchase Price by any taxing authority, then the
Indemnifying Party shall indemnify the Indemnified Party for any Taxes
payable by the Indemnified Party or any subsidiary by reason of the
receipt of such payment (including any payments under this Section
9.6), determined at an assumed marginal tax rate equal to the highest
marginal tax rate then in effect for corporate taxpayers in the
relevant jurisdiction.
9.7 No Waiver Relating to Claims for Fraud
The liability of any party under this Article 9 shall be in addition
to, and not exclusive of any other liability that such party may have
at law or equity based on such party's fraudulent acts or omissions.
None of the provisions set forth in this Agreement shall be deemed a
waiver by any party to this Agreement of any right or remedy which such
party may have at law or equity based on any other party's fraudulent
acts or omissions, nor shall any such provisions limit, or be deemed to
limit (i) the amounts of recovery sought or awarded in any such claim
for fraud; (ii) the time period during which a claim for fraud may be
brought; or (iii) the recourse which any such party may seek against
another party with respect to a claim for fraud; provided, that with
respect to such rights and remedies at law or equity, the parties
further acknowledge and agree that none of the provisions of this
Section 9.7 shall be deemed a waiver of any defences which may be
available in respect of actions or claims for fraud, including but not
limited to, defences of statutes of limitations or limitations of
damages.
9.8 Set-Off
If the Vendors and Principals or any of them are liable to the
Purchaser in respect of any indemnity contained herein prior to the
date on which the Holdback is released, and such liability is not
satisfied by the Vendors and Principals or any of them forthwith upon
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demand, then and not otherwise, the Purchaser shall be entitled to
set-off the amount of such liability against the Holdback.
Notwithstanding the foregoing, the right of the Purchaser to claim
set-off against the Holdback shall only arise at such time as the claim
by the Purchaser has been acknowledged by the Vendor and Principals in
writing, or has been finally determined by a court of competent
jurisdiction.
9.9 Qualification
Notwithstanding the foregoing, the parties have agreed to certain
rights, obligations and processes in connection with certain tax
matters pursuant to Section 4.3, for which purposes the provisions
thereof shall apply to the extent of any inconsistency with this
Article 9.
ARTICLE 10
EXCLUSIVITY
10.1 Exclusivity Obligations
The Vendors and Principals and the Acquired Corporations (collectively
sometimes called the "Vendor Group") hereby jointly and severally
covenant and agree that until the Time of Closing, none of them shall,
and each of them will ensure that none of them shall permit their
respective directors, officers, employees, representatives or advisors
or affiliates, to directly or indirectly:
(a) solicit, initiate or engage in any discussions or negotiations
with any person, firm or corporation, encourage the submission
of any enquiries, proposals, or offers by, or take any other
action intended or designed to facilitate the efforts of any
such person, other than the Purchaser, relating to:
(i) the possible acquisition of or business combination
with either of the Acquired Corporations or any of
them (whether by way of amalgamation, arrangement,
consolidation, take-over bid, purchase of shares,
purchase of assets or otherwise, directly or
indirectly);
(ii) the possible acquisition of a material portion of the
shares of capital stock or assets of either of the
Acquired Corporations;
(iii) any take-over bid or exchange offer or other
secondary purchase that, if consummated, will result
in any person: (i) other than the Vendors and
Principals, beneficially owning any securities in the
capital of either of the Acquired Corporations; (ii)
other than either of the Acquired Corporations,
beneficially owning any securities in the capital of
any of the Vendors; or
(iv) any other transaction, the consummation of which
would reasonably be expected to prevent or materially
impede, interfere with or delay the consummation of
the acquisition of all of the issued and outstanding
shares in the capital of the Acquired Corporations by
the Purchaser, and, indirectly, taking control of the
Acquired Corporations;
(any of the foregoing, a "Competing Proposal");
(b) provide non-public information with respect to either of the
Acquired Corporations or any of their respective businesses or
affairs or afford any access to the properties, books or
records of same to any person, firm or corporation, other than
the Purchaser that may wish to propose or pursue a Competing
Proposal.
10.2 Relations
Without limiting the foregoing, it is understood that any violation of
the restrictions set forth herein by any member of the Vendor Group or
by any of their respective officers, directors, employees or other
advisors or representatives shall be deemed to be a breach of this
Agreement. Each member of the Vendor Group shall, and shall direct
their respective subsidiaries, directors, officers, employees and other
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advisors to immediately cease any and all activities or discussions or
negotiations with any parties conducted heretofore with respect to any
of the foregoing.
10.3 Competing Proposal
Each member of the Vendor Group shall promptly provide written notice
to the Purchaser of any enquiry or proposal that may be received by any
of them after the execution of this agreement which may lead to or be a
Competing Proposal including the terms of the proposal and the identity
of the enquirer or offeror, provided that the Purchaser must hold such
information in strict confidence (it being understood that any breach
of such confidence could cause economic harm to the Vendors and
Principals if for any reason whatsoever the Purchaser fails to complete
the purchase of the Purchased Shares and Shareholder's Loan).
10.4 Remedies
The parties hereto acknowledge that the remedy of law for breach of the
obligations undertaken by any member of the Vendor Group is and shall
be insufficient and inadequate and that the Purchaser shall be entitled
to equitable relief, in addition to remedies at law. In the event of
any action to enforce the provisions of this Agreement, each member of
the Vendor Group waives the defence that there is an adequate remedy at
law. Without limiting any remedies the Purchaser may otherwise have, in
the event that any member of the Vendor Group refuses to perform its
obligations under this Agreement, the Purchaser shall have, in addition
to any other remedy at law and equity, the right to a specific
performance.
ARTICLE 11
GENERAL CONTRACT PROVISIONS
11.1 Closing
The closing of the transactions contemplated herein shall take place at
the Time of Closing, on the Closing Date, at the offices of the Vendors
Solicitors or at such other place as may be agreed to in writing by the
parties hereto.
11.2 Termination
Notwithstanding the provisions of Article 8, this Agreement shall be
terminated:
(a) prior to the Time of Closing if by written consent of all of
the parties hereto; or
(b) by the Purchaser if a court of competent jurisdiction or other
Governmental Entity shall have issued an order, decree, or
ruling or taken any other action (which order, decree or
ruling the parties hereto shall use their best efforts to
lift), in each case permanently restraining, enjoining or
otherwise prohibiting the transactions contemplated by this
Agreement.
In the event of a termination of this Agreement as provided above,
there shall be no liability on the part of any of the parties except
for liability arising out of a breach of this Agreement.
11.3 Right of Set-Off
Each of the parties hereto shall have the right to satisfy any amount
owing from time to time to such party by the other party with respect
to Net Assets by reducing any amount from time to time owing to the
other party by such party, howsoever arising.
11.4 Notices
All notices, requests, demands or other communications by the terms
hereof required or permitted to be given by one party to another shall
be given in writing by personal delivery, facsimile transmission or by
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registered mail, postage prepaid, addressed to such other party or
delivered to such other party as follows:
to the Vendors, c/o
the Vendors' Solicitors: Synergy Business Lawyers
Oceanic Plaza Building
680 - 1066 West Hastings Street
P.O. Box 12577
Vancouver, B.C.
V6E 3X2
Attention: Darcy Wray
Facsimile Number: 604-685-8187
Email: dwray@synergylaw.ca
to the Purchaser: Holmes & Company
Suite 1880 Oceanic Plaza
Vancouver, British Columbia, Canada
V6E 3X1
Attention: Stephen D. Holmes
Facsimile Number: 604-688-0426
Email: sdh@holmescompany.com
or at such other address as may be given by any of them to the others
in writing from time to time and such notices, requests, demands or
other communications shall be deemed to have been received, if sent by
facsimile, on the first (1st) Business Day after sending or, if sent by
registered mail, on the fifth (5th) Business Day after mailing or, if
delivered, upon the date of delivery.
11.5 Tender of Documents and Funds
Any tender of documents or money hereunder may be made upon the Vendors
and Principals or the Purchaser or their solicitors and money may be
tendered by negotiable cheque certified by a Canadian chartered bank or
trust company, bank draft or other immediately available funds.
11.6 Further Assurances
The parties hereto covenant and agree to sign such other papers, cause
such meetings to be held, resolutions passed and by-laws enacted,
exercise their vote and influence, do and perform and cause to be done
and performed such further and other acts and things as may be
necessary, proper, advisable, or desirable in order to give full effect
to this Agreement and every part thereof including obtaining in a
timely manner all necessary waivers consents and approvals and
effecting all necessary registrations and filings, and to otherwise use
all commercially reasonable efforts to satisfy or cause to be satisfied
all conditions precedent to its obligation under this Agreement.
11.7 Governing Law and Venue
This Agreement shall be governed by the laws of the Province of British
Columbia and the federal laws of Canada applicable therein. Any legal
action or other legal proceeding relating to this Agreement or its
enforcement may be brought in any provincial or federal court in the
Provinces of British Columbia or any state or federal court in the
state of Nevada. Each party hereto expressly and irrevocably (a)
consents and attorns to the jurisdiction of each provincial or federal
court in the Provinces of British Columbia and each state or federal
court in the state of Nevada in connection with any such legal
proceeding, (b) agrees that each such court shall be a convenient
forum; and (c) agrees not to assert in any such legal proceeding any
claim that it or he is not subject personally to the jurisdiction of
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such court, that such legal proceeding has been brought in an
inconvenient forum, that the venue of such proceeding is improper or
that this Agreement or its subject matter may not be enforced in or by
such court. The priority shall be first given to the British Columbia
courts.
11.8 Currency
Except as otherwise stated herein, dollar amounts referred to in this
Agreement shall be in Canadian funds.
11.9 Interpretation
All words and personal pronouns relating thereto shall be read and
construed as the number and gender of the party or parties referred to
in each case require and the verb shall be construed and agreeing with
the required word and/or pronoun. The division of this Agreement into
articles, sections, subsections and schedules and the provision of a
table of contents are for convenience of reference only and shall not
affect the interpretation or construction of this Agreement.
11.10 Rules of Construction
The parties hereto agree that they have been represented by counsel
during the negotiation and execution of this Agreement and, therefore,
waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
11.11 Expenses
Save and except as otherwise provided herein, each party shall be
responsible for its own legal, accounting and other expenses incurred
in connection with the purchase and sale of the Purchased Shares and
Shareholder's Loan, the completion of the transactions contemplated
herein and any post-closing matters in connection with the transactions
contemplated herein.
11.12 Time of the Essence
Time shall be of the essence of this Agreement and of every part hereof
and no extension or variation of this Agreement shall operate as a
waiver of this provision.
11.13 Entire Agreement
This Agreement, the Schedules hereto and the documents and instruments
and other agreements among the parties hereto as contemplated by or
referred to herein constitute the entire agreement among the parties
hereto with respect to the subject matter hereof and supersede all
prior agreements and understandings, both written and oral, among the
parties (or among their respective counsel) with respect to the subject
mater hereof including, without limitation, provided, however, that any
confidentiality agreements, or confidentiality provisions contained in
any agreements, executed between any of the parties hereto in
connection with the transactions contemplated herein shall continue in
full force and effect until the Time of Closing and shall survive any
termination of this Agreement.
11.14 Amendment
This Agreement shall not be amended except in writing signed by all of
the parties hereto, and any amendment hereof shall be null and void and
shall not be binding upon any party which has not given its consent as
aforesaid.
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11.15 Assignment
No party hereto may assign this Agreement or any part hereof without
the prior written consent of the other parties hereto. Subject to the
foregoing, this Agreement shall enure to the benefit of and be binding
upon the parties hereto and their respective heirs, executors,
administrators, successors and assigns. The Vendors and Principals
hereby acknowledge, confirm and consent to the Purchaser assigning this
Agreement to any financial institutions as security for any credit
facility by such institutions to the Purchaser or any Affiliate of the
Purchaser; provided that: (i) save as set forth below such financial
institutions shall in no way be liable for any of the liabilities or
the obligations of the Purchaser hereunder and (ii) the Purchaser shall
remain liable to the Vendors and Principals for their liabilities and
obligations hereunder in the event of such assignment or to a
subsidiary of the Purchaser. In connection with such assignment, the
Vendors and Principals shall execute such assurances, instruments and
consents as may be reasonably requested to confirm such assignment and
such financial institution shall be entitled to enforce this Agreement
directly against the Vendors and Principals. Notwithstanding anything
else contained herein, in the event that any claim is made against the
Vendors by any financial institution to which this Agreement has been
assigned, the Vendors and Principals shall be entitled to avail
themselves of any rights or entitlement they would have had if such
claim had been brought by the Purchaser.
11.16 Counterparts
This Agreement may be executed and delivered (including by facsimile
transmission) in one or more counterparts, all of which shall be
considered one and the same agreement and shall become effective when
one or more counterparts have been signed by each of the parties and
delivered to the other parties, it being understood that all parties
need not sign the same counterpart.
11.17 Severability
In the event that any of the representations, warranties or covenants
or any portion of them contained in this Agreement are unenforceable or
are declared invalid for any reason whatsoever, such unenforceability
or invalidity shall not affect the enforceability or the validity of
the remaining terms or portions thereof of this Agreement, and such
unenforceable or invalid representation, warranty or covenant or
portion thereof shall be severable from the remainder of this
Agreement.
IN WITNESS WHEREOF the parties hereto have duly executed this Agreement as of
the date first above written.
SIGNED, SEALED AND DELIVERED by )
MARK MCCOOEY in the presence of: )
)
/s/ ) /s/ Mark McCooey
- ------------------------------------ ) ---------------------------------
Witness ) MARK MCCOOEY
)
SIGNED, SEALED AND DELIVERED by )
LYNN MUELLER in the presence of: )
)
/s/ ) /s/ Lynn Mueller
- ------------------------------------ ) ---------------------------------
Witness ) LYNN MUELLER
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)
SIGNED, SEALED AND DELIVERED by )
JADE EAGLE TRUST in the presence of: )
)
/s/ ) /s/ Mark McCooey
- ------------------------------------ ) ---------------------------------
Witness ) JADE EAGLE TRUST
)
SIGNED, SEALED AND DELIVERED by )
LYNN MUELLER in the presence of: )
)
/s/ ) /s/ Lynn Mueller
- ------------------------------------ ) ---------------------------------
Witness ) MUELLER FAMILY TRUST
)
EXECUTED by ARIES DEVELOPMENT LTD. ) ARIES DEVELOPMENT LTD.
in the presence of: ) Per:
)
/s/ ) /s/ Paul Callon
- ------------------------------------ ) ----------------------------------
Witness ) Authorized Signatory
)
SIGNED, SEALED AND DELIVERED by )
PAUL CALLON in the presence of: )
)
/s/ ) /s/ Paul Callon
- ------------------------------------ ) ---------------------------------
Witness ) PAUL CALLON
)
EXECUTED by EARTH SOURCE ENERGY CORP. ) EARTH SOURCE ENERGY CORP.
in the presence of: ) Per:
)
/s/ ) /s/ Mark McCooey
- ------------------------------------ ) --------------------------------
Witness ) Authorized Signatory
)
EXECUTED by PACIFIC GEO EXCHANGE INC. ) PACIFIC GEO EXCHANGE INC.
in the presence of: ) Per:
)
/s/ ) /s/ Lynn Mueller
- ------------------------------------ ) --------------------------------
Witness ) Authorized Signatory
)
EXECUTED by ESSENTIAL INNOVATIONS ) ESSENTIAL INNOVATIONS TECHNOLOGY CORP.
TECHNOLOGY CORP. in the presence of: ) Per:
)
/s/ ) /s/ Jason McDiarmid
- ------------------------------------ ) --------------------------------
Witness ) Authorized Signatory