EXHIBIT 10.4
MUTUAL INDEMNITY AGREEMENT
THIS AGREEMENT made as of the 30th day of April, 1998
A M O N G:
BANK OF MONTREAL, a chartered bank established under the
laws of Canada and having an office at 00 Xxxxx Xxxxxx Xxxx,
0xx Xxxxx, Xxxxxxx, Xxxxxxx X0X 0X0
(hereinafter called "BMO")
OF THE FIRST PART;
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724 SOLUTIONS INC., a corporation incorporated
under the laws of Ontario
(hereinafter called "724")
OF THE SECOND PART.
W H E R E A S:
A. In December 1990, the Ontario Ministry of Finance, Retail Sales Tax Branch
published Ontario Sales Tax Information Bulletin 1-90 in which it stated
that "the sale of software under a specifically negotiated and signed
licence arrangement between the producer and the user is considered to be
the provision of a non-taxable service."
B. In February 1994, the Ontario Ministry of Finance, Retail Sales Tax Branch
published Ontario Sales Tax Information Bulletin 1-94 in which it stated
that "sales of software by producers directly to users under a negotiated
and signed licence arrangement between them are considered to be sales of
non-taxable services."
C. On June 26, 1997 the JOB GROWTH AND TAX REDUCTION ACT, 1997, which amended
the RETAIL SALES TAX ACT to establish that prescribed computer software is
exempt from retail sales tax, received Royal Assent.
D. In October 1997, the Ontario Minister of Finance proposed amendments to
Regulation 1012 under the RETAIL SALES TAX ACT which prescribe the
circumstances in which computer software may be purchased exempt from tax
(the "Proposed Amendments").
E. Effective April 30, 1998, BMO and 724 entered into a specifically
negotiated and signed licence agreement (as amended, renewed and/or
restated from time to time, the "Technology Licence Agreement") pursuant to
which 724 agreed to licence computer software to BMO that is to be
developed for BMO in 1998 and 1999 (the "Licensed Technology").
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F. As of the date hereof, the Proposed Amendments have not been finalized by
the Ministry of Finance.
G. BMO and 724 have reviewed the Proposed Amendments as they are drafted as of
the date hereof and have determined that retail sales tax should not be
payable in respect of any property or services to which the license fees
pursuant to the Technology License Agreement relate (the "Indemnifiable
Activity").
H. BMO and 724 have agreed that, notwithstanding Section 3.4 of the Technology
License Agreement, they shall share, in equal amounts, any retail sales tax
obligations pertaining to the license fees payable in respect of the
Indemnifiable Activity.
NOW THEREFORE, in consideration of the mutual covenants and agreements contained
in this Agreement and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
ARTICLE 1 - INDEMNIFICATION OF 724
1.1 In the event that the Ontario Ministry of Finance or any other taxing
authority (collectively, the "Ministry of Finance") assesses, reassesses,
determines, redetermines, levies, asserts, or imposes an amount of retail
sales tax, interest, penalties, expenses, fines, demands or other
liabilities as a result of, arising from, in respect of, with respect to,
on account of, or in connection with the Indemnifiable Activity (an "RST
Obligation") against, resulting to or upon, 724, BMO agrees to reimburse,
indemnify, defend and hold harmless 724 for, from and against fifty per
cent (50%) of any and all such RST Obligation and fifty percent (50%) of
all out-of-pocket consequential costs, expenses, claims, demands, fines,
and actions, judgements, causes of action, assessments, levies or
liabilities, including, without limitation, accounting and legal expenses,
and any interest accrued thereon (collectively referred to as the "Related
Claims").
ARTICLE 2 - INDEMNIFICATION OF BMO
2.1 In the event that the Ministry of Finance assesses, reassesses, determines,
redetermines, levies, asserts, or imposes an RST Obligation against,
resulting to, or upon, BMO, 724 agrees to reimburse, indemnify, defend and
hold harmless BMO for, from and against fifty per cent (50%) of the amount
of all such RST Obligation and the Related Claims.
ARTICLE 3 - PROCEDURAL MATTERS
GENERAL
3.1 The party which has been audited, assessed and/or reassessed or which has
been informed of a pending audit, assessment and/or reassessment (proposed
or otherwise), by the Ministry of Finance in respect of an RST Obligation
(the "Assessed Party"), shall be
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obligated to contest, settle, compromise or dispute such Claim in
accordance with the terms hereof.
NOTIFICATION REQUIREMENTS
3.2 The Assessed Party shall notify the other party hereto (the "Other Party")
of a potential claim for indemnification pursuant to Article 1 or 2 hereof
(a "Potential Claim") by written notice (the "Notice of Potential Claim")
after being informed by the Ministry of Finance (whether orally or in
writing) that the Ministry of Finance is of the opinion, view,
understanding or similar impression that an RST Obligation has not been
paid or remitted. It is acknowledged and agreed that the Assessed Party
shall have the right to act prudently in the defense of any such
assessment, reassessment, determination, redetermination, levy, assertion,
or imposition of an RST Obligation ("RST Claim") and may take all steps
that it considers necessary or advisable to preserve defences available in
the circumstances, even in advance of notification from the Other Party as
to whether it wishes to participate in the negotiation, settlement or
defense of the RST Claim. Provided, however, that the Assessed Party shall
act expeditiously and in good faith in providing notice to the Other Party
of any pending audit by, or meeting with, the applicable governmental
authority so as to give the Other Party and its representatives the right
to attend at such meetings with representatives of the Ministry of Finance
if they respond expeditiously to such notice and, in particular, having
regard to the obligation of the Assessed Party to respond to the applicable
governmental authority on a timely basis.
3.3 The Other Party shall have the right to elect, by written notice delivered
to the Assessed Party within 15 days of receipt by the Other Party of the
Notice of Potential Claim, to participate in the negotiation, settlement or
defense of the RST Claim.
3.4 The Assessed Party's right to indemnification shall not be prejudiced by
the good faith failure of the Assessed Party to provide timely notice to
the Other Party, except:
(i) to the extent that the delay in notification is the direct cause
of an increase in the RST Claim or the Related Claims otherwise
payable; or
(ii) if the steps taken by the Assessed Party in the defense of the
RST Claim prior to the delivery of the Notice of Potential Claim
to the Other Party has denied the Other Party the ability to
mount the defense of the RST Claim in the manner it would have
mounted such defense to a significant extent and such denial of
opportunity is such that, objectively, the parties' ability to
mount the defense of the RST Claim has been significantly
impaired.
3.5 The Assessed Party and the Other Party shall co-operate fully with each
other with respect to the RST Claim and shall keep each other fully advised
with respect thereto (including supplying copies of all relevant
documentation and notice of any settlement terms proposed by the Ministry
of Finance on a timely basis). The Assessed Party and the Other Party
shall keep all such information provided by or on behalf of the other in
the strictest confidence and shall not use such information except for
purposes of the
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negotiation, contest and/or settlement of the RST Claim or disclose such
information to any person other than their employees or professional
advisors where necessary for such permitted use.
NEGOTIATION, SETTLEMENT AND DEFENCE PROCEDURES
3.6 (a) If the Other Party indicates (in accordance with the provisions of
Section 3.3 hereof) to the Assessed Party that it desires to
participate in the defence, negotiation and settlement of the RST
Claim, the following procedures shall be applicable:
(i) The counsel to be retained to conduct such defence and
settlement proceedings on behalf of the Assessed Party and,
where applicable, the Other Party, shall be selected by the
Assessed Party acting reasonably and in good faith (and after
having given good faith consideration to such suggestions in
this regard as may be made by the Other Party);
(ii) The fees and disbursements of such counsel, together with such
expert accounting and other advisors as shall be retained by
such counsel to assist in the defence or settlement
negotiations, shall be born equally by the Assessed Party and
the Other Party (as contemplated by Articles 1 and 2 hereof);
(iii) If the Other Party shall nonetheless desire to retain
independent advisors, the fees and disbursements of such
advisors shall be for the sole account of the Other Party and
shall not be reimbursable in accordance with the terms hereof;
(iv) The conduct of the defence, and any settlement of a RST Claim,
shall be carried out subject to the mutual agreement of both
parties. The parties shall co-operate with each other in good
faith to promptly agree upon the conduct of the defence and any
settlement; and
(v) If the parties cannot agree on the conduct of the defence and
any settlement, the parties shall defend the RST Claim until
such time as both parties mutually agree to a settlement of the
RST Claim or final resolution, including any appeals of the RST
Claim. Until such final resolution, the parties shall cooperate
with each other in good faith and provide any assistance
reasonably requested in the circumstances (provided that any
associates costs shall be considered to be "Related Costs"
contemplated by Articles 1 and 2 hereof).
(b) If the Other Party indicates (in accordance with the provisions of
Section 3.3 hereof) that it does not desire to participate in the
defense, negotiation and settlement of the RST Claim or if the Other
Party does not respond to the Notice of Potential Claim in accordance
with the provisions of Section 3.3 hereof, the following procedures
shall be applicable:
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(i) The Assessed Party shall be entitled to conduct the negotiation,
settlement and/or defense of the RST Claim as it shall determine
to be appropriate in the circumstances, provided that it acts in
good faith;
(ii) The Other Party shall be bound by the results obtained by the
Assessed Party with respect to the RST Claim; and
(iii) The fees and disbursements of counsel retained by the Assessed
Party to conduct such defense, negotiation and settlement
proceedings, together with such expert accounting and other
advisors as shall be retained by such counsel to assist in the
defense or settlement negotiations, shall be born equally by the
Assessed Party and the Other Party (as contemplated by Articles
1 and 2 hereof).
3.7 If any RST Claim is of a nature such that Assessed Party is required by
applicable law to make a payment to the Ministry of Finance before the
completion of settlement negotiations or related legal proceedings, the
Assessed Party may make such payment and the Other Party shall, after
demand by the Assessed Party, reimburse the Assessed Party for such payment
(in accordance with Article 1 hereof if the Assessed Party is 724 or in
accordance with Article 2 hereof if the Assessed Party is BMO). Such
payments shall be subject to re-adjustment after the parties' respective
rights and obligations in respect of the RST Claim calculated pursuant to
Articles 1 and 2 are ultimately determined after the final resolution,
including any appeals, of the RST Claim.
3.8 Any payment made in accordance with Article 1 or 2 (including pursuant to
Section 3.7 above) and any payment otherwise made by either party or both
parties to the Ministry of Finance in respect of an RST Claim shall be
considered by the parties to be made in respect of and on account of the
following:
(a) if BMO is the Assessed Party: (i) the payment to be made by 724 to BMO
pursuant to Article 2 and/or Section 3.7 shall be treated by the
parties as a refund by 724 to BMO resulting from a reduction of the
amount of the fees payable pursuant to the Technology License
Agreement to which the RST Claim relates AB INITIO; and (ii) any
payment made by BMO to the Ministry of Finance shall be considered to
have been made as or on account of the applicable RST Claim that is
payable pursuant to Section 3.4 of the Technology Licence Agreement
(as required by applicable law); and
(b) if 724 is the Assessed Party: (i) the payment to be made by BMO to 724
pursuant to Article 1 and/or Section 3.7 hereof shall be considered to
be as or on account of the applicable RST Claim that is payable
pursuant to Section 3.4 of the Technology License Agreement (as
required by applicable law); and (ii) any payment made by 724 to the
Ministry of Finance shall be treated by the parties as a refund to BMO
resulting from a reduction of the amount of the fees payable pursuant
to the Technology
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Licence Agreement to which the RST Claim relates AB INITIO and in
respect of which BMO shall be deemed to have irrevocably directed 724
to pay such sum to the Ministry of Finance in respect of the taxes
payable pursuant to Section 3.4 of the Technology Licence Agreement.
BMO and 724 covenant and agree to amend their books and records and/or file
any amended tax returns as shall be reasonably required to confirm and
acknowledge the nature and effect of the payments contemplated herein in
accordance with this Section 3.8, all with effect as at the date of payment
of the license fees in question.
ARTICLE 4 - GST GROSS-UP
4.1 If the Assessed Party, acting reasonably, determines that any payment (the
"Payment") made pursuant to this Agreement is subject to taxes payable
under the EXCISE TAX ACT (Canada) ("GST") or under any provincial
legislation similar to the EXCISE TAX ACT, or under any successor
legislation of like or similar effect (collectively, the "ETA"), or if any
sales or other similar tax under any provincial legislation not
substantially harmonized with the ETA is applicable to such Payment, the
amount of the Payment shall be increased by the amount of all applicable
taxes to the extent necessary to compensate the Assessed Party for any net
GST or similar tax cost not recoverable as input tax credit or similar tax
recoveries.
ARTICLE 5 - REFUND PROCEDURES
5.1 If any amount of retail sales tax, interest, penalties, expenses, fines,
demands or other liabilities as a result of, arising from, in respect of,
with respect to, on account of, or in connection with an RST Claim is
refunded by the Ministry of Finance to the Assessed Party after the Other
Party has made a payment to the Assessed Party in accordance with Article 1
or 2 hereof in respect of such RST Claim, the Assessed Party shall pay to
the Other Party as soon as is reasonably possible fifty percent (50%) of
the amount of the refund.
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ARTICLE 6 - GENERAL
6.1 Any notice or other communication by the terms hereof required or permitted
to be given by either party to the other shall be given in writing by
personal delivery, by commercial courier or by registered mail, postage
prepaid, or by facsimile transmission addressed to the other party or
delivered to the other party, as the case may be, as follows:
to BMO at: 00 Xxxxx Xxxxxx Xxxx, 0xx Xxxxx
Xxxxxxx, Xxxxxxx
X0X 0X0
Attention: Xxxxx Xxxxxxxxxx, Chief
Technology Officer
Telecopier: (000) 000-0000
with a copy to: Law Department
First Xxxxxxxx Xxxxx, 00xx Xxxxx
Xxxxxxx, Xxxxxxx
X0X 0X0
Attention: Xxxxx Xxxxx, Vice-President
Telecopier: (000) 000-0000
to 724 at: 724 Solutions Inc.
0000 Xxxxx Xxxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxx
X0X 0X0
Attention: Xxxxxxxxxxx Xxxxxxxx, President
Telecopier: (000) 000-0000
or at such other address as may be given by either of them to the other in
writing from time to time and such notice or other communication shall be
deemed to have been given and received on the day it is so delivered at
such address, provided that if such day is not a business day or if the
delivery is made after normal business hours, then the notice shall be
deemed to have been given and received on the next business day. Any notice
sent by prepaid registered mail from Toronto shall be deemed to have been
given and received on the fourth business day following the date of its
mailing. Any notice transmitted by facsimile on a business day during
normal business hours in Toronto shall be deemed to have been given and
received on the day of transmission or, if otherwise, on the first business
day after its transmission, provided that, in either case, confirmation of
transmission is retained. If notice is delivered by mail and if regular
mail service shall be interrupted by strikes or other irregularities, such
notice or other communication shall be deemed to have been received on the
second business day following the resumption of normal mail service.
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6.2 This Agreement shall enure to the benefit of and shall be binding upon 724
and BMO and their respective successors and assigns.
6.3 This Agreement shall be governed by and construed in accordance with the
laws of the Province of Ontario. The parties hereto hereby irrevocably
attorn to the non-exclusive jurisdiction of the courts of the Province of
Ontario.
6.4 This Agreement and its terms and conditions shall not be disclosed by
either party except as required by law or to enforce a party's rights
hereunder.
IN WITNESS WHEREOF the parties have executed this agreement the day of
February, 1999, but with effect as of the date first written above.
BANK OF MONTREAL
Per: /s/ Xxxxx Xxxxxxxxxx
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I have authority to bind the company
724 SOLUTIONS INC.
Per: /s/ Xxxxxxxxxxx Xxxxxxxx
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I have authority to bind the company
