EXHIBIT 10.29
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SHARE PURCHASE AGREEMENT
========================
AMONG:
SHEMIRAN HOLDINGS INC.
- and -
A. TINO ALAVIE
- and -
XXXXXX XXXXXXXX
- and -
XXXXX TECHNOLOGY CO.
- and -
E-TEK DYNAMICS, INC.
- and -
ELECTROPHOTONICS CORPORATION
May 26, 1999
TABLE OF CONTENTS
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ARTICLE 1 INTERPRETATION....................................................... 3
1.1 Definitions............................................................ 3
1.2 Gender and Number...................................................... 9
1.3 Currency............................................................... 9
1.4 Accounting Principles.................................................. 9
1.5 Headings............................................................... 9
1.6 Tax Definitions........................................................ 9
ARTICLE 2 EXHIBITS & SCHEDULES................................................. 10
2.1 Description of Exhibits................................................ 10
2.2 Description of Schedules............................................... 10
ARTICLE 3 AGREEMENT OF PURCHASE AND SALE....................................... 11
3.1 Offer to Purchase...................................................... 11
3.2 Agreement of Vendors to Sell........................................... 12
ARTICLE 4 PAYMENT OF PURCHASE PRICE............................................ 12
4.1 Payment of Purchase Price.............................................. 12
4.2 Security for Deferred Consideration.................................... 12
4.3 Shareholder Debt and Withholding Taxes................................. 12
4.4 Pre-Closing Amalgamation............................................... 13
ARTICLE 5 EXCHANGE RIGHTS...................................................... 13
5.1 Exchange............................................................... 13
5.2 Funding of the Purchaser............................................... 13
5.3 Reservation of Shares of E-TEK Common Stock............................ 15
5.4 Notification of Certain Events......................................... 15
5.5 Delivery of Shares of E-TEK Common Stock............................... 15
5.6 Tender Offers.......................................................... 16
5.7 E-TEK Not to Vote Class A Shares....................................... 16
5.8 Qualification of Shares of E-TEK Common Stock.......................... 16
5.9 Amendments, Modifications, etc......................................... 17
5.10 Ministerial Amendments................................................. 17
5.11 Survival............................................................... 18
5.12 Changes in Capital of E-TEK and the Purchaser.......................... 18
ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF THE VENDORS........................ 18
6.1 Joint and Several Representations and Warranties of the Vendors........ 18
6.2 Several Representations and Warranties of Vendors...................... 37
6.3 Interpretation of Section 6.2.......................................... 40
ARTICLE 7 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER...................... 40
7.1 Representations and Warranties of the Purchaser........................ 40
ARTICLE 8 REPRESENTATIONS AND WARRANTIES OF E-TEK.............................. 42
8.1 Representations and Warranties of E-TEK................................ 42
ARTICLE 9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES........................... 45
9.1 Survival of Representations and Warranties of the Vendors.............. 45
9.2 Survival of Representations and Warranties of the Purchaser and E-TEK.. 45
ARTICLE 10 COVENANTS OF THE VENDORS............................................ 45
10.1 Covenants of the Vendors............................................... 45
ARTICLE 11 COVENANTS OF THE PURCHASER AND E-TEK................................ 52
11.1 Covenants of the Purchaser............................................. 52
ARTICLE 12 PURCHASER'S CONDITIONS OF CLOSING................................... 54
12.1 Conditions for the Benefit of the Purchaser............................ 54
12.2 Non-Fulfilment of Conditions etc. for the Benefit of the Purchaser..... 57
ARTICLE 13 VENDORS' CONDITIONS OF CLOSING...................................... 58
13.1 Conditions for the Benefit of the Vendors.............................. 58
13.2 Non-Fulfilment of Conditions etc. for the Benefit of the Vendors....... 60
ARTICLE 14 CLOSING ARRANGEMENTS................................................ 60
14.1 Date, Time and Place of Closing........................................ 60
14.2 Closing Arrangements................................................... 60
ARTICLE 15 INDEMNIFICATION..................................................... 61
15.1 Indemnification by the Vendors......................................... 61
15.2 Indemnification by the Purchaser and E-TEK............................. 62
15.3 Procedure for Indemnification.......................................... 62
15.4 Subsequent Recovery.................................................... 64
15.5 Details of Claims...................................................... 65
15.6 Mitigation............................................................. 65
15.7 Selling Shareholders' Representatives.................................. 66
ARTICLE 16 MISCELLANEOUS....................................................... 66
16.1 Further Assurances..................................................... 66
16.2 Announcements.......................................................... 66
16.3 Notices................................................................ 66
16.4 Time of the Essence.................................................... 68
16.5 Costs and Expenses..................................................... 68
16.6 Applicable Law......................................................... 68
16.7 Entire Agreement....................................................... 68
16.8 Effect of Closing...................................................... 69
16.9 Counterparts and Facsimile............................................. 69
16.10 Assignment............................................................. 69
16.11 Parties in Interest.................................................... 69
16.12 Third Parties.......................................................... 69
16.13 English Language....................................................... 69
16.14 Facsimile Signature.................................................... 70
THIS AGREEMENT dated as of the 26th day of May, 1999
AMONG:
SHEMIRAN HOLDINGS INC., a corporation incorporated
under the laws of Ontario
(hereinafter called "Shemiran")
OF THE FIRST PART
- and -
A. TINO ALAVIE, of Richmond Hill, in the Province of
Ontario
(hereinafter called "Dr. Alavie")
OF THE SECOND PART
- and -
XXXXXX XXXXXXXX, of Xxxx City, in the Province of
Ontario
(hereinafter called "Xx. Xxxxxxxx")
OF THE THIRD PART
(Shemiran, Dr. Alavie and Xx. Xxxxxxxx are hereinafter
collectively referred to as the "Vendors")
- and -
XXXXX TECHNOLOGY CO., an unlimited company formed under
the laws of the Province of Nova Scotia
(hereinafter called the "Purchaser")
OF THE FOURTH PART
- and -
E-TEK DYNAMICS, INC., a corporation incorporated under
the laws of the State of Delaware
(hereinafter called "E-TEK")
OF THE FIFTH PART
- and -
ELECTROPHOTONICS CORPORATION., a corporation
incorporated under the laws of the Province of Ontario
(hereinafter called the "Corporation")
OF THE SIXTH PART
WHEREAS the Vendors are the registered and beneficial owners of certain of
the issued and outstanding common shares and options to purchase shares in the
capital of the Corporation;
AND WHEREAS the Purchaser wishes to purchase from the Vendors and the
Vendors wish to sell to the Purchaser the Purchased Shares (as defined herein);
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the
respective covenants, agreements, representations, warranties, indemnities, and
payments hereinafter set forth, and for other good and valuable consideration
(the receipt and sufficiency of which are acknowledged by each party) the
parties hereto agree as follows:
Article 1
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INTERPRETATION
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1.1 Definitions
-----------
Whenever used in this Agreement, unless there is something in the subject
matter or context inconsistent therewith, the following words and phrases shall
have the respective meanings ascribed to them as follows:
1.1.1 "Affiliate" has the meaning set out in the Business Corporations Act
(Ontario) as in effect on the date hereof.
1.1.2 "Agreement" means this agreement and all the Exhibits and Schedules
attached hereto.
1.1.3 "Articles of Incorporation" means the Certificate and Articles of
Incorporation of the Corporation dated August 9, 1993 and the
Certificate and Articles of Amendment dated September 26, 1997.
1.1.4 "Financial Statements" means the financial statements of the
Corporation as at the Financial Year End consisting of the balance
sheet of the Corporation as at the
Financial Year End and the accompanying statements of operations,
retained earnings, income statement and changes in financial
position for the 12 month period then ended.
1.1.5 "Business" means the business currently carried on by the
Corporation which consists of the design, development and
manufacture of fibre optic devices, components and instruments for
telecommunications and sensing applications.
1.1.6 "Business Day" means a day other than a Saturday, Sunday or any
other day on which the principal chartered banks located in the City
of Toronto are not open for business during normal banking hours.
1.1.7 "Cdn$" means Canadian dollars.
1.1.8 "Claim" has the meaning set out in Section 15.3.
1.1.9 "Class A Shares" means Class A shares without nominal or par value
in the capital of the Purchaser;
1.1.10 "Closing" means the completion of the transactions herein
contemplated, including the sale to and purchase by the Purchaser of
the Purchased Shares hereunder as herein contemplated.
1.1.11 "Closing Date" means June 10, 1999 or such earlier or later date as
may be agreed upon by both parties in writing.
1.1.12 "Common Shares" means common shares without par value in the capital
of the Corporation;
1.1.13 "Debt Instrument" means any bond, debenture, promissory note or
other instrument evidencing indebtedness for borrowed money.
1.1.14 "Deferred Consideration" means that portion of the cash
consideration payable for the purchase of Common Shares that is not
due until a date subsequent to the Closing Date.
1.1.15 "Employee Benefits" means:
(i) salaries, wages, bonuses, vacation entitlements, commissions,
fees, stock option plans, stock purchase plans, incentive
plans, deferred compensation plans, profit-sharing plans and
other similar benefits, plans or arrangements;
(ii) insurance, health, welfare, drug, disability, pension,
retirement, travel, hospitalization, medical, dental, legal,
counselling, eye care and other similar benefits, plans or
arrangements; and
(iii) agreements or arrangements with any labour union or employee
association, written or oral employment agreements or
arrangements and agreements or arrangements for the retention
of the services of independent contractors, consultants or
advisors.
1.1.16 "Employee Shareholders" means those shareholders who are employees
of the Corporation, other than the Vendors.
1.1.17 "Encumbrance" means any mortgage, charge, easement, encroachment,
lien, adverse claim, assignment by way of security, security
interest, servitude, pledge, hypothecation, conditional sale
agreement, security agreement, title retention agreement, financing
statement, option, right of pre-emption, privilege, obligation to
assign, license or sub-license Intellectual and Industrial Property
Rights or other encumbrance.
1.1.18 "Escrow Agent" means the Escrow Agent appointed under the Escrow
Agreement, who shall be jointly selected by the Vendors and the
Purchaser.
1.1.19 "Escrow Agreement" means the escrow agreement, substantially in the
form attached as Exhibit A, made among the Vendors, the Purchaser
and the Escrow Agent and to which the offerees who accept the Offer
agree to be bound.
1.1.20 "Escrow Funds" means $4,300,000 deposited in escrow with the Escrow
Agent in accordance with this Agreement and the Offers and the
Escrow Agreement, as such amount may be increased by income earned
thereon from time to time, and reduced by the amount of all charges
which the Escrow Agent from time to time may pay out of amounts held
in escrow, in each case in accordance with the terms of the Escrow
Agreement, this Agreement and the Offers.
1.1.21 "E-TEK Common Stock" means shares of Common Stock of E-TEK.
1.1.22 "E-TEK Indemnity Agreement" means the indemnity agreement,
substantially in the form attached as Exhibit I, to be granted by E-
TEK in favour of the Selling Shareholders.
1.1.23 "Financial Year End" means July 31, 1998.
1.1.24 "Government Authority" means any international, national, state,
federal, provincial, county, municipal, district or local government
body, or any public administrative or regulatory agency, political
subdivision, commission, board or body, or representative of any of
the foregoing, foreign or domestic, established by any such
government or government body;
1.1.25 "Guarantee" means any agreement, contract or commitment providing
for the guarantee, indemnification, assumption or endorsement or any
like commitment with respect to the obligations, liabilities
(contingent or otherwise) or indebtedness of any Person.
1.1.26 "Institutional Shareholders" means those shareholders who are not
Employee Shareholders or Vendors.
1.1.27 "Intellectual and Industrial Property Rights" means:
(i) all trade-marks (including logos), trade names, service marks
and brand names and all applications therefor;
(ii) all patents (including divisions, reissues, renewals and
extensions) and all applications therefor;
(iii) all copyrights, industrial designs and other industrial
property rights and all applications therefor;
(iv) all know-how, trade secrets and any licensed property or
technology used in carrying on the business of the
Corporation; and
(v) all unrecorded assets such as custom-written source code and
executable object code;
both domestic and foreign and whether or not registered.
1.1.28 "Interested Person" means any present or former officer, director,
shareholder, employee, consultant or advisor of or to the
Corporation or any Person with which the Corporation or any of the
foregoing does not deal at arm's length within the meaning of the
Income Tax Act (Canada).
1.1.29 "Interim Financial Statements" means the financial statements of the
Corporation as at January 31, 1999 consisting of the balance sheet
of the Corporation as at January 31, 1999 and the accompanying
statement of income and deficit and statement of changes in
financial position for the period between the Financial Year End and
January 31, 1999.
1.1.30 "Key Employees" means Tino Alavie, Xxxxxx Xxxxxxxx, Xxx Xxx, Ming
Xxxx Xx, Xxxxx Say and Xxxx Xxxxxxxxx.
1.1.31 "knowledge of the Vendors" means, other than with respect to Section
6.1.36, the knowledge of the Vendors after having made such
reasonable enquiries of the records of the Corporation and the
Director of Finance and Administration of the Corporation, a
management employee who is reasonably likely to have knowledge of
relevant matters as are necessary to obtain informed knowledge.
1.1.32 "Leased Property" means all the right, title and interest of the
Corporation in and to the subject matter (whether realty or
personality) of the Leases.
1.1.33 "Leases" means the real or personal property leases or other rights
of occupancy relating to real property which the Corporation is a
party to or bound by or subject
to, including, without limitation, those set forth and described in
the Disclosure Schedule.
1.1.34 "Legal Proceeding" means any litigation, action, suit,
investigation, hearing, claim, complaint, grievance, arbitration
proceeding or other proceeding and includes any appeal or review and
any application for same.
1.1.35 "material" means, in the context of the Corporation, any event or
occurrence which has or could have a financial impact on the
Corporation exceeding Cdn $25,000.
1.1.36 "New Options" means the options to be issued by E-TEK pursuant to
Section 3.3 hereof;
1.1.37 "Note" means the form of promissory note attached as Exhibit J to be
issued by the Purchaser to each of the Selling Shareholders in the
aggregate principal amount of the Deferred Consideration;
1.1.38 "Offers" has the meaning ascribed thereto in Section 3.1;
1.1.39 "Option" means a Vested Option or an Unvested Option;
1.1.40 "Option Holder" means the holder of an Option;
1.1.41 "ordinary course" when used in relation to the conduct by the
Corporation of the Business, means any transaction which constitutes
an ordinary day-to-day business activity, conducted in a
commercially reasonable and businesslike manner, having no unusual
or special features, and being such as a Person of similar nature
and size and engaged in a similar business might reasonably be
expected to carry out from time to time.
1.1.42 "Person" means any individual, corporation, firm, partnership, sole
proprietorship, syndicate, joint venture, trustee, trust, any
unincorporated organization or association and any Tribunal; and
pronouns have a similar extended meaning.
1.1.43 "Products" means the fibre optic devices, components and instruments
for telecommunications and sensing applications.
1.1.44 "Purchase Price" means the purchase price payable by the Purchaser
to the Vendors for the Purchased Shares provided for in Article 4.
1.1.45 "Purchased Shares" means all of the issued and outstanding Common
Shares without par value in the capital of the Corporation owned by
the Vendors and includes any shares of a successor corporation.
1.1.46 "Registration Rights Agreement" means the registration rights
agreement, substantially in the form attached hereto as Exhibit B,
made among the Vendors, the offerees under the Offer who accept the
Offer and E-TEK.
1.1.47 "Selling Shareholders" means the Vendors, the Employee Shareholders
and the Institutional Shareholders.
1.1.48 "Selling Shareholders' Representatives" means those persons
appointed as Selling Shareholders' Representatives under the Selling
Shareholders' Representatives Agreement.
1.1.49 "Selling Shareholders' Representatives Agreement" means the
agreement to be made between the Selling Shareholders and the
Selling Shareholders' Representatives substantially in the form
attached hereto as Exhibit G.
1.1.50 "Stock Option Plan" means the employee stock option plan of the
Corporation dated September 26, 1997 providing for the issuance by
the Corporation of options for the purchase of shares of the
Corporation.
1.1.51 "Subsidiary" has the meaning ascribed thereto in the Business
Corporations Act (Ontario) as in effect on the date hereof.
1.1.52 "Time of Closing" means 10:00 a.m. (Toronto time) on the Closing
Date or such other time on the Closing Date as the parties may agree
as the time at which the Closing shall take place.
1.1.53 "Tribunal" means:
(i) any court (including a court of equity);
(ii) any federal, provincial, state, county, municipal or other
government or governmental department, ministry, commission,
board, bureau, agency or instrumentality;
(iii) any securities commission, stock exchange or other regulatory
or self-regulatory body;
(iv) any board of trade, chamber of commerce or other business or
professional organization or association;
(v) any arbitrator or arbitration tribunal; and
(vi) any other tribunal;
whether domestic or foreign.
1.1.54 "Unvested Option" means any option granted by the Corporation and
outstanding on the Closing Date to purchase Common Shares, that is
not
exercisable by the holder thereof on or before the Closing Date and
is listed and identified as such in Schedule 3.
1.1.55 "Vendors" means collectively, the parties to this Agreement other
than the Purchaser and the Corporation.
1.1.56 "Vested Options" means any option granted by the Corporation and
outstanding on the Closing Date to purchase Common Shares, that is
exercisable by the holder thereof on or before the Closing Date and
is listed and identified as such in Schedule 3.
1.2 Gender and Number
-----------------
In this Agreement words importing a specific gender include all genders and
words importing the singular include the plural and vice versa.
1.3 Currency
--------
Unless otherwise indicated all dollar amounts referred to in this
Agreement, including the symbol "$", refer to lawful money of the United States
of America.
1.4 Accounting Principles
---------------------
Wherever in this Agreement reference is made to generally accepted
accounting principles such reference shall be deemed to be to the generally
accepted accounting principles from time to time approved by the Canadian
Institute of Chartered Accountants, or any successor entity, applicable as at
the date on which such principles are applied and applied in accordance with the
generally accepted accounting principles from time to time approved by the
Financial Accounting Standards Board, or any successor entity.
1.5 Headings
--------
The division of this Agreement into Articles and Sections and the use of a
table of contents and headings are for convenience of reference only and shall
not affect the interpretation of this Agreement.
1.6 Tax Definitions
---------------
Whenever used in this Agreement, the following words and phrases shall have
the respective meanings ascribed to them as follows:
1.6.1 "Income Tax Act (Canada)" means, collectively, the Income Tax Act,
R.S.C. 1985, 5th Supplement, the Income Tax Application Rules, 1971,
S.C. 1970-71-72 c. 63 and the Income Tax Regulations, as amended to
date.
1.6.2 "Tax Legislation" means, collectively, the Income Tax Act (Canada)
and the corresponding statute law, case law, rules, regulations,
interpretation bulletins and releases, orders and decrees of any
other jurisdiction, domestic or foreign.
1.6.3 "Taxes" means all taxes payable under any applicable Tax
Legislation, including, without limitation, income taxes, excise
taxes, sales taxes, goods and services taxes, value added taxes,
transfer taxes, property taxes, capital taxes, import and customs
duties and other governmental charges and assessments, and includes
additions by way of penalties, interest, fines and other amounts
with respect thereto.
1.6.4 "Tax Returns" means all tax returns required to be filed under the
provisions of any applicable Tax Legislation and any tax forms
required to be filed, whether in connection with a Tax Return or
not, under the provisions of any applicable Tax Legislation.
Article 2
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Exhibits & Schedules
--------------------
2.1 Description of Exhibits
-----------------------
The following are the Exhibits attached to and incorporated in this
Agreement by reference and deemed to be a part hereof:
Exhibit A - Form of Escrow Agreement
Exhibit B - Form of Registration Rights Agreement
Exhibit C1 - Form of Employment Agreement for Key Employees who are Vendors
Exhibit C2 - Form of Employment Agreement for Key Employees who are not Vendors
Exhibit D1 - Form of Release by Vendors
Exhibit D2 - Form of Release in favour of Vendors
Exhibit E - Form of Legal Opinion of Vendors' and Corporation's Counsel
Exhibit F - Form of Legal Opinion of Purchaser's and E-TEK's Counsel
Exhibit G - Form of Selling Shareholders' Representatives Agreement
Exhibit H - Exchangeable Share Provisions
Exhibit I - Form of E-TEK Indemnity Agreement
Exhibit J - Form of Note to be delivered to Selling Shareholders
2.2 Description of Schedules
The Disclosure Schedule and the following are the Schedules attached to and
incorporated in this Agreement by reference and deemed to be a part hereof:
Schedule 1 - List of Shares Beneficially Owned by Vendors
Schedule 2 - List of Registered Shareholders
Schedule 3 - List of EPC Options and Summary of New Options
Article 3
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AGREEMENT OF PURCHASE AND SALE
------------------------------
3.1 Offer to Purchase
------------------
Subject to the terms and conditions hereof, the Purchaser shall on or
before June 1, 1999, or such other date agreed by the parties, offer to acquire
all of the outstanding Common Shares of the Corporation together with all Common
Shares issued prior to the Time of Closing upon the exercise of the Vested
Options as set forth in Schedule 3 (collectively the Offer") in exchange, at the
option of each of the Selling Shareholders, for:
Option 1: Cdn. $22.42 cash per Common Share, together with a Note
evidencing the Deferred Consideration in the principal amount
equal to the product obtained by multiplying $4,300,000 by the
fraction x/y, the payment of which will be deferred in accordance
with the terms of the Escrow Agreement; or
Option 2: 0.411 Class A Shares of the Purchaser per Common Share, together
with a Note evidencing the Deferred Consideration in the
principal amount equal to the product obtained by multiplying
$4,300,000 by the fraction x/y, the payment of which will be
deferred in accordance with the terms of the Escrow Agreement; or
Option 3: a combination of Cdn. $22.42 cash per Common Share and 0.411
Class A Shares of the Purchaser per Common Share, together with a
Note evidencing the Deferred Consideration in the principal
amount equal to the product obtained by multiplying $4,300,000 by
the fraction x/y, the payment of which will be deferred in
accordance with the terms of the Escrow Agreement; or
Option 4: a combination of Cdn. $22.42 cash per Common Share (to a maximum
of 5% of the aggregate consideration payable to such Selling
Shareholder for his Common Shares) and 0.411 Class A Shares of
the Purchaser per Common Share, together with a Note evidencing
the Deferred Consideration in the principal amount equal to the
product obtained by multiplying $4,300,000 by the fraction x/y,
the payment of which will be deferred in accordance with the
terms of the Escrow Agreement,
provided that, for the purposes of the Offer and each of the options thereof:
x - the number of Common Shares registered in the name of the Selling
Shareholder selecting the option; and
y - the aggregate number of issued and outstanding Common Shares.
The Offer will be made only for Common Shares issued at the Time of Closing
and will not be made for any options to purchase Common Shares which have not
vested on or prior to Closing. Any holder of Vested Options who desires to
accept the Offer should, to the extent
permitted by the terms thereof, exercise the options and deposit Common Shares
issued on the exercise of such Options under the Offer in accordance with one of
the options set forth above.
Selling Shareholders must select only one option with respect to all of the
Common Shares held by such Selling Shareholder. A Selling Shareholder who does
not properly indicate such Selling Shareholder's selection or who does not xxxx
any box in the letter of transmittal accompanying the Offer will be deemed to
have chosen option 2 for all such Common Shares deposited under the terms of the
offer.
If any fractional interest in a Class A Share would, except for the
provisions of the Offer be deliverable upon the Common Shares being taken up and
paid for in accordance with the option selected by a Selling Shareholder, the
Purchaser shall adjust the fractional interest by paying to the holder of the
Common Shares deposited pursuant to the Offer an amount based on a price per
Class A share equal to Cdn$25.00 per share.
3.2 Agreement of Vendors to Sell
----------------------------
Subject to the terms and conditions hereof, each of the Vendors
unconditionally and irrevocably agrees to accept either Option 2 or Option 4 of
the Offer by depositing all of the Common Shares held by such Vendor in the
manner and at the time specified in this Agreement.
ARTICLE 4
---------
PAYMENT OF PURCHASE PRICE
-------------------------
4.1 Payment of Purchase Price
-------------------------
At the Time of Closing, the Purchaser shall make the cash payments, issue
the Class A Shares and deliver the Notes to the Selling Shareholders in
accordance with the option selected by each Selling Shareholder pursuant to
Section 3.1 hereof.
4.2 Security for Deferred Consideration
-----------------------------------
As security for the payment of the Notes, the Purchaser shall deposit with
the Escrow Agent pursuant to the Escrow Agreement a certified cheque, bank draft
or wire transfer in an amount equal to $4,300,000 which shall constitute the
initial Escrow Funds.
4.3 Shareholder Debt and Withholding Taxes
--------------------------------------
The first payment due to any Vendor pursuant to this Article 4 shall be net
of any and all amounts owed to the Corporation by such Vendor. Any and all
amounts payable to any Vendor hereunder shall be made net of any obligation of
the Purchaser to withhold monies to be remitted to the appropriate Government
Authority for any Tax.
4.4 Pre-Closing Amalgamation
------------------------
The parties acknowledge that it is a condition of closing that prior to
Closing the Corporation be continued under the laws of Nova Scotia and then
amalgamate with a newly formed Nova Scotia unlimited liability company to form a
Nova Scotia unlimited company to be named Electrophotonics Nova Scotia Company
or such other name which is acceptable to the Vendors and the Purchaser
(collectively, the "Pre-Closing Amalgamation"). E-TEK and the Purchaser shall
provide all necessary assistance in connection with such actions and shall be
responsible for all reasonable costs incurred in connection with the Pre-Closing
Amalgamation and, if the transactions contemplated hereunder do not close, for
all costs incurred in connection with continuing the Corporation back under the
Business Corporations Act (Ontario). E-TEK shall also deliver to the Vendors
prior to Closing an indemnity substantially in the form and content of the E-TEK
Indemnity Agreement.
ARTICLE 5
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EXCHANGE RIGHTS
---------------
5.1 Exchange
--------
The terms and provisions of the Class A Shares shall provide that the
Shareholders shall have the right to exchange Class A Shares of the Purchaser
for shares of E-TEK Common Stock on the basis provided in Exhibit H (the
"Exchangeable Share Provisions").
5.2 Funding of the Purchaser
------------------------
So long as any Class A Shares are outstanding, E-TEK will:
(a) cause the Purchaser to declare simultaneously with the declaration
of any dividend on shares of E-TEK Common Stock an equivalent
dividend on the Class A Shares and, when such dividend is paid on
shares of E-TEK, cause the Purchaser to pay simultaneously
therewith such equivalent dividend on the Class A Shares, in each
case in accordance with the Exchangeable Share Provisions;
(b) advise the Purchaser sufficiently in advance of the declaration by
E-TEK of any dividend on shares of E-TEK Common Stock and take all
such other actions as are necessary, in co-operation with the
Purchaser, to ensure that the respective declaration date, record
date and payment date for a dividend on the Class A Shares shall
be the same as the record date, declaration date and payment date
for the corresponding dividend on shares of E-TEK Common Stock;
(c) provide or cause to be provided to the Purchaser, by any means
which E-TEK deems appropriate from time to time, such assets,
funds and other property as may be necessary in order that the
Purchaser will have sufficient assets, funds and other property
available to enable the due declaration and the due and punctual
payment, in accordance with
applicable law, of all dividends on the Class A Shares in accordance
with the Exchangeable Share Provisions;
(d) take all such actions and do all such things as are necessary or
desirable to enable and permit the Purchaser, in accordance with
applicable law, to pay and otherwise perform its obligations with
respect to the satisfaction of the Liquidation Amount in respect of
each issued and outstanding Class A Shares upon the liquidation,
dissolution or winding-up of the Purchaser, including without
limitation all such actions and all such things as are necessary or
desirable to enable and permit the Purchaser, subject to the
provisions of the Escrow Agreement, to cause to be delivered shares of
E-TEK Common Stock to the holders of Class A Shares in accordance with
the Exchangeable Share Provisions;
(e) take all such actions and do all such things as are necessary or
desirable to enable and permit the Purchaser, in accordance with the
applicable law, to pay and otherwise perform its obligations with
respect to the satisfaction of the Retraction Amount and the
Redemption Price, including without limitation, all such actions and
all such things as are necessary or desirable to enable and permit the
Purchaser, subject to the provisions of the Escrow Agreement, to cause
to be delivered shares of E-TEK Common Stock to the holders of Class A
Shares upon the retraction or redemption of the Class A Shares in
accordance with the Exchangeable Share Provisions;
(f) not sell, assign, pledge or otherwise dispose of or relinquish
ownership of any shares in the capital of the Purchaser with the
effect that E-TEK would lose control (as this term is used in the Nova
Scotia Companies Act (the "Act") of the Purchaser; and
(g) not exercise its vote as a shareholder to initiate or approve the
voluntary liquidation, dissolution or winding-up, amalgamation or
capital reorganization of the Purchaser or sale of the Purchaser or
substantially the whole of its undertaking nor take any action or omit
to take any action that is designed to result in the liquidation,
dissolution, winding-up, amalgamation or capital reorganization of the
Purchaser or sale of the Purchaser or substantially the whole of its
undertaking unless E-TEK, having regard to the interests of the
holders of the Class A Shares, satisfied itself that the rights and
privileges of the holders of the Class A Shares are maintained without
material impairment or alteration as a result of such action or
omission, provided however, that nothing herein shall prevent the
Purchaser or E-TEK from taking such proceedings or actions (including
proceedings under the Bankruptcy and Insolvency Act (Canada) or
Companies Creditors Arrangement Act (Canada), or doing such things as
they may, in good faith, determine as being necessary to protect their
respective interests, assets or rights from claims or assertions of
creditors or other third party claimants.
5.3 Reservation of Shares of E-TEK Common Stock.
--------------------------------------------
E-TEK hereby represents, warrants and covenants that it has irrevocably
reserved for issuance and will at all times keep available, free from pre-
emptive and other rights, out of its authorized and unissued capital stock such
number of shares of E-TEK Common Stock (or other shares or securities into which
shares of E-TEK Common Stock may be reclassified or changed as contemplated in
the Exchangeable Share Provisions) as is equal to the sum of (a) the number of
Class A Shares issued and outstanding from time to time, (b) the number of Class
A Shares outstanding from time to time, and (c) the number of shares of E-TEK
Common Stock as are now and may hereinafter be required to enable and permit the
Purchaser to meet its obligations hereunder and under the Exchangeable Share
Provisions.
5.4 Notification of Certain Events.
-------------------------------
In order to assist E-TEK to comply with its obligations hereunder, the
Purchaser will give E-TEK notice to each of the following events at the time set
forth below:
(a) in the event of any determination by the Board of Directors of the
Purchaser to institute voluntary liquidation, dissolution, winding
up or share capital reorganization proceedings with respect to the
Purchaser or to effect any other distribution of the assets of the
Purchaser among its shareholders for the purpose of winding up its
affairs, at least 30 days prior to the proposed effective date of
such liquidation, dissolution, winding up or other distribution;
(b) immediately, upon the earlier of receipt by the Purchaser of
notice of the Purchaser otherwise becoming aware of any threatened
or instituted claim, suit, petition or other proceedings with
respect to the involuntary liquidation, dissolution or winding up
of the Purchaser or to the effect any other distribution of the
assets of the Purchaser among its shareholders for the purpose of
winding up of its affairs;
(c) immediately, upon a determination of the Board of Directors of the
Purchaser to exercise its Redemption Right (as defined in the
Exchangeable Share Provisions );
(d) immediately, upon receipt by the Purchaser of a Retraction Request
(as defined in the Exchangeable Share Provisions); and
(e) as soon as practicable upon the issuance by the Purchaser of any
Class A Shares or rights to acquire Class A Shares.
5.5 Delivery of Shares of E-TEK Common Stock.
-----------------------------------------
In furtherance of E-TEK's obligations under sections 5.4 and 5.5 hereof,
upon notice from the Purchaser of any event which requires the Purchaser to
cause to be delivered shares of E-TEK Common Stock to any holder of Class A
Shares, E-TEK shall forthwith issue and deliver the requisite shares of E-TEK
Common Stock (subject to the provisions of the Escrow
Agreement), to or to the order of the former holder of the surrendered Class A
Shares, as the Purchaser shall direct. All such shares of E-TEK shall be duly
issued as fully-paid and non-assessable and shall be free and clear of any lien,
claim or encumbrance. In consideration of the issuance of each such share of E-
TEK, the Purchaser shall issue to E-TEK or as E-TEK shall direct, such number of
common shares of the Purchaser as is equal to the fair value of such shares of
E-TEK Common Stock.
5.6 Tender Offers.
--------------
In the event that a tender offer, share exchange offer, issuer bid, take-
over bid or similar transaction with respect to E-TEK Common Stock (an "Offer")
is proposed by E-TEK or is proposed to E-TEK or its shareholders and is
recommended by the Board of Directors of E-TEK (the "Board"), or is otherwise
effected or to be effected with the consent or approval of the Board, E-TEK will
cause the Purchaser to immediately give the holders of the Class A Shares notice
of the Offer and will expeditiously use its best efforts in good faith to
endeavour to permit holders of Class A Shares to participate in such Offer to
the same material extent as the holders of shares of E-TEK Common Stock. Without
limiting the generality of the foregoing, E-TEK and the Board will expeditiously
use their respective best efforts in good faith to endeavour to permit the
holders of Class A Shares to participate in all such Offers without being
required to retract Class A Shares as against the Purchaser (or, if so required,
to ensure that any such retraction shall be effective only upon, and shall be
conditional upon, the closing of the Offer and to the extent necessary to tender
or deposit to the Offer). For greater certainty, if in the reasonable judgement
of the Board such efforts would be detrimental to the interests of E-TEK or the
holders of shares E-TEK Common Stock or the Offer, the Board shall not be
required to take any further steps in the interests of the holders of the Class
A Shares.
5.7 E-TEK Not to Vote Class A Shares.
---------------------------------
E-TEK covenants and agrees that it will appoint and cause to be appointed
proxyholders with respect to all Class A Shares held by E-TEK and its affiliates
as defined in the Act for the sole purpose of attending each meeting of the
holders of Class A Shares in order to be counted as part of the quorum for each
such meeting. E-TEK further covenants and agrees that it will not, and will
cause its affiliates not to, exercise any voting rights which may be exercisable
by holders of Class A Shares from time to time pursuant to the Exchangeable
Share Provisions or pursuant to the provisions of the Act or any successor or
other corporate statute by which the Purchaser may in the future be governed
with respect to any Class A Shares held by it or by its affiliates in respect of
any matter considered at any meeting of holders of Class A Shares.
5.8 Qualification of Shares of E-TEK Common Stock.
----------------------------------------------
In connection with the issuance of any shares of E-TEK Common Stock (or
other shares or securities into which share of E-TEK Common Stock may be
reclassified or changed) to be issued and delivered hereunder, including for
greater certainty, pursuant to the Exchangeable Share Provisions, E-TEK will use
all reasonable commercial efforts to:
(a) comply with the provisions of the Registration Rights Agreement of
even date herewith between E-TEK and the holders of Class A Shares
("Holders");
(b) cooperate in good faith with the Purchaser in obtaining exemption
orders from the prospectus and registration requirements of al
Canadian provincial securities laws, rules, regulations and
policies in each province in which a Holder is resident which will
permit such Holders to trade shares of E-TEK Common Stock so
issued pursuant to the terms and conditions of such exemption
orders; and
(c) in good faith, expeditiously take all such actions and do all such
things as are necessary or advisable to cause shares of E-TEK
Common Stock (or other shares or securities into which shares of
E-TEK Common Stock may be reclassified or changed) to be issued
and delivered hereunder, including for greater certainty, pursuant
to the Exchangeable Share Provisions to be listed, quoted or
posted for trading on all stock exchanged and quotation systems on
which such shares are listed, quoted or posted for trading at such
time.
5.9 Amendments, Modifications, etc.
-------------------------------
This Article 5 may not be amended or modified except by an agreement in
writing executed by the Purchaser and E-TEK and approved by the Holders in the
manner and under the conditions set out in the Exchangeable Share Provisions.
5.10 Ministerial Amendments.
-----------------------
Notwithstanding the provisions of Section 5.9 hereof, the Purchaser and E-
TEK to this agreement may in writing, at any time and from time to time, without
approval of the Holders, amend or modify this agreement for the purposes of:
(a) adding to the covenants of either or both parties hereto for the
protection of the Holders hereunder;
(b) making such amendments or modifications not inconsistent with this
agreement as may be necessary or desirable with respect to xxxxxx
or questions which, in the opinion of the Board of Directors of
each of E-TEK and Purchaser, having in mind the best interests of
the Holders as a whole, it may be expedient to make, provided that
such Boards of Directors shall be of the opinion that such
amendments and modifications will not be prejudicial to the
interests of the Holders as a whole; or
(c) making such changes or corrections which, on the advice of counsel
to the Purchaser and E-TEK, are required for the purpose of curing
or correcting any ambiguity or defect or inconsistent provision or
clerical omission or mistake or manifest error, and the Board of
Directors of each of the Purchaser and E-TEK shall be of the
opinion that such changes or
corrections will not be prejudicial to the interests of the Holders as
a whole.
5.11 Survival.
---------
This Article 5 shall continue in full force and effect until there are no
Class A Shares held by a Holder other than by E-TEK or any of its affiliates or
associates (as defined in the Act).
5.12 Changes in Capital of E-TEK and the Purchaser.
----------------------------------------------
At all times after the occurrence of any event as a result of which either
shares of E-TEK Common Stock or Class A Shares or both are in any way changed,
this Article 5 shall forthwith be amended and modified as necessary in order
that it shall apply with full force and effect, mutatis mutandis, to all new
securities into which shares of E-TEK Common Stock or the Class A Shares or both
are so changed and the parties hereto shall execute and deliver an agreement in
writing giving effect to and evidencing such necessary amendments and
modifications.
ARTICLE 6
---------
REPRESENTATIONS AND WARRANTIES OF THE VENDORS
---------------------------------------------
6.1 Joint and Several Representations and Warranties of the Vendors
---------------------------------------------------------------
The Vendors hereby jointly and severally represent and warrant to the
Purchaser as follows and acknowledge that the Purchaser is relying on such
representations and warranties in connection with the transactions herein
contemplated:
6.1.1 Incorporation and Organization of the Corporation
-------------------------------------------------
The Corporation is a corporation duly incorporated and subsisting
under the laws of Ontario. No proceedings have been instituted or
are pending for the dissolution or liquidation of the Corporation.
True and complete copies of the Articles of Incorporation and by-
laws of the Corporation have been provided to the Purchaser. No
Articles of Amendment have been filed or authorized by the
shareholders of the Corporation since September 26, 1997 and no by-
laws have been enacted since August 9, 1993. The Corporation has the
corporate power to enter into this Agreement and to perform its
obligations thereunder.
6.1.2 Authorization
-------------
This Agreement has and all the closing documents to be executed by
the Corporation will be duly authorized, executed and delivered by
the Corporation and is or will be a legal, valid and binding
obligation of the Corporation, enforceable against the Corporation
by the Purchaser in accordance with its terms, except as enforcement
may be limited by bankruptcy, insolvency or other laws affecting the
rights of creditors generally and except that equitable remedies may
be granted only in the discretion of a court of competent
jurisdiction.
6.1.3 Qualification of the Corporation to do Business
-----------------------------------------------
The Corporation has the necessary corporate power, authority and
capacity to own or lease its property and assets and to carry on the
Business as now being conducted by it and is qualified to carry on
the Business under the laws of the Provinces of Ontario, being the
only jurisdiction in which the nature of the Business as carried on
by the Corporation or the property or assets owned or leased by it
makes such qualification necessary.
6.1.4 Authorized Capital
------------------
The authorized capital of the Corporation consists an unlimited
number of common shares.
6.1.5 Issued Shares and Options
-------------------------
Of the authorized capital of the Corporation, on the date hereof
2,331,374 common shares without par value (and no more), being all
the issued and outstanding shares of the Corporation, have been duly
and validly allotted and issued and are outstanding as fully paid
and non-assessable shares and immediately prior to Closing 2,432,442
common shares without par value (and no more), being all the issued
and outstanding shares of the Corporation at such time, will have
been duly and validly allotted and will be issued and outstanding as
fully paid and non-assessable shares. Schedule 2 sets forth a true
and complete list of all outstanding common shares and the
registered holders of all such shares. Schedule 3 sets forth a true
and complete list of all Options, including the date of grant, the
holder of the options, the exercise price therefore and the extent
to which such Options have vested or become currently exercisable as
of the date hereof and to the extent not so vested or exercisable,
the schedule on which such Options will vest or become exercisable.
As of the date hereof, options to purchase 223,746 Common Shares
(and no more) are outstanding, 101,068 of which will have vested on
or before Closing and 122,678 of which will not have vested on or
before Closing. All options which will have vested on or before the
Closing Date will have been duly exercised before Closing. Except as
disclosed in the Disclosure Schedule, the certificates evidencing
the Purchased Shares bear no restrictive legends and none of the
Articles of Incorporation or by-laws of the Corporation or any
shareholder agreement or unanimous shareholder agreement governing
the affairs of the Corporation or the relationship, rights and
duties of shareholders contains or provides for any restrictions or
restrictive legends with respect to the Purchased Shares or any of
them.
6.1.6 Subsidiaries
------------
Except as set forth in the Disclosure Schedule, the Corporation has
no subsidiary and owns no shares in the capital of any other
corporation and has not agreed to acquire any subsidiary or any
shares in the capital of any other corporation.
6.1.7 Issue of Shares or Other Securities
-----------------------------------
Except as set forth in Schedule 3, no Person has any agreement or
option or any right or privilege (whether by law, pre-emptive or
contractual) capable of becoming an agreement or option, including
any convertible securities, warrants or convertible obligations of
any nature, for the purchase, acquisition, subscription, allotment
or issuance of any unissued shares or other securities of the
Corporation.
6.1.8 Financial Statements
--------------------
The Financial Statements have been prepared in accordance with
generally accepted accounting principles applied on a basis
consistent with those of previous years and present fairly:
(i) all the assets, liabilities (whether accrued, absolute,
contingent or otherwise) and the financial condition of the
Corporation as at the Financial Year End; and
(ii) the revenues, earnings and results of operations of the
Corporation for the 12 month period ended on the Financial
Year End.
6.1.9 Interim Statements
------------------
The Interim Financial Statements have been prepared in accordance
with generally accepted accounting principles applied on a basis
consistent with those of previous years and present fairly:
(i) all the assets, liabilities (whether accrued, absolute,
contingent or otherwise) and the financial condition of the
Corporation as at January 31, 1999; and
(ii) the revenues, earnings and results of operations of the
Corporation for the six month period ended on January 31,
1999,
provided, however, that (i) the Interim Financial Statements do not
contain all footnotes required under generally accepted accounting
principles, and (ii) the Interim Financial Statements are subject to
adjustments for taxes (including investment tax credits), accruals
for bonuses, revenue cut-off, payables cut-off and review of
accounts receivable; provided that the net effect of such
adjustments would not be material to a purchaser contemplating the
purchase of shares of the Corporation.
6.1.10 Business Carried on in Ordinary Course
--------------------------------------
The Business has been carried on in the ordinary course since the
Financial Year End and the Corporation has not, since the Financial
Year End, sold or otherwise disposed of any of its property or
assets. Since the Financial Year End:
(i) there has been no change in the Business, operations, affairs,
prospects or condition (financial or otherwise) of the
Corporation, including any such change arising as a result of
any legislative or regulatory change, revocation of any
licence, registration, permit or right to do business or as a
result of fire, explosion, accident, casualty, labour problem,
flood, drought, riot, storm, act of God or otherwise, except
for changes occurring in the ordinary course of business and
which, in the aggregate, have not materially adversely
affected and will not materially adversely affect the
Business, operations, affairs, prospects or condition
(financial or otherwise) of the Corporation;
(ii) the Corporation has not waived, or has agreed or become bound
to waive, any right of substantial value or entered into any
commitment or transaction not in the ordinary course of
business where such right, commitment or transaction is or
would be material in relation to the Corporation, taken
together, or to the Business; and
(iii) except as set forth in the Disclosure Schedule, the
Corporation has not created, or has agreed or become bound to
create, or has permitted the creation of, any Encumbrance on
any of its property or assets (except for any lien for unpaid
Taxes not yet due).
6.1.11 Minute Books and Corporate Records
----------------------------------
The minute and record books of the Corporation contain in all
material respects complete and accurate minutes of all meetings of,
and copies of all by-laws and resolutions passed by, the directors
and shareholders of the Corporation since its incorporation; all
such meetings were duly called and held and all such by-laws and
resolutions were duly passed or enacted. The share certificate
books, registers of shareholders, registers of transfers, registers
of directors, registers of holders of Debt Instruments and other
corporate registers of the Corporation comply with the provisions of
governing law and are complete and accurate in all material
respects. Except as disclosed in the Disclosure Schedule, the
Corporation is not a party to or bound by or subject to any
shareholder agreement or unanimous shareholder agreement governing
the affairs of the Corporation or the relationships, rights and
duties of shareholders.
6.1.12 Accuracy of Books and Records
-----------------------------
The books and records, accounting, financial and otherwise, of the
Corporation fairly and correctly set out and disclose in all
material respects the financial position of the Corporation as at
the date hereof and all material financial transactions of the
Corporation have been accurately recorded in such books and records
on a consistent basis and in conformity with generally accepted
accounting principles. Except as disclosed in the Disclosure
Schedule, all
records, systems, controls, data or information relating to the
Corporation or to the Business (including any digital, electronic,
mechanical, photographic or other technological process or device
whether computerized or not) are in the full possession and control
of and are owned exclusively by the Corporation.
6.1.13 Guarantees
----------
Except as set forth and described in the Disclosure Schedule, the
Corporation is not a party to or bound by or subject to any
Guarantee.
6.1.14 Dividends
---------
Since the Financial Year End, the Corporation has not declared or
paid or has been deemed under the Income Tax Act (Canada) to have
declared or paid any dividend or any other distribution (whether out
of capital or surplus or otherwise) on any of its outstanding
securities and has not redeemed, purchased or otherwise acquired any
of its outstanding securities or agreed or become bound to do so.
6.1.15 Interested Persons
------------------
(a) Since the Financial Year End, no payment has been made or
authorized by the Corporation to or for the benefit of any
Interested Person except in the ordinary course of business and
at the regular rate payable as Employee Benefits, rents,
management and other fees, the reimbursement of expenses
incurred on behalf of the Corporation or otherwise.
(b) Except as set forth and described in the Disclosure Schedule,
since the Financial Year End, the aggregate amount of Employee
Benefits, rents, management and other fees, reimbursement of
expenses incurred on behalf of the Corporation or other
payments have been paid at no greater rates than those
prevailing on the Financial Year End.
(c) Except as set forth and described in the Disclosure Schedule:
(i) the Corporation is not a party to or bound by or subject
to any agreement, contract or commitment with any
Interested Person;
(ii) the Corporation does not have any loan or indebtedness
outstanding (except for obligations incurred in the
ordinary course of business with respect to Employee
Benefits, rents, management or other fees, the
reimbursement of expenses incurred on behalf of the
Corporation or otherwise) to any Interested Person;
(iii) no Interested Person owns, directly or indirectly, in
whole or in part, any property that the Corporation uses
in the operation of the Business as heretofore carried
on; or
(iv) to the knowledge of the Vendors, no Interested Person has
any cause of action or other claim whatsoever against, or
owes any amount to, the Corporation in connection with
the Business as heretofore carried on, except for any
liability reflected in the Audited Financial Statements
and claims in the ordinary course of business such as for
accrued vacation pay and accrued benefits under the
Employee Benefits.
6.1.16 Capital Expenditures
--------------------
Since the Financial Year End, the Corporation has made or
authorized capital expenditures of approximately $650,000 (and no
more), all such expenditures having been planned in the ordinary
course of business.
6.1.17 Employment and Employee Benefit Matters
---------------------------------------
(a) The Corporation has thirty-nine (39) full time and one (1)
part time employee, two (2) co-op students and three (3)
seasonal employees. The names of such individuals, their years
of service, their job descriptions and the Employee Benefits
to which they are entitled are set forth and described in the
Disclosure Schedule. To the knowledge of the Vendors, no Key
Employee, nor any group of Key Employees, intends to terminate
his or its employment with the Corporation. To the knowledge
of the Vendors, general relations between the Corporation and
its employees are good and there is no present, pending or
threatened labour strike, dispute, slowdown or work stoppage.
(b) The Disclosure Schedule contains a complete list of
individuals who are not employees of the Corporation, and who
supply their services to the Corporation under personal
services contracts (including independent contractors,
employees of agencies, secondees or leased employees and
consultants) specifying location, start and end date of
engagement, services supplied, supplying agency and fees and
other amounts payable by the Corporation. There are no
complaints, claims or charges outstanding or, to the knowledge
of the Vendors, anticipated relating to the engagement of such
individuals.
(c) The Disclosure Schedule contains a complete list of all
Employee Benefits maintained, or otherwise contributed to or
required to be contributed to, by the Corporation for the
benefit of employees or former employees of the Corporation.
(d) Except as set forth and described in the Disclosure Schedule:
(i) the Corporation is not a party to or bound by or
subject to any agreement or arrangement with respect
to Employee Benefits and no such agreement or
arrangement contains any specific provision
as to notice of termination of employment or severance
pay in lieu thereof;
(ii) the Corporation has no obligations to amend any
Employee Benefit and no amendments will be made or
promised prior to the Closing Date;
(iii) all obligations of the Corporation as of the Financial
Year End with respect to Employee Benefits are
reflected in and have been fully accrued in the
Financial Statements;
(iv) the Corporation is not a party to or bound by or
subject to any agreement or arrangement with any
labour union or employee association or has made any
commitment to or conducted any negotiation or
discussion with any labour union or employee
association with respect to any future agreement or
arrangement and, to the knowledge of the Vendors,
there is no current attempt to organize or establish
any labour union or employee association with respect
to employees of the Corporation. The Corporation has
experienced no work stoppages or strikes (legal or
otherwise);
(v) to the knowledge of the Vendors, the Corporation is
not liable or alleged to be liable for any damages to
any employee or former employee resulting from the
violation or alleged violation of any applicable
employment law or regulation, including any employment
equity, human rights, health or safety law or
regulation, or any agreement or arrangement with
respect to Employee Benefits;
(vi) there are no outstanding inspection orders against the
Corporation under the Occupational Health and Safety
Act (Ontario) or Regulations thereto (the "OHSA").
There are no outstanding prosecution orders against
the Corporation under the Provincial Offences Act
(Ontario) for violations of the OHSA nor are the
Vendors aware of any threatened prosecutions or,
except as disclosed in the Disclosure Schedule,
grounds upon which any prosecution may be commenced.
The Corporation has fully complied with the OHSA in
respect of compliance with workplace hazardous
materials information systems;
(vii) except as set forth in the Disclosure Schedule, the
Corporation has complied with the requirements of the
Pay Equity Act (Ontario);
(viii) the Corporation has made no representations or
commitments to its employees with respect to future
increases in wages or other compensation;
(ix) The Disclosure Schedule lists the employees of the
Corporation who have resigned or who have been
terminated by the Corporation and, to the knowledge of
the Vendors, the subsequent employment position
obtained by such person immediately after their
departure from the Corporation's employ.
(x) to the knowledge of the Vendors, no employee of the
Corporation is bound by any confidentiality, non-
solicitation or non-competition agreement in favour of
any Person other than the Corporation;
(xi) no employees of the Corporation are currently in
receipt of workers' compensation benefits;
(xii) no employees of the Corporation are currently on
pregnancy or parental leave;
(xiii) except as disclosed in the Disclosure Schedule, and
except by reason of short-term absence arising from
illness, vacation, bereavement or other similar leave:
A. all of the employees are at work performing the
usual and ordinary functions of their respective
positions;
B. none of the employees is receiving benefits under
applicable workers compensation legislation in
relation to their employment;
C. none of the employees has received any such
benefits within the last twelve months;
(xiv) [intentionally deleted]
(xv) no person will become entitled to any retirement,
severance, bonus or other such payment as a result of
the transactions contemplated hereby; and
(xvi) the Corporation is not a party to any side letter or
other written or oral commitment with any employee or
contractor which has not been specifically disclosed
in the Disclosure Schedule.
6.1.18 Pension and Retirement Plans
----------------------------
The Corporation does not sponsor or participate in any pension
and/or retirement plan.
6.1.19 Debt Instruments
----------------
Except as set forth and described in the Disclosure Schedule, the
Corporation is not a party to or bound by or subject to:
(i) any Debt Instrument; or
(ii) any agreement, contract or commitment to create, assume or
issue any Debt Instrument;
and no Debt Instrument or Encumbrance which the Corporation is a
party to or bound by or subject to is dependent upon the Guarantee
of or any security provided by any other Person.
6.1.20 Real Property
-------------
The Corporation does not own or, except for the Leases of real
property set forth and described in the Disclosure Schedule, have
any interest in, nor is the Corporation a party to or bound by or
subject to any agreement, contract or commitment, or any option to
purchase, any real or immovable property.
6.1.21 Leases and Leased Property
--------------------------
(a) The Corporation is not a party to or bound by or subject to
nor has the Corporation agreed or become bound to enter into
any real or personal property lease or other right of
occupancy relating to real property, whether as lessor or
lessee, except for the Leases set forth and described in the
Disclosure Schedule, in which is specified the parties to and
dates of each of the Leases, their dates of execution and
expiry dates, particulars of any options to renew, particulars
of any requirement thereunder for the consent, approval,
permit or acknowledgement of any party thereto or any other
Person to the change of control of the Corporation herein
contemplated, the locations (including municipal addresses) of
the Leased Property and the rental payable and any other
payments required under the Leases, including if applicable
operating costs, hydro charges, Taxes and similar charges.
Except as described in the Disclosure Schedule, the
Corporation occupies the Leased Property and has the exclusive
right to occupy and use the Leased Property.
(b) All rental and other payments required to be paid by the
Corporation as lessee pursuant to the Leases have been duly
paid to date and the Corporation is not otherwise in default
in meeting its obligations under any of the Leases; to the
knowledge of the Vendors, no event exists which, but for the
passing of time or the giving of notice, or both, would
constitute a default by either party to any Lease and, to the
knowledge of the Vendors, no party to any Lease is claiming
any such default or taking any action purportedly based upon
any such default.
6.1.22 Personal Property
-----------------
Except as set forth and described in the Disclosure Schedule, the
Corporation is the owner of all of its personal property and assets
with good and marketable title thereto free of any Encumbrance.
6.1.23 Insurance
---------
(a) The Corporation maintains insurance covering its property,
assets and personnel and protecting the Business against loss
or damage on a basis that is comparable to the insurance
maintained by reasonable Persons operating businesses similar
to the Business as heretofore carried on. The Disclosure
Schedule sets forth a list of all insurance policies currently
maintained by the Corporation, true and complete copies of
which have been provided to the Purchaser. Each of such
insurance policies is valid and subsisting and in good
standing, there is no default, whether as to the payment of
the premiums or otherwise, under any material term or
condition of such insurance policies, and each person which is
an insured party under any of such insurance policies is
entitled to all rights and benefits thereunder.
(b) The Disclosure Schedule sets forth and describes all pending
claims under any of such insurance policies and includes true
and complete copies of the most recent inspection reports, if
any, received from insurance underwriters as to the condition
or insurance value of the insured property and assets. The
Corporation has not failed to give any notice or present any
claim under any of such insurance policies in due and timely
fashion. To the best of the knowledge and belief of the
Vendors no circumstances have occurred which might entitle the
Corporation to make a claim under any of such insurance
policies or which might be required under any of such
insurance policies to be notified to the insurers and no
material claim under any of such insurance policies has been
made by the Corporation since the Financial Year End.
(c) None of such insurance policies is subject to any premium in
excess of the stipulated or normal rate. No notice of
cancellation or non-renewal with respect to, nor disallowance
of any claim under, any of such insurance policies has been
received by the Corporation.
6.1.24 Material Contracts
------------------
Except for agreements, contracts and commitments in the ordinary
course of business, none of which has more than one month to run,
the Corporation is not a party to or bound by or subject to any
agreement, contract or commitment, written or oral, of any nature
or kind except for:
(i) service contracts on office equipment;
(ii) agreements and arrangements with Interested Persons set
forth and described at Section 6.1.15 of the Disclosure
Schedule;
(iii) agreements and arrangements with respect to Employee
Benefits set forth and described at Section 6.1.17 of
the Disclosure Schedule;
(iv) Guarantees and Debt Instruments set forth and described
at Sections 6.1.13 and 6.1.19, respectively, of the
Disclosure Schedule;
(v) Leases set forth and described under Section 6.1.21 of
the Disclosure Schedule;
(vi) insurance policies set forth and described under
Section 6.1.23 of the Disclosure Schedule;
(vii) licences set forth and described under Section 6.1.36
of the Disclosure Schedule; and
(viii) other agreements, contracts and commitments, including
without limitation Encumbrances, set forth and
described under Section 6.1.24 of the Disclosure
Schedule;
and, except as disclosed in the Disclosure Schedule, no consent,
approval, permit or acknowledgement is required under any of such
agreements, contracts or commitments from any party thereto or any
other Person in connection with the completion of the transactions
herein contemplated. No consent or approval is required in
connection with the change in control resulting from the
acquisition of all of the outstanding shares of the Corporation by
the Purchaser or in order to assign any of such agreements,
contracts or commitments from any party thereto or any other Person
in connection with the completion of the transactions herein
contemplated, except as identified in the Disclosure Schedule, and
in these cases where consent is required, the agreement may be
transferred or assigned by the Corporation without costs to either
the Corporation or the transferee or assignee. The Corporation has
made available to the Purchaser a true and complete copy of each
contract listed, described or referred to in this Section 6.1.24
and all amendments thereto to the date hereof.
6.1.25 Obligations to Customers and Suppliers
--------------------------------------
Except as set forth in the Disclosure Schedule, there are no
outstanding warranties, consulting contracts or other maintenance
obligations with or to customers or other users of the products and
services of the Corporation and the Corporation is not required to
provide any bonding or other financial security arrangements in
connection with any transactions with any of its customers or
suppliers, whether or not in the ordinary course of the Business.
The Disclosure Schedule sets forth full details with respect to any
side letters or other written or
oral commitments to customers which are not contained in the
applicable customer contract.
6.1.26 Status of Agreements
--------------------
Except as set forth and described in the Disclosure Schedule, each
of the agreements, contracts and commitments, written or oral,
which the Corporation is a party to or bound by or subject to
(including, without limitation, those agreements, contracts and
commitments referred to in Section 6.1.25) is valid and subsisting
and in good standing, there is no material default thereunder and
to the knowledge of the Vendors, there are no material facts which,
after notice or lapse of time or both, would constitute such a
material default. The Corporation is a party to or bound by or
subject to any of such agreements, contracts or commitments and is
entitled to all rights and benefits thereunder.
6.1.27 Legal Proceedings
-----------------
Except as set forth in the Disclosure Schedule, there is no Legal
Proceeding (whether or not purportedly on behalf of the
Corporation) in progress, pending, or to the knowledge of the
Vendors, threatened which affect the Corporation at law or in
equity or before or by any Tribunal which Legal Proceeding involves
the possibility of any judgement or other liability of the
Corporation not fully covered by insurance. There is no judgement,
decree, injunction, ruling, order or award of any Tribunal
outstanding against or affecting the Corporation.
6.1.28 Banking Information
-------------------
The Disclosure Schedule sets forth and describes:
(i) the name and location (including municipal address) of
each bank, trust company or other institution in which
the Corporation has an account, money on deposit or a
safety deposit box and the name of each Person authorized
to draw thereon or to have access thereto; and
(ii) the name of each Person holding a general or special
power of attorney from the Corporation and a summary of
the terms thereof.
6.1.29 Tax Matters
-----------
(a) Taxes and Tax Returns
---------------------
The Corporation has duly filed in the prescribed manner and
within the prescribed time all Tax Returns required to be
filed by it; such Tax Returns are true, correct and complete
in all material respects and the Corporation has made complete
and accurate disclosure in such Tax Returns and in all
materials accompanying such Tax Returns, except in respect of
a particular Tax Return to the extent that it may have been
modified in a subsequent Tax Return. Except as set forth and
described in the Disclosure Schedule, the Corporation has paid
all Taxes shown on such Tax Returns as being due and payable
and all Taxes payable under any assessment or reassessment.
(b) Liabilities for Taxes
---------------------
The Financial Statements fully reflect accrued liabilities for
all Taxes which were not yet then due and payable and for
which Tax Returns were not yet then required to be filed.
Except as set forth and described in the Disclosure Schedule,
there is no Legal Proceeding and no assessment, reassessment
or request for information in progress, pending or, to the
best of the knowledge and belief of the Vendors threatened
against or affecting the Corporation in respect of Taxes nor
are any issues under discussion with any taxing authority
relating to any matters which could result in claims for
additional Taxes.
(c) Waivers
-------
Except as set forth and described in the Disclosure Schedule,
there are no agreements, waivers or other arrangements
providing for an extension of time with respect to any
assessment or reassessment of Tax, the filing of any Tax
Return or the payment of any Tax by the Corporation.
(d) Withholding and Instalments
---------------------------
The Corporation has withheld from each payment made by it the
amount of all Taxes and other deductions required under any
applicable Tax Legislation to be withheld therefrom and has
paid all such amounts withheld and all instalments of Taxes
due and payable before the date hereof to the relevant taxing
or other authority within the time prescribed under any
applicable Tax Legislation.
6.1.30 Accounts Receivable
-------------------
All accounts receivable of the Corporation reflected in the
Financial Statements or which have come into existence since the
date of the Financial Statements were created in the ordinary
course of the Business and, except to the extent that the same have
been paid in the ordinary course of the Business since the date of
the Financial Statements, are valid and enforceable and payable in
full, without any right of set-off or counterclaim or any reduction
for doubtful accounts reflected in the Financial Statements and, in
the case of accounts receivable which have come into existence
since the date of the Financial Statements, of a reasonable
allowance for doubtful accounts consistent with the Corporation's
previous practice.
6.1.31 Compliance with Applicable Laws
-------------------------------
Except in respect of environmental matters which are separately
dealt with in Section 6.1.33 and matters relating to the Leased
Property which are separately dealt with in Section 6.1.21 and
except as set forth in the Disclosure Schedule, the Corporation has
conducted and is conducting the Business in compliance with all
applicable laws, rules and regulations, in each jurisdiction in
which the Business is carried on, is not in breach of any of such
laws, rules, policies, guidelines or regulations, and is duly
licensed or registered in each jurisdiction in which it owns or
leases its property and assets or carries on the Business, so as to
enable the Business to be carried on as now conducted and its
property and assets to be so owned or leased. The Disclosure
Schedule sets out a complete and accurate list of all licences,
permits, approvals, consents, certificates, registrations and
authorizations (whether governmental, regulatory or similar type)
other than the intellectual property licences held by or granted to
the Corporation, and there are no other licences, permits,
approvals, consents, certificates, registrations, or authorization
necessary to carry on the Business as presently carried on or to
own or lease any of the property or the assets utilized by the
Corporation except where the lack of grant of such to the
Corporation would not have a material adverse effect on the
condition (financial or otherwise) of the Corporation or the
Business as heretofore carried on. Each of such licences and
registrations is valid and subsisting and in good standing and
there is no default thereunder. None of such licences and
registrations contains any burdensome term, provision, condition or
limitation which has or could have an adverse effect on the
Corporation or the Business, or except as specifically disclosed in
this Agreement including the Schedules hereto, requires the
consent, approval, permit or acknowledgement of any Person in
connection with the completion of the transactions herein
contemplated.
6.1.32 Consents and Approvals
----------------------
Except as set out in the Disclosure Schedule, there is no
requirement to make any filing with, give any notice to or to
obtain any licence, permit, certificate, registration,
authorization, consent or approval of, any Government Authority as
a condition to the lawful consummation of the transactions
contemplated by this Agreement or the closing documents except for
the filings, notifications, licences, permits, certificates,
registrations, consents and approvals either pursuant to securities
legislation or which relate solely to the identity of the Purchaser
or which are of a purely administrative nature and could be
completed without adverse effect on the Corporation or the Business
immediately after the Closing Date.
6.1.33 Environmental Matters
---------------------
Except as set forth in the Disclosure Schedule, the Corporation is
not in violation of any applicable statute, law or regulations
relating to the environment and no material expenditures are or, to
the knowledge of the Vendors, will be required in
order to comply with such existing statute, law or regulation. The
Corporation possesses all necessary environmental licenses,
permits, approvals, consents, certificates, registrations and other
authorizations in order for it to conduct its business in material
compliance with applicable statutes, law and regulations relating
to the environment.
6.1.34 Liabilities
-----------
There are no material liabilities of the Corporation of any kind
(whether accrued, absolute, contingent or otherwise) existing on
the date hereof except for:
(i) liabilities (including liabilities for unpaid Taxes)
disclosed on, reflected in or provided for in the
Financial Statements;
(ii) liabilities disclosed or referred to in this Agreement,
including the Schedules hereto; and
(iii) liabilities incurred in the ordinary course of business
and attributable to the period since the Financial Year
End, none of which is materially adverse to the Business,
operations, affairs, prospects or condition (financial or
otherwise) of the Corporation.
6.1.35 Condition and Sufficiency of Assets
-----------------------------------
All facilities, machinery and equipment owned or used by the
Corporation in connection with the Business are in good operating
condition and in a state of good repair and maintenance, reasonable
wear and tear excepted. The Corporation owns or leases all of the
property and assets necessary for the conduct of the Business as it
is currently being conducted. Except as set out in the Disclosure
Schedule, since the incorporation of the Corporation there has not
been any significant interruption of operations, supplies, access
or services by contractors of the Business as heretofore carried on
due to inadequate maintenance of any of the property or assets
owned and used by the Corporation. With the exception of inventory
in transit, all of the tangible assets of the Corporation are
situate at the locations specified in the Disclosure Schedule.
6.1.36 Intellectual and Industrial Property Rights
-------------------------------------------
(a) The Disclosure Schedule sets forth and describes all
Intellectual and Industrial Property Rights used in whole or
in part in the carrying on by the Corporation of the Business
as now carried on, and specifies, for each item, whether the
Intellectual and Industrial Property Rights are owned by the
Corporation (in this Section "Owned I.P.") or whether the
Intellectual and Industrial Property Rights are used by the
Corporation under a licence agreement or arrangement from
another Person (in this Section "Licensed I.P.").
(b) The Disclosure Schedule contains a list of all Owned I.P. True and
complete copies of all patents and patent applications have been
provided to the Purchaser. The Disclosure Schedule sets forth the
registration or application number and country of registration or
application for each patent and patent application. Except as set
forth and described in the Disclosure Schedule, all of the Owned
I.P. are owned by the Corporation with good and marketable title
thereto free of any Encumbrance or co-ownership interest except for
the Encumbrance granted in favour of The Bank of Nova Scotia as set
forth in Section 6.1.19 of the Disclosure Schedule and, except for
any unregistered Owned I.P. not under application for registration,
all registrations and filings necessary to preserve the rights of
the Corporation in and to the Owned I.P. have been made. There are
no current restrictions or other impediments to the assignment or
transfer by the Corporation of all or any part of the Owned I.P. to
the Purchaser and there are, to the knowledge of the Vendors, no
restrictions or other impediments to the subsequent licensing of
the Owned I.P. by the Purchaser to its associates. Any such
assignment or transfer and subsequent licensing of all or any part
of the Owned I.P. would neither violate nor result in the breach,
modification, cancellation, termination or suspension of any of the
Owned I.P. nor, to the knowledge of the Vendors, require the
consent of any other Person.
(c) The Disclosure Schedule contains a list of all agreements relating
to the Licensed I.P., true and complete copies of which have been
provided to the Purchaser. Each licence agreement or arrangement
with respect to Licensed I.P. is valid and subsisting and in good
standing and there is no material default thereunder. Except as set
forth in the Disclosure Schedule, the Corporation has the right to
sub-license or to re-sell sub-licences to distributors, purchasers
and end-users of the Corporation's Products to use the Licensed
I.P. which is currently incorporated in or distributed with or
which the Corporation has contemplated incorporating in or
distributing with the Corporation's Products. Except as set forth
in the Disclosure Schedule, the aforesaid sub-licensing of the
Licensed I.P. would neither violate nor result in the breach,
modification, cancellation, termination or suspension of any of the
Licenced I.P. nor require the consent of any other Person. Except
as set forth in the Disclosure Schedule, there are no restrictions
or other impediments to the assignment or transfer by the
Corporation of all or any part of the Licensed I.P. to the
Purchaser and there are no restrictions or other impediments to the
subsequent sub-licensing of the Licensed I.P. by the Purchaser to
its associates. Except as set forth in the Disclosure Schedule, any
such assignment or transfer and subsequent sub-licensing of all or
any part of the Licensed I.P. would neither violate nor result in
the breach, modification, cancellation, termination or suspension
of any of the Licensed I.P. nor require the consent of any other
Person.
(d) Except as set forth in the Disclosure Schedule, the consummation of
the transactions contemplated in this Agreement will neither
violate nor result in the breach, modification, cancellation,
termination or suspension of any of the Owned I.P. or any of the
Licensed I.P., nor require the consent of any other Person provided
that, the Vendors make no representations with respect to consent
requirements under the generally available general application
software licenses listed in the Disclosure Schedule.
(e) The Owned I.P. and the Licensed I.P. have not been used or
enforced, or failed to be used or enforced, in a manner that would
result in the non-renewal, modification, abandonment, cancellation
or unenforceability of any of the Owned I.P. or the Licensed I.P.
The Corporation has renewed or made applications for renewal within
the applicable renewal periods for all registered Owned I.P. and
for all Licensed I.P.
(f) The Corporation has not granted rights to use Owned I.P. to any
Person.
(g) No Person has commenced any Legal Proceeding claiming adverse
ownership, invalidity, lack of distinctiveness or conflict with
respect to any of the Owned I.P. or the Licensed I.P. or
challenging any rights of the Corporation in and to the Owned I.P.
or the Licensed I.P. or the right of the Corporation to use the
Owned I.P. or the Licensed I.P. in the conduct of the Business.
(h) To the knowledge of the Vendors, the conduct of the business by the
Corporation and its use of the Owned I.P. and the Licensed I.P.
does not infringe upon the Intellectual and Industrial Property
Rights or the trade-secrets, know-how or confidential or
proprietary information of any other Person. Neither the
Corporation nor the Vendors has received any notice, complaint,
threat or claim alleging infringement of any Intellectual and
Industrial Property Rights or the trade secrets, know-how or
confidential or proprietary information of any other Person.
(i) The Corporation has not commenced any Legal Proceeding challenging
the Intellectual and Industrial Property Rights of any other Person
and to the knowledge of the Vendors, other than as set forth in the
Disclosure Schedule, no other Person is using any Intellectual and
Industrial Property Rights which conflict with, infringe upon or
violate the rights of the Corporation in and to the Owned I.P. or
the Licensed I.P.
(j) All software licensed to the Corporation pursuant to the Licensed
I.P. could be reasonably promptly replaced by a suitable
alternative if the supplier of such software were to cease
operations. Except as set forth in the Disclosure Schedule, current
copies of source code for all material software included in the
Owned I.P. have been appropriately recorded on machine readable
media, clearly identified and stored by the Corporation in an
appropriate secure, fire-proof storage location, physically
separated
from the systems area but within the same premises. A current and
accurate list identifying the location of all copies of source code
for all material software included in the Owned I.P. is included in
the Disclosure Schedule.
(k) The Corporation owns, or has valid rights to use (without any
condition, payment or fee except as set out in the Disclosure
Schedule) such computer software as is necessary for the conduct of
the Business as currently being conducted.
(l) For the purposes of this Section 6.1.36, "knowledge of the Vendors"
means the knowledge of the Vendors and, without having made
specific inquiry, the knowledge of inventors of the Owned I.P. who
have been employed by, affiliated with or acted as contractors to
the Corporation.
(m) The assignment of all right, title and interest to the Corporation
in the following patent applications (and corresponding issued
patents) is valid and binding in all respects as to all the
inventors named therein: United States Patent Application Serial
No. 08/550,565 (filed October 31, 1995); Canadian Application for a
Patent Serial No. 2,134,958 (filed November 2, 1994); United States
Patent 5,694,501 (issued December 2, 1997). No other patents or
intellectual property are owned by the Vendors which are related to
the Business which have not been assigned to the Corporation,
except as disclosed herein.
6.1.37 Commitments for Purchases or Sales at Losses
--------------------------------------------
The Corporation does not have any agreement, contract or commitment
for purchases or sales of its products or services at prices
involving material prospective losses.
6.1.38 Significant Customers
---------------------
Except as set out in the Disclosure Schedule, the Business is not
dependent on any single customer in any fiscal year of the
Corporation for more than twenty percent of its gross revenues, as
reported in the Financial Statements.
6.1.39 Significant Suppliers
---------------------
Except as set out in the Disclosure Schedule, none of the suppliers
of the Corporation is a sole supplier and the products and services
provided by each supplier are available from other suppliers.
6.1.40 Conflicting Instruments
-----------------------
The entering into of this Agreement by the parties hereto and the
completion of the transactions herein contemplated do not and will
not conflict with or result in the breach or violation of any of
the terms and provisions of (i) the Articles of
Incorporation or by-laws of the Corporation, except for
restrictions on transfer contained in the Articles of Incorporation
of the Corporation, (ii) subject to obtaining any consent,
approval, permit or acknowledgement which may be required
thereunder in connection with the completion of the transactions
herein contemplated, except for the shareholders' agreement as set
forth in Schedule 6.1.11, which agreement shall be terminated on
Closing, any licence or registration or any agreement, contract or
commitment, written or oral, which the Corporation or each of the
Vendors is a party to or bound by or subject to, details of which
are set forth in the Disclosure Schedule or (iii) any law or
regulation, or any judgement, decree, injunction, ruling, order or
award of any Tribunal.
6.1.41 Paid Up Capital
---------------
The paid up capital for all the issued and outstanding Common
Shares as of July 31, 1998 for purposes of the Income Tax Act
(Canada) was $7,615,577.
6.1.42 Information Technology and Year 2000 Matters
--------------------------------------------
(a) The Corporation's products are Year 2000 compliant, which
means that the Corporation's products will consistently
process dates/times and date/time related data prior to,
during and after the calendar year 2000 as follows: the
Corporation's products shall, when processing date/time data
from, into, in and between the 20th and 21st centuries, and
the years 1999 and 2000, and performing leap year
calculations, process such date/time data in the same manner
on and after January 1, 2000 as before (including, but not
limited to inputting, outputting, extracting, displaying,
calculations, comparing, sorting and sequencing such data),
and shall not, as a result of the processing of such data on
and after January 1, 2000 (A) create any logical or
mathematical error or inconsistency, (B) malfunction or (C)
cease to function.
(b) A copy of the Corporation's Year 2000 inventory, testing and
remediation plan with respect to the Corporation's operating
business systems (the "Year 2000 Plan") has been provided to
the Purchaser. The Corporation is in the process of
implementing the Year 2000 Plan and is on schedule to complete
the inventory, testing and remediation of potential Year 2000
problems in accordance with the provisions of the Year 2000
Plan.
(c) Except as set forth in the Disclosure Schedule, the
Corporation's Products are free of any disabling codes or
instructions (a "Disabling Code"), and any virus or other
contaminant (a "Contaminant"), that may, or may be used to,
access, modify, delete, damage or disable the systems that
serve the Products or that may result in damage thereto.
(d) Components supplied by third parties to the Corporation are,
to the knowledge of the Vendors, free of any Disabling Codes
or Contaminants that may, or may be used to, access, modify,
delete, damage or disable any
of the systems that serve the Products or that might result in
damage thereto.
(e) Except as forth in the Disclosure Schedule, the Corporation
has taken reasonable steps and implemented all reasonable
procedures to ensure that its internal operating business
systems are free from Disabling Codes and Contaminants.
(f) Except as set forth in the Disclosure Schedule, the
Corporation has in place appropriate disaster recovery plans,
procedures and facilities and has taken all reasonable steps
to safeguard the Corporation's internal operating systems and
restrict unauthorized access thereto.
6.1.43 [Intentionally Deleted]
-----------------------
6.1.44 Product Liability
-----------------
The Disclosure Schedule lists all warranties made by the
Corporation relating to the products of the Business sold to any
person. There is no existing claim, lawsuit, recall or proceeding,
or to the knowledge of the Vendors, threatened or anticipated
claim, lawsuit, recall or proceeding against the Corporation with
respect to the performance or defects, or the breach of any express
or implied warranty for any product sold by the Corporation prior
to Closing.
6.1.45 Disclosure
----------
The representations and warranties of each of the Vendors contained
in this Agreement and in any agreement, certificate, affidavit,
statutory declaration or other document delivered or given pursuant
to this Agreement are true and correct in all material respects and
do not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements contained in
such representations and warranties not misleading to a prospective
purchaser of the Purchased Shares.
6.2 Several Representations and Warranties of Vendors
-------------------------------------------------
Each of the Vendors hereby severally represents and warrants to the
Purchaser as follows and acknowledge that the Purchaser is relying on such
representations and warranties in connection with the transactions herein
contemplated:
6.2.1 Ownership of Purchased Shares
-----------------------------
He is the beneficial owner of the number of the Purchased Shares set
forth opposite his name in Schedule 1 free of any Encumbrance,
except for restrictions on transfer contained in the Articles of
Incorporation of the Corporation.
6.2.2 Conflicting Instruments
-----------------------
Except for the shareholders' agreement as set forth in Schedule
6.1.11, which agreement shall be terminated on Closing, the entering
into of this Agreement by such Vendor and the performance of his
obligations hereunder do not and will not conflict with or result in
the breach or violation of any agreement, contract or commitment,
written or oral, which such Vendor is a party to or bound by or
subject to.
6.2.3 No Other Agreements to Purchase
-------------------------------
No Person, other than the Purchaser under this Agreement, has any
agreement or option or any right or privilege (whether by law, pre-
emptive or contractual) capable of becoming an agreement or option
for the purchase from the Vendors or any of them of any of the
Purchased Shares owned by them respectively, except that each of the
Vendors is party to a shareholders' agreement, as set forth in
Schedule 6.1.11, containing share transfer provisions, which
agreement shall be terminated on Closing.
6.2.4 Legal Proceedings
-----------------
There is:
(i) no Legal Proceeding (whether or not purportedly on
behalf of the Vendors individually or collectively) in
progress, pending, threatened against or affecting such
Vendor or affecting the title of such Vendors to any of
the Purchased Shares owned by him at law or in equity
or before or by any Tribunal and, to the best of the
knowledge and belief of each of such Vendor, there are
no grounds on which any such Legal Proceeding might be
commenced with any reasonable likelihood of success;
and
(ii) no judgement, decree, injunction, ruling, order or
award of any Tribunal outstanding against or affecting
such Vendor;
which, in any such case, might adversely affect the ability of such
Vendor to enter into this Agreement or to perform their respective
obligations hereunder.
6.2.5 Residence of Vendors
--------------------
He is not a "non-resident" of Canada within the meaning of the
Income Tax Act (Canada).
6.2.6 Investment Representations
--------------------------
(a) He is receiving the Class A Shares and the E-TEK Common Stock
issuable upon the exchange thereof as principal and for his own
account and not with a view to resale or distribution of any
part thereof and has no
present intention of selling, granting any participation in, or
otherwise distributing the same.
(b) He acknowledges that the Class A Shares and the E-TEK Common
Stock issuable upon the exchange thereof are "restricted
securities" under the federal securities laws of the United
States in as much as they are being acquired in a transaction
not involving a public offering and that under such laws and
applicable regulations such securities may be resold without
registration under the Securities Act only in certain limited
circumstances.
(c) He is aware of the further limitations on disposition of such
Class A Shares and E-TEK Common Stock set forth elsewhere
herein.
(d) He is not a U.S. Person as such term in defined in and pursuant
to Regulation S promulgated under the Securities Act.
(Regulation S defines "U.S. Persons" to include, among others,
any (i) natural person or resident in the United States; (ii)
partnership or corporation incorporated or organized under U.S.
laws, or by or for the benefit of U.S. investors, and (iii)
estate or trust whose executor, administrator or trustee is a
U.S. Person.)
(e) He is not acquiring the securities for the account or benefit
of any U.S. Person.
(f) He agrees not to resell the Class A Shares except in accordance
with the Articles of Incorporation of the Purchaser.
(g) He has had the opportunity to review with his own tax advisors
the tax consequences to him of the transactions contemplated by
this Agreement. He understands that he must rely solely on his
own advisors and not on any statements or representations by E-
TEK, the Purchaser or any of their agents with respect to tax
matters. He understands that he (and not E-TEK or the
Purchaser) shall be responsible for his own tax liability if
such tax liability arises as a result of the transactions
contemplated by this Agreement.
(h) He:
(i) has such knowledge and experience in financial and
business matters as to be capable of evaluating the
merits and risks of the Class A Shares and E-TEK Common
Stock issuable upon the exchange thereof;
(ii) has received copies of the SEC Documents (as defined in
Section 8.1.6);
(iii) has received all the information he has requested from E-
TEK, the Purchaser and the Corporation which he considers
necessary or appropriate for deciding whether to accept
the Class A Shares and E-TEK Common Stock issuable upon
the exchange thereof in return for his Common Shares;
(iv) has the ability to bear the economic risks of an
investment in the Class A Shares or the E-TEK Common
Stock issuable upon the exchange thereof; and
(v) is able, without materially impairing his financial
condition, to hold the Class A Shares and E-TEK Common
Stock issuable upon the exchange thereof for an
indefinite period of time.
6.2.7 Legends
-------
He acknowledges that the certificates representing the Class A
Shares and E-TEK Common Stock issuable upon the exchange thereof
will contain the following legends:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("ACT"). SUCH
SECURITIES MAY NOT BE TRANSFERRED UNLESS A REGISTRATION
STATEMENT UNDER THE ACT IS IN EFFECT AS TO SUCH TRANSFER OR,
IN THE OPINION OF COUNSEL SATISFACTORY TO SUCH ISSUER, SUCH
TRANSFER MAY BE MADE PURSUANT TO RULE 144 OR PURSUANT TO
ANOTHER EXEMPTION FROM REGISTRATION UNDER THE ACT."
6.3 Interpretation of Section 6.2
-----------------------------
Insofar as the representations and warranties contained in Section 6.2 are
concerned, the representations and warranties of each Vendor shall be restricted
in their application to information pertaining to such Vendor and shall not
extend to be interpreted to mean that any Vendor represents and warrants the
truth of any fact relating to any other Vendor.
Article 7
---------
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
-----------------------------------------------
7.1 Representations and Warranties of the Purchaser
-----------------------------------------------
The Purchaser hereby represents and warrants to each of the Vendors as
follows and acknowledges that each of the Vendors is relying on such
representations and warranties in connection with the transactions herein
contemplated:
7.1.1 Incorporation, Organization and Authority of the Purchaser, Due
---------------------------------------------------------------
Authorization of Agreement and Enforceability of Obligations
------------------------------------------------------------
The Purchaser is a company duly incorporated and subsisting under the
laws of the Province of Nova Scotia and has the necessary corporate
power, authority and capacity to enter into this Agreement, to purchase
the Purchased Shares from the Vendors as herein contemplated and to
perform its other obligations hereunder. The execution and delivery of
this Agreement and the completion of the transactions herein contemplated
have been duly and validly authorized by all necessary corporate action
on behalf of the Purchaser and this Agreement has been duly and validly
executed and delivered by the Purchaser and is a valid and binding
obligation of the Purchaser enforceable against the Purchaser in
accordance with its terms.
7.1.2 Conflicting Instruments
-----------------------
The entering into of this Agreement by the Purchaser and the performance
of its obligations hereunder do not and will not conflict with or result
in the breach or violation of the Memorandum or Articles of Association
of the Purchaser; or any agreement, contract or commitment, written or
oral, which the Purchaser is a party to or bound by or subject to.
7.1.3 Legal Proceedings
-----------------
There is:
(i) no Legal Proceeding (whether or not purportedly on behalf of
the Purchaser) in progress, pending, threatened against or
affecting the Purchaser at law or in equity or before or by
any Tribunal and, to the best of the knowledge and belief of
the Purchaser, there are no grounds on which any such Legal
Proceeding might be commenced with any reasonable likelihood
of success; and
(ii) no judgement, decree, injunction, ruling, order or award of
any Tribunal outstanding against or affecting the Purchaser;
which, in any such case, might adversely affect the ability of the
Purchaser to enter into this Agreement or to perform its obligations
hereunder.
7.1.4 Authorized and Issued Shares
----------------------------
The authorized capital of the Purchaser consists of 10,000,000 Common
Shares, of which 100 Common Shares (and no more) are issued and
outstanding. Prior to Closing, the authorized capital of the Purchaser
will be amended to create an additional class of shares to be designated
as Class A Shares which will be issued in exchange for the Purchased
Shares, the attributes of which shall be subject to the approval of the
Vendors.
Article 8
---------
REPRESENTATIONS AND WARRANTIES OF E-TEK
---------------------------------------
8.1 Representations and Warranties of E-TEK
---------------------------------------
E-TEK hereby represents and warrants to each of the Vendors as follows and
acknowledges that each of the Vendors is relying on such representations and
warranties in connection with the transactions herein contemplated:
8.1.1 Incorporation, Organization and Authority of E-TEK, Due
-------------------------------------------------------
Authorization of Agreement and Enforceability of Obligations
------------------------------------------------------------
E-TEK is a corporation duly incorporated and existing under the laws
of the State of Delaware and has the necessary corporate power,
authority and capacity to enter into this Agreement and to perform
its other obligations hereunder. The execution and delivery of this
Agreement and the completion of the transactions herein contemplated
have been duly and validly authorized by all necessary corporate
action on behalf of E-TEK and this Agreement has been duly and
validly executed and delivered by E-TEK and is a valid and binding
obligation of E-TEK enforceable against E-TEK in accordance with its
terms.
8.1.2 Conflicting Instruments
-----------------------
The entering into of this Agreement by E-TEK and the performance of
its obligations hereunder do not and will not conflict with or
result in the breach or violation of its certificate of
incorporation or by-laws of E-TEK; or any agreement, contract or
commitment, written or oral, which E-TEK is a party to or bound by
or subject to.
8.1.3 Legal Proceedings
-----------------
There is:
(i) no Legal Proceeding (whether or not purportedly on
behalf of E-TEK) in progress or pending against or
affecting the Purchaser at law or in equity or before or
by any Tribunal; and
(ii) no judgement, decree, injunction, ruling, order or award
of any Tribunal outstanding against or affecting E-TEK;
which, in any such case, might adversely affect the ability of the
Purchaser to enter into this Agreement or to perform its obligations
hereunder.
8.1.4 Capital Structure
-----------------
(a) The authorized stock of E-TEK consists of 300,000,000 shares of
Common Stock, $0.01 par value, of which 61,424,128 shares were
issued and outstanding as of April 2, 1999, and 25,000,000
shares of
undesignated Preferred Stock, $0.01 par value, of which no
shares were issued and outstanding as of April 2, 1999. All
such shares have been duly authorized, and all such issued and
outstanding shares have been validly issued, are fully paid and
non-assessable and are free of any liens or encumbrances other
than any liens or encumbrances created by or imposed upon the
holders thereof.
(b) The Class A Shares and the E-TEK Common Stock to be issued upon
exchange of the Class A Shares will be duly authorized, validly
issued, fully paid, non-assessable and based upon the
representations of Shareholders contained in Section 6.2.5 will
be issued in accordance with applicable securities laws.
8.1.5 No Conflict, etc.
-----------------
The execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated hereby will not,
conflict with, or result in any violation of, or default (with or
without notice or lapse of time, or both), or give rise to a right
of termination, cancellation or acceleration of any obligation or to
loss or a benefit under (i) any provision of the Articles of
Incorporation or Bylaws of E-TEK and the Purchaser or (ii) any
material mortgage, indenture, lease, contract or other agreement or
instrument, permit, concession, franchise, license, judgement,
order, decree, statute, law, ordinate, rule or regulation applicable
to E-TEK or its properties or assets. No consent, approval, order or
authorization of, or registration, declaration or filing with, any
Government Authority is required by or with respect to E-TEK and the
Purchaser in connection with the execution and delivery of this
Agreement by E-TEK and the Purchaser or the consummation by E-TEK
and the Purchaser of the transactions contemplated hereby, except
for (i) the filing of a notice pursuant to the Investment Canada Act
within 30 days following the Closing, (ii) the filing after the
Closing of the Registration Statement on Form S-3 with the United
States Securities And Exchange Commission ("SEC") required pursuant
to the Registration Rights Agreement, and any filings as may be
required under applicable state securities laws and the laws of any
foreign country, and (iii) such other consents, authorizations,
filings, approvals and registrations which if not obtained or made
would not have a material adverse effect on E-TEK or the
shareholders of E-TEK or the Purchaser.
8.1.6 SEC Documents; E-TEK Financial Statements
-----------------------------------------
E-TEK has furnished the Vendors with a true and complete copy of its
Form S-1 effective December 1, 1998, its Form 10-Q for the quarter
ended January 1, 1999, and its Form 10-Q for the quarter ended April
2, 1999, which are all the documents (other than preliminary
material) that E-TEK was required to file with the Securities and
Exchange Commission (the "SEC") pursuant to the Securities Exchange
Act of 1934 (the "Exchange Act") since December 1, 1998, and prior
to the Closing Date, E-TEK will have furnished the Vendors with true
and complete copies of any additional documents required to be filed
with the SEC by E-TEK
prior to the Closing (collectively, the "SEC Documents"). As of
their respective filing dates, the SEC Documents complied in all
material respects with the requirements of the Exchange Act, and
none of the SEC Documents contained any untrue statement of a
material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements made therein, in
light of the circumstances in which they were made, not misleading,
except to the extent corrected by a subsequently filed SEC Document.
The financial statements of E-TEK, including the notes thereto,
included in the SEC Documents (the "E-TEK Financial Statements") are
complete and correct in all material respects, comply as to form in
all material respects with applicable accounting requirements and
with the published rules and regulations of the SEC with respect
thereto, and have been prepared in accordance with U.S. generally
accepted accounting principles applied on a basis consistent
throughout the periods indicated and consistent with each other
(except as may be indicated in the notes thereto or, in the case of
unaudited statements, as permitted by Form 10-Q of the SEC). The E-
TEK Financial Statements fairly present the consolidated financial
condition and operating results of E-TEK at the dates and during the
periods indicated therein (subject, in the case of unaudited
statements, to normal, year-end adjustments, which will not be
material in the aggregate). There has been no change in E-TEK
accounting policies except as described in the notes to the E-TEK
Financial Statements. E-TEK has no material obligations other than
(i) those set forth in the E-TEK Financial Statements and (ii) those
not required to be set forth in the E-TEK Financial Statements under
generally accepted accounting principles. The Purchaser has not
conducted any operations to date and currently has no assets other
than Cdn$100 in paid in capital. E-TEK is in compliance in all
material respects with applicable NASDAQ listing standards.
8.1.7 No Material Adverse Change
--------------------------
Since May 10, 1999, E-TEK has conducted its business in the ordinary
course and there has not occurred: (a) any material adverse change
in the business of E-TEK; or (b) any amendments or changes in the
Certificates of Incorporation or Bylaws of E-TEK.
8.1.8 Representations Complete
------------------------
None of the representations or warranties made by E-TEK herein, nor
any statement made in any list or other statement separately
certified by E-TEK, Exhibit or certificate furnished pursuant to
this Agreement or the SEC Documents, when all such documents are
read together in their entirety, contains or will contain any untrue
statement of a material fact at the Closing, or omits or will omit
to state any material fact necessary in order to make the statements
contained herein or therein, in the light of the circumstances under
which made, not misleading.
Article 9
---------
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
------------------------------------------
9.1 Survival of Representations and Warranties of the Vendors
----------------------------------------------------------
The representations and warranties of the Vendors contained in this
Agreement and in any agreement, certificate, affidavit, statutory declaration or
other document delivered or given pursuant to this Agreement shall survive the
Closing and, notwithstanding such Closing or any investigation made by or on
behalf of the Purchaser with respect thereto, shall continue in full force and
effect for the benefit of the Purchaser provided, however, that no claim in
respect thereof shall be valid unless it is made within two (2) years of the
Closing Date, and any such claim as aforesaid shall be made in accordance with
the provisions of the indemnity in Article 15. Notwithstanding the foregoing, a
claim for any breach of any of the representations and warranties contained in
this Agreement involving fraud or fraudulent misrepresentation by a Vendor or
the Corporation may be made at any time following the Closing Date against such
Vendor or the Corporation, as the case may be, subject only to applicable
limitation periods imposed by law; provided that if the fraud is conducted or
the fraudulent misrepresentation is made by a person who is also a Vendor, on
behalf of the Corporation, it shall be deemed to be fraud by that Vendor as well
as by the Corporation.
9.2 Survival of Representations and Warranties of the Purchaser and E-TEK
---------------------------------------------------------------------
The representations and warranties of the Purchaser and E-TEK contained in
this Agreement and in any agreement, certificate, affidavit, statutory
declaration or other document delivered or given pursuant to this Agreement
shall survive the Closing and, notwithstanding such Closing or any investigation
made by or on behalf of the Vendors, with respect thereto, shall continue in
full force and effect for the benefit of each of the Vendors provided, however,
that no claim in respect thereof shall be valid unless it is made within a
period of two (2) years from the Closing Date and in accordance with the
provisions set forth in Article 15 and, upon the expiry of such limitation
period, the Purchaser and E-TEK shall have no further liability to each of the
Vendors with respect to any of such representations or warranties, except in
respect of claims which have theretofore been made in accordance with the
provisions set forth above. Notwithstanding the foregoing, a claim for any
breach of any of the representations and warranties contained in this Agreement
involving fraud or fraudulent misrepresentation by the Purchaser may be made at
any time following the Closing Date against the Purchaser, subject only to
applicable limitation periods imposed by law.
Article 10
----------
COVENANTS OF THE VENDORS
------------------------
10.1 Covenants of the Vendors
------------------------
The Vendors hereby covenant and agree with the Purchaser as follows:
10.1.1 Investigations and Availability of Records
------------------------------------------
Between the date hereof and the Closing Date each of the Vendors
shall permit the Purchaser and its advisors to make such
investigations of the Business and the
property and assets of the Corporation, their legal, financial and
tax condition and their compliance with such applicable laws or
regulations as the Purchaser deems necessary or desirable; provided
that such investigations shall be carried out without undue
interference with the operations of the Corporation and the Vendors
shall co-operate fully in facilitating such investigations and
shall furnish copies, at the Purchaser's cost, of all such
documents and materials relating to such matters as may be
reasonably requested by or on behalf of the Purchaser. The
documents and materials to be made available by the Vendors shall
include, but shall not be limited to the books and records referred
to in Section 6.1.11 and the records maintained in connection with
the Business, including financial statements, records of past
sales, customer lists, supplier lists, payroll records, inventory,
work in progress, data, accounts receivable data, and data relating
to the Leased Property and the uses thereof including uses thereof
relating to environmental matters. Such investigations shall not,
however, affect or mitigate the representations and warranties of
the Vendors contained in this Agreement or in any agreement,
certificate, affidavit, statutory declaration or other document
delivered or given pursuant to this Agreement, which
representations and warranties shall continue in full force and
effect for the benefit of the Purchaser as provided in Section 9.1.
10.1.2 Consents, etc.
--------------
Commencing forthwith after the date hereof, each of the Vendors
shall use his best efforts to obtain at or prior to the Time of
Closing:
(i) from the parties (other than the Corporation) to the
agreements, contracts and commitments referred to in
Sections 6.1.24, 6.1.32 and 6.1.36; and
(ii) from such other Persons from whom any such consent,
approval, permit or acknowledgement may be required;
all necessary consents, approvals, permits and acknowledgements
which may be required in connection with the completion of the
transactions herein contemplated.
10.1.3 Conduct of the Business
-----------------------
Between the date hereof and the Time of Closing the Vendors shall:
(i) cause the Corporation to carry on the Business in the
ordinary course (except as may be otherwise required or
contemplated by the provisions of this Agreement,
including this Section 10.1.3);
(ii) use their best efforts to cause the Corporation to
preserve the Business and the goodwill of suppliers,
customers and others having relations with the
Corporation and to maintain in full force and effect all
Intellectual and Industrial Property Rights owned by
and all licence agreements or arrangements with respect
to Intellectual and Industrial Property Rights held by
the Corporation;
(iii) use their best efforts to cause the Corporation to
retain the services of the present executives,
employees, consultants and advisors of or to the
Corporation (except as may be otherwise required or
contemplated by the provisions of this Agreement,
including this Section 10.1.3);
(iv) use their best efforts to cause the Corporation to
continue in force and effect the insurance coverage
referred to in Section 6.1.23 and to take out such
additional insurance as may be required in the ordinary
course of the Business or as may be reasonably requested
by the Purchaser and to use their best efforts to cause
the Corporation to give all notices and to present all
claims under all insurance policies in a due and timely
fashion and to promptly advise the Purchaser in writing
of any such claims;
(v) use their best efforts to cause the Corporation to pay
and discharge its liabilities in the ordinary course in
accordance and consistent with the previous practice of
the Corporation, except those contested in good faith by
the Corporation;
(vi) [intentionally deleted]
(vii) use their best efforts to cause the Corporation to
promptly supply to the Purchaser copies of all
litigation or legal proceedings pertaining to the
Corporation or the Business which may arise subsequent
to the execution of this Agreement and will also advise
the Purchaser promptly in writing of any threat of
litigation or other legal proceeding pertaining to the
Corporation or the Business which is made between the
date hereof and the Closing Date; and
(viii) during the period from the date of this Agreement to the
Closing Date, give prompt notice to the Purchaser, and
the Purchaser shall give prompt notice to the Vendors
and the Corporation, of the occurrence or non-occurrence
of any event of which they have knowledge, the
occurrence or non-occurrence of which would be likely
(i) to cause any representation or warranty contained in
this Agreement to be untrue or inaccurate at or prior to
the Closing Date, (ii) to relate to the employment of
any existing or new employee of the Corporation, or
(iii) that could result in an expense or a Claim against
the Corporation of greater than $75,000.
(b) Between the date hereof and the Time of Closing the Vendors shall
use their best efforts to ensure that the Corporation (except as
may be
otherwise required or contemplated by the provisions of this
Agreement, including this Section 10.1.3) shall not, without the
prior written consent of the Purchaser:
(i) become a party to or bound by or subject to any new
agreement, contract or commitment with any Interested
Person or amend or concur in the amendment of any such
existing agreement, contract or commitment or make or
authorize any payment to or for the benefit of any
Interested Person at a rate greater than as described in
Section 6.1.15;
(ii) make or authorize capital expenditures which in the
aggregate exceed $75,000;
(iii) become a party to or bound by or subject to any new
agreement or arrangement with respect to Employee Benefits
(other than an employment or personal services agreement or
arrangement which is terminable by the Corporation without
liability on no more than 30 days' notice) or amend or
concur in the amendment of or increase any payment or
obligation under any existing agreement or arrangement with
respect to Employee Benefits;
(iv) take any step to dissolve, wind-up or otherwise affect its
continuing corporate existence or amalgamate or merge with
any Person or amend its Articles of Incorporation or by-
laws;
(v) make any loan to or investment in any Person;
(vi) become a party to or bound by or subject to any new Debt
Instrument or amend or concur in the amendment of or prepay
or vary the terms of any indebtedness or other obligation
under any existing Debt Instrument;
(vii) become a party to or bound by or subject to any Guarantee
or amend or concur in the amendment of any existing
Guarantee;
(viii) declare or pay any dividend or other distribution (whether
out of capital or surplus or otherwise) on any of its
outstanding securities or redeem, purchase or otherwise
acquire any of its outstanding securities;
(ix) purchase, sell or lease any property or assets other than
in the ordinary course of business, save that the
Corporation shall be entitled to enter into a lease of
premises located at 0000 00xx Xxxxxx, Xxxxxxx, Xxxxxxx, in
respect of which an offer to lease has been signed and a
copy of which offer has been provided to the Purchaser;
(x) cancel, waive or vary the terms of any debt owing to or any
claim or right of the Corporation, save that this subsection
10.1.3(b)(x) shall not apply to the subject matter of the
legal proceeding set forth in section 6.1.27 of the Disclosure
Schedule;
(xi) issue any shares or other securities or make any change in the
number or class of or rights attached to any issued or
unissued shares of its capital stock or grant, issue or make
any option, warrant, subscription, convertible security or
other right or commitment to purchase or acquire any shares of
its capital stock or other securities;
(xii) incur any obligation or liability except in the ordinary
course of business or make, authorize or accept any early
payment of any existing obligation or liability;
(xiii) create or permit the creation of any new Encumbrance on any of
its property or assets (except for any lien for unpaid Taxes
not yet due) or amend or concur in the amendment of any such
existing Encumbrance;
(xiv) terminate, transfer, assign, modify or change, or grant any
rights under, any Intellectual and Industrial Property Rights;
or
(xv) agree or become bound to do any of the foregoing.
(c) Between the date hereof and the Time of Closing the Vendors shall use
their best efforts to cause the Corporation:
(i) to prepare and file in a timely manner all Tax Returns
required to be filed by it and pay all Taxes required under
any applicable Tax Legislation to be paid by it for any
taxation year ending before the Pre-Closing Amalgamation and
to ensure that all such Tax Returns are true, correct and
complete in all material respects and that such Tax Returns
and all materials accompanying such Tax Returns reflect
complete and accurate disclosure;
(ii) to pay within the time prescribed by any applicable Tax
Legislation any required instalments of Taxes;
(iii) to make adequate provision in its financial statements for the
Taxes which relate to any taxation year or part thereof ending
or arising before the Closing Date or ending as a consequence
of the Closing which are not yet due and payable and for which
Tax Returns are not yet required to be filed;
(iv) to withhold from each payment made by it the amount of all
Taxes and other deductions required under any applicable Tax
Legislation to be withheld therefrom and to pay all such
amounts withheld to the relevant taxing or other authority
within the time prescribed under any applicable Tax
Legislation; and
(v) not to enter into any arrangements to provide for an extension
of time with respect to any assessment or reassessment of Tax,
the filing of any Tax Return or the payment of any Tax by it
without the prior written consent of the Purchaser.
10.1.4 Delivery of Books and Records
-----------------------------
At the Time of Closing the Vendors shall deliver or cause the
Corporation to deliver to the Purchaser all the documents referred to in
Section 6.1.11, including minute and record books, corporate records and
documents, corporate seals, books of account, accounting records, past
financial statements, Tax Returns, share certificate books and share
records, Intellectual and Industrial Property Rights owned by and
licence agreements or arrangements with respect to Intellectual and
Industrial Property Rights held by the Corporation, licences,
registrations and permits held by the Corporation, Debt Instruments,
Guarantees, Encumbrances, agreements, contracts and commitments which
the Corporation is a party to or bound by or subject to, lists of
suppliers and customers of the Business and all other documents, files,
records and other data, financial or otherwise, of the Corporation which
may be in the possession of the Corporation or the Vendors.
10.1.5 Transfer of Purchased Shares
----------------------------
The Vendors shall take, and shall cause the Corporation to take, all
necessary steps and proceedings as approved by counsel for the Purchaser
to permit the Purchased Shares to be duly and validly transferred to the
Purchaser and/or its nominees and to have such transfers duly and
validly recorded on the books of the Corporation so that the Purchaser
and/or its nominees are entered on the books of the Corporation as the
holder or holders of the Purchased Shares and to issue one or more share
certificates to the Purchaser and/or its nominees representing the
Purchased Shares.
10.1.6 Resignations of Directors
-------------------------
The Vendors shall cause each director of the Corporation to resign,
such resignations to be effective at the Time of Closing unless a
later time is specified by the Purchaser.
10.1.7 Resignation of Accountants
--------------------------
The Vendors shall cause the accountants of the Corporation to resign,
such resignation to be effective at the Time of Closing unless a later
time is specified by the Purchaser.
10.1.8 Releases
--------
Each of the Vendors shall cause to be executed and delivered to the
Purchaser at the Time of Closing a release by each of them and by each
director and officer of the Corporation, each such release to be in
the form annexed hereto as Exhibit D1.
10.1.9 Non-Competition and Non-Solicitation
------------------------------------
(a) No Vendor nor any Person controlled by a Vendor, without the
prior written consent of the Purchaser shall:
(i) For (A) three years after the Closing Date or (B) two
years after the termination of such Vendor's employment
with E-TEK or the Corporation, whichever is longer,
directly or indirectly, engage in (whether as an officer,
employee, consultant, director, proprietor, partner,
consultant or otherwise), or have any ownership interest
in, or participate in the financing, operation,
management or control of, any person, firm, corporation
or business that engages in a Restricted Business in a
Restricted Territory. Ownership of no more than five
percent (5%) of the outstanding voting stock of a
publicly-traded corporation shall not constitute a
violation of this Section.
(ii) For (A) four years after the Closing Date or (B) two
years after the termination of such Vendor's employment
with E-TEK or the Corporation, whichever is longer: (i)
directly or indirectly take any action to, or do anything
reasonably intended to, divert business from E-TEK or the
Corporation or influence or attempt to influence any
representative, vendor, supplier, customer or potential
customer of E-TEK or the Corporation, to cease doing
business with E-TEK or the Corporation or to alter its
business relationship with E-TEK or the Corporation; or
(ii) directly or indirectly recruit, attempt to hire,
solicit, or assist others in recruiting or hiring, any
person who is an employee of or contractor to E-TEK or
the Corporation, or induce or attempt to induce any such
employee to terminate employment or relationship with E-
TEK or the Corporation.
(b) Each of the Vendors acknowledges that a material violation of this
Section 10.1.9 would cause irreparable injury to E-TEK, for which
E-TEK would have no adequate remedy at law. Accordingly, E-TEK
shall be entitled to preliminary and other injunctive relief and to
specific performance of the terms and provisions of this section.
(c) For the purposes of this Section 10.1.9, the terms:
(i) "Restricted Business" shall mean any business competitive
with the Business being carried on by the Corporation
presently or any business competitive with the business of
the Corporation (which
shall include the Business) at the time referred to in
Subsections (A) or (B) above; and
(ii) "Restricted Territory" shall mean any country in which
customers of E-TEK or the Corporation are located at the
time that the following covenants become operative.
10.1.10 Actions to Satisfy Closing Conditions
-------------------------------------
Each Vendor shall take all such actions as are within its power to control,
and shall use its reasonable efforts to cause other actions to be taken which
are not within its power to control, so as to ensure compliance with any of the
conditions set forth in Article 12.
10.1.11 Intellectual Property
---------------------
(a) For each of the inventors of the inventions described in
Section 6.1.36 (m) who are not Selling Shareholders (and for
each of such inventor's successors or assignees, if any), the
Vendors shall obtain within 6 months after the Time of
Closing an irrevocable waiver of any right to receive
royalties from the Corporation with respect to any Owned I.P.
or Licensed I.P., including the inventions described in
Section 6.1.36 (m).
(b) E-TEK shall pay no more than Cdn $50,000 in the aggregate to
secure the waivers described in subparagraph (b) above. Any
payment in excess of that amount will be deducted from the
Vendors' pro-rata share of the escrow funds within 30 days of
any payment required to be made under this section.
Article 11
----------
COVENANTS OF THE PURCHASER AND E-TEK
------------------------------------
11.1 Covenants of the Purchaser
--------------------------
The Purchaser hereby covenants and agrees with each of the Vendors as
follows:
11.1.1 Tax Matters
-----------
The Purchaser shall cause the Corporation from and after the
Closing Date:
(i) to prepare and file in a timely manner all Tax Returns
required to be filed by it, and to pay all Taxes required
to be paid by it for the taxation years ending as a
consequence of the Pre-Closing Amalgamation and the
Closing. Such Tax Returns shall be prepared in a manner
consistent with prior Tax Returns filed by the
Corporation and shall be prepared in a manner which will
result in the least amount of Taxes being payable in
respect of such taxation year, provided that the
Corporation may file any election or make any choice
provided or available under any applicable Tax
Legislation or by generally accepted accounting
principles to the extent that it pays, without recourse
to the Vendors, any additional Taxes arising from such
election or choice; and
(ii) to retain all books and records and any other documents,
information and files of the Corporation relating to any
period ending on or prior to the Closing Date for a
period of six years following the Closing Date. So long
as such books and records and other documents,
information and files are retained by the Corporation
pursuant to the provisions hereof, each of the Vendors
shall have the right, for the purpose of filing any Tax
Returns as required under this Agreement and for the
purpose of contesting any assessment or reassessment for
Tax in accordance with the provisions of the indemnity in
Article 15.
11.1.2 Section 85 Election
-------------------
Each Vendor shall be entitled to make an income tax election
pursuant to section 85 of the Income Tax Act (Canada) and any other
similar provision of provincial law with respect to the transfer of
their Common Shares in the capital of the Corporation to the
Purchaser referred to in section 3.1 of the Agreement by providing
two signed copies of the necessary election forms to the Purchaser
within 90 days following the Closing Date, duly completed with the
details of the number of shares transferred and the applicable
agreed amounts for the purposes of such election. Thereafter,
subject to the election forms complying with the provisions of the
Income Tax Act (Canada), the forms will be signed by the Purchaser
and returned to each Vendor for filing with Revenue Canada within
180 days following the Closing Date.
11.1.3 Releases
--------
The Purchaser, E-TEK and the Corporation shall deliver to all
directors and officers of the Corporation a release in favour of
such directors and officers, each such release to be in the form
annexed hereto as Exhibit D2.
11.1.4 Employee Loans to Exercise Vested Options
-----------------------------------------
Notwithstanding the provisions of Article 10 hereof, the Purchaser
agrees to permit the Corporation to lend to employees who are
Option Holders and who hold Options which are exercisable on or
before the Closing Date sufficient funds, not to exceed Cdn$250,000
in the aggregate, to exercise such options provided that:
(a) such loans shall be non-interest bearing for the first year
and shall bear interest for the second year at a rate equal to
the prime rate of interest charged from time to time by The
Bank of Nova Scotia to its most creditworthy customers plus
one percent (1%), payable when the loan is due as set forth
below;
(b) be due on the earlier of (i) the date that any Option Holder
ceases to be an employee, (ii) the date that the Option Holder
first exercises or is deemed to exercise his right to exchange
any Class A Shares issued hereunder for shares of E-TEK Common
Stock (to the extent of the proceeds resulting from such
sale), and (iii) two years after the Closing Date; and
(c) be secured by a pledge of the Common Shares issued on the
exercise of such options (to be replaced with a pledge of the
Class A Shares issued by the Purchaser in exchange for such
Common Shares pursuant hereto).
11.1.5 E-TEK Indemnity
---------------
E-TEK shall execute and deliver in favour of the Selling
Shareholders the E-TEK Indemnity Agreement.
11.1.6 Actions to Satisfy Closing Conditions
-------------------------------------
Each of the Purchaser and E-TEK shall take all such actions as are
within its power to control, and shall use its reasonable efforts
to cause other actions to be taken which are not within its power
to control, so as to ensure compliance with any conditions set
forth in Article 13.
Article 12
----------
PURCHASER'S CONDITIONS OF CLOSING
---------------------------------
12.1 Conditions for the Benefit of the Purchaser
-------------------------------------------
The transactions herein contemplated, including the sale and purchase of
the Purchased Shares in accordance with the terms of this Agreement, are subject
to the following conditions, each of which is hereby declared to be for the
exclusive benefit of the Purchaser. Each of such conditions is to be fulfilled
and/or performed at or prior to the Time of Closing. Each of the Vendors
covenants and agrees to use his best efforts to cause each of such conditions to
be fulfilled and/or performed at or prior to the Time of Closing.
12.1.1 Truth of Representations and Warranties of the Vendors
------------------------------------------------------
The representations and warranties of each of the Vendors contained
in this Agreement and in any agreement, certificate, affidavit,
statutory declaration or other document delivered or given pursuant
to this Agreement (including, without limitation, the
representations and warranties set forth in Article 6) shall be
true and correct on the date hereof and at the Time of Closing with
the same force and effect as if such representations and warranties
had been made on and as of each of such times. Each of the Vendors
shall deliver to the Purchaser at the Time of Closing certificates,
affidavits, statutory declarations or other evidence to that effect
and to the effect that as of the Closing Date each of the
conditions set forth in this Article 12 has been complied with.
Notwithstanding the foregoing, the receipt of such certificates,
affidavits, statutory declarations or other evidence and the
completion of the transactions herein contemplated shall not
constitute a
waiver of any of such representations and warranties, each of which
shall survive the Closing and remain in full force and effect for
the benefit of the Purchaser as provided in Section 9.1.
12.1.2 Performance of Covenants etc. by the Vendors
--------------------------------------------
Each of the Vendors shall have performed all obligations, covenants
and agreements contained in this Agreement to be performed by them
at or prior to the Time of Closing, including, without limitation,
the covenants set forth in Article 10.
12.1.3 Acceptance of Offer
-------------------
The Offers shall have been accepted in accordance with their terms,
by (i) holders of Common Shares holding not less than all of the
number of Common Shares outstanding on the Closing Date (when
aggregated with the number of Common Shares to be sold to the
Purchaser by the Vendors pursuant to this Agreement), and (ii)
holders of Vested Options holding not less than all of the Vested
Options outstanding on the Closing Date (when aggregated with the
Vested Options held by the Vendors who exercise such Options and
sell the underlying Common Shares pursuant to this Agreement) and
such holders shall have delivered the appropriately executed share
certificates to evidence the ownership of all shares and letters of
acceptance and any other documentation required to evidence the
ownership and effect the transfer of the Common Shares. All the
Vendors and the Employee Shareholders shall have accepted either
Option 2 or Option 4 as described in Section 3.1 hereof.
12.1.4 Continuance and Amalgamation Under the Laws of Nova Scotia
----------------------------------------------------------
The Corporation shall have been continued under the Nova Scotia
Companies Act and then amalgamated to form an unlimited liability
company under the Nova Scotia Companies Act, the form and content
of all required actions in such respect having been approved by the
Purchaser.
12.1.5 Legal Opinion
-------------
A legal opinion of the Vendors' solicitors dated the Closing Date
and being substantially in the form annexed hereto as Exhibit E
shall have been received by the Purchaser at the Time of Closing.
In rendering such opinion, counsel may rely as to the laws of
jurisdictions other than the Province of Ontario upon the opinions
of counsel qualified to practice in such jurisdictions satisfactory
to the Purchaser and as to matters of fact upon certificates of
officers of the Corporation and of public officials and others,
provided that copies of all such opinions and certificates so
relied on shall be furnished to the Purchaser at the Time of
Closing.
12.1.6 No Adverse Change
-----------------
Between the date hereof and the Time of Closing:
(i) no substantial damage by fire or other hazard to the
property or assets of the Corporation shall have
occurred;
(ii) no Legal Proceeding shall have been commenced or shall
be pending or threatened against the Corporation at
law or in equity or before or by any Tribunal; and
(iii) no material adverse change in the Business, assets,
personnel, operations, affairs, prospects or condition
(financial or otherwise) of the Corporation shall have
occurred;
which, in the case of any such occurrence, in the reasonable
opinion of the Purchaser, would have a material adverse effect on
the Corporation or on the Business.
12.1.7 Consents, etc.
--------------
There shall have been obtained from all appropriate Persons, as
referred to in Sections 6.1.24, 6.1.32 and 6.1.36, such consents,
approvals, permits and acknowledgements as may be required in
connection with the completion of the transactions herein
contemplated.
12.1.8 No Action Taken Restricting Sale
--------------------------------
No Legal Proceeding shall have been commenced or shall be pending
or threatened against any of the Vendors at law or in equity or
before or by any Tribunal which would affect the title of either
of the Vendors to the Purchased Shares owned by such Vendor or
would enjoin, restrict or prohibit or would have the effect of
preventing the completion of the transactions herein contemplated,
including the sale and purchase of the Purchased Shares in
accordance with the terms of this Agreement or which might
adversely affect the ability of any of the Vendors to enter into
this Agreement or to perform their respective obligations
hereunder.
12.1.9 Form of Documents
-----------------
The form and substance of all opinions, agreements, certificates,
affidavits, statutory declarations, instruments of transfer and
other documentation prepared pursuant to this Agreement to
implement the transactions herein contemplated shall be
satisfactory in all respects to counsel for the Purchaser.
12.1.10 Employment Agreements
---------------------
Employment agreements substantially in form and substance as
attached as Exhibit C1 shall have been entered into by the Key
Employees who are also Vendors prior to Closing. Employment
agreements substantially in form and substance as attached as
Exhibit C2 shall have been entered into by the Key Employees who
are not Vendors prior to Closing.
12.1.11 Invention Agreements
--------------------
All employees of the Corporation shall have executed and delivered
standard E-TEK confidentiality and invention assignment agreements.
12.1.12 Options
-------
All holders of Vested Options shall have exercised such options
prior to Closing and all holders of Unvested Options shall have
agreed to the cancellation of such options on or prior to the
Closing.
12.1.13 Intellectual Property Waivers
-----------------------------
Each of the Key Employees and Ray Measures shall have delivered at
the Time of Closing an irrevocable waiver of any right to receive
royalties from the Corporation with respect to any Owned I.P. or
Licensed I.P., including the inventions described in Section
6.1.36(m), any other agreement to the contrary notwithstanding.
12.1.14 Due Diligence
-------------
The Purchaser shall be satisfied acting reasonably, with all due
diligence disclosures which were not made available for effective
review prior to the signing of this Agreement.
12.2 Non-Fulfilment of Conditions etc. for the Benefit of the Purchaser
------------------------------------------------------------------
In the event that any condition, obligation, covenant or agreement of any
of the Vendors to be fulfilled and/or performed hereunder at or prior to the
Time of Closing, including, without limitation, the conditions set forth in this
Article 12, shall not be fulfilled and/or performed at or prior to the Time of
Closing, the Purchaser may terminate this Agreement by notice to each of the
Vendors and in such event the Purchaser shall be released from all obligations
hereunder except for obligations under the Letter referred to in Section 16.7
and, unless the Purchaser can show that the one or more conditions, obligations,
covenants or agreements for the non-fulfilment or non-performance of which the
Purchaser has terminated this Agreement is or are reasonably capable of being
fulfilled and/or performed or caused to be fulfilled and/or performed by the
Vendors, then each of the Vendors shall also be released from all obligations
hereunder except for obligations under the Letter referred to in Section 16.7;
provided, however, that any of the said conditions, obligations, covenants or
agreements may be waived in whole or in part by the Purchaser without prejudice
to the Purchaser's right of rescission in the event of the non-fulfilment and/or
non-performance of any other condition, obligation, covenant or agreement, any
such waiver to be binding on the Purchaser only if the same is in writing.
Article 13
----------
VENDORS' CONDITIONS OF CLOSING
------------------------------
13.1 Conditions for the Benefit of the Vendors
-----------------------------------------
The transactions herein contemplated, including the sale and purchase of
the Purchased Shares in accordance with the terms of this Agreement, are subject
to the following conditions, each of which is hereby declared to be for the
exclusive benefit of the Vendors. Each of such conditions is to be fulfilled
and/or performed at or prior to the Time of Closing. The Purchaser covenants and
agrees to use its best efforts to cause each of such conditions to be fulfilled
and/or performed at or prior to the Time of Closing.
13.1.1 Truth of Representations and Warranties of the Purchaser and E-TEK
------------------------------------------------------------------
The representations and warranties of the Purchaser and E-TEK
contained in this Agreement and in any agreement, certificate,
affidavit, statutory declaration, agreement or other document
delivered or given pursuant to this Agreement (including, without
limitation, the representations and warranties set forth in
Articles 7 and 8) shall be true and correct on the date hereof and
at the Time of Closing with the same force and effect as if such
representations and warranties had been made on and as of each of
such times. The Purchaser and E-TEK shall deliver to each of the
Vendors at the Time of Closing certificates, affidavits, statutory
declarations or other evidence to that effect and to the effect
that as of the Closing Date each of the conditions set forth in
this Article 13 has been complied with. Notwithstanding the
foregoing, the receipt of such certificates, affidavits, statutory
declarations or other evidence and the completion of the
transactions herein contemplated shall not constitute a waiver of
any of such representations and warranties, each of which shall
survive the Closing and remain in full force and effect for the
benefit of each of the Vendors as provided in Section 9.2.
13.1.2 Performance of Covenants etc. by the Purchaser
----------------------------------------------
The Purchaser shall have performed all obligations, covenants and
agreements contained in this Agreement to be performed by it at or
prior to the Time of Closing, including, without limitation, the
covenants set forth in Article 11.
13.1.3 No Litigation
-------------
No temporary restraining order, preliminary or permanent injunction
or other order issued by any court of competent jurisdiction or
other legal or regulatory restraint or provision challenging the
proposed acquisition of the Corporation, or limiting or restricting
E-TEK's conduct or operation of the Business of the Corporation (or
its own business) following the transaction shall be in effect, nor
shall any proceeding brought by an administrative agency or
commission or any other Government Authority or instrumentality,
domestic or foreign, seeking any of the foregoing be pending. There
shall be no action, suit, claim or proceeding of any nature pending
or threatened, against E-TEK, the Purchaser or the
Corporation, their respective properties or any of their officers
or directors, that could materially and adversely affect the
business, assets, liabilities, financial condition, results of
operations or prospects of E-TEK and its subsidiaries taken as a
whole.
13.1.4 No Material Adverse Change
--------------------------
There shall have been no material adverse changes in the business,
operations, affairs, prospects, properties, assets, existing and
potential liabilities, obligations, profits or condition (financial
or otherwise) of E-TEK and its subsidiaries, taken as a whole,
since May 10, 1999.
13.1.5 Consents and Approvals
----------------------
All necessary consents of, and filings with, any Government
Authority or agency or third party relating to the consummation by
E-TEK and the Purchaser of the transactions contemplated herein,
shall have been obtained and made. No action by any Government
Authority or entity challenging or seeking to enjoin the
consummation of the transactions contemplated hereby shall be
pending.
13.1.6 Employment Agreements
---------------------
E-TEK shall have afforded each of the Vendors and the Key Employees
an opportunity to enter into an employment agreement with E-TEK in
a form reasonably satisfactory to E-TEK, as set forth in Exhibits
C1 and C2.
13.1.7 Corporate Resolutions
---------------------
The Vendors shall have received copies of the resolutions of the
Board of Directors of E-TEK and the Purchaser approving the
transactions contemplated herein, certified by an appropriate
corporate officer of such companies.
13.1.8 Registration Rights Agreement
-----------------------------
The Registration Rights Agreement shall have been executed by E-
TEK.
13.1.9 Legal Opinion
-------------
Legal opinions of the solicitors for the Purchaser and E-TEK dated
the Closing Date and being substantially in the forms annexed
hereto as Exhibit F shall have been received by the Purchaser at
the Time of Closing. In rendering such opinion, counsel may rely as
to the laws of jurisdictions other than the Province of Ontario
upon the opinions of counsel qualified to practice in such
jurisdictions satisfactory to the Vendors and as to matters of fact
upon certificates of officers of the Corporation and of public
officials and others, provided that copies of all such opinions and
certificates so relied on shall be furnished to the Vendor at the
Time of Closing.
13.1.10 New Options
-----------
New Options shall have been granted to employees of the Corporation
as set forth in Schedule 3.
13.2 Non-Fulfilment of Conditions etc. for the Benefit of the Vendors
----------------------------------------------------------------
In the event that any condition, obligation, covenant or agreement of the
Purchaser or E-TEK to be fulfilled and/or performed hereunder at or prior to the
Time of Closing, including, without limitation, the conditions set forth in this
Article 13, shall not be fulfilled and/or performed at or prior to the Time of
Closing, any of the Vendors may terminate this Agreement by notice to the
Purchaser and E-TEK and in such event each of the Vendors shall be released from
all obligations hereunder (except for obligations under the Letter referred to
in Section 16.7) and, unless the Vendors can show that the one or more
conditions, obligations, covenants or agreements for the non-fulfilment or non-
performance of which any or all of the Vendors have terminated this Agreement is
or are reasonably capable of being fulfilled and/or performed or caused to be
fulfilled and/or performed by the Purchaser or E-TEK, then the Purchaser and E-
TEK shall also be released from all obligations hereunder except those set forth
in the Letter referred to in Section 16.7; provided, however, that any of the
said conditions, obligations, covenants or agreement may be waived in whole or
in part by either of the Vendors without prejudice to their respective rights of
rescission in the event of the non-fulfilment and/or non-performance of any
other condition, obligation, covenant or agreement, any such waiver to be
binding upon the Vendors only if the same is in writing.
Article 14
----------
CLOSING ARRANGEMENTS
--------------------
14.1 Date, Time and Place of Closing
-------------------------------
The Closing shall take place at the Time of Closing on the Closing Date at
the offices of Fraser Xxxxxx at Toronto or at such other time, on such other
date and/or at such other place as may be agreed upon by the parties hereto.
14.2 Closing Arrangements
--------------------
At the Time of Closing and subject to the fulfilment of all the terms and
conditions set forth in this Agreement which have not been waived in writing by
the parties hereto, respectively:
14.2.1 Purchase and Sale of Purchased Shares
-------------------------------------
Each of the Vendors shall sell to the Purchaser the Purchased
Shares owned by it and the Purchaser shall purchase the Purchased
Shares from the Vendors and pay and satisfy the Purchase Price, all
as hereinafter provided.
14.2.2 Delivery of Share Certificates
------------------------------
Each of the Vendors shall deliver or cause to be delivered to the
Purchaser certificates representing the Purchased Shares owned by
it duly endorsed in blank for transfer or accompanied by duly
executed stock transfer powers in blank with all security, transfer
and other similar Taxes, if any, paid.
14.2.3 Payment of Purchase Price
-------------------------
Upon the fulfilment of the foregoing provisions of this Article 12
and subject to all the other terms and conditions contained in this
Agreement being complied with and to the transfer of the Purchased
Shares into the name of the Purchaser and/or its nominees being
duly and validly recorded on the books of the Corporation, the
Purchaser shall issue the Class A Shares and deposit the Escrow
Funds in the manner specified in Article 4.
14.2.4 Default by One Vendor
---------------------
In the event that any of the Vendors fails or refuses to deliver to
the Purchaser at the Time of Closing any of the Purchased Shares to
be sold by it hereunder or defaults in the fulfilment of any of its
obligations, covenants or agreements contained in this Agreement,
including this Section 14.2.4, such failure, refusal or default
shall not relieve any of the other Vendors of their obligations,
covenants or agreements contained in this Agreement, including this
Section, and the Purchaser, at its option and without prejudice to
its rights against such defaulting Vendor (including its rights to
all applicable legal and/or equitable remedies), may either
purchase the remaining Purchased Shares which it is entitled to
purchase hereunder from the other Vendors, or refuse to purchase
any of the Purchased Shares and thereby terminate all of its
obligations hereunder except those referred to in Section 16.7.
Article 15
----------
INDEMNIFICATION
---------------
15.1 Indemnification by the Vendors
------------------------------
(a) Subject to this Article 15, in the event that the transactions
herein contemplated are completed at the Closing, each of the
Vendors agrees to severally indemnify and hold the Purchaser,
E-TEK and the Corporation harmless from and against any loss,
damage, Legal Proceeding, deficiency or expense, including all
out-of-pocket costs, and including, without limitation, all
reasonable legal and accounting fees, relating to, arising
from or in connection with any misrepresentation or breach of
any warranty, obligation, covenant or agreement of any of the
Vendors contained in this Agreement or in any agreement,
certificate, affidavit, statutory declaration or other
document delivered or given pursuant to this Agreement.
(b) The obligation of each of the Vendors to indemnify the
Purchaser as set forth in paragraph above shall be subject the
following limitations:
(i) in respect of any breach of any representation or warranty
of the Vendors, be subject to the limitation periods
provided in section 9.1, after which time if no claims
have been made against a Selling Shareholder with respect
to a breach of any representation or warranty, that
Selling Shareholder shall have no further liability
hereunder with respect to the representation or warranty;
(ii) not be applicable to indemnify the Purchaser until the
aggregate of all Claims sustained by the Purchase exceeds
a base of $50,000 whereupon the full amount of such Claims
(including such initial $50,000) shall be recoverable; and
(iii) be limited to the Selling Shareholder's proportionate
percentage of the Escrow Fund from time to time as set
forth in Schedule 1.
15.2 Indemnification by the Purchaser and E-TEK
------------------------------------------
(a) Subject to this Article 15, in the event that the transactions
herein contemplated are completed at the Closing, the Purchaser
and E-TEK jointly and severally agree to indemnify and hold each
of the Vendors harmless against any loss, damage, Legal
Proceeding, deficiency or expense, including all out-of-pocket
costs, and including, without limitation, all reasonable legal and
accounting fees, relating to, arising from or in connection with
any misrepresentation or breach of any warranty, obligation,
covenant or agreement of the Purchaser or E-TEK contained in this
Agreement or in any agreement, certificate, affidavit, statutory
declaration or other document delivered or given pursuant to this
Agreement.
(b) The obligation of the Purchaser and E-TEK to indemnify the Vendors
as set forth in paragraph above shall be subject to the following
limitations:
(i) in respect of any breach of any representation or warranty
of the Purchase or E-TEK, be subject to the limitation
periods provided in section 9.2, after which time if no
claims have been made against the Purchaser or E-TEK with
respect to a breach of a representation or warranty, the
Purchaser and E-TEK shall have no further liability
hereunder with respect to the representation or warranty;
and,
(ii) not be applicable to indemnify the Selling Shareholders
until the aggregate of all Claims sustained by the Selling
Shareholders, taken as a whole, exceeds a base of $50,000
whereupon the full amount of such Claims (including such
initial $50,000) shall be recoverable.
15.3 Procedure for Indemnification
-----------------------------
(a) A party claiming indemnification under Sections 15.1 or 15.2
(in this Article an "Indemnitee") shall give notice to the party or
parties against which or against whom indemnification is claimed (in
this Article an "Indemnitor") with reasonable promptness upon becoming
aware of the claim or other facts upon which a claim for
indemnification will be based (a "Claim"). The notice shall set forth
such information and be accompanied by such documentation with respect
thereto as is then reasonably available to the Indemnitee.
(b) To the extent that such information and documentation is in the
possession of the Corporation, the Purchaser shall forthwith cause the
Corporation to deliver such information and documentation to the
Indemnitor. The Purchaser shall take all necessary action to preserve
the rights of the Corporation to object to and defend any such claim.
(c) Subject to the provisions of Subsection 15.3(d) below, the Indemnitor
shall have the right, exercisable by notice to the Indemnitee, given
within 20 days following receipt of the aforesaid notice from the
Indemnitee, to undertake and assume control of the defence of any such
claim asserted by a third party (in this Article a "Third Party
Claim"), including the right of compromise or settlement thereof, and
the Indemnitee shall co-operate in such defence and make available all
information and documentation requested by the Indemnitor with respect
thereto; provided, however, that:
(i) the Indemnitor shall first deliver to the Indemnitee written
acceptance of liability for indemnification with respect to
any such Third Party Claim and written consent to be joined as
a party to any Legal Proceeding relating thereto; and
(ii) the undertaking and assumption of control of the defence,
compromise and/or settlement of any such Third Party Claim
shall, by its terms, be without expense, cost or other
liability to the Indemnitee;
and provided further that the right of the Vendors to contest any
assessment or reassessment for Tax shall only apply after the payment
of the amount of any such assessment or reassessment or by providing
security for the same. The payment of any such assessment or
reassessment by the Vendors on behalf of the Corporation shall be
repaid to the Vendors if and when repaid to the Corporation by the
relevant taxing authority.
(d) If the Purchaser is the Indemnitee and the Third Party Claim is that
of a major client or supplier of the Corporation with respect to the
business conducted by the Corporation, and the Purchaser determines,
in its sole discretion, which determination shall be made within 10
Business Days after receiving the particulars of such Third Party
Claim, that as a result of
the nature of a Third Party Claim it is essential to the strategic
operation and direction of the business of the Corporation, the
Purchaser or its Affiliates that the Purchaser assume control of the
negotiation and defence of such a Third Party Claim, the Purchaser
shall promptly notify the Indemnitor, and the Indemnitor agrees, that
in such circumstances:
(i) the Indemnitor shall not assume or it shall give up control of
the negotiation or defence of the Third Party Claim; and
(ii) the Indemnitor shall reimburse the Indemnitee for its out-of-
pocket expenses, including the fees and disbursements of its
counsel, relating to the negotiation or defence of the Third
Party Claim.
(e) Upon the assumption of control by the Indemnitor as aforesaid, the
Indemnitor shall diligently proceed with the defence, compromise or
settlement of such Third Party Claim at the Indemnitor's sole expense,
including employment of counsel reasonably satisfactory to the
Indemnitee; and in connection therewith, the Indemnitee shall co-
operate fully with, but at the expense of, the Indemnitor, to make
available to the Indemnitor all pertinent information, documentation
and witnesses under the Indemnitee's control and to make such
assignments and take such other steps as in the opinion of counsel for
the Indemnitor are necessary or desirable to enable the Indemnitor to
conduct such defence.
(f) Following the lapse of all rights of appeal or the acknowledgement of
the Indemnitor that it will not appeal, the final determination of any
such Third Party Claim, including all related expenses, costs and
other liabilities, shall be binding and conclusive upon the parties
hereto as to the validity or invalidity, as the case may be, of such
Third Party Claim against the Indemnitor hereunder.
(g) In the event that the Indemnitor fails to give notice to the
Indemnitee as provided in subsection 15.3(a) above, the Indemnitee
shall be entitled to take such steps in connection with the
compromise, settlement or defence of such Third Party Claim as in its
sole discretion may appear advisable and, subject to the right of the
Indemnitor to deny that the Third Party Claim is a matter in respect
of which the Indemnitor has agreed to indemnify the Indemnitee
pursuant to this Agreement, such settlement or any final determination
of the Third Party Claim shall be binding upon the Indemnitee.
15.4 Subsequent Recovery
-------------------
In the event that the Indemnitee subsequently recovers all or part of a
Third Party Claim from any other Person legally obligated to pay the same, the
Indemnitee shall forthwith repay to the Indemnitor the amounts so recovered up
to an amount not exceeding the amount theretofore paid by the Indemnitor by way
of indemnity together with interest thereon from the date of such
recovery to the date of payment calculated at the prime commercial rate charged
from time to time for Canadian dollar loans by the Bank of Nova Scotia at
Toronto, Ontario.
15.5 Details of Claims
-----------------
No claim for indemnity hereunder shall be valid unless and until written
notice providing reasonable details of the reasons supporting the claim,
including such information and documentation with respect thereto as is then
reasonably available to the Indemnitee, is given by the Indemnitee to the
Indemnitor at or prior to the expiration of the applicable limitation periods
herein provided for.
15.6 Mitigation
----------
(a) Without prejudice to Purchaser's rights of recovery against the
Vendors hereunder, where any claim hereunder relates to any matter
which is in whole or in part insured by any insurance policy in
respect of the Corporation, the Purchaser shall take all necessary
steps to ensure that such claim is also made against the relevant
insurance company and pursued with all reasonable expedition.
(b) The liability of the Vendors hereunder shall be reduced by the
amount of any recoveries which have been actually received or
obtained by the Corporation or the Purchaser from any third party
responsible or partly responsible for the act, matter or
circumstances giving rise to such breach or claim or from any
insurance policy covering such third party claim. If any recovery
is made after the Vendors have made full payment to the Purchaser
in full satisfaction of any such liability or claim, the Purchaser
shall refund or procure that there is refunded to the Vendors the
lesser of:
(i) the amount of such payment by the Vendors; and
(ii) the amount of such recovery.
Without prejudice to the Purchaser's rights of recovery against the
Vendors, where the Corporation has a claim or potential claim against a
third party in respect of the matter which is the subject of
indemnification hereunder, the Purchaser shall cause the Corporation to
use reasonable efforts to effect the recovery or reimbursement.
15.7 Selling Shareholders' Representatives
-------------------------------------
Each of the Selling Shareholders shall enter in the Selling Shareholders'
Representatives Agreement in the form attached hereto as Exhibit G with the
Selling Shareholders' Representatives.
Article 16
----------
MISCELLANEOUS
-------------
16.1 Further Assurances
------------------
Each of the parties hereto upon the request of each of the other parties
hereto, whether before or after the Time of Closing, shall do, execute,
acknowledge and deliver or cause to be done, executed, acknowledged and
delivered all such further acts, deeds, documents, assignments, transfers,
conveyances, powers of attorney and assurances as may be reasonably necessary or
desirable to effect complete consummation of the transactions herein
contemplated.
16.2 Announcements
-------------
Except to the extent required by law or by any Tribunal each of the parties
hereto agrees that no disclosure or public announcement with respect to this
Agreement or the transactions herein contemplated shall be made by any party
hereto without the prior written consent of each of the other parties hereto,
which consent shall not be unreasonably withheld (provided, however, E-TEK may
without the consent of any other party publicly announce the execution of this
Agreement, and/or the consummation of the transactions contemplated therein, if
in its reasonable discretion such announcement is necessary or advisable under
the U.S. federal securities laws or the rules of the Nasdaq National Market).
This Section 16.2 shall apply to the employees of each party.
16.3 Notices
-------
(a) Any notice, direction or other instrument required or permitted to be
given to any party hereto shall be in writing and shall be
sufficiently given if delivered personally, mailed or transmitted by
fax or other form of recorded communication tested prior to
transmission to such party, as follows:
(i) in the case of Shemiran or Dr. Alavie, at
[Home address redacted]
(ii) in the case of Xx. Xxxxxxxx, at
[Home address redacted]
(iii) with an additional copy (which shall not in itself constitute
notice hereunder) to:
Xxxxxx & Associates
Barristers, Solicitors, Notaries
000 Xxx Xxxx Xxxx
Xxxxx 000
Xxxxxxx, Xxxxxxx
X0X 0X0
Attention: Xxxxxxxx X. Xxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
(iv) in the case of the Purchaser or E-TEK, at
0000 Xxxxx Xxxxxx
Xxx Xxxx, Xxxxxxxxxx
00000
Attention: General Counsel
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
(v) with an additional copy (which shall not in itself constitute
notice hereunder) to each of:
Fraser Xxxxxx
000 Xxxxx Xxxxxx
Xxxxx 0000
Xxxxxx, Xxxxxxx
X0X 0X0
Attention: X.X. Xxxxxxx
Telephone: (000)000-0000
Facsimile: (000) 000-0000
- and -
Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx
000 Xxxx Xxxx Xxxx
Xxxx Xxxx, Xxxxxxxxxx
00000
Attention: Xxxxx Xxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
(b) Any such notice, direction or other instrument, if delivered
personally, shall be deemed to have been given and received on
the day on which it was delivered, provided that if such day
is not a Business Day then the notice, direction or other
instrument shall be deemed to have been given and received on
the first Business Day next following such day; if mailed,
shall be deemed to have been given and received on the fifth
day after it was mailed, provided that if such day is not a
Business Day then the notice, direction or other instrument
shall be deemed to have been given and received on the first
Business Day next following such day; and if transmitted by
fax or other form of recorded communication, shall be deemed
to have been given and received on the day of its
transmission, provided that if such day is not a Business Day
or if it is transmitted or received after the end of normal
business hours then the notice, direction or other instrument
shall be deemed to have been given and received on the first
Business Day next following the day of such transmission.
(c) Any party hereto may change its address for service from time
to time by notice given to each of the other parties hereto in
accordance with the foregoing provisions.
16.4 Time of the Essence
-------------------
Time shall be of the essence of this Agreement.
16.5 Costs and Expenses
------------------
All costs and expenses (including, without limitation, the fees and
disbursements of legal counsel) incurred in connection with this Agreement and
the transactions herein contemplated shall be paid by the party incurring such
costs and expenses provided that, to a maximum amount of Cdn. $200,000, the
Purchaser agrees to reimburse the Vendors for legal expenses incurred by the
Vendors in connection with this Agreement and the transactions herein
contemplated.
16.6 Applicable Law
--------------
This Agreement shall be construed and enforced in accordance with, and the
rights of the parties shall be governed by, the laws of the Province of Ontario
and the laws of Canada applicable therein. Any and all disputes arising under
this Agreement, whether as to interpretation, performance or otherwise, shall be
subject to the exclusive jurisdiction of the Courts of the Province of Ontario
and each of the parties hereto hereby irrevocably attorns to the jurisdiction of
the Courts of such Province.
16.7 Entire Agreement
----------------
This Agreement, together with the non-disclosure agreement dated March 24,
1999, as amended May 6, 1999 (the "Letter"), constitutes the entire agreement
between the parties hereto with respect to the transactions herein contemplated
and cancels and supersedes any prior understandings, agreements, negotiations
and discussions between the parties hereto with respect thereto except as
specifically provided or contemplated in this Agreement or in any agreement,
certificate, affidavit, statutory declaration or other document delivered or
given pursuant to this Agreement. There are no representations, warranties,
terms, conditions, undertakings or collateral agreements or understandings,
express or implied, between the parties hereto other than those expressly set
forth in this Agreement, the Letter or in any such agreement, certificate,
affidavit, statutory declaration or other document as aforesaid. This Agreement
may not be amended or modified in any respect except by written instrument
executed by each of the parties hereto.
16.8 Effect of Closing
-----------------
Any provision of this Agreement which is capable of being performed after
but which has not been performed at or prior to the Time of Closing and all
obligations, covenants and agreements contained in this Agreement or in any
agreement, certificate, affidavit, statutory declaration or other document
delivered or given pursuant to this Agreement, including, without limitation,
the indemnities herein provided for, shall remain in full force and effect
notwithstanding the Closing, subject to the limitation periods referred to in
Sections 9.1 and 9.2.
16.9 Counterparts and Facsimile
--------------------------
This Agreement may be executed in two or more counterparts or by
facsimile, each of which shall be deemed to be an original and all of which
together shall constitute one and the same Agreement.
16.10 Assignment
----------
This Agreement may not be assigned by any of the parties hereto without
the prior written consent of each of the other parties hereto.
16.11 Parties in Interest
-------------------
This Agreement shall enure to the benefit of and be binding upon the
parties hereto and their respective heirs, executors, successors, administrators
and permitted assigns.
16.12 Third Parties
-------------
Except as specifically set forth or referred to herein, nothing herein is
intended or shall be construed to confer upon or give to any Person, other than
the parties hereto and their respective heirs, executors, successors,
administrators and permitted assigns, any rights or remedies under or by reason
of this Agreement.
16.13 English Language
----------------
The parties confirm that it is their wish that this Agreement and any
other documents delivered or given pursuant to this Agreement, including
notices, have been and shall be in the English language only. Les parties aux
presents confirment leur volonte que cette convention de meme tous les
documents, y compris tous avis, s'y rattachant, soient rediges en anglais
seulement.
16.14 Facsimile Signature
-------------------
This Agreement may be executed by facsimile signatures and the delivery by
facsimile of signed copies of the Agreement shall constitute and be deemed to be
delivery of the original signatures of the parties. The parties agree to
exchange executed originals in due course.
IN WITNESS WHEREOF this Agreement has been executed by the parties hereto.
SIGNED, SEALED AND DELIVERED )
in the presence of )
)
_________________________ ) ___________________________l/s
Witness: ) A. Tino Alavie Name:
)
)
_________________________ ) ___________________________l/s
Witness: ) Xxxxxx Xxxxxxxx
Name: )
SHEMIRAN HOLDINGS INC.
By: _______________________________
Name:
Title:
I have the authority to bind the corporation.
XXXXX TECHNOLOGY CO.
By: _______________________________
Name:
Title:
I have the authority to bind the corporation.
E-TEK DYNAMICS, INC.
By: _______________________________
Name:
Title:
I have the authority to bind the corporation.
ELECTROPHOTONICS CORPORATION
By: _______________________________
Name:
Title:
I have the authority to bind the corporation.
