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STOCK PURCHASE AGREEMENT
among:
XXXXXXX.XXX, INC.
a Delaware corporation;
SFG TECHNOLOGIES, INC.
a corporation organized and existing
under the laws of British Columbia, Canada;
and
[SECURITYHOLDERS]
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Dated as of December , 1999
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is entered into on December 22, 1999 and
among XXXXXXX.XXX, INC., a Delaware corporation (the "PURCHASER"), SFG
TECHNOLOGIES, INC., a corporation organized and existing under the laws of
Canada ("SFG"), the parties listed on the signature page attached hereto under
"Common Selling Shareholders," and the parties listed on the signature page
hereto under "Option Holders" (respectively, the "COMMON SELLING SHAREHOLDERS"
and the "OPTION HOLDERS" and together, the "SELLING SECURITYHOLDERS"), and Xxxxx
Xxxxxxx (the "AGENT"). Certain capitalized terms used in this Agreement are
defined on Exhibit A.
RECITALS
A. The Common Selling Shareholders collectively are the registered
and beneficial owners of 30,156,964.84 shares of the common stock of SFG (the
"COMMON SHARES"), and the Preferred Shareholders are collectively the
registered and beneficial owners of 341,319 shares of the preferred stock of
SFG (the "PREFERRED SHARES") (the Common Shares and the Preferred Shares are
hereinafter collectively referred to as the "SHARES"). Other that the BEA
Shares and the Residual Shares, the Shares constitute all of the issued and
outstanding capital stock of SFG .
B. The Option Holders collectively are the registered and
beneficial owners of options to purchase 2500 shares of the common stock of
SFG (the "OPTIONS"). The Options constitute all of the outstanding
subscriptions, calls, options, warrants or other rights, whether or not
currently convertible, exchangeable, exercisable or otherwise, to acquire any
shares of the capital stock or other securities of SFG. The Shares and the
Options are hereinafter collectively referred to as the "SECURITIES."
X. Xxxxx Xxxxxxx Xxxxxxx and Xxxx Xxxxxxx Xxxxxxx (collectively,
the "ELLIOTTS", and, for greater certainty, the Elliotts are also Selling
Securityholders for the purposes of this Agreement with respect to the Common
Shares personally owned by them) are the registered and beneficial owners of
all of the issued and outstanding shares (the "XXXXXXX SHARES") of Xxxxx
Xxxxxxx & Associates Inc. ("BEA"). BEA owns 20,000 Class B Common Shares of
SFG (the "BEA SHARES").
D. The Selling Securityholders (except BEA) wish to sell the
Securities (other than the BEA Shares) to the Purchaser on the terms set
forth in this Agreement. The Elliotts wish to sell the Xxxxxxx Shares to the
Purchaser on the terms set forth in this Agreement.
AGREEMENT
The Purchaser, SFG the Selling Securityholders and the Elliotts
intending to be legally bound, agree as follows:
1. SALE AND PURCHASE OF SECURITIES; RELATED TRANSACTIONS
1.1 SALE AND PURCHASE OF SECURITIES. At the Closing, the Selling
Securityholders shall sell, assign, transfer and deliver the Securities to
the Purchaser, and the Purchaser shall
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purchase the Securities from the Selling Securityholders, on the terms and
subject to the conditions set forth in this Agreement. At the Closing, the
Elliotts shall sell, assign, transfer and deliver the Xxxxxxx Shares to the
Purchaser, and the Purchaser shall purchase the Xxxxxxx Shares from the
Elliotts, on the terms and subject to the conditions set forth in this
Agreement.
1.2 PURCHASE PRICE.
(a) Subject to the terms of this Agreement, the aggregate
purchase price for the Securities and the Xxxxxxx Shares shall be the sum of
US$15,731,962 (the "PURCHASE PRICE"), payable subject to the following
adjustments:
(i) the Purchase Price shall be reduced by an amount equal to
the principal amount of the Outstanding Long Term Debt (defined below) and the
aggregate retraction price of the Class C Preferred shares and the aggregate
redemption price of the Class F Preferred Shares (collectively, the "PREFERRED
STOCK") to be repaid, retracted or redeemed, as the case may be, pursuant to
Section 1.4;
(ii) if the Closing Net Working Capital is less than zero (a
"DEFICIT"), then the Purchase Price shall be further reduced by an amount equal
to the Deficit;
(iii) if the Purchase Price is reduced pursuant to Section
1.2(a)(ii) and the Closing Net Working Capital is less than the Estimated
Closing Net Working Capital, then the Purchase Price shall be further reduced by
the amount by which Closing Net Working Capital is less than the Estimated
Closing Net Working Capital;
(iv) if the Purchase Price is reduced pursuant to Section
1.2(a)(ii) and the Closing Net Working Capital is greater than the Estimated
Closing Net Working Capital, then the Purchase Price shall be increased by the
lesser of:
(1) the amount by which the Closing Net Working Capital
exceeds the Estimated Closing Net Working Capital, and
(2) the amount by which the Purchase Price was reduced
pursuant to Section 1.2(a)(ii);
(v) if the Purchase Price is not reduced pursuant to Section
1.2(a)(ii) and the Closing Net Working Capital is less than zero (a "FINAL
DEFICIT"), then the Purchase Price shall be reduced by the Final Deficit; and
(vi) if an amount is received from the Canadian Customs and
Revenue Agency by the Company by way of credit or cash payment as a result of
investment tax credit claims which the Company has made under subsection 127(5)
of the INCOME TAX ACT (Canada) for taxation years ending on or before the
Closing or credited or paid as related interest, then the Purchase Price shall
be increased by the amount so received.
(b) For the purposes of the calculation of the adjustments to the
Purchase Price, "OUTSTANDING LONG TERM DEBT" shall mean that long-term debt
outstanding at the Closing as detailed in Part 1.4 of the Disclosure Schedule.
The current portions of such debt and accrued
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interest thereon and all deferred revenue will be excluded from Outstanding
Long Term Debt for the purposes of the calculation of adjustments to the
Purchase Price.
(c) Closing Net Working Capital will be the consolidated current
assets less the consolidated current liabilities determined in accordance with
GAAP measured as at November 30, 1999 with the following modifications:
(i) current assets will exclude the full amount receivable in
respect of any investment tax credits referred to above in Section 1.2(a)(vi);
(ii) current assets will be increased by the aggregate
amounts received or receivable by SFG from holders of options who have exercised
their option after November 30, 1999 but prior to Closing;
(iii) current liabilities will exclude one-half of the
current portion of deferred revenue;
(iv) current assets will be reduced by the amount of
US$120,000, representing the portion of the Purchase Price relating to the
pre-funding of professional fees and expenses owed by SFG on Closing (provided
however, that the Estimated Closing Net Working Capital will not be calculated
with this adjustment);
(v) for greater certainty, current liabilities will include
the current portions of long-term debt and accrued interest thereon; and
(vi) for the purposes of the adjustments contemplated in this
Section 1.2, all Canadian dollars shall be converted into United States dollars
at a rate of $US 0.67581266 for each Canadian dollar.
(d) If there is an increase in the Purchase Price in respect of
any investment tax credits referred to above in Section 1.2(a)(vi), the
Purchaser shall cause SFG to pay the amount of the increase to the Agent for
distribution to the Selling Securityholders on a Pro Rata basis within the later
of the date that is 10 days after receipt thereof and the date that the
Toronto-Dominion Bank has unconditionally released its security interest in such
investment tax credits granted pursuant to the Assignment of SR & ED Tax
Credits, Refunds and Payment between SFG and The Toronto-Dominion Bank dated
April 30, 1998 .
(e) The Purchaser shall allocate the Purchase Price among the
Securities and the Xxxxxxx Shares as set out in Part 1.4 of the Disclosure
Schedule. The Selling Securityholders, the Elliotts and the Purchaser agree that
the values so attributed to the Securities and the Xxxxxxx Shares are the
respective fair market values thereof, and each party shall file in mutually
agreeable form all returns and elections required or desirable under the Income
Tax Act (Canada) in a manner consistent with the foregoing allocations. For
greater certainty, the Elliotts and the Purchaser agree that the portion of the
Purchase Price attributable to the Xxxxxxx Shares is determined as if each
Xxxxxxx directly owns such number of BEA Shares which is equal to his or her
proportionate interest in BEA on the Closing Date.
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(f) In the case of each US Seller, the Purchaser shall withhold,
and hold in escrow, from that portion of the Purchase Price payable to such US
Seller (the "US SELLER PAYMENT") an amount equal to 33 1/3% of the US Seller
Payment (the "TAX AMOUNT") pursuant to subsection 116(5) of the INCOME TAX ACT
(Canada). The aggregate of all such Tax Amounts (the "TAX ESCROW AMOUNT") shall
be delivered to the Escrow Agent to be held in accordance with the Tax Escrow
Agreement.
1.3 CLOSING NET WORKING CAPITAL ADJUSTMENT PROCEDURES.
(a) At least one business day prior to the Closing Date, SFG shall
cause to be prepared and delivered to Purchaser a schedule setting forth, in
reasonable detail, SFG's good faith estimate of the Closing Net Working Capital
(and for greater certainty, without the reduction in current assets referred to
in Section 1.2(c)(iv)) (the "ESTIMATED CLOSING NET WORKING CAPITAL") along with
a copy of the computations used in connection with such determination of the
Estimated Closing Net Working Capital. If the Estimated Closing Net Working
Capital is negative (less than zero) (the "BASE CLOSING NET WORKING CAPITAL"),
the Purchase Price shall be reduced dollar-for-dollar as described in Section
1.2(a)(ii).
(b) As promptly as practicable, but in no event later than 60
days, after the Closing Date, Purchaser shall prepare and deliver to Agent a
schedule ("PURCHASER'S CLOSING SCHEDULE") setting forth in reasonable detail
Purchaser's calculation of Closing Net Working Capital. Purchaser's Closing
Schedule shall also set forth, and explain, in reasonable detail, any
differences between Purchaser's calculation of Closing Net Working Capital and
the Estimated Closing Net Working Capital. Any computations and workpapers used
in the preparation of Purchaser's Closing Schedule shall also be provided to
Agent at such time. If Purchaser employs a firm of independent accountants in
connection with the preparation of Purchaser's Closing Schedule, Purchaser shall
cause such independent accountants to deliver to Agent any computations and
workpapers used in the preparation of Purchaser's Closing Schedule. In addition,
Purchaser shall make available to Agent the appropriate personnel involved in
the preparation of Purchaser's Closing Schedule.
(c) Agent will notify Purchaser in writing ("AGENT'S DISPUTE
NOTICE") within 30 days after receiving Purchaser's Closing Schedule if Agent
disagrees with Purchaser's calculation of the Closing Net Working Capital as set
forth in Purchaser's Closing Schedule, which notice shall set forth in
reasonable detail the basis for such disagreement, the dollar amounts involved
and Agent's calculation of the Closing Net Working Capital. Purchaser will give
Agent and its representatives reasonable access during the normal business hours
of Purchaser and SFG to the personnel, books and records of SFG to assist Agent
in the preparation of Agent's Dispute Notice. If no Agent's Dispute Notice is
received by Purchaser within such 30-day period, Purchaser's calculation of the
Closing Net Working Capital as set forth in Purchaser's Closing Schedule shall
be final and binding upon the parties hereto.
(d) Upon receipt by Purchaser of Agent's Dispute Notice, Agent and
Purchaser shall negotiate in good faith to resolve any disagreement with respect
to Closing Net Working Capital set forth in Agent's Dispute Notice. To the
extent Purchaser and Agent are unable to agree with respect to Closing Net
Working Capital within 30 days after receipt by Purchaser of Agent's Dispute
Notice, Purchaser and Agent shall promptly (but in any event
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within 10 days after expiration of such 30 day period) select and retain a
mutually acceptable internationally recognized accounting firm with offices
in Vancouver, British Columbia, Canada, with no material relationship to
Purchaser or Agent and submit their dispute to such accounting firm for a
binding resolution. Such accounting firm shall be instructed to prepare a
written statement of such accounting firm's determination of the Closing Net
Working Capital, and to deliver copies thereof to Purchaser, Agent and the
Escrow Agent, within 30 days of retention of such accounting firm pursuant to
this Section 1.3(d). The fees and expenses of such accounting firm shall be
paid one-half by Agent, on behalf of the Selling Securityholders, and
one-half by Purchaser. Closing Net Working Capital as agreed upon by Agent
and Purchaser, as deemed agreed upon pursuant to the last sentence of Section
1.3(c) or as determined by such accounting firm, in accordance herewith,
shall be termed the "FINAL CLOSING NET WORKING CAPITAL." If the Estimated
Closing Net Working Capital exceeds the Final Closing Net Working Capital,
the amount of such excess shall be paid to Purchaser out of the First Escrow
Amount and any remaining First Escrow Amount shall be paid to Agent, all in
accordance with the Escrow Agreement.
1.4 CLOSING AND CLOSING ACTIONS.
(a) The closing of the sale of the Securities and the Xxxxxxx
Shares to the Purchaser (the "CLOSING") shall take place at the offices of the
Purchaser at 8:00 a.m. (Vancouver time) on December 22, 1999 (or at such other
place or time as the Purchaser and the Agent may jointly designate). For
purposes of this Agreement: "SCHEDULED CLOSING TIME" shall mean the time and
date as of which the Closing is required to take place pursuant to this Section
1.4(a); and "CLOSING DATE" shall mean to the time and date as of which the
Closing actually takes place.
(b) At the Closing, the Purchaser shall pay to the Selling
Securityholders and to the Elliotts (unless otherwise directed in writing), in
the amounts set out in Part 1.4 of the Disclosure Schedule, an amount equal to
US$15,731,962 less the aggregate of:
(i) the adjustments provided in Sections 1.2(a)(i) and
1.2(a)(ii);
(ii) the First Escrow Amount (as defined below);
(iii) the Second Escrow Amount (as defined below);
(iv) the BEA Escrow Amount (as defined below); and
(v) the Tax Escrow Amount.
(c) At the Closing:
(i) the Purchaser shall pay to SFG the amount of
$1,217,746.84 which shall be used to fund the aggregate retraction price of the
Class C Preferred Shares owned by some of the Common Selling Shareholders as
more particularly described in Part 1.4 of the Disclosure Schedule, which amount
shall be paid by SFG to such holders of the Class C Preferred Shares only upon
surrender by such holders of the original share certificates representing the
Class C Preferred Shares;
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(ii) the Purchaser shall pay to SFG the amount of $218,490.23
which shall be used to fund the aggregate retraction price of the Class F
Preferred Shares owned by Her Majesty the Queen in right of the Province of
British Columbia as more particularly described in Part 1.4 of the Disclosure
Schedule, which amount shall be paid by SFG to such holder of the Class F
Preferred Shares only upon surrender by such holder of the original share
certificates representing the Class F Preferred Shares;
(iii) the Purchaser shall pay to SFG the amount of
$1,656,390.25 which shall be used to fund the repayment of the principal amount
of the Outstanding Long-Term Debt and accrued interest thereon as more
particularly described in Part 1.4 of the Disclosure Schedule, which amount
shall be paid by SFG to the holders of the Outstanding Long-Term Debt only upon
receipt of such releases and discharges as the Purchaser reasonably considers
satisfactory;
(iv) from amounts received pursuant to Section 1.4(b),
$270,000 shall be used to fund the payment of SFG's transaction costs incurred
up to the Closing Date in connection with the Transaction (including, without
limitation, all legal, accounting and financial advisors costs and expenses);
(v) Each of the Common Selling Shareholders shall deliver to
the Purchaser the stock certificates representing the Common Shares owned by
them, duly endorsed (or accompanied by duly executed stock powers);
(vi) Each of the Option Holders shall execute and deliver to
the Purchaser an Option Termination Agreement in the form of Exhibit B ("OPTION
TERMINATION AGREEMENTS");
(vii) The Elliotts shall deliver to the Purchaser the stock
certificates representing the Xxxxxxx Shares, duly endorsed (or accompanied by
duly executed stock powers);
(viii) Each of Xxxxx Xxxxxxx and Xxxxx Xxxxx shall execute
and deliver to the Purchaser and SFG a Noncompetition Agreement substantially in
the form of Exhibit C1, and Xxxxx Xxxxxx shall execute and deliver to the
Purchaser and SFG a Noncompetition Agreement substantially in the form of
Exhibit C2;
(ix) The Purchaser shall deliver the Tax Escrow Amount to the
Escrow Agent to be held in accordance with the Tax Escrow Agreement;
(x) The Purchaser, the Selling Securityholders, the Agent and
the Escrow Agent shall execute and deliver the Escrow Agreement;
(xi) The Purchaser shall deliver US$500,000 of the Purchase
Price (the "FIRST ESCROW AMOUNT") to the Escrow Agent to be held in accordance
with the Escrow Agreement and Section 1.3;
(xii) The Purchaser shall deliver US$1,500,000 of the
Purchase Price (the "SECOND ESCROW AMOUNT") to the Escrow Agent to be held in
accordance with the Escrow Agreement and this Agreement;
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(xiii) The Purchaser shall deliver US$43,513.03 of the
Purchase Price (the "BEA ESCROW AMOUNT") to the Escrow Agent to be held in
accordance with the BEA Escrow Agreement;
(xiv) The Purchaser shall have received from SFG's and
certain of the Selling Securityholders' respective counsel an opinion or
opinions of such counsel in a form satisfactory to Purchaser;
(xv) The Purchaser and SFG shall have received from each
Selling Securityholder a Securityholder Release in the form of Exhibit E;
(xvi) SFG shall execute and deliver to the Purchaser a
certificate (the "CLOSING CERTIFICATE") setting forth SFG's representations and
warranties that (A) each of the representations and warranties made by SFG in
this Agreement was accurate in all respects as of the date of this Agreement,
(B) except as expressly set forth in the Closing Certificate, each of the
representations and warranties made by SFG in this Agreement is accurate in all
respects as of the Closing Date as if made on the Closing Date, (C) each of the
covenants and obligations that SFG are required to have complied with or
performed pursuant to this Agreement at or prior to the Closing has been duly
complied with and performed in all respects, and (D) except as expressly set
forth in the Closing Certificate, each of the conditions set forth in Sections
8.4(a), 8.4(b), 8.5, 8.7 and 8.8 has been satisfied in all respects; and
(xvii) The directors of the Companies shall resign from their
respective positions as directors of the Companies, and Xxxxx Xxxxxx shall
resign in her capacity as corporate secretary of the Companies.
1.5 TAX MATTERS. For US federal income tax purposes, the parties intend
the sale of the Securities to be treated as a taxable transaction. All parties
understand that with respect to the sale of the Securities, the Purchaser
currently intends to file an election under Section 338 of the Internal Revenue
Code of 1986, as amended (the "CODE") (the "SECTION 338 ELECTION"), and all
parties agree to cooperate in connection with such election. The Purchaser shall
have sole responsibility for allocating consideration among SFG's assets
following such election, and the parties agree that they shall adhere to such
allocation for the purpose of all tax returns filed by them subsequent to the
Closing Date, including the determination of taxable gain or loss and the tax
basis of assets, for the purpose of all financial statements, and in all other
circumstances.
2. REPRESENTATIONS AND WARRANTIES OF SFG
Except as set forth in the disclosure schedules attached hereto (each a
"SCHEDULE," and collectively, the "DISCLOSURE SCHEDULES") with respect to the
specific sections of this Article 2, or as disclosed in another section of the
Disclosure Schedules if it is reasonably apparent on the face of the disclosure
that it is applicable to another section of this Article 2, as of the date of
this Agreement and as of the Closing, SFG represents and warrants, to and for
the benefit of the Indemnitees, as follows:
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2.1 DUE ORGANIZATION; NO SUBSIDIARIES; ETC.
(a) Each of the Companies is a corporation duly incorporated,
organized, validly existing and in good standing under the laws of its
respective jurisdiction of incorporation and has all necessary power and
authority:
(i) to conduct its business in the manner in which its
business is currently being conducted and in the manner in which its business is
currently proposed to be conducted;
(ii) to own and use its assets in the manner in which its
assets are currently owned and used and in the manner in which its assets are
currently proposed to be owned and used; and
(iii) to perform its obligations under all SFG Contracts.
(b) Except as disclosed in Part 2.1 of the Disclosure Schedule,
none of the Companies has ever conducted any business under or otherwise used,
for any purpose or in any jurisdiction, any fictitious name, assumed name, trade
name or other name, other than the name "SFG Technologies Inc."
(c) None of the Companies has ever been required to be qualified,
authorized, registered or licensed to do business as a foreign corporation in
any jurisdiction other than the jurisdictions identified in Part 2.1 of the
Disclosure Schedule. Each Company is in good standing as a foreign corporation
in each of the jurisdictions identified in Part 2.1 of the Disclosure Schedule.
(d) Part 2.1 of the Disclosure Schedule accurately sets forth (i)
the names of the members of each Company's board of directors, (ii) the names of
the members of each committee of each Company's board of directors, and (iii)
the names and titles of each Company's officers.
(e) Neither SFG nor any of its shareholders has ever approved, or
commenced any proceeding or made any election contemplating, the dissolution or
liquidation of SFG or the winding up or cessation of SFG's business or affairs.
(f) Except as identified in Part 2.1 of the Disclosure Schedule
(which sets forth the name, address and principal business of each Subsidiary):
(i) SFG has no direct or indirect subsidiaries, and SFG has never owned,
beneficially or otherwise, any shares or other securities of, or any direct or
indirect interest of any nature in, any Entity; and (ii) SFG has not agreed and
is not obligated to make any future investment in or capital contribution to any
other Entity. Except as identified in Part 2.1 of the Disclosure Schedule, SFG
owns all of the equity or other interests in and to each Subsidiary. Nissi
Technologies (U.S.A.) Inc. ("NISSI") is an inactive corporation that does not
carry on business or any other activities. Nissi has no Liabilities whatsoever,
including without limitation, any Liabilities which may in any way expose any of
the Companies to Liability.
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(g) SFG is a "private issuer" within the meaning of the SECURITIES
ACT (British Columbia).
(h) All eligible security transfer Taxes or similar Taxes payable
in connection with the transfer of any securities of the Companies have been
duly paid.
(i) Except as identified in Part 2.1 of the Disclosure Schedule,
there are no shareholders' agreements, pooling agreements, voting trusts or
other similar agreements with respect to the ownership or voting of any of the
shares of the Companies.
(j) Part 2.1 of the Disclosure Schedule lists each jurisdiction in
which operations of the Companies are carried on and briefly describes the
nature of such operations and each jurisdiction in which tangible assets owned
or used by the Companies are located.
2.2 CERTIFICATE OF INCORPORATION AND BYLAWS; RECORDS.
(a) SFG has delivered to the Purchaser accurate and complete
copies of:
(i) the certificate of incorporation and bylaws or other
charter documents of each Company, including all amendments thereto;
(ii) the stock records of each of the Companies; and
(iii) the minutes and other records of the meetings and other
proceedings (including any actions taken by written consent or otherwise without
a meeting) of the shareholders of each of the Companies, the board of directors
of each of the Companies and all committees of the board of directors of each of
the Companies. There have been no meetings or other actions or proceedings of
the shareholders of any of the Companies, the board of directors of any of the
Companies or any committee of the board of directors of any of the Companies
that are not fully reflected in such minutes or other records.
(b) There has not been any violation of any of the provisions of
SFG's certificate of incorporation or bylaws or of any resolution adopted by
SFG's shareholders, SFG's board of directors or any committee of SFG's board of
directors; and no event has occurred, and no condition or circumstance exists,
that might (with or without notice or lapse of time) constitute or result
directly or indirectly in such a violation.
(c) The books of account, stock records, minute books and other
records of each of the Companies are accurate, up-to-date and complete, and have
been maintained in accordance with sound and prudent business practices. All of
the records of the Companies are in the actual possession and direct control of
SFG. SFG has in place, and each of the Companies has at all times had in place,
an adequate and appropriate system of internal controls which is at least as
comprehensive and effective as the systems of internal controls customarily
maintained by Comparable Entities.
2.3 CAPITALIZATION, ETC.
(a) On the Closing Date, the authorized capital stock of SFG will
consist of:
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(i) an unlimited number of Class A Common shares, of which
6,941,054.84 shares are issued and outstanding;
(ii) an unlimited number of Class B Common shares, of which
23,218,410 shares are issued and outstanding;
(iii) an unlimited number of Class X Common shares, of which
no shares are issued and outstanding;
(iv) an unlimited number of Class A Preferred shares, of
which no shares are issued and outstanding;
(v) an unlimited number of Class B Preferred shares, of which
no shares are issued and outstanding;
(vi) an unlimited number of Class C Preferred shares, of
which 18,019 have been issued and are outstanding, all of which are to be
redeemed by SFG on Closing; and
(vii) an unlimited number of Class F Preferred shares, of
which 323,300 are issued and outstanding, all of which are to be redeemed by SFG
on Closing.
(viii) All of such Securities are registered in the names of
the Selling Securityholders in the amounts indicated on Part 3.3 of the
Disclosure Schedule.
(b) All of the Securities (i) have been duly authorized and
validly issued, (ii) were issued in compliance with any applicable preemptive or
similar rights, (iii) have been issued in full compliance with all applicable
securities laws and other applicable Legal Requirements and in compliance with
all applicable SFG Contracts, and (iv) have been issued in compliance with the
articles of the articles of incorporation, by-laws or other constating documents
of SFG or the terms of any shareholders' agreement or any other agreement to
which SFG is a party or by which it is bound. The Selling Shareholders have
delivered to the Purchaser accurate and complete copies of the stock
certificates evidencing the Shares and the Option Holders have delivered to the
Purchaser fully executed and complete copies of the option agreements evidencing
the Options.
(c) All of the Shares are fully paid and non-assessable.
(d) Except as set forth in Part 2.3 of the Disclosure Schedules,
there is no:
(i) outstanding subscription, option, call, warrant or right
(whether or not currently exercisable) to acquire any shares of the capital
stock or other securities of any Company;
(ii) outstanding security, instrument or obligation that is
or may become convertible into or exchangeable for any shares of the capital
stock or other securities of any Company;
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(iii) Contract under which any Company is or may become
obligated to sell or otherwise issue any shares of its capital stock or any
other securities; or
(iv) condition or circumstance that may directly or
indirectly give rise to or provide a basis for the assertion of a claim by any
Person to the effect that such Person is entitled to acquire or receive any
shares of capital stock or other securities of any Company.
(e) Except as set forth in Part 2.3 of the Disclosure Schedule,
SFG has never repurchased, redeemed or otherwise reacquired any shares of
capital stock or other securities. All securities so reacquired by SFG were
reacquired in full compliance with all applicable Legal Requirements.
(f) The information in Recital A is correct and accurate in all
respects. Part 2.3 of the Disclosure Schedule lists the name and state or
province of residence of each holder of Securities provided to the Company by
such holder.
(g) Except as disclosed in Part 2.3 of the Disclosure Schedule,
there are no pre-emptive rights or agreements, arrangements or understandings to
issue pre-emptive rights with respect to the issuance or sale of Securities
created by statute, the articles of incorporation or by-laws of the Company, or
any agreement or other arrangement to which the Company is a party or to which
it is bound and there are no agreements, arrangements or understandings to which
the Company is a party (written or oral) pursuant to which the Company has the
right to elect to satisfy any liability by issuing Securities.
(h) Part 2.3 of the Disclosure Schedule sets forth the holder of
each Option, the number and type of securities issuable thereunder, and, if
applicable, the exercise price therefor, the exercise period, the maximum term,
and vesting schedule thereof (including a description of the circumstances under
which such vesting schedule can or will be accelerated).
(i) All of the Options were issued in compliance with all
applicable federal, provincial and foreign securities laws. None of the Options
will vest on an accelerated basis in connection with the acquisition
contemplated herein or any subsequent termination of the holder's employment or
service.
2.4 FINANCIAL STATEMENTS.
(a) SFG has delivered to the Purchaser the following financial
statements and notes (collectively, the "SFG FINANCIAL STATEMENTS"):
(i) the audited consolidated balance sheet of SFG and the
Subsidiaries as of December 31, 1998, and the related audited consolidated
statements of operations, changes in shareholders' equity and cash flows of SFG
for the year then ended, together with the notes thereto and the unqualified
report of KPMG Peat Marwick LLP relating thereto; and
(ii) the unaudited balance sheet of SFG as of November 30,
1999 (the "UNAUDITED INTERIM BALANCE SHEET"), and the related unaudited
statements of operations, for the nine months then ended is attached hereto in
Part 2.4 of the Disclosure Schedule.
12
(b) All of the SFG Financial Statements are accurate and complete
in all respects. The financial statements and notes referred to in Section
2.4(a)(i) present fairly the consolidated financial position of SFG and the
Subsidiaries as of December 31, 1998 and the consolidated results of operations,
changes in shareholders' equity and cash flows of SFG and the Subsidiaries for
the year then ended. The financial statements and notes referred to in Sections
2.4(a)(i) and 2.4(a)(ii) present fairly the financial position of SFG as of the
respective dates thereof and the results of operations, changes in shareholders'
equity and cash flows of SFG for the periods covered thereby. The SFG Financial
Statements have been prepared in accordance with GAAP, applied on a basis
consistent with the financial statements of previous years. Except for variances
in SFG's Ordinary Course of Business, there has been no material adverse change
in financial position of the Companies on a consolidated basis from that shown
by or reflected in the Unaudited Interim Balance Sheet.
2.5 ABSENCE OF CHANGES. Except as set forth in Part 2.5 of the
Disclosure Schedule, since December 31, 1998:
(a) there has not been any adverse change in any Company's
business, condition, assets, liabilities, operations, financial performance, net
income, prospects or relationship with customers, suppliers or employees (or in
any aspect or portion thereof), and no event has occurred that might have an
adverse effect on any Company's business, condition, assets, liabilities,
operations, financial performance, net income, prospects or relationship with
customers, suppliers or employees (or on any aspect or portion thereof);
(b) there has not been any loss, damage or destruction to, or any
interruption in the use of, any Company's assets (whether or not covered by
insurance);
(c) no Company has (i) declared, accrued, set aside or paid any
dividend or made any other distribution in respect of any shares of capital
stock, or (ii) repurchased, redeemed or otherwise reacquired any shares of
capital stock or other securities;
(d) no Company has sold or otherwise issued any shares of capital
stock or any other securities;
(e) no Company has amended its memorandum or articles of
incorporation or bylaws or other charter documents and has not effected or been
a party to any Acquisition Transaction, recapitalization, reclassification of
shares, stock split, reverse stock split or similar transaction;
(f) no Company has purchased or otherwise acquired any asset from
any other Person, except for supplies acquired in the Ordinary Course of
Business;
(g) no Company has leased or licensed any asset from any other
Person other than in the Ordinary Course of Business;
(h) no Company has made any capital expenditure other than in the
Ordinary Course of Business;
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(i) no Company has sold or otherwise transferred, and has not
leased or licensed, any asset to any other Person except for products sold by
SFG from its inventory in the Ordinary Course of Business;
(j) no Company has written off as uncollectible, or established
any extraordinary reserve with respect to, any account receivable or other
indebtedness;
(k) no Company has pledged or hypothecated any of its assets or
otherwise permitted any of its assets to become subject to any Encumbrance;
(l) no Company has made any loan or advance to any other Person
other than travel related expenses incurred in the Ordinary Course of Business
in accordance with SFG's Policy Guidelines on Travel Expenses, a copy of which
has been provided to the Purchaser;
(m) no Company has (i) established or adopted any Employee Benefit
Plan, or (ii) paid any bonus or made any profit-sharing or similar payment to,
or increased the amount of the wages, salary, commissions, fringe benefits or
other compensation or remuneration payable to, any of its directors, officers or
employees;
(n) no Company has entered into, and no Company nor any of the
assets owned or used by any Company has become bound by, any Contract that is
not an Excluded Contract;
(o) no Contract by which any Company or any of the assets owned or
used by any Company is or was bound, or under which any Company has or had any
rights or interest, has been amended or terminated;
(p) no Company has incurred, assumed or otherwise become subject
to any Liability, other than accounts payable (of the type required to be
reflected as current liabilities in the "liabilities" column of a balance sheet
prepared in accordance with GAAP) incurred by SFG in the Ordinary Course of
Business;
(q) no Company has discharged any Encumbrance or discharged or
paid any indebtedness or other Liability, except for accounts payable that (i)
are reflected as current liabilities in the "liabilities" column of the
Unaudited Interim Balance Sheet or have been incurred by SFG since December 31,
1998 in the Ordinary Course of Business, and (ii) have been discharged or paid
in the Ordinary Course of Business;
(r) no Company has forgiven any debt or otherwise released or
waived any right or claim other than in the Ordinary Course of Business;
(s) no Company has changed any of its methods of accounting or
accounting practices in any respect other than as prescribed by the Canadian
Institute of Chartered Accountants;
(t) no Company has entered into any transaction or taken any other
action outside the Ordinary Course of Business;
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(u) no event has occurred out of the Ordinary Course of Business
which would result in any material adverse change to the Estimated Closing
Working Capital if such Estimated Closing Working Capital was calculated as at
the Closing Date, except for the payment of up to US$270,000 of SFG's
transaction costs incurred up to the Closing Date in connection with the
Transaction (including without limitation, all legal, accounting and financial
advisor costs); and
(v) no Company has agreed, committed or offered (in writing or
otherwise), and has not attempted, to take any of the actions referred to in
clauses "(c)" through "(t)" above.
2.6 TITLE TO ASSETS.
(a) Each Company owns, and has good, valid and marketable title
to, all assets purported to be owned by it, including:
(i) all assets reflected on the Unaudited Interim Balance
Sheet (except for inventory sold by SFG since November 30, 1999 in the Ordinary
Course of Business);
(ii) all assets acquired since November 30, 1999 (except for
inventory sold by SFG since November 30, 1999 in the Ordinary Course of
Business);
(iii) all assets referred to in Parts 2.8, 2.9, 2.10 and 2.12
of the Disclosure Schedule and all rights under SFG Contracts; and
(iv) all other assets reflected in the Companies' books and
records as being owned by the Companies.
Except as set forth in Part 2.6 of the Disclosure Schedule, all of said
assets are owned by the Companies free and clear of any Encumbrances.
(b) Part 2.6 of the Disclosure Schedule identifies all assets that
are being leased or licensed to the Companies.
(c) The assets owned or leased by the Companies are adequate for
the conduct of their respective businesses as usually conducted and include all
proprietary rights, trade secrets and other property and assets, tangible and
intangible, applicable to or used in connection with such businesses. Neither
the Selling Securityholders nor any other Person owns any assets which are being
used in or are reasonably necessary to carry on the business or operations of
the Companies in the normal course except assets leased to the Companies.
2.7 BANK ACCOUNTS. Part 2.7 of the Disclosure Schedule accurately sets
forth, with respect to each account maintained by or for the benefit of any
Company at any bank or other financial institution:
(a) the name and location of the institution at which such account
is maintained , and the name and telephone number of the account manager;
15
(b) the name in which such account is maintained and the account
number of such account;
(c) a description of such account and the purpose for which such
account is used;
(d) the current balance in such account;
(e) the rate of interest being earned on the funds in such
account; and
(f) the names of all individuals authorized to draw on or make
withdrawals from such account.
There are no safe deposit boxes or similar arrangements maintained by
or for the benefit of any Company.
2.8 RECEIVABLES; MAJOR CUSTOMERS.
(a) Part 2.8 of the Disclosure Schedule provides an accurate and
complete breakdown and aging of all accounts receivable, notes receivable and
other receivables of the Companies as of November 30, 1999.
(b) Except as set forth in Part 2.8 of the Disclosure Schedule,
all existing accounts receivable of the Companies (including those accounts
receivable reflected on the Unaudited Interim Balance Sheet that have not yet
been collected and those accounts receivable that have arisen since November 30,
1999 and have not yet been collected):
(i) represent good, valid and enforceable obligations of
customers of the Companies arising from bona fide transactions entered into in
the Ordinary Course of Business; and
(ii) are current and will be collected in full (without any
counterclaim or setoff) on or before December 31, 2000.
(c) Part 2.8 of the Disclosure Schedule accurately identifies, and
provides an accurate and complete breakdown of the revenues received from, each
customer or other Person that accounted for (i) more than $50,000 of the
consolidated gross revenues of SFG in 1998 or (ii) more than $50,000 of SFG's
consolidated gross revenues year-to-date through November 30, 1999. No Company
has received any notice or other communication (in writing or otherwise), or any
other information, indicating that any customer or other Person identified in
Part 2.8 of the Disclosure Schedule may cease dealing with the Companies or may
otherwise reduce the volume of business transacted by such Person with the
Companies below historical levels.
2.9 INVENTORY. Part 2.9 of the Disclosure Schedule provides an accurate
and complete breakdown of any and all inventory of the Companies as of November
30, 1999. All of the Companies' existing inventory, if any (including any and
all inventory that is reflected on the
16
Unaudited Interim Balance Sheet and that has not been disposed of by the
Companies since November 30, 1999):
(a) is of such quality and quantity as to be usable and saleable
by the Companies in the Ordinary Course of Business;
(b) has been priced or valued in accordance with Canadian GAAP;
(c) is free of any defect or deficiency; and
(d) is the property of the Company free and clear of any
Encumbrance and is not held by the Companies on consignment from others.
The inventory levels maintained by the Companies (i) are not excessive
in light of the Companies' normal operating requirements, (ii) are adequate for
the conduct of the Companies' operations in the Ordinary Course of Business, and
(iii) are comparable to the inventory levels maintained by Comparable Entities.
2.10 EQUIPMENT, ETC.
(a) Part 2.10 of the Disclosure Schedule accurately identifies all
equipment, furniture, fixtures, improvements and other tangible assets (other
than inventory) owned by the Companies, and accurately sets forth the month and
year of acquisition, original cost and book value of each of said assets. Part
2.10 also accurately identifies all tangible assets leased to the Companies.
(b) Each asset identified or required to be identified in Part
2.10 of the Disclosure Schedule:
(i) is structurally sound, free of defects and deficiencies
and in good condition and repair (ordinary wear and tear excepted);
(ii) complies in all respects with, and is being operated and
otherwise used in full compliance with, all applicable Legal Requirements; and
(iii) is adequate for the uses to which it is being put.
The assets identified in Part 2.10 of the Disclosure Schedule are
adequate for the conduct of the Companies' businesses in the manner in which
such businesses are currently being conducted and in the manner in which such
businesses are proposed to be conducted.
2.11 REAL PROPERTY. None of the Companies own any real property or any
interest in real property, except for the leaseholds created under the real
property leases identified in Part 2.13 of the Disclosure Schedule (the
"LEASES"). Part 2.11 of the Disclosure Schedule provides an accurate and
complete description of the premises covered by said Leases and the facilities
located on such premises (the "LEASED PREMISES"). Each Company enjoys peaceful
and undisturbed possession of its respective Leased Premises. In respect of the
Leases and the Leased Premises:
17
(a) Complete and correct copies of the Leases have been provided
to the Purchaser.
(b) Each Company is exclusively entitled to all rights and
benefits as lessee under the Leases to which it is a party, and has not sublet,
assigned, licensed or otherwise conveyed any rights in the Leased Premises or in
the Leases to any other Person.
(c) All rental and other payments and other obligations required
to be paid and performed by the Companies pursuant to the Leases have been duly
paid and performed. No Company is in default of any of its obligations under the
Leases to which it is a party and none of the landlords or other parties to the
Leases are in default of any of their obligations under the Leases.
(d) The terms and conditions of the Leases will not be affected
by, nor will any of the Leases be in default as a result of, the completion of
the Transaction.
(e) To the Knowledge of SFG, the use by each Company of its Leased
Premises is not in breach of any building, zoning or other statute, by-law,
ordinance, regulation, covenant, restriction or official plan, and each Company
has adequate rights of ingress and egress for the operation of its business in
the ordinary course and, specifically (i) no alteration, repair, improvement or
other work that has not been completed has been ordered, directed or requested
in writing by any competent Governmental Body to be done in respect of any
Leased Premises or any of the plumbing, heating, elevating, water, drainage or
electrical systems, fixtures or works; (ii) all accounts for work and services
performed and materials furnished in respect of the Leased Premises at the
request of the Companies have been paid and no Person is entitled to claim a
lien against the Leased Premises or any part thereof, other than for current
accounts in respect of which the due date has not yet passed; (iii) there is
nothing owing by any Company in respect of the Leased Premises to any municipal
corporation, or to any other corporation or commission owning or operating a
public utility for water, gas, electrical power or energy, steam or hot water,
or for the use thereof, other than current accounts in respect of which the due
date has not yet passed; and (iv) no part of the Leased Premises has been taken
or expropriated by any Governmental Body nor has any notice or proceeding in
respect thereof been given or commenced.
(f) To the Knowledge of SFG, (i) there are no outstanding work
orders, non-compliance orders, deficiency notices or other such notices relative
to the Leased Premises, the other properties and assets of the Companies or
their respective businesses which have been issued by any police or fire
department, sanitation, environment, labor, health or other Governmental Body;
(ii) there are no matters under discussion with any such department or authority
relating to work orders, non-compliance orders, deficiency notices or other such
notices; and (iii) the Companies' businesses are not being operated in a manner
which is in contravention of any statute, regulation, rule, code, standard,
policy or other Legal Requirement.
(g) To the Knowledge of SFG, (i) the buildings and structures
comprising the Leased Premises are free of any structural defect; (ii) the
heating, ventilating, plumbing, drainage, electrical and air conditioning
systems and all other systems used in the Leased Premises and all machinery,
equipment, tools, furniture, furnishings and materials used in the
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Companies' businesses are in good working order, fully operational and free
of any defect, except for normal wear and tear; (iii) such buildings and
structures are located completely within the boundaries of the Leased
Premises; and (iv) certificates of mechanical fitness are readily available
for all motor vehicles owned or leased by the Companies.
2.12 PROPRIETARY ASSETS.
(a) Part 2.12 of the Disclosure Schedule sets forth, with respect
to each Proprietary Asset owned by the Companies registered with any
Governmental Body or for which an application has been filed with any
Governmental Body, (i) a brief description of such Proprietary Asset, and (ii)
the names of the jurisdictions covered by the applicable registration or
application. Part 2.12 of the Disclosure Schedule identifies and provides a
brief description of all other Proprietary Assets owned by the Companies (the
"OWNED PROPRIETARY ASSETS"). Part 2.12 of the Disclosure Schedule identifies and
provides a brief description of each Proprietary Asset licensed to the Companies
by any Person (except for any Proprietary Asset that is licensed to the
Companies under any third party software license generally available to the
public at a cost of less than $1,000 per copy) (the "LICENSED PROPRIETARY
ASSETS"), and identifies the license agreement under which such Proprietary
Asset is being licensed to the Companies (the Owned Proprietary Assets and the
Licensed Proprietary Assets are hereinafter collectively referred to as the
"COMPANY PROPRIETARY ASSETS"). Except as set forth in Part 2.12 of the
Disclosure Schedule, the Companies have good, valid and marketable title to all
of the Owned Proprietary Assets free and clear of all liens and other
Encumbrances, and have a valid right (contractual or otherwise) to use, license,
lease, sell or otherwise distribute to others all Company Proprietary Assets
identified in Part 2.12 of the Disclosure Schedule. Except as set forth in Part
2.12 of the Disclosure Schedule, the Companies are not obligated to make any
payment to any Person for the use of any Company Proprietary Asset. Except as
set forth in Part 2.12 of the Disclosure Schedule, the Companies have not
developed jointly with any other Person any Company Proprietary Asset with
respect to which such other Person has any rights.
(b) The Companies all Licensed Proprietary Assets is licensed to
the Companies pursuant to written license agreements under which the Companies
are in good standing and are entitled to all benefits thereunder, and there
exists no state of facts which after notice or lapse of time or both would
constitute a default or breach thereunder and to the Knowledge of SFG no other
party to such agreements is in default thereunder.
(c) The Companies have taken all commercially reasonable measures
and precautions to protect and maintain the confidentiality and secrecy of all
Company Proprietary Assets (except Company Proprietary Assets whose value would
be unimpaired by public disclosure) and otherwise to maintain and protect the
value of all Company Proprietary Assets. Except as set forth in Part 2.12 of the
Disclosure Schedule, none of the Companies has disclosed or delivered to any
Person, or permitted the disclosure or delivery to any Person of, (i) the source
code, or any portion or aspect of the source code, of any Company Proprietary
Asset, or (ii) other than to customers of the Company or for demonstration
purposes in the Ordinary Course of Business, the object code, or any portion or
aspect of the object code, of any Company Proprietary Asset. The source code for
Licensed Proprietary Assets is either in the Companies' possession or is subject
to a source code escrow agreement under which the Companies have the right to
obtain the source code upon the bankruptcy or other problem with the licensor.
19
(d) None of the Company Proprietary Assets infringes or conflicts
with any Proprietary Asset owned or used by any other Person. None of the
Companies is infringing, misappropriating or making any unlawful use of, and
none of the Companies has at any time infringed, misappropriated or made any
unlawful use of, or received any notice or other communication (in writing or
otherwise) of any actual, alleged, possible or potential infringement,
misappropriation or unlawful use of, any Proprietary Asset owned or used by any
other Person. No other Person is infringing, misappropriating or making any
unlawful use of, and no Proprietary Asset owned or used by any other Person
infringes or conflicts with, any Company Proprietary Asset.
(e) Each Company Proprietary Asset conforms with any
specification, documentation, performance standard, representation or statement
made or provided with respect thereto by or on behalf of any of the Companies.
There has not been any claim by any customer or other Person alleging that any
Company Proprietary Asset (including each version thereof that has ever been
licensed or otherwise made available by the Companies to any Person) does not
conform with any specification, documentation, performance standard,
representation or statement made or provided by or on behalf of any of the
Companies to such customer or other Person and there is no basis for any such
claim. SFG has established adequate reserves on the Unaudited Interim Balance
Sheet to cover all costs associated with any obligations that the Companies may
have with respect to the correction or repair of programming errors or other
defects in the Company Proprietary Assets.
(f) The Company Proprietary Assets constitute all the Proprietary
Assets necessary to enable the Companies to conduct their business in the manner
in which such business has been and is being conducted. None of the Companies
has licensed any of the Company Proprietary Assets to any Person on an exclusive
basis. None of the Companies has entered into any covenant not to compete or
Contract limiting its ability to exploit fully any of its Proprietary Assets or
to transact business in any market or geographical area or with any Person.
(g) Except as set forth in Part 2.12 of the Disclosure Schedule:
(i) all current and former employees of the Companies have executed and
delivered to the Companies an agreement (containing no exceptions to or
exclusions from the scope of its coverage except for prior inventions that do
not conflict with the operations of the Companies' businesses or the use of the
Companies' assets) that is substantially identical to the standard form of
employment agreement previously delivered to the Purchaser, and (ii) all current
and former consultants and independent contractors of the Companies (excluding
bankers, accountants, lawyers and other non-technical consultants and
independent contractors) have executed and delivered to the Companies an
agreement (containing no exceptions to or exclusions from the scope of its
coverage as it relates to the specific project for which the consultant or
independent contractor was hired) that is substantially identical to such form
of employment agreement previously delivered to the Purchaser.
2.13 CONTRACTS.
(a) Part 2.13 of the Disclosure Schedule identifies and provides
an accurate and complete description of each SFG Contract, except for any
Excluded Contract. SFG has
20
delivered to the Purchaser accurate and complete copies of all SFG Contracts
identified in Part 2.13 of the Disclosure Schedule, including all amendments
thereto.
(b) Each SFG Contract is valid and in full force and effect, and
is enforceable by SFG or a Subsidiary, as the case may be, in accordance with
its terms. No SFG Contract contains any term or provision that is extraordinary
or that is otherwise not customarily found in Contracts entered into by
Comparable Entities.
(c) Except as set forth in Part 2.13 of the Disclosure Schedule:
(i) no Person has violated or breached, or declared or
committed any default under, any SFG Contract;
(ii) no event has occurred, and no circumstance or condition
exists, that might (with or without notice or lapse of time) (A) result in a
violation or breach of any of the provisions of any SFG Contract, (B) give any
Person the right to declare a default or exercise any remedy under any SFG
Contract, (C) give any Person the right to accelerate the maturity or
performance of any SFG Contract, or (D) give any Person the right to cancel,
terminate or modify any SFG Contract;
(iii) none of the Companies has received any notice or other
communication (in writing or otherwise) regarding any actual, alleged, possible
or potential violation or breach of, or default under, any SFG Contract; and
(iv) no Company has waived any of its rights under any SFG
Contract.
(d) To the Knowledge of SFG, each Person against which any Company
has or may acquire any rights under any SFG Contract is solvent and is able to
satisfy all of such Person's current and future monetary obligations and other
obligations and Liabilities to the Companies.
(e) Except as set forth in Part 2.13 of the Disclosure Schedule:
(i) none of the Companies has ever guaranteed or otherwise
agreed to cause, insure or become liable for, and none of the Companies has ever
pledged any of its assets to secure, the performance or payment of any
obligation or other Liability of any other Person other than, as described on
Part 2.13 of the Disclosure Schedule, Liabilities of one or more of the
Companies;
(ii) none of the Companies has ever been a party to or bound
by (A) any joint venture agreement, partnership agreement, profit-sharing
agreement, cost-sharing agreement, loss-sharing agreement or similar Contract,
or (B) any Contract that creates or grants to any Person, or provides for the
creation or grant of, any stock appreciation right, phantom stock right or
similar right or interest;
(iii) the Companies have not had any determination of
noncompliance, entered into any consent order or undertaken any internal
investigation relating directly or indirectly to any Government Contract or
Government Bid;
21
(iv) the Companies have complied with all Legal Requirements
with respect to all Government Contracts and Government Bids;
(v) the Companies have not, in obtaining or performing any
Government Contract, violated any applicable procurement law or regulation or
other Legal Requirement in Canada or the United States or elsewhere, including
without limitation (A) the Truth in Negotiations Act of 1962, as amended, (B)
the Service Contract Act of 1963, as amended, (C) the Contract Disputes Act of
1978, as amended, (D) the Office of Federal Procurement Policy Act, as amended,
(E) the Federal Acquisition Regulations (the "FAR") or any applicable agency
supplement thereto, (F) the Cost Accounting Standards, (G) the Defense
Industrial Security Manual (DOD 5220.22-M), or (H) the Defense Industrial
Security Regulation (DOD 5220.22-R) or any related security regulations;
(vi) all facts set forth in or acknowledged by the Companies
in any certification, representation or disclosure statement submitted by the
Companies with respect to any Government Contract or Government Bid were
current, accurate and complete as of the date of submission;
(vii) neither the Companies nor any of their employees has
been debarred or suspended from doing business with any Governmental Body and no
circumstances exist that would warrant the institution of debarment or
suspension proceedings against the Companies or any of their respective
employees;
(viii) no negative determinations of responsibility have been
issued against the Companies in connection with any Government Contract or
Government Bid;
(ix) no direct or indirect costs incurred by the Companies
have been questioned or disallowed as a result of a finding or determination of
any kind by any Governmental Body;
(x) no Governmental Body, and no prime contractor or
higher-tier subcontractor of any Governmental Body, has withheld or set off, or
threatened to withhold or set off, any amount due to the Companies under any
Government Contract other than routine retentions that are not in dispute;
(xi) there are not and have not been any irregularities,
misstatements or omissions relating to any Government Contract or Government Bid
that have led to or could reasonably be expected to lead to (A) any
administrative, civil, criminal or other investigation, legal proceeding or
indictment involving the Companies or any of their respective employees, (B) the
questioning or disallowance of any costs submitted for payment by the Companies,
(C) the recoupment of any payments previously made to the Companies, (D) a
finding or claim of fraud, defective pricing or improper payments on the part of
the Companies, or (E) the assessment of any penalties or damages of any kind
against the Companies;
(xii) there is not and has not been any (A) outstanding claim
against the Companies by, or dispute involving the Companies with, any prime
contractor, subcontractor, vendor or other person arising under or relating to
the award or performance of any Government Contract, (B) fact known by the
Companies upon which any such claim could reasonably be
22
expected to be based or which may give rise to any such dispute, or (C) final
decision of any Governmental Body against the Companies;
(xiii) the Companies are not undergoing and have not
undergone any audit, and there is no basis for any impending audit, arising
under or relating to any Government Contract (other than normal routine audits
conducted in the ordinary course of business);
(xiv) the Companies have not entered into any financing
arrangement or assignment of proceeds with respect to the performance of any
Government Contract;
(xv) no payment has been made by the Companies or by any
person acting on the Companies' behalf to any person (other than to any bona
fide employee or agent (as defined in subpart 3.4 of the FAR) of the Companies)
which is or was contingent upon the award of any Government Contract or which
would otherwise be in violation of any applicable procurement law or regulation
or any other Legal Requirement;
(xvi) each Company's cost accounting system is in compliance
with applicable regulations and other applicable Legal Requirements, and has not
been determined by any Governmental Body not to be in compliance with any Legal
Requirement;
(xvii) the Companies have complied with all applicable
regulations and other Legal Requirements and with all applicable contractual
requirements relating to the placement of legends or restrictive markings on
technical data, computer software and other proprietary assets;
(xviii) in each case in which the Companies have delivered or
otherwise provided any technical data, computer software or Proprietary Assets
of the Companies to any Governmental Body in connection with any Government
Contract, the Companies have marked such technical data, computer software or
Proprietary Assets of the Companies with all markings and legends (including any
"restricted rights" legend and any "government purpose license rights" legend)
necessary (under the FAR or other applicable Legal Requirements) to ensure that
no Governmental Body or other person or entity is able to acquire any unlimited
rights with respect to such technical data, computer software or Proprietary
Assets of the Companies;
(xix) the Companies have not made any disclosure to any
Governmental Body pursuant to any voluntary disclosure agreement;
(xx) the Companies have reached agreement with the cognizant
government representatives approving and "closing" all indirect costs charged to
Government Contracts for all years from inception, and those years are closed;
(xxi) the responsible government representatives have agreed
with the Companies as to the "forward pricing rates" that the Companies are
charging on cost-type Government Contracts and including in Government Bids;
(xxii) the Companies are not and will not be required to make
any filing with or give any notice to, or to obtain any consent from, any
Governmental Body under or in connection with any Government Contract or
Government Bid as a result of or by virtue of the
23
execution, delivery of performance of this Agreement or any of the other
agreements referred to in this Agreement; and
(xxiii) Neither the Companies, nor any director, officer,
agent, employee or other person acting on behalf of the Companies has used any
corporate or other funds for unlawful contributions, payments, gifts or
entertainment, or made any unlawful expenditures relating to political activity
to government officials or others or established or maintained any unlawful or
unrecorded funds. Neither the Companies, nor any director, officer, agent,
employee or other person acting on behalf of the Companies has accepted or
received any unlawful contributions, payments, gifts or expenditures.
(f) The performance of the SFG Contracts will not result in any
violation of or failure to comply with any Legal Requirement.
(g) Except as set forth in Part 2.13 of the Disclosure Schedule,
no Person is renegotiating, or has the express right to renegotiate, any amount
paid or payable to SFG under any SFG Contract or any other term or provision of
any SFG Contract.
(h) The Contracts identified in Part 2.13 of the Disclosure
Schedule and the Excluded Contracts collectively constitute all of the Contracts
necessary to enable each Company to conduct its business in the manner in which
its business is currently being conducted and in the manner in which its
business is proposed to be conducted.
(i) Part 2.13 of the Disclosure Schedule identifies and provides
an accurate and complete description of each proposed Contract as to which any
bid, offer, award, written proposal, term sheet or similar document has been
submitted or received by any Company since inception.
(j) Part 2.13 of the Disclosure Schedule provides an accurate
description and breakdown of the Companies' backlog as of November 30, 1999
under the SFG Contracts.
2.14 SECURITY MATTERS. Each Company is in compliance with all security
and related requirements on its Government Contracts.
2.15 LIABILITIES; MAJOR SUPPLIERS.
(a) No Company has any Liabilities, except for:
(i) liabilities identified as such in the "liabilities"
column of the Unaudited Interim Balance Sheet;
(ii) accounts payable (of the type required to be reflected
as current liabilities in the "liabilities" column of a balance sheet prepared
in accordance with GAAP) incurred in the Ordinary Course of Business since
November 30, 1999; and
(iii) obligations under the Contracts listed in Part 2.13 of
the Disclosure Schedule and under Excluded Contracts, to the extent that the
existence of such obligations is ascertainable solely by reference to such
Contracts.
24
(b) Part 2.15 of the Disclosure Schedule:
(i) provides an accurate and complete breakdown and aging of
each Company's accounts payable as of November 30, 1999;
(ii) provides an accurate and complete breakdown of all
customer deposits and other deposits held by each Company as of the date of this
Agreement; and
(iii) provides an accurate and complete breakdown of each
Company's long-term debt and Preferred Stock as of the date of this Agreement.
(c) Part 2.15 of the Disclosure Schedule accurately identifies,
and provides an accurate and complete breakdown of the amounts paid to, each
supplier or other Person that received (i) more than $100,000 from the Companies
in 1997, (ii) more than $100,000 from the Companies in 1998, or (iii) more than
$100,000 from the Companies in the first three quarters of 1999.
2.16 COMPLIANCE WITH LEGAL REQUIREMENTS.
(a) Except as set forth in Part 2.16 of the Disclosure Schedule:
(i) each of the Companies has at all times been in full
compliance with each Legal Requirement that is or was applicable to it or to the
conduct of its business or the ownership or use of any of its assets;
(ii) no event has occurred, and no condition or circumstance
exists, that might (with or without notice or lapse of time) constitute or
result directly or indirectly in a violation by any Company of, or a failure on
the part of any Company to comply with, any Legal Requirement; and
(iii) none of the Companies has received, at any time, any
notice or other communication (in writing or otherwise) from any Governmental
Body or any other Person regarding (i) any actual, alleged, possible or
potential violation of, or failure to comply with, any Legal Requirement, or
(ii) any actual, alleged, possible or potential obligation on the part of any of
the Companies to undertake, or to bear all or any portion of the cost of, any
cleanup or any remedial, corrective or response action of any nature.
(b) No Governmental Body has proposed, to the Knowledge of SFG,
any Legal Requirement that, if adopted or otherwise put into effect, (i) may
reasonably be expected to have a material adverse effect on the Companies'
business, condition, assets, liabilities, operations, financial performance, net
income or prospects or on the ability of any Company or any of the Selling
Securityholders to comply with or perform any covenant or obligation under any
of the Transactional Agreements, or (ii) may have the effect of preventing,
delaying, making illegal or otherwise interfering with any of the Transactions.
2.17 GOVERNMENTAL AUTHORIZATIONS.
(a) Part 2.17 of the Disclosure Schedule identifies:
25
(i) each Governmental Authorization that is held by each
Company; and
(ii) each other Governmental Authorization that is held by
each Company's employees and relates to or is useful in connection with the
Companies' business.
SFG has delivered to the Purchaser accurate and complete copies of all
of the Companies' Governmental Authorizations identified in Part 2.17 of the
Disclosure Schedule, including all renewals thereof and all amendments thereto.
Each Governmental Authorization identified or required to be identified in Part
2.17 of the Disclosure Schedule is valid and in full force and effect.
(b) Except as set forth in Part 2.17 of the Disclosure Schedule:
(i) the Companies and their respective employees are and have
at all times been in full compliance with all of the terms and requirements of
each Governmental Authorization identified or required to be identified in Part
2.17 of the Disclosure Schedule;
(ii) no event has occurred, and no condition or circumstance
exists, that might (with or without notice or lapse of time) (A) constitute or
result directly or indirectly in a violation of or a failure to comply with any
term or requirement of any Governmental Authorization identified or required to
be identified in Part 2.17 of the Disclosure Schedule, or (B) result directly or
indirectly in the revocation, withdrawal, suspension, cancellation, termination
or modification of any Governmental Authorization identified or required to be
identified in Part 2.17 of the Disclosure Schedule;
(iii) none of the Companies has ever received, and no
employee of any of the Companies has ever received, any notice or other
communication (in writing or otherwise) from any Governmental Body or any other
Person regarding (A) any actual, alleged, possible or potential violation of or
failure to comply with any term or requirement of any Governmental
Authorization, or (B) any actual, proposed, possible or potential revocation,
withdrawal, suspension, cancellation, termination or modification of any
Governmental Authorization; and
(iv) all applications required to have been filed for the
renewal of the Governmental Authorizations required to be identified in Part
2.17 of the Disclosure Schedule have been duly filed on a timely basis with the
appropriate Governmental Bodies, and each other notice or filing required to
have been given or made with respect to such Governmental Authorizations has
been duly given or made on a timely basis with the appropriate Governmental
Body.
(c) The Governmental Authorizations identified in Part 2.17 of the
Disclosure Schedule constitute all of the Governmental Authorizations necessary
(i) to enable each Company to conduct its business in the manner in which its
business is currently being conducted and in the manner in which its business is
proposed to be conducted, and (ii) to permit each Company to own and use its
assets in the manner in which they are currently owned and used and in the
manner in which they are proposed to be owned and used.
26
2.18 TAX MATTERS.
(a) Except as described on Part 2.18 of the Disclosure Schedules,
each Tax required to have been paid, or claimed by any Governmental Body to be
payable, by any of the Companies (whether pursuant to any Tax Return or
otherwise) has been duly paid in full on a timely basis. Except as described on
Part 2.18 of the Disclosure Schedules, any Tax required to have been withheld or
collected by any of the Companies has been duly withheld or collected; and (to
the extent required) each such Tax has been paid to the appropriate Governmental
Body. Except as described on Part 2.18 of the Disclosure Schedules, each Company
has withheld from each amount paid or credited to any Person the amount of Taxes
required to be withheld therefrom and has remitted such Taxes to the proper Tax
or other Governmental Body within the time required under all applicable Legal
Requirements.
(b) Part 2.18 of the Disclosure Schedule accurately identifies all
Tax Returns required to be filed by or on behalf of any of the Companies with
any Governmental Body with respect to any taxable period ending on or before the
Closing Date ("SFG RETURNS"). Except as described on Part 2.18 of the Disclosure
Schedules, all SFG Returns (i) have been or will be filed when due, and (ii)
have been, or will be when filed, accurately and completely prepared in full
compliance with all applicable Legal Requirements. Except as described on Part
2.18 of the Disclosure Schedules, all amounts shown on the SFG Returns to be due
on or before the Closing Date, and all amounts otherwise payable in connection
with the SFG Returns on or before the Closing Date, have been or will be paid on
or before the Closing Date. SFG has delivered to the Purchaser accurate and
complete copies of all SFG income tax returns filed since December 31, 1995,
with the exception of those described on Part 2.18 of the Disclosure Schedules.
(c) The SFG Financial Statements fully accrue all actual and
contingent liabilities for Taxes with respect to all periods through the dates
thereof in accordance with GAAP. SFG will establish, in the Ordinary Course of
Business, reserves adequate for the payment of all Taxes for the period from
September 30, 1995 through the Closing Date, and SFG will disclose the dollar
amount of such reserves to the Purchaser on or prior to the Closing Date.
(d) Except as described in Part 2.18 of the Disclosure Schedule,
each SFG Return relating to income Taxes that has been filed with respect to any
period ended on or prior to December 31, 1995 has either (i) been examined and
audited by all relevant Governmental Bodies, or (ii) by virtue of the expiration
of the limitation period under applicable Legal Requirements, is no longer
subject to examination or audit by any Governmental Body. Part 2.18 of the
Disclosure Schedule accurately identifies each examination or audit of any SFG
Return that has been conducted since December 31, 1986. SFG has delivered to the
Purchaser accurate and complete copies of all audit reports and similar
documents (to which SFG has access) relating to SFG Returns. Except as set forth
in Part 2.18 of the Disclosure Schedule, there are no agreements, waivers or
other arrangements providing for any extension of time with respect to the
filing of any Tax Return or other document or the payment of any Taxes by the
Companies or the period for any assessment or reassessment of Taxes. No Company
has received any written ruling related to Taxes or entered into any agreement
with a Governmental Body relating to Taxes.
27
(e) Except as set forth in Part 2.18 of the Disclosure Schedule,
no claim or other Proceeding is pending or has been threatened against or with
respect to any of the Companies in respect of any Tax. There are no unsatisfied
Liabilities for Taxes (including liabilities for interest, additions to tax and
penalties thereon and related expenses) with respect to any notice of deficiency
or similar document received by any of the Companies. None of the Companies has
entered into or has become bound by any agreement or consent pursuant to Section
341(f) of the Code. None of the Companies has been, and SFG will not be,
required to include any adjustment in taxable income for any tax period (or
portion thereof) pursuant to Section 481 or 263A of the Code or any comparable
provision under state or foreign Tax laws as a result of transactions or events
occurring, or accounting methods employed, prior to the Closing.
(f) Except as described in Part 2.18 of the Disclosure Schedules,
there is no agreement, plan, arrangement or other Contract covering any employee
or independent contractor or former employee or independent contractor of any of
the Companies that, individually or collectively, could give rise directly or
indirectly to the payment of any amount that would not be deductible pursuant to
Section 280G or Section 162 of the Code that would otherwise be actually
deductible on a United States federal tax return or pursuant to the INCOME TAX
ACT (Canada). None of the Companies is or has ever been a party to or bound by
any tax indemnity agreement, tax sharing agreement, tax allocation agreement or
similar Contract.
(g) Except as described on Part 2.18 of the Disclosure Schedules,
the liability for Taxes under the INCOME TAX ACT (Canada) of SFG has been
assessed by Revenue Canada for all taxation years up to and including the
taxation years ending December 31, 1998. The assessment of liability for Taxes
under the INCOME TAX ACT (Canada) is pending in those tax years disclosed in
Part 2.18 of the Disclosure Schedules. True and complete copies of the federal
and provincial Tax Returns for SFG and copies of all assessments and
reassessments for all taxation years including relating to the most recently
completed taxation year for which the same are available have been provided to
the Purchaser.
(h) SFG is a Canadian-controlled private corporation, as defined
in the INCOME TAX ACT, (Canada), and has been one since formation on
amalgamation on November 2, 1994.
(i) No debt or other obligation of any Company has been or will be
settled or extinguished on or prior to the Closing Date such that the provisions
of Section 80 of the INCOME TAX ACT (Canada) applies or would apply thereto.
(j) No Company is involved in, subject to, or a party to any joint
venture, partnership, Contract or other arrangement that is treated as a
partnership for federal, state, local or foreign Income Tax purposes.
(k) No Company was included and no Company is includible in the
Tax Return of any relevant group with any corporation other than such a return
of which the Company is the common parent corporation.
28
(l) All material elections made by SFG with respect to Canadian
income Taxes affecting the Company are set forth in Part 2.18 of the Disclosure
Schedule.
(m) SFG is not nor has it ever been a United States real property
holding corporation within the meaning of Section 897(c)(1)(A)(ii) of the Code.
2.19 EMPLOYEE AND LABOR MATTERS.
(a) Part 2.19 of the Disclosure Schedule accurately sets forth,
with respect to each employee of each Company (including any employee who is on
a leave of absence or on layoff status):
(i) the name of such employee and the date as of which such
employee was originally hired by such Company;
(ii) such employee's title, and a description of such
employee's duties and responsibilities;
(iii) the aggregate dollar amount of the compensation
(including wages, salary, commissions, director's fees, fringe benefits,
bonuses, profit-sharing payments and other payments or benefits of any type)
received by such employee from such Company with respect to services performed
in 1998;
(iv) such employee's annualized compensation as of the date
of this Agreement;
(v) each Current Benefit Plan in which such employee
participates or is eligible to participate; and
(vi) any Governmental Authorization that is held by such
employee and that relates to or is useful in connection with SFG's business.
(b) Part 2.19 of the Disclosure Schedule accurately identifies
each former employee of any of the Companies who is receiving or is scheduled to
receive (or whose spouse or other dependent is receiving or is scheduled to
receive) any benefits (whether from SFG or otherwise) relating to such former
employee's employment with any of the Companies; and Part 2.19 of the Disclosure
Schedule accurately describes such benefits.
(c) Except as set forth in Part 2.19 of the Disclosure Schedule,
none of the Companies is or has ever been a party to or bound by any employment
agreement or any union contract, collective bargaining agreement or similar
Contract.
(d) With respect to any employees employed in Canada, except as
disclosed on Part 2.19 of the Disclosure Schedule, no Company is a party to any
written employment agreement and there is no agreement which cannot be
terminated on reasonable notice in accordance with applicable laws and without
penalty. With respect to any employees employed in the United States, the
employment of each such employee is terminable at will.
29
(e) SFG has delivered to the Purchaser accurate and complete
copies of all employee manuals and handbooks, disclosure materials, policy
statements and other materials relating to the employment of the current and
former employees of each of the Companies. Except as set forth in Part 2.19 of
the Disclosure Schedule:
(i) SFG is not aware that any employee of any Company intends
to terminate his employment with SFG;
(ii) SFG is not aware that any employee of any Company has
received an offer to join a business that may be competitive with SFG's
business; and
(iii) SFG is not aware that any employee of any Company is a
party to or is bound by any confidentiality agreement, noncompetition agreement
or other Contract (with any Person) that may have an adverse effect on (A) the
performance by such employee of any of his duties or responsibilities as an
employee of such Company, or (B) SFG's business or operations.
(f) None of the Companies is or has ever been engaged in any
unfair labor practice of any nature. There has never been any slowdown, work
stoppage, labor dispute or union organizing, certifying or establishing
activity, or any similar activity or dispute, affecting any of the Companies or
any of their employees. To the Knowledge of SFG, there is not now pending, and
no Person has threatened to commence, any such slowdown, work stoppage, labor
dispute or union organizing, certifying or establishing activity or any similar
activity or dispute. To the Knowledge of SFG, no event has occurred, and no
condition or circumstance exists, that might directly or indirectly give rise to
or provide a basis for the commencement of any such slowdown, work stoppage,
labor dispute or union organizing, certifying or establishing activity or any
similar activity or dispute.
(g) Each Company has complied with all Legal Requirements
applicable to it relating to employment, including without limitation, those
relating to wages, hours, collective bargaining, payment of social security and
other similar taxes, equal employment opportunity, employment discrimination,
occupational health and safety, workers' hazardous materials, employment
standards, pay equity and workers' compensation. There are no outstanding
charges, complaints or claims against any Company relating to unfair labor
practices or discrimination or under any legislation relating to employees. Each
Company has paid in full all amounts owing under applicable workers'
compensation legislation, and the workers' compensation claims experience of the
Companies would not permit a penalty reassessment under such legislation. There
are no charges or orders requiring the Companies to comply outstanding under any
Legal Requirements relating to occupational health and safety.
(h) Except under the Options, the completion of the transactions
contemplated by this Agreement will not result in any payment or increased
payment becoming due from SFG to any officer, director, or employee of, or
consultant to, SFG.
2.20 UNITED STATES BENEFIT PLANS; ERISA.
(a) Part 2.20 of the Disclosure Schedule identifies and provides
an accurate and complete description of each Current Benefit Plan relating to
the U.S. operations of the
30
Companies and each Past Benefit Plan relating to the U.S. operations of the
Companies. None of the Companies has ever established, adopted, maintained,
sponsored, contributed to, participated in or incurred any Liability with
respect to any Employee Benefit Plan, except for the Company Plans identified
in Part 2.20 of the Disclosure Schedule; and none of the Companies has ever
provided or made available any fringe benefit or other benefit of any nature
to any of its employees working in the U.S., except as set forth in Part 2.20
of the Disclosure Schedule.
(b) No Company Plan:
(i) provides or provided any benefit guaranteed by the
Pension Benefit Guaranty Corporation;
(ii) is or was a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA; or
(iii) is or was subject to the minimum funding standards of
Section 412 of the Code or Section 302 of ERISA.
There is no Person that (by reason of common control or otherwise) is
or has at any time been treated together with any Company as a single employer
within the meaning of Section 414 of the Code.
(c) SFG has delivered to the Purchaser, with respect to each
Company Plan:
(i) an accurate and complete copy of such Company Plan and
all amendments thereto (including any amendment that is scheduled to take effect
in the future);
(ii) an accurate and complete copy of each Contract
(including any trust agreement, funding agreement, service provider agreement,
insurance agreement, investment management agreement or recordkeeping agreement)
relating to such Company Plan;
(iii) an accurate and complete copy of any description,
summary, notification, report or other document that has been furnished by the
Companies to any employee of any of the Companies with respect to such Company
Plan;
(iv) an accurate and complete copy of any form, report,
registration statement or other document that has been filed with or submitted
to any Governmental Body with respect to such Company Plan; and
(v) an accurate and complete copy of any determination
letter, notice or other document that has been issued by, or that has been
received by any of the Companies from, any Governmental Body with respect to
such Company Plan.
(d) Each Current Benefit Plan relating to the U.S. operations of
the Companies is being operated and administered in material compliance with the
provisions thereof, and each Company Plan has at all times been operated and
administered in material compliance with the provisions thereof. Each
contribution or other payment that is required to
31
have been accrued or made under or with respect to any Company Plan has been
duly accrued or made, as applicable, on a timely basis.
(e) Each Current Benefit Plan complies and is being operated and
administered in material compliance with, and each Company Plan has at all times
complied and been operated and administered in full compliance with, all
applicable reporting, disclosure and other requirements of ERISA and the Code
and all other applicable Legal Requirements. None of the Companies has ever
incurred any Liability to the Internal Revenue Service or any other Governmental
Body with respect to any Company Plan; and, to the Knowledge of SFG, no event
has occurred, and no condition or circumstance exists, that might (with or
without notice or lapse of time) give rise directly or indirectly to any such
Liability. None of the Companies, and no Person that is or was an administrator
or fiduciary of any Company Plan (or that acts or has acted as an agent of any
of the Companies or any such administrator or fiduciary), has engaged in any
transaction or has otherwise acted or failed to act in a manner that has
subjected or may subject SFG to any Liability for breach of any fiduciary duty
or any other duty. No Company Plan, and no Person that is or was an
administrator or fiduciary of any Company Plan (or that acts or has acted as an
agent of any such administrator or fiduciary):
(i) has engaged in a "prohibited transaction" within the
meaning of Section 406 of ERISA or Section 4975 of the Code;
(ii) has failed to substantially comply with the
responsibilities or obligations imposed upon fiduciaries under Title I of ERISA;
or
(iii) to the Knowledge of SFG, has taken any action that (A)
may subject such Company Plan or such Person to any Tax, penalty or Liability
relating to any "prohibited transaction," or (B) may directly or indirectly give
rise to or serve as a basis for the assertion (by any employee or by any other
Person) of any claim under, on behalf of or with respect to such Company Plan.
(f) No inaccurate or misleading representation, statement or other
communication has been made or directed (in writing or otherwise) to any current
or former employee of any of the Companies (i) with respect to such employee's
participation, eligibility for benefits, vesting, benefit accrual or coverage
under any Company Plan or with respect to any other matter relating to any
Company Plan, or (ii) with respect to any proposal or intention on the part of
any of the Companies to establish or sponsor any Employee Benefit Plan or to
provide or make available any fringe benefit or other benefit of any nature.
(g) Except as set forth in Part 2.20 of the Disclosure Schedule,
SFG has not advised any of its employees (in writing or otherwise) that it
intends or expects to establish or sponsor any Employee Benefit Plan relating to
the U.S. operations of the Companies or to provide or make available any fringe
benefit or other benefit of any nature in the future.
2.21 CANADIAN BENEFIT PLANS.
(a) Part 2.21 of the Disclosure Schedule lists all of SFG's bonus,
incentive compensation, profit sharing, group insurance, dental insurance,
disability, death benefit, health and welfare, hospitalization, vacation,
vacation pay, unemployment, pension, retirement and
32
other employee benefit, plans, agreements, policies, practices and other
similar arrangements currently applicable to the current and/or past Canadian
employees, officers, agents and/or independent contractors (the "CANADIAN
BENEFIT PLANS").
(b) SFG has delivered to the Purchaser true and complete copies of
the written texts of the Canadian Benefit Plans and of the funding agreements
therefor and any amendments to such documents. SFG has not made, or acquiesced
in the making of, any amendments to such documents other than those which SFG
has delivered to the Purchaser. SFG has performed all its obligations (including
fiduciary, funding, investment and administration obligations) required to be
performed in connection with the Canadian Benefit Plans or the funding
agreements therefor in a timely fashion and in accordance with the terms of the
Canadian Benefit Plans and applicable Legal Requirements. There are no
outstanding disputes concerning the assets held in respect of the Canadian
Benefit Plans pursuant to any such funding agreement. Where required, the
Canadian Benefit Plans are duly registered under the INCOME TAX ACT (Canada) and
applicable pension legislation. All reports and disclosures relating to the
Canadian Benefit Plans required under this Agreement or by any applicable Legal
Requirements to be filed or distributed on or before the execution of this
Agreement have been filed or distributed. All such reports and disclosures
required by this Agreement or by any applicable Legal Requirements to be filed
or distributed on or before the Closing Date shall be filed or distributed. No
promises of benefit improvements under the Canadian Benefit Plans have been made
except as may be required, or are reasonably anticipated to be required, by any
Legal Requirement or collective agreement.
(c) All contributions or premiums required to be made by SFG to
the Canadian Benefit Plans have been made in a timely fashion in accordance with
the terms of the Canadian Benefit Plans and applicable Legal Requirements. All
employee contributions to the Canadian Benefit Plans required to be made by way
of authorized payroll deduction have been properly withheld by SFG and fully
paid into the Canadian Benefit Plans. There have been no improper withdrawals,
or applications of, the assets of the Canadian Benefit Plans. There are no taxes
owing in respect of the Canadian Benefit Plans.
(d) In respect of any registered pension plans in Canada (the
"CANADIAN REGISTERED PENSION PLANS"):
(i) SFG has delivered to Purchaser all historical
documentation respecting the Canadian Registered Pension Plans, including copies
of all prior funding agreements;
(ii) each of the Canadian Registered Pension Plans is fully
funded both on an ongoing basis and on a solvency basis;
(iii) all employee data respecting each Canadian Registered
Pension Plan is correct;
(iv) none of the Canadian Registered Pension Plans is the
subject of any investigation, any other proceeding, action or claim and there
exists no state of facts which after notice or lapse of time or both could
reasonably be expected to give rise to any such
33
proceeding, action or claim or to affect the registration of any of the
Canadian Registered Pension Plans; and,
(e) the most recent actuarial report required to be prepared in
respect of each of the Canadian Registered Pension Plans pursuant to the
applicable Legal Requirements has been delivered to the Purchaser and there have
been no adverse changes to any Canadian Registered Pension Plan since the date
of such report.
2.22 ENVIRONMENTAL MATTERS.
(a) To the Knowledge of SFG, (i) the Companies, the operation of
their respective businesses, the property and assets owned or used by them at
any time, and the use, maintenance and operation thereof have been and are in
compliance with all Environmental Laws; and (ii) the Companies have complied
with all reporting and monitoring requirements under all Environmental Laws.
Without limiting the generality of the foregoing, no Company is liable or
potentially liable for any response cost or natural resource damages under
Section 107(a) of CERCLA, or under any other so-called "superfund" or
"superlien" law or similar Legal Requirement, at or with respect to any site.
(b) None of the Companies has ever received any notice or other
communication (in writing or otherwise) from any Governmental Body or other
Person regarding any actual, alleged, possible or potential Liability arising
from or relating to the presence, generation, manufacture, production,
transportation, importation, use, treatment, refinement, processing, handling,
storage, discharge, release, emission or disposal of any Hazardous Material,
and, to the Knowledge of SFG, no Person has ever commenced or threatened to
commence any contribution action or other Proceeding against any of the
Companies in connection with any such actual, alleged, possible or potential
Liability; and no event has occurred, and no condition or circumstance exists,
that may directly or indirectly give rise to, or result in any Company becoming
subject to, any such Liability.
(c) To the Knowledge of SFG, none of the Companies has ever
generated, manufactured, produced, transported, imported, used, treated,
refined, processed, handled, stored, discharged, released or disposed of any
Hazardous Material (whether lawfully or unlawfully). To the Knowledge of SFG,
none of the Companies has ever permitted any Hazardous Material to be generated,
manufactured, produced, used, treated, refined, processed, handled, stored,
discharged, released or disposed of (whether lawfully or unlawfully):
(i) on or beneath the surface of any real property that is,
or that has at any time been, owned by, leased to, controlled by or used by any
of the Companies;
(ii) in or into any surface water, groundwater, soil or air
associated with or adjacent to any such real property; or
(iii) in or into any well, pit, pond, lagoon, impoundment,
ditch, landfill, building, structure, facility, improvement, installation,
equipment, pipe, pipeline, vehicle or storage container that is or was located
on or beneath the surface of any such real property or that is or has at any
time been owned by, leased to, controlled by or used by any of the Companies.
34
(d) To the Knowledge of SFG, all property that is owned by, leased
to, controlled by or used by any Company, and all surface water, groundwater,
soil and air associated with or adjacent to such property:
(i) is in clean and healthful condition;
(ii) is free of any Hazardous Material and any harmful
chemical or physical conditions; and
(iii) is free of any environmental contamination of any
nature.
(e) To the Knowledge of SFG, (i) there are no underground or
surface storage tanks or urea formaldehyde foam insulation, asbestos,
polychlorinated biphenyls or radioactive substances located on or in any of the
properties used by the Companies; (ii) the Companies are not, and there is no
basis upon which the Companies could become, responsible for any clean-up or
corrective action under any Environmental Laws; and (iii) no Company has ever
conducted or caused to be conducted an environmental assessment or study of any
of its properties or assets.
(f) To the Knowledge of SFG, each Company has obtained all
Environmental Permits necessary to conduct its business and to own, use and
operate its properties and assets. Complete and correct copies of such
Environmental Permits have been provided to Purchaser.
2.23 SALE OF PRODUCTS; PERFORMANCE OF SERVICES.
(a) No Company has given any guarantee or warranty in respect of
any of the products sold or services provided by it, except warranties made in
the Ordinary Course of Business and in the form of such Company's standard
written warranties, copies of which have been provided to Purchaser.
(b) Except as disclosed on Part 2.23 of the Disclosure Schedule,
each product that has been sold by any of the Companies to any Person:
(i) conformed and complied in all respects with the terms and
requirements of any applicable warranty or other Contract and, to the Knowledge
of SFG, with all applicable Legal Requirements; and
(ii) was free of any design defects, programming errors,
construction defects or other defects or deficiencies at the time of sale. All
repair services, technical, maintenance and other services that have been
performed by the Companies were performed properly and in full conformity with
the terms and requirements of all applicable warranties and other Contracts and
with all applicable Legal Requirements.
(c) No Company will incur or otherwise become subject to any
Liability arising directly or indirectly from any product manufactured or sold
by, or any repair services or other services performed by, any of the Companies
on or at any time prior to the Closing Date.
(d) No product manufactured or sold by any of the Companies has
been the subject of any recall or other similar action; and no event has
occurred, and no condition or
35
circumstance exists, that might (with or without notice or lapse of time)
directly or indirectly give rise to or serve as a basis for any such recall
or other similar action relating to any such product.
(e) Except as set forth in Part 2.23 of the Disclosure Schedule,
no customer or other Person has ever asserted or threatened to assert any claim
against any of the Companies (i) under or based upon any warranty provided by or
on behalf of any of the Companies, or (ii) under or based upon any other
warranty relating to any product sold by any of the Companies or any services
performed by any of the Companies. No event has occurred, and no condition or
circumstance exists, that might (with or without notice or lapse of time)
directly or indirectly give rise to or serve as a basis for the assertion of any
such claim.
(f) Each of the Companies has at all times had in place, an
adequate and appropriate quality control system that is at least as
comprehensive and effective as the quality control systems customarily
maintained by Comparable Entities.
2.24 INSURANCE.
(a) Part 2.24 of the Disclosure Schedule accurately sets forth,
with respect to each insurance policy maintained by or at the expense of, or for
the direct or indirect benefit of, each Company:
(i) the name of the insurance carrier that issued such policy
and the policy number of such policy;
(ii) whether such policy is a "claims made" or an
"occurrences" policy;
(iii) a description of the coverage provided by such policy
and the material terms and provisions of such policy (including all applicable
coverage limits, deductible amounts and co-insurance arrangements and any
non-customary exclusions from coverage);
(iv) the annual premium payable with respect to such policy,
and the cash value (if any) of such policy; and
(v) a description of any claims pending, and any claims that
have been asserted in the past, with respect to such policy.
Part 2.24 also identifies (1) each pending application for insurance
that has been submitted by or on behalf of each Company, and (2) each
self-insurance or risk-sharing arrangement affecting each Company or any of its
assets. SFG has delivered to the Purchaser accurate and complete copies of all
of the insurance policies identified in Part 2.24 of the Disclosure Schedule
(including all renewals thereof and endorsements thereto) and all of the pending
applications identified in Part 2.24 of the Disclosure Schedule.
(b) Each of the policies identified in Part 2.24 of the Disclosure
Schedule is valid, enforceable and in full force and effect, and has been issued
by an insurance carrier that is solvent, financially sound and reputable. All of
the information contained in the applications
36
submitted in connection with said policies was (at the times said
applications were submitted) accurate and complete, and all premiums and
other amounts owing with respect to said policies have been paid in full on a
timely basis. The nature, scope and dollar amounts of the insurance coverage
provided by said policies are sufficient to adequately insure each Company's
business, assets, operations, key employees, services and potential
liabilities; and said insurance coverage is at least as comprehensive as the
insurance coverage customarily maintained by Comparable Entities.
(c) Except as set forth in Part 2.24 of the Disclosure Schedule,
there is no pending claim under or based upon any of the policies identified in
Part 2.24 of the Disclosure Schedule; and no event has occurred, and no
condition or circumstance exists, that might (with or without notice or lapse of
time) directly or indirectly give rise to or serve as a basis for any such
claim.
(d) Except as set forth in Part 2.24 of the Disclosure Schedule,
none of the Companies has received:
(i) any notice or other communication (in writing or
otherwise) regarding the actual or possible cancellation or invalidation of any
of the policies identified in Part 2.24 of the Disclosure Schedule or regarding
any actual or possible adjustment in the amount of the premiums payable with
respect to any of said policies;
(ii) any notice or other communication (in writing or
otherwise) regarding any actual or possible refusal of coverage under, or any
actual or possible rejection of any claim under, any of the policies identified
in Part 2.24 of the Disclosure Schedule; or
(iii) any indication that the issuer of any of the policies
identified in Part 2.24 of the Disclosure Schedule may be unwilling or unable to
perform any of its obligations thereunder.
2.25 RELATED PARTY TRANSACTIONS. Except as set forth in Part 2.25 of
the Disclosure Schedule:
(a) no Related Party has, and no Related Party has at any time
since December 31, 1995 had, any direct or indirect interest of any nature in
any asset used in or otherwise relating to the business of any of the Companies;
(b) no Related Party is, or has at any time since December 31,
1995 been, indebted to any of the Companies, nor are any of the Companies
indebted to any Related Party;
(c) since December 31, 1995, no Related Party has entered into, or
has had any direct or indirect financial interest in, any Contract, transaction
or business dealing of any nature involving any of the Companies;
(d) to the Knowledge of SFG, no Related Party is competing, or has
at any time since December 31, 1995 competed, directly or indirectly, with any
of the Companies in any market served by any of the Companies;
37
(e) no Related Party has any claim or right against any Company;
and
(f) no event has occurred, and no condition or circumstance
exists, that might (with or without notice or lapse of time) directly or
indirectly give rise to or serve as a basis for any claim or right in favor of
any Related Party against any Company.
2.26 CERTAIN PAYMENTS, ETC. None of the Companies, and no officer,
employee, agent or other Person associated with or acting for or on behalf of
any of the Companies, has at any time, directly or indirectly, used any
corporate funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity, made any unlawful political
contribution or gift or for any other unlawful purpose relating to any political
activity, made any unlawful payment to any governmental official or employee or
to any political party or campaign from corporate funds, violated any provision
of the corruption of FOREIGN PUBLIC OFFICERS ACT (Canada), the FOREIGN CORRUPT
PRACTICES ACT OF 1977, as amended, or the rules, regulations and guidelines
promulgated by the Organization for Economic Cooperation and Development's
Convention on Combating Bribery of Foreign Public Officials in International
Business Transactions, or made or proposed to make any bribe, rebate, payoff,
unlawful payment, kickback or other similar payment to any Person.
2.27 PROCEEDINGS; ORDERS.
(a) Except as set forth in Part 2.27 of the Disclosure Schedule,
there is no pending Proceeding, and no Person has threatened to commence any
Proceeding:
(i) that involves any Company or that otherwise relates to or
might affect any Company's business or any of the assets owned or used by any
Company (whether or not such Company is named as a party thereto); or
(ii) that challenges, or that may have the effect of
preventing, delaying, making illegal or otherwise interfering with, any of the
Transactions.
Except as set forth in Part 2.27 of the Disclosure Schedule, no event
has occurred, and no claim, dispute or other condition or circumstance exists,
that might directly or indirectly give rise to or serve as a basis for the
commencement of any such Proceeding.
(b) Except as set forth in Part 2.27 of the Disclosure Schedule,
no Proceeding has ever been commenced by or against any of the Companies; and no
Proceeding otherwise involving or relating to any of the Companies has been
pending or threatened at any time.
(c) SFG has delivered to the Purchaser accurate and complete
copies of all pleadings, correspondence and other written materials to which any
Company has access that relate to the Proceedings identified in Part 2.27 of the
Disclosure Schedule.
(d) There is no Order to which any Company, or any of the assets
owned or used by any Company, is subject; and none of the Selling
Securityholders is subject to any Order that relates to any Company's business
or to any of the assets owned or used by any Company.
38
(e) No officer or employee of any Company is subject to any Order
that prohibits such officer or employee from engaging in or continuing any
conduct, activity or practice relating to such Company's business.
(f) There is no proposed Order that, if issued or otherwise put
into effect, (i) may have an adverse effect on such Company's business,
condition, assets, liabilities, operations, financial performance, net income or
prospects (or on any aspect or portion thereof) or on the ability of any Company
or any of the Selling Securityholders to comply with or perform any covenant or
obligation under any of the Transactional Agreements, or (ii) may have the
effect of preventing, delaying, making illegal or otherwise interfering with any
of the Transactions.
2.28 AUTHORITY; BINDING NATURE OF AGREEMENTS. SFG has the absolute and
unrestricted right, power and authority to enter into and to perform its
obligations under this Agreement; and the execution, delivery and performance by
SFG of this Agreement have been duly authorized by all necessary action on the
part of SFG and its shareholders, board of directors and officers. This
Agreement constitutes the legal, valid and binding obligation of SFG,
enforceable against SFG in accordance with its terms (except as enforceability
may be limited by any applicable bankruptcy, insolvency or other laws affecting
creditors' rights generally or by general principles of equity, regardless of
whether such enforceability is considered in equity or at law).
2.29 NON-CONTRAVENTION; CONSENTS. Except as set forth in Part 2.29 of
the Disclosure Schedule, neither the execution and delivery of any of the
Transactional Agreements, nor the consummation or performance of any of the
Transactions, will directly or indirectly (with or without notice or lapse of
time):
(a) contravene, conflict with or result in a violation of (i) any
of the provisions of SFG's certificate of incorporation or bylaws, or (ii) any
resolution adopted by SFG's shareholders, SFG's board of directors or any
committee of SFG's board of directors;
(b) contravene, conflict with or result in a violation of, or give
any Governmental Body or other Person the right to challenge any of the
Transactions or to exercise any remedy or obtain any relief under, any Legal
Requirement or any Order to which any Company or any of the Selling
Securityholders, or any of the assets owned or used by any Company, is subject;
(c) cause any Company, the Purchaser or any affiliate of the
Purchaser to become subject to, or to become liable for the payment of, any Tax;
(d) cause any of the assets owned or used by any Company to be
reassessed or revalued by any taxing authority or other Governmental Body;
(e) contravene, conflict with or result in a violation of any of
the terms or requirements of, or give any Governmental Body the right to revoke,
withdraw, suspend, cancel, terminate or modify, any Governmental Authorization
that is held by any Company or any of its employees or that otherwise relates to
any Company's business or to any of the assets owned or used by any Company;
39
(f) contravene, conflict with or result in a violation or breach
of, or result in a default under, any provision of any SFG Contract;
(g) give any Person the right to (i) declare a default or exercise
any remedy under any SFG Contract, (ii) accelerate the maturity or performance
of any SFG Contract, or (iii) cancel, terminate or modify any SFG Contract;
(h) contravene, conflict with or result in a violation or breach
of or a default under any provision of, or give any Person the right to declare
a default under, any Contract to which any of the Selling Securityholders is a
party or by which any of the Selling Securityholders is bound; or
(i) result in the imposition or creation of any Encumbrance upon
or with respect to any asset owned or used by any Company.
Except as set forth in Part 2.29 of the Disclosure Schedule, neither
any Company nor any of the Selling Securityholders was, is or will be required
to make any filing with or give any notice to, or to obtain any Consent from,
any Person in connection with the execution and delivery of any of the
Transactional Agreements or the consummation or performance of any of the
Transactions.
2.30 YEAR 2000 COMPLIANCE. The Companies have taken commercially
reasonable actions necessary and appropriate to ensure that all of the
Companies' products and internal systems are designed to be used prior to,
during and after the year 2000, and are Year 2000 Compliant. At the Purchaser's
request, SFG will provide evidence demonstrating adequate testing of the
Companies' products and internal systems to assure that they are Year 2000
Compliant.
2.31 COMPUTER SYSTEMS.
(a) The Companies have taken commercially reasonable actions
necessary and appropriate to ensure that all computer systems used by the
Companies and owned or leased by the Companies, including hardware and software,
are free from Viruses and disabling codes and devices, and the Companies have
taken, and will continue to take, all commercially reasonable steps and
implement all commercially reasonable procedures to ensure that such systems are
free from viruses and disabling codes and devices and will remain so until the
Closing Date.
(b) The Companies have in place appropriate disaster recovery
plans, procedures and facilities and have taken all steps and implemented all
procedures to safeguard their computer systems and restrict unauthorized access
thereto.
(c) All the source codes for all proprietary software (other than
off-the-shelf applications software) used in and material to the Companies'
computer systems are subject to escrow arrangements that would enable the
Companies to have access to such source codes in the event of the applicable
licensor's insolvency or failure or refusal to maintain or provide support for
the software.
40
2.32 BROKERS. SFG has not agreed or become obligated to pay, or has
taken any action that might result in any Person claiming to be entitled to
receive, any brokerage commission, finder's fee or similar commission or fee in
connection with any of the Transactions.
2.33 FULL DISCLOSURE.
(a) None of the Transactional Agreements contains or will contain
any untrue statement of fact; and none of the Transactional Agreements omits or
will omit to state any fact necessary to make any of the representations,
warranties or other statements or information contained therein not misleading.
(b) Except as set forth in Part 2.33 of the Disclosure Schedule,
there is no fact (other than publicly known facts relating exclusively to
political or economic matters of general applicability that will adversely
affect all Comparable Entities) that (i) may have an adverse effect on SFG's
business, condition, assets, liabilities, operations, financial performance, net
income or prospects (or on any aspect or portion thereof) or on the ability of
SFG or any of the Selling Securityholders to comply with or perform any covenant
or obligation under any of the Transactional Agreements, or (ii) may have the
effect of preventing, delaying, making illegal or otherwise interfering with any
of the Transactions.
(c) All of the information set forth in the Disclosure Schedule,
and all other information regarding the respective Companies and their business,
condition, assets, liabilities, operations, financial performance, net income
and prospects that has been furnished to the Purchaser or any of its
Representatives by or on behalf of SFG or any of SFG's Representatives, is
accurate and complete in all respects, and, in the case of those Disclosure
Schedules which are dated as being as of a date that is earlier than the date of
this Agreement (the "DATED SCHEDULES"), the information set forth in each Dated
Schedule is accurate and complete in all respects as of the Closing Date other
than for matters arising in the Ordinary Course of Business since the date of
the applicable Dated Schedule.
(d) SFG will have provided the Purchaser and the Purchaser's
Representatives with full and complete access to all of each Company's records
and other documents and data.
3. REPRESENTATIONS AND WARRANTIES OF THE SELLING SECURITYHOLDERS
Except as set forth in the Disclosure Schedules with respect to
specific sections of this Article 3, or as disclosed in another section of the
Disclosure Schedule, if it is reasonably apparent on the face of the Disclosure
Schedule that it is applicable to another section of this Article 3, as of the
date of this Agreement and as of the Closing, each of the Selling
Securityholders represents and warrants as to such Selling Securityholder only,
severally and not jointly, to and for the benefit of the Indemnitees, as
follows:
3.1 DUE AUTHORIZATION; ETC.
(a) Such Selling Securityholder has the absolute and unrestricted
right, power and capacity to enter into and to perform such Selling
Securityholder's obligations under each of the Transactional Agreements to which
such Selling Securityholder is or may become a party. This Agreement constitutes
the legal, valid and binding obligation of such Selling
41
Securityholder, enforceable against such Selling Securityholder in accordance
with its terms (except as enforceability may be limited by any applicable
bankruptcy, insolvency or other laws affecting creditors' rights generally or
by general principles of equity, regardless of whether such enforceability is
considered in equity or at law). Upon the execution of each of the other
Transactional Agreements at the Closing, each of such other Transactional
Agreements will constitute the legal, valid and binding obligation of such
Selling Securityholder who is a party thereto, and will be enforceable
against such Selling Securityholder in accordance with its terms (except as
enforceability may be limited by any applicable bankruptcy, insolvency or
other laws affecting creditors' rights generally or by general principles of
equity, regardless of whether such enforceability is considered in equity or
at law).
(b) Subject to Section 12.16, such Selling Securityholder (other
than the Funds) has given the Agent the unrestricted right, power, authority and
capacity to act for and bind such Selling Securityholder with respect to all
matters relating to the Transactional Agreements and the Transactions.
(c) If such Selling Securityholder is a corporate entity, the
execution and delivery by it of the Transactional Agreements and the
consummation of the Transaction have been duly and validly authorized, and no
other corporate proceedings or approvals on the part of such Selling
Securityholder are necessary to authorize the Transactional Agreements or the
consummation of the Transaction. The party signing this Agreement for on behalf
of such Selling Securityholder is a general partner of such Selling
Securityholder.
(d) If such Selling Securityholder is a limited partnership, the
execution and delivery by its general partner of the Transactional Agreements
and the consummation of the Transaction have been duly and validly authorized in
accordance with its partnership agreement, and no other proceedings or approvals
on the part of such Selling Securityholder or its general partner are necessary
to authorize the Transactional Agreements or the consummation of the
Transaction.
(e) Such Selling Securityholder:
(i) has not, at any time, (A) made a general assignment for
the benefit of creditors, (B) filed, or had filed against such Selling
Securityholder, any bankruptcy petition or similar filing, (C) suffered the
attachment or other judicial seizure of all or a substantial portion of such
Selling Securityholder's assets, (D) admitted in writing such Selling
Securityholder's inability to pay such Selling Securityholder's debts as they
become due, (E) been convicted of, or pleaded guilty to, any felony, or (F)
taken or been the subject of any action that may have an adverse effect on such
Selling Securityholder's ability to comply with or perform any of such Selling
Securityholder's covenants or obligations under any of the Transactional
Agreements; or
(ii) is not subject to any Order that may have an adverse
effect on such Selling Securityholder's ability to comply with or perform any of
such Selling Securityholder's covenants or obligations under any of the
Transactional Agreements.
42
(f) There is no Proceeding pending, and to the knowledge of such
Selling Securityholder, no Person has threatened to commence any Proceeding,
that may have an adverse effect on the ability of such Selling Securityholder to
comply with or perform any of such Selling Securityholder's covenants or
obligations under any of the Transactional Agreements. To the knowledge of such
Selling Securityholder, no event has occurred, and no claim, dispute or other
condition or circumstance exists, that might directly or indirectly give rise to
or serve as a basis for the commencement of any such Proceeding.
3.2 DUE ORGANIZATION; ETC.
(a) If such Selling Securityholder a corporate entity, it is a
corporation duly incorporated, organized, validly existing and in good standing
under the laws of its jurisdiction of incorporation and has all necessary power
and authority to execute and deliver the Transactional Agreements and to
consummate the Transaction and otherwise perform its obligations under this
Agreement.
(b) If such Selling Securityholder is a partnership, it is duly
registered as a limited partnership in the Province of British Columbia and was
formed by the filing of a certificate in the Office of the Registrar of
Companies (British Columbia), pursuant to the provisions of the Partnership Act
(British Columbia). The general partner of such Selling Securityholder that is
acting and signing for and on behalf of such Selling Securityholder in
connection with the Transaction (the "GENERAL PARTNER") was duly incorporated,
validly exists and is in good standing under the laws of its jurisdiction of
incorporation. Such Selling Securityholder and its General Partner have taken
all necessary action in accordance with the provisions of such Selling
Securityholder's partnership agreement and any other Legal Requirements to
execute and deliver the Transactional Agreements and to consummate the
Transaction and to perform its obligations under this Agreement.
(c) Such Selling Securityholder is not a non-resident of Canada
within the meaning of the INCOME TAX ACT (Canada), except as disclosed on Part
2.33 of the Disclosure Schedule.
3.3 OWNERSHIP; TITLE TO SECURITIES. Except as set out in Part 3.3 of
the Disclosure Schedule, Such Selling Securityholder has, and will convey to the
Purchaser at the Closing, good and valid title to the Securities owned by such
Selling Securityholder free and clear of any Encumbrances, adverse claims or
claims of others. All of such Selling Securityholder's Securities are legally
and beneficially owned and controlled by such Selling Securityholders in the
amounts indicated next to such Selling Securityholder's name on Part 3.3 of the
Disclosure Schedule. No Person has any agreement, option, understanding or
commitment, or any right or privilege (whether by law, pre-emptive or
contractual) capable of becoming an agreement, option or commitment, including a
right of conversion or exchange attached to convertible securities, warrants or
convertible obligations of any nature, for the purchase or other acquisition
from such Selling Securityholder of any of the Securities owned by such Selling
Securityholder.
3.4 NON-CONTRAVENTION; CONSENTS. Neither the execution and
delivery of any of the Transactional Agreements, nor the consummation or
performance of any of the Transactions, will directly or indirectly (with or
without notice or lapse of time):
43
(a) if the Selling Securityholder is a corporation, contravene,
conflict with or result in a violation of (i) any of the provisions of such
Selling Securityholder's certificate of incorporation or bylaws, or (ii) any
resolution adopted such Selling Securityholder's shareholders, Selling
Securityholder's board of directors or any committee of such Selling
Securityholder's board of directors;
(b) if the Selling Securityholder is a partnership, contravene,
conflict with or result in a violation of any of the provisions of such Selling
Securityholder's partnership agreement or other constating document; or
(c) contravene, conflict with or result in a violation of, or give
any Governmental Body or other Person the right to challenge any of the
Transactions or to exercise any remedy or obtain any relief under, (a) any Legal
Requirement or any Order to which such Selling Securityholder is subject, (ii)
any Contract, commitment or other agreement to which such Selling Securityholder
is a party or by which his, her or its assets are bound.
3.5 BROKERS. Such Selling Securityholder has not agreed or become
obligated to pay, or has taken any action that might result in any Person
claiming to be entitled to receive, any brokerage commission, finder's fee or
similar commission or fee in connection with any of the Transactions.
4. REPRESENTATIONS AND WARRANTIES OF THE ELLIOTTS
In addition to the representations and warranties made by them in
Article 3 in their capacity as Selling Securityholders, the Elliotts jointly and
severally represent and warrant, to and for the benefit of the benefit of the
Indemnitees, as follows:
4.1 ARTICLE 2 REPRESENTATIONS. Except as such representations or
warranties may be modified in this Article 4, each of the representations and
warranties in Article 2 of this Agreement (without giving effect to any of the
Disclosure Schedules or the exceptions contemplated thereby) shall apply MUTATIS
MUTANDIS to BEA.
4.2 ARTICLE 3 REPRESENTATIONS. Except as such representations or
warranties may be modified in this Article 4, each of the representations and
warranties in Article 3 of this Agreement (without giving effect to any of the
Disclosure Schedules or the exceptions contemplated thereby) shall apply MUTATIS
MUTANDIS to the Elliotts and their interests in BEA.
4.3 BEA CAPITAL. The authorized capital of BEA consists of 100,000
Class A voting shares and 100,000 Class B non-voting shares, of which only the
Xxxxxxx Shares are issued and outstanding. Xxxxx Xxxxxxx legally and
beneficially owns one Class A voting share, and Xxxx Xxxxxxx legally and
beneficially owns one Class A voting share.
4.4 BEA BUSINESS. BEA's only business is the business of being a
holding company for the BEA Shares and providing management services to SFG
pursuant to a management agreement dated May 1, 1996 between BEA and SFG. Other
than SFG, BEA has no customers, suppliers or any contractual relationships
(written or otherwise) except those relating to the reorganization described in
Part 4 of the Disclosure Schedules (the "BEA REORGANIZATION").
44
4.5 BEA EMPLOYEES. BEA has never had, and does not currently have,
any employees other than Xxxxx Xxxxxxx and Xxxx Xxxxxxx.
4.6 BEA ASSETS AND LIABILITIES. BEA does not own any assets or
properties other than those referred to in Part 4 of the Disclosure Schedules.
BEA's current assets (determined in accordance with GAAP) exceed its current
liabilities (determined in accordance with GAAP), including all accrued and
unpaid Tax Liabilities. BEA has no long-term Liabilities of any nature
whatsoever.
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants, to and for the benefit of the
Selling Securityholders, as follows:
5.1 AUTHORITY; BINDING NATURE OF AGREEMENT. Upon the adoption of
appropriate resolutions by the Purchaser's board of directors:
(a) the Purchaser will have the absolute and unrestricted right,
power and authority to enter into and perform its obligations under this
Agreement;
(b) the execution, delivery and performance of this Agreement by
the Purchaser will have been duly authorized by all necessary action on the part
of the Purchaser and its stockholders and board of directors; and
(c) this Agreement will constitute the legal, valid and binding
obligation of the Purchaser, enforceable against the Purchaser in accordance
with its terms (except as enforceability may be limited by any applicable
bankruptcy, insolvency or other laws affecting creditors' rights generally or by
general principles of equity, regardless of whether such enforceability is
considered in equity or at law).
5.2 BROKERS. Except for a fee payable to Xxxxxxxxxx & Partners Inc.,
the Purchaser has not agreed or become obligated to pay, and has not taken any
action that might result in any Person claiming to be entitled to receive, any
brokerage commission, finder's fee or similar commission or fee in connection
with any of the Transactions.
5.3 NON-CONTRAVENTION; CONSENTS. Neither the execution and
delivery of any of the Transactional Agreements, nor the consummation or
performance of any of the Transactions, will directly or indirectly (with or
without notice or lapse of time):
(a) contravene, conflict with or result in a violation of (i) any
of the provisions of the Purchaser's certificate of incorporation or bylaws, or
(ii) any resolution adopted by the Purchaser's shareholders, the Purchaser's
board of directors or any committee of the Purchaser's board of directors;
(b) contravene, conflict with or result in a violation of, or give
any Governmental Body or other Person the right to challenge any of the
Transactions or to exercise any remedy or obtain any relief under, any Legal
Requirement or any Order to which the Purchaser is subject; or
45
(c) contravene, conflict with or result in a violation of, or give
any Governmental Body or other Person the right to challenge any of the
Transactions or to exercise any remedy or obtain any relief under, (a) any Legal
Requirement or any Order to which the Purchaser is subject, (ii) any Contract,
commitment or other agreement to which the Purchaser is a party or by which its
assets are bound.
6. PRE-CLOSING COVENANTS OF SFG AND SELLING SECURITYHOLDERS
6.1 ACCESS AND INVESTIGATION. SFG shall ensure that, at all times
during the Pre-Closing Period:
(a) SFG and its Representatives, upon reasonable notice, provide
the Purchaser and its Representatives with free and complete access to each
Company's Representatives, personnel and assets and to all existing books,
records, Tax Returns, work papers and other documents and information relating
to the Companies;
(b) SFG and its Representatives, upon reasonable notice, provide
the Purchaser and its Representatives with such copies of existing books,
records, Tax Returns, work papers and other documents and information relating
to the Companies as the Purchaser may request in good faith; and
(c) SFG and its Representatives, upon reasonable notice, compile
and provide the Purchaser and its Representations with such additional
financial, operating and other data and information regarding the Companies as
the Purchaser may request in good faith.
6.2 OPERATION OF BUSINESS - SELLING SHAREHOLDERS. Each Selling
Securityholder severally shall ensure that, during the Pre-Closing Period
without the prior written consent of the Purchaser:
(a) except as disclosed in Part 2.3 of the Disclosure Schedule, it
will not, directly or indirectly, sell or otherwise transfer, or offer, agree or
commit (in writing or otherwise) to sell or otherwise transfer, any of the
Securities owned by it or any interest in or right relating to any of the
Securities owned by it;
(b) it will not permit, and it will not offer, agree or commit (in
writing or otherwise) to permit, any of the Securities owned by it to become
subject, directly or indirectly, to any Encumbrance;
6.3 OPERATION OF BUSINESS - SFG. SFG, shall ensure that, during the
Pre-Closing Period without the prior written consent of the Purchaser:
(a) each Company conducts its operations exclusively in the
Ordinary Course of Business and in the same manner as such operations have been
conducted prior to the date of this Agreement;
(b) each Company preserves intact its current business
organization, keeps available the services of its current officers and employees
and maintains its relations and good
46
will with all suppliers, customers, landlords, creditors, licensors,
licensees, employees and other Persons having business relationships with
such Company;
(c) each Company keeps in full force all insurance policies
identified in Part 2.24 of the Disclosure Schedule;
(d) SFG's officers confer regularly with the Purchaser concerning
operational matters and otherwise report regularly to the Purchaser concerning
the status of each Company's business, condition, assets, liabilities,
operations, financial performance and prospects;
(e) SFG immediately notifies the Purchaser of any inquiry,
proposal or offer from any Person relating to any Acquisition Transaction;
(f) SFG and its officers use their Best Efforts to cause the
Companies to operate profitably and to maximize net income;
(g) no Company declares, accrues, sets aside or pays any dividend
or makes any other distribution in respect of any shares of its capital stock,
nor repurchases, redeems or otherwise reacquires any shares of its capital stock
or other securities;
(h) no Company sells or otherwise issues any shares of its capital
stock or any other securities;
(i) no Company amends its certificate of incorporation or bylaws,
nor effects or becomes a party to any Acquisition Transaction, recapitalization,
reclassification of shares, stock split, reverse stock split or similar
transaction;
(j) no Company forms any subsidiary or acquires any equity
interest or other interest in any other Entity;
(k) no Company makes any capital expenditure, except for capital
expenditures that are made in the Ordinary Course of Business and that, when
added to all other capital expenditures made on behalf of the Companies during
the Pre-Closing Period, do not exceed $25,000 in the aggregate;
(l) no Company enters into or permits any of the assets owned or
used by the Companies to become bound by any Contract, except for any Excluded
Contract;
(m) no Company incurs, assumes or otherwise becomes subject to any
Liability, except for current liabilities (of the type required to be reflected
in the "liabilities" column of a balance sheet prepared in accordance with GAAP)
incurred in the Ordinary Course of Business;
(n) no Company establishes or adopts any Employee Benefit Plan,
nor pays any bonus or makes any profit-sharing or similar payment to, or
increases the amount of the wages, salary, commissions, fringe benefits or other
compensation or remuneration payable to, any of its directors, officers or
employees;
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(o) no Company changes any of its methods of accounting or
accounting practices in any respect except as prescribed by the Canadian
Institute of Chartered Accountants;
(p) no Company makes any Tax election;
(q) no Company commences any Proceeding;
(r) no Company enters into any transaction or takes any other
action of the type referred to in Section 2.5;
(s) no Company enters into any transaction or takes any other
action outside the Ordinary Course of Business;
(t) no Company enters into any transaction or takes any other
action that might cause or constitute a Breach of any representation or warranty
made by SFG or any of the Selling Securityholders in this Agreement or in the
Closing Certificate; and
(u) no Company agrees, commits or offers (in writing or
otherwise), nor attempts, to take any of the actions described in clauses "(i)"
through "(v)" of this Section 6.2.
6.4 FILINGS AND CONSENTS. SFG or each Selling Securityholder
(severally as to itself), as the case may be, shall ensure that:
(a) each filing or notice required to be made or given (pursuant
to any applicable Legal Requirement, Order or Contract, or otherwise) by the
Companies or such Selling Securityholder in connection with the execution and
delivery of any of the Transactional Agreements or in connection with the
consummation or performance of any of the Transactions (including each of the
filings and notices identified in Part 2.29 of the Disclosure Schedule) is made
or given as soon as possible after the date of this Agreement;
(b) each Consent required to be obtained (pursuant to any
applicable Legal Requirement, Order or Contract, or otherwise) by the Companies
or such Selling Securityholder in connection with the execution and delivery of
any of the Transactional Agreements or in connection with the consummation or
performance of any of the Transactions (including each of the Consents
identified in Part 2.29 of the Disclosure Schedule) is obtained as soon as
possible after the date of this Agreement and remains in full force and effect
through the Closing Date;
(c) SFG or such Selling Securityholder promptly delivers to the
Purchaser a copy of each filing made, each notice given and each Consent
obtained by the Companies or such Selling Securityholder during the Pre-Closing
Period; and
(d) during the Pre-Closing Period, SFG and its Representatives
cooperate with the Purchaser and with the Purchaser's Representatives, and
prepare and make available such documents and take such other actions as the
Purchaser may request in good faith, in connection with any filing, notice or
Consent that the Purchaser is required or elects to make, give or obtain.
48
6.5 NOTIFICATION; UPDATES TO DISCLOSURE SCHEDULE.
(a) During the Pre-Closing Period, SFG or each Selling
Securityholder (severally as to itself), as the case may be, shall promptly
notify the Purchaser in writing of:
(i) the discovery by SFG or such Selling Securityholder of
any event, condition, fact or circumstance that occurred or existed on or prior
to the date of this Agreement and that caused or constitutes a Breach of any
representation or warranty made by SFG or such Selling Securityholder in this
Agreement;
(ii) any event, condition, fact or circumstance that occurs,
arises or exists after the date of this Agreement and that would cause or
constitute a Breach of any representation or warranty made by SFG or such
Selling Securityholder in this Agreement if (A) such representation or warranty
had been made as of the time of the occurrence, existence or discovery of such
event, condition, fact or circumstance, or (B) such event, condition, fact or
circumstance had occurred, arisen or existed on or prior to the date of this
Agreement;
(iii) any Breach of any covenant or obligation of SFG or such
Selling Securityholder; and
(iv) any event, condition, fact or circumstance that may make
the timely satisfaction of any of the conditions set forth in Section 8 or
Section 9 impossible or unlikely.
(b) If any event, condition, fact or circumstance that is required
to be disclosed pursuant to Section 6.5(a) requires any change in the Disclosure
Schedule, or if any such event, condition, fact or circumstance would require
such a change assuming the Disclosure Schedule were dated as of the date of the
occurrence, existence or discovery of such event, condition, fact or
circumstance, then SFG and the Selling Securityholders shall promptly deliver to
the Purchaser an update to the Disclosure Schedule specifying such change. No
such update shall be deemed to supplement or amend the Disclosure Schedule for
the purpose of (i) determining the accuracy of any of the representations and
warranties made by SFG or any of the Selling Securityholders in this Agreement
or in the Closing Certificate, or (ii) determining whether any of the conditions
set forth in Section 8 has been satisfied.
6.6 PAYMENT OF INDEBTEDNESS BY RELATED PARTIES. SFG shall cause all
indebtedness and other Liabilities of each Related Party to SFG (including any
such indebtedness or other Liability identified in Part 2.25 of the Disclosure
Schedule) to be discharged and paid in full prior to the Closing.
6.7 NO NEGOTIATION. SFG shall ensure that, during the Pre-Closing
Period, neither SFG nor any of SFG's Representatives directly or indirectly:
(a) solicits or encourages the initiation or submission of any
expression of interest, inquiry, proposal or offer from any Person (other than
the Purchaser) relating to any Acquisition Transaction;
49
(b) participates in any discussions or negotiations or enters into
any agreement with, or provides any non-public information to, any Person (other
than the Purchaser) relating to any Acquisition Proposal; or
(c) entertains or considers the merits of any unsolicited inquiry,
proposal or offer from any Person (other than the Purchaser) relating to any
Acquisition Transaction, or accepts any such inquiry, proposal or offer.
6.8 COMMERCIALLY REASONABLE EFFORTS - SFG. During the Pre-Closing
Period, SFG shall use all commercially reasonable efforts to cause the
conditions set forth in Sections 8.2 and 8.3 that relate to it to be satisfied
on a timely basis.
6.9 COMMERCIALLY REASONABLE EFFORTS - SECURITYHOLDER. During the
Pre-Closing Period each Selling Securityholder (severally) shall use all
commercially reasonable efforts to cause the conditions set forth in Sections
8.2 and 8.3 that relate solely to it to be satisfied on a timely basis.
6.10 CONFIDENTIALITY. Each party to this Agreement shall ensure that,
during the Pre-Closing Period, neither it nor its Representatives:
(a) shall not make or permit any disclosure to any Person
regarding (a) the existence and terms of this Agreement and the Transactions
contemplated hereby or (b) the existence of negotiations between the parties
hereto;
(b) shall issue or disseminate any press release or other
publicity or otherwise make any disclosure of any nature (to any suppliers,
customers, landlords, creditors or employees or to any other Person) regarding
any of the Transactions, except to the extent that such party is required by law
to make any such disclosure regarding the Transactions; and
(c) if such party is required by law to make any disclosure
regarding the Transactions, it advises the other parties, at least five business
days before making such disclosure, of the nature and content of the intended
disclosure.
6.11 SECTION 000(0) XXXXXXXX. SFG hereby agrees to elect in its return
of income under Part I of the INCOME TAX ACT (CANADA) filed for its taxation
year ended immediately before the acquisition of control by the Purchaser to not
have subsection 256(9) of the INCOME TAX ACT (CANADA) apply.
7. PRE-CLOSING COVENANTS OF PURCHASER
7.1 COMMERCIALLY REASONABLE EFFORTS. During the Pre-Closing
Period, the Purchaser shall use all commercially reasonable efforts to cause
the conditions set forth in Article 9 to be satisfied.
8. CONDITIONS PRECEDENT TO THE PURCHASER'S OBLIGATION TO CLOSE
The Purchaser's obligation to purchase the Securities and the Xxxxxxx
Shares and to take the other actions required to be taken by the Purchaser at
the Closing is subject to the
50
satisfaction, at or prior to the Closing, of each of the following conditions
(any of which may be waived by the Purchaser, in whole or in part, in
accordance with Section 12.15):
8.1 SATISFACTORY COMPLETION OF PRE-ACQUISITION REVIEW. The Purchaser
shall have satisfactorily completed its pre-acquisition investigation and review
of SFG's and BEA's business, condition, assets, liabilities, operations,
financial performance, net income and prospects and shall be satisfied with the
results of that investigation and review.
8.2 ACCURACY OF REPRESENTATIONS.
(a) Each of the Specified Representations and the Xxxxxxx
Representations shall have been accurate in all respects as of the Scheduled
Closing Time as if made at the Scheduled Closing Time and as of the Closing as
if made at the Closing, without giving effect to any update to the Disclosure
Schedule.
(b) All of the other representations and warranties made by SFG,
the Selling Securityholders and the Elliotts in this Agreement (considered
collectively), and each of said representations and warranties (considered
individually), shall have been accurate as of the date of this Agreement, and
shall be accurate as of the Scheduled Closing Time as if made at the Scheduled
Closing Time and as of the Closing, as if made at the Closing, each without
giving effect to any update to the Disclosure Schedule.
8.3 PERFORMANCE OF OBLIGATIONS.
(a) SFG, the Common Selling Shareholders and the Option Holders
shall have executed and delivered each of the agreements required to be executed
and delivered by SFG, the Selling Shareholders or the Option Holders pursuant to
this Agreement.
(b) The Common Selling Shareholders shall have delivered to the
Purchaser the certificates representing the Shares as required by Section
1.4(c)(v), and each Selling Shareholder shall have executed and delivered each
of the other documents required to be executed and delivered by such Common
Selling Shareholder pursuant to Section 1.4(b).
(c) Each Common Selling Shareholder who own Class C Preferred
Shares shall have delivered to SFG a notice of retraction in respect of the
Class C Preferred Shares owned by such Common Selling Shareholder and delivered
the share certificates representing such shares duly endorsed for transfer;
(d) Her Majesty the Queen in right of the Province of British
Columbia (the "PROVINCE") shall have delivered the share certificates
representing Class F Preferred Shares owned by the Province duly endorsed for
transfer.
(e) The Option Holders shall have delivered to the Purchaser the
Option Termination Agreements as required by Section 1.4(c)(vi), and each Option
Holder shall have executed and delivered each of the other documents required to
be executed and delivered by such Option Holder pursuant to Section 1.4(c).
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(f) The Elliotts shall have delivered to the Purchaser the
certificates representing the Xxxxxxx Shares as required by Section 1.4(c)(vii)
duly endorsed for transfer.
(g) All of the other covenants and obligations that SFG and the
Selling Securityholders are required to comply with or to perform at or prior
to the Closing (considered collectively), and each of said covenants and
obligations (considered individually), shall have been duly complied with and
performed.
8.4 CONSENTS.
(a) Each of the Consents identified in Part 2.29 of the Disclosure
Schedule shall have been obtained, shall be in full force and effect and shall
be absolute or on terms acceptable to Purchaser.
(b) The Purchaser shall have received (a) acknowledgments from the
lessors under the Leases that such leases are in full force and the Companies
are not in breach of any of the terms thereof, (b) any such consent to the
change in ownership effected by Transaction may be required by the terms of
such Leases.
8.5 NO ADVERSE CHANGE. There shall have been no adverse change in SFG's
or BEA's business, condition, assets, liabilities, operations, financial
performance, net income or prospects (or in any aspect or portion thereof)
since the date of this Agreement.
8.6 ADDITIONAL DOCUMENTS. The Purchaser shall have received such other
documents as the Purchaser may reasonably request in good faith for the purpose
of (i) evidencing the accuracy of any representation or warranty made by SFG or
any of the Selling Securityholders, (ii) evidencing the compliance by SFG or
any of the Selling Securityholders with, or the performance by SFG or any of
the Selling Securityholders of, any covenant or obligation set forth in this
Agreement, (iii) evidencing the satisfaction of any condition set forth in this
Section 8, or (iv) otherwise facilitating the consummation or performance of
any of the Transactions.
8.7 NO PROCEEDINGS. Since the date of this Agreement, there shall not
have been commenced or threatened against the Purchaser, or against any Person
affiliated with the Purchaser, any Proceeding (a) involving any challenge to,
or seeking damages or other relief in connection with, any of the Transactions,
or (b) that may have the effect of preventing, delaying, making illegal or
otherwise interfering with any of the Transactions.
8.8 NO CLAIM REGARDING STOCK OWNERSHIP OR SALE PROCEEDS. No Person shall
have made or threatened any claim asserting that such Person (a) may be the
holder or the beneficial owner of, or may have the right to acquire or to
obtain beneficial ownership of, any capital stock or other securities of any
Company or BEA, respectively, or (b) may be entitled to all or any portion of
the Purchase Price.
8.9 NO PROHIBITION. Neither the consummation nor the performance of any
the Transactions will, directly or indirectly (with or without notice or lapse
of time), contravene or conflict with or result in a violation of, or cause the
Purchaser or any Person affiliated with the Purchaser to suffer any adverse
consequence under, (a) any applicable Legal Requirement or
52
Order, or (b) any Legal Requirement or Order that has been proposed by or
before any Governmental Body.
9. CONDITIONS PRECEDENT TO SELLING SECURITYHOLDERS' OBLIGATION TO CLOSE
The Selling Securityholders' obligation to sell the Securities and to take
the other actions required to be taken by the Selling Securityholders at the
Closing is subject to the satisfaction, at or prior to the Closing, of each of
the following conditions (any of which may be waived by the Agent, in whole or
in part, in accordance with Section 12.15):
9.1 ACCURACY OF REPRESENTATIONS. All of the representations and
warranties made by the Purchaser in this Agreement (considered collectively),
and each of said representations and warranties (considered individually),
shall have been accurate as of the date of this Agreement and shall be accurate
as of the Scheduled Closing Time as if made at the Scheduled Closing Time.
9.2 PURCHASER'S PERFORMANCE.
(a) The Purchaser shall have made the cash payments contemplated
by Section 1.4.
(b) All of the other covenants and obligations that the Purchaser
is required to comply with or to perform pursuant to this Agreement at or prior
to the Closing (considered collectively), and each of said covenants and
obligations (considered individually), shall have been complied with and
performed.
9.3 NO INJUNCTION. There shall not be in effect any injunction that
shall have been entered by a court of competent jurisdiction since the date of
this Agreement and that prohibits the sale of the Securities by the Selling
Securityholders to the Purchaser.
10. TERMINATION
10.1 TERMINATION EVENTS. This Agreement may be terminated prior to the
Closing:
(a) by the Purchaser if (i) there is a material Breach of any
covenant or obligation of SFG or any of the Selling Securityholders, or (ii)
the Purchaser reasonably determines that the timely satisfaction of any
condition set forth in Section 8 has become impossible or impractical (other
than as a result of any failure on the part of the Purchaser comply with or
perform its covenants and obligations under this Agreement);
(b) by the Agent if (i) there is a material Breach of any covenant
or obligation of the Purchaser, or (ii) the Agent reasonably determines that
the timely satisfaction of any condition set forth in Section 9 has become
impossible or impractical (other than as a result of any failure on the part of
SFG or any of the Selling Securityholders to comply with or perform any
covenant or obligation set forth in this Agreement);
(c) by the Purchaser at or after the Scheduled Closing Time if any
condition set forth in Section 8 has not been satisfied by the Scheduled
Closing Time;
53
(d) by the Agent at or after the Scheduled Closing Time if any
condition set forth in Section 9 has not been satisfied by the Scheduled
Closing Time;
(e) by the Purchaser if the Closing has not taken place on or
before December 31, 1999 (other than as a result of any failure on the part of
the Purchaser to comply with or perform its covenants and obligations under
this Agreement);
(f) by the Agent if the Closing has not taken place on or before
December 31, 1999, (other than as a result of the failure on the part of SFG or
any of the Selling Securityholders to comply with or perform any covenant or
obligation set forth in this Agreement); or
(g) by the mutual consent of the Purchaser and the Agent.
10.2 TERMINATION PROCEDURES. If the Purchaser wishes to terminate this
Agreement pursuant to Section 10.1(a), Section 10.1(c) or Section 10.1(e), the
Purchaser shall deliver to the Agent a written notice stating that the
Purchaser is terminating this Agreement and setting forth a brief description
of the basis on which the Purchaser is terminating this Agreement. If the Agent
wishes to terminate this Agreement pursuant to Section 10.1(b), Section 10.1(d)
or Section 10.1(f), the Agent shall deliver to the Purchaser a written notice
stating that the Agent is terminating this Agreement and setting forth a brief
description of the basis on which the Agent is terminating this Agreement.
10.3 EFFECT OF TERMINATION. If this Agreement is terminated pursuant to
Section 10.1, all further obligations of the parties under this Agreement shall
terminate; PROVIDED, HOWEVER, that:
(a) no party shall be relieved of any obligation or other
Liability arising from any Breach by such party of any provision of this
Agreement;
(b) the parties shall, in all events, remain bound by and continue
to be subject to the provisions set forth in Section 12; and
(c) SFG and the Selling Securityholders shall, in all events,
remain bound by and continue to be subject to Section 6.10.
10.4 NONEXCLUSIVITY OF TERMINATION RIGHTS. The termination rights
provided in Section 10.1 shall not be deemed to be exclusive. Accordingly, the
exercise by any party of its right to terminate this Agreement pursuant to
Section 10.1 shall not be deemed to be an election of remedies and shall not be
deemed to prejudice, or to constitute or operate as a waiver of, any other
right or remedy that such party may be entitled to exercise (whether under this
Agreement, under any other Contract, under any statute, rule or other Legal
Requirement, at common law, in equity or otherwise).
54
11. INDEMNIFICATION, ETC.
11.1 SURVIVAL OF REPRESENTATIONS AND COVENANTS.
(a) Subject to Sections 11.1(b), 11.1(c) and 11.1(d), the
representations and warranties, covenants and obligations of each party shall
survive (without limitation):
(i) the Closing and the sale of the Securities and the
Xxxxxxx Shares to the Purchaser;
(ii) the sale or other disposition of any or all of the
Securities and the Xxxxxxx Shares by the Purchaser; and
(iii) any Acquisition Transaction effected or otherwise
effected or otherwise involving the Purchaser and SFG or BEA;
(b) Subject to Section 11.1(c), all of the said representations,
warranties, covenants and obligations shall remain in full force and effect and
shall survive until the earlier of (the "FIRST EXPIRY DATE"):
(i) the final day of the 18th month following the date of
this Agreement; or
(ii) the date of the report of the Purchaser's independent
auditor on the Purchaser's financial statements for the year ended December 31,
2000.
(c) Any claims for Damages concerning the Breaches of any
Specified Representations or fraud shall remain in full force and effect and
shall survive from the Closing Date until the last day of the 36th month
following the date of this Agreement (the "SECOND EXPIRY DATE").
(d) The representations, warranties, covenants and obligations of
SFG, the Selling Securityholders and the Elliotts, and the rights and remedies
that may be exercised by the Indemnitees, shall not be limited or otherwise
affected by or as a result of any information furnished to, or any
investigation made by or Knowledge of, any of the Indemnitees or any of their
Representatives.
11.2 INDEMNIFICATION BY SELLING SECURITYHOLDERS.
(a) Subject to the limitations set out in Section 11.3, the
Selling Securityholders will, jointly and severally, hold harmless and
indemnify each of the Indemnitees for any Damages which are directly or
indirectly suffered or incurred by any of the Indemnitees or to which any of
the Indemnitees may otherwise become subject at any time (regardless of whether
or not such Damages relate to any third party claim) and which arise directly
or indirectly from or as a direct or indirect result of, or are directly or
indirectly connected with:
(i) any Breach of any representation or warranty made by
SFG in this Agreement;
55
(ii) any Breach of any covenant or obligation of SFG in this
Agreement;
(iii) any Breach of any representation or warranty made by
the Selling Securityholders in this Agreement (excluding the representations
and warranties contained in Article 4);
(iv) any Breach of any covenant or obligation of the Selling
Securityholders in this Agreement (excluding any covenants or obligations of
the Elliotts with respect to BEA);
(v) any Liability to which any Company or any of the other
Indemnitees may become subject and that arises directly or indirectly from or
relates directly or indirectly to:
(1) any product manufactured or sold, any service
performed, by or on behalf of any of the Companies on or at any time on or
prior to the Closing Date;
(2) the presence of any Hazardous Materials at any
site owned, leased, occupied or controlled by any of the Companies on or at any
time prior to the Closing Date; or
(3) the generation, manufacture, production,
transportation, importation, use, treatment, processing, refinement,
processing, handling, storage, discharge, release, disposal of any Hazardous
Material (whether lawfully or unlawfully) by or on behalf any of the Companies
or on or at any time on or prior to the Closing Date,
(vi) any proceeding relating directly or indirectly to any
Breach, alleged Breach, Liability or matter of the type referred to in clauses
"(i)", "(ii)", "(iii)", "(iv)" or "(v)" above (including any Proceeding
commenced by any Indemnitee for the purpose of enforcing its rights under this
Section 11).
(b) Subject to the limitations set out in Section 11.3, each
Selling Securityholder will jointly and severally up to the balance of the
Second Escrow Amount after all indemnification claims under Section 11.2(a)
have been paid and thereafter, other than in the case of VWP and DEI,
severally, in proportion to the amount set out opposite each such Selling
Securityholder's name in Schedule 11.3, hold harmless and indemnify each of the
Indemnitees for any Damages which are directly or indirectly suffered or
incurred by any of the Indemnitees or to which any of the Indemnitees may
otherwise become subject at any time (regardless of whether or not such Damages
relate to any third party claim) and which arise directly or indirectly from or
as a direct or indirect result of, or are directly or indirectly connected with:
(i) fraud on the part of such Selling Securityholder; or
(ii) any Breach of any of the Specified Representations by
such Selling Securityholder.
56
(c) Subject to the limitations set out in Section 11.3, any party
that is required to indemnify any other Person pursuant to this Article 11 with
respect to any Damages shall also be required to pay such other Person interest
on the amount of such Damages (for the period commencing as of the date on
which such other Person first incurred or otherwise became subject to such
Damages and ending on the date on which the applicable indemnification payment
is made by such party) at a floating rate three percentage points above the
rate of interest publicly announced by Bank of America from time to time as its
prime rate, base or reference rate.
11.3 INDEMNIFICATION LIMITATIONS.
Notwithstanding any other provision contained in this Agreement, the
indemnity obligations of the Selling Securityholders pursuant to Section 11.2
or otherwise, will be limited in the following respects:
(a) the Selling Securityholders will only be liable for Damages
arising under Section 11.2(a) if a claim for indemnity is made by the
Indemnitee on or before the First Expiry Date;
(b) the Selling Securityholders will only be liable for Damages
arising under Section 11.2(b) if a claim for indemnity is made by the
Indemnitee on or before the Second Expiry Date;
(c) the Selling Securityholders shall not be required to make any
indemnification payment pursuant to Section 11.2 unless the Damages exceeds
$50,000 in the aggregate;
(d) the Selling Securityholders shall not be required to make any
indemnification payment pursuant to Section 11.2(a) in excess of the Second
Escrow Amount in accordance with the Escrow Agreement shall be the only and
sole source of payment for the indemnification rights of the Indemnitees under
Section 11.2(a);
(e) VWP and DEI shall not be required to make any indemnification
payment pursuant to Section 11.2(a) or 11.2(b) in excess of their respective
Pro Rata interest in the Second Escrow Amount as set out in this Section 11.3
in excess of their respective Pro Rata interests and such Pro Rata payment out
of the Second Escrow Amount in accordance with the Escrow Agreement shall be
the only and sole source of payment for the indemnification rights of the
Indemnitees under Section 11.2 in the case of VWP and DEI;
(f) the aggregate amount of Damages for which a Selling
Securityholder may be liable to the Indemnitees under Section 11.2(b) or
otherwise will first be satisfied out of the balance of the Second Escrow
Amount, if any, after all indemnification claims under Section 11.2(a) have
been paid and any Damages in excess of the balance of the Second Escrow Amount,
if any, will be limited solely to the amount set opposite the Selling
Securityholder's name in Schedule 11.3, provided that neither VWP nor DEI shall
be responsible or liable for any such additional amounts; and
57
(g) the liability of VWP and DEI for any and all indemnification
claims under Section 11.2 or any other claims which may have been made against
either of VWP or DEI under this Agreement is limited to their Pro-Rata
interests in the Second Escrow Amount as set out in Schedule 11.3.
(h) For the purposes of determining the liability of the Elliotts
in their capacity as Selling Shareholders pursuant to this Article 11, in
addition to any Securities owned or held directly by each Xxxxxxx as set out in
Part 3.3 of the Disclosure Schedule, each Xxxxxxx shall be deemed to hold BEA
Shares equal to his or her proportionate interest in BEA and shall be deemed to
own any Securities sold by Protec Management Ltd. as set out in Part 4 of the
Disclosure Schedule pursuant to this Agreement in the same proportion, and his
or her liability adjusted upwards accordingly.
11.4 INDEMNIFICATION BY THE ELLIOTTS.
(a) Notwithstanding anything else to the contrary contained in
this Agreement and in this Section 11, the Elliotts shall jointly and severally
hold harmless and indemnify each of the Indemnitees from and against, and shall
compensate and reimburse each of the Indemnitees for: (i) any and all Damages
which are directly or indirectly suffered or incurred by any of the Indemnitees
or to which any of the Indemnitees may otherwise become subject at any time
(regardless of whether or not such Damages relate to any Third Party Claim) and
which arise directly or indirectly from or as a direct or indirect result of,
or are directly or indirectly connected with any Breach of any representation
or warranty made by the Elliotts in Article 4 of this Agreement, (ii) any
Liability relating to the BEA Reorganization; and (iii).any additional costs
and expenses incurred by the Purchaser as a result of the acquisition of the
Xxxxxxx Shares or the BEA Reorganization.
(b) The Elliotts' liability under Section 11.4 shall not be
subject to a minimum claim and shall be unlimited.
(c) Sections 11.5 through and including 11.6(g) shall apply
MUTATIS MUTANDIS to any claims made against the Elliotts pursuant to this
Section 11.4
11.5 NO CONTRIBUTION. Each Selling Securityholder waives, and
acknowledges and agrees that such Selling Securityholder shall not have and
shall not exercise or assert or attempt to exercise or assert, any right of
contribution or right of indemnity or any other right or remedy against SFG
(either directly, indirectly or vicariously through exercising or asserting any
right of contribution or right of indemnity against any of SFG's
Representatives in such Representative's capacity as an officer, employee,
director, agent or representative of SFG) in connection with any
indemnification obligation or any other Liability to which such Selling
Securityholder may become subject under any of the Transactional Agreements or
otherwise in connection with any of the Transactions. Notwithstanding the
foregoing, subject to the limitations in Section 11.3, each Selling
Securityholder (a "PAYING SECURITYHOLDER") shall have and may exercise or
assert, or attempt to exercise or assert, any right of contribution or
indemnity against any such Representative who is a Selling Securityholder in
his, her or its capacity as a Selling Securityholder (a "CONTRIBUTING
SECURITYHOLDER"). For greater certainty, if it is determined that a
Contributing Securityholder must either indemnify a Paying Securityholder or
contribute to any
58
Liability of a Paying Securityholder, the Contributing Securityholder shall not
have and shall not exercise or assert or attempt to exercise or assert, any
right of contribution or right of indemnity or any other right or remedy
against SFG in respect of such indemnification or contribution obligation to
the Paying Securityholder.
11.6 DEFENSE OF THIRD PARTY CLAIMS. In the event of the assertion or
commencement by any Person of any claim or Proceeding (whether against SFG,
against any other Indemnitee or against any other Person) with respect to which
any of the Selling Securityholders (an "INDEMNIFIER") may become obligated to
indemnify, hold harmless, compensate or reimburse any Indemnitee pursuant to
this Article 11 (but subject to the limitations set out in Section 11.3) (a
"THIRD PARTY CLAIM"), such Indemnitee shall give the Agent reasonably prompt
written notice of such Third Party Claim. The Agent shall have the right to
participate in or, by giving notice to that effect to the Indemnitee Party not
later than 30 days after receipt of notice of such Third Party Claim and
subject to the rights of any insurer, to elect to assume the defence of any
Third Party Claim at Indemnifier's own expense and by the Agent's own counsel,
and the Indemnitee shall have the right to participate in the defence of any
Third Party Claim assisted by counsel of its own choosing. The Indemnitee shall
not settle or compromise any Third Party Claim without the prior written
consent of the Agent. If the Agent so elects to assume the defense of any such
claim or Proceeding:
(a) the Agent shall proceed to defend such claim or Proceeding in
a diligent manner with counsel satisfactory to the Purchaser;
(b) the Purchaser shall make available to the Agent any
non-privileged documents and materials in the possession of the Purchaser that
may be necessary to the defense of such claim or Proceeding;
(c) the Agent shall keep the Purchaser informed of all material
developments and events relating to such claim or Proceeding;
(d) the Purchaser shall have the right to participate in the
defense of such claim or Proceeding;
(e) the Agent shall not settle, adjust or compromise such claim or
Proceeding without the prior written consent of the Purchaser; and
(f) the Purchaser may at any time assume the defense of such claim
or Proceeding.
If the Agent does not elect to assume the defense of any such claim or
Proceeding (or if, after the Agent assumes such defense, the Purchaser elects
to assume such defense), the Purchaser may proceed with the defense of such
claim or Proceeding on its own. If the Purchaser so proceeds with the defense
of any such claim or Proceeding on its own:
(i) the Selling Securityholders shall make available to the
Purchaser any documents and materials in the possession or control of any of
the Selling Securityholders that may be necessary to the defense of such claim
or Proceeding;
59
(ii) the Purchaser shall keep the Agent informed of all
material developments and events relating to such claim or Proceeding; and
(iii) the Purchaser shall have the right to settle, adjust or
compromise such claim or Proceeding with the consent of the Agent; PROVIDED,
HOWEVER, that the Agent shall not unreasonably withhold such consent
(g) EXERCISE OF REMEDIES BY INDEMNITEES OTHER THAN PURCHASER. No
Indemnitee (other than the Purchaser or any successor thereto or assign
thereof) shall be permitted to assert any indemnification claim or exercise any
other remedy under this Agreement unless the Purchaser (or any successor
thereto or assign thereof) shall have consented to the assertion of such
indemnification claim or the exercise of such other remedy.
12. MISCELLANEOUS PROVISIONS
12.1 SELLING SECURITYHOLDERS' AGENT.
(a) Subject to Section 12.16, the Selling Securityholders hereby
irrevocably nominate, constitute and appoint Xxxxx Xxxxxxx as the agent and,
other than in the case of the Funds, true and lawful attorney-in-fact of the
Selling Securityholders (the "AGENT"), with full power of substitution, to act
in the name, place and stead of the Selling Securityholders for purposes of
executing any documents and taking any actions that the Agent may, in his sole
discretion, determine to be necessary, desirable or appropriate in connection
with any of the Transactional Agreements or any of the Transactions. Xxxxx
Xxxxxxx hereby accepts his appointment as Agent.
(b) Subject to Section 12.16, the Selling Securityholders (other
than the Funds) hereby grant to the Agent full authority to execute, deliver,
acknowledge, certify and file on behalf of the Selling Securityholders (in the
name of any or all of the Selling Securityholders or otherwise) any and all
documents that the Agent may, in his sole discretion, determine to be
necessary, desirable or appropriate, in such forms and containing such
provisions as the Agent may, in his sole discretion, determine to be
appropriate (including the Closing Certificate and any amendment to or waiver
of rights under any of the Transactional Agreements). Notwithstanding anything
to the contrary contained in any of the Transactional Agreements, but subject
to Section 12.16 hereof:
(i) the Purchaser shall be entitled to deal exclusively
with the Agent on all matters relating to the respective Transactional
Agreements and the respective Transactions (including all matters relating to
any notice to, or any Consent to be given or action to be taken by, any such
Selling Securityholders); and
(ii) each Indemnitee shall be entitled to rely conclusively
(without further evidence of any kind whatsoever) on any document executed or
purported to be executed on behalf of any Selling Securityholder by the Agent,
and on any other action taken or purported to be taken on behalf of any Selling
Securityholder by the Agent, as fully binding upon such Selling Securityholder.
60
(c) The Selling Securityholders (other than the Funds) recognize
and intend that the power of attorney granted in Section 12.1:
(i) is coupled with an interest and is irrevocable;
(ii) may be delegated by the Agent; and
(iii) shall survive the death and, in accordance with the
POWER OF ATTORNEY ACT (British Columbia), the mental infirmity of, each of the
Selling Securityholders.
(d) The Agent shall be entitled to treat as genuine, and as the
document it purports to be, any letter, facsimile, telex or other document that
is believed by her to be genuine and to have been telexed, telegraphed, faxed or
cabled by a Selling Securityholder or to have been signed and presented by a
Selling Securityholder.
(e) If the Agent shall die, become disabled or otherwise be unable
to fulfill her responsibilities hereunder, the Selling Securityholders shall,
within ten days after such death or disability, appoint a successor to the Agent
and immediately thereafter notify the Purchaser of the identity of such
successor. Any such successor shall succeed the Agent as Agent hereunder. If for
any reason there is no Agent at any time, all references herein to the Agent
shall be deemed to refer to the Selling Securityholders.
(f) All expenses incurred by the Agent in connection with the
performance of her duties as Agent shall be borne and paid by the Selling
Securityholders.
12.2 FURTHER ASSURANCES. Each party hereto shall execute and/or cause
to be delivered to each other party hereto such instruments and other documents,
and shall take such other actions, as such other party may reasonably request
(prior to, at or after the Closing) for the purpose of carrying out or
evidencing any of the Transactions.
12.3 FEES AND EXPENSES. Except as expressly provided otherwise in this
Agreement, each party hereto shall pay its own expenses incident to preparing
for, entering into and carrying out this Agreement.
12.4 ATTORNEYS' (LEGAL) FEES. If any legal action or other legal
proceeding relating to any of the Transactional Agreements or the enforcement of
any provision of any of the Transactional Agreements is brought against any
party hereto, the prevailing party shall be entitled to recover reasonable
attorneys' (legal) fees, costs and disbursements (in addition to any other
relief to which the prevailing party may be entitled). The prevailing party's
entitlement to recover such fees and disbursements shall be subject to Section
11.3.
12.5 CURRENCY; EXCHANGE RATE. Except as expressly provided otherwise in
this Agreement, all currency denominations shall be in United States dollars.
Except as expressly provided otherwise in this Agreement, any conversion of
Canadian dollar amounts to United States dollar amounts for any purposes in
connection with this Agreement shall be done using the spot exchange rate quoted
in the latest edition of THE WALL STREET JOURNAL available before the date on
which any payment must be made.
61
12.6 NOTICES. Any notice or other communication required or permitted
to be delivered to any party under this Agreement shall be in writing and shall
be deemed properly delivered, given and received when delivered (by hand, by
registered mail, by courier or express delivery service or by facsimile) to the
address or facsimile number set forth beneath the name of such party below (or
to such other address or facsimile number as such party shall have specified in
a written notice given to the other parties hereto):
if to SFG:
SFG Technologies, Inc.
-------------------------
-------------------------
Attention: Xxxxx Xxxxxxx
Facsimile:
---------------------------------
if to any of the Selling Securityholders:
------------------------
------------------------
Attention:
---------------------------------
Facsimile:
---------------------------------
if to the Agent:
J. Xxxxx Xxxxxxx as Agent of certain Selling
Securityholders
2600 - 0000
Xxxx Xxxxxxx Xxxxxx
Xxxxxxxxx, X.X.
Facsimile: (000) 000-0000
if to the Purchaser:
Xxxxxxx.xxx, Inc.
c/o The Titan Corporation
0000 Xxxxxxx Xxxx Xxxx
Xxx Xxxxx, XX 00000-0000
Attention: Xxxxx Xxxxxxx and Xxxxxx Xxxx
Facsimile: (000) 000-0000
WITH A COPY TO
The Titan Corporation
0000 Xxxxxxx Xxxx Xxxx
Xxx Xxxxx, XX 00000-0000
Attention: Xxxxxxxx X. Xxxxxxxx
Facsimile: (000) 000-0000
62
if to the Funds, as set out in Exhibit "F".
12.7 PUBLICITY. Subject to any disclosure required to be made under any
Legal Requirements, without limiting the generality of anything contained in
Section 6.10, on and at all times after the Closing Date:
(a) no press release or other publicity concerning any of the
Transactions shall be issued or otherwise disseminated by or on behalf of any of
the Selling Securityholders, and the Selling Securityholders shall continue to
keep the existence and terms of this Agreement and the other Transactional
Agreements strictly confidential;
(b) each Selling Securityholder shall keep strictly confidential,
and shall not use or disclose to any other Person, any non-public document or
other information in such Selling Securityholder's possession that relates
directly or indirectly to the business of SFG, the Purchaser or any affiliate of
the Purchaser; and
(c) none of the Selling Securityholders shall make any public
disclosure or comment about, concerning, referencing or alluding to any other
Selling Securityholder (or its Representatives) in connection with its
investment or participation in SFG prior to the Closing (other than that such
Selling Securityholder participated in the Transaction) without the prior
written consent of that Selling Securityholder.
(d)
12.8 WOF & VWP PUBLICITY Notwithstanding Sections 6.10 and 12.7, each
of WOF and VWP shall be entitled to make public disclosure of the sale of its
shares in SFG, its gain on the disposition of its interest in SFG as
contemplated herein, its rate of return on its investment in SFG resulting from
the transactions contemplated herein, and provide a general description of the
business of SFG in its promotional literature or otherwise, provided that it
shall not mention the name of any other party hereto (other than SFG) without
such party's prior written consent, unless such information comes into the
public domain other than as a result of a breach of Sections 6.10 and 12.7.
12.9 TIME OF THE ESSENCE. Time is of the essence of this Agreement.
12.10 HEADINGS. The underlined headings contained in this Agreement are
for convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.
12.11 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall constitute an original and all of which, when
taken together, shall constitute one agreement.
12.12 GOVERNING LAW; VENUE.
(a) This Agreement shall be construed in accordance with, and
governed in all respects by, the internal laws of the Province of British
Columbia (without giving effect to principles of conflicts of laws).
63
(b) Except where this Agreement specifically provides for
arbitration, any legal action or other legal proceeding relating to this
Agreement or the enforcement of any provision of this Agreement may be brought
or otherwise commenced in any of the courts of the Province of British Columbia.
Each party to this Agreement:
(i) expressly and irrevocably consents and submits to the
jurisdiction of each court located in the Province of British Columbia (and each
appellate court located in the Province of British Columbia) in connection with
any such legal proceeding;
(ii) agrees that each court located in the Province of
British Columbia shall be deemed to be a convenient forum; and
(iii) agrees not to assert (by way of motion, as a defense or
otherwise), in any such legal proceeding commenced in any court in the Province
of British Columbia, any claim that such party is not subject personally to the
jurisdiction of such court, that such legal proceeding has been brought in an
inconvenient forum, that the venue of such proceeding is improper or that this
Agreement or the subject matter of this Agreement may not be enforced in or by
such court.
(c) The Selling Securityholders irrevocably constitute and appoint
the Agent as their agent to receive service of process in connection with any
legal proceeding relating to this Agreement or the enforcement of any provision
of this Agreement.
(d) The Selling Securityholders irrevocably waive the right to a
jury trial in connection with any legal proceeding relating to this Agreement or
the enforcement of any provision of this Agreement.
12.13 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon: SFG
and its successors and assigns (if any); the Selling Securityholders and their
respective personal representatives, executors, administrators, estates, heirs,
successors and assigns (if any); and the Purchaser and its successors and
assigns (if any). This Agreement shall inure to the benefit of: SFG; the Selling
Securityholders; the Purchaser; the other Indemnitees (subject to Section 12);
and the respective successors and assigns (if any) of the foregoing. The
Purchaser may freely assign any or all of its rights under this Agreement
(including its indemnification rights under Section 11), in whole or in part, to
any other Person as part of or in connection with any merger, consolidation,
business combination, share exchange, asset sale, reorganization or similar
transaction involving the Purchaser and any of its affiliates without obtaining
the consent or approval of any other party hereto or of any other Person.
12.14 REMEDIES CUMULATIVE; SPECIFIC PERFORMANCE. The rights and
remedies of the parties hereto shall be cumulative (and not alternative). Each
Selling Securityholder agrees that:
(a) in the event of any Breach or threatened Breach by such
Selling Securityholder of any covenant, obligation or other provision set forth
in this Agreement, the Purchaser shall be entitled (in addition to any other
remedy that may be available to it) to (i) a decree or order of specific
performance or mandamus to enforce the observance and performance of such
covenant, obligation or other provision, and (ii) an injunction restraining such
Breach or threatened Breach; and
64
(b) neither the Purchaser nor any other Indemnitee shall be
required to provide any bond or other security in connection with any such
decree, order or injunction or in connection with any related action or
Proceeding.
12.15 WAIVER.
(a) No failure on the part of any Person to exercise any power,
right, privilege or remedy under this Agreement, and no delay on the part of any
Person in exercising any power, right, privilege or remedy under this Agreement,
shall operate as a waiver of such power, right, privilege or remedy; and no
single or partial exercise of any such power, right, privilege or remedy shall
preclude any other or further exercise thereof or of any other power, right,
privilege or remedy.
(b) No Person shall be deemed to have waived any claim arising out
of this Agreement, or any power, right, privilege or remedy under this
Agreement, unless the waiver of such claim, power, right, privilege or remedy is
expressly set forth in a written instrument duly executed and delivered on
behalf of such Person; and any such waiver shall not be applicable or have any
effect except in the specific instance in which it is given.
12.16 AMENDMENTS. This Agreement may not be amended, modified, altered
or supplemented other than by means of a written instrument duly executed and
delivered on behalf of the Purchaser and the Agent. Notwithstanding anything
else contained in this Agreement, the Agent shall have no right to amend Article
11 of this Agreement.
12.17 SEVERABILITY. In the event that any provision of this Agreement,
or the application of any such provision to any Person or set of circumstances,
shall be determined to be invalid, unlawful, void or unenforceable to any
extent, the remainder of this Agreement, and the application of such provision
to Persons or circumstances other than those as to which it is determined to be
invalid, unlawful, void or unenforceable, shall not be impaired or otherwise
affected and shall continue to be valid and enforceable to the fullest extent
permitted by law.
12.18 PARTIES IN INTEREST. Except for the provisions of Section 11
hereof, none of the provisions of this Agreement is intended to provide any
rights or remedies to any Person other than the parties hereto and their
respective successors and assigns (if any).
12.19 ENTIRE AGREEMENT. The Transactional Agreements set forth the
entire understanding of the parties relating to the subject matter thereof and
supersede all prior agreements and understandings among or between any of the
parties relating to the subject matter thereof.
12.20 CONSTRUCTION.
(a) For purposes of this Agreement, whenever the context requires:
the singular number shall include the plural, and vice versa; the masculine
gender shall include the feminine and neuter genders; the feminine gender shall
include the masculine and neuter genders; and the neuter gender shall include
the masculine and feminine genders.
65
(b) The parties hereto agree that any rule of construction to the
effect that ambiguities are to be resolved against the drafting party shall not
be applied in the construction or interpretation of this Agreement.
(c) As used in this Agreement, the words "include" and
"including," and variations thereof, shall not be deemed to be terms of
limitation, but rather shall be deemed to be followed by the words "without
limitation."
(d) Except as otherwise indicated, all references in this
Agreement to "Sections" and "Exhibits" are intended to refer to Sections of this
Agreement and Exhibits to this Agreement.
12.21 NEGOTIATION OF DISPUTES. If a dispute arises between the parties
relating to the interpretation or performance of this Agreement or the grounds
for the termination thereof, and the parties cannot resolve the dispute within
thirty days of a written request by either party to the other, such dispute
shall be referred to the Chief Executive Officer, Chief Financial Officer or
General Counsel of the Purchaser and the Agent for resolution. Such persons
shall hold a meeting to attempt in good faith to negotiate a resolution of the
dispute prior to pursuing other available remedies. If within 10 business days
after such meeting, the Chief Executive Officer, Chief Financial Officer or
General Counsel of the Purchaser and the Agent have not succeeded in negotiating
a resolution of the dispute, such dispute may be resolved through arbitration
pursuant to Section 12.22.
12.22 ARBITRATION.
(a) Disputes that have been unsuccessfully resolved pursuant to
Section 12.20 may be submitted to final and binding arbitration conducted by 1
arbitrator agreed upon by the Purchaser and the Agent, or if no such arbitrator
is agreed upon within 10 days following a party giving notice of its desire to
arbitrate a dispute, then by 3 arbitrators, 1 selected by the Purchaser and 1
selected by the Agent, and the 2 arbitrators selected by the Purchaser and the
Agent shall select a third arbitrator.
(b) The arbitrator(s) shall set a limited time period and
establish procedures designed to reduce the cost and time for discovery of
information relating to any dispute while allowing the parties an opportunity,
adequate as determined in the sole judgement of the arbitrator(s), to discover
relevant information from the opposing parties about the subject matter of the
dispute. The arbitrators shall rule upon motions to compel, limit or allow
discovery as they shall deem appropriate given the nature and extent of the
disputed claim. The arbitrators shall also have the authority to impose
sanctions, including legal fees and other costs incurred by the parties, to the
same extent as a court of law or equity, should the arbitrators determine that
discovery was sought without substantial justification or that discovery was
refused or objected to by a party without substantial justification. The
decision of the arbitrator or a majority of the 3 arbitrators, as the case may
be, as to the validity and amount of any claim shall be binding and conclusive
upon the parties to this Agreement. Such decision shall be written and shall be
supported by written findings of fact and conclusions regarding the dispute
which shall set forth the award, judgement, decree or order awarded by the
arbitrator(s).
66
(c) Judgement upon any award rendered by the arbitrators may be
entered in any court having competent jurisdiction. The place of arbitration
shall be Vancouver, British Columbia under the British Columbia International
Commercial Arbitration Centre in accordance with its Rules.
12.23 INDEPENDENT LEGAL ADVICE. Each of the parties to this Agreement
acknowledges and agree that Farris, Vaughan, Xxxxx & Xxxxxx has acted as counsel
only to the Companies, that Xxxxx, White & Xxxxxxxx has acted as counsel only to
Working Opportunity Fund (EVCC) Ltd. ("WOF") and the Agent, that XxXxxxxx
Xxxxxxxx has acted as counsel only SCC and that Xxxxxxxx & Xxxxxxx has acted as
counsel only to the Elliotts, BEA and certain other Selling Securityholders and
that Farris, Vaughan, Xxxxx & Murphy, Irwin, White & Xxxxxxxx, Xxxxxxxx &
Xxxxxxx and XxXxxxxx Xxxxxxxx are not protecting the rights and interests of any
other party to this Agreement or the other Transaction Documents. The other
parties to this Agreement acknowledge and agree that SFG, Farris, Vaughan, Xxxxx
& Murphy, Irwin, White & Xxxxxxxx, Xxxxxxxx & Xxxxxxx and XxXxxxxx Xxxxxxxx have
given them the opportunity to seek, and have recommended that such parties
obtain, independent legal advice with respect to the subject matter of this
Agreement and, further, each of the other parties hereby represent and warrant
to SFG, Farris, Vaughan, Xxxxx & Murphy, Irwin, White & Xxxxxxxx, Xxxxxxxx &
Xxxxxxx and XxXxxxxx Xxxxxxxx that such party has sought independent legal
advice or waives such advice.
[THIS SPACE INTENTIONALLY LEFT BLANK]
The parties hereto have caused this Agreement to be executed and
delivered as of December __, 1999.
------------------------------------------------------- -------------------------------------------------------
PURCHASER: XXXXXXX.XXX, INC.,
a Delaware corporation
By:
----------------------------------------
Name: Xxxxx Xxxxxxx
Title: Chief Executive Officer &
President
------------------------------------------------------- ------------------------------------------------------
SFG: SFG TECHNOLOGIES INC.,
a corporation organized and existing under the
laws of British Columbia, Canada
By:
----------------------------------------
Name:
Title:
By:
----------------------------------------
Name:
Title:
AGENT: ----------------------------------------
XXXXX XXXXXXX
2
SELLING SECURITYHOLDERS:
By:
-------------------------------
Xxxx Seinen, as duly appointed attorney
for those owning Class A Common Shares
Discovery Enterprises Inc.
By:
-------------------------------
Name:
Title:
Working Opportunity Fund (EVCC) Ltd.
by its manager Growth Works Capital Ltd.
By:
-------------------------------
Name:
Title:
Ventures West III - Canada Limited Partnership, by its
General Partner, Ventures West Management III Ltd.
By:
-------------------------------
Name:
Title:
By:
-------------------------------
Name:
Title:
SCC Canada Inc., acting as agent for and on behalf
of Finova (Canada) Capital Corporation and
The Toronto Dominion Bank
By:
-------------------------------
Name:
Title:
3
OPTION HOLDERS:
EXHIBIT A
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit A):
ACQUISITION TRANSACTION. "Acquisition Transaction" shall mean any
transaction involving:
(a) the sale or other disposition of all or any portion of
SFG's business or assets (other than in the Ordinary Course of
Business);
(b) the issuance, sale or other disposition of (i) any capital
stock of SFG, (ii) any option, call, warrant or right (whether or not
immediately exercisable) to acquire any capital stock of SFG, or (iii)
any security, instrument or obligation that is or may become
convertible into or exchangeable for any capital stock of SFG; or
(c) any merger, consolidation, business combination, share
exchange, reorganization or similar transaction involving SFG.
AGENT. "Agent" shall have the meaning specified in Section 12.1 of the
Agreement.
AGREEMENT. "Agreement" shall mean the Stock Purchase Agreement to which
this Exhibit A is attached (including the Disclosure Schedule), as it may be
amended from time to time.
BEA ESCROW AGREEMENT. "BEA Escrow Agreement" shall mean the certain BEA
Escrow Agreement of even date herewith between the Purchaser, BEA, Protec
Management Ltd. and the Escrow Agent.
BEST EFFORTS. "Best Efforts" shall mean the efforts that a prudent
Person desiring to achieve a particular result would use in order to ensure that
such result is achieved as expeditiously as possible.
BREACH. There shall be deemed to be a "Breach" of a representation,
warranty, covenant, obligation or other provision if there is or has been (a)
any inaccuracy in or breach of, or any failure to comply with or perform, such
representation, warranty, covenant, obligation or other provision, or (b) any
claim (by any Person) or other circumstance that is inconsistent with such
representation, warranty, covenant, obligation or other provision; and the term
"Breach" shall be deemed to refer to any such inaccuracy, breach, failure, claim
or circumstance.
CANADIAN BENEFIT PLANS. "Canadian Benefit Plans" shall have the meaning
specified in Section 2.21(a) of this Agreement.
CANADIAN REGISTERED PENSION PLANS. "Canadian Registered Pension Plans"
shall have the meaning specified in Section 2.21(d) of this Agreement.
CERCLA. "CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act.
CLOSING. "Closing" shall have the meaning specified in Section 1.4(a)
of the Agreement.
CLOSING CERTIFICATE. "Closing Certificate" shall have the meaning
specified in Section 1.4(c)(xiv) of the Agreement.
CLOSING DATE. "Closing Date" shall have the meaning specified in
Section 1.4(a) of the Agreement.
CODE. "Code" shall mean the Internal Revenue Code of 1986.
COMPANIES. "Companies" shall mean SFG and the Subsidiaries.
COMPANY PLAN. "Company Plan" shall mean any Current Benefit Plan or
Past Benefit Plan.
COMPARABLE ENTITIES. "Comparable Entities" shall mean Entities (other
than the Companies) that are engaged in businesses similar to the Companies'
business and are of similar size and stage of development as SFG and the
Companies considered as a whole.
CONSENT. "Consent" shall mean any approval, consent, ratification,
permission, exemption, waiver or authorization (including any Governmental
Authorization).
CONTRACT. "Contract" shall mean any written, oral, implied or other
agreement, contract, understanding, arrangement, instrument, note, guaranty,
indemnity, representation, warranty, deed, assignment, power of attorney,
certificate, purchase order, work order, insurance policy, benefit plan,
commitment, covenant, assurance or undertaking of any nature.
CURRENT BENEFIT PLAN. "Current Benefit Plan" shall mean any Employee
Benefit Plan that is currently in effect and:
(a) that was established or adopted by any of the Companies or
any ERISA Affiliate or is maintained or sponsored by any of the
Companies;
(b) in which any of the Companies participate;
(c) with respect to which any of the Companies or any ERISA
Affiliate is or may be required or permitted to make any contribution;
or
(d) with respect to which any of the Companies or any ERISA
Affiliate is or may become subject to any Liability.
DAMAGES. "Damages" shall include any loss, damage, injury, decline in
value, lost opportunity, Liability, claim, demand, settlement, judgment, award,
fine, penalty, Tax, fee (including any legal fee, expert fee, accounting fee or
advisory fee), charge, cost (including any cost of investigation) or expense of
any nature.
DEI. "DEI" means Discovery Enterprises Inc.
DISCLOSURE SCHEDULE. "Disclosure Schedule" shall mean the schedule
(dated as of the date of the Agreement) delivered to the Purchaser on behalf of
SFG and the Selling Securityholders, a copy of which is attached to the
Agreement and incorporated in the Agreement by reference.
EMPLOYEE BENEFIT PLAN. "Employee Benefit Plan" shall have the meaning
specified in Section 3(3) of ERISA.
ENCUMBRANCE. "Encumbrance" shall mean any lien, pledge, hypothecation,
charge, mortgage, security interest, encumbrance, equity, trust, equitable
interest, claim, preference, right of possession, lease, tenancy, license,
encroachment, covenant, infringement, interference, Order, proxy, option, right
of first refusal, preemptive right, community property interest, legend, defect,
impediment, exception, reservation, limitation, impairment, imperfection of
title, condition or restriction of any nature (including any restriction on the
voting of any security, any restriction on the transfer of any security or other
asset, any restriction on the receipt of any income derived from any asset, any
restriction on the use of any asset and any restriction on the possession,
exercise or transfer of any other attribute of ownership of any asset).
ENTITY. "Entity" shall mean any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, cooperative, foundation, society,
political party, union, company (including any limited liability company or
joint stock company), firm or other enterprise, association, organization or
entity.
ENVIRONMENTAL LAWS. "Environmental Laws" shall mean all applicable
statutes, regulations, ordinances, by-laws, and codes and all international
treaties and agreements, now or hereafter in existence in Canada (whether
federal, provincial or municipal) and in the United States (whether federal,
state or local) relating to the protection and preservation of the environment,
occupational health and safety, product safety, product liability or Hazardous
Material, including without limitation the CANADIAN ENVIRONMENTAL PROTECTION
ACT, the Waste Management Act (British Columbia), CERCLA, the Clean Air Act, the
Federal Water Pollution Control Act, the Solid Waste Disposal Act, the Federal
Insecticide, Fungicide and Rodenticide Act, and the California Safe Drinking
Water and Toxic Enforcement Act, all as amended from time to time.
ENVIRONMENTAL PERMITS. "Environmental Permits" shall include all
orders, permits, certificates, approvals, consents, registrations and licenses
issued by any authority of competent jurisdiction under Environmental Laws.
ERISA. "ERISA" shall mean the Employee Retirement Income Security Act
of 1974.
ERISA AFFILIATE. "ERISA Affiliate" shall mean any Person that is, was
or would be treated as a single employer with any of the Companies under Section
414 of the Code.
ESCROW AGENT. "Escrow Agent" means the Escrow Agent named in the Escrow
Agreement.
ESCROW AGREEMENT. "Escrow Agreement" shall mean that certain Escrow
Agreement of even date herewith among Purchaser, the Selling Securityholders,
the Agent and the Escrow Agent.
EXCLUDED CONTRACT. "Excluded Contract" shall mean any SFG Contract
that:
(a) SFG has entered into in the Ordinary Course of Business;
(b) is identical in all material respects to one of the
Standard Form Agreements;
(c) has a term of less than 90 days or may be terminated by
SFG (without penalty or damages) within 90 days after the delivery of a
termination notice by SFG; and
(d) does not contemplate or involve the payment of cash or
other consideration in an amount or having a value in excess of
$10,000.
FUNDS. "Funds" shall mean, collectively, Discovery Enterprises Inc.,
Working Opportunity Fund (EVCC) Ltd., Ventures West III - Canada Limited
Partnership and SCC Canada Inc.
GAAP. "GAAP" shall mean Canadian generally accepted accounting
principles, applied on a consistent basis throughout the periods covered.
GOVERNMENTAL AUTHORIZATION. "Governmental Authorization" shall mean
any:
(a) permit, license, certificate, franchise, concession,
approval, consent, ratification, permission, clearance, confirmation,
endorsement, waiver, certification, designation, rating, registration,
qualification or authorization that is, has been or may in the future
be issued, granted, given or otherwise made available by or under the
authority of any Governmental Body or pursuant to any Legal
Requirement; or
(b) right under any Contract with any Governmental Body.
GOVERNMENT BID. "Government Bid" shall mean any quotation, bid or
proposal submitted to any Governmental Body or any proposed prime contractor or
higher-tier subcontractor of any Governmental Body.
GOVERNMENTAL BODY. "Governmental Body" shall mean any:
(a) nation, principality, state, commonwealth, province,
territory, county, municipality, district or other jurisdiction of any
nature;
(b) federal, state, provincial, local, municipal, foreign or
other government;
(c) governmental or quasi-governmental authority of any nature
(including any governmental division, subdivision, department, agency,
bureau, branch, office,
commission, council, board, instrumentality, officer, official,
representative, organization, unit, body or Entity and any court or
other tribunal);
(d) multi-national organization or body; or
(e) individual, Entity or body exercising, or entitled to
exercise, any executive, legislative, judicial, administrative,
regulatory, police, military or taxing authority or power of any
nature.
GOVERNMENT CONTRACT. "Government Contract" shall mean any prime
contract, subcontract, letter contract, purchase order or delivery order
executed or submitted to or on behalf of any Governmental Body or any prime
contractor or higher-tier subcontractor, or under which any Governmental Body or
any such prime contractor otherwise has or may acquire any right or interest.
HAZARDOUS MATERIAL. "Hazardous Material" shall include:
(a) any petroleum, waste oil, crude oil, asbestos, urea
formaldehyde or polychlorinated biphenyl;
(b) any waste, gas or other substance or material that is
explosive or radioactive;
(c) any "hazardous substance," "pollutant," "contaminant,"
"hazardous waste," "regulated substance," "hazardous chemical", "toxic
chemical", "hazardous product", "dangerous goods", "waste", "toxic
substance", "deleterious substance" or words of similar import under
any Environmental Laws, including without limitation, CERCLA, any other
so-called "superfund" or "superlien" law, the Resource Conservation
Recovery Act, the Federal Water Pollution Control Act, the Toxic
Substances Control Act, the Emergency Planning and Community
Right-to-Know Act;
(d) any other substance or material (regardless of physical
form) or form of energy that is subject to any Legal Requirement and/or
Environmental Laws which regulates or establishes standards of conduct
in connection with, or which otherwise relates to, the protection of
human health, plant life, animal life, natural resources, property or
the enjoyment of life or property from the presence in the environment
of any solid, liquid, gas, odor, noise or form of energy; and
(e) any compound, mixture, solution, product or other
substance or material that contains any substance or material referred
to in clause "(a)", "(b)", "(c)" or "(d)" above.
INDEMNITEES. "Indemnitees" shall mean the following Persons:
(a) the Purchaser;
(b) the Purchaser's current and future affiliates (including
SFG);
(c) the respective Representatives of the Persons referred to
in clauses "(a)" and "(b)" above; and
(d) the respective successors and assigns of the Persons
referred to in clauses "(a)", "(b)" and "(c)" above;
PROVIDED, HOWEVER, that (i) SFG shall not be entitled to exercise any
rights as an Indemnitee prior to the Closing, and (ii) the Selling
Securityholders shall not be deemed to be "Indemnitees."
KNOWLEDGE. An individual shall be deemed to have "Knowledge" of a
particular fact or other matter if:
(a) such individual is actually aware of such fact or other
matter; or
(b) a prudent individual could be expected to discover or
otherwise become aware of such fact or other matter in the course of
conducting a diligent and comprehensive investigation concerning the
truth or existence of such fact or other matter.
SFG shall be deemed to have "Knowledge" of a particular fact or other
matter if any officer, employee or other Representative of SFG has Knowledge of
such fact or other matter.
LEASED PREMISES. "Leased Premises" shall have the meaning specified in
Section 2.11(a) of the Agreement.
LEASES. "Leases" shall have the meaning specified in Section 2.11(a) of
the Agreement.
LEGAL REQUIREMENT. "Legal Requirement" shall mean any federal, state,
local, municipal, foreign or other law, statute, legislation, constitution,
principle of common law, resolution, ordinance, code, edict, decree,
proclamation, treaty, convention, rule, regulation, ruling, directive,
pronouncement, requirement, specification, determination, decision, opinion or
interpretation that is, has been or may in the future be issued, enacted,
adopted, passed, approved, promulgated, made, implemented or otherwise put into
effect by or under the authority of any Governmental Body.
LIABILITY. "Liability" shall mean any debt, obligation, duty or
liability of any nature (including any unknown, undisclosed, unmatured,
unaccrued, unasserted, contingent, indirect, conditional, implied, vicarious,
derivative, joint, several or secondary liability), regardless of whether such
debt, obligation, duty or liability would be required to be disclosed on a
balance sheet prepared in accordance with GAAP and regardless of whether such
debt, obligation, duty or liability is immediately due and payable.
ORDER. "Order" shall mean any:
(a) order, judgment, injunction, edict, decree, ruling,
pronouncement, determination, decision, opinion, verdict, sentence,
subpoena, writ or award that is, has been or may in the future be
issued, made, entered, rendered or otherwise put into effect
by or under the authority of any court, administrative agency or other
Governmental Body or any arbitrator or arbitration panel; or
(b) Contract with any Governmental Body that is, has been or
may in the future be entered into in connection with any Proceeding.
ORDINARY COURSE OF BUSINESS. An action taken by or on behalf of SFG
shall not be deemed to have been taken in the "Ordinary Course of Business"
unless:
(a) such action is recurring in nature, is consistent with
SFG's past practices and is taken in the ordinary course of SFG's
normal day-to-day operations;
(b) such action is taken in accordance with sound and prudent
business practices;
(c) such action is not required to be authorized by SFG's
shareholders, SFG's board of directors or any committee of SFG's board
of directors and does not require any other separate or special
authorization of any nature; and
(d) such action is similar in nature and magnitude to actions
customarily taken, without any separate or special authorization, in
the ordinary course of the normal day-to-day operations of other
Entities that are engaged in businesses similar to SFG's business.
PAST BENEFIT PLAN. "Past Benefit Plan" shall mean any Employee Benefit
Plan (other than a Current Benefit Plan):
(a) of which any of the Companies or any ERISA Affiliate has
ever been a "plan sponsor" (as defined in Section 3(16)(B) of ERISA) or
that otherwise has at any time been established, adopted, maintained or
sponsored by any of the Companies or by any ERISA Affiliate;
(b) in which any of the Companies or any ERISA Affiliate has
ever participated;
(c) with respect to which any of the Companies or any ERISA
Affiliate has ever made, or has ever been required or permitted to
make, any contribution; or
(d) with respect to which any of the Companies or any ERISA
Affiliate has ever been subject to any Liability.
PERSON. "Person" shall mean any individual, Entity or Governmental
Body.
PRE-CLOSING PERIOD. "Pre-Closing Period" shall mean the period
commencing as of the date of the Agreement and ending on the Closing Date.
PREFERRED SHAREHOLDERS. "Preferred Shareholders" shall mean all the
registered and beneficial holders of the Class C Preferred Shares and the Class
F Preferred Shares of SFG.
PROCEEDING. "Proceeding" shall mean any action, suit, litigation,
arbitration, proceeding (including any civil, criminal, administrative,
investigative or appellate proceeding and any informal proceeding), prosecution,
contest, hearing, inquiry, inquest, audit, examination or investigation that is,
has been or may in the future be commenced, brought, conducted or heard by or
before, or that otherwise has involved or may involve, any Governmental Body or
any arbitrator or arbitration panel.
PROPRIETARY ASSET. "Proprietary Asset" shall mean any patent, patent
application, trademark (whether registered or unregistered and whether or not
relating to a published work), trademark application, trade name, fictitious
business name, service xxxx (whether registered or unregistered), service xxxx
application, copyright (whether registered or unregistered), copyright
application, maskwork, maskwork application, trade secret, know-how, franchise,
system, computer software, invention, design, blueprint, proprietary product,
technology, proprietary right or other intellectual property right or intangible
asset.
PRO RATA. "Pro Rata" means the percentage that the number of Securities
a Selling Securityholder owned immediately prior to the Closing of the
Transaction is of the total number of Securities at that time.
PURCHASE PRICE. "Purchase Price" shall have the meaning specified in
Section 1.2 of the Agreement.
PURCHASER. "Purchaser" shall mean Cayenta, Inc., a Delaware
corporation.
RELATED PARTY. Each of the following shall be deemed to be a "Related
Party":
(a) each of the Selling Securityholders;
(b) each individual who is, or who has at any time been, an
officer or director of any Company;
(c) each member of the family of each of the individuals
referred to in clauses "(a)" and "(b)" above; and
(d) any Entity (other than SFG) in which any one of the
individuals referred to in clauses "(a)", "(b)" and "(c)" above holds
(or in which more than one of such individuals collectively hold),
beneficially or otherwise, a material voting, proprietary or equity
interest.
REPRESENTATIVES. "Representatives" shall mean officers, directors,
employees, agents and representatives.
RESIDUAL SHARES. "Residual Shares" shall means the 400 Class A Common
Shares owned by Xxxx Xxxxx , the 200 Class A Common Shares owned by Xxxxx
Xxxxxx, and the 1177.94 Class A Common Shares owned by Investor Co, in trust for
Xxxxx Sambamdam.
SCHEDULED CLOSING TIME. "Scheduled Closing Time" shall have the meaning
specified in Section 1.4(a) of the Agreement.
SECURITIES. "Securities" shall have the meaning specified in Recital
"B" to the Agreement.
SELLING SECURITYHOLDERS. "Selling Securityholders" shall have the
meaning specified in the introductory paragraph of the Agreement and, for
greater certainty, shall include the Elliotts in their capacity as sellers of
the Xxxxxxx Shares for the purposes of Sections 6, 8, 9, 10, 11.1 to 11.6(g) and
12.
SELLING SHAREHOLDERS. "Selling Shareholders" shall have the meaning
specified in the introductory paragraph of the Agreement.
SFG. "SFG" shall mean SFG Technologies, Inc., a corporation organized
and existing under the laws of Canada.
SFG CONTRACT. "SFG Contract" shall mean any Contract:
(a) to which any Company is a party;
(b) by which any Company or any of its assets is or may become
bound or under which any Company has, or may become subject to, any
obligation; or
(c) under which any Company has or may acquire any right or
interest.
SFG FINANCIAL STATEMENTS. "SFG Financial Statements" shall have the
meaning specified in Section 2.4(a) of the Agreement.
SFG RETURNS. "SFG Returns" shall have the meaning specified in Section
2.18(a) of the Agreement.
SECURITYHOLDER RELEASE. "Securityholder Release" shall mean the
Securityholder Release being executed by each of the Selling Securityholders
contemporaneously with the execution and delivery of the Agreement.
SHARES. "Shares" shall have the meaning specified in Recital "A" to the
Agreement.
SPECIFIED REPRESENTATIONS. "Specified Representations" shall mean the
representations and warranties set forth in Sections 2.1, 2.3, 2.18, 2.22, 2.28
and 3.
STANDARD FORM AGREEMENTS. "Standard Form Agreements" shall mean the
forms of agreements attached as Appendices 2.13(x) and 2.13(y) to the Disclosure
Schedule.
SUBSIDIARIES. "Subsidiaries" shall mean the Entities listed on Part 2.1
of the Disclosure Schedule.
TAX. "Tax" shall mean any tax (including any income tax, franchise tax,
capital gains tax, estimated tax, gross receipts tax, value-added tax, surtax,
excise tax, ad valorem tax, transfer tax, stamp tax, sales tax, goods and
services tax, use tax, property tax, business tax, occupation tax, inventory
tax, occupancy tax, withholding tax or payroll tax), levy, assessment, tariff,
impost, imposition, toll, duty (including any customs duty), deficiency or fee,
and any related charge or amount (including any fine, penalty or interest), that
is, has been or may in the future be (a) imposed, assessed or collected by or
under the authority of any Governmental Body, or (b) payable pursuant to any
tax-sharing agreement or similar Contract.
TAX ESCROW AGREEMENT. "Tax Escrow Agreement" shall mean the certain Tax
Escrow Agreement of even date herewith among The Purchaser, the US Sellers, the
Agent and The Escrow Agent.
TAX RETURN. "Tax Return" shall mean any return (including any
information return), report, statement, declaration, estimate, schedule, notice,
notification, form, election, certificate or other document or information that
is, has been or may in the future be filed with or submitted to, or required to
be filed with or submitted to, any Governmental Body in connection with the
determination, assessment, collection or payment of any Tax or in connection
with the administration, implementation or enforcement of or compliance with any
Legal Requirement relating to any Tax.
TRANSACTIONAL AGREEMENTS. "Transactional Agreements" shall mean:
(a) the Agreement;
(b) the Securityholder Releases;
(c) the Option Termination Agreements;
(d) the Noncompetition Agreements referred to in Section
1.4(c)(viii) of the Agreement;
(e) the Escrow Agreement;
(f) the Tax Escrow Agreement;
(g) the BEA Escrow Agreement; and
(h) the Closing Certificate.
TRANSACTIONS. "Transactions" shall mean (a) the execution and delivery
of the respective Transactional Agreements, and (b) all of the transactions
contemplated by the respective Transactional Agreements, including:
(i) the sale of the Securities by the Selling Securityholders
to the Purchaser in accordance with the Agreement; and
(ii) the performance by SFG, the Selling Securityholders and
the Purchaser of their respective obligations under the Transactional Agreements
and the exercise by SFG, the Selling Securityholders and the Purchaser of their
respective rights under the Transactional Agreements.
UNAUDITED INTERIM BALANCE SHEET. "Unaudited Interim Balance Sheet"
shall have the meaning specified in Section 2.4(a)(ii) of the Agreement.
US SELLER. "US Seller" shall mean any of the Selling Securityholders
identified in Part 2.33 of the Disclosure Schedule as being a non-resident of
Canada within the meaning of the Income Tax Act (Canada).
VIRUSES. "Viruses" shall mean any computer code designed to disrupt,
disable, harm, or otherwise impede in any manner, the operation of the computer
program, or any other associated software, firmware, hardware, or network
(including local area or wide-area networks), in a manner not intended by the
creator(s) of such software, firmware, hardware, or network.
VWP. "VWP" shall mean Ventures West III - Canada Limited Partnership
YEAR 2000 COMPLIANT. "Year 2000 Compliant" shall mean, in regard to any
product or internal system, that such product or internal system can
individually continue to be used normally and to operate successfully (both in
functionality and performance) over the transition into the twenty first century
when used in accordance with the documentation relating to such product or
internal system, including being able to, before, on and after January 1, 2000
substantially conform to the following: (i) use logic pertaining to dates that
allow users to identify and/or use the century portion of any date fields
without special processing; and (ii) respond to all date elements and date input
so as to resolve any ambiguity as to century in a disclosed, defined and
pre-determined manner and provide date information in ways that are unambiguous
as to century, either by permitting or requiring the century to be specified or
where the data element is represented without a century, the correct century is
unambiguous for all manipulations involving that element.
