Exhibit 2.1
SHARE PURCHASE AGREEMENT
BY AND AMONG
ZAPME! CORPORATION,
ZAPME! NOVA SCOTIA COMPANY,
3042179 NOVA SCOTIA LIMITED,
XXXXXXXXXXXX.XXX CORPORATION,
THE SHAREHOLDERS OF XXXXXXXXXXXX.XXX CORPORATION,
XXXX XXXXX, AS SECURITYHOLDER AGENT,
AND
STATE STREET BANK AND TRUST COMPANY
OF CALIFORNIA, N.A., AS ESCROW AGENT
DATED AS OF MARCH 31, 2000
TABLE OF CONTENTS
Page
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ARTICLE I THE ACQUISITION OF SHARES..................................................1
1.1 Purchase and Sale of Shares........................................1
1.2 Consideration......................................................1
1.3 Closing; Delivery..................................................2
1.4 Surrender of Certificates..........................................3
1.5 Tax and Accounting Consequences....................................4
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLERS.............4
2.1 Organization of the Company........................................4
2.2 Company Share Capital..............................................4
2.3 Subsidiaries.......................................................5
2.4 Authority..........................................................5
2.5 Company Financial Statements.......................................6
2.6 No Undisclosed Liabilities.........................................6
2.7 No Changes.........................................................6
2.8 Tax and Other Returns and Reports..................................8
2.9 Restrictions on Business Activities...............................10
2.10 Title to Properties; Absence of Liens and Encumbrances............11
2.11 Intellectual Property.............................................11
2.12 Agreements, Contracts and Commitments.............................15
2.13 Interested Party Transactions.....................................16
2.14 Compliance with Laws..............................................16
2.15 Litigation........................................................17
2.16 Insurance.........................................................17
2.17 Minute Books......................................................17
2.18 Environmental Matters.............................................17
2.19 Brokers' and Finders' Fees; Third Party Expenses..................18
2.20 Employee Matters and Benefit Plans................................19
2.21 Employees.........................................................22
2.22 Governmental Authorizations and Licenses..........................22
2.23 Competition Act...................................................22
2.24 Employee Accruals.................................................22
2.25 Major Customers...................................................22
2.26 Product Warranties................................................22
2.27 Representations of each Seller....................................22
2.28 Full Disclosure...................................................23
ARTICLE III REPRESENTATIONS AND WARRANTIES OF BUYER, PARENT AND UNLIMITED...........24
3.1 Organization of the Company.......................................24
3.2 Authority.........................................................24
3.3 Capital Structure.................................................25
3.4 SEC Documents; Parent Financial Statements........................25
3.5 No Material Adverse Change........................................26
3.6 Conformity with Law; Litigation...................................26
3.7 Full Disclosure...................................................27
ARTICLE IV CONDUCT PRIOR TO THE CLOSING.............................................27
4.1 Conduct of Business of the Company................................27
4.2 No Solicitation...................................................30
4.3 No Encumbrance....................................................31
ARTICLE V ADDITIONAL AGREEMENTS.....................................................31
5.1 Sale and Registration of Shares; Shareholder Matters..............31
5.2 Confidentiality...................................................31
5.3 Expenses..........................................................32
5.4 Public Disclosure.................................................32
5.5 Consents..........................................................32
5.6 Commercially Reasonable Efforts...................................32
5.7 Notification of Certain Matters...................................32
5.8 Transition........................................................33
5.9 Additional Documents and Further Assurances.......................33
5.10 Employment and Non-Competition Agreements; Options................33
5.11 Tax Filings.......................................................33
5.12 Support of Efundraising...........................................33
5.13 Seller's Release..................................................34
5.14 Section 116 Certificate...........................................34
5.15 Buyer's Tax Election..............................................36
5.16 Access to Information.............................................37
5.17 Post-Closing Covenants............................................37
ARTICLE VI CONDITIONS TO THE PURCHASE...............................................39
6.1 Conditions to Obligations of Each Party to Effect the Purchase....39
6.2 Additional Conditions to Obligations of the Sellers...............39
6.3 Additional Conditions to the Obligations of Parent and Buyer......40
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ARTICLE VII INDEMNIFICATION; ESCROW.................................................42
7.1 Indemnification...................................................42
7.2 Escrow Period.....................................................42
7.3 Escrow Arrangements...............................................43
7.4 Fees..............................................................50
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER......................................51
8.1 Termination.......................................................51
8.2 Effect of Termination.............................................52
8.3 Amendment.........................................................52
8.4 Extension; Waiver.................................................52
ARTICLE IX GENERAL PROVISIONS.......................................................52
9.1 Survival of Representations, Warranties and Agreements............52
9.2 Notices...........................................................53
9.3 Interpretation....................................................54
9.4 Counterparts......................................................54
9.5 Entire Agreement; Assignment......................................54
9.6 Severability......................................................55
9.7 Other Remedies....................................................55
9.8 Governing Law.....................................................55
9.9 Arbitration.......................................................55
9.10 Rules of Construction.............................................56
9.11 Specific Performance..............................................56
9.12 English Language Only.............................................56
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INDEX OF EXHIBITS
EXHIBIT DESCRIPTION
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Exhibit A Holders of Company Securities
Exhibit B Form of Legal Opinion of Counsel to the Company
Exhibit C Form of Shareholder's Certificate
Exhibit D Form of Declaration of Registration Rights
Exhibit E Form of Employment and Non-Competition Agreement for Sellers
Exhibit F Business Plan of the Company
Exhibit G Opinions of counsel to Parent, Buyer and Unlimited
Exhibit H Share Provisions
Exhibit I Form of Support Agreement
Exhibit J Form of Exchange Agreement
INDEX OF SCHEDULES
SCHEDULE DESCRIPTION
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2.1 Organization of the Company
2.2(a) Shareholder List
2.3 Affiliated Companies and Subsidiaries
2.4 Governmental and Third Party Consents
2.5 Company Financials
2.6 Undisclosed Liabilities
2.7 No Changes
2.8 Tax Returns and Audits
2.9 Restrictions on Business Activities
2.10(a) Leased Real Property
2.10(b) Liens on Property
2.11(b) Company Registered Intellectual Property
2.11(c) Title to Company Intellectual Property
2.11(e) Transferred Intellectual Property
2.11(g) Incoming Intellectual Property Licenses
2.11(h) Obligations Regarding Intellectual Property
2.11(j) Necessary Actions to Preserve Intellectual Property Rights
2.11(l) Infringement or Misappropriation of Company Intellectual Property
2.11(m)(i) Proprietary Information, Confidentiality and Assignment Agreements
2.11(p) Year 2000 Compliance
2.11(q) Royalties or Other Compensation for Company Intellectual Property
2.12(a) Agreements, Contracts and Commitments
2.12(b) Breaches
2.13 Interested Party Transactions
2.15 Litigation
2.16 Insurance
2.19 Brokers/Finders Fees; Expenses of Transaction
2.20 Employee Matters and Benefit Plans
2.24 Employees Accruals
2.25 Major Customers
4.11 Company Affiliate List
7.3 Sellers' Percentage Interests in the Escrow Agent
7.4 Escrow Agent's Fees and Expenses
SHARE PURCHASE AGREEMENT
This SHARE PURCHASE AGREEMENT (this "AGREEMENT") is made and entered
into as of March 31, 2000 by and among ZapMe! Corporation, a Delaware
corporation ("PARENT"), ZapMe! Nova Scotia Company, a Nova Scotia company and a
wholly owned subsidiary of Parent ("UNLIMITED"), 3042179 Nova Scotia Limited, a
Nova Scotia company and wholly-owned subsidiary of Unlimited ("BUYER"),
Xxxxxxxxxxxx.xxx Corporation, a corporation existing under the Federal laws of
Canada (the "COMPANY"), Xxxx Xxxxxxxx, Xxxx Xxxxx (together with Xxxx Xxxxxxxx,
the "MANAGEMENT SELLERS"), the other shareholders of the Company listed on
EXHIBIT A hereto (together with the Management Sellers, each individually a
"SELLER" and collectively the "SELLERS"), Xxxx Xxxxx, as Securityholder Agent,
and for the purposes of Article VII only, State Street Bank and Trust Company of
California, N.A., as Escrow Agent.
RECITALS
A. Sellers own all of the issued and outstanding shares of Company's
Common Shares (the "SHARES"), which constitute all of the issued and outstanding
securities of the Company.
X. Xxxxxxx desire to sell the Shares, and Parent, Unlimited, Buyer and
the Company desire that Buyer purchase all of the Shares. The parties hereto are
entering into this Agreement to provide for Buyer's acquisition of the Shares
and the Company thereby becoming a wholly owned subsidiary of Buyer, and to
establish various rights, obligations and conditions in connection therewith
(the "ACQUISITION").
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
intending to be legally bound hereby the parties agree as follows:
ARTICLE I
THE ACQUISITION OF SHARES
1.1 PURCHASE AND SALE OF SHARES. On the terms and subject to the
conditions of this Agreement, Buyer agrees to purchase the Shares, constituting
all of the issued and outstanding securities of the Company, for the
consideration set forth in Section 1.2, and each of the Sellers agrees to sell,
transfer, assign and deliver to the Buyer, all of his or its right, title and
interest in and to the Shares.
1.2 CONSIDERATION.
(a) PURCHASE PRICE. As consideration (the "CONSIDERATION") for
the sale, transfer, assignment and delivery of all of Sellers' right, title and
interest in and to the Shares to Buyer, and the representations, warranties and
other agreements of the Company and the Sellers set forth in or
otherwise contemplated by this Agreement, Buyer will, at the Closing (defined
in Section 1.3(a) herein): (i) pay $226,714.09 to Xxxx Xxxxxxxx and $173,285.91
to Xxxx Xxxxx, (ii) pay $850,000 to all of the Sellers except the Management
Sellers, with such cash allocated among such Sellers in proportion to their
respective holdings of the Shares as set forth in Schedule 2.2(a) (defined in
Article II herein), but excluding shares owned by the Management Sellers in
calculation of such proportion, (iii) issue to all of the Sellers except the
Management Sellers 500,000 Class A preferred shares of Buyer ("CLASS A
PREFERRED SHARES"), with such shares allocated among such Sellers in proportion
to their respective holdings of the Shares as set forth in Schedule 2.2(a) of
the Company Schedules, but excluding shares owned by the Management Sellers in
calculation of such proportion, and (iv) issue to Xxxx Xxxxx: (A) that number
of Class C Preferred Shares of Buyer ("CLASS C PREFERRED SHARES") equal to
$473,286 divided by the Share Price (as defined below), (B) that number of
Class D Preferred Shares of Buyer ("CLASS D PREFERRED SHARES") equal to
$473,286 divided by the Share Price, and (C) that number of Class E Preferred
Shares of Buyer ("CLASS E PREFERRED SHARES") equal to $473,286 divided by the
Share Price, in each case, rounded up to the nearest whole share. All
references to dollar amounts in this Section 1.2 and elsewhere in this
Agreement are in U.S. dollars. The cash payments provided for in this Section
1.2 are payable by certified check.
(b) DEPOSIT OF ESCROW SHARES. At the Closing, Buyer will
deposit into an escrow account, as set forth in Article VII, 125,000 Class A
Preferred Shares, otherwise distributable to the Sellers, as partial security
for the indemnity provided in Section 7.1 herein. In addition, 25% of the shares
of Common Stock of Parent ("PARENT COMMON STOCK") subject to the Options
(defined in Section 5.10 hereof) (the "OPTION FUND") (together with the 125,000
Class A Preferred Shares "ESCROW AMOUNT") shall be considered held in escrow as
partial security for the indemnity provided in Section 7.1 herein.
(c) SHARE PRICE. For purposes of this Agreement, the Share
Price shall mean $8.356.
1.3 CLOSING; DELIVERY.
(a) CLOSING. Unless this Agreement is earlier terminated
pursuant to Article VIII hereof, the closing of the Acquisition (the "CLOSING")
will take place as promptly as practicable, but no later than five (5) business
days, following satisfaction or waiver of the conditions set forth in Article VI
hereof at the offices of Xxxxxxx Xxxxxxxx & Xxxxxxxx, 0000 XxXxxx Xxxxxxx
Xxxxxx, Xxxxxxxx, Xxxxxx, unless another place or time is agreed to by Parent
and the Sellers. The date upon which the Closing actually occurs is herein
referred to as the "CLOSING DATE."
(b) DELIVERY AT THE CLOSING. At the Closing:
(i) Buyer will deliver to each Seller the cash
portions of the Consideration to which they are entitled and a certificate,
where applicable, representing the number of Class A, C, D and E Preferred
Shares to which they are entitled pursuant to Section 1.2 herein.
(ii) The Sellers shall deliver to Buyer evidence
reasonably satisfactory to it that the Agreement and the Acquisition shall have
been adopted and approved by the Board of
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Directors of the Company by the requisite vote under applicable law and
Company's Articles of Incorporation and by-laws.
(iii) The Company shall deliver to Buyer evidence
satisfactory to it that the Company has obtained the consents, approvals and
waivers set forth in SCHEDULE 2.4 (including, without limitation, any consents,
waivers or approvals required under any contract or agreement to which the
Company is a party or by which it is bound and which are necessary in connection
with the Acquisition to maintain all rights of the Company thereunder subsequent
to the Closing).
(iv) The Company shall deliver to Buyer a legal
opinion in substantially the form attached hereto as EXHIBIT B from Xxxxxxxxxxx
Xxxxxxxxxxx Xxxxxx and/or Xxxxxxx Xxxxxxxx & Xxxxxxxx, legal counsel to the
Company and the Sellers .
(v) The Parent shall deliver to the Seller a
legal opinion in substantially the form attached hereto as EXHIBIT G from Xxxxxx
Xxxxxxx Xxxxxxxx & Xxxxxx, P.C., and from local counsel to the Buyer, Parent and
Unlimited.
(vi) Each of the Sellers shall deliver to Buyer
an executed Shareholder's Certificate which shall be in full force and effect.
(vii) Each of the Management Sellers shall
deliver to Buyer or Parent, as the case may be, and Buyer or Parent, as the case
may be, shall deliver to each of the Management Sellers, an Employment and
Non-Competition Agreement pursuant to Section 5.10 hereof, and the Option
Agreements (as defined in Section 5.10 hereof) which Employment and
Non-Competition Agreements and Option Agreements shall not have been terminated
or repudiated by either Management Seller or the Parent, and shall be in full
force and effect.
(viii) The Company shall deliver to Buyer
evidence reasonably satisfactory to it that the directors of the Company in
office immediately prior to the Closing have resigned as directors of the
Company effective immediately following the Closing.
(ix) The Buyer, Parent and Unlimited shall
deliver to the Company and Sellers evidence reasonably satisfactory to them that
Buyer, Parent and Unlimited shall have entered into the Support Agreement by and
among Buyer, Parent and Unlimited attached hereto as EXHIBIT I, and the Exchange
Agreement by and among Buyer, Parent and Sellers, attached hereto as EXHIBIT J.
1.4 SURRENDER OF CERTIFICATES.
(a) SURRENDER OF CERTIFICATES. Each Seller will deliver to
Buyer all stock certificates, stock powers, endorsements, assignments and other
instruments and documents necessary or appropriate to sell, convey, assign and
deliver the Shares to Buyer.
(b) LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any
certificate evidencing Shares shall have been lost, stolen or destroyed, the
Buyer shall issue in exchange for such lost, stolen or destroyed certificates,
upon the making of an affidavit of that fact by the holder thereof,
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such cash and Class A, C, D or E Preferred Shares as may be required pursuant
to Section 1.2; PROVIDED, HOWEVER, that Buyer may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed certificates to deliver a bond in such sum as it may
reasonably direct as indemnity against any claim that may be made against Buyer
with respect to the certificates alleged to have been lost, stolen or destroyed.
1.5 TAX AND ACCOUNTING CONSEQUENCES. It is intended by the parties
hereto that the Acquisition shall (i) constitute a taxable exchange for United
States federal income tax purposes (not qualifying under Section 368 or 351 of
the United States Internal Revenue Code of 1986, as amended) to Sellers who are
subject to taxation in the United States on the sale or exchange of Shares and
(ii) qualify for accounting treatment as a purchase.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLERS
Except as disclosed in a document dated as of the date hereof referring
specifically to the representations, warranties or covenants in this Agreement
which reasonably identifies the basis for an exception to a representation,
warranty or covenant in this Agreement and which is delivered by the Company to
Buyer prior to the execution of this Agreement (the "COMPANY SCHEDULES"), the
Company and the Sellers severally and not jointly represent and warrant to
Parent, Unlimited and Buyer as set forth below and acknowledge that Parent,
Unlimited and Buyer are relying on such representations and warranties in
connection with Buyer's purchase of the Shares.
2.1 ORGANIZATION OF THE COMPANY. The Company is a corporation duly
incorporated and validly existing under the federal laws of Canada. The Company
has the corporate power to own its properties and to carry on its business as
now being conducted. The Company is duly qualified to do business and is in good
standing as a foreign corporation in each jurisdiction in which the failure to
be so qualified would have, or would reasonably be expected to have, a material
adverse effect on the business, financial condition, results of operations,
assets (including intangible assets), liabilities or prospects of the Company
taken as a whole (hereinafter referred to as a "MATERIAL ADVERSE EFFECT"). The
Company has delivered a true and correct copy of its Articles of Incorporation
and Bylaws (or equivalent organizational documents), each as amended to date, to
Parent and Buyer.
2.2 COMPANY SHARE CAPITAL.
(a) The authorized share capital of the Company consists of an
unlimited number of Class A Common Shares ("COMMON SHARES"), of which 130,230
shares are issued and outstanding as of the date hereof, and an unlimited number
of Class B Common Shares, Class A Preferred Shares, Class B Preferred Shares,
Class C Preferred Shares, and Class D Preferred Shares, none of which are
outstanding on the date hereof. The outstanding shares of the Company are held
of record by the persons, with the addresses of record and in the amounts, set
forth on SCHEDULE 2.2(a). All outstanding Common Shares are owned by the
Sellers, free and clear of any liens or encumbrances, and have been duly
authorized and validly issued and are fully paid and non-assessable and not
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subject to preemptive rights or rights of first refusal created by statute, the
Articles of Incorporation or Bylaws of the Company or any agreement to which the
Company is a party or by which it is bound. All such issuances of securities
have been made in compliance with applicable securities and other laws.
(b) There are no options, warrants, call rights, commitments
or agreements of any character, written or oral, to which either the Company or
a Seller is a party or by which such person is bound, obligating the Company or
any Seller to issue, deliver, sell, repurchase or redeem, or cause to be issued,
delivered, sold repurchased or redeemed, any shares of the Company or obligating
the Company to grant, extend, accelerate the vesting of, change the price of,
otherwise amend or enter into any such option, warrant, call right commitment or
agreement.
2.3 SUBSIDIARIES. Except as set forth in SCHEDULE 2.3, the Company does
not have any subsidiaries or affiliated companies and does not otherwise own any
shares of capital stock or any interest in, or control, directly or indirectly,
any other corporation, partnership, association, joint venture or other business
entity. The Company owns all of the issued share capital of each of its
subsidiaries. SCHEDULE 2.3 sets forth the jurisdiction of organization, issued
and outstanding shares, registered shareholders, directors and officers of each
of Company's subsidiaries.
2.4 AUTHORITY. The Company has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of the Company. This Agreement has
been duly executed and delivered by the Company and constitutes the valid and
binding obligation of the Company, enforceable in accordance with its terms
except (i) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement of
creditors' rights generally and (ii) as limited by laws relating to the
availability of specific performance, injunctive relief or other equitable
remedies. Except as set forth in SCHEDULE 2.4, the execution and delivery of
this Agreement by the Company does not, and, as of the Closing, the consummation
of the transactions contemplated hereby will not, conflict with, or result in
any violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of any benefit under (any such event, a "CONFLICT") (i)
any provision of the Articles of Incorporation or Bylaws of the Company or any
Shareholders agreement or resolution of Company's board of directors or (ii) any
mortgage, indenture, lease, contract or other agreement or instrument, permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation, or any judgment, decree, order or award of any
court, governmental body or arbitrator having jurisdiction over the Company
applicable to the Company or its properties or assets, except where such failure
or conflict would not have or could not reasonably be expected to have a
Material Adverse Effect. No consent, waiver, approval, order or authorization
of, or registration, declaration or filing with, any court, administrative
agency, board or commission or other federal, provincial, state, county, local
or foreign governmental authority, instrumentality, agency or commission
("GOVERNMENTAL ENTITY") or any third party (so as not to trigger any Conflict)
is required by or with respect to the Company in connection with the execution
and delivery of this Agreement or the consummation of the
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transactions contemplated hereby, except for (i) such consents, waivers,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable provincial, federal and state securities laws,
(ii) the filing with appropriate Canadian authorities of such forms as may be
required by the Investment Canada Act, (iii) such other consents, waivers,
authorizations, filings, approvals and registrations which are set forth on
SCHEDULE 2.4 and (iv) such other consents, waivers, authorizations, filings,
approvals and registrations the absence of which would not have or could not
reasonably be expected to have a Material Adverse Effect.
2.5 COMPANY FINANCIAL STATEMENTS. SCHEDULE 2.5 sets forth Company's
unaudited balance sheet as of February 29, 2000 (the "BALANCE SHEET"), the
related unaudited statements of earnings, of deficits and of changes in the
financial position for the seven-month period ended February 29, 2000 and the
footnotes thereto, the Company's audited balance sheet as of July 31, 1999 and
the related audited statements of earnings of deficits and of changes in the
financial position for the year ended July 31, 1999 (collectively, the "COMPANY
FINANCIALS"). The Company Financials present fairly in all material respects the
financial position and the results of operations of the Company as of the dates
and during the periods indicated therein in accordance with Canadian generally
accepted accounting principles ("CANADIAN GAAP") applied on a basis consistent
throughout the periods indicated and consistent with each other on the
assumption that the Acquisition will be concluded on substantially the terms set
forth herein.
2.6 NO UNDISCLOSED LIABILITIES. Except as set forth in SCHEDULE 2.6,
the Company has no liability, indebtedness, obligation, expense, claim,
deficiency, guaranty or endorsement of any type, which individually or in the
aggregate exceeds $10,000.00, whether accrued, absolute, contingent, matured,
unmatured or other (where required to be reflected in financial statements in
accordance with generally accepted accounting principles), except for those
liabilities which are reflected in the Balance Sheet or those liabilities
incurred after February 29, 2000 in the ordinary course of business consistent
with past practice.
2.7 NO CHANGES. Except as set forth in SCHEDULE 2.7, since the date of
the Balance Sheet, there has not been, occurred or arisen any:
(a) transaction by the Company except in the ordinary course
of business as conducted on the date of the Balance Sheet and consistent with
past practices which individually or in the aggregate exceeds $10,000.00;
(b) amendments or changes to the Articles of Incorporation or
Bylaws or other constating documents of the Company;
(c) capital expenditure or commitment by the Company, either
individually or in the aggregate, exceeding $10,000;
(d) destruction of, damage to or loss of any material assets,
business or customer of the Company (whether or not covered by insurance);
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(e) claim of wrongful discharge or dismissal or other unlawful
labor practice or action or, to Company's knowledge, any union, collective
bargaining or labor organizing activity;
(f) change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by the Company, or any
disagreement between the Company and its auditors;
(g) revaluation by the Company of any of its assets which
individually or in the aggregate would be material, including without limitation
any write down of the value of any inventory or any write off or uncollectible
of any accounts or notes receivable or any portion thereof in amounts exceeding
$50,000 in the aggregate;
(h) declaration, setting aside or payment of a dividend or
other distribution with respect to the shares of the Company or any direct or
indirect redemption, purchase or other acquisition by the Company of any shares
in the share capital of the Company;
(i) increase in the salary or other compensation payable or to
become payable by the Company to any of Company's officers, directors,
employees, consultants or advisors, or the declaration, payment or commitment or
obligation of any kind for the payment of a bonus or other additional salary or
compensation to any such person except as otherwise contemplated by this
Agreement;
(j) sale, lease, license or other disposition of any of the
assets or properties of the Company, except in the ordinary course of business
as conducted on that date and consistent with past practices;
(k) amendment or termination of any Contract (as defined in
Section 2.12);
(l) loan by the Company to any person or entity, incurring by
the Company of any indebtedness, guaranteeing by the Company of any
indebtedness, issuance or sale of any debt securities of the Company or
guaranteeing of any debt securities of others, except for advances to employees
for travel and business expenses in the ordinary course of business, consistent
with past practices;
(m) waiver or release of any material right or claim of the
Company, including any write-off or other compromise of any account receivable
of the Company which would constitute a Material Adverse Effect;
(n) notice of any claim of ownership by a third party of any
Company Intellectual Property (as defined in Section 2.11 below) or notice of
infringement by the Company of any third party's intellectual property rights;
(o) issuance or sale by the Company of any shares in the share
capital of the Company, or securities exchangeable, convertible or exercisable
therefor, or of any other of its securities;
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(p) change in pricing or royalties set or charged by the
Company to its customers or licensees or in pricing or royalties set or charged
by persons who have licensed Company Intellectual Property to the Company except
in the ordinary course of business as conducted on that date, consistent with
past practices;
(q) payment, discharge or satisfaction of any encumbrance,
liability or obligation of the Company (whether absolute, accrued, contingent or
otherwise, and whether due or to become due) other than payment of accounts
payable, scheduled loan payments and tax liabilities incurred in the ordinary
course of business as conducted on that date, consistent with past practices;
(r) forward purchase contracts or forward sales commitments,
other than in the ordinary course of business as conducted on that date,
consistent with past practices;
(s) event or condition of any character that would have a
Material Adverse Effect on the Company; or
(t) negotiation or agreement by the Company or any officer or
employees thereof to do any of the things described in the preceding clauses (a)
through (s) (other than negotiations with Buyer, Parent and their
representatives regarding the transactions contemplated by this Agreement).
2.8 TAX AND OTHER RETURNS AND REPORTS.
(a) DEFINITION OF TAXES. For the purposes of this Agreement,
"TAX" or, collectively, "TAXES," means any and all provincial, federal, state,
local, municipal and foreign taxes, assessments and other governmental charges,
duties, impositions and liabilities, including taxes based upon or measured by
gross receipts, income, profits, sales, goods and services, use and occupation,
workers' compensation, provincial value added, goods and services, ad valorem,
transfer, franchise, withholding, payroll, recapture, employment, customs,
excise and property taxes, together with all assessments and reassessments,
interest, penalties and additions imposed with respect to such amounts and any
obligations under any agreements or arrangements with any other person with
respect to such amounts and including any liability for taxes of a predecessor
entity.
(b) TAX RETURNS AND AUDITS. Except as set forth in SCHEDULE
2.8:
(i) The Company as of the Closing, except for the
fiscal year ending July 31, 2000, will have prepared and filed all required
provincial, federal, state, local and foreign returns, estimates, declarations,
information statements and reports ("RETURNS") required to be filed before the
Closing with any governmental or taxing authority relating to any and all Taxes
concerning or attributable to the Company or its operations and such Returns are
true and correct and have been completed in accordance with applicable law.
(ii) The Company, as of the Closing: (A) will
have paid or accrued all Taxes it is required to pay or accrue and (B) will have
withheld from each payment made to its past or present employees, officers,
directors and independent contractors, creditors, stockholders or
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other third parties all Taxes and other material deductions required to be
withheld and have, within the time required by law, paid such withheld amounts
to the proper governmental authorities.
(iii) The Company has not been delinquent in the
payment of any Tax nor is there any Tax deficiency outstanding, proposed or
assessed against the Company, nor has the Company executed any waiver of any
statute of limitations on or extensions of the period for the assessment or
collection of any Tax. There are no matters relating to Taxes under discussion
between any Governmental Authority and the Company or any subsidiary.
(iv) No audit or other examination of any Return
of the Company is currently in progress, nor has the Company been notified of
any request for such an audit or other examination, nor is any taxing authority
asserting, or to Company's knowledge, threatening to assert against the Company
any claim for Taxes.
(v) The Company has no liabilities as of the date
hereof for unpaid Taxes which have not been accrued or reserved against in
accordance with Canadian GAAP on the Balance Sheet, whether asserted or
unasserted, contingent or otherwise, and the Company has no knowledge of any
basis for the assertion of any such liability attributable to the Company, its
assets or operations. Since February 29, 2000, the Company has not incurred any
liability for Taxes other than in the ordinary course of business.
(vi) The Company has provided to Parent and Buyer
copies of all federal, provincial and state income, all goods and services and
all provincial and state sales and use Tax Returns for the Company that have
been requested by Parent and Buyer.
(vii) The Company has remitted to the appropriate
tax authority when required by law to do so all amounts collected by it on
account of Taxes under Part IX of the EXCISE TAX ACT (Canada) and any similar
provincial legislation and in respect of retail sales tax.
(viii) There are (and as of immediately following
the Closing there will be) no liens, pledges, charges, claims, security
interests or other encumbrances of any sort ("LIENS") on the assets of the
Company relating to or attributable to Taxes except for Liens for Taxes not yet
due and payable.
(ix) The Company has no knowledge of any basis
for the assertion of any claim relating or attributable to Taxes which, if
adversely determined, would result in any Lien on the assets of the Company.
(x) As of the Closing, there will not be any
contract, agreement, plan or arrangement, including but not limited to the
provisions of this Agreement, covering any employee or former employee of the
Company that, individually or collectively, could give rise to the payment of
any amount that would not be deductible pursuant to Section 280G or 162 of the
U.S. Internal Revenue Code of 1986, as amended (the "CODE").
-9-
(xi) The Company has filed no consent agreement
under Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code
apply to any disposition of a subsection (f) asset (as defined in Section
341(f)(4) of the Code) owned by the Company.
(xii) The Company is not a party to a tax sharing
or allocation agreement and is not liable for the Taxes of any other person,
whether as a transferee or successor or by contract or otherwise, nor does the
Company owe any amount under any such agreement.
(xiii) Company's tax basis in its assets for
purposes of determining its future amortization, depreciation and other federal
and provincial income tax deductions is accurately reflected on Company's tax
books and records and Tax Returns.
(xiv) The Company has not participated in or
cooperated with a boycott under Section 999 of the Code.
(xv) No power of attorney has been granted by the
Company with respect to any matter relating to Taxes.
(xvi) The Company has not requested or received a
ruling from any taxing authority or entered into a settlement or compromise with
any taxing authority.
(xvii) To Company's knowledge, no circumstances
exist which would make the Company or any subsidiary subject to the application
of any of sections 79 to 80.04 of the INCOME TAX ACT (Canada) or a similar
provision under a provincial taxing statute. The Company has not acquired
property or services from or disposed of property or provided services to, a
person with whom it does not deal at arm's length (within the meaning of the
INCOME TAX ACT (Canada) and the equivalent provisions of the Quebec Taxation
Act) for an amount that is other than the fair market value of such property or
services, or has been deemed to have done so for purposes of the INCOME TAX ACT
(Canada) and the equivalent provisions of the Quebec Taxation Act.
(xviii) The Company has not deducted any material
amounts in computing its income in a taxation year which may be included in a
subsequent taxation year under Section 78 of the INCOME TAX ACT (Canada) or a
similar provision under a provincial taxing statute.
2.9 RESTRICTIONS ON BUSINESS ACTIVITIES. Except as set forth in
SCHEDULE 2.9, there is no agreement (non-compete or otherwise), commitment,
judgment, injunction, order or decree to which the Company is a party or
otherwise binding upon the Company which has the effect of prohibiting or
impairing any business practice of the Company, any acquisition of property
(tangible or intangible) by the Company or the conduct of business by the
Company. Without limiting the foregoing, the Company has not entered into any
agreement under which the Company is restricted from selling, licensing or
otherwise distributing any of its products to any class of customers, in any
geographic area, during any period of time or in any segment of the market.
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2.10 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES.
(a) Except as set forth in SCHEDULE 2.10(a), the Company does
not own any real property, nor has the Company ever owned any real property.
SCHEDULE 2.10(a) also sets forth a list of all real property currently leased by
the Company, the name of the lessor, the date of the lease and each amendment
thereto and the aggregate annual rental and/or other fees payable under any such
lease. Except as disclosed in SCHEDULE 2.10(a), the Company occupies such leased
property and to Company's knowledge, has the exclusive right to occupy such
leased property. All such current leases are in full force and effect, are valid
and effective in accordance with their respective terms, and there is not, under
any of such leases, any existing default or event of default (or event which
with notice or lapse of time, or both, would constitute a default by the
Company).
(b) The Company has good and valid title to, or, in the case
of leased properties and assets, valid leasehold interests in, all of its
tangible properties and assets, real, personal and mixed, used or held for use
in its business, free and clear of any Liens (as defined in Section 2.8(b)(vi)),
except as reflected in the Company Financials or in SCHEDULE 2.10(b) or in
respect of leases disclosed in SCHEDULE 2.12(a) and except for liens for taxes
not yet due and payable and such imperfections of title and encumbrances, if
any, which are not material in character, amount or extent, and which do not
materially detract from the value, or materially interfere with the present use,
of the property subject thereto or affected thereby.
2.11 INTELLECTUAL PROPERTY.
(a) For the purposes of this Agreement, the following terms
have the following definitions:
"INTELLECTUAL PROPERTY" means any or all of the following and all
rights in, arising out of, or associated therewith: (i) all Canadian, United
States and foreign patents and applications therefor and all reissues,
divisions, renewals, extensions, provisionals, continuations and
continuations-in-part thereof ("PATENTS"); (ii) all inventions (whether
patentable or not), invention disclosures, improvements, trade secrets,
proprietary information, know how, technology, technical data, formulae, and all
documentation relating to any of the foregoing; (iii) all copyrights, copyrights
registrations and applications therefor and all other rights corresponding
thereto throughout the world; (iv) all mask works, mask work registrations and
applications therefor; (v) all industrial designs and any registrations and
applications therefor throughout the world; (vi) all trade names, logos, common
law trademarks and service marks; trademark and service xxxx registrations and
applications therefor and all goodwill associated therewith throughout the
world; (vii) all databases and data collections and all rights therein
throughout the world; (viii) all licenses, registered user agreements and like
rights; (ix) all computer software including all source code, object code,
firmware, development tools, files, records and data, as well as all media on
which any of the foregoing is recorded; (x) any similar, corresponding or
equivalent rights to any of the foregoing; and (xi) all documentation related to
any of the foregoing.
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"COMPANY INTELLECTUAL PROPERTY" shall mean any Intellectual Property
that (i) is owned by (ii) was exclusively licensed to, or (iii) was developed or
created by, the Company or any subsidiary of the Company.
"REGISTERED INTELLECTUAL PROPERTY" shall mean all Canadian, United
States, and other foreign: (i) patents, patent applications (including
provisional applications); (ii) registered trademarks, applications to register
trademarks, intent-to-use applications, or other registrations or applications
related to trademarks; (iii) registered user agreements; (iv) registered
copyrights and applications for copyright registration; (v) any mask work
registrations and applications to register mask works; and (vi) any other
Company Intellectual Property that is subject of an application, certificate,
filing, registration or other document issued by, filed with, or registered or
recorded by, any state, government or other public legal authority.
(b) SCHEDULE 2.11(b) lists all Registered Intellectual
Property owned by, licensed to, or filed in the name of, the Company (the
"COMPANY REGISTERED INTELLECTUAL PROPERTY") and lists any prior or pending
proceedings or actions taken by or against the Company or, to Company's
knowledge, which involves the Company, before any court, tribunal (including the
Canadian or United States Patent and Trademark Offices or equivalent authority
anywhere in the world) related to any of the Company Registered Intellectual
Property.
(c) Each item of Company Intellectual Property, including all
Company Registered Intellectual Property listed in SCHEDULE 2.11(b), is free and
clear of any Liens except as reflected in the Company Financials or SCHEDULE
2.10(b). The Company (i) to its knowledge is the exclusive owner of all
trademarks and trade names used in connection with the operation or conduct of
the business of the Company, including the sale of any products or technology or
the provision of any services by the Company and (ii) owns exclusively, and has
good title to, all copyrighted works that are products of the Company or other
works of authorship that the Company otherwise purports to own other than the
third party licensed trade marks, trade names, copyrighted works and other works
listed in SCHEDULE 2.11(c).
(d) To the extent that any Intellectual Property has been
developed or created by any person other than the Company for which the Company
has, directly or indirectly, acquired, the Company has a written agreement with
such person with respect thereto and the Company thereby has obtained ownership
of, is the exclusive owner of, or is authorized to use all rights in such
Intellectual Property.
(e) Except as set forth in SCHEDULE 2.11(e)(i), the Company
has not transferred ownership of or granted any license of or right to use or
authorized the retention of any rights to use any Intellectual Property that is
or was Company Intellectual Property, to any other person, other than pursuant
to agreements entered into in the ordinary course of business which are
substantially identical to Company's standard form of license agreement attached
hereto as SCHEDULE 2.11(e)(ii) ("STANDARD LICENSE AGREEMENTS").
(f) The Company owns or has a written license to all
Intellectual Property used in and/or necessary to the conduct of its business as
it currently is conducted, including the design,
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development, manufacture, use, licensing, copying, distribution or other
exploitation, import and sale of the products, technology and services of the
Company and all products, technology or services currently under development.
(g) Other than "SHRINK-WRAP" and similar widely available
commercial end-user licenses (each, an "END-USER LICENSE"), the contracts,
licenses and agreements listed in SCHEDULE 2.11(g) include all contracts,
licenses and agreements to which the Company is a party with respect to any
Intellectual Property of any person other than the Company. To the Company's
knowledge, no person other than the Company has ownership rights to improvements
made by the Company in Intellectual Property which has been licensed to the
Company.
(h) SCHEDULE 2.11(h) lists all contracts, licenses and
agreements in respect of software programs owned by third parties (whether or
not such contract, license or agreement is with such third parties), between the
Company and any other person wherein or whereby the Company has agreed to, or
assumed, any material obligation or duty to warrant, indemnify, reimburse, hold
harmless, guaranty or otherwise assume or incur any material obligation or
liability or provide a right of rescission with respect to the infringement or
misappropriation by the Company or such other person of the Intellectual
Property of any person other than the Company other than as disclosed in
Company's Standard License Agreement.
(i) (X) The operation of Company's business does not infringe
or misappropriate the Intellectual Property (other than Patents) of any person,
violate the rights of any person (including rights to privacy or publicity), or
constitute unfair competition or trade practices under the laws of any
jurisdiction, and the Company has not received notice from any person claiming
that such operation or any act, product, technology or service (including
products, technology or services currently under development) of the Company
infringes or misappropriates the Intellectual Property (other than Patents) of
any person or constitutes unfair competition or trade practices under the laws
of any jurisdiction (nor is the Company aware of any basis therefor).
(Y) The operation of Company's business does not
infringe or misappropriate the Patents of any person, and the Company has not
received notice from any person claiming that such operation or any act,
product, technology or service (including products, technology or services
currently under development) of the Company infringes or misappropriates the
Patents of any person (nor is the Company aware of any basis therefor). The
representations and warranties of this Section 2.11(i)(Y) shall only apply to
claims of infringement or misappropriation or violations arising from (i) the
products or technology of the Company existing as of the Closing and (ii)
products or technology under development as of the Closing.
(j) The Company Intellectual Property is valid and subsisting,
all necessary registration, maintenance and renewal fees in connection with such
Registered Intellectual Property have been paid and all necessary documents and
certificates in connection with such Company Registered Intellectual Property
have been filed with the relevant patent, copyright, trademark or other
authorities in the United States, Canada or foreign jurisdictions, as the case
may be, for the purposes of maintaining such Registered Intellectual Property.
SCHEDULE 2.11(j) lists all actions that must be taken by the Company within
sixty (60) days of the Closing, including the payment of any
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registration, maintenance or renewal fees or the filing of any documents,
applications or certificates for the purposes of maintaining, perfecting or
preserving or renewing any Company Intellectual Property.
(k) There are neither contracts, licenses nor agreements
between either the Company on the one hand and any other person on the other
with respect to Company Intellectual Property under which there is any dispute
known to the Company regarding the scope of such agreement or performance under
such agreement including with respect to any payments to be made or received by
the Company thereunder.
(l) Except as set forth on SCHEDULE 2.11(l), to the knowledge
of the Company, no person is infringing or misappropriating any Company
Intellectual Property.
(m) The Company has taken reasonable steps in accordance with
normal industry practice to protect the rights of the Company in confidential
information and trade secrets of the Company or provided by any other person to
the Company. Without limiting the foregoing, except as set forth in SCHEDULE
2.11(m)(i), all current and former consultants and contractors who have been
engaged by the Company in that area of the Company's business involving
fundraising over the Internet have executed proprietary information,
confidentiality and assignment agreements substantially in Company's standard
forms. As a matter of contract or otherwise by law, no employee, consultant or
contractor has rights to any Company Intellectual Property.
(n) No Company Intellectual Property or product, technology or
service of the Company is subject to any proceeding or outstanding decree,
order, judgment, agreement or stipulation that restricts in any manner the use,
transfer or licensing thereof by the Company or may affect the validity, use or
enforceability of such Company Intellectual Property.
(o) To the knowledge of the Company, no (i) product,
technology, service or publication of the Company, (ii) material published or
distributed by the Company or (iii) conduct or statement of the Company,
constitutes obscene material, a defamatory statement or material, false
advertising or otherwise violates any law or regulation which would result in a
Material Adverse Effect.
(p) Except as set forth in SCHEDULE 2.11(p), the Company has
taken reasonable steps to ensure that Company's products (including existing
products and technology and products and technology currently under development)
will record, store, process, calculate and present calendar dates falling on and
after (and if applicable, spans of time including) January 1, 1999, and will
calculate any information dependent on or relating to such dates in the same
manner, and with the same functionality, data integrity and performance, as the
products record, store, process, calculate and present calendar dates on or
before December 31, 1998, or calculate any information dependent on or relating
to such dates (collectively, "YEAR 2000 COMPLIANT"). Except as set forth in
SCHEDULE 2.11(p), the Company has taken reasonable steps to ensure that its
products will lose no functionality with respect to the introduction of records
containing dates falling on or after January 1, 1999. Except as set forth in
SCHEDULE 2.11(p), all of Company's internal computer and technology products and
systems are Year 2000 Compliant.
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(q) Except as set forth in SCHEDULE 2.11(q), the Company is
not obligated to pay any royalties or other compensation to any person in
respect of its ownership, use or license of any of the Company Intellectual
Property.
2.12 AGREEMENTS, CONTRACTS AND COMMITMENTS. Except as set forth on
SCHEDULE 2.12(a), the Company does not have, and is not a party or bound by:
(i) any collective bargaining agreements,
(ii) any agreements or arrangements that contain
any severance pay or post-employment liabilities or obligations, other than
reasonable notice provisions at law,
(iii) any bonus, deferred compensation, pension,
profit sharing or retirement plans, or any other employee benefit plans or
arrangements,
(iv) any employment or consulting agreement,
contract or commitment with an employee or individual consultant or salesperson
or any consulting or sales agreement, contract or commitment under which any
firm or other organization provides services to the Company,
(v) any agreement or plan, including, without
limitation, any stock option plan, stock appreciation rights plan or stock
purchase plan, any of the benefits of which will be increased, or the vesting of
benefits of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement or the value of any of the benefits
of which will be calculated on the basis of any of the transactions contemplated
by this Agreement,
(vi) any fidelity or surety bond or completion
bond,
(vii) any lease of personal property having a
value individually in excess of $50,000,
(viii) any agreement of indemnification or
guaranty,
(ix) any agreement, contract or commitment
containing any covenant limiting the freedom of the Company to engage in any
line of business or to compete with any person,
(x) any agreement, contract or commitment
relating to capital expenditures and involving future payments in excess of
$50,000,
(xi) any agreement, contract or commitment
relating to the disposition or acquisition of assets or any interest in any
business enterprise outside the ordinary course of the business of the Company,
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(xii) any mortgages, indentures, loans or credit
agreements, security agreements or other agreements or instruments relating to
the borrowing of money or extension of credit, including guaranties referred to
in clause (viii) hereof,
(xiii) any purchase order or contract for the
purchase of raw materials involving $35,000 or more,
(xiv) any construction contracts,
(xv) any distribution, joint marketing or
development agreement,
(xvi) any agreement pursuant to which the Company
has granted or may grant in the future, to any party, a source-code license or
option or other right to use or acquire source-code, or
(xvii) any other agreement, contract or
commitment that involves $50,000 or more or is not cancelable without penalty
within thirty (30) days.
Except for such alleged breaches, violations and defaults, and events
that would constitute a breach, violation or default with the lapse of time,
giving of notice, or both, as are all noted in SCHEDULE 2.12(b), the Company has
not breached, violated or defaulted under, or received notice that it has
breached, violated or defaulted under, any of the terms or conditions of any
End-User License or any agreement, contract or commitment required to be set
forth on SCHEDULE 2.12(a) (any such End-User License or any agreement, contract
or commitment, a "CONTRACT," it being understood that this representation
applies to license agreements, service agreements and management agreements in
Company's standard form, which shall constitute Contracts for purposes of this
Agreement, but need not be included in SCHEDULE 2.12(a)). Each Contract is in
full force and effect and, except as otherwise disclosed in SCHEDULE 2.12(b), is
not subject to any default thereunder of which the Company has knowledge by any
party obligated to the Company pursuant thereto. The Company has no agreements
with customers or suppliers involving credit terms of more than one year.
2.13 INTERESTED PARTY TRANSACTIONS. Except as set forth on SCHEDULE
2.13, no officer, director or shareholder of the Company, and no officer,
director or shareholder of a shareholder nor any relative or spouse of any of
such persons, or any trust, partnership or corporation in which any of such
persons has or has had an interest, has or has had, directly or indirectly, (i)
an economic interest in any entity which furnished or sold, or furnishes or
sells, services or products that the Company furnishes or sells, or proposes to
furnish or sell, (ii) an economic interest in any entity that purchases from or
sells or furnishes to, the Company, any goods or services or (iii) a beneficial
interest in any contract or agreement set forth in SCHEDULE 2.12(a) or SCHEDULE
2.11(b); provided, that ownership of no more than one percent (1%) of the
outstanding voting stock of a publicly traded corporation shall not be deemed an
"ECONOMIC INTEREST IN ANY ENTITY" for purposes of this Section 2.13.
2.14 COMPLIANCE WITH LAWS. The Company has complied in all material
respects with, is not in material violation of, and has not received any notices
of violation with respect to, any Canadian, U.S., foreign, provincial, federal,
state or local statute, law or regulation.
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2.15 LITIGATION. Except as set forth in SCHEDULE 2.15, there is no
action, suit or proceeding of any nature pending or, to Company's knowledge,
threatened against the Company, its properties or any of its officers or
directors, in their respective capacities as such nor has the Company received
any notice of commencement of any lawsuit or proceeding against, or
investigation of, the Company or its affairs. Except as set forth in SCHEDULE
2.15, there is no investigation pending or, to Company's knowledge, threatened
against the Company, its properties or any of its officers or directors by or
before any Governmental Entity. SCHEDULE 2.15 sets forth, with respect to any
such action, suit, proceeding or investigation identified therein, to the extent
known, the forum, the parties thereto, the subject matter thereof and the amount
of damages claimed or other remedy requested. To the Company's knowledge, no
Governmental Entity has at any time challenged or questioned the legal right of
the Company to develop, manufacture, offer or sell any of its products in the
present manner or style thereof.
2.16 INSURANCE. The Company maintains valid insurance which is
identified in SCHEDULE 2.16, contains provisions which are reasonable and
customary in Company's industry. There is no claim by the Company pending under
any of such insurance as to which coverage has been questioned, denied or
disputed by the underwriters of such insurance. True and complete copies of such
insurance together with the most recent inspection reports, if any, received
from insurance underwriters or others as to the condition of the property and
assets of the Company have been provided to Buyer. All premiums due and payable
under all such insurance have been paid, and the Company is otherwise in
material compliance with the terms of such insurance (or other policies and
bonds providing substantially similar insurance coverage). The Company has no
knowledge of any threatened termination of, or material premium increase with
respect to, any of such insurance.
2.17 MINUTE BOOKS. The minute books of the Company made available to
counsel for Parent and Buyer are the only minute books of the Company and
contain, the text of all resolutions passed and an accurate summary of all
meetings of directors (or committees thereof) and shareholders or actions by
written consent since the time of the amalgamation of the Company.
2.18 ENVIRONMENTAL MATTERS.
(a) HAZARDOUS MATERIALS. The Company has not operated any
underground storage tanks, and has no knowledge of the existence, without
further inquiry, at any time, of any underground storage tank (or related piping
or pumps), at any property that the Company has at any time owned, operated,
occupied or leased. No Hazardous Materials (as defined below) are present as a
result of the actions or omissions of the Company, or, to the knowledge of the
Company, without further inquiry, as a result of any actions of any third party
or otherwise, in, on or under any property, including the land and the
improvements, ground water and surface water thereof, that the Company has at
any time owned, operated, occupied or leased.
(b) HAZARDOUS MATERIALS ACTIVITIES. The Company has not
transported, stored, used, manufactured, disposed of or released Hazardous
Materials in violation of any Environmental Laws as defined below in effect on
or before the Closing, nor has the Company disposed of, transported, sold, or
manufactured any product containing a Hazardous Material (any or all of the
foregoing
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being collectively referred to as "HAZARDOUS MATERIALS ACTIVITIES") in
violation of any Environmental Laws or any rule, regulation, treaty or
statute promulgated by any Governmental Entity in effect prior to or as of
the date hereof to prohibit, regulate or control Hazardous Materials or any
Hazardous Material Activity.
(c) PERMITS. The Company currently holds all environmental
approvals, permits, orders, registrations, manifests, licenses, clearances and
consents (the "ENVIRONMENTAL PERMITS") necessary for the conduct of the
Hazardous Material Activities of the Company and other businesses of the Company
as and to the extent that such activities and businesses are currently being
conducted.
(d) COMPLIANCE WITH ENVIRONMENTAL LAWS. The Company has
complied in all material respects with all reporting and monitoring requirements
under all Environmental Laws. The Company has not received any notice of any
non-compliance with any Environmental Laws, and the Company has not ever been
convicted of an offense for non-compliance with any Environmental Laws or been
fined or otherwise sentenced or settled such prosecution short of conviction.
(e) ENVIRONMENTAL LIABILITIES. No action, proceeding,
revocation proceeding, amendment procedure, writ, injunction or claim is
pending, or to the knowledge of the Company, threatened concerning any
Environmental Permit, Hazardous Material or any Hazardous Materials Activity of
the Company. The Company is not aware of any fact or circumstance which could
involve the Company in any environmental litigation or impose upon the Company
any environmental liability.
(f) DEFINITION OF "HAZARDOUS MATERIALS". As used herein,
"HAZARDOUS MATERIALS" shall mean any substance that has been designated by any
Governmental Entity or by any Environmental Law to be a pollutant, radioactive,
toxic, hazardous or otherwise a danger to health or the environment, including,
without limitation, PCBs, asbestos, oil and petroleum products,
urea-formaldehyde and all substances listed as a "HAZARDOUS SUBSTANCE,"
"HAZARDOUS WASTE," "HAZARDOUS MATERIAL," "CONTAMINANTS" or "TOXIC SUBSTANCE" or
words of similar import, under any Environmental Law.
(g) DEFINITION OF "ENVIRONMENTAL LAWS". As used herein,
"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, to the extent applicable to the conduct of Company's Business in
the United States (whether federal, state or local) or any other jurisdiction in
which the Company carries on business relating to the protection and
preservation of the environment, occupational health and safety, product safety
or product liability.
2.19 BROKERS' AND FINDERS' FEES; THIRD PARTY EXPENSES. Except as set
forth on SCHEDULE 2.19, the Company has not incurred, nor will it incur,
directly or indirectly, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement or any
transaction contemplated hereby. SCHEDULE 2.19 lists any agreement, written or
oral, with respect to such fees. SCHEDULE 2.19 sets forth Company's current
reasonable estimate of
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all Third Party Expenses (as defined in Section 5.3(a)) expected to be
incurred by the Company in connection with the negotiation and effectuation
of the terms and conditions of this Agreement and the transactions
contemplated hereby.
2.20 EMPLOYEE MATTERS AND BENEFIT PLANS.
(a) COMPLIANCE. SCHEDULE 2.20(a) contains a true and complete
list of each employee benefit plan or arrangement, and any plan, agreement or
program providing for deferred compensation, profit-sharing, bonuses, stock
options, stock appreciation or other forms of incentive compensation that (i)
is entered into, maintained or contributed to, as the case may be, by the
Company and (ii) covers any employee or former employee of the Company
(collectively "BENEFIT ARRANGEMENTS"). Each Benefit Arrangement has been
maintained and administered in material compliance with its terms and with
the requirements prescribed by any and all statutes, laws, ordinances and
regulations which are applicable to such Benefit Arrangements. No Benefit
Arrangement has unfunded liabilities that, as of the Closing Date, will not
be offset by insurance or fully accrued or reserved against in the Company
Financials.
(b) NO POST-EMPLOYMENT OBLIGATIONS. Except as set forth in
SCHEDULE 2.20(b), no Benefit Arrangement provides, or has any liability to
provide, life insurance, medical or other employee benefits to any current,
former, or retired employee, consultant or director of the Company or any
affiliate ("EMPLOYEE") upon his or her retirement or termination of employment
for any reason, except as may be required by statute, and the Company has not
ever represented, promised or contracted (whether in oral or written form) to
any Employee (either individually or to Employees as a group) that such
Employee(s) would be provided with life insurance, medical or other employee
welfare benefits upon their retirement or termination of employment, except to
the extent required by statute.
(c) EFFECT OF TRANSACTION.
(i) Except as set forth on SCHEDULE 2.20(c)(i), the
execution of this Agreement and the consummation of the transactions
contemplated hereby will not constitute an event under any Company Benefit
Arrangement, trust or loan that will or may result in any payment (whether of
severance pay or otherwise), acceleration, forgiveness of indebtedness,
vesting, distribution, increase in benefits or obligation to fund benefits
with respect to any Employee.
(ii) Except as set forth on SCHEDULE 2.20(c)(ii), no
payment or benefit which will or may be made by the Company or its affiliates
or by Parent or Buyer or any of their affiliates with respect to any Employee
as a result of the transactions contemplated by this Agreement or otherwise
will be characterized as "PARACHUTE PAYMENT," within the meaning of Section
280G(b)(2) of the Code (but without regard to clause (ii) thereof).
(d) EMPLOYMENT MATTERS. The Company (i) is in compliance in all
material respects with all applicable provincial, federal, state, foreign and
local laws, rules and regulations respecting employment, employment
practices, terms and conditions of employment and wages and hours, in each
case, with respect to Employees; (ii) has withheld all amounts required by
law or by agreement
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to be withheld from the wages, salaries and other payments to Employees;
(iii) is not liable for any arrears of wages or any taxes or any penalty for
failure to comply with any of the foregoing; and (iv) is not liable for any
payment to any trust or other fund or to any governmental or administrative
authority, with respect to unemployment compensation benefits, social
security or other benefits or obligations for Employees (other than routine
payments to be made in the normal course of business and consistent with past
practice).
(e) LABOR. No work stoppage or labor strike against the
Company is pending or, to the best knowledge of the Company, threatened.
Except as set forth in SCHEDULE 2.20(e), the Company is not involved in or,
to the knowledge of the Company, threatened with, any labor dispute,
grievance, or litigation relating to labor, safety or discrimination matters
involving any Employee, including, without limitation, charges of unfair
labor practices or discrimination complaints, which, if adversely determined,
would, individually or in the aggregate, constitute a Material Adverse
Effect. Except as set forth in SCHEDULE 2.20(e), the Company is not
presently, nor has it been in the past, a party to, or bound by, any
collective bargaining agreement or union contract with respect to Employees,
and no collective bargaining agreement is being negotiated by the Company.
Without limiting the generality of the foregoing, the Company is in material
compliance with and there are no legal proceedings or proceedings of any kind
under the Labour Standards act (Quebec), the Pay Equity Act (Quebec), the Act
respecting Labour standards (Quebec), the Manpower Act (Quebec), the Act
respecting Occupational Health & Safety (Quebec), the Act respecting
Industrial Accidents and Occupational Diseases (Quebec) and the Charter of
Human Rights and Freedoms (Quebec).
(f) In addition to and without limiting the generality of the
foregoing, with respect to each Company Employee Plan and Employee Agreement
that has been adopted or maintained by the Company or any of its Affiliates
for the benefit of Employees in Canada ("CANADIAN BENEFIT PLANS"):
(1) Except as provided on Schedule 2.20(f) (1) correct
and complete copies of the following have been provided to the Buyer:
a) Detailed description of current administration
policies and conduct regarding non-pension benefits and their improvements;
b) Complete employee data including birth dates,
sex, years of service/plan membership, earnings, and any other data relevant
to determining benefits;
(2) It is represented and warranted that:
a) No amendments have been made to the Canadian
Benefit Plans and no improvements have been promised, and no such amendments
or improvements will be made or promised prior to the Closing except as
disclosed in Schedule 2.20(b);
b) All employee data provided is true and correct;
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c) All contributions or premiums required to be
paid under each of the Canadian Benefit Plans have been paid in a timely
fashion in accordance with the Plan and any applicable legislation;
d) There are no unfunded liabilities or solvency
deficiencies;
e) There have been no improper withdrawals,
applications or transfers of assets from any Canadian Benefit Plan or related
fund;
f) All material obligations regarding each of the
Canadian Benefit Plans have been satisfied and there are no outstanding
defaults or violations by any party thereto;
g) No material changes have occurred which would
affect the actuarial valuation reports (with respect to pension plans) or
financial statements (with respect to pension and non-pension plans) provided
to the Buyer;
h) There are no participating employers under any
of the Canadian Benefit Plans, other than the Company;
i) No insurance policy or other contract or
agreement affecting any Canadian Benefit Plan requires or permits a
retroactive increase in premiums or payments due thereunder;
j) The level of insurance reserves under each
Canadian Benefit Plan which is insured is reasonable and sufficient to
provide for all incurred but unreported claims, and
k) There are no Canadian Benefit Plans which are
pension plans.
(g) CSST MATTERS.
(i) The Company has been duly assessed for employers
contributions by the Commission de la Sante et Securite du Travail ("CSST");
the business activities of the Company have been correctly classified by the
CSST; the "MASSE SALARIAL" has been correctly stated and assessed; and all
demerit assessments have been fully disclosed to Parent, Unlimited and Buyer,
a copy of the assessments by the CSST for the last three (3) years being
attached hereto in Schedule 2.20(g).
(ii) The Company has not received any demerit
assessments from the CSST pursuant to the Act Respecting Industrial and
Occupational Diseases (or any successor legislation) for injuries or events
that occurred prior to the Closing Date, nor will the Company be assessed for
demerits in respect of injuries or events that shall have occurred prior to
such date.
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2.21 EMPLOYEES. To Company's knowledge, no employee of the Company
is in violation of any term of any employment contract, patent disclosure
agreement, non-competition agreement, or any restrictive covenant to a former
employer relating to the right of any such employee to be employed by the
Company because of the nature of the business conducted or presently proposed
to be conducted by the Company or to the use of trade secrets or proprietary
information of others. No notice has been given to the Company, nor is the
Company otherwise aware, that any employee intends to terminate his or her
employment with the Company.
2.22 GOVERNMENTAL AUTHORIZATIONS AND LICENSES. The Company
possesses all material consents, licenses, permits, grants or other
authorizations issued to the Company by a governmental entity (i) pursuant to
which the Company currently operates or holds any interest in any of its
properties or (ii) which is required for the operation of its business or the
holding of any such interest therein (collectively called "COMPANY
AUTHORIZATIONS"), which Company Authorizations are in full force and effect
and constitute all Company Authorizations required to permit the Company to
operate or conduct its business or hold any interest in its properties or
assets.
2.23 COMPETITION ACT. The aggregate value of the assets in Canada,
determined as of such time and in such manner as is prescribed by the
COMPETITION ACT (Canada) and the regulations thereto, that are owned by the
Company, does not exceed CDN $35 million, and the gross revenues from sales
in or from Canada, determined for such annual period and in such manner as is
prescribed by the COMPETITION ACT (Canada) and the regulations thereto,
generated from the assets referred to above, do not exceed CDN $35 million
2.24 EMPLOYEE ACCRUALS. Except as set forth in SCHEDULE 2.24, all
accruals for unpaid vacation pay, premiums for unemployment insurance, health
premiums, pension plan premiums, accrued wages, salaries and commissions and
Employee Plan payments have been reflected on the books and records of the
Company in accordance with generally accepted accounting principles, except
that the Company does not accrue for unpaid vacation pay.
2.25 MAJOR CUSTOMERS. SCHEDULE 2.25 sets out the names of certain
major customers of the Company (the "MAJOR CUSTOMERS") and, to Company's
knowledge without further inquiry, there has been no, and the Company has no
reason to believe that after the Closing Date there will be, any termination
or cancellation of, and no material impairment in the business relationship
between the Company and any such Major Customer.
2.26 PRODUCT WARRANTIES. There are no outstanding warranty claims
that would have a Material Adverse Effect on the Company, nor to Company's
knowledge, have any such claims been threatened.
2.27 REPRESENTATIONS OF EACH SELLER. Each Seller represents and
warrants as follows:
(a) This Agreement has been duly authorized, executed and
delivered by and constitutes a valid and binding obligation of Seller.
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(b) The execution and delivery by Seller of, and the
performance by Seller of his or her obligations under this Agreement, does
not and will not contravene any provision of applicable law, or any agreement
or other instrument binding upon Seller or any judgment, order or decree of
any governmental body, agency or court having jurisdiction over Seller, and
no consent, approval, authorization or order of or qualification with any
governmental body or agency is required for the performance by Seller of his
or her obligations under this Agreement.
(c) Seller has valid marketable title to the Shares free and
clear of all Liens and the legal right and power, and all authorization and
approval required by law, to enter into this Agreement, and to sell, transfer
and deliver the Shares to Buyer.
(d) Seller understands that the Class A, C, D and E Preferred
Shares being issued pursuant to this Agreement, the Exchangeable Shares
issuable upon conversion of such shares, and the Parent Common Stock issuable
upon exchange of the Exchangeable Shares will not be registered under the
Securities Act of 1933, as amended (the "SECURITIES ACT"), or comparable
registration provisions of Canadian securities legislation, on the basis that
the issuance of securities hereunder, the Exchangeable Shares upon conversion
of the Class A, C, D or E Preferred Shares, and the Parent Common Stock upon
exchange of the Exchangeable Shares is exempt from registration under the
Securities Act pursuant to section 3(a)(9), 4(2) and/or Rule 506 thereof, and
applicable Canadian securities legislation, and that Parent's, Unlimited's
and Buyer's reliance on such exemption is based on Seller's representations
set forth in the Stockholder's Certificate.
2.28 FULL DISCLOSURE. This Agreement (including the Company
Schedules), and any schedule or certificate furnished by the Company or
Sellers pursuant to this Agreement, or furnished in or in connection with
documents mailed or delivered to the Sellers in connection with soliciting
their consent to this Agreement and the Acquisition does not (i) contain any
representation, warranty or information that is false or misleading with
respect to any material fact, or (ii) omit to state any material fact
necessary in order to make the representations, warranties and information
contained and to be contained herein and therein (in the light of the
circumstances under which such representations, warranties and information
were or will be made or provided) not false or misleading. There is no fact
(other than publicly known facts relating exclusively to political or
economic matters of general applicability) that is known to the Company or to
the Management Sellers that could reasonably be expected to have a Material
Adverse Effect on Company's business, condition, assets, liabilities,
operations, financial performance, net income, customer relations or
prospects (or on any aspect or portion thereof). All of the information set
forth in the Company Schedules, and all other information regarding the
Company and its business, condition, assets, liabilities, operations,
financial performance, net income, customer relations and prospects that has
been furnished to Parent or any representative thereof by or on behalf of the
Company or any of the Sellers, or any of the representatives of the Company
or any of the Sellers, is accurate and complete in all material respects. It
is expressly understood that for the purposes of this Section 2.28, such
information shall not be deemed inaccurate or incomplete if, when considered
together with other information regarding the Company furnished in writing to
Parent by the Company, it would be accurate and complete in all material
respects.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER, PARENT AND UNLIMITED
Buyer, Parent and Unlimited jointly and severally represent and
warrant to the Sellers as follows:
3.1 ORGANIZATION OF THE COMPANY. Buyer, Parent and Unlimited are
corporations duly incorporated and validly existing under the federal laws of
Canada, the laws of Delaware, and the laws of Nova Scotia, respectively.
Buyer, Parent and Unlimited have the corporate power to own their properties
and to carry on their business as now being conducted. Buyer, Parent and
Unlimited are duly qualified to do business and are in good standing as
foreign corporations in each jurisdiction in which the failure to be so
qualified would have, or would reasonably be expected to have, a material
adverse effect on their business, financial condition, results of operations,
assets (including intangible assets), liabilities or prospects of Buyer,
Parent and Unlimited taken as a whole. Buyer, Parent and Unlimited have
delivered a true and correct copy of their Articles of Incorporation and
Bylaws (or equivalent organizational documents), each as amended to date, to
the Company.
3.2 AUTHORITY. Buyer, Parent and Unlimited have all requisite
corporate power and authority to enter into this Agreement and to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of Buyer,
Parent and Unlimited. This Agreement has been duly executed and delivered by
Buyer, Parent and Unlimited and constitutes the valid and binding obligation
of Buyer, Parent and Unlimited, enforceable in accordance with its terms
except (i) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement of
creditors' rights generally and (ii) as limited by laws relating to the
availability of specific performance, injunctive relief or other equitable
remedies. Except as set forth in SCHEDULE 3.2, the execution and delivery of
this Agreement by Buyer, Parent and Unlimited does not, and, as of the
Closing, the consummation of the transactions contemplated hereby will not,
conflict with, or result in any violation of, or default under (with or
without notice or lapse of time, or both), or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of any
benefit under (any such event, a "CONFLICT") (i) any provision of the
Articles of Incorporation or Bylaws of Buyer, Parent and Unlimited or any
shareholders agreement or resolution of the boards of directors of Buyer,
Parent and Unlimited or (ii) any mortgage, indenture, lease, contract or
other agreement or instrument, permit, concession, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or regulation, or any
judgment, decree, order or award of any court, governmental body or
arbitrator having jurisdiction over Buyer, Parent or Unlimited applicable to
Buyer, Parent or Unlimited or their properties or assets, except where such
failure or conduct would not have or could not reasonably be expected to have
a Material Adverse Effect. No consent, waiver, approval, order or
authorization of, or registration, declaration or filing with, any
Governmental Entity or any third party (so as not to trigger any Conflict) is
required by or with respect to Buyer, Parent or Unlimited in connection with
the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby, except for (i) such consents, waivers,
approvals, orders, authorizations, registrations,
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declarations and filings as may be required under applicable provincial,
federal and state securities laws, (ii) the filing with appropriate Canadian
authorities of such forms as may be required by the Investment Canada Act,
(iii) such other consents, waivers, authorizations, filings, approvals and
registrations which are set forth on SCHEDULE 3.2 and (iv) such other
consents, waivers, authorizations, filings, approvals and registrations the
absence of which would not have or could not reasonably be expected to have a
material adverse effect on Buyer Parent, or Unlimited.
3.3 CAPITAL STRUCTURE.
(a) The authorized stock of Buyer consists of (i) 10,000,000
Common Shares, of which one share was issued and outstanding as of the date
hereof and registered in the name of Unlimited. At the Closing, the authorized
stock of Buyer will also include (i) 100,000,000 convertible, retractable
redeemable Class A Preferred Shares (constituting the Class A Preferred Shares),
none of which are issued and outstanding as of the date hereof, and (ii)
100,000,000 exchangeable shares (the "EXCHANGEABLE SHARES"), none of which are
issued and outstanding on the date hereof, (iii) 100,000,000 non-voting Class B
Preferred Shares (constituting the Class B Preferred Shares), none of which are
issued and outstanding on the date hereof, (iv) 100,000,000 Class C Preferred
Shares (constituting the Class C Preferred Shares), none of which are
outstanding on the date hereof, (v) 100,000,000 Class D Preferred Shares
(constituting the Class D Preferred Shares), none of which are outstanding on
the date hereof, and (vi) 100,000,000 Class E Preferred Shares (constituting the
Class E Preferred Shares), none of which are outstanding on the date hereof,
which shares shall have the rights, privileges, terms and conditions
substantially in the form attached as EXHIBIT H hereto. All such outstanding
shares have been duly authorized, and all such issued and outstanding shares
have been validly and legally issued, are fully paid and nonassessable and are
free of any Liens other than any Liens created by or imposed upon the holders
thereof.
(b) The Class A, C, D and E Preferred Shares to be issued in
connection with the Acquisition, when issued, the Exchangeable Shares, when
issued upon conversion of any Class A, C, D and E Preferred Shares, and Common
Stock of Parent exchanged for any Exchangeable Shares, will be duly authorized,
validly and legally issued, fully paid and non-assessable and free and clear of
all Liens.
(c) Buyer is a wholly-owned subsidiary of Unlimited, which
itself is a wholly-owned subsidiary of Parent.
3.4 SEC DOCUMENTS; PARENT FINANCIAL STATEMENTS. Parent has furnished or
made available to the Company true and complete copies of all reports or
registration statements filed by it with the United States Securities and
Exchange Commission (the "SEC") under the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT") for all periods since December 1, 1999, all in the
form so filed (all of the foregoing being collectively referred to as the "SEC
DOCUMENTS"). As of their respective filing dates, the SEC Documents complied in
all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and none of the SEC Documents contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements made therein, in light
of the circumstances in which they were made, not misleading, except to the
extent corrected by a document subsequently
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filed with the SEC. The financial statements of Parent, including the notes
thereto, included in the SEC Documents (the "PARENT FINANCIAL STATEMENTS")
comply as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with United States
generally accepted accounting principles consistently applied (except as may
be indicated in the notes thereto or, in the case of unaudited statements, as
permitted by Form 10-Q of the SEC) and present fairly the consolidated
financial position of Parent at the dates thereof and the consolidated
results of its operations and cash flows for the periods then ended (subject,
in the case of unaudited statements, to normal audit adjustments). There has
been no change in Parent accounting policies except as described in the notes
to the Parent Financial Statements.
3.5 NO MATERIAL ADVERSE CHANGE. Since the date of the balance sheet
included in the Parent's most recently filed report on Form 10-Q or Form 10-K,
Parent has conducted its business in the ordinary course and there has not
occurred: (a) any material adverse change in the financial condition,
liabilities, assets or business of Parent or Buyer; (b) any amendment or change
in the Certificate of Incorporation or Bylaws of Parent or Buyer, or (c) any
damage to, destruction or loss of any assets of the Parent or Buyer (whether or
not covered by insurance) that materially and adversely affects the financial
condition or business of Parent or Buyer.
3.6 CONFORMITY WITH LAW; LITIGATION.
(a) To their knowledge, neither Buyer, Parent or Unlimited are
in violation of any law or regulation or any order of any court or federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality having jurisdiction over them which would adversely
affect their business operations, properties, assets and conditions or
Buyer's, Parent's and Unlimited's ability to effectuate the Acquisition. To
their knowledge, Buyer, Parent and Unlimited have conducted and are
conducting their business in compliance with the requirements, standards and
conditions set forth in applicable federal, provincial, state and local
statutes, ordinances, orders, approvals, variances, rules and regulations and
are not in violation of any of the foregoing which would adversely affect
their business, operations, properties, assets and conditions or Buyer's,
Parent's or Unlimited's ability to effectuate the Acquisition.
(b) To their knowledge, except as disclosed in the SEC
Documents, neither Buyer, Parent or Unlimited are a party to any litigation
and there are no claims, actions, suits or proceedings, pending or, to the
knowledge of Buyer, Parent and Unlimited, threatened against or affecting
Buyer, Parent and Unlimited, at law or in equity, or before or by any
federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over them which
would adversely affect their business, operations, properties, assets and
conditions or Buyer's, Parent's or Unlimited's ability to effectuate the
Acquisition. To their knowledge, except as disclosed in the SEC Documents,
Buyer Parent and Unlimited are not subject to any existing judgments which
would adversely affect their business, operations, properties, assets and
conditions or Buyer's, Parent's or Unlimited's ability to effectuate the
Acquisition, or which could adversely affect their business, operations,
properties, assets and
-26-
conditions or Buyer's Parent's or Unlimited ability to effectuate the
transactions contemplated hereby.
3.7 FULL DISCLOSURE. This Agreement, and any schedule or certificate
furnished by the Buyer, Parent or Unlimited pursuant to this Agreement does not
(i) contain any representation, warranty or information that is false or
misleading with respect to any material fact, or (ii) omit to state any material
fact necessary in order to make the representations, warranties and information
contained and to be contained herein and therein (in the light of the
circumstances under which such representations, warranties and information were
or will be made or provided) not false or misleading. There is no fact (other
than publicly known facts relating exclusively to political or economic matters
of general applicability) that is known to Buyer, Parent or Unlimited that could
reasonably be expected to have an adverse effect on Buyer, Parent or Unlimited's
business, condition, assets, liabilities, operations, financial performance, net
income, customer relations or prospects (or on any aspect or portion thereof).
All of the information that is known to Buyer, Parent and Unlimited and their
business, condition, assets, liabilities, operations, financial performance, net
income, customer relations and prospects that has been furnished to the Company,
the Sellers, or any representative thereof by or on behalf of Buyer, Parent or
Unlimited, or any of the representatives of Buyer, Parent or Unlimited, is
accurate and complete in all respects. It is expressly understood that for the
purposes of this Section 3.7, such information shall not be deemed inaccurate or
incomplete if, when considered together with other information regarding Buyer,
Parent and Unlimited furnished in writing to the Company or the Sellers by the
Buyer, Parent and Unlimited, it would be accurate and complete in all respects.
ARTICLE IV
CONDUCT PRIOR TO THE CLOSING
4.1 CONDUCT OF BUSINESS OF THE COMPANY.
(a) COMPANY CONDUCT. For purposes of this Article IV, the
ordinary course of business shall be deemed to include a course of business
consistent with the Business Plan of the Company attached hereto as EXHIBIT F
(the "BUSINESS PLAN"). During the period from the date of this Agreement and
continuing until the earlier of the termination of this Agreement and the
Closing, each Management Seller shall, and each Seller shall make commercially
reasonable efforts to cause the Company and the Company agrees (except to the
extent that Parent shall otherwise consent in writing), to carry on its business
in the usual, regular and ordinary course in substantially the same manner as
heretofore conducted, to pay its debts in substantially the same manner as
heretofore conducted and Taxes when due, to pay or perform other obligations
when due, and, to the extent consistent with such business, to use all
reasonable efforts consistent with past practice and policies to preserve intact
its present business organization, keep available the services of its present
officers and key employees and preserve its relationships with customers,
suppliers, distributors, licensors, licensees, and others having business
dealings with it, all with the goal of preserving unimpaired its goodwill and
ongoing businesses at and after the Closing. Each Management Seller shall, and
each
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Seller shall make commercially reasonable efforts to cause the Company, and
the Company agrees, to promptly notify Parent of any event or occurrence or
emergency not in the ordinary course of its business, and any material event
involving or adversely affecting the Company or its business. Except as
expressly contemplated by this Agreement, each Management Seller shall, and each
Seller shall make commercially reasonable efforts to cause the Company, and the
Company agrees, not to take any of the following actions without the prior
written consent of Parent, such consent not to be unreasonably withheld or
delayed:
(i) Enter into any commitment, activity or
transaction not in the ordinary course of business;
(ii) Transfer to any person or entity any rights
to any Company Intellectual Property, other than pursuant to Standard License
Agreements;
(iii) Enter into or amend any agreements pursuant
to which any other party is granted manufacturing, marketing, distribution or
similar rights of any type or scope with respect to any products of the Company,
except in the ordinary course of business;
(iv) Amend or otherwise modify (or agree to do
so), except in the ordinary course of business, or violate the terms of, any of
the agreements set forth or described in the Company Schedules;
(v) Commence any litigation;
(vi) Except for the capital dividend disclosed in
the Balance Sheet, declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of the
shares in its share capital, or split, combine or reclassify any of the shares
in its share capital or issue or authorize the issuance of any other securities
in respect of, in lieu of or in substitution for shares in the share capital of
the Company, or repurchase, redeem or otherwise acquire, directly or indirectly,
any shares in the share capital of the Company (or options, warrants or other
rights exercisable therefor);
(vii) Issue, grant, deliver or sell or authorize
or propose the issuance, grant, delivery or sale of, or purchase or propose the
purchase of, any shares of its capital stock or securities convertible into, or
subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such shares or other
convertible securities;
(viii) Cause or permit to be made any amendments
to its articles of incorporation or bylaws;
(ix) Acquire or agree to acquire by merging or
consolidating with, or by purchasing any assets or equity securities of, or by
any other manner, any business or any corporation, partnership, association or
other business organization or division thereof, except
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"FUNDRAISING BANK" and "FUNDRAISING BAZAAR" or otherwise acquire or agree to
acquire any assets which are material, individually or in the aggregate, to
the business of the Company;
(x) Sell, lease, license or otherwise dispose of
any of its properties or assets, except in the ordinary course of business and
consistent with past practice;
(xi) Incur any indebtedness for borrowed money or
guarantee any such indebtedness or issue or sell any debt securities of the
Company or guarantee any debt securities of others other than fluctuations under
existing loan facilities, excluding amounts loaned to the Company by Parent or
Buyer;
(xii) Grant any severance or termination pay to
any director, officer employee or consultant, except pursuant to existing
agreements set forth in SCHEDULE 2.12(a) or as required by applicable laws;
(xiii) Adopt or amend any employee benefit plan,
program, policy or arrangement, or enter into any employment contract, extend
any employment offer, pay or agree to pay any special bonus or special
remuneration to any director, employee or consultant, or increase the salaries
or wage rates of its employees, except in the ordinary course of business;
(xiv) Revalue any of its assets, including
without limitation writing down the value of inventory or writing off notes or
accounts receivable, other than in the ordinary course of business and
consistent with past practice;
(xv) Excluding payroll obligations performed in
the ordinary course, pay, discharge or satisfy, in an amount in excess of
$50,000, any claim, liability or obligation (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment, discharge or
satisfaction in the ordinary course of business of liabilities reflected or
reserved against in the Company Financials or incurred in the ordinary course of
business consistent with past practice since February 29, 2000, and prior to the
date hereof;
(xvi) Make or change any material election in
respect of Taxes, adopt or change any accounting method in respect of Taxes,
enter into a settlement or compromise, settle any claim or assessment in respect
of Taxes, or consent to any extension or waiver of the limitation period
applicable to any claim or assessment in respect of Taxes;
(xvii) Enter into any strategic alliance, joint
development or joint marketing arrangement or agreement, except in the ordinary
course of business;
(xviii) Fail to pay or otherwise satisfy its
monetary obligations as they become due, except such as are being contested in
good faith;
(xix) Waive or commit to waive any rights with a
value in excess of $25,000, in any one case, or $50,000, in the aggregate;
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(xx) Cancel, materially amend or renew any
insurance policy other than in the ordinary course of business;
(xxi) Alter, or enter into any commitment to
alter, its interest in any corporation, association, joint venture, partnership
or business entity in which the Company directly or indirectly holds any
interest on the date hereof; or
(xxii) Take, or agree in writing or otherwise to
take, any of the actions described in Sections 4.1(i) through (xxi) above, or
any other action that would prevent the Company from performing or cause the
Company not to perform its covenants hereunder.
(b) PARENT AND BUYER CONDUCT. Parent and Buyer shall promptly
notify the Company and the Management Sellers of any event or occurrence which
may be reasonably likely to prevent or materially delay Parent or Buyer from
carrying out any of its obligations under this Agreement.
4.2 NO SOLICITATION. Until the earlier of the Closing and the date of
termination of this Agreement pursuant to the provisions of Section 8.1 hereof,
each of the Company and each Seller will not (nor will the Company or any Seller
permit any of its officers, directors, shareholders, agents, representatives or
affiliates to), directly or indirectly, take any of the following actions with
any party other than Parent and Buyer and their respective designees: (a)
solicit, initiate, entertain or encourage any proposals or offers from, or
conduct discussions with or engage in negotiations with, any person relating to
any possible acquisition of the Company (whether by way of amalgamation,
purchase of shares, purchase of assets or otherwise), any material portion of
its share capital or assets or any equity interest in the Company, (b) provide
information with respect to it to any person, other than Parent or Buyer,
relating to, or otherwise cooperate with, facilitate or encourage any effort or
attempt by any such person with regard to, any possible acquisition of the
Company (whether by way of amalgamation, purchase of shares, purchase of assets
or otherwise), any material portion of its share capital or assets or any equity
interest in the Company, (c) enter into an agreement with any person, other than
Parent or Buyer, providing for the acquisition of the Company (whether by way of
amalgamation, purchase of shares, purchase of assets or otherwise), any material
portion of its share capital or assets or any equity interest in the Company, or
(d) make or authorize any statement, recommendation or solicitation in support
of any possible acquisition of the Company (whether by way of amalgamation,
purchase of shares, purchase of assets or otherwise), any material portion of
its share capital or assets or any equity interest in the Company by any person,
other than by Parent or Buyer. The Company and each Seller shall immediately
cease and cause to be terminated any such contacts or negotiations with third
parties relating to any such transaction or proposed transaction. In addition to
the foregoing, if the Company or each Seller receives prior to the Closing or
the termination of this Agreement any offer or proposal relating to any of the
above, the Company or such Seller shall immediately notify Parent and the Buyer
thereof, including information as to the identity of the offeror or the party
making any such offer or proposal and the specific terms of such offer or
proposal, as the case may be, and such other information related thereto as
Parent and Buyer may reasonably request. Except as contemplated by this
Agreement, disclosure by the Company or any Seller of the terms of this
Agreement (other than the prohibition of this section or as otherwise required
by law) shall be deemed to be a violation of this Section 4.2.
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4.3 NO ENCUMBRANCE. Until the earlier of the Closing Date or the date
of termination of this Agreement, the Company and each Seller will not (nor will
the Company or any Seller permit any of its respective officers, directors,
agents, representatives or affiliates to) directly or indirectly, take any
action which could in any way and at any time impair the Seller's good and valid
title to the Shares or could cause or lead to the creation of any lien, claim,
charge, restriction, pledge, security interest, option, right of any nature or
other legal or equitable encumbrance with regard to the Shares.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 SALE AND REGISTRATION OF SHARES; SHAREHOLDER MATTERS.
(a) SALE OF SHARES. The parties hereto acknowledge and agree
that the Class A, C, D and E Preferred Shares issuable to the shareholders
pursuant to Section 1.2 hereof, the Exchangeable Shares issuable upon conversion
of such shares, and the Parent Common Stock issuable upon exchange of the
Exchangeable Shares shall constitute "RESTRICTED SECURITIES" within the meaning
of the U.S. Securities Act of 1933, as amended (the "SECURITIES ACT"). The
certificates for Class A, C, D and E Preferred Shares to be issued in connection
with the Acquisition, the Exchangeable Shares issuable upon conversion of such
shares, and the Parent Common Stock issuable upon exchange of the Exchangeable
Shares, shall bear appropriate legends to identify such privately placed shares
as being restricted under the Securities Act, to comply with applicable U.S.
state securities laws. It is acknowledged and understood that Parent and Buyer
are relying upon certain written representations made by each shareholder.
(b) SHAREHOLDER'S CERTIFICATE. Each Seller shall execute and
deliver to Buyer a Shareholder's Certificate in the form attached hereto as
EXHIBIT C (the "SHAREHOLDER'S CERTIFICATE").
(c) REGISTRATION RIGHTS. Effective as of the Closing Date,
Parent grants each Seller limited demand registration rights, as set forth in
the Declaration of Registration Rights attached hereto as EXHIBIT D.
Participation by Sellers in any such registration shall be subject to the terms
and conditions set forth in the Declaration of Registration Rights attached
hereto as EXHIBIT D.
5.2 CONFIDENTIALITY. Each of the parties hereto hereby agrees to keep
such information or knowledge obtained pursuant to the negotiation and execution
of this Agreement or the effectuation of the transactions contemplated hereby,
confidential, and also agree not to use such knowledge or information; provided,
however, that the foregoing shall not apply to information or knowledge which
(a) a party can demonstrate was already lawfully in its possession on a
non-confidential basis prior to the disclosure thereof by the other party, (b)
is generally known to the public and did not become so known through any
violation of law, (c) became known to the public through no fault of such party,
(d) is later lawfully acquired by such party from other sources, (e) is required
to be
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disclosed by order of court or government agency with subpoena powers or
(f) which is disclosed in the course of any litigation between any of the
parties hereto.
5.3 EXPENSES. Whether or not the Acquisition is consummated, all fees
and expenses incurred in connection with the Acquisition including, without
limitation, all legal, accounting, financial advisory, consulting and all other
fees and expenses of third parties ("THIRD PARTY EXPENSES") incurred by a party
in connection with the negotiation and effectuation of the terms and conditions
of this Agreement and the transactions contemplated hereby shall be the
obligation of the respective party incurring such fees and expenses.
5.4 PUBLIC DISCLOSURE. Unless otherwise required by law (including,
without limitation, federal and state securities laws) no disclosure (whether or
not in response to an inquiry) of the subject matter of this Agreement shall be
made by the Company or the Sellers unless approved by Parent, prior to release,
and no such disclosure shall be made by the Parent, Buyer or Unlimited prior to
the Closing unless approved by the Management Sellers prior to release.
5.5 CONSENTS. The Sellers shall use their commercially reasonable to
cause the Company to obtain the consents, waivers and approvals under any of the
Contracts as may be required in connection with the Acquisition (all of such
consents, waivers and approvals are set forth in Company Schedules) so as to
preserve all rights of and benefits to the Company thereunder, or to consummate
the transactions contemplated hereby, and shall use commercially reasonable
efforts to obtain all necessary consents, waivers and approvals under any of its
material contracts in connection with the transactions contemplated hereby for
the assignment thereof or otherwise. The parties hereto will consult and
cooperate with one another, and consider in good faith the views of one another,
in connection with any analyses, appearances, presentations, memoranda, briefs,
arguments, opinions and proposals made or submitted by or on behalf of any party
hereto in connection with the foregoing.
5.6 COMMERCIALLY REASONABLE EFFORTS. Subject to the terms and
conditions provided in this Agreement, each of the parties hereto shall use its
commercially reasonable efforts to ensure that its representations and
warranties remain true and correct in all material respects, and to take
promptly, or cause to be taken, all actions, and to do promptly, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated
hereby, to obtain all necessary waivers, consents and approvals, to effect all
necessary registrations and filings, and to remove any injunctions or other
impediments or delays, legal or otherwise, in order to consummate and make
effective the transactions contemplated by this Agreement for the purpose of
securing to the parties hereto the benefits contemplated by this Agreement.
5.7 NOTIFICATION OF CERTAIN MATTERS. The Sellers shall give prompt
notice to Buyer, and Buyer shall give prompt notice to the Sellers, of (i) the
occurrence or non-occurrence of any event, the occurrence or non-occurrence of
which is likely to cause any representation or warranty of any such party
contained in this Agreement to be untrue or inaccurate at or prior to the
Closing and (ii) any failure of any such party, as the case may be, to comply
with or satisfy any covenant, condition or agreement to be complied with or
satisfied by it hereunder; provided, however, that the delivery of
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any notice pursuant to this Section 5.7 shall not limit or otherwise affect
any remedies available to the party receiving such notice.
5.8 TRANSITION. None of the Sellers will take any action that is
designed or intended to have the effect of discouraging any lessor, licensor,
customer, supplier, or other business associate of the Company from maintaining
the same business relationships with the Company after the Closing as it
maintained with the Company prior to the Closing. Each of the Sellers will refer
all customer inquiries relating to the business of the Company to the Company or
Buyer from and after the Closing.
5.9 ADDITIONAL DOCUMENTS AND FURTHER ASSURANCES. Each party hereto, at
the request of the other party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary or
desirable for effecting completely the consummation of this Agreement and the
transactions contemplated hereby.
5.10 EMPLOYMENT AND NON-COMPETITION AGREEMENTS; OPTIONS. At or prior to
the Closing, each Management Seller will deliver an executed Employment and
Non-Competition Agreement in substantially the form attached hereto as EXHIBIT E
(the "EMPLOYMENT AND NON-COMPETITION AGREEMENTS"), and pursuant to such
Employment and Non-Competition Agreements, the Parent will issue the options
(the "OPTIONS") represented by, and execute and deliver the ZapMe! Corporation
Time Accelerated Restricted Stock Award Plan Stock Option Agreements attached
thereto as APPENDIX 1 (the "OPTION AGREEMENTS").
5.11 TAX FILINGS. The Company shall be responsible for filing all Tax
Returns of the Company for taxable periods ending on the day before the Closing.
Such returns shall be prepared and filed in accordance with applicable law and
in a manner consistent with past practices. After the Closing, Buyer and the
Company, on the one hand, and the Sellers, on the other hand, will make
available to the other, as reasonably requested, all information, records or
documents relating to the liability for Taxes of the Company for all periods
ending on or prior to the Closing and will preserve such information, records or
documents until the expiration of any applicable statute of limitations or
extensions thereof.
5.12 SUPPORT OF XXXXXXXXXXXX.XXX CORPORATION. Parent covenants and
agrees to make commercially reasonable efforts to support Company's Business
Plan through the year ending December 31, 2002, and in particular Company's
expense budget during such period as reflected on the Business Plan, as long as
the Company is reasonably likely to meet the annual revenue and EBIT targets
attached to each of the Employment and Non-Competition Agreements as Exhibit A.
The likelihood of achieving such targets shall be discussed in good faith among
the Management Sellers and Parent and any decisions made with regard to this
issue shall take into consideration the facts and circumstances surrounding such
decision and the possibility of the Company meeting the annual revenue and EBIT
targets within a reasonable period of time. Upon Parent's failure to comply with
this covenant, which failure has not been cured within the thirty day period
subsequent to delivery by the Management Sellers of written notice to Parent of
such failure, the Options shall vest in accordance with the Vesting Schedule in
Article I of the appropriate Option Agreement as if each
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annual revenue and EBIT target set forth on Annex A thereto subsequent to
such breach had been achieved by the Company.
5.13 SELLER'S RELEASE. Each Seller, on behalf of himself or herself,
and his or her heirs, executors, administrators and assigns, hereby fully and
forever releases the other Sellers, the Company, and their officers, directors,
heirs, executors, administrators and assigns, of and from any claim, duty,
obligation or cause of action relating to any matters of any kind, whether
presently known or unknown, suspected or unsuspected, that such Seller may
possess against the other Sellers, the Company, and their officers, directors,
heirs, executors, administrators and assigns, arising from any omissions, acts
or facts that have occurred up until and including the effective date of this
Agreement including, without limitation, any and all claims relating to or
arising from the different consideration per share that certain Sellers will
receive in exchange for their respective shares of the share capital of the
Company from the Buyer and Parent. Each Seller agrees that the release set forth
in this section shall be and remain in effect in all respects as a complete
general release as to the matters released. This release does not extend to any
obligations incurred under this Agreement or any agreement contemplated hereby.
Each Seller represents that they are not aware of any claim other than the
claims that are released by this Agreement. Each Seller acknowledges that no
action taken by the parties hereto, or any of them, either previously or in
connection with this Agreement shall be deemed or construed to be (i) an
admission of the truth or falsity of any claims heretofore made or (ii) an
acknowledgment or admission by any party of any fault or liability whatsoever to
the other party or to any third party.
5.14 SECTION 116 CERTIFICATE.
(a) Each Seller shall deliver to Buyer prior to the Closing
Date either (i) a statutory declaration to the effect that such Seller is not a
non-resident of Canada for purposes of the INCOME TAX ACT (Canada) (the "ITA");
or (ii) a certificate under section 116 of the ITA with a certificate limit not
less than the fair market value of the Company Common Shares disposed of by such
Seller and, where the Seller is not an individual for purposes of the TAXATION
ACT (Quebec) (in this section an "INDIVIDUAL") a certificate under the
equivalent provisions of the TAXATION ACT (Quebec) (such certificate
collectively referred to as a "116 CERTIFICATE").
(b) If a statutory declaration or 116 Certificate is not
delivered by any particular Seller to Buyer at or before the Closing with a
certificate limit not less than the Consideration to which the particular Seller
is entitled to receive pursuant to Section 1.2 of this Agreement (the "SELLER'S
CONSIDERATION"), Buyer shall be entitled to withhold all of the Seller's
Consideration (the "WITHHELD AMOUNT"), including Class A Preferred Shares to
which such Seller would otherwise be entitled ("WITHHELD PREFERRED SHARES"),
which shares shall be duly endorsed in blank for transfer.
(c) If a Seller to whom Section 5.14(b) applies does not
deliver a 116 Certificate as hereinbefore contemplated in this subsection
5.14(c) prior to the 15th day after the end of the month in which the Closing
occurs, the Seller and the Buyer shall enter into bona fide negotiations with
respect to the terms and conditions under which Buyer may be prepared to not
remit any funds to the appropriate revenue authority as hereinafter
contemplated, which consideration may include the provision of a secured
indemnity on terms and conditions satisfactory to the Buyer in its sole and
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absolute discretion. If the parties are unable to reach agreement on the terms
of such arrangements and if the Seller to whom Section 5.14(b) applies does not
deliver a 116 Certificate as hereinbefore contemplated in this subsection
5.14(c) prior to the 27th day after the end of the month in which the Closing
occurs, Unlimited hereby agrees to purchase from such Seller, and such Seller
hereby agrees to sell to Unlimited, (and Buyer shall deliver to Unlimited on
behalf of Seller such number of Withheld Preferred Shares at a price of US$11.00
per share as will, together with the cash portion of the Withheld Amount plus
interest on such portion (less the amount of any withholding tax on such
interest), equal the amount required to be remitted pursuant to applicable law.
Such Seller hereby appoints Buyer and Unlimited to take such steps and execute
such documents on behalf of the Seller to effect all such sales and hereby
releases Unlimited and Buyer from all claims which such Seller may have against
either of them in respect thereto. Buyer shall thereafter deliver the remaining
Withheld Preferred Shares to Seller. If a Seller to whom Section 5.14(b) applies
delivers to Buyer prior to the 27th day after the end of the month in which the
Closing occurs a 116 Certificate with a certificate limit not less than the
Seller's Consideration, within two (2) business days thereof, Buyer shall pay
and deliver the Withheld Amount plus any interest on the cash portion of the
Withheld Amount (less the amount of any withholding tax on such interest), if
any, to such Seller by certified check or bank draft made payable in lawful
money of the United States in accordance with a direction to Buyer executed by
Seller.
(d) If a Seller to whom Section 5.14(b) applies does not
deliver to Buyer the 116 Certificate described in paragraph (c) above, Seller
shall on or before the 30th day after the end of the month in which the Closing
occurs (A) remit to the appropriate revenue authority the amount required to be
remitted pursuant to applicable law and the amount so remitted shall be credited
to Buyer as payment to the Seller on account of the Seller's Consideration, and
(B) within two (2) business days thereof pay and deliver the remaining portion
of the Withheld Amount plus any interest on the cash portion of the Withheld
Amount (less the amount of any withholding tax on such interest), if any, to the
Seller by a certified check or bank draft made payable in lawful money of the
United States in accordance with the discretion to Buyer executed by Seller.
(e) Each Seller agrees that such Seller will, at or before the
time of any redemption, retraction or any other action which would result in the
conversion or exchange of any such Seller's Class A, C, D or E Preferred Shares
for exchangeable shares of Buyer ("EXCHANGEABLE SHARES") deliver to Buyer
either: (i) a statutory declaration to the effect that such Seller is not a
non-resident of Canada for purposes of the ITA; or (ii) a 116 Certificate with a
certificate limit not less than the fair market value of the Class A, C, D or E
Preferred Shares to be converted or exchanged by such Seller; or (iii) a
statutory declaration (the "APPLICATION DECLARATION") that the Seller is a
non-resident of Canada for the purposes of the ITA and has applied for the 116
Certificate in prescribed form (the "APPLICATION") together with a copy of the
Application. Notwithstanding anything contained herein, if a Seller delivers the
Application Declaration, or does not deliver any of the foregoing to the Buyer,
then the Seller shall not be entitled to receive any certificates representing
any Exchangeable Shares to which the Seller is entitled pursuant to the exchange
of the Class A, C, D or E Preferred Shares until such time as the Seller
delivers the 116 Certificate to the Buyer.
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(f) Each Seller agrees that such Seller will, at or before the
time of any exchange (an "EXCHANGE") of any Exchangeable Shares for common
shares of the Parent ("PARENT SHARES") deliver to Unlimited either (i) a
statutory declaration to the effect that such Seller is not a non-resident of
Canada for purposes of the ITA; or (ii) 116 Certificate with a certificate limit
not less than the fair market value of the Exchangeable Shares to be Exchanged
(the "CONSIDERATION").
(g) If the Seller of Exchangeable Shares (a "NON-RESIDENT
SELLER") has not delivered a statutory declaration or a 116 Certificate in
accordance with paragraph (c) hereof to Unlimited at or before the time of any
Exchange, Unlimited shall be entitled to withhold from the number of Parent
Shares to which the Non-Resident Seller is entitled to receive on the Exchange
(i) where the Seller is an individual 37% of the number of such Parent Shares or
(ii) in any other case 55% of the number of such Parent Shares (in either case
the "WITHHELD SHARES"). Unlimited will sell the Withheld Shares on behalf of the
Seller in the market and will hold the net proceeds from the sale thereof (the
"WITHHELD AMOUNT") in escrow pending release in accordance with subparagraph (h)
or (i) below. The Seller hereby appoints Unlimited to take such steps and
execute such documents on behalf of the Seller to effect all such sales and
hereby releases Unlimited from all claims which such Seller may have against
Unlimited in respect thereto.
(h) If a Non-Resident Seller delivers to Unlimited prior to
the 27th day after the end of the month in which an Exchange occurs a 116
Certificate with a certificate limit not less than the Consideration, within two
business days thereof, Unlimited shall pay the Withheld Amount (at Unlimited's
discretion, in Canadian dollars in an amount based upon the rate of exchange on
the day of the Exchange) plus any interest on the Withheld Amount (less the
amount of any withholding tax on such interest), if any, to such Non-Resident
Seller by certified check or bank draft made payable in lawful money of the
United States in accordance with a direction to Unlimited executed by the
Non-Resident Seller.
(i) If the Non-Resident Seller does not deliver to Unlimited
the 116 Certificate described in clause (c) or (e) above, Unlimited shall on or
before the 30th day after the end of the month in which the Exchange occurs (A)
remit to the appropriate revenue authority the amount required to be remitted
under applicable law pursuant to section 116 of the ITA and the amount so
remitted shall be credited to Unlimited as a payment to the Non-Resident Seller
on account of the Consideration, and (B) within two business days thereof pay
the remaining portion of the Withheld Amount plus any interest on the Withheld
Amount (less the amount of any withholding tax on such interest, if any) to the
Non-Resident Seller by certified check or bank draft made payable in lawful
money of the United States in accordance with a direction to Unlimited executed
by the Non-Resident Seller.
5.15 BUYER'S TAX ELECTION. The Buyer agrees that, at the request of a
Seller who is a resident of Canada for purposes of the ITA, the Buyer will make
a joint election with the Seller with respect to (i) the Shares disposed of in
exchange for Class A, C, D or E Preferred Shares or (ii) the Class A, C, D or E
Preferred Shares disposed of in exchange for Exchangeable Shares under
subsection 85(1) of the ITA and the corresponding provisions of any applicable
provincial income tax statute, with such "AGREED AMOUNT" as is determined by the
Seller in its sole discretion (within
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the limits under applicable law). The Seller shall have sole responsibility
for the proper completion of the election forms and the timely and proper
filing of the elections with the relevant tax authorities. The sole
obligation of the Buyer shall be to provide any information reasonably
requested by the Seller for the election form concerning the Buyer, and to
execute and return to the Seller any properly completed election form within
fifteen (15) Business Days of receipt of such form from the Seller. For
income tax purposes the acquisition cost to the Buyer (subject to the
application of the Income Tax Application Rules, 1971) and the proceeds of
disposition to the applicable Seller of the Shares or Class A, C, D or E
Preferred Shares, as the case may be being transferred shall be deemed to be
an amount equal to the amount so elected.
5.16 ACCESS TO INFORMATION. The Company shall afford Parent and its
accountants, counsel and other representatives, reasonable access during normal
business hours during the period prior to the Closing to (a) all of its
properties, books, contracts, commitments and records, and (b) all other
information concerning the business, properties and personnel (subject to
restrictions imposed by applicable law) of it as Parent may reasonably request
subject to reasonable limits on access to Company's source codes. No information
or knowledge obtained in any investigation pursuant to this Section 5.16 shall
affect or be deemed to modify any representation or warranty contained herein or
the conditions to the obligations of the parties to consummate the transactions
contemplated hereby.
5.17 POST-CLOSING COVENANTS.
(a) Notwithstanding the terms and conditions of the Class C
Preferred Shares, the Class D Preferred Shares and the Class E Preferred Shares,
Buyer shall not redeem any of such shares from a person who is at the date of
the purported redemption, or was on the First Conversion Date (as defined in the
share provisions of the class of shares intended to be redeemed) an employee of
Parent, Buyer or any other subsidiary of Parent, and no holder shall convert any
such shares into Exchangeable Shares without the consent of Buyer unless such
person is, at the date of conversion, or was, on the First Conversion Date (as
defined in the share provisions of the class of shares intended to be converted)
an employee of Parent, Buyer or any other subsidiary of Parent. If the Former
Employee ceases to be an employee as a result of their termination without Cause
(as defined in the Employment and Non-Competition Agreements), Buyer shall (and
Parent and Unlimited shall cause Buyer to) consent to the Former Employee
converting his shares. Subject to the immediately preceding sentence, each
holder of Class C Preferred Shares, Class D Preferred Shares and Class E
Preferred Shares hereby irrevocably directs the Buyer to disregard any notice of
conversion which is otherwise duly exercised by such person if such person was
not, at the First Conversion Date (as defined in the share provisions of the
class of shares intended to be converted), an employee of Parent, Buyer or any
other subsidiary of Parent, and the holder hereby irrevocably agrees that,
unless otherwise agreed by the Buyer: (i) such purported conversion shall be
considered a nullity and be considered to be immediately revoked by such holder
upon the giving thereof and (ii) this section 5.17(a) shall prevail over any
purported conversion of such shares. If, in the event of a merger of Parent with
or into another corporation, or the sale of substantially all of the assets of
the Parent, Xxxx Xxxxx'x Option is not assumed (as described in Section 12(c) of
the Option Agreement) or an equivalent option is not substituted for his Option
by the successor corporation or an affiliate
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of the successor corporation, he shall be entitled to immediately convert any
Class C, D or E Preferred Shares then held by him and Buyer shall (and Parent
and Unlimited shall cause Buyer to) consent to such conversion of these Class
C, D and E Preferred Shares.
(b) If a holder (the "FORMER EMPLOYEE") of any of the Class C
Preferred Shares, the Class D Preferred Shares or the Class E Preferred Shares
ceases at any time prior to the First Conversion Date (as defined in the share
provisions of the class(es) of shares to which this section will relate, for any
reason to be an employee of Parent, Buyer or any other subsidiary of Parent
(other than for Termination without Cause, as defined in the Employment and
Non-Competition Agreements), Unlimited (or any assignee of Unlimited rights in
respect of such purchase) shall at any time thereafter (unless the Buyer shall
have previously redeemed such shares in accordance with the provisions thereof)
have the right, on written notice to such holder, to purchase all or any of such
holder's Class C Preferred Shares, Class D Preferred Shares and Class E
Preferred Shares (the shares to be purchased being herein referred to as the
"PURCHASED SHARES") (but, for greater certainty, shall not have the right to
purchase any of the Exchangeable Shares into which any such shares shall have
previously been duly converted in accordance with the provisions of such shares)
at a price of $0.00001 per share (which purchase may be effected by delivering
to Buyer, on behalf of the Former Employee, the purchase price thereof,
whereupon:
(i) Unlimited or its assignee shall be deemed to
be the owner of such shares; and
(ii) the Buyer shall forthwith deliver to the
Former Employee the purchase price therefor less any applicable withholding
taxes (and, for such purposes, the provisions of Section 5.14 hereof shall
apply, MUTATIS MUTANDIS)) upon delivery by the Former Employee to the Buyer on
behalf of Unlimited or its assignee of the share certificates representing the
Purchased Shares, duly endorsed in blank for transfer.
(c) Except as contemplated in the Share Provisions, none of
the shares in the capital of the Buyer may be sold, transferred, assigned,
pledged, hypothecated, encumbered or otherwise disposed of, directly or
indirectly, by a shareholder, including but not restricted to any disposition by
agreement, option, right or privilege capable of becoming an agreement or
option, without the prior consent of Buyer or Unlimited. No Class C Preferred
Shares, Class D Preferred Shares or Class E Preferred Shares may be transferred
unless the transferee agrees to be bound by the provisions of Section 5.14
through 5.17, inclusive.
(d) The parties, both in their current capacities and in their
capacities (including as shareholders of Buyer) which will exist immediately
after the Closing, hereby agree that immediately after the Closing (at which
time the Company shall be a wholly-owned subsidiary of Buyer), Buyer and the
Company shall amalgamate (the "AMALGAMATION") pursuant to the provisions of the
Nova Scotia COMPANIES ACT, the corporation resulting from such amalgamation to
be named "XXXXXXXXXXXX.XXX CORPORATION" ("AMALCO"). The share capital of Amalco
shall be identical to the share capital of the Buyer immediately after the
Closing. The directors of Amalco shall be such persons as Buyer shall designate.
Each of the Sellers hereby agrees to execute such documentation as may be
required in connection with the approval of the Amalgamation and hereby
irrevocably (to the
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fullest extent permitted by law) appoints the directors on the Board of
Directors of Buyer, and each of them, as the sole and exclusive attorneys of
such Seller, with full power of substitution and resubstitution, to vote and
exercise all voting and related rights (to the full extent that the
undersigned is entitled to do so) with respect to all of the capital shares
of the Buyer that now are or hereafter may be beneficially owned by such
Seller, to implement the Amalgamation in accordance with the terms of this
Power of Attorney. Upon the Seller's execution of this Power of Attorney, any
and all prior powers of attorney and proxies given by the undersigned with
respect to any Shares are hereby revoked and the undersigned agrees not to
grant any subsequent powers of attorney or proxies with respect to the Shares
in connection with the Amalgamation other than as consented to by Buyer. This
Power of Attorney may be exercised during any subsequent legal incapacity on
the Seller's part.
5.18 MEDALLION SIGNATURE GUARANTEES. If at the Closing any of the stock
powers accompanying the stock certificates deposited on behalf of the Sellers
pursuant to Section 7.3 hereof do not bear a "medallion" signature guarantee,
the holder of the shares represented by such stock certificate shall not be
entitled to exchange any Exchangeable Shares of Buyer in the Escrow Fund for
Parent Common Stock, and such Exchangeable Shares shall not automatically be
exchanged for Parent Common Stock until appropriate stock powers with such a
guarantee shall have been delivered to the Escrow Agent.
ARTICLE VI
CONDITIONS TO THE PURCHASE
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE PURCHASE. The
respective obligations of each party to this Agreement to effect the Acquisition
shall be subject to the satisfaction at or prior to the Closing of the following
conditions:
(a) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Acquisition shall be in effect.
(b) The Quebec Securities Commission (and the Securities
Commission of Nova Scotia, if required) shall have issued orders approving the
trades in securities contemplated herein (including trades in securities
pursuant to the exercise of rights contemplated in each class of securities of
Buyer) in form and substance reasonably satisfactory to Parent, Unlimited and
Buyer.
(c) DELIVERY AT THE CLOSING. The Buyer, Parent and the Sellers
shall have delivered those items as provided in Section 1.3(b) herein.
6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE SELLERS. The
obligations of the Sellers to consummate the Purchase and the transactions
contemplated by this Agreement shall be subject to
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the satisfaction at or prior to the Closing of each of the following
conditions, any of which may be waived, in writing, exclusively by the
Sellers:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Parent and Buyer contained in this Agreement shall be true and
correct in all material respects (except for those representations and
warranties which are by their terms qualified by a standard of materiality,
which representations and warranties shall be true in all respects) on and as of
the Closing Date, except for changes contemplated by this Agreement and except
for those representations and warranties which address matters only as of a
particular date (which shall remain true and correct as of such date), with the
same force and effect as if made on and as of the Closing Date; and the Sellers
shall have received a certificate to such effect signed on behalf of Parent and
Buyer by a duly authorized officer of Parent and Buyer.
(b) AGREEMENTS AND COVENANTS. Parent and Buyer shall have
performed or complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by them on or prior
to the Closing; and the Sellers shall have received a certificate to such effect
signed on behalf of Parent and Buyer by a duly authorized officer of Parent and
by a duly authorized officer of Buyer.
(c) LEGAL OPINION. The Sellers shall have received a legal
opinion from Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, P.C., legal counsel to the
Parent, and from local counsel to Buyer, Parent and Unlimited, in substantially
the form attached hereto as EXHIBIT G.
(d) EMPLOYMENT AND NON-COMPETITION AGREEMENTS. The Employment
and Non-Competition Agreements shall have been executed and delivered by the
parties thereto and shall be in full force and effect.
6.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PARENT AND BUYER. The
obligations of Parent and Buyer to consummate the Purchase and the transactions
contemplated by this Agreement shall be subject to the satisfaction at or prior
to the Closing of each of the following conditions, any of which may be waived,
in writing, exclusively by Parent:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company and the Sellers contained in this Agreement shall be
true and correct in all material respects (except for those representations and
warranties which are by their terms qualified by a standard of materiality,
which representations and warranties shall be true in all respects) on and as of
the Closing Date, except for changes contemplated by this Agreement and except
for those representations and warranties which address matters only as of a
particular date (which shall remain true and correct as of such date), with the
same force and effect as if made on and as of the Closing Date; and Parent and
Buyer shall have received certificates to such effect signed by a duly
authorized officer on behalf of each Sellers on his own behalf.
(b) AGREEMENTS AND COVENANTS. The Company and each Seller
shall have performed or complied in all material respects with all agreements
and covenants required by this Agreement to be performed or complied with by it
on or prior to the Closing; and Parent shall have received
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certificates to such effect signed by a duly authorized officer on behalf of
each Seller on his own behalf.
(c) BOARD APPROVAL. The Agreement and the Acquisition should
have been adopted and approved by the Board of Directors of the Company by the
requisite vote under applicable law and the Company Articles of Incorporation
and Bylaws.
(d) THIRD PARTY CONSENTS. Parent and Buyer shall have been
furnished with evidence satisfactory to it that the Company and the Sellers have
obtained the consents, approvals and waivers set forth in SCHEDULE 2.4.
(e) LEGAL OPINION. Parent and Buyer shall have received a
legal opinion from Xxxxxxxxxxx Xxxxxxxxxxx & Xxxxxx and/or Xxxxxxx Xxxxxxxx &
Xxxxxxxx, legal counsel to the Company, and the Sellers, in substantially the
form attached hereto as EXHIBIT B.
(f) EMPLOYMENT AND NON-COMPETITION AGREEMENTS. The Employment
and Non-Competition Agreements shall have been executed and delivered by the
parties thereto and shall be in full force and effect.
(g) FEES AND EXPENSES. Parent shall have received a written
acknowledgement and general release from each of (i) Xxxxxxx Xxxxxxxx & Xxxxxxxx
(on behalf of all of their offices), (ii) KPMG, (iii) Yorkton Securities, and
(iv) Xxxxxxxxxxx Xxxxxxxxxxx & Xxxxxx to the effect that: (1) no amounts have
not been paid by Company or are owing by Company in respect of accounts which
have been rendered relating to, or work in progress in respect of, the
transactions contemplated in this Agreement; and (2) such persons shall not
provide services to Company after the Closing in respect of matters arising
under this Agreement without the prior written approval of Unlimited, other than
services to be rendered by KPMG in connection with the preparation of the
financial statements and tax returns of the Company for the fiscal year ending
on the Closing Date.
(h) CERTIFICATE OF INDEPENDENT LEGAL ADVICE. Each Seller who
is an individual shall have delivered to Parent a Certificate of Independent
Legal Advice in substantially the form attached hereto as Exhibit F.
(i) RESIGNATION OF OFFICERS AND DIRECTORS. All directors and
those executive officers of the Company set forth in SCHEDULE 6.3(f) shall have
tendered their resignation effective as of the Closing.
(j) MATERIAL ADVERSE EFFECT. Since the date of the Balance
Sheet, no event or condition of any character shall have occurred that has or
could be reasonably expected to have a Material Adverse Effect on the Company.
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ARTICLE VII
INDEMNIFICATION; ESCROW
7.1 INDEMNIFICATION. The Sellers, severally and not jointly, agree to
indemnify and hold Parent, Unlimited, Buyer, their officers, directors, and
affiliates (including the Company) harmless for, from and against any claims,
losses, liabilities, damages, deficiencies, costs and expenses, including
reasonable attorneys' fees and expenses, and expenses of investigation and
defense incurred or accrued by Parent, Unlimited, Buyer, their officers,
directors, or affiliates (including the Company) directly or indirectly as a
result of any inaccuracy or breach of a representation or warranty of the
Sellers contained in Article II herein (as modified by the Company Schedules,
without giving effect to any update thereto), or any failure by the Sellers to
perform or comply with any covenant contained herein (hereinafter individually a
"LOSS" and collectively "LOSSES"); PROVIDED, HOWEVER that each Seller's several
liability hereunder shall not exceed the value of the Consideration receivable
by such Seller pursuant to this Agreement for such Seller's Shares. Sellers each
acknowledge that such Losses, if any, would relate to unresolved contingencies
existing at the Closing, which if resolved at the Closing, would have led to a
reduction in the aggregate Consideration. Notwithstanding the foregoing, the
Sellers shall only be obliged to indemnify such parties for any Losses arising
from any inaccuracy or breach of the representations and warranties contained in
this Agreement when such Losses exceed in the aggregate US$50,000, and in
Section 2.11(i) in excess of the first US$500,000 of such Losses (it being
acknowledged that any Losses arising from any inaccuracy or breach of the
representations and warranties contained in Section 2.11 (i) shall not be
included for purposes of determining whether the $50,000 threshold has been
exceeded), PROVIDED; HOWEVER, that Sellers shall indemnify such parties for all
Losses arising from any knowing inaccuracy or breach of the representation and
warranties contained in Section 2.11(i).
7.2 ESCROW PERIOD. Subject to the following requirements, the Escrow
Fund (as defined in Section 7.3(a) below) shall be in existence immediately
following the Closing (the date of which shall be set forth in a certificate of
Buyer delivered to the Escrow Agent) and shall terminate with regard to 50% of
the Escrow Fund at 5:00 p.m., New York time, on the one year anniversary of the
Closing (the "FIRST ESCROW PERIOD") and with regard to the remaining 50% of the
Escrow Fund, on the two year anniversary of the Closing (the "SECOND ESCROW
PERIOD"); provided that the First Escrow Period and the Second Escrow Period
shall not terminate with respect to such amount (or some portion thereof) that
is necessary (as defined in Section 7.3(a) below) in the reasonable judgment of
Parent, subject to the objection of the Securityholder Agent (as defined below)
and the subsequent arbitration of the matter in the manner provided in Section
7.3(f) hereof, to satisfy any unsatisfied claims concerning facts and
circumstances existing prior to the termination of such escrow period specified
in any Officer's Certificate (as defined in Section 7.3(d) below) delivered to
the Escrow Agent prior to termination of such escrow period; provided further
that the Escrow Fund will terminate in full upon final and complete resolution
of all disputed matters.
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7.3 ESCROW ARRANGEMENTS.
(a) ESCROW FUND. At the Closing, as partial security for the
indemnity provided in Section 7.1, the Sellers will be deemed to have received
and deposited with the Escrow Agent (as defined below) the Escrow Amount (plus
any additional shares as may be issued upon any stock split, stock dividend or
recapitalization effected by Buyer after the Closing) without any act of any
Seller. As soon as practicable after the Closing, the Escrow Amount, without any
act of any Seller, will be deposited with State Street Bank and Trust Company of
California, N.A. as Escrow Agent (the "ESCROW AGENT"), such deposit to
constitute a portion of the escrow fund (the "ESCROW FUND") to be governed by
the terms set forth herein and at Buyer's cost and expense. The portion of the
Escrow Amount contributed on behalf of each Management Seller shall be one half
of the Option Fund. The portion of the Escrow Amount contributed on behalf of
each Seller besides the Management Sellers shall be in proportion to the
aggregate amount of Class A Preferred Shares which such holder would otherwise
be entitled under Section 1.2. Schedule 7.3 sets forth the name, address and
taxpayer identification number (when known and applicable) of each Seller, as
well as the number of Class A Preferred Shares held for each Seller in the
Escrow Fund or the number of shares of Parent Common Stock held for each Seller
in the Option Fund or Repurchase Fund (as defined below), as applicable, and the
percentage interest of each Seller in the Escrow Fund, the Option Fund or the
Repurchase Fund. Whenever any fact stated in Schedule 7.3 changes, or whenever
any New Shares (as defined in Section 7.3(c)(ii)) are issued and deposited into
the Escrow Fund, the Buyer shall furnish to the Escrow Agent a revised version
of Schedule 7.3. Unless and until the Escrow Agent receives such revised
Schedule 7.3, the Escrow Agent may assume without inquiry that Schedule 7.3 has
not been, and is not required to be, amended. Subsequent to the Closing any
Parent Common Stock issued to either Management Seller upon exercise of their
Options up to 12.5% of the number of shares of Parent Common Stock initially
subject to each Management Seller Option (the "REPURCHASE FUND") shall, upon
such exercise without an act of either Management Seller also be deposited with
the Escrow Agent and constitute a portion of the Escrow Fund. The Escrow Fund
shall be available to compensate Parent and its affiliates for any Losses
incurred by Parent, Unlimited, Buyer, their officers, directors, or affiliates
(including the Company) directly or indirectly as a result of any inaccuracy or
breach of a representation or warranty of the Company contained in Article II
herein (as modified by the Company Schedules, without giving effect to any
update thereto), or any failure by the Company to perform or comply with any
covenant contained herein. Sellers each acknowledge that such Losses, if any,
would relate to unresolved contingencies existing at the Closing, which if
resolved at the Closing would have led to a reduction in the aggregate
Consideration.
(b) DISTRIBUTION UPON TERMINATION OF ESCROW PERIOD. Upon
termination of the First Escrow Period and the Second Escrow Period: (i) the
Company shall notify the Escrow Agent of such termination, and the Escrow Agent
shall deliver to the Management Sellers (A) that portion of the Repurchase Fund
equal to one half of the Repurchase Fund less any amount required to satisfy any
claims made by Buyer pursuant to Section 7.3 (d) hereof, and (B) that portion of
the Option Fund equal to one half of the original Option Fund, less any amount
required to satisfy any claims made by Buyer pursuant to Section 7.3(d) hereof
and (ii) the Escrow Agent shall deliver to the Sellers except the Management
Sellers one-half of the number of Class A Preferred Shares originally
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in the Escrow Fund less any amount required to satisfy any claims made by
Buyer pursuant to Section 7.3(d) hereof. Deliveries of Escrow Amounts to the
Sellers pursuant to this Section 7.3(b) shall be made to the Sellers at their
addresses, and in their respective percentage interests, set forth in
Schedule 7.3.
(c) PROTECTION OF ESCROW FUND; REGISTERED OWNERS OF SHARES.
(i) The Escrow Agent shall hold and safeguard
the Escrow Fund during the Escrow Period, shall treat such fund as a trust
fund in accordance with the terms of this Agreement and not as the property
of Buyer or Company's shareholders and shall hold and dispose of the Escrow
Fund only in accordance with the terms hereof.
(ii) Any Class A Preferred Shares or other equity
securities issued or distributed by Buyer (including shares issued upon a stock
split) ("NEW SHARES") in respect of Class A Preferred Shares in the Escrow Fund
which have not been released from the Escrow Fund shall be added to the Escrow
Fund and become a part thereof. New Shares issued in respect of shares of Class
A Preferred Shares which have been released from the Escrow Fund shall not be
added to the Escrow Fund but shall be distributed to the record holders thereof.
Cash dividends on Class A Preferred Shares shall not be added to the Escrow Fund
but shall be distributed to the record holders thereof.
(iii) Escrow Shares shall be registered in the
names of the Sellers as the beneficial owners thereof in accordance with
Schedule 7.3. Each stock certificate representing Escrow Shares shall be
accompanied by three fully executed stock powers.
(d) CLAIMS UPON ESCROW FUND.
(i) Upon receipt by the Escrow Agent at any time
on or before the last day of the Second Escrow Period of a certificate signed by
any officer of Buyer (an "OFFICER'S CERTIFICATE"): (A) stating that Parent,
Unlimited, Buyer, or their officers, directors, or affiliates (including the
Company) have paid or properly accrued or reasonably anticipates that they will
have to pay or accrue Losses caused directly or indirectly by any inaccuracy, or
breach of a representation or warranty of the Company or a Seller contained in
Article II hereof (as modified by the Company Schedules, without giving effect
to any update thereto) or any failure by the Company to perform or comply with
any covenant contained therein, and (B) specifying in reasonable detail the
individual items of Losses included in the amount so stated, the date each such
item was paid or properly accrued, or the basis for such anticipated liability,
and the nature of the misrepresentation, breach of warranty or covenant to which
such item is related, the Escrow Agent shall, subject to the provisions of
Section 7.3(e) hereof:
(1) If the Options have previously been
exercised by either of the Management Sellers for any shares of Parent Common
Stock, with the result that shares of Parent Common Stock have been deposited
into the Repurchase Fund, Parent shall be entitled to repurchase an amount of
such shares set forth in a certificate of Parent as being equal in value (as
determined pursuant to Section 7.3(d)) to any Losses (out of the Repurchase
Fund) such that, to the extent
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possible, a number of such shares is repurchased from each of the Management
Sellers in proportion to the respective number of shares subject to the
Options for which each Management Seller's Option was originally exercsiable,
and the Escrow Agent shall, as promptly as practicable, deliver written
notice to Parent and the Management Sellers setting forth the number of such
shares that Parent (as set forth in such certificate) has the option to
repurchase from each of the Management Sellers. Parent agrees that each such
purchase of shares shall be made in accordance with Section 11 of the Option
Agreements, but the Escrow Agent need not inquire into or verify Parent's
compliance with this requirement.
(2) If the aggregate value of any shares
repurchased pursuant to Section 7.3(d)(i)(1) was less than any Losses, and the
Escrow Agent has received a certificate of Parent to the effect that the number
of shares for which the Options are exercisable has not been reduced by the
total number of shares remaining in the Option Fund, the Option Fund shall be
considered reduced in an amount set forth in a certificate of Parent as being
equal in value (as determined pursuant to Section 7.3(d)) to any Losses, such
that the number of shares subject to each Management Seller's Option shall be
reduced in proportion to the respective number of shares subject to the Options
for which each Management Seller's Option was originally exercsiable, and such
reduction is first allocated to any shares then vested and exercisable pursuant
to the Option Agreements. The Escrow Agent shall, as promptly as practicable,
deliver written notice to Buyer and the Management Sellers setting forth the
number of shares by which the Option Fund has decreased, and the total number of
shares by which the Option Fund has decreased pursuant to this Section 7.3(d)
(the "ESCROW ADJUSTMENT"); all as set forth in such certificate of Parent;
PROVIDED, HOWEVER that the Option Fund shall not be reduced to less than zero.
(3) If the shares in the Repurchase Fund
have all been repurchased by the Parent, as set forth above, and the number of
shares for which the Options are exercisable has been reduced by the total
number of shares remaining in the Option Fund, as set forth above, the Escrow
Agent shall deliver to Buyer out of the Escrow Fund, as promptly as practicable,
shares of Class A Preferred Shares held in the Escrow Fund in an amount equal in
value (as determined pursuant to Section 7.3(d)) to any Losses not yet
compensated pursuant to Section 7.3(d)(i)(1) and (2) hereof.
(ii) For the purpose of determining the number of
shares of Parent Common Stock by which the Option Fund has been decreased, and
the value of the shares of Parent Common Stock in the Repurchase Fund pursuant
to Section 7.3(d)(i)(1) and (2) hereof, each share of Parent Common Stock in the
Option Fund and Repurchase Fund shall be valued at the greater of: (i) the Share
Price, as defined in the Option Agreements, and (ii) the average of the daily
volume-weighted average closing prices quoted on the Nasdaq Stock Market for the
Common Stock of Parent on the 20 consecutive trading days prior to the Escrow
Agent's receipt of the Officer's Certificate relating to such decrease.
(iii) For the purpose of determining the number
of shares of Class A Preferred Shares to be delivered to Buyer out of the Escrow
Fund pursuant to Section 7.3(d)(i)(3) hereof, each Class A Preferred Share shall
be valued at the greater of: (i) $11.00 per share, and
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(ii) the average of the daily volume-weighted average closing prices quoted
on the Nasdaq Stock Market for the Common Stock of Parent on the 20
consecutive trading days prior to the Escrow Agent's receipt of the Officer's
Certificate relating to such delivery.
(iv) Prior to any calculation by the Escrow Agent
of the number of shares to be repurchased from the Repurchase Fund, the number
of shares for which the Options are exercisable, or the number of Class A
Preferred Shares to be distributed, Parent shall deliver to the Escrow Agent a
certificate setting forth the per share price of the Parent Common Stock
determined in accordance with Section 7.3(d)(ii) or (iii), or, as appropriate,
Buyer shall deliver to the Escrow Agent a certificate setting forth the per
share price of its Class A Preferred Shares. The Escrow Agent need not make any
distribution pursuant to this Agreement unless and until it has received the
appropriate certificate and may rely upon any such certificate without inquiry.
In no event shall the Escrow Agent be required to determine any such per share
price.
(e) OBJECTIONS TO CLAIMS. At the time of delivery of any
Officer's Certificate to the Escrow Agent, a duplicate copy of such certificate
shall be delivered to the Securityholder Agent and for a period of thirty (30)
days after receipt by the Escrow Agent, the Escrow Agent shall make no delivery
to Buyer of any Escrow Amounts pursuant to Section 7.3(d) hereof unless the
Escrow Agent shall have received written authorization from the Securityholder
Agent to make such delivery. After the expiration of such thirty (30) day
period, there shall be an appropriate reduction in the number of shares in the
Option Fund or, at Buyer's discretion, repurchases by Buyer of shares in the
Repurchase Fund, and Escrow Agent shall make delivery of shares of Buyer Common
Stock from the Escrow Fund, all in accordance with Section 7.3(d) hereof,
provided that no such reduction, repurchase, payment or delivery may be made if
the Securityholder Agent shall object in a written statement to the claim made
in the Officer's Certificate, and such statement shall have been delivered to
the Escrow Agent prior to the expiration of such thirty (30) day period.
(f) RESOLUTION OF CONFLICTS; ARBITRATION.
(i) In case the Securityholder Agent shall so
object in writing to any claim or claims made in any Officer's Certificate, the
Securityholder Agent and Buyer shall attempt in good faith to agree upon the
rights of the respective parties with respect to each of such claims. If the
Securityholder Agent and Buyer should so agree, a memorandum setting forth such
agreement shall be prepared and signed by both parties and shall be furnished to
the Escrow Agent. The Escrow Agent shall be entitled to rely on any such
memorandum and distribute shares of Buyer Common Stock from the Escrow Fund in
accordance with the terms thereof.
(ii) If no such agreement can be reached after
good faith negotiation, either Buyer or the Securityholder Agent may demand
arbitration of the matter unless the amount of the damage or loss is at issue in
pending litigation with a third party, in which event arbitration shall not be
commenced until such amount is ascertained or both parties agree to arbitration;
and in either such event the matter shall be settled by arbitration conducted by
one arbitrator. Buyer and the Securityholder Agent shall agree on such
arbitrator; provided that if Buyer and the Securityholder Agent cannot agree on
such arbitrator, either Buyer or the Securityholder Agent can request that the
American Arbitration Association ("AAA") select the arbitrator. The arbitrator
selected shall
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determine the dispute in accordance with Article V of this Agreement. The
arbitrator shall set a limited time period and establish procedures designed
to reduce the cost and time for discovery while allowing the parties an
opportunity, adequate in the sole judgment of the arbitrator, to discover
relevant information from the opposing parties about the subject matter of
the dispute. The arbitrator shall rule upon motions to compel or limit
discovery and shall have the authority to impose sanctions, including
attorneys' fees and costs, to the same extent as a court of competent law or
equity, should the arbitrator determine that discovery was sought without
substantial justification or that discovery was refused or objected to
without substantial justification. The decision of the arbitrator as to the
validity and amount of any claim in such Officer's Certificate shall be
binding and conclusive upon the parties to this Agreement, and
notwithstanding anything in Section 7.3(e) hereof, the Escrow Agent shall be
entitled to act in accordance with such decision and make or withhold
payments out of the Escrow Fund in accordance therewith. Such decision shall
be written and shall be supported by written findings of fact and conclusions
which shall set forth the award, judgment, decree or order awarded by the
arbitrator.
(iii) Judgment upon any award rendered by the
arbitrators may be entered in any court having jurisdiction. Any such
arbitration shall be held in New York, New York under the rules then in effect
of the American Arbitration Association. The Non-Prevailing Party to an
arbitration shall pay its own expenses, the fees of each arbitrator, the
administrative costs of the arbitration and the expenses, including without
limitation, reasonable attorneys' fees and costs, incurred by the other party to
the arbitration.
(g) SECURITYHOLDER AGENT OF THE SHAREHOLDERS; POWER OF
ATTORNEY.
(i) Upon Closing, and without further act of any
shareholder, Xxxx Xxxxx shall be appointed as agent and attorney-in-fact (the
"SECURITYHOLDER AGENT") for each Seller, for and on behalf of the Sellers, to
give and receive notices and communications, to authorize delivery to Buyer of
shares of Buyer Common Stock from the Escrow Fund in satisfaction of claims by
Buyer, to object to such deliveries, to agree to, negotiate, enter into
settlements and compromises of, and demand arbitration and comply with orders of
courts and awards of arbitrators with respect to such claims, and to take all
actions necessary or appropriate in the judgment of Securityholder Agent for the
accomplishment of the foregoing. Such agency may be changed by the Sellers from
time to time upon not less than thirty (30) days prior written notice to Buyer;
provided that the Securityholder Agent may not be removed unless holders of a
two-thirds interest of the Escrow Fund agree to such removal and to the identity
of the substituted agent. Unless and until the Escrow Agent receives a
certificate setting forth the identity of a successor Securityholder Agent and
such other information as the Escrow Agent may reasonably request, the Escrow
Agent may assume without inquiry that the last Securityholder Agent of which it
has received notice remains in that capacity and that no such successor has been
appointed. Any vacancy in the position of Securityholder Agent may be filled by
approval of the holders of a majority in interest of the Escrow Fund. No bond
shall be required of the Securityholder Agent, and the Securityholder Agent
shall not receive compensation from Buyer, Unlimited, Parent or the Company for
his or her services. Notices or communications to or from the Securityholder
Agent shall constitute notice to or from each of the Sellers.
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(ii) The Securityholder Agent shall not be liable
for any act done or omitted hereunder as Securityholder Agent while acting in
good faith and in the exercise of reasonable judgment. The Sellers on whose
behalf the Escrow Amount was contributed to the Escrow Fund shall severally
indemnify the Securityholder Agent and hold the Securityholder Agent harmless
against any loss, liability or expense incurred without negligence or bad faith
on the part of the Securityholder Agent and arising out of or in connection with
the acceptance or administration of the Securityholder Agent's duties hereunder,
including the reasonable fees and expenses of any legal counsel retained by the
Securityholder Agent.
(h) ACTIONS OF THE SECURITYHOLDER AGENT. A decision, act,
consent or instruction of the Securityholder Agent shall constitute a decision
of all the Sellers for whom a portion of the Escrow Amount otherwise issuable to
them are deposited in the Escrow Fund and shall be final, binding and conclusive
upon each of such shareholders, and the Escrow Agent and Buyer may rely upon any
such decision, act, consent or instruction of the Securityholder Agent as being
the decision, act, consent or instruction of each every such shareholder of the
Company. The Escrow Agent and Buyer are hereby relieved from any liability to
any person for any acts done by them in accordance with such decision, act,
consent or instruction of the Securityholder Agent.
(i) THIRD-PARTY CLAIMS. In the event Buyer becomes aware of a
third-party claim which Buyer intends to assert for a demand against the Escrow
Fund, Buyer shall notify the Securityholder Agent of such claim. Buyer shall
have the right in its sole discretion to settle any such claim; provided,
however, that except with the consent of the Securityholder Agent, no settlement
of any such claim with third-party claimants shall alone be determinative of, or
in itself fix, the amount of any claim against the Escrow Fund.
(j) ESCROW AGENT'S DUTIES.
(i) The Escrow Agent shall be obligated only for
the performance of such duties as are specifically set forth herein, and as set
forth in any additional written escrow instructions which the Escrow Agent may
receive after the date of this Agreement which are signed by an officer of Buyer
and the Securityholder Agent, and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed to be genuine and
to have been signed or presented by the proper party or parties. The Escrow
Agent shall not be liable for any act done or omitted hereunder as Escrow Agent
while acting in good faith and in the exercise of reasonable judgment, and any
act taken, suffered, or permitted pursuant to the advice of counsel shall be
conclusive evidence of such good faith.
(ii) The Escrow Agent is hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court of
law, notwithstanding any notices, warnings or other communications from any of
the parties hereto or any other person to the contrary. In case the Escrow Agent
obeys or complies with any such order, judgment or decree of any court, the
Escrow Agent shall not be liable to any of the parties hereto or to any other
person by reason of such compliance, notwithstanding any such order, judgment or
decree being subsequently reversed, modified, annulled, set aside, vacated or
found to have been entered without jurisdiction.
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(iii) The Escrow Agent shall not be liable in any
respect on account of the identity, authority or rights of the parties executing
or delivering or purporting to execute or deliver this Agreement or any
documents or papers deposited or called for hereunder. Nor shall the Escrow
Agent be liable for punitive, incidental or consequential damages.
(iv) The Escrow Agent shall not be liable for the
expiration of any rights under any statute of limitations with respect to this
Agreement or any documents deposited with the Escrow Agent.
(v) In performing any duties under the
Agreement, the Escrow Agent shall not be liable to any party for damages,
losses, or expenses, except for gross negligence or willful misconduct on the
part of the Escrow Agent. The Escrow Agent shall not incur any such liability
for (A) any act or failure to act made or omitted in good faith, or (B) any
action taken or omitted in reliance upon any instrument, including any
written statement or affidavit provided for in this Agreement that the Escrow
Agent shall in good faith believe to be genuine, nor will the Escrow Agent be
liable or responsible for forgeries, fraud, impersonations, or determining
the scope of any representative authority. In addition, the Escrow Agent may
consult with legal counsel in connection with Escrow Agent's duties under
this Agreement. The Escrow Agent is not responsible for determining and
verifying the authority of any person acting or purporting to act on behalf
of any party to this Agreement.
(vi) If any controversy arises between the
parties to this Agreement, or with any other party, concerning the subject
matter of this Agreement, its terms or conditions, the Escrow Agent will not be
required to determine the controversy or to take any action regarding it. The
Escrow Agent may hold all documents and shares of Buyer Common Stock and may
wait for settlement of any such controversy by final appropriate legal
proceedings or other means as, in the Escrow Agent's discretion, the Escrow
Agent xxxxx xxx be required, despite what may be set forth elsewhere in this
Agreement. In such event, the Escrow Agent will not be liable for damages.
(vii) The Parent, Buyer and Unlimited and their
respective successors and assigns agree jointly and severally to indemnify and
hold Escrow Agent harmless against any and all losses, claims, damages,
liabilities, and expenses, including reasonable costs of investigation, counsel
fees, and disbursements that may be imposed on Escrow Agent or incurred by
Escrow Agent in connection with the performance of his/her duties under this
Agreement, including but not limited to any litigation arising from this
Agreement or involving its subject matter.
(viii) The Escrow Agent may resign at any time
upon giving at least thirty (30) days written notice to the parties; provided,
however, that no such resignation shall become effective until the appointment
of a successor escrow agent which shall be accomplished as follows: the parties
shall use their best efforts to mutually agree on a successor escrow agent
within thirty (30) days after receiving such notice. If the parties fail to
agree upon a successor escrow agent within such time, the Escrow Agent shall
have the right to apply to a court of competent jurisdiction to appoint a
successor escrow agent. The successor escrow agent shall execute and deliver an
instrument accepting such appointment in form and substance acceptable to Buyer
and Securityholder Agent and it shall, without further acts, be vested with all
the estates, properties,
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rights, powers, and duties of the predecessor escrow agent as if originally
named as escrow agent. The predecessor escrow agent shall be discharged from
any further duties and liability under this Agreement upon the execution by
such successor of such agreement.
7.4 FEES AND EXPENSES. All fees and expenses of the Escrow Agent for
performance of its duties hereunder shall be paid by Buyer in accordance with
Schedule 7.4. It is understood that the fees and usual charges agreed upon for
services of the Escrow Agent shall be considered compensation for ordinary
services as contemplated by this Agreement. In the event that the conditions of
this Agreement are not promptly fulfilled, or if the Escrow Agent renders any
service not provided for in this Agreement, or if the parties request a
substantial modification of its terms, or if any controversy arises, or if the
Escrow Agent is made a party to, or intervenes in, any litigation pertaining to
this escrow or its subject matter, the Escrow Agent shall be reasonably
compensated for such extraordinary services and reimbursed for all costs,
attorney's fees, and expenses occasioned by such default, delay, controversy or
litigation. Buyer promises to pay these sums upon demand.
7.5 NO LIMITATION ON RIGHTS OR RECOURSE OF SELLERS. The parties hereto
acknowledge that the failure of this Article VII to provide the Sellers with any
right of indemnification for inaccuracy in or breach of any representation,
warranty or covenant of Buyer, Parent or Unlimited in this Agreement or in any
instrument delivered pursuant to this Agreement shall not restrict any rights or
recourse of the Sellers against the Buyer, Parent or Unlimited for inaccuracy in
or breach of a representation, warranty, or covenant of Buyer, Parent or
Unlimited in this Agreement or in any instrument delivered pursuant to this
Agreement.
7.6 ESCROW AGENT NOT TRANSFER AGENT. The Escrow Agent is not the
transfer agent of the Escrow Shares and so can not distribute them directly to
the persons entitled to them. The Escrow Agent shall have satisfied its duty to
distribute such shares when it shall have delivered certificates to the transfer
agent with instructions as to how they should be distributed.
7.7 TAX REPORTING DOCUMENTATION. If the Escrow Fund consists in whole
or in part in cash to be invested by the Escrow Agent, the Securityholder Agent
agrees on behalf of each beneficial owner of Escrow Shares to provide the Escrow
Agent with certified tax identification numbers for each of such holders by
furnishing appropriate Forms W-9 (or Forms W-8, in the case of non-U.S. persons)
and other forms and documents that the Escrow Agent may reasonably request
(collectively, "TAX REPORTING DOCUMENTATION") to the Escrow Agent within 30 days
after the date they are requested by the Escrow Agent. The parties hereto
understand that, if such Tax Reporting Documentation is not so certified to the
Escrow Agent, the Escrow Agent may be required by the Internal Revenue Code, as
it may be amended from time to time, to withhold a portion of the interest
earned on the investment of monies or other property held by the Escrow Agent
pursuant to this Agreement.
7.8 INVESTMENT OF CASH (IF ANY) ON HAND IN THE ESCROW FUND. Cash, if
any, on hand in the Escrow Account shall be invested in the SSgA U.S. Treasury
Money Market fund, which is a mutual fund registered under the Investment
Company Act of 1940, the principal of which is invested solely in obligations
issued or guaranteed by the United States Government. For tax reporting and
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withholding purposes, income on such investments shall be allocated to the
Sellers in accordance with their percentage interests set forth in Schedule 7.3.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 TERMINATION. Except as provided in Section 8.2 below, this
Agreement may be terminated and the Acquisition abandoned at any time prior to
the Closing.
(a) by mutual written consent of the Company and Buyer;
(b) by Parent or the Company if: (i) the Closing has not
occurred before 5:00 p.m. (New York time) on June 1, 2000 (provided that the
right to terminate this Agreement under this clause 8.1(b)(i) shall not be
available to any party whose willful failure to fulfill any obligation hereunder
has been the cause of, or resulted in, the failure of the Closing to occur on or
before such date); (ii) there shall be a final nonappealable order of a federal
or state court in effect preventing consummation of the Acquisition; or (iii)
there shall be any statute, rule, regulation or order enacted, promulgated or
issued or deemed applicable to the Acquisition by any governmental entity that
would make consummation of the Acquisition illegal;
(c) by Parent if there shall be any action taken, or any
statute, rule, regulation or order enacted, promulgated or issued or deemed
applicable to the Acquisition, by any Governmental Entity after the date hereof,
which would: (i) prohibit Parent's or the Company's ownership or operation of
all or any portion of the business of the Company or (ii) compel Parent or the
Company to dispose of or hold separate all or a portion of the business or
assets of the Company or Parent as a result of the Acquisition;
(d) by Parent if it is not in material breach of its
obligations under this Agreement and there has been a material breach of any
representation, warranty, covenant or agreement contained in this Agreement on
the part of the Company or the Sellers and (i) such breach has not been cured
within five (5) business days after written notice to the Company (provided
that, no cure period shall be required for a breach which by its nature cannot
be cured), and (ii) as a result of such breach the conditions set forth in
Section 6.3(a) or 6.3(b), as the case may be, would not then be satisfied;
(e) by the Company or the Sellers if they are not in material
breach of its obligations under this Agreement and there has been a material
breach of any representation, warranty, covenant or agreement contained in this
Agreement on the part of Buyer, Parent or Unlimited and (i) such breach has not
been cured within five (5) business days after written notice to Parent
(provided that, no cure period shall be required for a breach which by its
nature cannot be cured), and (ii) as a result of such breach the conditions set
forth in Section 6.2(a) or 6.2(b), as the case may be, would not then be
satisfied.
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Where action is taken to terminate this Agreement pursuant to this
Section 8.1, it shall be sufficient for such action to be authorized by the
Board of Directors (as applicable) of the party taking such action.
8.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement as provided in Section 8.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of Buyer, Parent,
Unlimited, the Company or the Sellers, or their respective officers, directors
or stockholders, provided that each party shall remain liable for any breaches
of this Agreement prior to its termination; and provided further that, the
provisions of Sections 5.2 and 5.3 and Articles VIII and IX (other than Section
9.1) of this Agreement shall remain in full force and effect and survive any
termination of this Agreement.
8.3 AMENDMENT. Except as is otherwise required by applicable law, this
Agreement may be amended by the parties hereto at any time by execution of an
instrument in writing signed on behalf of each of the parties hereto.
8.4 EXTENSION; WAIVER. At any time prior to the Closing, Parent, Buyer
and Unlimited, on the one hand, and the Company and Sellers, on the other, may,
to the extent legally allowed, (i) extend the time for the performance of any of
the obligations of the other party hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE IX
GENERAL PROVISIONS
9.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. All
representations, warranties, covenants and agreements of the Company and the
Sellers in this Agreement or in any instrument delivered pursuant to this
Agreement shall survive the Closing Date and shall terminate two (2) years after
the Closing Date, and all representations, warranties, covenants and agreements
of the Buyer, Parent and Unlimited in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive the Closing Date and shall
terminate with regard to each Seller upon the date that all of the Class A, C, D
and E Preferred Shares of Buyer issued to such Seller pursuant to this Agreement
have been converted into Exchangeable Shares of Buyer, and all such Exchangeable
Shares of Buyer held by such Seller have been exchanged for Parent Common Stock;
PROVIDED, HOWEVER, that (i) the representations and warranties contained in
Section 2.11(i) shall terminate upon December 31, 2001, (ii) the representations
and warranties contained in Section 2.8 shall terminate only on expiration of
all applicable statutes of limitation for the periods ended on or prior to the
Closing Date, (iii) the covenants and agreements contained in Section 5.12 shall
terminate three (3) years after the Closing Date, (iv) the representations,
warranties, covenants and agreements in
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Section 2.27 and 5.13 shall not terminate, and (v) the covenants and
agreements in the Declaration of Registration Rights shall terminate as to
each Seller on the earlier of the date: (A) six years from the Closing Date,
and (B) the Parent Common Stock issuable on exchange of the Exchangeable
Shares issuable upon conversion of the Class A, C, D and E Preferred Shares
held by such Seller shall be eligible for resale pursuant to Rule 144 of the
Securities Act.
9.2 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with acknowledgment of complete transmission)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
(a) if to Buyer to:
ZapMe! Corporation
0000 Xxxxxxxxx Xxxxxxx, Xxxxx 000
Xxx Xxxxx, Xxxxxxxxxx 00000
Attention: Legal Department
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
with a copy to:
Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx
000 Xxxx Xxxx Xxxx
Xxxx Xxxx, Xxxxxxxxxx 00000-0000
Attention: Xxxxxx X. Xxxxxxx, Esq.
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
(b) if to the Company, to:
Xxxxxxxxxxxx.xxx Corporation
00 Xxxx Xxxxxx, Xxxxx 00
Xxxxxxxx, Xxxxxx X0X0X0
Attention: Xxxx Xxxxx
Telephone No.: 000-000-0000
Facsimile No.: 000-000-0000
with a copy to:
Xxxxx-Xxxxxx Xxxxxx
000 Xx Xx Xxxxxx-Xxxxx
Xxxx Xxxxxx, Xxxxxx X0X 0X0
Telephone No.: 000-000-0000
Facsimile No.: 000-000-0000
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(c) if to the Securityholder Agent:
Xxxx Xxxxx
0 XxXxxx Xxxxxx, Xxxxx 000
Xxxxxxxx, Xxxxxx X0X000
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
with a copy to:
Xxxxxxx Xxxxxxxx & Xxxxxxxx
1501 Avenue XxXxxx College
26 Etage
Montreal (Quebec) Canada H3A 3N9
Attention: Xxxxx Xxxxxxxx, Esq.
Telephone No.: 000-000-0000
Facsimile No.: 000-000-0000
(d) if to the Escrow Agent:
State Street Bank and
Trust Company of California, N.A.
000 Xxxx 0xx Xxxxxx, 00xx Xxxxx
Xxx Xxxxxxx, XX 00000
Attention: Corporate Trust Administration
(ZapMe!/ Efundraising 2000 Escrow)
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
If any document is required to be delivered to the Escrow Agent and any
other person, the Escrow Agent may assume without inquiry that such document was
received by such other person on the date on which is was received by the Escrow
Agent.
9.3 INTERPRETATION. The words "INCLUDE," "INCLUDES" and "INCLUDING"
when used herein shall be deemed in each case to be followed by the words
"WITHOUT LIMITATION." The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
9.4 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
9.5 ENTIRE AGREEMENT; ASSIGNMENT. This Agreement, the Schedules and
Exhibits hereto, and the documents and instruments and other agreements among
the parties hereto referenced herein:
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(a) constitute the entire agreement among the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof; (b) are not intended to confer upon any other person any rights or
remedies hereunder; and (c) shall not be assigned by operation of law or
otherwise except as otherwise specifically provided, except that Buyer may
assign its rights and delegate its obligations hereunder to its affiliates.
9.6 SEVERABILITY. In the event that any provision of this Agreement or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
9.7 OTHER REMEDIES. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
9.8 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
Each of the parties hereto agrees that process may be served upon them in any
manner authorized by the laws of the State of New York for such persons and
waives and covenants not to assert or plead any objection which they might
otherwise have to such jurisdiction and such process.
9.9 ARBITRATION.
(a) The parties shall attempt in good faith to agree upon the
rights of the respective parties with respect to any dispute or controversy
arising out of, relating to, or in connection with this Agreement or the
interpretation, validity, construction, performance, breach or complete
termination thereof.
(b) If no such agreement can be reached after good faith
negotiation, either of the parties may demand arbitration of the matter (except
any such dispute or controversy related to Article VII or Section 2.11, 2.15, or
8.11 of this Agreement) and the matter shall be settled by arbitration conducted
by one arbitrator. Buyer and the Securityholder Agent shall agree on the
arbitrator; provided that if Buyer and the Securityholder Agent cannot agree on
one arbitrator, either Buyer or the Company can request that the AAA select the
arbitrator. The arbitrator selected by the AAA shall determine the dispute in
accordance with Section 9.9. The arbitrator shall set a limited time period and
establish procedures designed to reduce the cost and time for discovery while
allowing the parties an opportunity, adequate in the sole judgment of the
arbitrator, to discover relevant information from the opposing parties about the
subject matter of the dispute. The arbitrator shall rule upon motions to compel
or limit discovery and shall have the authority to impose
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sanctions, including attorneys' fees and costs, to the same extent as a court
of competent law or equity, should the arbitrator determine that discovery
was sought without substantial justification or that discovery was refused or
objected to without substantial justification. The decision of the arbitrator
shall be final, conclusive and binding upon the parties to this Agreement.
Such decision shall be written and shall be supported by written findings of
fact and conclusions which shall set forth the award, judgment, decree or
order awarded by the arbitrator.
(c) Judgment upon any award rendered by the arbitrator may be
entered in any court having jurisdiction. In the event that any such arbitration
is requested by any party, such arbitration shall be held in New York, New York,
and in the event that any such arbitration is requested by any Seller or the
Escrow Agent, such arbitration shall be held in New York, New York, in any case
under the rules then in effect of AAA. For purposes of this Section 9.9, in any
arbitration hereunder, the non-prevailing Party to an arbitration shall pay its
own expenses, the fees of the arbitrator, the administrative costs of the
arbitration and the expenses, including without limitation, reasonable
attorneys' fees and costs, incurred by the other party to the arbitration.
9.10 RULES OF CONSTRUCTION. The parties hereto agree that they have
been represented by counsel during the negotiation and execution of this
Agreement and, therefore, waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
9.11 SPECIFIC PERFORMANCE. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state having jurisdiction, this being in addition to any other remedy to
which they are entitled at law or in equity.
9.12 ENGLISH LANGUAGE ONLY. The parties hereto confirm that is their
wish that this Agreement, as well as all other documents related hereto,
including legal notices, have been and shall be drawn up in the English language
only. Les parties confirment leur xxxxx que cet accord ainsi que tous les
documents, y compris tous xxx xxxx qui sy rattachent, soient rediges en langue
anglaise.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, Buyer, each Seller, the Company and the
Securityholder Agent (but only as to Articles VI, VIII and IX for Securityholder
Agent) and have caused this Agreement to be signed by their duly authorized
respective officers, all as of the date first written above.
ZAPME! CORPORATION XXXXXXXXXXXX.XXX CORPORATION
By: By:
------------------------------ ------------------------------
Name: Name:
------------------------------ ------------------------------
Title: Title:
------------------------------ ------------------------------
3042179 NOVA SCOTIA LIMITED SECURITYHOLDER AGENT
By: By:
------------------------------ ------------------------------
Name: Name:
------------------------------ ------------------------------
Title: Title:
------------------------------ ------------------------------
ZAPME! NOVA SCOTIA COMPANY
By:
------------------------------
Name:
------------------------------
Title:
------------------------------
STATE STREET BANK AND TRUST
COMPANY OF CALIFORNIA, N.A.,
FOR THE PURPOSES OF ARTICLE VII ONLY
By:
------------------------------
Name:
------------------------------
Title:
------------------------------
[SIGNATURE PAGE TO SHARE PURCHASE AGREEMENT]
EXHIBIT A
THE SELLERS
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MANAGEMENT SELLERS
-------------------------------------------------------------------------------
Xxxx Xxxxx
-------------------------------------------------------------------------------
Xxxx Xxxxxxxx
-------------------------------------------------------------------------------
SELLERS
-------------------------------------------------------------------------------
170372 Canada Inc.
-------------------------------------------------------------------------------
3532755 Canada Inc.
-------------------------------------------------------------------------------
Ahluwalla, Am
-------------------------------------------------------------------------------
Xxxxx, Xxxxx
-------------------------------------------------------------------------------
Xxxxx, Xxxxx
-------------------------------------------------------------------------------
Xxxxxx, Xxxxxxx X.
-------------------------------------------------------------------------------
Chatham SA
-------------------------------------------------------------------------------
Consultant Gaia Inc.
-------------------------------------------------------------------------------
Crystal Ontrack Co. Ltd.
-------------------------------------------------------------------------------
Famcorp Inc.
-------------------------------------------------------------------------------
Xxxxxxxxxxxxxxx, Xxx
-------------------------------------------------------------------------------
Xxxxx, Xxxx
-------------------------------------------------------------------------------
Xxxxxx, Dr. Xxxxxx
-------------------------------------------------------------------------------
Xxxxxx, Xxxxx Xxxxxx
-------------------------------------------------------------------------------
Placements Xxxxx Xxxxxxxx Inc.
-------------------------------------------------------------------------------
EXHIBIT D
ZAPME! CORPORATION
DECLARATION OF REGISTRATION RIGHTS
This Declaration of Registration Rights ("DECLARATION") is made as of
March 31, 2000 by ZapMe! Corporation, a Delaware corporation ("ZAPME!"), for the
benefit of the stockholders (the "SELLERS") of Xxxxxxxxxxxx.xxx Corporation, a
corporation existing under the federal laws of Canada, in connection with the
Sellers acquiring securities convertible or exchangeable into Common Stock of
ZapMe! pursuant to that certain Share Purchase Agreement dated as of March 31,
2000 (the "PURCHASE AGREEMENT") to which this Declaration is attached as EXHIBIT
D.
1. DEFINITIONS. As used in this Declaration:
(a) "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
(b) "SECURITIES ACT" means the Securities Act of 1933, as
amended.
(c) "FORM S-3" means such form under the Securities Act as in
effect on the date hereof or any registration form under the Securities Act
subsequently adopted by the Commission which similarly permits inclusion or
incorporation of substantial information by reference to other documents filed
by ZapMe! with the Commission.
(d) "HOLDER" means: (i) any Seller, for so long as such Seller
continues to hold Registrable Securities issued pursuant to the Purchase
Agreement, or (ii) a transferee of Registrable Securities by a Holder, to whom
registration rights under this Declaration are assigned pursuant to Section 10
of this Declaration.
(e) "REGISTRABLE SECURITIES" means (i) with respect to each
Holder, the shares of ZapMe! Common Stock for which the Exchangeable Shares
issuable on conversion of the Class A, C, D or E Preferred Shares initially
issued to them pursuant to the Purchase Agreement were exchanged or subsequently
transferred by another Holder to such Holder pursuant to Section 10 of this
Declaration, together with all other shares of ZapMe! Common Stock issued in
respect thereof (by way of stock split, dividend or otherwise), and (ii) with
respect to all Holders, the aggregate of all Registrable Securities held by all
such Holders. Registrable Securities shall not include any shares of ZapMe!
Common Stock transferred by a Holder pursuant to Section 10 hereof to any person
who does not agree to be bound by the terms of this Declaration.
(f) "SEC" means the Securities and Exchange Commission.
Capitalized terms not otherwise defined herein have the meanings given
to them in the Purchase Agreement.
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2. REGISTRATION. As soon as practicable after ZapMe! becomes eligible
to register its shares of Common Stock for resale on Form S-3, ZapMe! shall use
commercially reasonable efforts to cause the Registrable Securities held by each
Holder following the Acquisition to be registered under the Securities Act on
Form S-3 so as to permit the resale thereof (the "ELIGIBILITY DATE"). In
connection therewith, ZapMe! shall prepare and file with the SEC as soon as
practicable after the Eligibility Date, but in no event later than thirty (30)
days immediately following the Eligibility Date, and shall use its commercially
reasonable efforts to cause to become effective as soon as practicable
thereafter, a registration statement on Form S-3 covering the resale of the
Registrable Securities pursuant to Rule 415 under the Securities Act; PROVIDED,
HOWEVER, that each Holder shall provide all such information and materials to
ZapMe! and take all such action as may be required in order to permit ZapMe! to
comply with all applicable requirements of the SEC and to obtain any desired
acceleration of the effective date of such registration statement. Such
provision of information and materials is a condition precedent to the
obligations of ZapMe! pursuant to this Declaration.
3. POSTPONEMENT OF REGISTRATION. Notwithstanding the provisions of
Section 2 above, ZapMe! shall be entitled to postpone the declaration of
effectiveness of the registration statement prepared and filed pursuant to
Section 2: (i) for three (3) business days after the SEC has informed ZapMe!
that it will not review such registration statement or that the SEC has no
further comments on such registration statement (either event, the "SEC
CLEARANCE DATE") and (ii) for a reasonable period of time after the SEC
Clearance Date, but not in excess of thirty (30) days after the SEC Clearance
Date, if the Chief Executive Officer or Chief Financial Officer of ZapMe!,
acting in good faith, determines and advises the Sellers in writing that there
exists any material nonpublic information about ZapMe! the disclosure of which
would not be in the best interests of ZapMe! stockholders, which information
would otherwise be required by the Securities Act to be disclosed in the
registration statement to be filed pursuant to Section 2 above or required by
the Exchange Act to be disclosed in any filing under the Exchange Act.
4. OBLIGATIONS OF ZAPME!. Subject to the limitations of Sections 5 and
11, ZapMe! shall (i) keep the registration statement on Form S-3 filed in
accordance with Section 2 hereof effective and current until the earlier of (A)
six (6) years after the Eligibility Date, (B) such time as all Registrable
Securities have been sold thereunder or otherwise, and (C) such time as the
ZapMe! Common Stock issuable on exchange of the Exchangeable Shares (as defined
in the Purchase Agreement) issuable upon conversion of the Class A, C, D and E
Preferred Shares (as defined in the Purchase Agreement) shall be eligible for
resale pursuant to Rule 144 of the Securities Act; (ii) prepare and file with
the SEC such amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to comply with the
provisions of the Securities Act with respect to the sale or other disposition
of all securities proposed to be registered in such registration statement;
(iii) furnish to each Holder such number of copies of any prospectus (including
any preliminary prospectus and any amended or supplemented prospectus) in
conformity with the requirements of the Securities Act, and such other
documents, as each Holder may reasonably request in order to effect the offering
and sale of the shares of the Registrable Securities to be offered and sold, but
only while ZapMe! shall be required under the provisions hereof to cause the
registration statement to remain current; (iv) use its commercially reasonable
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efforts to register or qualify the Registrable Securities under the securities
or blue sky laws of such jurisdictions as each Holder shall reasonably request
(provided that ZapMe! shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such jurisdiction where it has not been qualified);
(v) promptly notify the Holders when such registration statement or the
prospectus included therein or any prospectus amendment or supplement or
post-effective amendment has been filed, and, with respect to such registration
statement or any post-effective amendment, when the same has become effective;
(vi) cooperate with the Holders to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold, which
certificates shall conform to the requirements of The Nasdaq National Market or
any securities exchange on which the Registrable Securities are then listed or
admitted to trading; and (vii) use its commercially reasonable efforts to list
the Registrable Securities covered by such registration statement with any
securities exchange or quotation system on which the publicly traded securities
of ZapMe! are then listed or quoted.
5. SELLING PROCEDURES. Any sale of Registrable Securities pursuant to
the registration statement filed in accordance with Section 2 hereof shall be
subject to the following conditions and procedures:
(a) STOCKHOLDER NOTICE: The selling Holder shall provide
written notice ("STOCKHOLDER NOTICE") to ZapMe! no less than five (5) business
days prior to such Holder's intended sale in substantially the form of ANNEX A
attached hereto. Within two (2) business days of receipt of the Stockholder
Notice, ZapMe! will inform such Holder in writing if the registration statement
and final prospectus then on file with the SEC is current and otherwise complies
with the Securities Act such that sales may be made thereunder. After receipt of
notice from ZapMe! that the registration statement is current and complies with
the Securities Act, such Holder shall then have thirty (30) business days after
the date of the intended sale, as specified in the Stockholder Notice, to sell
the Registrable Securities proposed to be sold. After such thirty (30) day
period, the Sellers shall once again comply with the procedures set forth in
this Section 5(a) prior to any further sales;
(b) UPDATING THE PROSPECTUS: If ZapMe! informs the selling
Holder that the registration statement or final prospectus then on file with the
SEC is not current or otherwise does not comply with the Securities Act, ZapMe!
shall use commercially reasonable efforts to provide to the selling Holder and
file with the SEC, if necessary, a current prospectus that complies with the
Securities Act on or before the date of the intended sale of the Registrable
Securities as disclosed in the Stockholder's Notice, or, if it is not possible
for such current prospectus to be delivered on such date, then as soon as
possible thereafter; PROVIDED, HOWEVER, that for any number of days not
exceeding a total of 90 days (but in no event any consecutive series of days
greater than 45 consecutive days, and for none of the 30 day period subsequent
to any of such days) in any 12-month period, ZapMe! shall have the right to
delay the preparation of a current PROSPECTUS that complies with the Securities
Act if the Chief Executive Officer or Chief Financial Officer of ZapMe!, acting
in good faith, determines and advises the Holders in writing that there exists
any material nonpublic information about ZapMe! the disclosure of which would
not be in the best interests of ZapMe! shareholders, and which information would
otherwise be required by the
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Securities Act to be disclosed in such current prospectus or required by the
Exchange Act to be disclosed in any filing under the Exchange Act.
(c) GENERAL: Notwithstanding the foregoing, ZapMe! shall
notify each Holder (A) of any request by the SEC or any other federal or state
governmental authority during the period of effectiveness of the registration
statement for amendments or supplements to the registration statement or related
prospectus or for additional information relating to the registration statement,
(B) of the issuance by the SEC or any other federal or state governmental
authority of any stop order suspending the effectiveness of the registration
statement or the initiation of any proceedings for that purpose, (C) of the
receipt by ZapMe! of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose, or (D) of the happening of any event which makes
any statement made in the registration statement or related prospectus or any
document incorporated or deemed to be incorporated therein by reference untrue
in any material respect or which requires the making of any changes in the
registration statement or prospectus so that, in the case of the registration
statement, it will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, and that in the case of the prospectus, it
will not contain an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. In such event,
ZapMe! may suspend use of the prospectus on written notice to each Holder, in
which case each Holder shall not dispose of Registrable Securities covered by
the registration statement or prospectus until copies of a supplemented or
amended prospectus are distributed to the Holders or until the Holders are
advised in writing by ZapMe! that the use of the applicable prospectus may be
resumed. ZapMe! shall use its commercially reasonable efforts to obtain the
withdrawal of any order suspending the effectiveness of the registration
statement, or the lifting of any suspension of the qualification (or exemption
from qualification) of any of the securities for sale in any jurisdiction, at
the earliest practicable moment. Subject to the provisions of Sections 5(a) and
5(b), ZapMe! shall, upon the occurrence of any event contemplated by clause (D),
as soon as practicable but in any event within 15 days, prepare and file with
the SEC a supplement or post-effective amendment to the registration statement
or a supplement to the related prospectus or any document incorporated therein
by reference or file any other required document so that, as thereafter
delivered to the purchasers of the Registrable Securities being sold thereunder,
such prospectus will not contain an untrue statement of a material fact or omit
to state a material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(d) BLACKOUT PERIODS: Holders who become employees of ZapMe!
agree to be bound by ZapMe!'s Xxxxxxx Xxxxxxx Policy as such may be in effect
from time to time for so long as such Holders remain employees of ZapMe!.
6. EXPENSES. ZapMe! shall pay all of the out-of-pocket expenses
incurred, other than underwriting or selling discounts and commissions and the
fees and disbursements of any counsel retained by the Sellers, in connection
with the registration of Registrable Securities pursuant to this Declaration,
including, without limitation, all SEC, National Association of Securities
Dealers, Inc.
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and blue sky registration and filing fees, listing or quotation fees,
printing expenses, transfer agents' and registrars' fees, and the reasonable
fees and disbursements of ZapMe!' outside counsel and independent accountants.
7. INDEMNIFICATION. In the event of any offering registered pursuant
to this Declaration:
(a) INDEMNIFICATION BY ZAPME!: ZapMe! will indemnify each
Holder, such Holder's stockholders, directors, officers and agents and each
person controlling a Holder, against all claims, losses, damages and liabilities
(or actions in respect thereof), including any of the foregoing incurred in any
investigation or settlement of any litigation, commenced or threatened, arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any registration statement, final prospectus, or any
amendment or supplement thereto, incident to any offering registered pursuant to
this Declaration, or based on any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading, or any violation by ZapMe! of any rule or regulation promulgated
under the Securities Act or state securities laws applicable to ZapMe! in
connection with any such registration, and subject to Section 8(c), will
reimburse each such Holder, and each person controlling such Holder, for any
legal and any other out-of-pocket expenses reasonably incurred in connection
with investigating, preparing or defending any such claim, loss, damage,
liability or action, provided that ZapMe! will not be liable in any such case to
the extent that any such claim, loss, damage, or liability arises out of or is
based on any untrue statement or omission or alleged untrue statement or
omission made in reliance upon and in conformity with written information
furnished to ZapMe! by such Holder or controlling person and stated to be
specifically for use therein.
(b) INDEMNIFICATION BY HOLDERS: Each Holder will indemnify
ZapMe!, each of its directors and officers, each underwriter, if any, of ZapMe!'
securities covered by such a registration statement and each person who controls
ZapMe! or such underwriter within the meaning of Section 15 of the Securities
Act, against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
final prospectus, or any amendment or supplement thereto, incident to any
offering registered pursuant to this Declaration or based on any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
ZapMe!, such directors, officers, underwriters or control persons for any legal
or any other expenses reasonably incurred in connection with investigating,
preparing or defending any such claim, loss, damage, liability or action, in
each case to the extent, but only to the extent, that such untrue statement (or
alleged untrue statement) or omission (or alleged omission) is made in such
registration statement, final prospectus, or any amendment or supplement
thereto, in reliance upon and in conformity with written information furnished
to ZapMe! by such Holder and stated to be specifically for use therein;
provided, however, that the obligations of each Holder hereunder shall be
several and not joint and shall be limited to the net proceeds (after expenses
and commissions) from the sale of Registrable Securities by such Holder as
contemplated herein.
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(c) DEFENDING CLAIMS: Each party entitled to indemnification
under this Section 7 (the "INDEMNIFIED PARTY") shall give notice to the party
required to provide indemnification (the "INDEMNIFYING PARTY") promptly after
such Indemnified Party receives written notice of any claim as to which
indemnity may be sought, and shall permit the Indemnifying Party to assume the
defense of any such claim or any litigation resulting therefrom, provided that
counsel for the Indemnifying Party, who shall conduct the defense of such claim
or litigation, shall be approved by the Indemnified Party (whose approval shall
not be unreasonably withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Agreement, except to the
extent, but only to the extent, that the Indemnifying Party's ability to defend
against such claim or litigation is impaired as a result of such failure to give
notice. Notwithstanding the foregoing sentence, the Indemnified Party may retain
its own counsel to conduct the defense of any such claim or litigation, and
shall be entitled to be reimbursed by the Indemnifying Party for expenses
incurred by the Indemnified Party in defense of such claim or litigation, in the
event that the Indemnifying Party does not assume the defense of such claim or
litigation within sixty days after the Indemnifying Party receives notice
thereof from the Indemnified Party. Further, an Indemnifying Party shall be
liable for amounts paid in settlement of any such claim or litigation only if
the Indemnifying Party consents in writing to such settlement (which consent
shall not be unreasonably withheld). No Indemnifying Party, in the defense of
any such claim or litigation, shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party a release from all liability with respect to
such claim or litigation.
(d) CONTRIBUTION: If the indemnification provided for in this
Section 8 from the Indemnifying Party is unavailable to an Indemnified Party
hereunder in respect of any claim, loss, damage or liability referred to herein,
then the Indemnifying Party, to the extent such indemnification is unavailable,
in lieu of indemnifying such Indemnified Party, shall contribute to the amount
paid or payable by such Indemnified Party as a result of such claims, losses,
damages or liabilities in such proportion as is appropriate to reflect the
relative benefit to or fault of the Indemnifying Party and Indemnified Parties
in connection with the actions that resulted in such claims, losses, damages and
liabilities. The relative benefit to such Indemnifying Party and Indemnified
Parties shall be determined by reference to, among other things, the gross
proceeds received by each such party from the sale of Registrable Securities in
the manner contemplated hereby and the benefit received by ZapMe! in
consideration for the issuance of the Registrable Securities pursuant to the
Purchase Agreement. The relative fault of such Indemnifying Party and
Indemnified Parties shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such Indemnifying Party or
Indemnified Parties, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action. The amount paid
or payable by a party as a result of the claims, losses, damages or liabilities
referred to above shall be deemed to include any legal or other fees or expenses
reasonably incurred by such party in connection with any investigation or
proceeding. The parties hereto agree that it would not be just and equitable if
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contribution pursuant to this paragraph were determined by pro rata allocation
or by any other method of allocation that does not take account of the equitable
considerations referred to above in this paragraph. No party guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any party.
Notwithstanding the provisions of this Section 8(d), no Holder shall be required
to contribute any amount in excess of the amount of net proceeds received by
such Holder from the sale of Registrable Securities giving rise to such claims,
losses, damages or liabilities.
(e) The obligations of ZapMe! and each Holder under this
Section 8 shall survive the completion of any offering of stock pursuant to a
registration statement under this Declaration.
8. REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. ZapMe! agrees to:
(a) use all commercially reasonable efforts to file with the
SEC in a timely manner all reports and other documents required of ZapMe! under
the Securities Act and the Exchange Act; and
(b) furnish to each Holder forthwith upon request (i) a
written statement by ZapMe! that it has complied with the reporting requirements
of the Securities Act and the Exchange Act, or that it qualifies as a registrant
whose securities may be resold pursuant to Form S-3 (at any time that it so
qualifies), (ii) a copy of the most recent annual or quarterly report of ZapMe!
and (iii) such other information as may be reasonably requested in availing each
Holder of any rule or regulation of the SEC which permits the selling of any
such securities pursuant to Form S-3.
9. ASSIGNMENT OF REGISTRATION RIGHTS. The rights of a Holder pursuant
to this Declaration may be assigned by a Holder to a transferee of Registrable
Securities only if: (a) ZapMe! is, within a reasonable time after such transfer,
furnished with written notice of the name and address of such transferee and a
copy of a duly executed written instrument in form reasonably satisfactory to
ZapMe! pursuant to which such transferee assumes all of the obligations and
liabilities of its transferor hereunder, agrees itself to be bound hereby and
provides ZapMe! with such reasonable information as ZapMe! may request to permit
the transferee to sell such Registrable Securities pursuant to the registration
statement filed in accordance with Section 2 hereof, and (b) immediately
following such transfer, the disposition of such Registrable Securities by the
transferee is restricted under the Securities Act.
10. AMENDMENT OF REGISTRATION RIGHTS. The Holders of a majority of the
Registrable Securities then outstanding may, with the consent of ZapMe!, amend
the registration rights granted hereunder.
11. TERMINATION. The registration rights set forth in this Declaration
shall terminate with respect to a Holder (and the shares held by such Holder
shall cease to constitute Registrable Securities) upon the earlier of (i) such
time as all of the Registrable Securities then held by such Holder can be sold
by such Holder in a three-month period in compliance with Rule 144 under the
Securities Act and (ii) six years following the Closing Date of the Acquisition.
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12. OBLIGATIONS OF HOLDERS. By exercising any rights hereunder, each
Holder shall be deemed to assume all obligations of a Holder hereunder as though
such Holder were a signatory hereto. ZapMe! may require Holders to execute an
instrument whereby such Holders expressly assume all obligations of Holders
hereunder as a condition precedent to any obligations of ZapMe! hereunder.
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ANNEX A
STOCKHOLDER NOTICE
IN ORDER THAT THE PROPOSED SALE OF THE SUBJECT SHARES MAY BE EFFECTED,
PLEASE PROMPTLY FAX OR MAIL THIS NOTICE TO:
ZAPME!
__________________
__________________
ATTENTION: XXXXXXXX XXXXXXXX, STOCK ADMINISTRATOR
FAX:(408) ________
PH: (408) ________
RE: ZAPME!
Pursuant to Section 5(a) of the Declaration of Registration Rights
attached as Exhibit D to that certain Share Purchase Agreement dated ________,
2000, please be advised that it is the intention of____________________________
(name of Selling Stockholder) to sell __________________ shares of the Common
Stock (the "SHARES") of ZapMe! on __________________ (date of intended sale).
Please provide ZapMe!' written confirmation that the registration
statement on Form S-3 (Registration No. 333-_______), as amended (if amended),
and the related final Prospectus, as amended or supplemented (if amended or
supplemented), on file with the Securities and Exchange Commission as of the
date hereof is current and that the sale discussed in the above paragraph can be
made within ten (10) business days of the intended sale date by countersigning
below. Return ZapMe!' written confirmation to the undersigned at the following
address: or fax it to the undersigned at.
Date: ___________________
STOCKHOLDER:
________________________________________________
(Name of Stockholder)
________________________________________________
(Authorized Signatory)
________________________________________________
(Title, if applicable)
Acknowledged and confirmed by ZapMe! this ______ day of _____________, 200____.
By:
Name:
Title:
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